Annual Report 1993

Annual Report 1993 financial information and reporting In order to participate in the meeting, shareholders must AB SKF is publishing the following financial reports be recorded in the shareholders’ register maintained by the concerning 1994: Securities Register Centre (VPC AB) by Monday April 18, Report on first quarter ...... April 28 and must notify the Company before noon Monday April Report on first six months ...... August 11 25, of their intention to attend (AB SKF, Group Legal, Report on first nine months ...... October 27 S–415 50 Göteborg, Sweden, tel. + 46-31-37 26 52), giving Report on 1994 operations ...... February 23, 1995 details of name, address, telephone and shareholding. The above reports are available in Swedish and English. dividends In addition to these reports, an annual report, Form The Board of Directors proposes that no dividend be paid 20-F, is produced for the Securities and Exchange based on the financial year 1993. Commission, U.S.A. This annual report is a translation of the Swedish original. annual general meeting The Annual General Meeting will be held at SKF Kristine- dal, Byfogdegatan 4, Göteborg, at 3.30 p.m. on Thursday April 28, 1994.

partnership and product development are the keynotes of this year’s pictorial theme Working closely with customers in the development and improvement of their products and processes, SKF personnel contribute their expertise in the ﬁeld of bearings, seals and special steels. The Group’s comprehensive resources in research and development play a signiﬁcant role here. Cooperation and development work carried out with the customers often lead to new products or new solutions for improving existing products or processes. This year’s pictures show a few examples of the results being achieved.

contents

Letter from the President and Group Chief Executive ....2 Parent Company statements of cash flow...... 33 Board of Directors’ Report ...... 4 Notes to the Parent Company financial statements ...... 34 Proposed distribution of surplus ...... 10 SKF plants...... 39 Auditors’ report ...... 10 Bearings and seals ...... 40 Consolidated income statements ...... 11 Special steels ...... 46 Consolidated balance sheets ...... 12 Parent Company Board of Directors ...... 48 Consolidated statements of cash flow ...... 13 Group organization ...... 50 Notes to the consolidated financial statements...... 14 Environment ...... 51 Parent Company income statements...... 31 Shares and shareholders ...... 54 Parent Company balance sheets ...... 32 Seven-year review of the SKF Group ...... 56

Aktiebolaget SKF, S– 415 50 Göteborg, Sweden. Telephone +46-31-37 10 00, Fax +46-31-37 28 32, Telex 2350, Cable KULLAGER The SKF Group

SKF is the world’s leading company in the rolling bearing tion to a customer’s problem, regardless of the type of industry. The Company’s share of the world market, bearing required. Group policy also includes maintaining excluding China and the former Comecon countries, is such a geographic presence — either through its own sales approximately 20 percent, making it twice as large as its companies, or through authorized distributors — that SKF nearest competitor. is always within reach of the customer. Wherever there is rotation, there is a need for some SKF is aiming to further enhance its leading position in form of bearing. The function of a rolling bearing is to the core business. eliminate or reduce the friction between a fixed and a moving surface, and to carry a load. The life of a rolling 1993 1992 bearing shall be compatible with the life of the application in which it is installed. Since the use of rolling bearings is a Net sales, SEK m 29 200 26 649 cost-effective solution, they are found in all types of Loss after financial income engines, machines and wheels. and expense, SEK m – 669 – 1 777 A seal is a product that separates a machine component Loss per share, before extra- from the outside world, either by preventing penetration ordinary items, SEK – 5.70 – 13.20 by foreign particles, or by ensuring that there is no leakage Dividends per share, SEK –*– out. Number of employees registered Rolling bearings and seals constitute the Group’s core at December 31 41 394 45 151 business. SKF’s policy is to provide a full range of rolling bear- * The Board of Directors proposes that no dividend be paid based ings, to ensure that it is always able to offer the best solu- on the financial year 1993

CHANNEL SUCCESSES INCREASED CONCEPT IN MARKET HALVES RAILWAY SHARE LEAD TIMES SEGMENT SKF strengthened in production. both geographically its leadership Further improve- and in terms of in several areas ments planned products

FOCUS FIAT PUNTO INVENTORIES ON NEW SAAB 900 CITROEN XANTIA CONTINUE TO QUALITY VOLVO FH SERIES DECREASE Major program All have selected Additional reductions for training of all SKF wheel bearings will be made employees

3 Letter from the President and Group Chief Executive

The winds of trade are now blowing in the right direction in an increasing number of markets. The U.S.A. and Southeast Asia have experienced a favorable industrial climate for some considerable time. The economies of Latin American countries have stabilized gradually. Now finally, European industry has also been influenced in a positive direction.

uring the late autumn, it became The heavy investment in machinery makes increasingly noticeable that the econ- the industry sensitive to large shifts in volume. D omy was turning upwards, facilitated The downturn experienced during 1990–1993 by industry’s increased willingness to invest. transformed most of our competitors, and SKF However, the level remains low compared with itself, into loss-making companies. the final years of the most recent economic No major changes in the structure of the boom and the economies of a few major mar- bearing industry have been experienced during kets are still weak. Nonetheless, the overall the recession. A small German competitor was economic picture is favorable and significantly declared bankrupt and is now in receivership. better than a year ago. Another German competitor has sold several Germany and France have not yet shown any of its operations, both in and outside the bear- definite signs of improvement. High costs, ing industry, to safeguard its financial position. especially in Germany, combined with high In my opinion, the restructuring of the indus- exchange rates are extending the recession. try, which has been interrupted due to the Japan is showing a similar trend. European recession, will continue. We intend The improved industrial climate is naturally to participate in this process. beneficial to SKF and its future development. But even in a recession, good performance The recession has had a severe impact on the yields rewards. Our high quality and improved investment-intensive rolling bearing industry. service have helped us to strengthen our mar- Powerful and sophisticated machinery is ket leadership. In addition, our product devel- required to manufacture high-quality rolling opment activities have provided us with several bearings with close tolerances at a fast pace new business operations. Thanks to the joint and with high productivity. Backing every efforts of the entire Group, we were able to 100 kronor’s worth of sales there is machinery increase our market share during the recession. worth 50 kronor. This is more than most of our Today, the concept of quality is being radi- customers have in manufacturing resources. cally redefined. For a considerable time, qual-

4 Letter from the President and Group Chief Executive ity was synonymous with product quality. The Channel concept has been very success- Today, quality is a comprehensive concept, ful. We have become faster and more efficient. encompassing products, production processes However, the scope exists for making further and the entire service organization. A company improvements. Being organized in channels is very unlikely to meet its quality require- involves arranging work along the flows from ments unless all of its employees are engaged raw materials to the customer. This provides a in quality-enhancement activities. At SKF, this better overview and enriches our employees’ means all of the Group’s 41 394 employees. work assignments. During the current year, we are devoting con- We are now moving out of the recession with siderable time and effort to providing goal- reduced cost levels, lower inventories, an oriented and well-structured training for all improved organizational structure and a manu- employees, as part of our very committed focus facturing process based on the Channel con- on quality enhancement. cept. We shall capitalize on the opportunities Ever since its formation, SKF has maintained provided by the stronger market. However, the a prominent quality profile. However, quality- market is sensitive. If SKF is to successfully related demands are changing continuously, adapt to the new market conditions of the thereby accentuating the need for a change- future, it must be highly flexible. We have sig- oriented organization. Since demands relating nificantly improved our flexibility during the to the environment are also changing, in terms recession. of both products and processes, we have refined our quality policy accordingly. In the 1910s and 1920s, when SKF laid the foundation for its presence in the international market – which is one of the Group’s major current strengths – the world was divided into a large number of national markets. Most important markets demanded a presence in the form of manufacturing operations. As the traditional and national markets have been replaced by such organizations as the EU, NAFTA and Mercosur, business transactions and relationships have become increasingly global. As a result, the need to conduct manufacturing operations in all individual markets has changed. Today, SKF is able to satisfy market requirements using fewer plants, fewer machines and fewer employees. The trend is towards having fewer but highly productive plants, sometimes with a responsibility for supplying even a global market. Accordingly, we continued to implement our rationalization program during 1993. Decisions were taken regarding plant closures and other structural changes that will improve productivity, while simultaneously reducing our fixed costs.

5 Board of Directors’ Report

he 1993 fiscal year was yet The upswing in the U.S.A. was ness, Ovako Steel, started to experi- another year characterized by spearheaded by the automotive ence improved volumes as early as T extensive restructuring activ- industry. The machinery segment also the third quarter of 1993. ity within SKF. Cost reductions and showed improvements, while trends At the beginning of 1993, the rate continued personnel reductions were in the after-market were not so favor- of production at the Group’s plants combined with productivity improve- able. GNP growth in the U.S.A. was was lower than the rate of sales. ment measures, intensive market cul- approximately 3 percent, while indus- During the summer, SKF decided to tivation and an unchanged level of trial output rose by about 5 percent. gradually increase the rate of produc- investments in research and develop- Japan is the world’s third largest tion. The abbreviated working weeks ment. rolling bearing market. As in implemented at most plants during The Group was successful in its Germany, trends in this market were the first half of 1993 were gradually markets and, compared with 1992, negative. Japan’s GNP decreased phased out. the decline in SKF’s sales volume was compared with 1992 and its industrial The improved capacity utilization less substantial than the decline in output fell by about 4 percent. How- resulted in better cost coverage. the market as a whole. In other ever, SKF’s share of this market is words, the Group advanced its posi- very limited. Inventories and accounts receivable tions in a harsh market. A gradual In the significantly smaller but The Group’s inventories amounted to improvement in earnings was also fastest growing market, Asia Pacific, SEK 9 220 m (9 435) at year-end. As achieved, despite the fact that there excluding Japan, demand for the a result of the weakening of the was no significant increase in prices Group’s products continued to be Swedish krona during 1993, the value in the market. During the final quar- favorable. This part of the world is of inventories rose by approximately ter of the year, signs of a volume primarily an after-market, in which SEK 900 m. Had the value of the upswing in the European market also SKF has attained an increasingly Swedish krona been unchanged, became noticeable. strong position. SKF is the largest inventories would have decreased by In Europe, demand for rolling individual supplier of bearings in this approximately SEK 1 100 m. bearings leveled off and bottomed market, a position attained through Expressed as a percentage of annual out during 1993. This has been the the Group’s systematic focus on sales and in fixed exchange rate, most protracted recession in modern establishing its own sales channels in inventories amounted to 30.8 percent. time. several countries in this region at the As a percentage of annual sales, The Gross National Products of end of the 1980s. SKF’s position has SKF’s inventories are on a par with or most European countries were lower now been further enhanced through lower than its Western competitors. in 1993 than in 1992. Industrial out- the establishment of the plant in On the other hand, the Group has a put, an important yardstick for SKF, Malaysia. higher percentage than its Japanese fell by slightly more than 3 percent. competitors. However, when making The automotive industry, which is SKF investigates investments such comparisons, it should be SKF’s most important customer cate- in China remembered that Japanese producers gory by far, experienced a more sub- During the autumn of 1993, SKF transfer their inventories to distrib- stantial decline, of about 15 percent initiated feasibility studies regarding utors at an early stage and thereby compared with 1992. However, SKF’s the prospects of establishing a rolling have a higher portion of capital tied sales to this customer category did bearing manufacturing operation in up in accounts receivable. In addi- not decline as much. China. tion, they are major purchasers of fin- In Germany, the dominating SKF considers China’s growing auto- ished components, such as balls and European market, industrial output motive output and major investments rings, which further reduces their decreased by more than 7 percent, in railways to be attractive areas. capital tied up in inventories. and the GNP by 2 percent, compared If the feasibility studies yield favor- SKF aims to further reduce its with 1992. The approximately 19- able results, SKF intends to com- inventories in relation to sales. percent decrease in Germany’s auto- mence production in China. The Activities related to the Channel motive industry was greater than the studies are expected to be completed concept continued, with the aim of average decrease in Europe as a during the first half of 1994. reducing lead times, improving flows whole. Germany accounted for and reducing change-over times. This nearly 20 percent of SKF’s sales. Improvement towards end of 1993 has resulted in a significant reduction During each of the first three quar- in inventories at all levels. Continued growth in U.S.A. ters of 1993, sales volumes remained The new European central ware- Demand in the North American mar- virtually unchanged, although at a house, in Tongeren, Belgium, was ket continued to rise slowly but significantly lower level than in the completed at the beginning of 1994, steadily during 1993. However, the preceding year. During the final quar- following which relocation from the improvement in the U.S.A. did not ter of the year, however, an improve- various local European warehouses offset the weak trends in Europe, ment in sales was noticeable and could begin. This process will con- which accounts for approximately 55 deliveries increased. The improve- tinue until 1997. The SKF companies percent of the SKF Group’s sales. ment was felt by both the automotive in Belgium and the Netherlands will North America’s share is more than and the machinery segment, as well be the first to transfer their invento- 25 percent. as the after-market. SKF’s steel busi- ries to Tongeren. 6 7 Board of Directors’ Report

The cost of the investment in the materials. The concept covers all of Better adaptation to customer needs central warehouse and relocations the Group’s plants throughout the The SKF Group continued to from 20 local warehouses is estimated world. The Group is continuing to develop its organization during 1993. at approximately SEK 200 m. devote intensive efforts to further The new structure involves a decen- reducing lead times. At the start of tralization of operational activities Continued rationalizations the 1994 fiscal year, the lead time in and a centralization of service func- During 1992, SEK 1.1 billion was production was 8.5 weeks. Certain tions. allocated to cover the costs related to channels have now established new SKF has now six international restructuring and rationalization targets, involving an additional 50- product divisions – deep groove ball activities during 1993 and the first percent reduction. bearings, spherical roller bearings, half of 1994. During the first half of In addition to promoting new taper roller bearings, cylindrical 1993, it was announced that the thinking in the areas of structure and roller bearings, Hub Units and gen- Celaya plant, one of the Group’s two organization at workshop level – eral bearings – each of which has plants in Mexico, would be closed. where responsibility, team work and total responsibility for product devel- The closure will be implemented dur- initiative are encouraged – the opment, production and production ing 1994. In addition, part of the pro- Channel concept has also reduced planning in Europe, and responsibil- duction of textile machinery compo- unplanned downtime at SKF’s units ity for coordination with the corre- nents at Cannstatt, Germany, will be by close to 50 percent. Shorter lead sponding manufacturing units in the transferred to the sister plant in times also result in more flexible pro- rest of the world. Singapore. Turning and heat treat- duction, thereby enabling a reduction Marketing and sales activities are ment of bearings at the plant in of inventories of finished and semifin- organized in two divisions, one focus- Luton, England, is being discontin- ished products. ing on automotive and electric motor ued. This operation is being trans- Today, the SKF Group has approx- customers and the other on industrial ferred to the Göteborg plant, which imately 430 production channels. customers. can take over these volumes within A project aimed at rationalizing Two new Group divisions were the framework of its existing capacity. the Group’s product range was formed during the year. The Seals During the autumn of 1993, it was initiated during 1993. The objective is Division consists of the oil seals oper- also announced that SKF is to close to reduce the range of rolling bear- ations of U.S.A.-based CR – Chicago its bearing plant in Madrid, one of ings by one fourth during 1993 and Rawhide – and the Italian bearing two plants in Spain. This operation 1994. The main focus is on the low- seals operations within RFT S.p.a. can also be taken over by other SKF volume segment, from which a large The second division engages in the factories within the framework of number of products were phased out production and sales of rolling bear- their existing resources. during 1993. This process is being ings for aircraft engines, with manu- Accordingly, approximately SEK implemented in close cooperation facturing units in the U.S.A. and 500 m of the SEK 1.1 billion provi- with customers, whereby SKF’s Europe. sion was utilized during 1993. engineers help customers to choose SKF’s increased focus on its core suitable replacement bearings from Quality business, rolling bearings and seals, the high-volume segment. More than Quality assurance activities are resulted in the sale of three manufac- half of the products to be phased out assigned the highest priority at SKF. turing companies during 1993 – according to this project has already The Group’s leading market position Stellana AB in Laxå and Fixtur-Laser been removed from the range. is based on strong quality awareness. AB in Mölndal, Sweden, and the The concept of “quality” is dynamic; French subsidiary ADR S.A. in Steel market turning upwards it is being developed continuously. Thomery. In addition, a number of Ovako Steel, SKF’s steel operation, During 1993, SKF decided to fur- small sales companies were sold. was also able to look upon 1993 as ther increase the Group’s focus on Although the measures imple- the year when the decline was quality. Accordingly, all employees mented reduced the Group’s fixed reversed and conditions started to will undergo additional training and costs, they do not affect its capacity improve. At the start of the year, vol- education during 1994 and 1995, with to meet increasing demand. umes and prices were falling, while the aim of improving service, increas- costs of scrap-metal, the raw mate- ing productivity and reducing costs. Channel concept realizing rial, were increasing. Although an One example of the many activities expectations improvement in conditions for com- designed to promote quality con- One of the goals when implementing mercial steel was noted relatively sciousness is the fact that all Group the Channel concept in SKF’s plants early during the year, this did not employees are to participate in at was to reduce lead times in produc- impact on the special steel industry least one quality-enhancing project tion by 50 percent, from 18 weeks in until towards the end of the year. per year. 1989 to nine weeks at the end of From Ovako Steel’s viewpoint, the 1993. This goal has been achieved. 1993 fiscal year largely entailed a According to SKF’s Channel concept, continuation of already initiated lead times include both the actual activities aimed at reducing costs and production of bearings and the time further increasing the quality of its required for the delivery of raw products and services. 8 Board of Directors’ Report

net sales sales by sales by application field 1993 geographical area 1993

SEK m Industrial distributors Vehicle Europe excl. Sweden 49% 33 000 26% replacement Cars 30 000 8% 16% 27 000 End- 24 000 users 21 000 6% 18 000 15 000 Electrical 12 000 industry Trucks Sweden 9 000 5% 9% 5% Railways North 6 000 America Aero- 2% Rest of 27% 3 000 space Heavy the world 19% 0 4% General industry 7% 89 90 91 92 93 machinery 17%

income/loss inventories profitability in percent of sales (Definitions see note 1) Operating income/loss Actual Return on capital employed Income/loss after financial Based on fixed exchange Return on total assets SEK m income and expense % rates as from 1992 % Return on shareholders’ equity 3 000 40 24

