Saab 2015 Annual Report Download - page 92

FINANCIAL INFORMATION – FINANCIAL STATEMENTS
Capitalised development costs
Group Parent Company
MSEK 2015 2014 2015 2014
Acquisition value
Opening balance, 1 January 5,862 5,898 2,010 2,010
Internally developed assets 524 171 - -
Disposals and reclassifications - -257 - -
Translation differences -20 50 - -
Closing balance,
31 December 6,366 5,862 2,010 2,010
Amortisation and write-downs
Opening balance, 1 January -4,910 -4,560 -1,549 -1,348
Amortisation for the year -323 -320 -205 -202
Translation differences 24 -30 - 1
Closing balance,
31 December -5,209 -4,910 -1,754 -1,549
Carrying amount,
31 December 1,157 952 256 461
Other intangible assets
Group Parent Company
MSEK 2015 2014 2015 2014
Acquisition value
Opening balance, 1 January 1,847 1,651 1,323 1,261
Business combinations 5 88 - -
Investments 70 68 49 63
Disposals and reclassifications -9 -4 -7 -
Translation differences 2 44 -1 -1
Closing balance, 31 December 1,915 1,847 1,364 1,323
Amortisation and write-downs
Opening balance, 1 January -1,463 -1,254 -1,120 -1,024
Amortisation for the year -185 -146 -116 -96
Business combinations - -47 - -
Disposals and reclassifications 5 4 5 -
Translation differences 2 -20 1 -
Closing balance, 31 December -1,641 -1,463 -1,230 -1,120
Carrying amount,
31 December 274 384 134 203
Acquisitions through business combinations 2014 relate to ThyssenKrupp Marine
Systems AB.
Amortisation is included in the following lines in the income statement
Group Parent Company
MSEK 2015 2014 2015 2014
Cost of goods sold 184 144 156 136
Marketing expenses 1 2 - -
Research and development
costs 323 320 205 202
Development costs
The significant items in total capitalisation are development costs for radar and
sensors, electronic warfare systems, Air Traffic Management (ATM), and airborne
surveillance systems.
Development costs are capitalised only in the consolidated accounts. In legal
units, all costs for development work are expensed. Capitalised development costs
in the Parent Company relate to acquired development costs.
Other intangible fixed assets
Significant items in the carrying amount are attributable to the acquisitions of Ericsson
Microwave Systems, Sensis, MEDAV and ThyssenKrupp Marine Systems AB and
relate to expenses incurred for customer relations, trademarks, patents and values
in the order backlog. Of the carrying amount, MSEK 274, MSEK 156 is attributable
to acquired values and MSEK 118 to licenses for operating systems etc.
Impairment tests for goodwill
In connection with business combinations, goodwill is allocated to the cash-gene-
rating units, or groups thereof, that are expected to obtain future economic bene-
fits in the form of, for example, synergies from the acquisition. Acquired operations
normally have access to knowledge, technology and solutions that will benefit large
parts of the Group, and the acquired operations are usually integrated with other
operations shortly after acquisition. Consequently, goodwill is allocated to and
tested for impairment at the business area level, which also corresponds to the
lowest level at which goodwill is monitored in internal governance.
Goodwill in the Parent Company relates to goodwill arising from the purchase of
the net assets of Saab Microwave Systems.
Goodwill is distributed by business area as follows:
MSEK 31-12-2015 31-12-2014
Dynamics 598 596
Electronic Defence Systems 2,407 2,407
Security and Defence Solutions 1,490 1,458
Support and Services 246 246
Industrial Products and Services 304 308
Total goodwill 5,045 5,015
Impairment testing for cash-generating units is based on the calculation of value in
use. This value is based on discounted cash flow forecasts according to the units’
business plans. For Electronic Defence Systems and Support and Services, fore-
cast cash flows have exceeded the outcome of the last two years. Saab’s assess-
ment is that this does not cause any impairment.
VARIABLES USED TO CALCULATE VALUE IN USE
Volume/growth
Growth in the cash-generating units’ business plans is based on Saab’s expecta-
tions with regard to development in each market area and previous experience. It is
also based on estimates of cash flows that are distributed over what are often long
projects and are dependent on the timing and size of advances and milestone pay-
ments. The first five years are based on the five-year business plan formulated by
Group Management and approved by the Board. For cash flows after five years,
the annual growth rate has been assumed to be 0 (0) per cent.
Operating margin
The operating margin is based on the units’ operating income after depreciation
and amortisation. The units’ operating margin is calculated against the back drop of
historical results and Saab’s expectations with regard to the future development of
markets where the units are active. All business areas have a substantial order
backlog of projects that stretches over a number of years. The risks and opportuni-
ties affecting the operating margin are managed through continuous cost forecasts
for all significant projects.
Capitalised development costs
In the five-year business plans, consideration is given to additional investments in
development considered necessary for certain units to reach the growth targets in
their respective markets.
Discount rate
Discount rates are based on the weighted average cost of capital (WACC). The
WACC rate that is used is based on a risk-free rate of interest in ten years adjusted
for, among other things, market risks. The discount rate is in line with the external
requirements placed on Saab and similar companies in the market.
Note 17, cont.
88 – SAAB ANNUAL REPORT 2015