Annual Report 1993

financial information and reportingAB SKF is publishing the following financial reportsconcerning 1994:Report on first quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April 28Report on first six months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . August 11Report on first nine months . . . . . . . . . . . . . . . . . . . . . . . . . . . . October 27Report on 1994 operations . . . . . . . . . . . . . . . . . . . February 23, 1995

The above reports are available in Swedish and English.In addition to these reports, an annual report, Form

20-F, is produced for the Securities and ExchangeCommission, U.S.A.

annual general meetingThe Annual General Meeting will be held at SKF Kristine-dal, Byfogdegatan 4, Göteborg, at 3.30 p.m. on ThursdayApril 28, 1994.

In order to participate in the meeting, shareholders mustbe recorded in the shareholders’ register maintained by theSecurities Register Centre (VPC AB) by Monday April 18,and must notify the Company before noon Monday April25, of their intention to attend (AB SKF, Group Legal,S–415 50 Göteborg, Sweden, tel. + 46-31-37 26 52), givingdetails of name, address, telephone and shareholding.

dividendsThe Board of Directors proposes that no dividend be paidbased on the financial year 1993.

This annual report is a translation of the Swedish original.

contents

Letter from the President and Group Chief Executive . . . . 2Board of Directors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Proposed distribution of surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Auditors’ report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Consolidated income statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Consolidated balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Consolidated statements of cash flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Notes to the consolidated financial statements. . . . . . . . . . . . . . . 14Parent Company income statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Parent Company balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Parent Company statements of cash flow. . . . . . . . . . . . . . . . . . . . . . . 33Notes to the Parent Company financial statements . . . . . . . . 34SKF plants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39Bearings and seals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Special steels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46Parent Company Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48Group organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51Shares and shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54Seven-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

partnership and product development are thekeynotes of this year’s pictorial themeWorking closely with customers in the development and improve-ment of their products and processes, SKF personnel contributetheir expertise in the field of bearings, seals and special steels. TheGroup’s comprehensive resources in research and developmentplay a significant role here.

Cooperation and development work carried out with the cus-tomers often lead to new products or new solutions for improvingexisting products or processes.

This year’s pictures show a few examples of the results beingachieved.

3

The SKF Group

FIAT PUNTONEW SAAB 900

CITROEN XANTIAVOLVO FH SERIES

All have selected SKF wheel bearings

INVENTORIESCONTINUE TO

DECREASEAdditional reductions

will be made

CHANNELCONCEPTHALVES

LEAD TIMESin production.

Further improve-ments planned

SUCCESSES IN

RAILWAYSEGMENT

both geographicallyand in terms of

products

INCREASEDMARKETSHARE

SKF strengthened its leadership

in several areas

FOCUS ON

QUALITYMajor program

for training of allemployees

SKF is the world’s leading company in the rolling bearingindustry. The Company’s share of the world market,excluding China and the former Comecon countries, isapproximately 20 percent, making it twice as large as itsnearest competitor.

Wherever there is rotation, there is a need for someform of bearing. The function of a rolling bearing is toeliminate or reduce the friction between a fixed and amoving surface, and to carry a load. The life of a rollingbearing shall be compatible with the life of the applicationin which it is installed. Since the use of rolling bearings is acost-effective solution, they are found in all types ofengines, machines and wheels.

A seal is a product that separates a machine componentfrom the outside world, either by preventing penetrationby foreign particles, or by ensuring that there is no leakageout.

Rolling bearings and seals constitute the Group’s corebusiness.

SKF’s policy is to provide a full range of rolling bear-ings, to ensure that it is always able to offer the best solu-

tion to a customer’s problem, regardless of the type ofbearing required. Group policy also includes maintainingsuch a geographic presence — either through its own salescompanies, or through authorized distributors — that SKFis always within reach of the customer.

SKF is aiming to further enhance its leading position inthe core business.

1993 1992

Net sales, SEK m 29 200 26 649Loss after financial incomeand expense, SEK m – 669 – 1 777

Loss per share, before extra-ordinary items, SEK – 5.70 – 13.20

Dividends per share, SEK –* –Number of employees registered at December 31 41 394 45 151

* The Board of Directors proposes that no dividend be paid basedon the financial year 1993

D uring the late autumn, it becameincreasingly noticeable that the econ-omy was turning upwards, facilitated

by industry’s increased willingness to invest.However, the level remains low compared withthe final years of the most recent economicboom and the economies of a few major mar-kets are still weak. Nonetheless, the overalleconomic picture is favorable and significantlybetter than a year ago.

Germany and France have not yet shown anydefinite signs of improvement. High costs,especially in Germany, combined with highexchange rates are extending the recession.Japan is showing a similar trend.

The improved industrial climate is naturallybeneficial to SKF and its future development.

The recession has had a severe impact on theinvestment-intensive rolling bearing industry.Powerful and sophisticated machinery isrequired to manufacture high-quality rollingbearings with close tolerances at a fast paceand with high productivity. Backing every100 kronor’s worth of sales there is machineryworth 50 kronor. This is more than most of ourcustomers have in manufacturing resources.

The heavy investment in machinery makesthe industry sensitive to large shifts in volume.The downturn experienced during 1990–1993transformed most of our competitors, and SKFitself, into loss-making companies.

No major changes in the structure of thebearing industry have been experienced duringthe recession. A small German competitor wasdeclared bankrupt and is now in receivership.Another German competitor has sold severalof its operations, both in and outside the bear-ing industry, to safeguard its financial position.

In my opinion, the restructuring of the indus-try, which has been interrupted due to theEuropean recession, will continue. We intendto participate in this process.

But even in a recession, good performanceyields rewards. Our high quality and improvedservice have helped us to strengthen our mar-ket leadership. In addition, our product devel-opment activities have provided us with severalnew business operations. Thanks to the jointefforts of the entire Group, we were able toincrease our market share during the recession.

Today, the concept of quality is being radi-cally redefined. For a considerable time, qual-

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 gra-

dually. Now finally, European industry has

also been influenced in a positive direction.

4

Letter from the President andGroup Chief Executive

ity was synonymous with product quality.Today, quality is a comprehensive concept,encompassing products, production processesand the entire service organization. A companyis very unlikely to meet its quality require-ments unless all of its employees are engagedin quality-enhancement activities. At SKF, thismeans all of the Group’s 41 394 employees.During the current year, we are devoting con-siderable time and effort to providing goal-oriented and well-structured training for allemployees, as part of our very committed focuson quality enhancement.

Ever since its formation, SKF has maintaineda prominent quality profile. However, quality-related demands are changing continuously,thereby accentuating the need for a change-oriented organization. Since demands relatingto the environment are also changing, in termsof both products and processes, we haverefined our quality policy accordingly.

In the 1910s and 1920s, when SKF laid thefoundation for its presence in the internationalmarket – which is one of the Group’s majorcurrent strengths – the world was divided into alarge number of national markets. Most impor-tant markets demanded a presence in the formof manufacturing operations.

As the traditional and national markets havebeen replaced by such organizations as the EU,NAFTA and Mercosur, business transactionsand relationships have become increasinglyglobal. As a result, the need to conduct manu-facturing operations in all individual marketshas changed.

Today, SKF is able to satisfy market require-ments using fewer plants, fewer machines andfewer employees. The trend is towards havingfewer but highly productive plants, sometimeswith a responsibility for supplying even a glo-bal market.

Accordingly, we continued to implement ourrationalization program during 1993. Decisionswere taken regarding plant closures and otherstructural changes that will improve productiv-ity, while simultaneously reducing our fixedcosts.

The Channel concept has been very success-ful. We have become faster and more efficient.However, the scope exists for making furtherimprovements. Being organized in channelsinvolves arranging work along the flows fromraw materials to the customer. This provides abetter overview and enriches our employees’work assignments.

We are now moving out of the recession withreduced cost levels, lower inventories, animproved organizational structure and a manu-facturing process based on the Channel con-cept. We shall capitalize on the opportunitiesprovided by the stronger market. However, themarket is sensitive. If SKF is to successfullyadapt to the new market conditions of thefuture, it must be highly flexible. We have sig-nificantly improved our flexibility during therecession.

5

Letter from the President and Group Chief Executive

6

Board of Directors’ Report

T he 1993 fiscal year was yetanother year characterized byextensive restructuring activ-

ity within SKF. Cost reductions andcontinued personnel reductions werecombined with productivity improve-ment measures, intensive market cul-tivation and an unchanged level ofinvestments in research and develop-ment.

The Group was successful in itsmarkets and, compared with 1992,the decline in SKF’s sales volume wasless substantial than the decline inthe market as a whole. In otherwords, the Group advanced its posi-tions in a harsh market. A gradualimprovement in earnings was alsoachieved, despite the fact that therewas no significant increase in pricesin the market. During the final quar-ter of the year, signs of a volumeupswing in the European market alsobecame noticeable.

In Europe, demand for rollingbearings leveled off and bottomedout during 1993. This has been themost protracted recession in moderntime.

The Gross National Products ofmost European countries were lowerin 1993 than in 1992. Industrial out-put, an important yardstick for SKF,fell by slightly more than 3 percent.The automotive industry, which isSKF’s most important customer cate-gory by far, experienced a more sub-stantial decline, of about 15 percentcompared with 1992. However, SKF’ssales to this customer category didnot decline as much.

In Germany, the dominatingEuropean market, industrial outputdecreased by more than 7 percent,and the GNP by 2 percent, comparedwith 1992. The approximately 19-percent decrease in Germany’s auto-motive industry was greater than theaverage decrease in Europe as awhole. Germany accounted fornearly 20 percent of SKF’s sales.

Continued growth in U.S.A.Demand in the North American mar-ket continued to rise slowly butsteadily during 1993. However, theimprovement in the U.S.A. did notoffset the weak trends in Europe,which accounts for approximately 55percent of the SKF Group’s sales.North America’s share is more than25 percent.

The upswing in the U.S.A. wasspearheaded by the automotiveindustry. The machinery segment alsoshowed improvements, while trendsin the after-market were not so favor-able. GNP growth in the U.S.A. wasapproximately 3 percent, while indus-trial output rose by about 5 percent.

Japan is the world’s third largestrolling bearing market. As inGermany, trends in this market werenegative. Japan’s GNP decreasedcompared with 1992 and its industrialoutput fell by about 4 percent. How-ever, SKF’s share of this market isvery limited.

In the significantly smaller butfastest growing market, Asia Pacific,excluding Japan, demand for theGroup’s products continued to befavorable. This part of the world isprimarily an after-market, in whichSKF has attained an increasinglystrong position. SKF is the largestindividual supplier of bearings in thismarket, a position attained throughthe Group’s systematic focus onestablishing its own sales channels inseveral countries in this region at theend of the 1980s. SKF’s position hasnow been further enhanced throughthe establishment of the plant inMalaysia.