2 500 38 20

2 000 36 16

1 500 34 12

1 000 32 8

500 30 4

0 28 0

– 500 26 – 4

–1 000 24 – 8

–1 500 22 –12

–2 000 20 –16 89 90 91 92 93 89 90 91 92 93 89 90 91 92 93

Key ratios for 1992 exclude CTT Tools

earnings and capital expenditures number of dividends per share employees registered (Deﬁnition see note 1) Earnings SEK Dividends SEK m 15 2 000 55 000

12 1 800 50 000 45 000 9 1 600 40 000 6 1 400 35 000 3 1 200 30 000 0 1 000 25 000 – 3 800 20 000 – 6 600 15 000 – 9 400 10 000 –12 200 5 000

–15 0 0 89 90 91 92 93 89 90 91 92 93 89 90 91 92 93

9 Board of Directors’ Report

Group result The Group’s loss after financial income and expense in 1993 was SEK –669 m, as against SEK –1 777 m in 1992. Group sales totaled SEK 29 200 m during the year, compared with SEK 26 649 m in 1992. Sales during 1992 included approximately SEK 1 700 m relating to the Group’s former tools operation, CTT Tools. Excluding CTT Tools and taking the effects of the weaker Swedish krona into account, Group sales decreased by approximately 4 percent during 1993. Other operating income of SEK 273 m (148) include a gain of approximately SEK 160 m relating to the sale of fixed assets during the fourth quarter of the year. Restructuring expenses of approximately SEK 250 m for the ongoing rationalization process were charged against income for the year, in addi- 10 Board of Directors’ Report tion to the amount of approximately However, following the translation strengthened. Although a substantial SEK 500 m that was utilized from the of foreign balance sheet items into portion of SKF’s production capacity SEK 1.1 billion provision posted in Swedish kronor, the Group’s net is located in hard-currency countries, 1992. indebtedness expressed in Swedish a major portion of the Group’s manu- The Group’s operating income, kronor decreased by only SEK facturing operations is conducted in after depreciation of SEK 1 456 m 222 m, from SEK 5 460 m to SEK countries whose currencies have (1 296), was SEK 97 m (–1 185). Net 5 238 m. This was because the depreciated. However, SKF’s earlier financial items amounted to SEK Swedish krona weakened by approxi- hedging of currency flows during –766 m (–592). mately 10 percent during the year. 1993 meant that the effects of the Of the Group’s loss after financial As stated earlier, the Group’s net Swedish depreciation on Group oper- income and expense of SEK –669 m indebtedness was SEK 5 238 m at ations has been delayed. (–1 777), bearings and seals year-end. This item consists of total SKF’s internal bank has net inflows accounted for SEK –329 m (–1 264) loans, SEK 9 272 m, less total finan- in about 20 different currencies. The and special steels for SEK –351 m cial assets of SEK 4 034 m. Of the largest individual currencies are the (–442). financial assets, short-term invest- U.S. dollar and the German mark. Taxes paid and the reduction of ments amounted to SEK 2 692 m. These largely correspond to net deferred tax had a positive net effect Against the background of reduced exports from a handful of European on tax of SEK 24 m (280). Minority solvency, the SKF Group has focused countries, mainly Sweden, Italy and interest in Group results was SEK on extending the duration of the loan France. SKF’s policy is to hedge these 0m (–7). portfolio. The current policy is that flows for periods of up to six months. The Group’s loss after taxes for the financing of operations be fully With respect to 1994, however, most 1993 was SEK –645 m (–1 497). Net secured through long-term financing. of the net exports from Sweden have extraordinary income and expense The loan portfolio was further con- been hedged at the rates prevailing amounted to SEK 314 m (–214), solidated during 1993 through the during the final months of 1993. which includes an expense after tax issue in the U.S. bond market of a SKF has a convertible bond loan of SEK 572 m relating to the Group’s 10-year loan in an amount of USD outstanding in an amount of ECU application of a new accounting prin- 100 million. 162 million. As a result of the revalu- ciple, Statement of Financial In addition to ongoing loan agree- ation of this loan due to the weaken- Accounting Standards No. 106, ments, SKF has, as a liquidity ing of the Swedish krona, an amount “Employers’ Accounting for reserve, unutilized long-term credit of SEK –116 m was charged against Postretirement Benefits Other Than agreements with several banks. The income. The loan is of the zero-cou- Pensions” (FAS 106). Extraordinary Parent Company’s unutilized credit pon type, which means that no inter- income amounted to SEK 886 m, facilities amounted to SEK 2 780 m at est payments or amortizations are which includes net extraordinary year-end. The Group’s unutilized made during the duration of the loan. income of SEK 154 m mainly pertain- credit facilities totaled SEK 7 125 m. Accordingly, the final effect will not ing to the sale of the Sandvik shares Most of the Group’s borrowing is be known until the loan has been received in connection with the sale undertaken at floating interest rates, redeemed or converted into share- of the Group’s tools division, CTT either directly or in the form of deriv- holders’ equity. Tools, in 1992. This item also includes ative instruments. Capital expenditures in property, a net extraordinary income of SEK plant and equipment during 1993 732 m, resulting from the application Currency trends totaled SEK 933 m (1 121) and of a new accounting principle for the Since the manufacturing and sale of related to the rationalization and reporting of deferred taxes, FAS 109, the Group’s products are conducted modernization of the Group’s many “Accounting for Income Taxes.” at many locations throughout the plants. R&D during the year totaled Earnings per share before and world, the SKF Group operates in a SEK 552 m (473), representing about after extraordinary items amounted large number of different currencies. 1.9 percent (1.8) of sales for the year. to SEK –5.70 (–13.20) and SEK –2.95 Accordingly, the Group’s risks are (–15.10) respectively. Return on capi- not restricted to any individual cur- Continued reduction in number tal employed was 3.4 percent (–3.9) rency. Changes in exchange rates that of employees and on shareholders’ equity –7.4 per- result in immediate benefits for man- The number of employees registered cent (-15.1). Group solvency ufacturing units in one country often declined by 3 757 during the year and amounted to 26.7 percent (27.6) at result in corresponding disadvantages amounted to 41 394 (45 151) at year- year-end. The key ratios for 1992 elsewhere. Moreover, it takes time end. The average number of em- exclude CTT Tools. before enduring changes in competi- ployees at work was 39 439 (46 672, tiveness have any real impact. incl. CTT Tools), of whom 5 975 Positive cash flow and reduced net In the short term, currency move- (6 871) were located in Sweden (see indebtedness ments during 1992 and 1993 benefited note 28 – “Average number of Calculated in fixed exchange rates, SKF from the viewpoint of competi- employees at work, wages and the SKF Group’s operations gener- tiveness. Most of the production of salaries”). ated a positive cash flow of approxi- the Group’s competitors is located in mately SEK 740 m for 1993. countries whose currencies have been

11 Proposed distribution of surplus

Retained earnings Kr 2 724 157 976 Reported income for the year Kr 503 906 812 Total surplus Kr 3 228 064 788

The Board of Directors and Managing Director recommend that the total surplus of 3 228 064 788 Swedish kronor be carried forward.

The results of operations and the ﬁnancial position of the Parent Company and the Group 1993 are given in the income statements and in the balance sheets together with related notes.

Göteborg, February 23, 1994

Anders Scharp Göran Johansson Mauritz Sahlin Gösta Bystedt Per-Olof Eriksson Giovanni Mario Rossignolo Sune Carlsson Claes Dahlbäck Anders Sjöberg Stig Blomberg Melker Schörling

Auditors’ report

We have examined the annual report, the consolidated ﬁnancial statements, the accounting records and the administration of the Board of Directors and the Managing Director for the year 1993. Our examination was made in accordance with generally accepted auditing standards.

Parent Company The annual report has been prepared in accordance with the Swedish Companies’ Act. We recommend that the general meeting of the shareholders resolve to adopt the income statement and the balance sheet, distribute the surplus in accordance with the proposal in the Board of Directors’ report, and discharge the Board of Directors and the Managing Director from liability for their administration of the company for the year 1993.

Group The consolidated ﬁnancial statements have been prepared in accordance with the Swedish Companies’ Act. We recommend that the general meeting of the shareholders resolve to adopt the consolidated income statement and the consolidated balance sheet.

Göteborg, March 4, 1994

Olof Herolf Åke Gustavsson Nils Brehmer Authorized Public Authorized Public Accountant Accountant Price Waterhouse Öhrlings Reveko AB

12 Consolidated income statements

Millions of Swedish kronor 1993 1992 1991

Net sales 29 200 26 649 26 302 Other operating income 273 148 238 Cost of goods sold – 21 561 – 20 369 – 19 181 Selling, administrative and technical expenses note 2 – 6 359 – 6 317 – 6 338 Depreciation note 3 – 1 456 – 1 296 – 1 077 Operating income/loss 97 – 1 185 – 56

Financial income and expense – net note 4 – 766 – 592 – 165 Loss after ﬁnancial income and expense – 669 – 1 777 – 221

Taxes note 5 24 280 – 66 Equity in loss of Associated Companies note 13 – ––907 Loss after taxes – 645 – 1 497 – 1 194

Extraordinary income note 6 886 65 – Extraordinary expense note 7 – 936 – 279 – Taxes on extraordinary income and expense note 7 364 –– Minority interest 0 717

Net loss – 331 – 1 704 – 1 177

13 Consolidated balance sheets

Millions of Swedish kronor 1993 1992 1991

ASSETS Current assets Current ﬁnancial assets note 8 2 692 3 075 3 823 Trade accounts receivable note 9 5 655 5 332 4 973 Inventories note 10 9 220 9 435 9 426 Short-term tax assets note 5 415 110 – Other current assets note 11 772 940 1 126 18 754 18 892 19 348 Capital assets Long-term ﬁnancial assets note 12 1 342 1 240 1 038 Investments note 13, 30 110 411 132 Property, plant and equipment note 14 11 826 11 227 11 327 Long-term tax assets note 5 1 166 –– Other capital assets note 15 994 944 832 15 438 13 822 13 329 Total assets 34 192 32 714 32 677

LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term liabilities Short-term loans note 16 2 228 3 258 4 978 Trade accounts payable note 17 2 182 1 915 2 306 Short-term tax liabilities note 5 528 74 90 Other short-term liabilities note 18 4 970 5 130 4 175 9 908 10 377 11 549 Long-term liabilities Long-term loans note 19 5 536 5 244 4 443 Pensions and other postretirement beneﬁts note 20 6 571 5 045 4 548 Long-term tax liabilities note 5 1 194 1 360 1 435 Other long-term liabilities note 21 339 372 206 Convertible bonds note 23 1 508 1 273 – 15 148 13 294 10 632 Minority interest 127 113 172

Shareholders’ equity note 24 Restricted equity Share capital 1 412 1 412 1 412 Restricted reserves 5 497 4 064 5 466 Unrestricted equity Unrestricted reserves 2 431 5 158 4 623 Net loss – 331 – 1 704 – 1 177 9 009 8 930 10 324

Total liabilities and shareholders’ equity 34 192 32 714 32 677

Assets pledged note 25 1 308 1 994 1 917 Contingent liabilities note 26 750 807 811

14 Consolidated statements of cash ﬂow

Millions of Swedish kronor 1993 1992 1991

Operating income/loss 97 – 1 185 – 56 Depreciation and goodwill amortization 1 525 1 344 1 129 Extraordinary items excluding deferred taxes – 782 – 214 – Changes in working capital: Inventories 215 – 853 1 510 Trade accounts receivable – 323 – 664 511 Trade accounts payable 267 – 293 – 336 Other current assets and liabilities – net 8 1 148 – 283 Cash ﬂow from operations 1 007 – 717 2 475

Additions to property, plant and equipment – 933 – 1 121 – 1 778 Additions to property, plant and equipment through acquisition of companies – – 7 – 111 Sales of property, plant and equipment 138 539 115 Sale of net operating assets in CTT Tools – 1 873 – Acquisition of net operating assets in Ovako – ––2 459 Cash ﬂow after investments 212 567 – 1 758

Financial income and expense – net – 766 – 592 – 165 Cash dividends, AB SKF shareholders – – 480 – 480 Taxes – 157 189 – 343 Change in loans – 503 354 2 183 Change in other long-term assets and liabilities – net 1 569 – 40 582 Translation adjustments – 738 – 746 – 8

Change in current ﬁnancial assets – 383 – 748 11

15 Notes to the consolidated ﬁnancial statements Amounts in millions of Swedish kronor unless otherwise stated.

NOTE 1 – ACCOUNTING PRINCIPLES Intercompany accounts, transactions and unrealized General profits have been eliminated in the consolidated financial The consolidated financial statements include the Parent statements. Company AB SKF and all companies in which AB SKF, directly or indirectly, owns shares representing more Reclassifications than 50 percent of the voting rights. AB SKF and its sub- In the 1991 Annual Report, Ovako Steel was accounted sidiaries are referred to as “the SKF Group” or “the for as an Associated Company. The balance sheet and Group”. related footnotes for 1991 have been restated to show Investments in companies, representing 20 to 50 per- Ovako Steel as a wholly owned subsidiary at the end of cent of the voting rights, and where the SKF Group has a 1991. significant influence, are referred to as “Associated Companies”. Accounting for investments in Associated Companies All companies within the Group apply the accounting Investments in Associated Companies are accounted for rules as stated in the “SKF Accounting and Financial in accordance with the equity method. The value of the Reporting Manuals”. These rules are primarily based on investments is equal to the Group’s share of share- generally accepted accounting principles in Sweden holders’ equity in these companies, determined in (Swedish GAAP). In general, the rules applied by the accordance with the accounting rules of the Group. SKF Group are also in accordance with generally The Group’s share of these companies’ results is based accepted accounting principles in the United States (U.S. on their loss/income after taxes. GAAP). Significant differences between Swedish GAAP and U.S. GAAP are described in note 29. Translation of foreign financial statements The current rate method is used for translating the finan- Consolidation – subsidiaries cial statements of the major part of the foreign subsidiar- The consolidated financial statements are prepared using ies into Swedish kronor. Under this method, all assets the purchase method. The consolidated shareholders’ and liabilities are translated into Swedish kronor at year- equity includes the Parent Company’s equity and that end exchange rates, whereas income and expense items part of the equity in subsidiaries which has arisen after are translated at average exchange rates. The translation the acquisition. adjustments that arise are transferred directly to share- The difference between the cost of acquiring the holders’ equity. shares in a subsidiary and the shareholders’ equity of For the translation of financial statements of subsidiar- that subsidiary at the time of acquisition, adjusted for ies operating in highly inflationary economies, the Group revaluations of assets and liabilities, is accounted for: applies the monetary/non-monetary method (MNM- – as goodwill in the consolidated balance sheets, if the method) according to the Statement of Financial cost of acquiring the subsidiary is higher than the Accounting Standards No. 52, “Foreign Currency shareholders’ equity, or Translation” (FAS 52). Monetary balance sheet items are translated at year-end exchange rates and non- – as a decrease in the value of acquired capital assets, if monetary balance sheet items, as well as related income the cost of acquiring the subsidiary is lower than the and expense items, are translated at rates in effect at the shareholders’ equity. time of acquisition (historical rates). Other income and expense items are translated at average exchange rates. Translation differences that arise are included in the related lines in the income statement. Exchange rates In translating the financial statements of foreign subsidiaries, operating in the countries shown below, the following exchange rates have been used: Average rate Year-end rate Currency 1993 1992 1991 1993 1992 1991