SKF investigates investmentsin ChinaDuring the autumn of 1993, SKFinitiated feasibility studies regardingthe prospects of establishing a rollingbearing manufacturing operation inChina.

SKF considers China’s growing auto-motive output and major investmentsin railways to be attractive areas.

If the feasibility studies yield favor-able results, SKF intends to com-mence production in China. Thestudies are expected to be completedduring the first half of 1994.

Improvement towards end of 1993During each of the first three quar-ters of 1993, sales volumes remainedvirtually unchanged, although at asignificantly lower level than in thepreceding year. During the final quar-ter of the year, however, an improve-ment in sales was noticeable anddeliveries increased. The improve-ment was felt by both the automotiveand the machinery segment, as wellas the after-market. SKF’s steel busi-

ness, Ovako Steel, started to experi-ence improved volumes as early asthe third quarter of 1993.

At the beginning of 1993, the rateof production at the Group’s plantswas lower than the rate of sales.During the summer, SKF decided togradually increase the rate of produc-tion. The abbreviated working weeksimplemented at most plants duringthe first half of 1993 were graduallyphased out.

The improved capacity utilizationresulted in better cost coverage.

Inventories and accounts receivableThe Group’s inventories amounted toSEK 9 220 m (9 435) at year-end. Asa result of the weakening of theSwedish krona during 1993, the valueof inventories rose by approximatelySEK 900 m. Had the value of theSwedish krona been unchanged,inventories would have decreased byapproximately SEK 1 100 m.Expressed as a percentage of annualsales and in fixed exchange rate,inventories amounted to 30.8 percent.

As a percentage of annual sales,SKF’s inventories are on a par with orlower than its Western competitors.On the other hand, the Group has ahigher percentage than its Japanesecompetitors. However, when makingsuch comparisons, it should beremembered that Japanese producerstransfer their inventories to distrib-utors at an early stage and therebyhave a higher portion of capital tiedup in accounts receivable. In addi-tion, they are major purchasers of fin-ished components, such as balls andrings, which further reduces theircapital tied up in inventories.

SKF aims to further reduce itsinventories in relation to sales.Activities related to the Channelconcept continued, with the aim ofreducing lead times, improving flowsand reducing change-over times. Thishas resulted in a significant reductionin inventories at all levels.

The new European central ware-house, in Tongeren, Belgium, wascompleted at the beginning of 1994,following which relocation from thevarious local European warehousescould begin. This process will con-tinue until 1997. The SKF companiesin Belgium and the Netherlands willbe the first to transfer their invento-ries to Tongeren.

7

8

The cost of the investment in thecentral warehouse and relocationsfrom 20 local warehouses is estimatedat approximately SEK 200 m.

Continued rationalizationsDuring 1992, SEK 1.1 billion wasallocated to cover the costs related torestructuring and rationalizationactivities during 1993 and the firsthalf of 1994. During the first half of1993, it was announced that theCelaya plant, one of the Group’s twoplants in Mexico, would be closed.The closure will be implemented dur-ing 1994. In addition, part of the pro-duction of textile machinery compo-nents at Cannstatt, Germany, will betransferred to the sister plant inSingapore. Turning and heat treat-ment of bearings at the plant inLuton, England, is being discontin-ued. This operation is being trans-ferred to the Göteborg plant, whichcan take over these volumes withinthe framework of its existing capacity.

During the autumn of 1993, it wasalso announced that SKF is to closeits bearing plant in Madrid, one oftwo plants in Spain. This operationcan also be taken over by other SKFfactories within the framework oftheir existing resources.

Accordingly, approximately SEK500 m of the SEK 1.1 billion provi-sion was utilized during 1993.

SKF’s increased focus on its corebusiness, rolling bearings and seals,resulted in the sale of three manufac-turing companies during 1993 –Stellana AB in Laxå and Fixtur-LaserAB in Mölndal, Sweden, and theFrench subsidiary ADR S.A. inThomery. In addition, a number ofsmall sales companies were sold.

Although the measures imple-mented reduced the Group’s fixedcosts, they do not affect its capacityto meet increasing demand.

Channel concept realizingexpectationsOne of the goals when implementingthe Channel concept in SKF’s plantswas to reduce lead times in produc-tion by 50 percent, from 18 weeks in1989 to nine weeks at the end of1993. This goal has been achieved.According to SKF’s Channel concept,lead times include both the actualproduction of bearings and the timerequired for the delivery of raw

Board of Directors’ Report

materials. The concept covers all ofthe Group’s plants throughout theworld. The Group is continuing todevote intensive efforts to furtherreducing lead times. At the start ofthe 1994 fiscal year, the lead time inproduction was 8.5 weeks. Certainchannels have now established newtargets, involving an additional 50-percent reduction.

In addition to promoting newthinking in the areas of structure andorganization at workshop level –where responsibility, team work andinitiative are encouraged – theChannel concept has also reducedunplanned downtime at SKF’s unitsby close to 50 percent. Shorter leadtimes also result in more flexible pro-duction, thereby enabling a reductionof inventories of finished and semifin-ished products.

Today, the SKF Group has approx-imately 430 production channels.

A project aimed at rationalizingthe Group’s product range wasinitiated during 1993. The objective isto reduce the range of rolling bear-ings by one fourth during 1993 and1994. The main focus is on the low-volume segment, from which a largenumber of products were phased outduring 1993. This process is beingimplemented in close cooperationwith customers, whereby SKF’sengineers help customers to choosesuitable replacement bearings fromthe high-volume segment. More thanhalf of the products to be phased outaccording to this project has alreadybeen removed from the range.

Steel market turning upwardsOvako Steel, SKF’s steel operation,was also able to look upon 1993 asthe year when the decline wasreversed and conditions started toimprove. At the start of the year, vol-umes and prices were falling, whilecosts of scrap-metal, the raw mate-rial, were increasing. Although animprovement in conditions for com-mercial steel was noted relativelyearly during the year, this did notimpact on the special steel industryuntil towards the end of the year.

From Ovako Steel’s viewpoint, the1993 fiscal year largely entailed acontinuation of already initiatedactivities aimed at reducing costs andfurther increasing the quality of itsproducts and services.

Better adaptation to customer needsThe SKF Group continued todevelop its organization during 1993.The new structure involves a decen-tralization of operational activitiesand a centralization of service func-tions.

SKF has now six internationalproduct divisions – deep groove ballbearings, spherical roller bearings,taper roller bearings, cylindricalroller bearings, Hub Units and gen-eral bearings – each of which hastotal responsibility for product devel-opment, production and productionplanning in Europe, and responsibil-ity for coordination with the corre-sponding manufacturing units in therest of the world.

Marketing and sales activities areorganized in two divisions, one focus-ing on automotive and electric motorcustomers and the other on industrialcustomers.

Two new Group divisions wereformed during the year. The SealsDivision consists of the oil seals oper-ations of U.S.A.-based CR – ChicagoRawhide – and the Italian bearingseals operations within RFT S.p.a.The second division engages in theproduction and sales of rolling bear-ings for aircraft engines, with manu-facturing units in the U.S.A. andEurope.

QualityQuality assurance activities areassigned the highest priority at SKF.The Group’s leading market positionis based on strong quality awareness.The concept of “quality” is dynamic;it is being developed continuously.

During 1993, SKF decided to fur-ther increase the Group’s focus onquality. Accordingly, all employeeswill undergo additional training andeducation during 1994 and 1995, withthe aim of improving service, increas-ing productivity and reducing costs.

One example of the many activitiesdesigned to promote quality con-sciousness is the fact that all Groupemployees are to participate in atleast one quality-enhancing projectper year.

9

Board of Directors’ Report

Industrial distributors 26%

Cars 16%

Generalmachinery17%

End-users6%

Vehiclereplacement8%

sales byapplication field 1993

Railways2%

Trucks9%

Heavy industry 7%

Aero-space4%

Electrical industry5%

inventoriesin percent of sales

20

22

24

26

28

30

32

34

36

38

40

ActualBased on fixed exchange rates as from 1992

9392919089

%

Key ratios for 1992 exclude CTT Tools

Europe excl. Sweden 49%

Sweden5%

NorthAmerica 27%

Rest ofthe world 19%

sales bygeographical area 1993

net sales

0

3 000

6 000

9 000

12 000

15 000

18 000

21 000

24 000

27 000

30 000

33 000

9392919089

SEK m

income/loss

–2 000

–1 500

–1 000

– 500

0

500

1 000

1 500

2 000

2 500

3 000

Operating income/lossIncome/loss after financialincome and expense

9392919089

SEK m

profitability(Definitions see note 1)

–16

–12

– 8

– 4

0

4

8

12

16

20

24Return on shareholders’ equityReturn on total assetsReturn on capital employed

9392919089

%

earnings anddividends per share

(Definition see note 1)

–15

–12

– 9

– 6

– 3

0

3

6

9

12

15

9392919089

SEKEarningsDividends

capital expenditures

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

9392919089

SEK m

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

9392919089

number ofemployees registered

10

Group resultThe Group’s loss after financialincome and expense in 1993 was SEK–669 m, as against SEK –1 777 m in1992. Group sales totaled SEK29 200 m during the year, comparedwith SEK 26 649 m in 1992. Salesduring 1992 included approximatelySEK 1 700 m relating to the Group’sformer tools operation, CTT Tools.Excluding CTT Tools and taking theeffects of the weaker Swedish kronainto account, Group sales decreasedby approximately 4 percent during1993.

Other operating income of SEK273 m (148) include a gain of ap-proximately SEK 160 m relating tothe sale of fixed assets during thefourth quarter of the year.

Restructuring expenses of approxi-mately SEK 250 m for the ongoingrationalization process were chargedagainst income for the year, in addi-

Board of Directors’ Report

11

Board of Directors’ Report

tion to the amount of approximatelySEK 500 m that was utilized from theSEK 1.1 billion provision posted in1992.

The Group’s operating income,after depreciation of SEK 1 456 m(1 296), was SEK 97 m (–1 185). Netfinancial items amounted to SEK–766 m (–592).

Of the Group’s loss after financialincome and expense of SEK –669 m(–1 777), bearings and sealsaccounted for SEK –329 m (–1 264)and special steels for SEK –351 m(–442).

Taxes paid and the reduction ofdeferred tax had a positive net effecton tax of SEK 24 m (280). Minorityinterest in Group results was SEK0 m (–7).

The Group’s loss after taxes for1993 was SEK –645 m (–1 497). Netextraordinary income and expenseamounted to SEK 314 m (–214),which includes an expense after taxof SEK 572 m relating to the Group’sapplication of a new accounting prin-ciple, Statement of FinancialAccounting Standards No. 106,“Employers’ Accounting forPostretirement Benefits Other ThanPensions” (FAS 106). Extraordinaryincome amounted to SEK 886 m,which includes net extraordinaryincome of SEK 154 m mainly pertain-ing to the sale of the Sandvik sharesreceived in connection with the saleof the Group’s tools division, CTTTools, in 1992. This item also includesa net extraordinary income of SEK732 m, resulting from the applicationof a new accounting principle for thereporting of deferred taxes, FAS 109,“Accounting for Income Taxes.”

Earnings per share before andafter extraordinary items amountedto SEK –5.70 (–13.20) and SEK –2.95(–15.10) respectively. Return on capi-tal employed was 3.4 percent (–3.9)and on shareholders’ equity –7.4 per-cent (-15.1). Group solvencyamounted to 26.7 percent (27.6) atyear-end. The key ratios for 1992exclude CTT Tools.

Positive cash flow and reduced netindebtednessCalculated in fixed exchange rates,the SKF Group’s operations gener-ated a positive cash flow of approxi-mately SEK 740 m for 1993.

However, following the translationof foreign balance sheet items intoSwedish kronor, the Group’s netindebtedness expressed in Swedishkronor decreased by only SEK222 m, from SEK 5 460 m to SEK5 238 m. This was because theSwedish krona weakened by approxi-mately 10 percent during the year.

As stated earlier, the Group’s netindebtedness was SEK 5 238 m atyear-end. This item consists of totalloans, SEK 9 272 m, less total finan-cial assets of SEK 4 034 m. Of thefinancial assets, short-term invest-ments amounted to SEK 2 692 m.

Against the background of reducedsolvency, the SKF Group has focusedon extending the duration of the loanportfolio. The current policy is thatthe financing of operations be fullysecured through long-term financing.The loan portfolio was further con-solidated during 1993 through theissue in the U.S. bond market of a10-year loan in an amount of USD100 million.

In addition to ongoing loan agree-ments, SKF has, as a liquidityreserve, unutilized long-term creditagreements with several banks. TheParent Company’s unutilized creditfacilities amounted to SEK 2 780 m atyear-end. The Group’s unutilizedcredit facilities totaled SEK 7 125 m.

Most of the Group’s borrowing isundertaken at floating interest rates,either directly or in the form of deriv-ative instruments.

Currency trendsSince the manufacturing and sale ofthe Group’s products are conductedat many locations throughout theworld, the SKF Group operates in alarge number of different currencies.Accordingly, the Group’s risks arenot restricted to any individual cur-rency. Changes in exchange rates thatresult in immediate benefits for man-ufacturing units in one country oftenresult in corresponding disadvantageselsewhere. Moreover, it takes timebefore enduring changes in competi-tiveness have any real impact.

In the short term, currency move-ments during 1992 and 1993 benefitedSKF from the viewpoint of competi-tiveness. Most of the production ofthe Group’s competitors is located incountries whose currencies have been

strengthened. Although a substantialportion of SKF’s production capacityis located in hard-currency countries,a major portion of the Group’s manu-facturing operations is conducted incountries whose currencies havedepreciated. However, SKF’s earlierhedging of currency flows during1993 meant that the effects of theSwedish depreciation on Group oper-ations has been delayed.

SKF’s internal bank has net inflowsin about 20 different currencies. Thelargest individual currencies are theU.S. dollar and the German mark.These largely correspond to netexports from a handful of Europeancountries, mainly Sweden, Italy andFrance. SKF’s policy is to hedge theseflows for periods of up to six months.With respect to 1994, however, mostof the net exports from Sweden havebeen hedged at the rates prevailingduring the final months of 1993.

SKF has a convertible bond loanoutstanding in an amount of ECU162 million. As a result of the revalu-ation of this loan due to the weaken-ing of the Swedish krona, an amountof SEK –116 m was charged againstincome. The loan is of the zero-cou-pon type, which means that no inter-est payments or amortizations aremade during the duration of the loan.Accordingly, the final effect will notbe known until the loan has beenredeemed or converted into share-holders’ equity.

Capital expenditures in property,plant and equipment during 1993totaled SEK 933 m (1 121) andrelated to the rationalization andmodernization of the Group’s manyplants. R&D during the year totaledSEK 552 m (473), representing about1.9 percent (1.8) of sales for the year.

Continued reduction in numberof employeesThe number of employees registereddeclined by 3 757 during the year andamounted to 41 394 (45 151) at year-end. The average number of em-ployees at work was 39 439 (46 672,incl. CTT Tools), of whom 5 975(6 871) were located in Sweden (seenote 28 – “Average number ofemployees at work, wages andsalaries”).

12

Proposed distribution of surplus

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

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

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

Göteborg, February 23, 1994

Anders Scharp Göran JohanssonMauritz Sahlin Gösta BystedtPer-Olof Eriksson Giovanni Mario RossignoloSune Carlsson Claes DahlbäckAnders Sjöberg Stig BlombergMelker Schörling

Auditors’ report

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

Parent CompanyThe annual report has been prepared in accordance with the SwedishCompanies’ Act.

We recommend that the general meeting of the shareholders resolve toadopt the income statement and the balance sheet, distribute the surplus inaccordance with the proposal in the Board of Directors’ report, and dischargethe Board of Directors and the Managing Director from liability for theiradministration of the company for the year 1993.

GroupThe consolidated financial statements have been prepared in accordance withthe Swedish Companies’ Act.

We recommend that the general meeting of the shareholders resolve toadopt the consolidated income statement and the consolidated balance sheet.

Göteborg, March 4, 1994

Olof HerolfAuthorized PublicAccountantPrice Waterhouse

Åke Gustavsson Nils BrehmerAuthorized PublicAccountantÖhrlings Reveko AB

13

Consolidated income statements

Millions of Swedish kronor 1993 1992 1991

Net sales 29 200 26 649 26 302Other operating income 273 148 238

Cost of goods sold – 21 561 – 20 369 – 19 181Selling, administrative and

technical expenses note 2 – 6 359 – 6 317 – 6 338Depreciation 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 – 66Equity 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 7 17

Net loss – 331 – 1 704 – 1 177

14

Consolidated balance sheets

Millions of Swedish kronor 1993 1992 1991

ASSETS

Current assetsCurrent financial assets note 8 2 692 3 075 3 823Trade accounts receivable note 9 5 655 5 332 4 973Inventories note 10 9 220 9 435 9 426Short-term tax assets note 5 415 110 –Other current assets note 11 772 940 1 126

18 754 18 892 19 348

Capital assetsLong-term financial assets note 12 1 342 1 240 1 038Investments note 13, 30 110 411 132Property, plant and equipment note 14 11 826 11 227 11 327Long-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 liabilitiesShort-term loans note 16 2 228 3 258 4 978Trade accounts payable note 17 2 182 1 915 2 306Short-term tax liabilities note 5 528 74 90Other short-term liabilities note 18 4 970 5 130 4 175

9 908 10 377 11 549

Long-term liabilitiesLong-term loans note 19 5 536 5 244 4 443Pensions and other

postretirement benefits note 20 6 571 5 045 4 548Long-term tax liabilities note 5 1 194 1 360 1 435Other long-term liabilities note 21 339 372 206Convertible bonds note 23 1 508 1 273 –

15 148 13 294 10 632

Minority interest 127 113 172

Shareholders’ equity note 24Restricted equityShare capital 1 412 1 412 1 412Restricted reserves 5 497 4 064 5 466Unrestricted equityUnrestricted reserves 2 431 5 158 4 623Net 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 917Contingent liabilities note 26 750 807 811

15

Consolidated statements of cash flow

Millions of Swedish kronor 1993 1992 1991

Operating income/loss 97 – 1 185 – 56Depreciation and goodwill amortization 1 525 1 344 1 129Extraordinary items excluding deferred taxes – 782 – 214 –

Changes in working capital:Inventories 215 – 853 1 510Trade accounts receivable – 323 – 664 511Trade accounts payable 267 – 293 – 336Other 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 778Additions to property, plant and equipment

through acquisition of companies – – 7 – 111Sales of property, plant and equipment 138 539 115Sale 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 – 165Cash dividends, AB SKF shareholders – – 480 – 480Taxes – 157 189 – 343Change in loans – 503 354 2 183Change in other long-term assets

and liabilities – net 1 569 – 40 582Translation adjustments – 738 – 746 – 8

Change in current financial assets – 383 – 748 11

16

Notes to the consolidated financial statementsAmounts in millions of Swedish kronor unless otherwise stated.

NOTE 1 – ACCOUNTING PRINCIPLESGeneralThe consolidated financial statements include the ParentCompany AB SKF and all companies in which AB SKF,directly or indirectly, owns shares representing morethan 50 percent of the voting rights. AB SKF and its sub-sidiaries are referred to as “the SKF Group” or “theGroup”.

Investments in companies, representing 20 to 50 per-cent of the voting rights, and where the SKF Group has asignificant influence, are referred to as “AssociatedCompanies”.

All companies within the Group apply the accountingrules as stated in the “SKF Accounting and FinancialReporting Manuals”. These rules are primarily based ongenerally accepted accounting principles in Sweden(Swedish GAAP). In general, the rules applied by theSKF Group are also in accordance with generallyaccepted accounting principles in the United States (U.S.GAAP). Significant differences between Swedish GAAPand U.S. GAAP are described in note 29.

Consolidation – subsidiariesThe consolidated financial statements are prepared usingthe purchase method. The consolidated shareholders’equity includes the Parent Company’s equity and thatpart of the equity in subsidiaries which has arisen afterthe acquisition.

The difference between the cost of acquiring theshares in a subsidiary and the shareholders’ equity ofthat subsidiary at the time of acquisition, adjusted forrevaluations of assets and liabilities, is accounted for:

– as goodwill in the consolidated balance sheets, if thecost of acquiring the subsidiary is higher than theshareholders’ equity, or

– as a decrease in the value of acquired capital assets, ifthe cost of acquiring the subsidiary is lower than theshareholders’ equity.

Intercompany accounts, transactions and unrealizedprofits have been eliminated in the consolidated financialstatements.

ReclassificationsIn the 1991 Annual Report, Ovako Steel was accountedfor as an Associated Company. The balance sheet andrelated footnotes for 1991 have been restated to showOvako Steel as a wholly owned subsidiary at the end of1991.

Accounting for investments in Associated CompaniesInvestments in Associated Companies are accounted forin accordance with the equity method. The value of theinvestments is equal to the Group’s share of share-holders’ equity in these companies, determined inaccordance with the accounting rules of the Group.The Group’s share of these companies’ results is basedon their loss/income after taxes.

Translation of foreign financial statementsThe current rate method is used for translating the finan-cial statements of the major part of the foreign subsidiar-ies into Swedish kronor. Under this method, all assetsand liabilities are translated into Swedish kronor at year-end exchange rates, whereas income and expense itemsare translated at average exchange rates. The translationadjustments that arise are transferred directly to share-holders’ equity.