Belgium 100 BEF 22.55 18.06 17.68 23.20 21.34 17.75 Canada 1 CAD 6.01 4.80 5.28 6.23 5.54 4.78 France 1 FRF 1.38 1.10 1.07 1.42 1.28 1.07 Germany 1 DEM 4.71 3.71 3.64 4.81 4.37 3.66 Great Britain 1 GBP 11.69 10.21 10.65 12.33 10.67 10.39 India 100 INR 24.27 19.50 27.01 26.11 22.49 21.30 Italy 100 ITL 0.49 0.47 0.49 0.48 0.48 0.48 Japan 100 JPY 7.03 4.63 4.50 7.44 5.65 4.41 Netherlands 1 NLG 4.19 3.30 3.23 4.30 3.89 3.24 Spain 100 ESB 6.13 5.68 5.81 5.84 6.15 5.73 Switzerland 1 CHF 5.28 4.15 4.22 5.67 4.82 4.11 USA 1 USD 7.79 5.81 6.06 8.32 7.04 5.54 16 Foreign currency transactions Research and development Receivables and payables denominated in foreign Research and development expenditures are charged currencies are translated at year-end exchange rates. against income as incurred. The resulting gains and losses are classified as either operational or financial items in the income statement. Income taxes All companies within the SKF Group compute current Forward exchange contracts income taxes in accordance with the tax rules and regu- Forward exchange contracts, which serve as hedges of lations of the countries where the income is taxable. the flow of goods and services between countries, have As from 1993 deferred taxes are accounted for been treated in such a way that trade accounts receivable according to FAS 109, “Accounting for Income Taxes”. and payable have been valued at the applicable forward FAS 109 requires that deferred taxes be calculated on rates. In those cases where receivables and payables differences between the book and tax bases of assets and have not yet arisen, valuation of the forward exchange liabilities in accordance with the liability method which, contracts has not been made. among other things, means that changes in tax rates Gains and losses on forward exchange contracts and affect the year’s results. Additionally, it allows the loans, serving as hedges of net investments in foreign recognition of loss carry-forwards if they, more likely subsidiaries, are excluded from the income statement. than not, can be utilized. The difference between the These gains and losses, less current and deferred income gross effect and the amounts expected to be utilized is taxes, are transferred directly to shareholders’ equity, provided for in a valuation allowance. The cumulative thereby offsetting gains and losses arising from the effect of this change per the beginning of 1993 is translation of the financial statements of the foreign accounted for as extraordinary income. The effect of subsidiaries. For these forward exchange contracts, the FAS 109 during 1993 is included in taxes in the income interest difference between currencies is evenly allocated statement. over the life of the contract. Provisions have been made in the consolidated finan- Forward exchange contracts which are not considered cial statements for estimated taxes on earnings of subsid- hedges of firm commitments have been valued at market iaries expected to be remitted in the following year, but value. Gains and losses are included in financial income not for tax liabilities which may arise on distribution of and expense. the remaining unrestricted earnings, as they are expected to be reinvested. Inventories Inventories are stated at the lower of cost (first-in, first- Postretirement benefits out basis) or market (net realizable value). Net realiz- FAS 106, “Employers’ Accounting for Postretirement able value is defined as the lower of current replacement Benefits Other Than Pensions”, requires that the cost of cost or market value less selling cost. Cost includes health insurance and other similar benefits provided to material, labor and manufacturing overheads. employees after their retirement be expensed during an employee’s active service life. Previously the cost of Capital and intangible assets these benefits was expensed on a cash basis. Application Depreciation is provided on a straight-line basis and is of FAS 106 is required from January 1, 1993, for U.S. calculated based on the cost of the asset. In some plans. The cumulative after-tax effect of this change in countries, legal revaluations are made in addition to cost, accounting principle is reflected as extraordinary and depreciation is then based on the revalued amounts. expense. The expenses for 1993 have, however, been The rates of depreciation are based on the estimated accounted for in operating income. economic lives of the assets, generally 33 years for buildings, 10–17 years for machines and 4–5 years for tools, office equipment and vehicles. Goodwill is amortized over 10 years on a straight-line basis, except for goodwill related to significant strategic acquisitions, which is amortized over a maximum of 20 years. Amortization of goodwill is included in administrative expenses. Patents and similar rights are stated at cost and are amortized on a straight-line basis over their legal lives.

Leases Leases which transfer virtually all beneﬁts and risks inci- dent to the ownership of the property to the Group (capital leases), are capitalized and accounted for as assets and incurrence of obligations. Rentals for other leases (operating leases) are charged against income over the lease term.

17 Definitions of key figures NOTE 3 – DEPRECIATION The majority of the subsidiaries within the SKF Group 1993 1992 1991 report their results of operations and financial position ten times a year. The key figures presented in the Land improvements 10 76 Annual Report have been calculated using average Buildings 145 128 114 values based on these interim reports. Therefore, the Machinery and equipment 1 252 1 089 901 calculation of these key figures using the year-end values Leases 32 28 45 presented, may give slightly different results. Leaseholds 1 12 Revaluations 16 43 9 1. Portion of risk-bearing capital 1 456 1 296 1 077 Shareholders’ equity plus minority interest and deferred taxes, as a percentage of total assets at year-end. Depreciation related to assets used in manufacturing 2. Solvency amounted to 1 245 in 1993, 1 125 in 1992 and 912 in 1991. Shareholders’ equity plus minority interest, as a percent- The remainder relates to assets used in selling, age of total assets at year-end. administrative and technical areas. 3. Return on total assets Operating income/loss plus financial income, as a NOTE 4 – FINANCIAL INCOME AND EXPENSE percentage of average total assets. 1993 1992 1991 4. Return on capital employed Operating income/loss plus financial income, as a Dividend income 7 210 percentage of average total assets less the average of Interest income 529 546 685 non-interest bearing liabilities. Interest expense – 995 – 896 – 863 5. Return on shareholders’ equity Financial exchange Loss/income after taxes, as a percentage of average gains and losses – 307 – 244 – 97 shareholders’ equity. Financial translation adjustments (MNM-method) – – 100 6. Profit margin – 766 – 592 – 165 Operating income/loss plus financial income, as a percentage of net sales. The net interest cost component of the pension cost, 7. Turnover of total assets included in the operating income/loss, amounted to 235 Net sales in relation to average total assets. in 1993, 311 in 1992 and 49 in 1991. See also note 20 – Pensions and other postretirement benefits. 8. Earnings per share in Swedish kronor Financial exchange gains and losses include a loss in Loss/income after taxes and minority interest divided by 1993 of 116 and in 1992 of approximately 160 referable average number of shares. to the Parent Company’s convertible ECU bonds. See 9. Yield note 23 – Convertible bonds. Dividend as a percentage of share price at year-end. Financial translation adjustments relate to subsidiaries operating in highly inflationary economies, where the 10. P/E ratio MNM-method is applied. As from 1992, corresponding Share price at year-end divided by earnings per share. translation adjustments were allocated to interest 11. Average number of employees at work income and interest expense. Total number of working hours of all employees, divided by the normal total working time during the year. NOTE 5 – TAXES 1993 1992 1991 NOTE 2 – RESEARCH AND DEVELOPMENT Taxes on the loss after Research and development expenditures charged against financial income and expense income were 552 in 1993, 473 in 1992 and 538 in 1991. Current taxes – 300 – 134 – 148 Additionally, the Group enters into research and devel- Deferred taxes 324 414 82 opment contracts to develop or produce prototypes of 24 280 – 66 various products. Expenses under these contracts were 27, 20 and 19 in 1993, 1992 and 1991 respectively, and Deferred taxes for 1993 include a charge of 263 related have been fully reimbursed. to the net change in the valuation allowance.

18 Net tax assets and liabilities at December 31, were: Tax loss carry-forwards 1993 1992 1991 The Parent Company and certain subsidiaries, principally in Sweden and Germany had, at December 31, Short-term deferred tax assets 415 110 – 1993, tax loss carry-forwards amounting to 7 728 (6 522 Long-term deferred tax assets 1 166 ––in 1992 and 2 265 in 1991). Such tax loss carry-forwards 1 581 110 – expire as follows: Income taxes currently payable 184 74 109 1994 164 Short-term deferred 1995 154 tax liabilities 344 ––19 1996 335 Long-term deferred 1997 330 tax liabilities 1 194 1 360 1 435 1998 564 1 722 1 434 1 525 1999 and thereafter 6 181

Gross deferred tax assets and liabilities at December 31, As of December 31, 1993, the total tax loss carry- 1993 were related to the following items: forwards have resulted in deferred tax assets of 1 456, net of valuation allowances. Such assets can be used to Pensions and other postretirement benefits 559 reduce future taxable income, but since their benefit has Tax loss carry-forwards 2 389 already been realized, their future use will not reduce Other 1 083 the total tax charge for the Group. Gross deferred tax assets 4 031 Valuation allowance – 1 090 2 941 NOTE 6 – EXTRAORDINARY INCOME Pensions and other postretirement benefits 327 1993 1992 1991 Inventory 454 Property, plant and equipment 1 647 Gain on sale of shares in Other 470 Sandvik AB, net 154 –– Gross deferred tax liabilities 2 898 Cumulative effect of a change in accounting principle Net deferred tax assets 43 – FAS 109 (see note 1) 732 –– Gain on sale of CTT Tools – 65 – In 1992 and 1991 deferred taxes mainly resulted from 886 65 – accelerated depreciation claimed for tax purposes by certain subsidiaries. There is no tax on the above items.

Corporate income tax As per December 31, 1992, the Group sold its tool division, CTT Tools, to Sandvik AB. As a result, CTT The corporate nominal income tax rate in Sweden was Tools’ result of operations for 1992 is included in the 30 percent in 1993, 1992 and 1991. consolidated income statement. However, its ﬁnancial The effective tax rate on loss after ﬁnancial income position is excluded from the consolidated balance sheet. and expense and extraordinary items (exclusive of The purchase price consisted of a directed issue of changes in accounting principles), but before equity in 1 042 500 C shares in Sandvik AB. Depending on earn- loss of Associated Companies and minority interest, ings of CTT Tools during 1994 –1995, a supplementary was 5 percent in 1993, 14 percent in 1992 and –30 percent payment may also arise. These Sandvik shares were sold in 1991. A reconciliation of the statutory tax to the in 1993 at a gain of 154, net of related costs. effective tax in Sweden is outlined below: 1993 1992 1991 Statutory tax in Sweden 155 597 66 Difference between statutory tax rate in Sweden and foreign subsidiaries’ weighted statutory tax rate 54 83 – 14 Permanent differences 90 768 72 Tax loss carry-forwards, net of valuation allowance – 228 –1 140 – 277 Other –47– 28 87 Effective tax 24 280 – 66

19 The pro forma financial information below estimates, NOTE 9 – TRADE ACCOUNTS RECEIVABLE compared with 1993, the Group’s consolidated income 1993 1992 1991 statement and balance sheet information for 1992 and 1991 as it might have been, had the sale of CTT Tools Acceptances receivable 570 587 563 been consummated at the beginning of 1991. CTT Tools Accounts receivable 5 429 5 002 4 617 was founded in December 1990. The information is 5 999 5 589 5 180 based on an assumed capital gain of 65. Interest effects Allowance for doubtful have not been considered. accounts – 344 – 257 – 207 1993 1992 1991 5 655 5 332 4 973 Sales 29 200 24 943 24 358 Provision for doubtful accounts charged against income Operating income/loss 97 – 1 195 – 81 amounted to 119 in 1993, 88 in 1992 and 66 in 1991. Loss after financial income and expense – 669 – 1 660 – 114 NOTE 10 – INVENTORIES Current assets 18 754 18 892 19 014 Capital assets 15 438 13 822 12 625 Inventories at December 31, net of allowance for obso- lescence, consists of the following: Short-term liabilities 9 908 10 377 11 105 Long-term liabilities 15 148 13 294 10 043 1993 1992 1991 Shareholders’ equity 9 009 8 930 10 389 Finished goods 6 048 6 146 5 860 Work in process 1 958 2 117 2 302 Raw materials 656 589 706 NOTE 7 – EXTRAORDINARY EXPENSE Supplies 558 583 558 1993 1992 1991 9 220 9 435 9 426 Cumulative effect of change in accounting principle NOTE 11 – OTHER CURRENT ASSETS – FAS 106 (see note 1) – 936 –– Write-off of operations in 1993 1992 1991 former Yugoslavia – – 52 – Advances to suppliers 36 50 66 Discontinued portfolio Prepaid expenses 202 334 189 businesses – – 227 – Accrued income 125 141 353 – 936 – 279 – Other current receivables 409 415 518 772 940 1 126 The deferred tax income in 1993, 364, refers to the above extraordinary item. NOTE 12 – LONG-TERM FINANCIAL ASSETS NOTE 8 – CURRENT FINANCIAL ASSETS 1993 1992 1991 1993 1992 1991 Long-term financial receivables 1 337 1 222 1 021 Debt securities 5 18 17 Cash and bank accounts 784 1 070 823 1 342 1 240 1 038 Debt securities 857 508 640 Promissory notes – -5 The majority of the long-term financial receivables is Government securities 767 384 420 stated at market value. Other short-term financial receivables 284 1 113 1 935 2 692 3 075 3 823 NOTE 13 – INVESTMENTS Cash and bank accounts include short-term time depos- Investments include shares in Sandvik AB of 313 in its of 174 for 1993, 714 for 1992 and 144 for 1991. 1992. Equity in loss of Associated Companies in 1991 refers to the Ovako Steel Group. A complete list of investments is found in note 30.

20 NOTE 14 – PROPERTY, PLANT AND EQUIPMENT 1993 1992 1991

Acqui- Accumu- Acqui- Accumu- Acqui- Accumu- sition lated sition lated sition lated cost depr. cost depr. cost depr. Land 436 0 390 8 470 2 Land improvements 302 191 278 180 247 165 Buildings 5 024 2 420 4 559 2 118 4 267 1 836 Machinery and equipment 20 059 11 907 18 211 10 372 16 990 9 195 Capital leases 352 185 238 135 281 165 Leaseholds 96 96 74 Revaluations 598 270 578 246 578 213 26 780 14 979 24 263 13 065 22 840 11 580 Net 11 801 11 198 11 260 Advances to suppliers 25 29 67 11 826 11 227 11 327

Capital leases consist of the following: 1993 1992 1991 Land 10 57 Buildings 116 91 71 Machinery and equipment 226 142 203 352 238 281

NOTE 15 – OTHER CAPITAL ASSETS 1993 1992 1991

Acqui- Accumu- Acqui- Accumu- Acqui- Accumu- sition lated sition lated sition lated cost amort. cost amort. cost amort. Goodwill 1 030 251 900 155 801 110 Patents and similar rights 15 13 19 15 16 11 1 045 264 919 170 817 121 Net 781 749 696 Deferred charges 213 195 136 994 944 832

NOTE 16 – SHORT-TERM LOANS 1993 1992 1991 and 1991 respectively, and was 8.0 percent at December Bank loans 1 759 2 430 3 365 31, 1993. Average amounts outstanding and weighted Commercial papers – – 1 004 average interest rates have been computed based on the Other short-term loans 64 302 130 amounts outstanding at the end of each month and 1 823 2 732 4 499 related interest expense. At December 31, 1993 the SKF Group maintained Current portion of committed lines of credit at ﬁnancial institutions. The long-term loans 405 526 479 unutilized portion of short-term lines of credit amounted 2 228 3 258 4 978 to 1 879, of which most was available in currencies other than Swedish kronor. Some of the revolving credit facil- The maximum month-end amount of short-term loans ities require an overdraft facility fee ranging from 0.1 outstanding, excluding the current portion of long-term percent to 1.5 percent of the full amount of the facility. loans, was 3 194 in 1993, 3 933 in 1992 and 4 449 in At December 31, 1993, the Group had unutilized long- 1991. The average month-end amount outstanding term lines of credit of 5 246 expiring in 1995 to 1998. during the year was 2 527 in 1993, 2 950 in 1992 and Commitment fees ranging from 0.05 percent to 0.35 4 146 in 1991. The weighted average interest rate was percent are payable on these lines of credit. 13.1 percent, 16.4 percent and 11.7 percent in 1993, 1992