For the translation of financial statements of subsidiar-ies operating in highly inflationary economies, the Groupapplies the monetary/non-monetary method (MNM-method) according to the Statement of FinancialAccounting Standards No. 52, “Foreign CurrencyTranslation” (FAS 52). Monetary balance sheet itemsare translated at year-end exchange rates and non-monetary balance sheet items, as well as related incomeand expense items, are translated at rates in effect at thetime of acquisition (historical rates). Other income andexpense items are translated at average exchange rates.Translation differences that arise are included in therelated lines in the income statement.

Exchange ratesIn translating the financial statements of foreign subsidiaries, operating in the countries shown below, the followingexchange rates have been used:

Average rate Year-end rateCurrency 1993 1992 1991 1993 1992 1991

Belgium 100 BEF 22.55 18.06 17.68 23.20 21.34 17.75Canada 1 CAD 6.01 4.80 5.28 6.23 5.54 4.78France 1 FRF 1.38 1.10 1.07 1.42 1.28 1.07Germany 1 DEM 4.71 3.71 3.64 4.81 4.37 3.66Great Britain 1 GBP 11.69 10.21 10.65 12.33 10.67 10.39India 100 INR 24.27 19.50 27.01 26.11 22.49 21.30Italy 100 ITL 0.49 0.47 0.49 0.48 0.48 0.48Japan 100 JPY 7.03 4.63 4.50 7.44 5.65 4.41Netherlands 1 NLG 4.19 3.30 3.23 4.30 3.89 3.24Spain 100 ESB 6.13 5.68 5.81 5.84 6.15 5.73Switzerland 1 CHF 5.28 4.15 4.22 5.67 4.82 4.11USA 1 USD 7.79 5.81 6.06 8.32 7.04 5.54

17

Foreign currency transactionsReceivables and payables denominated in foreigncurrencies are translated at year-end exchange rates. The resulting gains and losses are classified as eitheroperational or financial items in the income statement.

Forward exchange contractsForward exchange contracts, which serve as hedges ofthe flow of goods and services between countries, havebeen treated in such a way that trade accounts receivableand payable have been valued at the applicable forwardrates. In those cases where receivables and payableshave not yet arisen, valuation of the forward exchangecontracts has not been made.

Gains and losses on forward exchange contracts andloans, serving as hedges of net investments in foreignsubsidiaries, are excluded from the income statement.These gains and losses, less current and deferred incometaxes, are transferred directly to shareholders’ equity,thereby offsetting gains and losses arising from thetranslation of the financial statements of the foreignsubsidiaries. For these forward exchange contracts, theinterest difference between currencies is evenly allocatedover the life of the contract.

Forward exchange contracts which are not consideredhedges of firm commitments have been valued at marketvalue. Gains and losses are included in financial incomeand expense.

InventoriesInventories are stated at the lower of cost (first-in, first-out basis) or market (net realizable value). Net realiz-able value is defined as the lower of current replacementcost or market value less selling cost. Cost includesmaterial, labor and manufacturing overheads.

Capital and intangible assetsDepreciation is provided on a straight-line basis and iscalculated based on the cost of the asset. In somecountries, legal revaluations are made in addition to cost,and depreciation is then based on the revalued amounts.

The rates of depreciation are based on the estimatedeconomic lives of the assets, generally 33 years forbuildings, 10–17 years for machines and 4–5 years fortools, office equipment and vehicles.

Goodwill is amortized over 10 years on a straight-linebasis, except for goodwill related to significant strategicacquisitions, which is amortized over a maximum of 20years. Amortization of goodwill is included inadministrative expenses.

Patents and similar rights are stated at cost and areamortized on a straight-line basis over their legal lives.

LeasesLeases 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 asassets and incurrence of obligations. Rentals for otherleases (operating leases) are charged against incomeover the lease term.

Research and developmentResearch and development expenditures are chargedagainst income as incurred.

Income taxesAll companies within the SKF Group compute currentincome taxes in accordance with the tax rules and regu-lations of the countries where the income is taxable.

As from 1993 deferred taxes are accounted foraccording to FAS 109, “Accounting for Income Taxes”.FAS 109 requires that deferred taxes be calculated ondifferences between the book and tax bases of assets andliabilities in accordance with the liability method which,among other things, means that changes in tax ratesaffect the year’s results. Additionally, it allows therecognition of loss carry-forwards if they, more likelythan not, can be utilized. The difference between thegross effect and the amounts expected to be utilized isprovided for in a valuation allowance. The cumulativeeffect of this change per the beginning of 1993 isaccounted for as extraordinary income. The effect ofFAS 109 during 1993 is included in taxes in the incomestatement.

Provisions have been made in the consolidated finan-cial statements for estimated taxes on earnings of subsid-iaries expected to be remitted in the following year, butnot for tax liabilities which may arise on distribution ofthe remaining unrestricted earnings, as they are expectedto be reinvested.

Postretirement benefitsFAS 106, “Employers’ Accounting for PostretirementBenefits Other Than Pensions”, requires that the cost ofhealth insurance and other similar benefits provided toemployees after their retirement be expensed during anemployee’s active service life. Previously the cost ofthese benefits was expensed on a cash basis. Applicationof FAS 106 is required from January 1, 1993, for U.S.plans. The cumulative after-tax effect of this change inaccounting principle is reflected as extraordinaryexpense. The expenses for 1993 have, however, beenaccounted for in operating income.

18

Definitions of key figuresThe majority of the subsidiaries within the SKF Groupreport their results of operations and financial positionten times a year. The key figures presented in theAnnual Report have been calculated using averagevalues based on these interim reports. Therefore, thecalculation of these key figures using the year-end valuespresented, may give slightly different results.

1. Portion of risk-bearing capitalShareholders’ equity plus minority interest and deferredtaxes, as a percentage of total assets at year-end.

2. SolvencyShareholders’ equity plus minority interest, as a percent-age of total assets at year-end.

3. Return on total assetsOperating income/loss plus financial income, as apercentage of average total assets.

4. Return on capital employedOperating income/loss plus financial income, as apercentage of average total assets less the average ofnon-interest bearing liabilities.

5. Return on shareholders’ equityLoss/income after taxes, as a percentage of averageshareholders’ equity.

6. Profit marginOperating income/loss plus financial income, as apercentage of net sales.

7. Turnover of total assetsNet sales in relation to average total assets.

8. Earnings per share in Swedish kronorLoss/income after taxes and minority interest divided byaverage number of shares.

9. YieldDividend as a percentage of share price at year-end.

10. P/E ratioShare price at year-end divided by earnings per share.

11. Average number of employees at workTotal number of working hours of all employees, dividedby the normal total working time during the year.

NOTE 2 – RESEARCH AND DEVELOPMENT

Research and development expenditures charged againstincome were 552 in 1993, 473 in 1992 and 538 in 1991.Additionally, the Group enters into research and devel-opment contracts to develop or produce prototypes ofvarious products. Expenses under these contracts were27, 20 and 19 in 1993, 1992 and 1991 respectively, andhave been fully reimbursed.

NOTE 3 – DEPRECIATION

1993 1992 1991

Land improvements 10 7 6Buildings 145 128 114Machinery and equipment 1 252 1 089 901Leases 32 28 45Leaseholds 1 1 2Revaluations 16 43 9

1 456 1 296 1 077

Depreciation related to assets used in manufacturingamounted to 1 245 in 1993, 1 125 in 1992 and 912 in 1991.The remainder relates to assets used in selling,administrative and technical areas.

NOTE 4 – FINANCIAL INCOME AND EXPENSE

1993 1992 1991

Dividend income 7 2 10Interest income 529 546 685Interest expense – 995 – 896 – 863Financial exchange

gains and losses – 307 – 244 – 97Financial translation

adjustments (MNM-method) – – 100– 766 – 592 – 165

The net interest cost component of the pension cost,included in the operating income/loss, amounted to 235in 1993, 311 in 1992 and 49 in 1991. See also note 20 –Pensions and other postretirement benefits.

Financial exchange gains and losses include a loss in1993 of 116 and in 1992 of approximately 160 referableto the Parent Company’s convertible ECU bonds. Seenote 23 – Convertible bonds.

Financial translation adjustments relate to subsidiariesoperating in highly inflationary economies, where theMNM-method is applied. As from 1992, correspondingtranslation adjustments were allocated to interestincome and interest expense.

NOTE 5 – TAXES

1993 1992 1991

Taxes on the loss after financial income and expense

Current taxes – 300 – 134 – 148Deferred taxes 324 414 82

24 280 – 66

Deferred taxes for 1993 include a charge of 263 relatedto the net change in the valuation allowance.

19

Net tax assets and liabilities at December 31, were:

1993 1992 1991

Short-term deferred tax assets 415 110 –Long-term deferred tax assets 1 166 – –

1 581 110 –

Income taxes currently payable 184 74 109Short-term deferred

tax liabilities 344 – – 19Long-term deferred

tax liabilities 1 194 1 360 1 4351 722 1 434 1 525

Gross deferred tax assets and liabilities at December 31,1993 were related to the following items:

Pensions and other postretirement benefits 559Tax loss carry-forwards 2 389Other 1 083Gross deferred tax assets 4 031Valuation allowance – 1 090

2 941

Pensions and other postretirement benefits 327Inventory 454Property, plant and equipment 1 647Other 470Gross deferred tax liabilities 2 898

Net deferred tax assets 43

In 1992 and 1991 deferred taxes mainly resulted fromaccelerated depreciation claimed for tax purposes bycertain subsidiaries.

Corporate income tax

The corporate nominal income tax rate in Sweden was30 percent in 1993, 1992 and 1991.

The effective tax rate on loss after financial incomeand expense and extraordinary items (exclusive ofchanges in accounting principles), but before equity inloss of Associated Companies and minority interest,was 5 percent in 1993, 14 percent in 1992 and –30 percentin 1991. A reconciliation of the statutory tax to theeffective tax in Sweden is outlined below:

1993 1992 1991

Statutory tax in Sweden 155 597 66Difference between statutory

tax rate in Sweden and foreign subsidiaries’ weighted statutory tax rate 54 83 – 14

Permanent differences 90 768 72Tax loss carry-forwards,

net of valuation allowance – 228 –1 140 – 277Other – 47 – 28 87Effective tax 24 280 – 66

Tax loss carry-forwards

The Parent Company and certain subsidiaries, princi-pally in Sweden and Germany had, at December 31,1993, tax loss carry-forwards amounting to 7 728 (6 522in 1992 and 2 265 in 1991). Such tax loss carry-forwardsexpire as follows:

1994 1641995 1541996 3351997 3301998 5641999 and thereafter 6 181

As of December 31, 1993, the total tax loss carry-forwards have resulted in deferred tax assets of 1 456,net of valuation allowances. Such assets can be used toreduce future taxable income, but since their benefit hasalready been realized, their future use will not reducethe total tax charge for the Group.

NOTE 6 – EXTRAORDINARY INCOME

1993 1992 1991

Gain on sale of shares in Sandvik AB, net 154 – –

Cumulative effect of a change in accounting principle – FAS 109 (see note 1) 732 – –

Gain on sale of CTT Tools – 65 –886 65 –

There is no tax on the above items.

As per December 31, 1992, the Group sold its tooldivision, CTT Tools, to Sandvik AB. As a result, CTTTools’ result of operations for 1992 is included in theconsolidated income statement. However, its financialposition is excluded from the consolidated balance sheet.

The purchase price consisted of a directed issue of1 042 500 C shares in Sandvik AB. Depending on earn-ings of CTT Tools during 1994 –1995, a supplementarypayment may also arise. These Sandvik shares were soldin 1993 at a gain of 154, net of related costs.

20

The pro forma financial information below estimates,compared with 1993, the Group’s consolidated incomestatement and balance sheet information for 1992 and1991 as it might have been, had the sale of CTT Toolsbeen consummated at the beginning of 1991. CTT Toolswas founded in December 1990. The information isbased on an assumed capital gain of 65. Interest effectshave not been considered.

1993 1992 1991

Sales 29 200 24 943 24 358Operating income/loss 97 – 1 195 – 81Loss after financial

income and expense – 669 – 1 660 – 114

Current assets 18 754 18 892 19 014Capital assets 15 438 13 822 12 625

Short-term liabilities 9 908 10 377 11 105Long-term liabilities 15 148 13 294 10 043Shareholders’ equity 9 009 8 930 10 389

NOTE 7 – EXTRAORDINARY EXPENSE

1993 1992 1991

Cumulative effect of change in accounting principle – FAS 106 (see note 1) – 936 – –

Write-off of operations in former Yugoslavia – – 52 –

Discontinued portfolio businesses – – 227 –

– 936 – 279 –

The deferred tax income in 1993, 364, refers to the aboveextraordinary item.

NOTE 8 – CURRENT FINANCIAL ASSETS

1993 1992 1991

Cash and bank accounts 784 1 070 823Debt securities 857 508 640Promissory notes – - 5Government securities 767 384 420Other short-term

financial receivables 284 1 113 1 9352 692 3 075 3 823

Cash and bank accounts include short-term time depos-its of 174 for 1993, 714 for 1992 and 144 for 1991.

NOTE 9 – TRADE ACCOUNTS RECEIVABLE

1993 1992 1991

Acceptances receivable 570 587 563Accounts receivable 5 429 5 002 4 617

5 999 5 589 5 180Allowance for doubtful

accounts – 344 – 257 – 2075 655 5 332 4 973

Provision for doubtful accounts charged against incomeamounted to 119 in 1993, 88 in 1992 and 66 in 1991.

NOTE 10 – INVENTORIES

Inventories at December 31, net of allowance for obso-lescence, consists of the following:

1993 1992 1991

Finished goods 6 048 6 146 5 860Work in process 1 958 2 117 2 302Raw materials 656 589 706Supplies 558 583 558

9 220 9 435 9 426

NOTE 11 – OTHER CURRENT ASSETS

1993 1992 1991

Advances to suppliers 36 50 66Prepaid expenses 202 334 189Accrued income 125 141 353Other current receivables 409 415 518

772 940 1 126

NOTE 12 – LONG-TERM FINANCIAL ASSETS

1993 1992 1991

Long-term financial receivables 1 337 1 222 1 021Debt securities 5 18 17

1 342 1 240 1 038

The majority of the long-term financial receivables isstated at market value.

NOTE 13 – INVESTMENTS

Investments include shares in Sandvik AB of 313 in1992. Equity in loss of Associated Companies in 1991refers to the Ovako Steel Group. A complete list of inve-stments is found in note 30.

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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 2Land improvements 302 191 278 180 247 165Buildings 5 024 2 420 4 559 2 118 4 267 1 836Machinery and equipment 20 059 11 907 18 211 10 372 16 990 9 195Capital leases 352 185 238 135 281 165Leaseholds 9 6 9 6 7 4Revaluations 598 270 578 246 578 213

26 780 14 979 24 263 13 065 22 840 11 580Net 11 801 11 198 11 260Advances to suppliers 25 29 67

11 826 11 227 11 327

Capital leases consist of the following:

1993 1992 1991

Land 10 5 7Buildings 116 91 71Machinery 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 110Patents and similar rights 15 13 19 15 16 11

1 045 264 919 170 817 121Net 781 749 696Deferred charges 213 195 136

994 944 832

NOTE 16 – SHORT-TERM LOANS

1993 1992 1991

Bank loans 1 759 2 430 3 365Commercial papers – – 1 004Other short-term loans 64 302 130

1 823 2 732 4 499

Current portion of long-term loans 405 526 479

2 228 3 258 4 978

The maximum month-end amount of short-term loansoutstanding, excluding the current portion of long-termloans, was 3 194 in 1993, 3 933 in 1992 and 4 449 in1991. The average month-end amount outstandingduring the year was 2 527 in 1993, 2 950 in 1992 and4 146 in 1991. The weighted average interest rate was13.1 percent, 16.4 percent and 11.7 percent in 1993, 1992

and 1991 respectively, and was 8.0 percent at December31, 1993. Average amounts outstanding and weightedaverage interest rates have been computed based on theamounts outstanding at the end of each month andrelated interest expense.

At December 31, 1993 the SKF Group maintainedcommitted lines of credit at financial institutions. Theunutilized portion of short-term lines of credit amountedto 1 879, of which most was available in currencies otherthan Swedish kronor. Some of the revolving credit facil-ities require an overdraft facility fee ranging from 0.1percent to 1.5 percent of the full amount of the facility.

At December 31, 1993, the Group had unutilized long-term lines of credit of 5 246 expiring in 1995 to 1998.Commitment fees ranging from 0.05 percent to 0.35percent are payable on these lines of credit.

22

NOTE 17 – TRADE ACCOUNTS PAYABLE

1993 1992 1991

Acceptances payable 313 321 354Accounts payable 1 869 1 594 1 952

2 182 1 915 2 306

NOTE 18 – OTHER SHORT-TERM LIABILITIES

Other short-term liabilities included accrued vacationpay of 518, 444 and 408 at December 31, 1993, 1992 and1991 respectively, and accrued social charges (includingpayroll taxes) of 618, 579 and 466.

NOTE 19 – LONG-TERM LOANS

Long-term loans at the end of the year, excluding thecurrent portion, are:

1993 1992 1991

Debentures (maturing from 1998 to 2014) bearing interest from 7.6 to 14.0 percent* 1 971 980 194

Bank loans (maturing from 1995 to 2008) bearing interest from 2.1 to 17.8 percent* 2 523 3 233 3 939

Other loans (maturing from 1995 to 2010) bearing interest from 2.1 to 27.0 percent* 1 042 1 031 310

5 536 5 244 4 443

* December 31, 1993

The current portion of long-term loans is included inshort-term loans (see note 16).

Maturities of long-term loans outstanding at December31, 1993 were as follows:

1995 9701996 8061997 1 3141998 4411999 9042000 and thereafter 1 101

The terms of certain loan agreements contain variousrestrictions, relating principally to the further pledging offixed assets, the amounts of additional loans and pay-ment of intercompany dividends.

Of the long-term loans, amounts totaling 859, 976 and711 were secured at December 31, 1993, 1992 and 1991respectively.

No material differences between carrying amountsand fair values of long-term loans existed at December31, 1993. The fair values of long-term loans wereestimated using discounted cash flows and applying theinterest rate valid on the closing day.

NOTE 20 – PENSIONS AND OTHERPOSTRETIREMENT BENEFITS

Charges against income in 1993, 1992 and 1991 forpension and similar plans were 500, 472 and 621, whichinclude a net interest cost of 259, 341 and 49 respectively.The interest income portion of this net interest costrepresents actual return on assets in pension funds,whereas the main part of the interest expense portionhas been calculated on the average of the opening andclosing balances of the pension obligation. Interest ratesused vary by country, and were 6.1, 8.1 and 12.5 percentin 1993, 1992 and 1991 respectively for indexed Swedishpensions and 3.5 percent in 1993, 1992 and 1991 for fixedSwedish pensions. Interest rates of 6.4, 8.1 and 8.7percent were used in 1993, 1992 and 1991 respectivelyfor the German companies, which represented 63percent of the Group’s total pension obligation in 1993,61 percent in 1992 and 66 percent in 1991.

SKF sponsors several defined postretirement benefitplans covering most salaried and hourly employees inthe United States. The plans, which are unfunded,provide certain health care and life insurance benefits toeligible retired employees, and include a cost-sharingelement for all future retirees.

The Group has changed its method of accounting forpostretirement benefit costs other than pensions byadopting FAS 106, “Employers’ Accounting forPostretirement Benefits other Than Pensions” in 1993.

Net periodic postretirement benefits cost for 1993included the following components:

Service cost 15Interest cost 80Net periodic postretirement benefit cost 95

The following table sets forth the accrued postretirementbenefit liability recognized in the balance sheet of theGroup at December 31, 1993:

Accumulated postretirement benefit obligation

Retirees 829Other fully eligible plan participants 195Other plan participants 114Total accumulated postretirement

benefit obligation 1 138

The assumed discount rate used in the calculations was 8 percent.

A 12 percent annual rate of increase in the per capitacost of covered health care benefits was assumed for1993. The rate was assumed to decline by 0.5 to 1percent per year to an ultimate rate of 6 percent. Anincrease in the assumed health care cost trend rates by1 percent in each year would increase the accumulatedpostretirement benefit obligation as of December 31,1993 by 92 and the aggregate of the service and interestcost components of the net periodic postretirementbenefit cost for the year then ended by 8.

23

NOTE 21 – OTHER LONG-TERM LIABILITIES

1993 1992 1991

Long-term portion of capital leases (see note 22) 125 82 87

Other 214 290 119339 372 206

NOTE 22 – LEASES

Future minimum rental commitments at December 31,1993 for capital leases and non-cancellable (within oneyear) operating leases were as follows:

Capital Operatingleases leases

1994 89 3061995 17 2301996 13 1821997 8 1521998 8 1411999 and thereafter 43 1 069

178 2 080

Less: Amount representing interest and executory costs – 26

Present value of minimum lease payments under capital leases 152

Less: Current portion – 27

Long-term portion 125

Operating leases also include the leases for those por-tions of the Parent Company’s real estate in Göteborg,which in 1990, 1989 and 1987 were sold and leased back.

Net rental expense related to operating leases was 239in 1993, 283 in 1992 and 319 in 1991. Contingent rentalsand sublease income were not significant in any of theyears presented.