21 NOTE 17 – TRADE ACCOUNTS PAYABLE NOTE 20 – PENSIONS AND OTHER POSTRETIREMENT BENEFITS 1993 1992 1991 Charges against income in 1993, 1992 and 1991 for Acceptances payable 313 321 354 pension and similar plans were 500, 472 and 621, which Accounts payable 1 869 1 594 1 952 include a net interest cost of 259, 341 and 49 respectively. 2 182 1 915 2 306 The interest income portion of this net interest cost represents actual return on assets in pension funds, whereas the main part of the interest expense portion NOTE 18 – OTHER SHORT-TERM LIABILITIES has been calculated on the average of the opening and Other short-term liabilities included accrued vacation closing balances of the pension obligation. Interest rates pay of 518, 444 and 408 at December 31, 1993, 1992 and used vary by country, and were 6.1, 8.1 and 12.5 percent 1991 respectively, and accrued social charges (including in 1993, 1992 and 1991 respectively for indexed Swedish payroll taxes) of 618, 579 and 466. pensions and 3.5 percent in 1993, 1992 and 1991 for fixed Swedish pensions. Interest rates of 6.4, 8.1 and 8.7 percent were used in 1993, 1992 and 1991 respectively NOTE 19 – LONG-TERM LOANS for the German companies, which represented 63 percent of the Group’s total pension obligation in 1993, Long-term loans at the end of the year, excluding the 61 percent in 1992 and 66 percent in 1991. current portion, are: SKF sponsors several defined postretirement benefit 1993 1992 1991 plans covering most salaried and hourly employees in the United States. The plans, which are unfunded, Debentures (maturing from provide certain health care and life insurance benefits to 1998 to 2014) bearing interest eligible retired employees, and include a cost-sharing from 7.6 to 14.0 percent* 1 971 980 194 element for all future retirees. Bank loans (maturing from The Group has changed its method of accounting for 1995 to 2008) bearing interest postretirement benefit costs other than pensions by from 2.1 to 17.8 percent* 2 523 3 233 3 939 adopting FAS 106, “Employers’ Accounting for Other loans (maturing from Postretirement Benefits other Than Pensions” in 1993. 1995 to 2010) bearing interest from 2.1 to 27.0 percent* 1 042 1 031 310 Net periodic postretirement benefits cost for 1993 5 536 5 244 4 443 included the following components: * December 31, 1993 Service cost 15 Interest cost 80 The current portion of long-term loans is included in Net periodic postretirement benefit cost 95 short-term loans (see note 16). The following table sets forth the accrued postretirement Maturities of long-term loans outstanding at December benefit liability recognized in the balance sheet of the 31, 1993 were as follows: Group at December 31, 1993: 1995 970 Accumulated postretirement benefit obligation 1996 806 Retirees 829 1997 1 314 Other fully eligible plan participants 195 1998 441 Other plan participants 114 1999 904 Total accumulated postretirement 2000 and thereafter 1 101 benefit obligation 1 138

The terms of certain loan agreements contain various The assumed discount rate used in the calculations restrictions, relating principally to the further pledging of was 8 percent. fixed assets, the amounts of additional loans and payment of intercompany dividends. A 12 percent annual rate of increase in the per capita Of the long-term loans, amounts totaling 859, 976 and cost of covered health care benefits was assumed for 711 were secured at December 31, 1993, 1992 and 1991 1993. The rate was assumed to decline by 0.5 to 1 respectively. percent per year to an ultimate rate of 6 percent. An No material differences between carrying amounts increase in the assumed health care cost trend rates by and fair values of long-term loans existed at December 1 percent in each year would increase the accumulated 31, 1993. The fair values of long-term loans were postretirement benefit obligation as of December 31, estimated using discounted cash flows and applying the 1993 by 92 and the aggregate of the service and interest interest rate valid on the closing day. cost components of the net periodic postretirement benefit cost for the year then ended by 8.

22 NOTE 21 – OTHER LONG-TERM LIABILITIES NOTE 24 – SHAREHOLDERS’ EQUITY 1993 1992 1991 Share capital Long-term portion of The share capital at December 31, 1993 consisted of the capital leases (see note 22) 125 82 87 following shares (nominal value SEK 12.50 per share): Other 214 290 119 Number of shares Aggregate 339 372 206 authorized and nominal outstanding value

NOTE 22 – LEASES A shares 49 256 332 616 B shares 63 743 224 796 Future minimum rental commitments at December 31, 112 999 556 1 412 1993 for capital leases and non-cancellable (within one year) operating leases were as follows: The designations A and B indicate the voting power of Capital Operating the shares. An A share has one vote, a B share one- leases leases thousandth of one vote. In 1992 the Annual General Meeting abolished the 1994 89 306 clause restricting the acquisition of shares by foreign 1995 17 230 nationals and other controlled persons. 1996 13 182 1997 8 152 Option certificates 1998 8 141 In 1990, AB SKF issued 11 000 000 option certificates. 1999 and thereafter 43 1 069 Each option entitles the holder to subscribe for one new 178 2 080 B share at the price of 190 Swedish kronor. These certificates are exercisable through June 30, 1995. Less: Amount representing interest and executory Restricted reserves costs – 26 In accordance with statutory requirements in Sweden Present value of minimum and certain other countries in which the SKF Group lease payments under operates, the Parent Company and its subsidiaries main- capital leases 152 tain restricted reserves which are not available for distri- Less: Current portion – 27 bution as dividends. The Swedish Companies Act requires that 10 percent Long-term portion 125 of net income be transferred to the legal reserve (part of restricted reserves) until the legal reserve amounts to 20 Operating leases also include the leases for those por- percent of the share capital. Premiums paid on new tions of the Parent Company’s real estate in Göteborg, share issues must also be transferred to the legal reserve. which in 1990, 1989 and 1987 were sold and leased back. In countries where legal revaluations of assets are Net rental expense related to operating leases was 239 made, the revaluation surplus must be transferred to in 1993, 283 in 1992 and 319 in 1991. Contingent rentals legal reserves. and sublease income were not significant in any of the Tax laws in Sweden and certain other countries permit years presented. allocations to reserves that are deductible for tax purposes. To a certain extent, companies can thus allocate income so that it remains in the business without NOTE 23 – CONVERTIBLE BONDS being taxed immediately. In the balance sheet the In May 1992, AB SKF issued zero coupon convertible accumulated value of these allocations, less the related bonds amounting to 145 million ECU after a discount of deferred tax liabilities, is shown under restricted 8.75 percent. Upon full conversion on the due date, the reserves. nominal amount of 338.5 million ECU will result in the Differences between statutory reporting and reporting issuance of 8 437 650 B shares. Conversion can be for Group purposes are also treated as restricted requested up to July 26, 2002. The holder is entitled to reserves. request redemption on July 26, 1997. On or after that date the bonds are redeemable at any time at the option Unrestricted equity of AB SKF, as a whole or in part. Unrestricted earnings include earnings distributable by the Parent Company and those net earnings that may be remitted from subsidiaries to the Parent Company within one year. The amount has been reduced by accumulated losses in other subsidiaries. In determining the remittable amounts, consideration has been given to legal and exchange restrictions, but not to the financial position of the remitting subsidiaries.

23 Changes in shareholders’ equity NOTE 25 – ASSETS PLEDGED

Re- Unre- The following assets have been pledged to secure loans: Share stricted stricted capital reserve reserves Total 1993 1992 1991 Opening balance 1991-01-01 1 412 5 112 5 631 12 155 Mortgages on real estate 673 1 249 1 180 Cash dividends – 480 – 480 Chattel mortgages 468 466 181 Net loss –1 177 –1 177 Other mortgages 134 250 544 Transfer between reserves 388 – 388 – Total mortgages 1 275 1 965 1 905 Translation adjustments Government securities 30 26 12 and revaluations – 34 – 140 – 174 Other assets pledged 3 30 Closing balance 1991-12-31 1 412 5 466 3 446 10 324 1 308 1 994 1 917

Cash dividends – 480 – 480 Mortgages are stated at the nominal value of the Net loss –1 704 –1 704 mortgage deeds and other pledged assets are stated at net Transfer between reserves –2 131 2 131 – book value. The pledged assets secured obligations of 859 Translation adjustments at December 31, 1993, 976 in 1992 and 711 in 1991. and revaluations 729 61 790 Closing balance 1992-12-31 1 412 4 064 3 454 8 930 NOTE 26 – CONTINGENT LIABILITIES Net loss – 331 – 331 1993 1992 1991 Transfer between reserves 881 – 881 Translation adjustments Acceptances receivable and revaluations 552 – 142 410 discounted 89 66 86 Closing balance 1993-12-31 1 412 5 497 2 100 9 009 Unrecognized and unfunded vested and unvested As described in note 1, translation adjustments arising retirement beneﬁts 391 466 413 from the application of the current rate method are Other guarantees and transferred directly to shareholders’ equity. Changes in contingent liabilities 270 275 312 cumulative translation adjustments which are included in 750 807 811 both restricted and unrestricted reserves, are as follows:

1993 1992 1991 NOTE 27 – GEOGRAPHICAL INFORMATION Balance at beginning of year 191 – 587 – 292 External sales for the Group per geographical area were Aggregate translation as follows: adjustments 916 1 505 – 352 Losses/gains from hedges 1993 1992 1991 (net of taxes) of investments Sweden 1 415 1 463 1 003 in foreign subsidiaries – 509 – 727 57 Europe (excluding Sweden) 14 419 14 802 14 826 Balance at end of year 598 191 – 587 United States and Canada 7 525 5 832 5 620 Other countries 5 841 4 552 4 853 29 200 26 649 26 302

The Group’s identiﬁable assets (total assets, excluding cash, bank accounts, short-term investments, intercompany receivables and shareholdings, but before consolidation eliminations), amounted at December 31, 1993 to 32 189 and to 30 260 in 1992 and 29 424 in 1991. The geographical location of these assets were as follows: 1993 1992 1991 Sweden 4 376 3 876 4 616 Europe (excluding Sweden) 14 903 15 491 16 152 United States and Canada 7 235 6 256 5 129 Other countries 5 675 4 637 3 527 32 189 30 260 29 424

Dividends of 353 in 1993, 753 in 1992 and 344 in 1991 have been received by the Parent Company from foreign subsidiaries.

24 NOTE 28 – AVERAGE NUMBER OF EMPLOYEES AT WORK, WAGES AND SALARIES 1993 1992 1991 Operations in Sweden Number of work sites 20 23 18 Total average number of employees at work 5 975 6 871 4 500 Wages and salaries: Boards and Managing Directors 18 17 18 Other employees 1 340 1 450 935 Total in Sweden 1 358 1 467 953

Operations abroad Number of countries 57 57 50 Total average number of employees at work 33 464 39 801 40 785 Wages and salaries: Boards and Managing Directors 119 101 115 Other employees 7 579 7 129 7 172 Total abroad 7 698 7 230 7 287

Total average number of employees at work 39 439 46 672 45 285 Total wages and salaries 9 056 8 697 8 240

Of the average number of employees at work in Sweden Mario Rossignolo, chairman of SKF’s Italian subsidiary, during 1993, 1 071 were women and 4 904 were men. has, in addition to his annual fee as board member in The corresponding ﬁgures for 1992 and 1991 were 1 289 AB SKF, a yearly compensation of ITL 215 000 000. women and 5 582 men, and 784 women and 3 716 men Managing Director and Group Chief Executive, Mauritz respectively. Sahlin, has an annual salary of SEK 2 350 000, a fee as Of the average number of employees at work abroad board member in a subsidiary of USD 16 625, free during 1993, 6 034 were women and 27 430 were men. housing, a so-called “60-year agreement” (entitling to 70 The corresponding ﬁgures for 1992 and 1991 were 6 840 percent of pensionable income up to 65 years of age at women and 32 961 men, and 7 190 women and 33 595 retirement after 60 years of age), an old age pension men respectively. corresponding to 32.5 percent of pensionable income The Chairman of the Board of AB SKF receives an exceeding 20 basic amounts (an index for national social annual fee of SEK 200 000, and an additional yearly security purposes with a value of SEK 34 400 in 1993) compensation of SEK 300 000 for work in addition to and a free annual premium of SEK 100 000 for annuity the normal board member responsibilities. Giovanni insurance.

25 Average number of employees at work, wages and Average number of employees at work in Sweden, salaries by country: speciﬁed by work site: Average number Wages and Arvika 202 of employees salaries in Danderyd 18 at work SEK thousands Eskilstuna 61 Algeria 1 329 Göteborg 2 665 Argentina 512 50 916 Helsingborg 25 Australia 86 24 629 Hofors 1 312 Austria 716 206 263 Hällefors 648 Belgium 228 75 924 Jönköping 15 Brazil 1 132 110 783 Karlskoga 36 Canada 156 46 524 Katrineholm 446 Chile 60 12 130 Landskrona 71 China, Peoples Republic 20 585 Laxå 34 Colombia 17 2 105 Lidköping 347 Denmark 87 30 860 Ludvika 5 East Europe 119 9 943 Malmö 9 Finland 82 18 230 Mora 29 France 3 622 898 740 Mölndal 25 Germany 6 842 2 383 063 Stockholm 11 Greece 54 7 259 Sundsvall 14 Hong Kong 35 5 294 Västerås2 India 2 522 67 242 5 975 Iran 16 526 Italy 5 168 1 103 463 Ivory Coast 9 2 265 Japan 107 45 312 Jordan 4 549 Kenya 26 1 277 Korea 18 2 665 Malaysia 576 40 366 Morocco 1 676 Mexico 813 81 303 The Netherlands 654 201 337 Nigeria 5 214 Norway 55 16 184 Panama 38 13 476 Peru 40 3 629 Philippines 26 1 771 Portugal 41 7 963 Singapore 335 50 563 South Africa 399 48 536 Spain 776 171 169 Sweden 5 975 1 358 241 Switzerland 244 99 362 Taiwan R.O.C. 63 10 377 Thailand 72 8 137 Tunisia 1 326 Turkey 56 7 000 United Arab Emirates 2 394 United Kingdom 1 182 236 861 Uruguay 15 2 122 USA 6 231 1 583 252 Venezuela 43 2 637 Zambia 122 1 767 Zimbabwe 35 1 790 39 439 9 056 329

26 U.S. GAAP

NOTE 29 – RECONCILIATION TO UNITED STATES The following tables summarize approximate disclosures GENERALLY ACCEPTED ACCOUNTING under FAS 87. PRINCIPLES Net periodic pension cost for the plans described above, Accounting policies of the SKF Group that differ signiﬁ- included in the Group’s approximate U.S. GAAP cantly from U.S. GAAP are as follows: income statement includes the following components: 1993 1992 1991 1. Deferred income taxes Adjustments for deferred income taxes in the reconcilia- Service cost 107 110 107 tion to U.S. GAAP are attributable to the differences Interest cost 532 462 415 described below. Actual return on assets – 217 – 115 – 392 Other, net 50 – 1 311 2. Revaluation of assets Net periodic pension cost 472 456 441 In certain countries, assets have been revalued at an amount in excess of cost. U.S. GAAP does not permit Assumptions used in the calculations: the revaluation of assets in the ﬁnancial statements. 1993 1992 1991

3. Capitalization of interest expense Discount rates 6.5–8% 7–10% 7–10% In accordance with Swedish GAAP, the SKF Group has Rates of increase in not capitalized interest expense incurred in connection compensation level 2.5–5% 2–7% 2.5–7% with the financing of expenditures for construction of Investment return 8.5–10% 11% 11% property, plant and equipment. Such interest expense is required to be capitalized in accordance with U.S. The following table sets forth these plans’ funded status GAAP. and amounts recognized in the Group’s approximate U.S. GAAP balance sheet: 4. Accounting for early termination benefits 1993 1992 1991 The SKF Group has in previous years allocated the costs for early termination benefits between early and normal Actuarial present value of: retirement for certain Group companies. U.S. GAAP Vested benefit obligation 6 737 5 052 4 661 requires costs for early termination benefits to be Accumulated benefit expensed in the year when the benefits are accepted by obligation 6 937 5 259 4 819 the employees. Projected benefit obligation 7 339 5 794 5 371 Plan assets at fair value –2 695 –1 877 –1 835 5. Gains on sales of real estate During 1991, 1990 and 1989 the Group sold real estate in Projected benefit obligation Sweden which is leased back either partially or com- in excess of plan assets 4 644 3 917 3 536 pletely, with the option to repurchase the property. Unrecognized net loss 15 85 151 Gains recognized from these transactions are not permit- Unrecognized net obligation ted to the same extent under U.S. GAAP. at initial application – 612 – 527 – 616 Unrecognized prior 6. Pensions service cost – 149 – 114 – 99 Periodic pension cost and liability is calculated by the Adjustment required to Group according to local laws and accounting principles. recognize minimum liability 700 414 421 Under U.S. GAAP, the periodic pension cost and Pension liability 4 598 3 775 3 393 liability should be calculated according to FAS 87, “Employers’ Accounting for Pensions”. Plan assets are invested primarily in securities and bonds. The Group sponsors defined benefit plans in several countries, principally Sweden, Germany, France, the 7. Forward exchange contracts United States and Spain. The Swedish plan supplements A forward exchange contract is, according to U.S. statutory pensions where benefits are established by GAAP, considered a hedge only when there is a firm national organizations. The subsidiaries in France spon- commitment. According to Swedish GAAP expected sor a retirement indemnity plan in accordance with transactions also qualify as hedging. French National Employer/Employee agreements. Plans Contracts hedging expected transactions, not covered in Germany, Spain and the United States are designed to by firm commitments, are accounted for according to supplement these countries’ social security pensions. U.S. GAAP, as the difference between the agreed Only the U.S. plans are funded. Benefits are based on a forward rate and the market forward rate on the closing combination of age, salary and service and are available day. to all employees meeting age, service and other requirements.