NOTE 23 – CONVERTIBLE BONDS

In May 1992, AB SKF issued zero coupon convertiblebonds amounting to 145 million ECU after a discount of8.75 percent. Upon full conversion on the due date, thenominal amount of 338.5 million ECU will result in theissuance of 8 437 650 B shares. Conversion can berequested up to July 26, 2002. The holder is entitled torequest redemption on July 26, 1997. On or after thatdate the bonds are redeemable at any time at the optionof AB SKF, as a whole or in part.

NOTE 24 – SHAREHOLDERS’ EQUITY

Share capital

The share capital at December 31, 1993 consisted of thefollowing shares (nominal value SEK 12.50 per share):

Number of shares Aggregateauthorized and nominal

outstanding value

A shares 49 256 332 616B shares 63 743 224 796

112 999 556 1 412

The designations A and B indicate the voting power ofthe shares. An A share has one vote, a B share one-thousandth of one vote.

In 1992 the Annual General Meeting abolished theclause restricting the acquisition of shares by foreignnationals and other controlled persons.

Option certificatesIn 1990, AB SKF issued 11 000 000 option certificates.Each option entitles the holder to subscribe for one newB share at the price of 190 Swedish kronor. Thesecertificates are exercisable through June 30, 1995.

Restricted reserves

In accordance with statutory requirements in Swedenand certain other countries in which the SKF Groupoperates, the Parent Company and its subsidiaries main-tain restricted reserves which are not available for distri-bution as dividends.

The Swedish Companies Act requires that 10 percentof net income be transferred to the legal reserve (part ofrestricted reserves) until the legal reserve amounts to 20percent of the share capital. Premiums paid on newshare issues must also be transferred to the legal reserve.

In countries where legal revaluations of assets aremade, the revaluation surplus must be transferred tolegal reserves.

Tax laws in Sweden and certain other countries permitallocations to reserves that are deductible for taxpurposes. To a certain extent, companies can thusallocate income so that it remains in the business withoutbeing taxed immediately. In the balance sheet theaccumulated value of these allocations, less the relateddeferred tax liabilities, is shown under restrictedreserves.

Differences between statutory reporting and reportingfor Group purposes are also treated as restrictedreserves.

Unrestricted equity

Unrestricted earnings include earnings distributable bythe Parent Company and those net earnings that may beremitted from subsidiaries to the Parent Companywithin one year. The amount has been reduced byaccumulated losses in other subsidiaries. In determiningthe remittable amounts, consideration has been given tolegal and exchange restrictions, but not to the financialposition of the remitting subsidiaries.

24

Changes in shareholders’ equity

Re- Unre-Share stricted stricted

capital reserve reserves Total

Opening balance 1991-01-01 1 412 5 112 5 631 12 155

Cash dividends – 480 – 480Net loss –1 177 –1 177Transfer between reserves 388 – 388 –Translation adjustments

and revaluations – 34 – 140 – 174Closing balance 1991-12-31 1 412 5 466 3 446 10 324

Cash dividends – 480 – 480Net loss –1 704 –1 704Transfer between reserves –2 131 2 131 –Translation adjustments

and revaluations 729 61 790Closing balance 1992-12-31 1 412 4 064 3 454 8 930

Net loss – 331 – 331Transfer between reserves 881 – 881Translation adjustments

and revaluations 552 – 142 410Closing balance 1993-12-31 1 412 5 497 2 100 9 009

As described in note 1, translation adjustments arisingfrom the application of the current rate method aretransferred directly to shareholders’ equity. Changes incumulative translation adjustments which are included inboth restricted and unrestricted reserves, are as follows:

1993 1992 1991

Balance at beginning of year 191 – 587 – 292Aggregate translation

adjustments 916 1 505 – 352Losses/gains from hedges

(net of taxes) of investments in foreign subsidiaries – 509 – 727 57

Balance at end of year 598 191 – 587

NOTE 25 – ASSETS PLEDGED

The following assets have been pledged to secure loans:

1993 1992 1991

Mortgages on real estate 673 1 249 1 180Chattel mortgages 468 466 181Other mortgages 134 250 544Total mortgages 1 275 1 965 1 905Government securities 30 26 12Other assets pledged 3 3 0

1 308 1 994 1 917

Mortgages are stated at the nominal value of themortgage deeds and other pledged assets are stated at netbook value. The pledged assets secured obligations of 859at December 31, 1993, 976 in 1992 and 711 in 1991.

NOTE 26 – CONTINGENT LIABILITIES

1993 1992 1991

Acceptances receivable discounted 89 66 86

Unrecognized and unfundedvested and unvested retirement benefits 391 466 413

Other guarantees and contingent liabilities 270 275 312

750 807 811

NOTE 27 – GEOGRAPHICAL INFORMATION

External sales for the Group per geographical area wereas follows:

1993 1992 1991

Sweden 1 415 1 463 1 003Europe (excluding Sweden) 14 419 14 802 14 826United States and Canada 7 525 5 832 5 620Other countries 5 841 4 552 4 853

29 200 26 649 26 302

The Group’s identifiable assets (total assets, excludingcash, bank accounts, short-term investments,intercompany receivables and shareholdings, but beforeconsolidation eliminations), amounted at December 31,1993 to 32 189 and to 30 260 in 1992 and 29 424 in1991. The geographical location of these assets were asfollows:

1993 1992 1991

Sweden 4 376 3 876 4 616Europe (excluding Sweden) 14 903 15 491 16 152United States and Canada 7 235 6 256 5 129Other countries 5 675 4 637 3 527

32 189 30 260 29 424

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

25

NOTE 28 – AVERAGE NUMBER OF EMPLOYEES AT WORK, WAGES AND SALARIES

1993 1992 1991

Operations in SwedenNumber of work sites 20 23 18Total average number of employees at work 5 975 6 871 4 500Wages and salaries:

Boards and Managing Directors 18 17 18Other employees 1 340 1 450 935Total in Sweden 1 358 1 467 953

Operations abroadNumber of countries 57 57 50Total average number of employees at work 33 464 39 801 40 785Wages and salaries:

Boards and Managing Directors 119 101 115Other employees 7 579 7 129 7 172Total abroad 7 698 7 230 7 287

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

Of the average number of employees at work in Swedenduring 1993, 1 071 were women and 4 904 were men.The corresponding figures for 1992 and 1991 were 1 289women and 5 582 men, and 784 women and 3 716 menrespectively.

Of the average number of employees at work abroadduring 1993, 6 034 were women and 27 430 were men.The corresponding figures for 1992 and 1991 were 6 840women and 32 961 men, and 7 190 women and 33 595men respectively.

The Chairman of the Board of AB SKF receives anannual fee of SEK 200 000, and an additional yearlycompensation of SEK 300 000 for work in addition tothe normal board member responsibilities. Giovanni

Mario Rossignolo, chairman of SKF’s Italian subsidiary,has, in addition to his annual fee as board member inAB SKF, a yearly compensation of ITL 215 000 000.Managing Director and Group Chief Executive, MauritzSahlin, has an annual salary of SEK 2 350 000, a fee asboard member in a subsidiary of USD 16 625, freehousing, a so-called “60-year agreement” (entitling to 70percent of pensionable income up to 65 years of age atretirement after 60 years of age), an old age pensioncorresponding to 32.5 percent of pensionable incomeexceeding 20 basic amounts (an index for national socialsecurity purposes with a value of SEK 34 400 in 1993)and a free annual premium of SEK 100 000 for annuityinsurance.

26

Average number of employees at work, wages andsalaries by country:

Average number Wages and of employees salaries in

at work SEK thousands

Algeria 1 329Argentina 512 50 916Australia 86 24 629Austria 716 206 263Belgium 228 75 924Brazil 1 132 110 783Canada 156 46 524Chile 60 12 130China, Peoples Republic 20 585Colombia 17 2 105Denmark 87 30 860East Europe 119 9 943Finland 82 18 230France 3 622 898 740Germany 6 842 2 383 063Greece 54 7 259Hong Kong 35 5 294India 2 522 67 242Iran 16 526Italy 5 168 1 103 463Ivory Coast 9 2 265Japan 107 45 312Jordan 4 549Kenya 26 1 277Korea 18 2 665Malaysia 576 40 366Morocco 1 676Mexico 813 81 303The Netherlands 654 201 337Nigeria 5 214Norway 55 16 184Panama 38 13 476Peru 40 3 629Philippines 26 1 771Portugal 41 7 963Singapore 335 50 563South Africa 399 48 536Spain 776 171 169Sweden 5 975 1 358 241Switzerland 244 99 362Taiwan R.O.C. 63 10 377Thailand 72 8 137Tunisia 1 326Turkey 56 7 000United Arab Emirates 2 394United Kingdom 1 182 236 861Uruguay 15 2 122USA 6 231 1 583 252Venezuela 43 2 637Zambia 122 1 767Zimbabwe 35 1 790

39 439 9 056 329

Average number of employees at work in Sweden,specified by work site:

Arvika 202Danderyd 18Eskilstuna 61Göteborg 2 665Helsingborg 25Hofors 1 312Hällefors 648Jönköping 15Karlskoga 36Katrineholm 446Landskrona 71Laxå 34Lidköping 347Ludvika 5Malmö 9Mora 29Mölndal 25Stockholm 11Sundsvall 14Västerås 2

5 975

27

U.S. GAAP

NOTE 29 – RECONCILIATION TO UNITED STATESGENERALLY ACCEPTED ACCOUNTINGPRINCIPLES

Accounting policies of the SKF Group that differ signifi-cantly from U.S. GAAP are as follows:

1. Deferred income taxesAdjustments for deferred income taxes in the reconcilia-tion to U.S. GAAP are attributable to the differencesdescribed below.

2. Revaluation of assetsIn certain countries, assets have been revalued at anamount in excess of cost. U.S. GAAP does not permitthe revaluation of assets in the financial statements.

3. Capitalization of interest expenseIn accordance with Swedish GAAP, the SKF Group hasnot capitalized interest expense incurred in connectionwith the financing of expenditures for construction ofproperty, plant and equipment. Such interest expense isrequired to be capitalized in accordance with U.S.GAAP.

4. Accounting for early termination benefitsThe SKF Group has in previous years allocated the costsfor early termination benefits between early and normalretirement for certain Group companies. U.S. GAAPrequires costs for early termination benefits to beexpensed in the year when the benefits are accepted bythe employees.

5. Gains on sales of real estateDuring 1991, 1990 and 1989 the Group sold real estate inSweden which is leased back either partially or com-pletely, with the option to repurchase the property.Gains recognized from these transactions are not permit-ted to the same extent under U.S. GAAP.