27 8. Statements of cash flow 10. Off-balance sheet risk and concentrations of credit risk The Group prepares the statements of cash flow in The Group has a firm policy to hedge its exposure to accordance with Swedish GAAP, which requires a cash foreign currency exchange rate fluctuations, as well as flow statement differing from that required by FAS 95, against fluctuations in interest rates, through many “Statement of Cash Flows”. Additional approximate different strategies, including the use of various financial disclosures if the Group were to comply with FAS 95 are instruments such as interest rate caps and floors, foreign as follows: currency and interest rate swaps and forward exchange contracts. A significant majority of these contracts 1993 1992 1991 involve the Swedish krona, German mark, U.S. dollar, Borrowings of Italian lira and French franc. The total contracted long-term loans 1 257 2 686 421 volume of these derivative instruments amounted, at Repayments of year end, to approximately 22 000. long-term loans 1 711 1 671 671 The contracts are placed with several well-established Additions to loans international financial institutions, therefore through acquisitions – – 13 management believes credit risk to be very low. The Cash interest paid 813 780 851 majority of these contracts serve as hedges of net Cash taxes paid 186 252 195 investments in foreign subsidiaries and other commitments. The gains and losses on these contracts Significant non-cash transactions are deferred tax provi- have partly been offset by gains and losses resulting from sions (see note 5), provisions for pensions and other the translation of the foreign subsidiaries’ financial postretirement benefits (see note 20), extraordinary statements and partly influenced the Group’s result. income (see note 6), extraordinary expense (see note 7), Concentration of credit risk is limited, primarily equity in Associated Companies (see note 13) and because the Group’s customer base consists of many minority interest in income as disclosed in the income geographically and industrially diverse customers. statement. The depreciation of the Swedish krona against other 11. Sale of fixed assets currencies during 1993 caused a non-cash increase in the During 1993, the Group recorded the sale of power Group’s balance sheet, resulting from the translation plants in Italy in accordance with Swedish GAAP. into the reporting currency, the Swedish krona. The However, since the legal title is transferred in 1994 the depreciation effect on total assets was estimated to be an transaction is recognized in 1994 according to U.S. increase of approximately 3 200, using December 1992 GAAP. closing-day exchange rates as a basis. The increases in inventories and loans as shown in the cash flow statement, include a depreciation effect of approximately 900 and 750 respectively. The Group considers current financial assets to be cash and cash equivalents (see note 8).

9. Discontinued operations According to U.S. GAAP the discontinuation of portfolio businesses is not considered extraordinary, but should be reported separately on the income statement. 1993 1992 1991 Discontinued portfolio businesses, net – – 214 – Gain on sales of shares in Sandvik AB, net 154 –– 154 – 214 –

28 12. Summary The application of U.S. GAAP would have the following approximate effect on consolidated net loss, shareholders’ equity and earnings per share. 1993 1992 1991 Net loss as reported in the consolidated income statements – 331 –1 704 –1 177 Items increasing/decreasing net loss: Deferred income taxes 143 178 – 21 Depreciation on revaluation of assets including effect in connection with sale 19 46 15 Capitalization of interest expense –13 – 6 – 4 Early termination beneﬁts 13 18 – 6 Gains on sales of real estate 4 9 – 23 Pensions – 121 – 617 Forward exchange contracts 429 – 488 82 Sale of ﬁxed assets – 154 –– Net increase/decrease in net loss 320 – 249 60 Approximate net loss in accordance with U.S. GAAP –11 –1 953 –1 117

1993 1992 1991 Shareholders’ equity as reported in the consolidated balance sheets 9 009 8 930 10 324 Items increasing/decreasing reported equity: Deferred income taxes 309 167 – 11 Revaluation of assets – 293 – 297 – 333 Capitalization of interest expense 58 70 76 Early termination beneﬁts – – 13 – 31 Gains on sales of real estate – 638 – 642 – 652 Pensions –66 55 61 Forward exchange contracts 23 – 406 82 Sale of ﬁxed assets – 152 –– Net decrease in reported shareholders’ equity – 759 –1 066 – 808 Approximate shareholders’ equity in accordance with U.S. GAAP 8 250 7 864 9 516

1993 1992 1991 Earnings per share, in Swedish kronor: Earnings from continuing operations – 2.90 –15.65 –10.35 Earnings from discontinued operations 1.40 – 1.90 – Earnings before extraordinary credit – 1.50 –17.55 –10.35 Extraordinary credit: – Changes in accounting principles 1.40 –– – Income tax beneﬁt from utilizing loss carry-forwards – 0.25 0.45 Net earnings per share in accordance with U.S. GAAP – 0.10 –17.30 – 9.90

Weighted average number of shares outstanding 112 999 556 112 999 556 112 999 556

29 The following is a summary comparing the reported consolidated balance sheets with the balance sheets after approximate adjustments to U.S. GAAP.

As reported in the Approximate amounts after consolidated balance sheets adjustments to U.S. GAAP 1993 1992 1991 1993 1992 1991 Current ﬁnancial assets 2 692 3 075 3 823 2 713 3 091 3 823 Inventories 9 220 9 435 9 426 9 220 9 435 9 426 Other current assets 6 427 6 272 6 099 6 427 6 134 6 180 Deferred tax assets 1 581 110 – 1 823 110 – Investments 110 411 132 90 406 127 Property, plant and equipment 11 826 11 227 11 327 11 613 11 023 11 095 Other capital assets 2 336 2 184 1 870 2 960 2 506 2 239 Total assets 34 192 32 714 32 677 34 846 32 705 32 890

Short-term loans 2 228 3 258 4 978 2 227 3 258 4 978 Other current liabilities 7 336 7 119 6 590 7 328 7 402 6 593 Long-term loans 7 044 6 517 4 443 7 844 7 178 5 112 Pensions and other postretirement beneﬁts 6 571 5 045 4 548 7 260 5 326 4 887 Other long-term liabilities 339 372 206 339 371 206 Deferred income taxes 1 538 1 360 1 416 1 471 1 193 1 426 Minority interest 127 113 172 127 113 172 Shareholders’ equity 9 009 8 930 10 324 8 250 7 864 9 516 Total liabilities and shareholders’ equity 34 192 32 714 32 677 34 846 32 705 32 890

30 NOTE 30 – INVESTMENTS Investments held by Parent Company Holding Number Nominal value Book value in in percent of shares Currency in thousands SEK thousands Bostadsrättsföreningen Flundran, Stockholm, Sweden 1 SEK – 1 635 Bostadsrättsföreningen Kristinelundsgatan nr 5, Göteborg, Sweden 1 SEK – 2 884 Prästgårdsmarkens villaägare, ek.fören., Göteborg, Sweden 60 SEK 60 30 Chalmers Innovation AB, Göteborg, Sweden 4,9 735 SEK 73 255 Fastighets AB Johannebergshus, Göteborg, Sweden 85 SEK 9 2 555 Göteborg-Säve Flygplats AB, Göteborg, Sweden 1 125 SEK 112 114 KB Gösen Gamlestaden 2:5, Göteborg, Sweden 1,0 – SEK 2 935 2 935 Näringslivets Stiftelse för Avfallsbehandling, Stockholm, Sweden 5 SEK 50 0 “Scandinavium”, Göteborg, Sweden 14 SEK 140 41 Stiftelsen Bohus Promotion, Uddevalla, Sweden – SEK 250 0 Svenska Dagbladet Holding AB, Stockholm, Sweden 18 000 SEK 180 180 SwedeChrome AB in liquidation, Malmö, Sweden 44,4 4 218 478 SEK 42 185 0 TIAB Transportköparnas Intresse AB, Göteborg, Sweden 1 000 SEK 100 0 AEC Japan Co Ltd., Japan 50,0 400 JPY 20 000 820 ADELA Investment Company, Luxemburg 2 080 USD 208 0 SIFIDA Investment Company, Luxemburg 275 USD 137 108 Skefko India Bearing Co Ltd., India 39,1 3 136 INR 314 0 S2M, France 18,1 10 560 FRF 1 056 5 416 The Swedish-American Chamber of Commerce, USA 50 USD 50 318 UNIS-UTL, former Yugoslavia 23,0 – YUD 5 214 0 UNIS-Factory Sokolac, former Yugoslavia 10,0 – YUD 64 0 Svenska skolan, Belgium 20 BEF 400 0 Other shares and securities 26 Non-cash issue in P.T. Logam Sari Bearindo, Djakarta 24 470 Investments held by Parent Company 41 787

31 Investments held by subsidiaries Nominal value Book value in Holdings Currency in thousands SEK thousands Hofors Energi, Hofors, Sweden 2 000 SEK 2 000 2 000 Brukens Nordic, Göteborg, Sweden 1 050 000 SEK 1 050 1 663 Jernkontoret, Stockholm, Sweden 8 SEK 187 187 Gävle Sjöfarts AB, Gävle, Sweden 270 SEK 27 54 AB Järnbruksförnödenheter, Stockholm, Sweden 225 SEK 23 51 Tampereen Insinööritoimisto Oy, Finland 1 430 FIM 143 269 Suomen Voimansiirto Oy, Finland 417 FIM 417 566 Elma Oy, Finland FIM 72 Industrilink A/S, Denmark DKK 60 284 Nordtransmission A/S, Denmark DKK 111 170 Saigi, France 4 058 FRF 200 3 996 IPO, France 594 FRF 100 167 SIMES, Belgium 150 BEF 3 000 696 Gemeinnützige Wohnungsbaugesellschaft, Germany DEM 250 1 203 Gesellschaft z. Beseitigung v. Sondermüll in Bayern, Germany DEM 80 385 Gemeinschaftskraftwerk GmbH, Germany DEM 3 300 15 880 Torino Esposizioni S.p.A., Italy 5 175 ITL 52 179 Indesit, Italy 12 775 ITL 128 - Energie S.p.A., Italy 3 000 ITL 3 000 14 879 Technomag AG Bern, Switzerland 100 CHF 100 834 RSS, Austria ATS 412 282 Housing Development Finance Corp. Ltd., India 11 250 INR 1 125 367 United Trust of India, India 2 803 400 INR 28 034 10 277 Industrial credit & investment Corp. of India Ltd., India 3 664 INR 366 96 FAIRSKQ Taiwan Co. Ltd., Taiwan 2 080 TWD 20 800 6 890 FSQ Thailand, Thailand 3 600 THB 5 400 902 Bearhold Philippines, Philippines 400 000 PHP 100 154 Skefko Bearings Newcastle, Australia 12 000 AUD 12 67 CTBC, Brazil BRC 1 040 Telesp, Brazil BRC 58 Société de Distribution de Roulements, Morocco 602 MAD 751 676 Others 4 064 Investments held by subsidiaries 68 408 Investments held by Parent Company 41 787 Total investments 110 195

32 Parent Company income statements

Millions of Swedish kronor 1993 1992 1991

Operations Other operating income 41 423 Selling, administrative and technical expenses –87– 80 – 90 Depreciation note 1 –5– 4 – 4 Operating loss – 51 – 80 – 71

Financial income and expense Dividend income from subsidiaries 364 808 545 Interest income 330 195 134 Interest expense – 419 – 198 – 83 Financial exchange gains and losses –30 154 Income after ﬁnancial income and expense 194 726 579

Extraordinary income note 2 336 152 143 Extraordinary expense note 2 –27– 159 – 234 Net income 503 719 488

Provisions note 3 –1 105 – 0 Taxes 2 –– Reported income for the year 504 824 488

33 Parent Company balance sheets

Millions of Swedish kronor 1993 1992 1991

ASSETS Current assets Current ﬁnancial assets note 4 108 332 254 Trade accounts receivable 0 23 Accounts receivable from consolidated subsidiaries 1 390 1 062 1 292 Other current assets note 5 57 63 106 1 555 1 459 1 655 Capital assets Long-term receivables from consolidated subsidiaries 4 305 2 719 310 Other long-term receivables 16 14 79 Investments in consolidated subsidiaries note 6 6 657 6 235 4 196 Investments, other note 6 42 357 88 Property, plant and equipment note 7 85 83 87 11 105 9 408 4 760 Total assets 12 660 10 867 6 415

LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term liabilities Short-term loans note 8 10 84 1 029 Short-term liabilities to consolidated subsidiaries 1 724 2 265 412 Trade accounts payable, other 8 512 Short-term tax liabilities – 22 Accrued liabilities and deferred income 110 73 70 Other short-term liabilities 9 59 10 1 861 2 488 1 535 Long-term liabilities Long-term loans note 9 2 337 1 316 144 Long-term liabilities to consolidated subsidiaries 1 455 802 3 Pensions note 10 320 315 299 Other long-term liabilities 6 55 Convertible bonds note 11 1 508 1 273 – 5 626 3 711 451 Untaxed reserves note 3 78 77 182 Shareholders’ equity note 12 Restricted equity Share capital (112 999 556 shares, nominal value SEK 12.50 per share) 1 412 1 412 1 412 Legal reserve 455 455 455 Non-restricted earnings Retained earnings 2 724 1 900 1 892 Reported income for the year 504 824 488 5 095 4 591 4 247

Total liabilities and shareholders’ equity 12 660 10 867 6 415

Assets pledged note 13 1 11 Contingent liabilities note 14 1 456 1 143 891

34 Parent Company statements of cash ﬂow

Millions of Swedish kronor 1993 1992 1991

Operating loss before depreciation – 46 – 76 – 67 Extraordinary income and expense – net 309 – 7 – 91 Changes in working capital: Trade accounts receivable 2 1 – 2 Trade accounts payable 3 – 7 – 2 Other current assets and liabilities – net – 878 2 178 – 322 Cash ﬂow from operations – 610 2 089 – 484

Additions to property, plant and equipment –7 0 – 8 Changes in investments – 107 – 2 308 – 371 Cash ﬂow after investments – 724 – 219 – 863

Financial income and expense – net 245 806 650 Taxes 2 –– Cash dividends, AB SKF shareholders – – 480 – 480 Change in loans 1 182 1 500 554 Sale of bonus shares – – 2 Change in other ﬁnancial assets and liabilities – net – 929 – 1 529 – 70

Change in current ﬁnancial assets – 224 78 – 207

35 Notes to the Parent Company financial statements Amounts in millions of Swedish kronor unless otherwise stated. For description of accounting principles, see note 1 to The accelerated depreciation reserve relates to the the consolidated financial statements. following items: 1993 1992 1991 NOTE 1 – DEPRECIATION Land improvement 4 44 1993 1992 1991 Buildings 24 26 27 Machinery and equipment 34 34 35 Buildings 3 22 62 64 66 Machinery and equipment 2 22 5 44 NOTE 4 – CURRENT FINANCIAL ASSETS 1993 1992 1991 NOTE 2 – EXTRAORDINARY INCOME AND EXPENSE Cash and bank accounts 8 611 1993 1992 1991 Other short-term financial receivables 100 326 243 Extraordinary income 108 332 254 Group contribution 174 152 143 Sale of shares in Sandvik AB, net 162 ––NOTE 5 – OTHER CURRENT ASSETS 336 152 143 1993 1992 1991 Extraordinary expense Allowance for shareholders’ Prepaid expenses 11 12 1 contribution –20 ––158 Accrued income 0 127 Group contribution paid –6 – 8 – 76 Other current receivables 46 50 78 Write down of investment in 57 63 106 former Yugoslavia – – 51 – Loss on sale of line of business – – 99 – Expenses plasma technology –1 – 1 – –27 –159 –234

NOTE 3 – PROVISIONS AND UNTAXED RESERVES Provisions: 1993 1992 1991 Change in development reserve 1 21 Change in accelerated depreciation reserve 2 23 Change in reacquisition reserve for real estate – 100 – Change in other reserves –4 1 – 4 –1 105 – 0 Untaxed reserves: 1993 1992 1991 Development reserve 2 35 Accelerated depreciation reserve 62 64 66 Reacquisition reserve for real estate – – 100 Other reserves 14 10 11 78 77 182

36 NOTE 6 – INVESTMENTS The book value of investments increased by 107 in 1993. The increase is primarily referable to capital contributions and subscriptions of new shares in subsidiaries, and the sale of shares in Sandvik AB. For a speciﬁcation of the Parent Company’s holdings of other investments, see note 30 to the consolidated ﬁnancial statements.