6. PensionsPeriodic pension cost and liability is calculated by theGroup according to local laws and accounting principles.Under U.S. GAAP, the periodic pension cost andliability should be calculated according to FAS 87,“Employers’ Accounting for Pensions”.

The Group sponsors defined benefit plans in severalcountries, principally Sweden, Germany, France, theUnited States and Spain. The Swedish plan supplementsstatutory pensions where benefits are established bynational organizations. The subsidiaries in France spon-sor a retirement indemnity plan in accordance withFrench National Employer/Employee agreements. Plansin Germany, Spain and the United States are designed tosupplement these countries’ social security pensions.Only the U.S. plans are funded. Benefits are based on acombination of age, salary and service and are availableto all employees meeting age, service and other require-ments.

The following tables summarize approximate disclosuresunder FAS 87.

Net periodic pension cost for the plans described above,included in the Group’s approximate U.S. GAAPincome statement includes the following components:

1993 1992 1991

Service cost 107 110 107Interest cost 532 462 415Actual return on assets – 217 – 115 – 392Other, net 50 – 1 311Net periodic pension cost 472 456 441

Assumptions used in the calculations:

1993 1992 1991

Discount rates 6.5–8% 7–10% 7–10%Rates of increase in

compensation level 2.5–5% 2–7% 2.5–7%Investment return 8.5–10% 11% 11%

The following table sets forth these plans’ funded statusand amounts recognized in the Group’s approximateU.S. GAAP balance sheet:

1993 1992 1991

Actuarial present value of:Vested benefit obligation 6 737 5 052 4 661Accumulated benefit obligation 6 937 5 259 4 819Projected benefit obligation 7 339 5 794 5 371

Plan assets at fair value –2 695 –1 877 –1 835

Projected benefit obligation in excess of plan assets 4 644 3 917 3 536

Unrecognized net loss 15 85 151Unrecognized net obligation

at initial application – 612 – 527 – 616Unrecognized prior

service cost – 149 – 114 – 99Adjustment required to

recognize minimum liability 700 414 421

Pension liability 4 598 3 775 3 393

Plan assets are invested primarily in securities and bonds.

7. Forward exchange contractsA forward exchange contract is, according to U.S.GAAP, considered a hedge only when there is a firmcommitment. According to Swedish GAAP expectedtransactions also qualify as hedging.

Contracts hedging expected transactions, not coveredby firm commitments, are accounted for according toU.S. GAAP, as the difference between the agreedforward rate and the market forward rate on the closingday.

28

8. Statements of cash flowThe Group prepares the statements of cash flow inaccordance with Swedish GAAP, which requires a cashflow statement differing from that required by FAS 95,“Statement of Cash Flows”. Additional approximatedisclosures if the Group were to comply with FAS 95 areas follows:

1993 1992 1991

Borrowings of long-term loans 1 257 2 686 421

Repayments of long-term loans 1 711 1 671 671

Additions to loans through acquisitions – – 13

Cash interest paid 813 780 851Cash taxes paid 186 252 195

Significant non-cash transactions are deferred tax provi-sions (see note 5), provisions for pensions and otherpostretirement benefits (see note 20), extraordinaryincome (see note 6), extraordinary expense (see note 7),equity in Associated Companies (see note 13) andminority interest in income as disclosed in the incomestatement.

The depreciation of the Swedish krona against othercurrencies during 1993 caused a non-cash increase in theGroup’s balance sheet, resulting from the translationinto the reporting currency, the Swedish krona. Thedepreciation effect on total assets was estimated to be anincrease of approximately 3 200, using December 1992closing-day exchange rates as a basis. The increases ininventories and loans as shown in the cash flow state-ment, include a depreciation effect of approximately 900and 750 respectively.

The Group considers current financial assets to becash and cash equivalents (see note 8).

9. Discontinued operationsAccording to U.S. GAAP the discontinuation of portfo-lio businesses is not considered extraordinary, but shouldbe 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 –

10. Off-balance sheet risk and concentrations of credit riskThe Group has a firm policy to hedge its exposure toforeign currency exchange rate fluctuations, as well asagainst fluctuations in interest rates, through manydifferent strategies, including the use of various financialinstruments such as interest rate caps and floors, foreigncurrency and interest rate swaps and forward exchangecontracts. A significant majority of these contractsinvolve the Swedish krona, German mark, U.S. dollar,Italian lira and French franc. The total contractedvolume of these derivative instruments amounted, atyear end, to approximately 22 000.

The contracts are placed with several well-establishedinternational financial institutions, thereforemanagement believes credit risk to be very low. Themajority of these contracts serve as hedges of netinvestments in foreign subsidiaries and othercommitments. The gains and losses on these contractshave partly been offset by gains and losses resulting fromthe translation of the foreign subsidiaries’ financialstatements and partly influenced the Group’s result.

Concentration of credit risk is limited, primarilybecause the Group’s customer base consists of manygeographically and industrially diverse customers.

11. Sale of fixed assetsDuring 1993, the Group recorded the sale of powerplants in Italy in accordance with Swedish GAAP.However, since the legal title is transferred in 1994 thetransaction is recognized in 1994 according to U.S.GAAP.

29

12. SummaryThe 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 – 21Depreciation on revaluation of assets including effect in connection with sale 19 46 15Capitalization of interest expense – 13 – 6 – 4Early termination benefits 13 18 – 6Gains on sales of real estate 4 9 – 23Pensions – 121 – 6 17Forward exchange contracts 429 – 488 82Sale 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 – 11Revaluation of assets – 293 – 297 – 333Capitalization of interest expense 58 70 76Early termination benefits – – 13 – 31Gains on sales of real estate – 638 – 642 – 652Pensions – 66 55 61Forward exchange contracts 23 – 406 82Sale 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 –10.35Earnings from discontinued operations 1.40 – 1.90 –Earnings before extraordinary credit – 1.50 –17.55 –10.35Extraordinary 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

30

The following is a summary comparing the reported consolidated balance sheets with the balance sheets afterapproximate 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 823Inventories 9 220 9 435 9 426 9 220 9 435 9 426Other current assets 6 427 6 272 6 099 6 427 6 134 6 180Deferred tax assets 1 581 110 – 1 823 110 –Investments 110 411 132 90 406 127Property, plant and equipment 11 826 11 227 11 327 11 613 11 023 11 095Other capital assets 2 336 2 184 1 870 2 960 2 506 2 239Total 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 978Other current liabilities 7 336 7 119 6 590 7 328 7 402 6 593Long-term loans 7 044 6 517 4 443 7 844 7 178 5 112Pensions and other postretirement benefits 6 571 5 045 4 548 7 260 5 326 4 887Other long-term liabilities 339 372 206 339 371 206Deferred income taxes 1 538 1 360 1 416 1 471 1 193 1 426Minority interest 127 113 172 127 113 172Shareholders’ equity 9 009 8 930 10 324 8 250 7 864 9 516Total liabilities and shareholders’ equity 34 192 32 714 32 677 34 846 32 705 32 890

31

NOTE 30 – INVESTMENTS

Investments held by Parent CompanyHolding Number Nominal value Book value in

in percent of shares Currency in thousands SEK thousands

Bostadsrättsföreningen Flundran, Stockholm, Sweden 1 SEK – 1 635Bostadsrättsföreningen Kristinelundsgatan nr 5,

Göteborg, Sweden 1 SEK – 2 884Prästgårdsmarkens villaägare, ek.fören.,

Göteborg, Sweden 60 SEK 60 30Chalmers Innovation AB, Göteborg, Sweden 4,9 735 SEK 73 255Fastighets AB Johannebergshus, Göteborg, Sweden 85 SEK 9 2 555Göteborg-Säve Flygplats AB, Göteborg, Sweden 1 125 SEK 112 114KB Gösen Gamlestaden 2:5, Göteborg, Sweden 1,0 – SEK 2 935 2 935Näringslivets Stiftelse för Avfallsbehandling,

Stockholm, Sweden 5 SEK 50 0“Scandinavium”, Göteborg, Sweden 14 SEK 140 41Stiftelsen Bohus Promotion, Uddevalla, Sweden – SEK 250 0Svenska Dagbladet Holding AB, Stockholm, Sweden 18 000 SEK 180 180SwedeChrome AB in liquidation, Malmö, Sweden 44,4 4 218 478 SEK 42 185 0TIAB Transportköparnas Intresse AB, Göteborg, Sweden 1 000 SEK 100 0AEC Japan Co Ltd., Japan 50,0 400 JPY 20 000 820ADELA Investment Company, Luxemburg 2 080 USD 208 0SIFIDA Investment Company, Luxemburg 275 USD 137 108Skefko India Bearing Co Ltd., India 39,1 3 136 INR 314 0S2M, France 18,1 10 560 FRF 1 056 5 416The Swedish-American Chamber of Commerce, USA 50 USD 50 318UNIS-UTL, former Yugoslavia 23,0 – YUD 5 214 0UNIS-Factory Sokolac, former Yugoslavia 10,0 – YUD 64 0Svenska skolan, Belgium 20 BEF 400 0Other shares and securities 26Non-cash issue in P.T. Logam Sari Bearindo, Djakarta 24 470Investments held by Parent Company 41 787

32

Investments held by subsidiariesNominal value Book value in

Holdings Currency in thousands SEK thousands

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

33

Parent Company income statements

Millions of Swedish kronor 1993 1992 1991

OperationsOther operating income 41 4 23Selling, administrative and

technical expenses – 87 – 80 – 90Depreciation note 1 – 5 – 4 – 4

Operating loss – 51 – 80 – 71

Financial income and expenseDividend income from subsidiaries 364 808 545Interest income 330 195 134Interest expense – 419 – 198 – 83Financial exchange gains and losses – 30 1 54

Income after financial income and expense 194 726 579

Extraordinary income note 2 336 152 143Extraordinary expense note 2 – 27 – 159 – 234

Net income 503 719 488

Provisions note 3 – 1 105 – 0Taxes 2 – –

Reported income for the year 504 824 488

34

Parent Company balance sheets

Millions of Swedish kronor 1993 1992 1991

ASSETS

Current assetsCurrent financial assets note 4 108 332 254Trade accounts receivable 0 2 3Accounts receivable from

consolidated subsidiaries 1 390 1 062 1 292Other current assets note 5 57 63 106

1 555 1 459 1 655

Capital assetsLong-term receivables from

consolidated subsidiaries 4 305 2 719 310Other long-term receivables 16 14 79Investments in consolidated

subsidiaries note 6 6 657 6 235 4 196Investments, other note 6 42 357 88Property, 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 liabilitiesShort-term loans note 8 10 84 1 029Short-term liabilities to

consolidated subsidiaries 1 724 2 265 412Trade accounts payable, other 8 5 12Short-term tax liabilities – 2 2Accrued liabilities and deferred income 110 73 70Other short-term liabilities 9 59 10

1 861 2 488 1 535

Long-term liabilitiesLong-term loans note 9 2 337 1 316 144Long-term liabilities to

consolidated subsidiaries 1 455 802 3Pensions note 10 320 315 299Other long-term liabilities 6 5 5Convertible bonds note 11 1 508 1 273 –

5 626 3 711 451

Untaxed reserves note 3 78 77 182

Shareholders’ equity note 12Restricted equityShare capital (112 999 556 shares,

nominal value SEK 12.50 per share) 1 412 1 412 1 412Legal reserve 455 455 455Non-restricted earningsRetained earnings 2 724 1 900 1 892Reported 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 1 1Contingent liabilities note 14 1 456 1 143 891

35

Parent Company statements of cash flow

Millions of Swedish kronor 1993 1992 1991

Operating loss before depreciation – 46 – 76 – 67Extraordinary income and expense – net 309 – 7 – 91

Changes in working capital:Trade accounts receivable 2 1 – 2Trade accounts payable 3 – 7 – 2Other 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 – 8Changes in investments – 107 – 2 308 – 371

Cash flow after investments – 724 – 219 – 863

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

and liabilities – net – 929 – 1 529 – 70

Change in current financial assets – 224 78 – 207

36

Notes to the Parent Company financial statementsAmounts in millions of Swedish kronor unless otherwise stated.For description of accounting principles, see note 1 tothe consolidated financial statements.