Investments in subsidiaries held by the Parent Company on December 31, 1993

Holding Number Nominal value Book value in in percent of shares Currency in thousands SEK thousands Manufacturing companies SKF Sverige AB, Göteborg, Sweden 100 2 650 000 SEK 265 000 323 300 Ovako Steel AB, Hofors, Sweden 100 135 000 SEK 135 000 0 SKF USA, Inc., Pa., USA 99.8 1 406 324 USD 70 316 709 113 SKF Österreich A.G., Austria 100 200 ATS 200 000 100 957 SKF GmbH, Germany 0.1 – DEM 218 121 812 SKF Espanola S.A., Spain 100 2 415 000 ESB 2 415 000 18 514 SKF Specialty Products AB, Göteborg, Sweden 100 190 000 SEK 19 000 28 211 SKF de Mexico S.A. de C.V., Mexico 100 40 000 MXP 40 000 0 SKF do Brasil Limitada, Brazil 99.9 166 750 598 BRC 166 751 183 943 SKF Argentina S.A., Argentina 99.9 499 641 ARS 500 10 587 SKF Bearings India Ltd., India 42.5 1 050 000 INR 105 000 0 SKF Vehicle Parts AB, Göteborg, Sweden 100 115 000 SEK 11 500 13 872 SKF Mekan AB, Katrineholm, Sweden 100 27 500 SEK 27 500 33 348 Lidköping Machine Tools AB, Lidköping, Sweden 100 200 000 SEK 20 000 11 832 Non-cash issue in SKF do Brasil Limitada, Brazil 19 679

Sales Companies SKF Norge A/S, Norway 100 50 000 NOK 5 000 0 Oy SKF AB, Finland 100 48 400 FIM 12 100 12 378 SKF Portugal Rolamentos, Limitada, Portugal 95.0 – PTE 12 350 0 SKF Lozˇiska, a.s., Czech Republic 100 42 CZK 4 200 0 Akciová spolecˇnost pro prodej valivy´ch lozˇisek, Czech Republic 100 1 000 CZK 200 0 SKF Svéd Golyóscsapágy Részvenytársaság, Hungary 100 3 000 HUF 600 0 SKF Hellas S.A., Greece 100 2 000 GRD 10 000 0 SKF Canada Limited, Canada 100 50 000 CAD – 0 SKF Colombia S.A., Colombia 13.4 279 148 COP 69 787 0 SKF del Peru S.A., Peru 100 1 255 829 PES 1 256 0 SKF Chilena S.A.I.C., Chile 100 88 192 CLP 467 923 0 SKF Venezolana S.A., Venezuela 100 4 758 VEB 4 758 1 376 SKF Türk Sanayi ve Ticaret Limited Sirketi, Turkey 0.0 50 TRL 250 1 SKF Japan Ltd., Japan 26.0 25 300 JPY 379 500 0 SKF South East Asia (Pte) Ltd., Singapore 100 1 000 000 SGD 1 000 0 SKF Australia Pty Ltd., Australia 100 96 500 AUD 193 0 SKF New Zealand Limited, New Zealand 100 375 000 NZD 750 0 SKF South Africa (Proprietary) Ltd., South Africa 100 1 422 380 ZAR 2 845 0 SKF Zimbabwe (Private) Limited, Zimbabwe 0.0 1 ZWD 0 0 SKF (Zambia) Ltd., Zambia 0.0 1 ZMK 0 0 SKF Kenya Limited, Kenya 0.0 1 KES 0 0 SKF Eurotrade AB, Göteborg, Sweden 100 83 500 SEK 8 350 10 169 SKF Multitec AB, Helsingborg, Sweden 100 29 500 SEK 2 950 4 545

37 Investments in subsidiaries held by the Parent Company

Holding Number Nominal value Book value in in percent of shares Currency in thousands SEK thousands Other Companies SKF Holding Danmark A/S, Denmark 100 8 DKK 8 000 0 SKF Bearings Ltd., Great Britain 100 10 000 GBP 10 0 Trelanoak Ltd., Great Britan 19.8 2 600 000 GBP 2 600 313 373 SKF Holding Maatschappij Holland B.V., The Netherlands 100 60 000 NLG 60 000 4 407 531 SKF Engineering & Research Centre B.V., The Netherlands 13.4 121 NLG 12 7 684 SKF Verwaltungs A.G., Switzerland 100 500 CHF 250 0 SKF North America Inc., USA 100 1 000 USD 1 8 SKF Holding Mexicana, S.A. de C.V., Mexico 98.0 22 934 231 MXP 2 293 423 180 029 Barseco (Pty) Ltd, South Africa 100 100 ZAR 0 0 SKF Australia (Manufacturing) Pty. Ltd., Australia 100 1 000 000 AUD 2 000 0 Société Solvik Maroc, Morocco 100 2 000 MAD 1 000 0 Société Immobilière de la Rue du Lieutenant Sylvestre, Morocco 100 1 500 MAD 150 0 Compania SKF Nicaragua S.A., Nicaragua 100 140 NIC 140 0 Latinoamericana de Administracion S.A., Panama 100 50 USD 5 0 Nordic Distributor Supply AB, Partille, Sweden 100 150 000 SEK 3 000 0 ScanDust AB, Landskrona, Sweden 75.0 360 000 SEK 36 000 43 001 SKF Plasma Systems AB, Göteborg, Sweden 100 500 SEK 50 51 Nordiska Kullageraktiebolaget, Göteborg, Sweden 100 1 000 SEK 1 000 0 AB SKF-Agenturer, Göteborg, Sweden 100 100 SEK 100 0 SKF Service AB, Göteborg, Sweden 100 80 000 SEK 6 400 9 760 AB Compania Sudamericana SKF, Göteborg, Sweden 100 300 SEK 300 0 AB S.A. des Roulements à Billes Suédois SKF, Göteborg, Sweden 100 100 SEK 100 0 The Chinese SKF Co. AB, Göteborg, Sweden 100 1 000 SEK 100 0 SKF International AB, Göteborg, Sweden 100 20 000 SEK 20 000 19 995 Återförsäkringsaktiebolaget SKF, Göteborg, Sweden 100 30 000 SEK 30 000 30 200 The Indonesian SKF Corporation AB, Göteborg, Sweden 100 1 000 SEK 100 0 SKF Fondförvaltning AB, Göteborg, Sweden 100 2 500 SEK 250 248 AB Svenska Kullagerfabriken, Göteborg, Sweden 100 500 SEK 50 51 SKF Dataservice AB, Göteborg, Sweden 100 500 SEK 50 0 SKF Nova AB, Göteborg, Sweden 100 500 SEK 50 0 AB Transmatic, Göteborg, Sweden 100 500 SEK 50 51 AB SKF Etthundratjugoett, Göteborg, Sweden 100 500 SEK 50 51 AB SKF Etthundratjugotvå, Göteborg, Sweden 100 500 SEK 50 51 AB SKF Etthundratjugotre, Göteborg, Sweden 100 500 SEK 50 51 AB SKF Etthundratjugofyra, Göteborg, Sweden 100 500 SEK 50 51 AB SKF Etthundratjugofem, Göteborg, Sweden 100 500 SEK 50 51 SKF Bearing Industries AB, Göteborg, Sweden 100 500 SEK 50 51 Byggnadsaktiebolaget Åsen, Katrineholm, Sweden 100 500 SEK 50 550 SKF Real Estate AB, Göteborg, Sweden 100 350 000 SEK 35 000 39 621 SKF Fastighetsförvaltning AB, Göteborg, Sweden 100 2 000 SEK 200 245 SKF Support AB, Göteborg, Sweden 100 2 000 SEK 200 245 6 656 586

38 NOTE 7 – PROPERTY, PLANT AND EQUIPMENT 1993 1992 1991 Aqcuisi- Accumu- Aqcuisi- Accumu- Aqcuisi- Accumu- tion lated tion lated tion lated cost depr. cost depr. cost depr. Land 5–5 – 5 – Land improvements 212121 Buildings 107 67 107 64 107 62 Machinery and equipment 71 32 64 30 64 28 185 100 178 95 178 91 Net 85 83 87

Land, land improvements and buildings have been NOTE 10 – PENSIONS assessed values for tax purposes on December 31, 1993 Charges against income in 1993, 1992 and 1991 for pen- as follows: sions and similar plans were 35, 44 and 50 respectively. Assessed Cost less accumu- 253, 246, 237 of the total pension liability in 1993, 1992 tax value lated depreciation and 1991 respectively, are referable to pensions in the Land and land improvements 42 6 FPG-PRI system. Buildings 119 40 161 46 NOTE 11 – CONVERTIBLE LOANS See note 23 to the consolidated financial statements. NOTE 8 – SHORT-TERM LOANS 1993 1992 1991 NOTE 12 – SHAREHOLDERS’ EQUITY Commercial Paper – – 1 004 Current portion of The distribution of the share capital between share types long-term loans 10 84 25 is shown in note 24 to the consolidated financial 10 84 1 029 statements. Changes in shareholders’ equity NOTE 9 – LONG-TERM LOANS Unre- Share Legal stricted Long-term loans at the end of the year, excluding the capital reserve equity Total current portion were: Opening balance 1991-01-01 1 412 453 2 372 4 237 1993 1992 1991 Cash dividends, Bonds 1 795 828 54 AB SKF shareholders –480 –480 Other borrowings 542 488 90 Sale of bonus shares 2 2 2 337 1 316 144 Reported income for the year 488 488 The above loans were denominated in the following Closing balance 1991-12-31 1 412 455 2 380 4 247 currencies: 1993 1992 1991 Cash dividends, AB SKF shareholders –480 –480 Swedish kronor 270 265 97 Reported income United States dollars 2 067 1 051 47 for the year 824 824 2 337 1 316 144 Closing balance 1992-12-31 1 412 455 2 724 4 591 Maturities of long-term loans as at December 31, 1993 Reported income are as follows: for the year 504 504 1995 9 Closing balance 1993-12-31 1 412 455 3 228 5 095 1996 9 1997 568 1998 7 1999 834 2000 and thereafter 910 2 337 The terms of certain loan agreements contain various restrictions, relating principally to further pledging of fixed assets. 39 NOTE 13 – ASSETS PLEDGED NOTE 14 - CONTINGENT LIABILITIES 1993 1992 1991 1993 1992 1991 Mortages in leasehold, land 1 11Guarantees in respect of 1 11 SKF companies’ obligations 1 385 1 011 785 Other guarantees and contingent liabilities 71 132 106 1 456 1 143 891

In 1991 the Parent Company had, after the closing day, assumed guarantees in favor of Ovako’s parent company and some of its subsidiaries. At closing day the amount would have been 399.

NOTE 15 – AVERAGE NUMBER OF EMPLOYEES AT WORK, WAGES AND SALARIES Number of employees, wages and salaries per country: Number of employees Wages and salaries Women Men Total in SEK thousands Sweden (Göteborg) 41 86 127 54 193 Belgium 8 22 30 22 618 Total employees, wages and salaries 49 108 157 76 811

Included in the wages and salaries in Sweden are 6 125 thousands of SEK, related to salaries to the Board of Directors, Managing Director and Deputy Managing Directors. For speciﬁc information regarding salaries and remuneration to the Chairman of the Board, the Managing Director and others see note 28 to the consolidated ﬁnancial statements.

For a deﬁnition of average number of employees see note 1 to the consolidated ﬁnancial statements.

40 41 Bearings and seals

Rolling bearings and seals constitute the SKF Group’s core business and vehicle manufacturers in Europe accounted for 93 percent of total sales in 1993. than on those in the U.S.A. The product program includes a large variety of ball and roller bear- Production of cars in Europe was down by approximately 15 percent on ings, special bearings, seals, tools for mounting and dismounting of bearings, the 1992 figure. Truck production lubricants and measuring and control instruments as well as engineering con- decreased by approximately 20 per- sultancy and training packages. cent during the same period. This The manufacturing of these products is carried out at around 50 facto- naturally had a negative impact on ries in 15 countries. The sales organization consists of a global network of SKF’s sales. However, the decline in wholly owned sales companies and more than 7 000 industrial distributors. SKF’s deliveries to this customer segment, which also includes manufac- Bearings and seals was to be achieved through cost turers of electric motors, whose pur- reductions and the release of capital. (SEK m) 1993 1992 1991 chasing and delivery patterns are Today, when demand appears to be similar to those of the automotive Net sales...... 27 199 22 690 24 347 increasing again, this policy has en- industry, were substantially less than Loss after financial income abled the Group to leave the reces- production cutbacks. SKF’s share of and expense ...... –329 –1 264 –135 sion with a break-even point that is the European automotive market Additions to substantially lower than it was before. increased. property, plant SKF has not only maintained but Ford’s new ‘world car’, the and equipment .... 847 1 022 1 624 increased its share of the European Mondeo, was launched in March, Number of and the global bearing market. 1993. SKF has an agreement with employees registered ...... 38 203 41 523 43 490 In the North American market, Ford which names the Group as the which accounts for more than 25 per- global supplier of all Hub Units, cent of the SKF Group’s sales, McPherson strut bearings and drive he demand curve for ball and demand for bearings has risen slowly shaft bearing units for the Ford roller bearings has been in but steadily since the end of 1990. Mondeo. So far, this model has been T decline since year-end 1989. North America and Europe, the marketed only in Europe, and it was This trend was reversed in 1993. world’s two largest bearing markets, named as European Car of the Year Conditions leveled off, albeit at a low showed completely different trends. in 1993. Ford has had considerable level, during the first part of the fiscal Those bearing producers that are success with sales of this model, and year. Towards the end of the year, the highly dependent on the North this success naturally benefits SKF signs of a recovery became increas- American market – for example too. During 1994, Ford will begin ingly strong and deliveries started to American manufacturers – did not manufacturing and marketing the car rise. Although this was a reflection of experience the same loss of volume in the U.S.A., where it will be mar- general conditions in the world mar- as manufacturers based in Europe. keted under two names: the Ford ket, there were considerable differ- SKF also strengthened its position in Contour and the Mercury Mystique. ences between the major bearing this market. markets. In Japan, the third largest bearing Europe accounts for approximately market, demand started to decline 55 percent of SKF’s sales, which about a year later than in Europe and means developments in this market is still decreasing. However, since are decisive to the Group’s ability to SKF has a market share of less than meet its established profitability tar- one percent, its exposure to Japan is gets. A comparison of the best month minimal. The Japanese market is sup- in the European economic cycle – plied almost exclusively by domestic sales by December 1989 – with the bottom manufacturers. application field 1993 level recorded during 1993 shows a Industrial distributors difference of nearly 40 percent. This SKF gains strength in automotive Vehicle 27% replacement loss of volume imposed a substantial sector 9% Cars strain on the bearing industry. As The largest single purchaser of SKF’s 16% stated in previous annual reports, bearings is the automotive industry, End- SKF implemented a forceful cost- which takes one third of the Group’s users savings program throughout the total sales. During 1993, 16 percent of 6% recession in order to adapt opera- total sales was delivered directly to tions to the new market conditions. manufacturers of cars, 9 percent to Trucks The strategy that the SKF Group manufacturers of trucks, and 8 per- Electrical 9% industry decided to adopt when the economy cent to the vehicle replacement-mar- 5% Railways 3% started to decline in 1990 was to ket. In Europe, SKF is the clear Aero- lower the break-even point, to enable leader among suppliers of bearings to space Heavy industry 6% the Group to generate earnings even the automotive industry. SKF is also 4% General at the lowest levels of volume. This considerably more dependent on machinery 15% 40 The new Saab 900 had a successful introduction during 1993. SKF was chosen as the supplier for almost all of the bearing applications. All four wheels are equipped with SKF Hub Units. The rear wheels are fitted with the latest generation of Hub Units, with integrated speed sensors for the ABS system and the speedometer. SKF also supplies the Hub Units for other European models, such as the new Opel Astra, Citroën Xantia and Fiat Punto. Opel’s V6 engine for the Vectra and Omega models and Saab is fitted with automatic belt tensioner units from SKF. During 1993, Volvo Truck Corporation, the world’s second largest manufacturer of heavy trucks, introduced its new generation of heavy trucks, the FH series, to a very positive reception from the market. 41 SKF is the main supplier of bearings ings to these customers exceeded the SKF experienced continued suc- to Volvo Truck Corporation and for production increases by a substantial cess as a supplier of Hub Units to the the FH series. margin, reflecting the fact that SKF heavy trucks segment. New contracts RFT S.p.A., an Italian subsidiary also improved its market share in were secured during the year. of SKF, manufactures bearing seals these areas. Chrysler and Ford are During 1993, SKF began produc- and other seals for shock absorbers. among the major customers for bear- tion of Hub Units at its plant in Despite the weakness of car sales, the ings. Glasgow, Kentucky. Commissioning company strengthened its position in General Motors, the largest car of the plant went smoothly, and deliv- the market. RFT won new customers manufacturer in the U.S.A., has its eries to the American customers are and increased its market share among own bearing production facilities, but proceeding according to plan. existing customers. SKF has also established itself in this In South Korea, the world’s fastest- area as the supplier of a freewheel growing car market, SKF has been U.S. and South Korean markets also unit for automatic transmissions. GM active for some time as a supplier of show gains is the largest customer for the oil Hub Units to Hyundai and KIA. In the American market, production seals produced by CR, SKF’s North Deliveries to both these customers of cars rose by almost 8 percent and American seals manufacturing com- are increasing and showing positive production of heavy trucks by more pany. development. than 30 percent. SKF’s sales of bear- 42 Bearings and seals

Production of cars in other car-pro- truck sector. Preparatory work was industry decreased by approximately ducing countries, such as Argentina also conducted during 1993 for the 10 percent compared with 1992. The and Brazil, increased strongly during merger of SKF Bearings India export-oriented machinery industry 1993. SKF has substantial shares of Limited and Skefko India Bearing in Italy developed well. SKF these markets and increased its sales. Company Limited. The latter is a strengthened its share of this market The coordination between SKF’s sales company for imported SKF segment. Sales decreased in the U.K. manufacturing units in Argentina and products. The merger is to be com- – particularly to heavy industry, Brazil continued, resulting in lower pleted during the ﬁrst quarter of where reduced investment and cut- production costs. A new manufactur- 1994. backs in the mining industry inhibited ing process for Hub Units was intro- demand. duced in Brazil, providing increased Weak investment climate The American machinery industry capacity to serve this rapidly growing The investment climate in Europe showed a gradual improvement dur- market. remained weak throughout the entire ing 1993. New business opportunities SKF also strengthened its position ﬁscal year. The low level of activity in for SKF emerged in the steel industry in the Indian market, despite rela- Germany set its mark on Europe. and among manufacturers of gear- tively weak demand in the car and Production in the German machinery boxes. SKF’s concentration on TFO Bearings and seals

sales by boxes for the two Italian high-speed Textile machinery components geographical area 1993 trains, the Pendolino and the ETR focused on China 500. Deliveries began during 1993 The Specialty Components Division’s Europe excl. Sweden 50% and will continue until the end of main business consists of textile 1995. The bearings are equipped with machinery components. Most of the ABS and temperature sensors. major customers, especially the Sales of bearings for the German, Japanese, were affected by the French and Swedish high-speed decline in demand for spinning trains were also made during 1993. machines. As a result, demand for Another area showing strong SKF’s textile machinery components growth during 1993 was the newly continued to decline during 1993 and Sweden developed designs of low-floor trams sales were down by approximately 15 3% North for light rail transit systems, particu- percent. SKF therefore focused its America Rest of larly in Germany. efforts on securing new market 27% the world 20% During 1993, SKF received a shares and forming strategic partner- major order for traction motor bear- ships in China. One example of this ings for a new generation of locomo- activity is a joint venture with tives developed by General Motors’ Shanghai Erfangji Co. in Shanghai, (Trouble Free Operation) paid divi- Electro-Motor Division, EMD, in the China, to manufacture spinning dends in the form of new customers U.S.A. EMD’s order for 350 locomo- spindles for spinning machines. As a and increased market shares. tives for an American railway opera- result, production at SKF’s subsidiary In 1991, SKF began manufacturing tor, is the largest order of its kind in SMM Spindel AG in Switzerland is plain bearings in the U.S.A. The new the U.S.A. in modern times. to be discontinued. SKF, which owns operation made a weak start due to During 1993, SKF signed its largest 50 percent of the new company, will the recession that has affected the contract ever with the Chinese rail- be responsible for sales outside U.S. construction industry during the ways organization. The scope of the China, while Shanghai Erfangji will past few years. However, orders agreement comprises 30 000 cylindri- be in charge of the domestic market. received gradually increased during cal roller bearings for axleboxes. The textile machinery components the second half of 1993, and the plant Deliveries started during 1993 and business area also reduced its product in Colebrook, Connecticut, showed will continue throughout 1994. The range to concentrate its activities on an improvement in earnings. Other project includes an option for deliv- the most profitable segments. During important purchasers of plain bear- ery of an additional 10 000 bearings. 1993, some production began to be ings are the materials-handling and transferred from the plant in mining sectors. Continued economies squeeze Cannstatt, Germany, to the sister Demand in Sweden increased airline industry facility in Singapore as a cost-saving gradually during 1993, and SKF As a consequence of the poor profit measure. strengthened its position in the steel situation of the major airlines, and and paper industries. The improved the U.S. Defense Department’s pro- Weak development in the demand was mainly attributable to gram of economies, there was a after-market the export-oriented companies. decrease in the number of new air- Demand was weaker in the after- SKF’s South African subsidiary craft delivered, which resulted in con- market than in other customer seg- was able to resume sales of Swedish- tinued contraction of the market for ments, in both Europe and the manufactured products following the aircraft engine bearings. There is no U.S.A. lifting of the trade ban that had been sign of a recovery at present. This was partly because the exten- in force for many years. A drive to As a result, MRC Bearings, SKF’s sive network of distributors has held recapture lost market shares began, American manufacturer of aircraft down its purchasing in the last few and has so far been successful. engine bearings, continued to reduce years, thereby substantially reducing Modernization of the plant in personnel, while at the same time their inventories. Uitenhage was also started following working shorter hours to hold down Moreover, the continuous improve- the removal of the Swedish invest- production levels. ments in SKF’s delivery service ment ban. To some extent, it was possible to enable distributors to operate with compensate for the decline in sales smaller inventories than before. In Railway bearings – an expanding during 1993 through increased sales Europe, however, the willingness to market to helicopter manufacturers, since tie up capital was also influenced by One customer group that showed this segment showed a more favor- the recession, so that in many cases good growth in 1993 was manufactur- able trend. Boeing and Sikorsky, as inventories were allowed to fall to ers of rolling stock for railways. In well as McDonnell Douglas, con- excessively low levels. Europe, high-speed trains had the cluded new agreements with MRC The exception was the U.K., where highest priority, while the goods wag- covering component deliveries for SKF’s subsidiary, SKF (U.K.) ons segment remained sluggish. their helicopter ranges. Limited, showed a good increase in During 1993, SKF secured signifi- sales to distributors. cant orders for bearings and axle- 44 Bearings and seals

SKF GmbH in Germany continued In Latin America, which consists of the success of this strategy is Georgia to expand its distributor network in typical after-markets, there was no Pacific, a paper manufacturer with 22 eastern Germany. significant change in demand. The plants in the U.S.A., which now pur- SKF further enlarged its sales political unrest in Central America chases SKF products exclusively. organization in eastern Europe. A had a negative impact on business, Shell Oil named SKF “the bearing of new sales office was opened in and the recession in Europe also choice”, which means that all Shell’s Ljubljana, Slovenia, and a regional influenced the consumption of bear- plants now have SKF as standard and office including a technical center was ings in the region. will not accept substitutes. set up in Katowice in southern CR, which also sells to the Poland. In common with the centers Strong growth in Asia Pacific region American after-market, improved its established earlier in Budapest and The Asia Pacific region, excluding sales during the year. Since there was Prague, the Katowice center will be Japan, continued to grow, and SKF’s no noticeable increase in demand, used for training customers’ mainte- sales increased. The rate of increase this improvement can be attributed nance personnel, mainly in the was more than 20 percent in most mainly to increased market shares. A heavier industries. markets. The leading position number of important new customers, Signs of recovery began to appear attained in these markets is attribut- with strong positions in the American in the western parts of the former able to the presence of SKF’s own after-market, established links with Comecon region, where Poland is the organization to support and develop SKF. This will result in increased main market. Industrial production its network of distributors, the deliveries during 1994. continued to decline in other parts of Group’s high level of service and the the region, however, and several high quality of its products and ser- areas are still affected by political vices. unrest. In the large American after- During 1993, SKF’s facilities in market, which is dominated by a few eastern Europe were linked to the major distributors, demand remained Group’s internal data communication relatively unchanged compared with network. Five of these regional 1992. Working closely with its distrib- offices are now directly linked to utors, SKF cultivated its most impor- SKF’s plants and central warehouses, tant customers during 1993 with a resulting in improved customer and view to selling its Trouble Free delivery services. Operation concept. One example of

45 Special steels

Ovako Steel is Europe’s leading manufacturer of rolling bearing steel and a The integration process can be fur- major producer of other special steels. The manufacturing program includes ther expanded. hot-rolled steel and cold-finished steel products in the form of bars, wire and Approximately 45 percent of Ovako Steel’s production goes to tubes. In addition, the company produces rolled rings, forged components and SKF’s bearing production units. OK couplings. The most important customer segments are the rolling bearing The difficult market situation for industry, the automotive industry and the general engineering industry. special steel that prevailed during Ovako Steel has manufacturing units in Sweden, France, the 1992 also affected the first half of Netherlands and the United States. Steel production operations are confined to 1993, resulting in strong pressure on Hofors, in Sweden. market prices. This was accompanied by a doubling of the scrap-metal goal was achieved during 1993 as a price during the first three quarters of Special steels result of a far-reaching reorganiza- the year. Scrap-metal is the raw mate- (SEK m) 1993 1992 tion and close cooperation with SKF’s rial used for the production of steel in Net sales...... 2 891 3 076 bearing operations. It is believed that electric furnaces. This price rise was Loss after financial income lead times could be cut by a further caused by increased demand for com- and expense...... –351 –442 50 percent. The in-depth integration mercial steel from China, among Additions to property, plant and equipment ...... 80 55 of special steel and bearing opera- other countries. tions, within the framework of SKF’s However, the market situation for Number of employees registered...... 3 112 3 545 Channel concept, is facilitating a special steel began to show an streamlining of administrative activ- improvement during the third quar- During 1991 Ovako was reported as an associated company. ities and enabling direct communica- ter of 1993. Order bookings increased tion between product and process and capacity utilization rose, so that development, planning, production after the summer vacation period the he comprehensive reorgan- and logistics. In combination with a steel production plant in Hofors, ization initiated by Ovako standardization of the product range, Sweden, was able to operate at full T Steel during 1992 was pur- this process is gradually eliminating capacity. At the same time, the pros- sued further in 1993. The emphasis the need to maintain raw materials pects for price rises improved in was on two main aims: to focus on inventories at bearing plants. some of Ovako’s markets. improving the quality of products and services, and to work towards improved cost effectiveness in the entire process – from development and production to sales and administration. Investments in the quality area included comprehensive training in quality issues and the formation of groups which were given the task of finding solutions to concrete quality problems. The enhanced level of knowledge which resulted from this endeavor, and improved inspection procedures, brought about a substantial reduction in total quality costs – the combined costs of prevention, inspection, rejected products and compensation claims – during 1993. A decision was also taken during 1993 to invest in a hot scarfing plant to improve the surface quality on products. The plant is to be installed during the third quarter of 1994. Acknowledgement of quality-assurance efforts was received in the form of renewed ISO 9001 approval from Lloyds and quality approval awards from PSA (which includes Peugeot and Citroën) and Ford. Quality in the service area was also improved. During 1992 a drive to halve lead times was initiated. This 46 The central European countries, notably Germany, were an exception to this positive trend. By applying a selective product and marketing strategy, Ovako Steel has improved its product mix, and is now, like other parts of SKF, well positioned to achieve positive development in the next few years. Negotiations began during 1992 to close down the ingot rolling mill and substantially cut back ancillary and administrative personnel in Hällefors, Sweden. After completion of these negotiations in spring 1993, the employees concerned left the company during the second and third quarters. Following the closure, the steel plant in Hofors now has a 100- percent hot flow right up to rolled bil- lets. The closure yielded quality as well as cost benefits for Ovako Steel. The new process for cold-drawn tubing, which was first implemented in Hofors in 1992, was developed further in 1993, resulting in cost benefits and improved product properties. The Hällefors steel plant, which was closed down a few years ago, and the rod mill in Hofors, were sold in 1993.

sales by sales by application field 1993 geographical area 1993

Vehicle replacement 1% Industrial distributors Europe excl. Sweden 44% 7% End-users 1% Cars 14%

Trucks 9% North Sweden America General Heavy 28% 25% machinery industry 21% Rest of 47% the world 3% 47 Parent Company Board of Directors

48 Parent Company Board of Directors

Board of Directors Deputy Board members anders scharp, Stockholm giovanni mario rossignolo, lennart alverå, Göteborg Born 1934. Chairman. Board member Turin, Italy Born 1952. Employee representative. since 1992. Born 1930. Board member since 1987. Deputy board member since 1987. Chairman and Chief Executive Ofﬁcer Chairman Industrie Zanussi, Atlas Copco Chairman Metalworkers’ Union, AB AB Electrolux. Italia, Perstorp Italia and Sanitari Pozzi. SKF, Göteborg. Chairman Saab-Scania AB and Incentive Vice Chairman and member of the Shareholding in SKF: 20 AB. Ericsson S.p.A Executive Committee. Vice Chairman Investor AB and Atlas Board member Ducati Energia and clemens karlsson, Lidköping Copco AB. Consortium (Italy), Electrolux España Born 1934. Employee representative. Board member Email Limited S.A. (Spain) and Schroder Bank. Deputy board member since 1987. (Australia), The Swedish Employers’ Vice Chairman SIF (The Swedish Union Confederation, The Association of sune carlsson, Kilchberg, of Clerical and Technical Employees in Swedish Engineering Industries and The Switzerland Industry), Lidköping Machine Tools AB. Federation of Swedish Industries. Born 1941. Board member since 1991. Shareholding in SKF: 32 Shareholding in SKF: 5 000 Executive Vice President of the ABB Group. marcus wallenberg, Stockholm göran johansson, Göteborg Born 1956. Deputy board member since Born 1945. Employee representative. claes dahlbäck, Stockholm 1988. Board member since 1975. Born 1947. Board member since 1991. Vice Chairman AB Astra, AB Export- First Vice Chairman Executive President Investor AB. Invest and Saab-Scania AB. Committee of the City Council of Board member ASEA AB, AB Astra, Board member Investor AB and Saab Göteborg. Incentive AB, Vin & Sprit AB, AB Automobile AB. Chairman Liseberg AB. Electrolux, Stora Kopparbergs Bergslags Deputy board member SILA, ABA and Board member Götaverken Miljö AB AB (STORA), Saab-Scania AB, ABB The Knut and Alice Wallenberg and Statens Vattenfallsverk. AB and Telefon AB LM Ericsson Foundation. Shareholding in SKF: 100 (Ericsson). Shareholding in SKF: 6 000 mauritz sahlin, Göteborg anders sjöberg, Kungälv michael treschow, Drottningholm Born 1935. President and Group Chief Born 1935. Board member since 1992. Born 1943. Deputy board member since Executive. Board member since 1976. Professor. President of Chalmers 1992. Board member AB Export-Invest, Saab- University of Technology, Göteborg. President and Chief Executive Ofﬁcer Scania AB, Investor AB, Chalmers Board member Skanska AB and Atlas Copco AB. Industriteknik (CIT), Sandvik AB, The Handelsbanken Västra Sverige. Board member Saab Automobile AB. Federation of Swedish Industries and The Shareholding in SKF: 800 Swedish Employers’ Confederation. stig blomberg, Bollebygd Shareholding in SKF: 28 092 plus 2 000 Born 1935. Employee representative. warrants Board member since 1993. Chairman SIF (The Swedish Union of gösta bystedt, Stockholm Clerical and Technical Employees in Born 1929. Board member since 1982. Industry), AB SKF, Göteborg. Chairman AB Export-Invest. Shareholding in SKF: 500 Vice Chairman AB Electrolux and Axel Johnson AB. melker schörling, Lidingö Board member ESAB AB, Atlas Copco Born 1947. Board member since 1993. AB, Förvaltnings AB Hasselfors and The President and Group Chief Executive Federation of Swedish Industries. Skanska AB. Chairman Securitas AB and JM per-olof eriksson, Sandviken Byggnads och Fastighets AB. Born 1938. Board member since 1987. Board member Skanska AB, AB Custos, Group President and CEO of Sandvik Euroc AB and Posten (The Swedish Post). AB. Chairman Svenska Kraftnät (Swedish National Grid). Board member Sandvik AB, Handels- banken, SSAB Swedish Steel Corporation, AB Volvo and The Federation of Swedish Industries.

49 Group organization

Group Chief Executive Mauritz Sahlin

Finance & Information Systems Kaj Thorén Public Affairs Lars G Malmer Treasury Tore Bertilsson Corporate Planning Sten Malmström Legal Krister Peil Manufacturing & Development Rolf Jacobson Personnel & Quality Olle Ranäng Research Henning Wittmeyer

SKF Europe Peter Augustsson SKF North America Ray Langton

SKF Overseas Manufacturing Companies Peter Kaschner SKF Sales Companies Asia Pacific Dale Campkin-Smith

SKF Seals Ray Langton SKF Specialty Components Tommy H Karlsson

SKF Aerospace Ray Langton Ovako Steel Gunnar Gremlin

50 Environment

Protecting the environment – both within and outside the Group’s own plants The materials used in plastic cages – is an important SKF policy. The SKF Group is one of the companies that are not harmful to the environment. have signed the International Chamber of Commerce’s Business Charter for In what way, if at all, does the actual manufacturing process affect Sustainable Development, which includes principles for environmental the environment? management. The production of a rolling bearing This section contains a description of SKF’s main product, rolling bear- requires the utmost precision, since ings, and the process for manufacturing this product. Other operations will be the bearing itself is a precision described at a later stage. product. In the past, solvents were required in certain stages of produc- he primary purpose of a roll- dirt from entering the bearing and tion, to serve as cleaning media or in ing bearing is to minimize the oil and grease from leaking out. the application of rust-prooﬁng T friction. As such the product Other materials found in bearings agents, for example. Trichloro- itself is environmentally compatible, are oils and greases, which function ethylene was a commonly used sol- since it helps to reduce energy con- as lubricants, to reduce friction vent. At an early stage, SKF initiated sumption. between the metallic surfaces. Tradi- the development of a new method for In contrast to many other modern tionally, technical and economic fac- cleaning bearings, with the aim of industrial products, bearings have tors have determined the selection of eliminating the use of organic sol- few components and consist of a lim- lubricants used in a bearing. Today, vents in production. This resulted in a ited number of different materials. In environmental aspects are also completely new washing technology terms of weight, steel is the main weighed into the assessment. As a involving the use of water and a small component. It can be easily recycled result, one type of grease, containing dose of detergent additive, combined within the steel industry. Most small amounts of lead, has been with ultrasonic vibration. The new machines, vehicles and other prod- replaced by a more environmentally technology is currently being intro- ucts that contain bearings are ulti- compatible grease. duced in the Group’s plants and is mately recycled, the scrap being used Most of the rubber materials used also being sold in the open market. as raw material for steel production. in seals are environmentally compat- Thanks to such methods, it has been The cage, a component used to ible, even if ultimately burned in possible to phase out the use of envi- separate the rolling elements, is gen- combustion facilities or steel plants. ronmentally hazardous trichloroethy- erally of steel and sometimes non- However, a small proportion can emit lene solvents in the production pro- ferrous metals, but increasingly is hazardous substances in connection cess at most of the Group’s plants. being made of plastics. Some bear- with combustion under certain condi- ings also incorporate seals to prevent tions.

water comsumption at the fontenay plant Water saving through introduction of closed cooling system m3 per month 20 000

15 000

10 000

5 000

0 J FMAM J J A S OND J FMAM J J A S OND 1992 1993

51 Environment

The use of CFCs, which deplete turing process are steel chips, swarf, by public authorities or licensed the Earth’s ozone layer, has also been used oils, used solvents and general private companies. eliminated and replaced by SKF’s industrial waste. The transition in recent years from own or other similar cleaning The chips are always sold to scrap pure oil to emulsions and totally methods. dealers or back to the steel plants, water-based cutting fluids has In those cases when oil and sol- where they are melted. Accordingly, resulted in better working environ- vents must nonetheless be used in this residual product is recycled in its ments with less oil mist in the air and production, this normally occurs in entirety. reduced waste oil. closed systems, in order to minimize The swarf generated by grinding All SKF facilities – plants as well as vapor emission in the plant. The air is operations consists of a mixture of offices – are devoting continuous analyzed regularly to control the lev- oxidized particles of bearing steel, efforts to reducing the volume of els of oil mist and solvents. particles from the grinding wheels waste and sorting waste at source in All emissions into the outside air, and residual grinding fluids. The order to facilitate recycling. including solid particles, are also swarf is often processed by compa- PCB oils were introduced several measured regularly, to ensure that nies licensed to handle such waste decades ago as efficient and fire- they do not exceed established limits. and is finally sent to a landfill site. proof transformer coolants. Substantial quantities of water are Over the past 15 years, SKF has Subsequently, it was discovered that used in the production of rolling devoted considerable effort to finding PCBs were toxic and could be trans- bearings. Since a large proportion is alternative methods of handling this formed into an even more hazardous used for cooling only, it can be re- waste, mainly with a view to its re-use substance at the temperatures fre- used, which means the real consump- within the metallurgical industry. quently reached in connection with tion of water is relatively low. This Such methods have now been devel- fires. PCBs are also accumulated in water is not polluted and is therefore oped and introduced at the plants in living organisms. As a result, SKF not an environmental problem. Part Sweden, Germany, the U.S.A. and decided at an early stage to stop of the water is used together with a Austria. In France, swarf is used in using transformers and other equip- few percent of oil as an emulsion to the production of cement. The Group ment that contained PCBs, and many function as a coolant and lubricant in intends to introduce similar recycling plants have already completed this connection with turning and grinding. methods at its other plants. process. However, since the switch This can also be recycled, although it The new recycling methods have requires considerable investment, it must finally be removed from the also facilitated an increased re-use of will take several years to completely system. At that stage, it is either dis- the water in the grinding coolant, eliminate all equipment containing charged to a sewer after on-site treat- because very efficient filter presses PCBs. ment, or transported to destruction are used for cleaning it. Used oils, The packaging used for the facilities as liquid waste. emulsions and solvents as well as Group’s products is made exclusively The principal residual products general industrial waste are handled of environmentally compatible mate- resulting from the bearing manufac- rials. Customers may also return used

solvent emissions from the göteborg plant tons/year Trichloroethylene Hydrocarbon solvents 300

250

200

150

100

0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

52 Environment packaging to Group plants for re-use when this is possible. Regular environmental audits are SKF and the environment conducted to ensure that the Group’s production facilities continuously The SKF Group’s overall objective is • Environmental effects shall be operate within the framework of the to attain long-term and sustained taken into account when business regulations and permits issued by profitability. The main task related to decisions are made. this objective is to develop, produce, authorities, and that they adhere to • SKF companies shall strive and market products and services the SKF Group’s environmental pol- towards a constructive communica- that satisfy the needs of our custom- icy. An additional purpose of these tion with their local communities as ers and at the same time are safe for audits is to identify potential environ- well as all environmental authorities their intended use. They should be mental risks and to stimulate further concerned. improvements. efficient in their use of energy, pro- At each SKF plant, one or several tective of the environment, and be • Suppliers and sub-contractors shall employees have been assigned recyclable or safely disposable. be influenced to adopt the principles of this policy. responsibility for coordinating envi- • The term “environment” in this ronmental activities. policy includes the external environ- • SKF companies shall provide safe One essential feature of environment and the internal working condi- and attractive workplaces for all mental work is to create a sound tions as well as health and safety. employees and shall ensure that the working environment for employees. employees are sufficiently educated • Requirements according to current A major problem in the production and trained to apply this policy in laws and regulations are to be consid- process is the noise level. Accord- their daily work. ingly, considerable effort has been ered as minimum requirements. • Regular assessments of compliance devoted to reducing noise, through • All SKF companies shall maintain with this policy shall be conducted by such measures as encapsulating the long-term environmental plans which all SKF companies. Environmental machinery and equipment that create shall be continually adapted to devel- performance shall be measured and high noise levels. At places where opments, new discoveries, and expe- reported regularly to shareholders, noise levels remain high, the use of riences relating to the environment. hearing protection equipment is com- employees, and the public. pulsory. Noise levels in plants are • Operations shall be conducted in a measured regularly, and the hearing manner that protects the environ- of employees working in noisy loca- ment and conserves energy and natu- tions is also examined regularly. ral resources. Environmental performance shall be continuously improved.

freon consumption at the schweinfurt plant

tons/year CFC HCFC 300

250

200

150

100

0 1986 1987 1988 1989 1990 1991 1992 1993

53 Shares and shareholders

Distribution of shares as per December 31, 1993 London Geneva Zürich (1928) (1935) (1985) Stockholm Paris Basel New York (1916) (1929) (1985) (1985) A shares, unrestricted 49 256 332 • B shares, unrestricted 63 743 224 ••••••• Total 112 999 556 Year of introduction on respective stock exchange is indicated within brackets.

The designations A and B indicate the voting power of the share. An A share has one vote and a B share has one-thousandth of one vote. In 1992, the Annual General Meeting abolished the clause restricting the acquisition of shares by foreign nationals and other controlled persons. The SKF share is traded in the U.S.A. through the NASDAQ system via American Depositary Receipts (ADR).

Changes in share capital 1982–1993 Amount paid Share capital Number of shares SEK m SEK m in millions 1982 Bonus issue 1:4 1 350 27.0 1989 Split 4:1 1 350 108.0 1990 Conversion of debentures 62 1 412 113.0

Trading in SKF shares Number of shares Year Stockholm London Stockholm, SEK m 1989 8 426 000 1 802 1990 13 845 000 10 226 000 1 727 1991 27 212 000 38 896 000 2 659 1992 44 497 000 81 900 000 4 064 1993 69 120 000 92 532 000 6 940 Source: Stockholm Stock Exchange, London Stock Exchange

PRICE DEVELOPMENT OF THE SKF B SHARE Swedish price index according to Affärsvärlden Maximum and minimum purchase prices per month SEK SEK 200 200

180 180

160 160

140 140

120 120

100 100

80 80

60 60

40 40 1989 1990 1991 1992 1993

54 Shares and shareholders

Option certificates Share savings fund for employees In 1990, AB SKF issued 11 000 000 option certiﬁcates. SKF Aktiesparfond, a savings fund in which SKF Each option entitles the holder to subscribe for one new employees in Sweden could save during the period 1981 B share at the price of 190 Swedish kronor through June to 1984 was liquidated during 1991, as changes in tax leg- 30, 1995. islation made this type of fund unfavorable. The fund’s assets, SKF shares, were distributed to the members. Convertible bonds A new fund with the same purpose, SKF Allemans- In May, 1992, AB SKF issued zero coupon convertible fond, was started in April 1984. Most of the means of the bonds amounting to 145 million ECU after a 8.75 per- fund have been invested in SKF shares. On December cent discount. At full conversion, 8 437 650 B shares will 31, 1993, the SKF Allemansfond had 917 members and be issued. (See note 23 – Convertible bonds). assets amounting to 67 million Swedish kronor.

Distribution of shareholding Number of shareholders Percent Number of shares Percent 1- 1 000 36 292 92.1 8 129 706 7.2 1 001- 10 000 2 752 7.0 6 738 666 6.0 10 001- 100 000 261 0.7 8 643 765 7.6 100 001- 101 0.2 89 484 923 79.2 Subtotal 39 406 100.0 112 997 060 100.0 Unclaimed bonus shares 2 496 0.0 112 999 556 100.0 Source: VPC AB’s public share register as of 1993-12-30

Ten largest shareholders Number Number In percent of In percent of of shares of votes share capital voting rights 1) AB Investor 15 875 052 15 875 052 14.1 32.2 2) Skanska AB 12 440 000 12 440 000 11.0 25.2 3) Fond 92–94 3 600 000 2 201 400 3.2 4.5 4) Fjärde Allmänna Pensionsfonden 2 846 800 2 846 800 2.5 5.8 5) Försäkringsbolaget SPP 2 696 386 1 682 351 2.4 3.4 6) Abu Dhabi Investment Authority 2 000 000 2 000 1.8 0.0 7) Trygg Ömsesidig Livförsäkring 1 680 588 1 506 574 1.5 3.1 8) Export-Invest AB 1 150 000 1 150 1.0 0.0 9) Vanguard Group 1 000 000 1 000 0.9 0.0 10) Femte Allmänna Pensionsfonden 894 320 894 320 0.8 1.8 39.2 76.0 Source: VPC AB’s public share register as of 1993-12-30

Per-share data (Deﬁnitions see note 1) Swedish kronor/share 1987 1988 1989 1990 1991 1992 1993 Earnings per share 6.65 8.80 13.65 7.70 – 10.40 – 13.20 – 5.70 Dividend per A and B share 3.00 3.50 4.25 4.25 4.25 – – 1) Total dividends in millions of Swedish kronor 324 378 459 480 480 – – Purchase price of B shares at year-end on the Stockholm Stock Exchange 58 99 157 66 94 74 132 Shareholders’ equity per share 87 91 101 108 91 79 80 Risk-bearing capital per share 99 103 116 126 107 92 80 Yield in percent (B) 5.2 3.5 2.7 6.4 4.5 – – P/E ratio, B 8.4 10.9 11.1 8.6 – 9.0 – 5.6 – 23.2 1) Dividend according to the Board’s proposed distribution of surplus. The above data has been adjusted to reﬂect the 1989 stock split and the conversion of debentures into shares in 1990.

55 Seven-year review of the SKF Group

Amounts in millions of Swedish kronor unless otherwise stated 1987 1988 1989 1990 1991 1992 1993

Income statements Net sales ...... 19 604 21 248 25 066 27 766 26 302 26 649 29 200 Sweden ...... 983 1 042 1 143 1 137 969 1 437 1 392 Other operating income ...... 212 177 305 164 238 148 273 Operating expenses ...... –18 504 –19 865 –22 772 –26 015 –26 596 –27 982 –29 376 Operating income/loss...... 1 312 1 560 2 599 1 915 – 56 – 1 185 97 Financial income and expense – net...... – 158 – 41 – 129 – 165 – 165 – 592 – 766 Loss/income after ﬁnancial income and expense..... 1 154 1 519 2 470 1 750 – 221 – 1 777 – 669 Taxes ...... – 430 – 543 – 989 – 719 – 66 280 24 Equity in loss/income of associated companies ...... 42 37 78 – 133 – 907 – – Loss/income after taxes ...... 766 1 013 1 559 898 – 1 194 – 1 497 – 645 Extraordinary income and expense, net of taxes..... 0 –– 14 142 ––214 314 Minority interest ...... – 27 – 34 – 32 – 26 17 7 – Net loss/income ...... 739 979 1 513 1 014 – 1 177 – 1 704 – 331

Balance sheets Current ﬁnancial assets ...... 3 227 3 611 3 417 3 812 3 823 3 075 2 692 Trade accounts receivable ...... 3 889 4 348 4 941 4 976 4 973 5 332 5 655 Inventories ...... 7 550 7 130 8 382 9 954 9 426 9 435 9 220 Other current assets ...... 665 672 662 931 1 126 1 050 1 187 Property, plant and equipment ...... 6 737 7 032 7 504 9 057 11 327 11 227 11 826 Other capital assets ...... 1 494 1 796 2 019 2 574 2 002 2 595 3 612 Total assets ...... 23 562 24 589 26 925 31 304 32 677 32 714 34 192 Short-term loans ...... 2 483 2 890 2 417 3 469 4 978 3 258 2 228 Other short-term liabilities...... 4 456 5 052 5 765 6 107 6 571 7 119 7 680 Long-term loans (including convertible loans) ...... 2 681 1 989 1 940 3 769 4 443 6 517 7 044 Other long-term liabilities ...... 4 163 4 461 5 213 5 564 6 189 6 777 8 104 Minority interest ...... 147 125 146 240 172 113 127 Shareholders’ equity ...... 9 632 10 072 11 444 12 155 10 324 8 930 9 009 Total liabilities and shareholders’ equity ...... 23 562 24 589 26 925 31 304 32 677 32 714 34 192

Key ﬁgures (in percentages unless otherwise stated) * Return on total assets ...... 7.7 8.8 11.9 7.7 1.9 – 2.1 1.9 Return on capital employed ...... 12.2 14.3 20.0 12.7 3.0 – 3.5 3.4 Return on shareholders’ equity ...... 8.1 10.1 14.0 7.3 – 10.3 – 15.3 – 7.4 Proﬁt margin...... 9.0 10.0 12.3 8.3 2.2 – 2.4 2.2 Turnover of total assets, times...... 0.85 0.89 0.97 0.92 0.84 0.84 0.86 Share of risk-bearing capital...... 46.8 46.8 48.7 44.6 36.4 31.5 26.6 Solvency...... 41.6 41.5 43.0 39.6 35.9 27.6 26.7 Loss/earnings per share, kronor ...... 6.65 8.80 13.65 7.70 – 10.40 – 13.20 –5.70 Shareholders’ equity per share, kronor ...... 87 91 101 108 91 79 80

Investments and employees Additions to property, plant and equipment ...... 1 126 1 119 1 290 1 589 1 778 1 121 933 Sweden ...... 122 88 76 98 129 140 238 Research and development expenses ...... 398 414 465 534 538 473 552 Average number of employees at work * ...... 43 693 43 331 46 667 49 305 45 285 46 672 39 439 Sweden ...... 5 401 5 125 5 305 4 996 4 500 6 871 5 975 Number of employees registered at December 31 .... 45 685 47 178 49 413 53 995 52 469 45 151 41 394 Salaries, wages and social charges ...... 8 106 8 468 9 658 11 142 11 279 11 845 12 277 Sweden ...... 1 230 1 318 1 438 1 519 1 488 2 377 1 979

Product areas ** Net sales Bearings and seals ** ...... 18 515 20 115 23 754 26 476 24 347 22 690 27 199 Tools ...... 1 094 1 165 1 246 1 332 1 978 1 731 – Special steels ...... –––––3 076 2 891 Other and eliminations **...... – 5 – 32 66 – 42 – 23 – 848 – 890 19 604 21 248 25 066 27 766 26 302 26 649 29 200 Loss/income after ﬁnancial income and expense Bearings and seals ** ...... 1 073 1 399 2 399 1 709 – 135 – 1 264 – 329 Tools ...... 111 142 127 40 – 103 – 117 – Special steels ...... ––––––442 – 351 Other and eliminations **...... – 30 – 22 – 56 1 17 46 11 1 154 1 519 2 470 1 750 – 221 – 1 777 – 669

* For deﬁnitions see note 1. ** Previously published amounts from 1987 through 1991 have been restated to conform to the current Group structure.

56 Graphic Design/Production: Wezäta Information AB, Gothenburg. Printed in Sweden 1994