NOTE 1 – DEPRECIATION

1993 1992 1991

Buildings 3 2 2Machinery and equipment 2 2 2

5 4 4

NOTE 2 – EXTRAORDINARY INCOME ANDEXPENSE

1993 1992 1991

Extraordinary incomeGroup contribution 174 152 143Sale of shares in

Sandvik AB, net 162 – –336 152 143

Extraordinary expenseAllowance for shareholders’

contribution – 20 – –158Group contribution paid – 6 – 8 – 76Write down of investment in

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 2 1Change in accelerated

depreciation reserve 2 2 3Change 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 3 5Accelerated depreciation

reserve 62 64 66Reacquisition reserve for

real estate – – 100Other reserves 14 10 11

78 77 182

The accelerated depreciation reserve relates to thefollowing items:

1993 1992 1991

Land improvement 4 4 4Buildings 24 26 27Machinery and equipment 34 34 35

62 64 66

NOTE 4 – CURRENT FINANCIAL ASSETS

1993 1992 1991

Cash and bank accounts 8 6 11Other short-term financial

receivables 100 326 243108 332 254

NOTE 5 – OTHER CURRENT ASSETS

1993 1992 1991

Prepaid expenses 11 12 1Accrued income 0 1 27Other current receivables 46 50 78

57 63 106

37

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 ParentCompany’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 inin percent of shares Currency in thousands SEK thousands

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

Sales CompaniesSKF Norge A/S, Norway 100 50 000 NOK 5 000 0Oy SKF AB, Finland 100 48 400 FIM 12 100 12 378SKF Portugal Rolamentos, Limitada, Portugal 95.0 – PTE 12 350 0SKF Loziska, a.s., Czech Republic 100 42 CZK 4 200 0Akciová spolecnost pro prodej

valivych lozisek, Czech Republic 100 1 000 CZK 200 0SKF Svéd Golyóscsapágy Részvenytársaság, Hungary 100 3 000 HUF 600 0SKF Hellas S.A., Greece 100 2 000 GRD 10 000 0SKF Canada Limited, Canada 100 50 000 CAD – 0SKF Colombia S.A., Colombia 13.4 279 148 COP 69 787 0SKF del Peru S.A., Peru 100 1 255 829 PES 1 256 0SKF Chilena S.A.I.C., Chile 100 88 192 CLP 467 923 0SKF Venezolana S.A., Venezuela 100 4 758 VEB 4 758 1 376SKF Türk Sanayi ve Ticaret Limited Sirketi, Turkey 0.0 50 TRL 250 1SKF Japan Ltd., Japan 26.0 25 300 JPY 379 500 0SKF South East Asia (Pte) Ltd., Singapore 100 1 000 000 SGD 1 000 0SKF Australia Pty Ltd., Australia 100 96 500 AUD 193 0SKF New Zealand Limited, New Zealand 100 375 000 NZD 750 0SKF South Africa (Proprietary) Ltd., South Africa 100 1 422 380 ZAR 2 845 0SKF Zimbabwe (Private) Limited, Zimbabwe 0.0 1 ZWD 0 0SKF (Zambia) Ltd., Zambia 0.0 1 ZMK 0 0SKF Kenya Limited, Kenya 0.0 1 KES 0 0SKF Eurotrade AB, Göteborg, Sweden 100 83 500 SEK 8 350 10 169SKF Multitec AB, Helsingborg, Sweden 100 29 500 SEK 2 950 4 545

38

Investments in subsidiaries held by the Parent Company

Holding Number Nominal value Book value inin percent of shares Currency in thousands SEK thousands

Other CompaniesSKF Holding Danmark A/S, Denmark 100 8 DKK 8 000 0SKF Bearings Ltd., Great Britain 100 10 000 GBP 10 0Trelanoak Ltd., Great Britan 19.8 2 600 000 GBP 2 600 313 373SKF Holding Maatschappij Holland B.V., The Netherlands 100 60 000 NLG 60 000 4 407 531SKF Engineering & Research Centre B.V., The Netherlands 13.4 121 NLG 12 7 684SKF Verwaltungs A.G., Switzerland 100 500 CHF 250 0SKF North America Inc., USA 100 1 000 USD 1 8SKF Holding Mexicana, S.A. de C.V., Mexico 98.0 22 934 231 MXP 2 293 423 180 029Barseco (Pty) Ltd, South Africa 100 100 ZAR 0 0SKF Australia (Manufacturing) Pty. Ltd., Australia 100 1 000 000 AUD 2 000 0Société Solvik Maroc, Morocco 100 2 000 MAD 1 000 0Société Immobilière de la

Rue du Lieutenant Sylvestre, Morocco 100 1 500 MAD 150 0Compania SKF Nicaragua S.A., Nicaragua 100 140 NIC 140 0Latinoamericana de Administracion S.A., Panama 100 50 USD 5 0Nordic Distributor Supply AB, Partille, Sweden 100 150 000 SEK 3 000 0ScanDust AB, Landskrona, Sweden 75.0 360 000 SEK 36 000 43 001SKF Plasma Systems AB, Göteborg, Sweden 100 500 SEK 50 51Nordiska Kullageraktiebolaget, Göteborg, Sweden 100 1 000 SEK 1 000 0AB SKF-Agenturer, Göteborg, Sweden 100 100 SEK 100 0SKF Service AB, Göteborg, Sweden 100 80 000 SEK 6 400 9 760AB Compania Sudamericana SKF, Göteborg, Sweden 100 300 SEK 300 0AB S.A. des Roulements à Billes Suédois SKF,

Göteborg, Sweden 100 100 SEK 100 0The Chinese SKF Co. AB, Göteborg, Sweden 100 1 000 SEK 100 0SKF International AB, Göteborg, Sweden 100 20 000 SEK 20 000 19 995Återförsäkringsaktiebolaget SKF, Göteborg, Sweden 100 30 000 SEK 30 000 30 200The Indonesian SKF Corporation AB, Göteborg, Sweden 100 1 000 SEK 100 0SKF Fondförvaltning AB, Göteborg, Sweden 100 2 500 SEK 250 248AB Svenska Kullagerfabriken, Göteborg, Sweden 100 500 SEK 50 51SKF Dataservice AB, Göteborg, Sweden 100 500 SEK 50 0SKF Nova AB, Göteborg, Sweden 100 500 SEK 50 0AB Transmatic, Göteborg, Sweden 100 500 SEK 50 51AB SKF Etthundratjugoett, Göteborg, Sweden 100 500 SEK 50 51AB SKF Etthundratjugotvå, Göteborg, Sweden 100 500 SEK 50 51AB SKF Etthundratjugotre, Göteborg, Sweden 100 500 SEK 50 51AB SKF Etthundratjugofyra, Göteborg, Sweden 100 500 SEK 50 51AB SKF Etthundratjugofem, Göteborg, Sweden 100 500 SEK 50 51SKF Bearing Industries AB, Göteborg, Sweden 100 500 SEK 50 51Byggnadsaktiebolaget Åsen, Katrineholm, Sweden 100 500 SEK 50 550SKF Real Estate AB, Göteborg, Sweden 100 350 000 SEK 35 000 39 621SKF Fastighetsförvaltning AB, Göteborg, Sweden 100 2 000 SEK 200 245SKF Support AB, Göteborg, Sweden 100 2 000 SEK 200 245

6 656 586

39

NOTE 7 – PROPERTY, PLANT AND EQUIPMENT1993 1992 1991

Aqcuisi- Accumu- Aqcuisi- Accumu- Aqcuisi- Accumu-tion lated tion lated tion latedcost depr. cost depr. cost depr.

Land 5 – 5 – 5 –Land improvements 2 1 2 1 2 1Buildings 107 67 107 64 107 62Machinery and equipment 71 32 64 30 64 28

185 100 178 95 178 91

Net 85 83 87

Land, land improvements and buildings have beenassessed values for tax purposes on December 31, 1993as follows:

Assessed Cost less accumu- tax value lated depreciation

Land and land improvements 42 6Buildings 119 40

161 46

NOTE 8 – SHORT-TERM LOANS

1993 1992 1991

Commercial Paper – – 1 004Current portion of

long-term loans 10 84 2510 84 1 029

NOTE 9 – LONG-TERM LOANS

Long-term loans at the end of the year, excluding thecurrent portion were:

1993 1992 1991

Bonds 1 795 828 54Other borrowings 542 488 90

2 337 1 316 144

The above loans were denominated in the followingcurrencies:

1993 1992 1991

Swedish kronor 270 265 97United States dollars 2 067 1 051 47

2 337 1 316 144

Maturities of long-term loans as at December 31, 1993are as follows:

1995 91996 91997 5681998 71999 8342000 and thereafter 910

2 337

The terms of certain loan agreements contain variousrestrictions, relating principally to further pledging offixed assets.

NOTE 10 – PENSIONS

Charges against income in 1993, 1992 and 1991 for pen-sions and similar plans were 35, 44 and 50 respectively.253, 246, 237 of the total pension liability in 1993, 1992and 1991 respectively, are referable to pensions in theFPG-PRI system.

NOTE 11 – CONVERTIBLE LOANS

See note 23 to the consolidated financial statements.

NOTE 12 – SHAREHOLDERS’ EQUITY

The distribution of the share capital between share typesis shown in note 24 to the consolidated financialstatements.

Changes in shareholders’ equity

Unre-Share Legal stricted

capital reserve equity Total

Opening balance 1991-01-01 1 412 453 2 372 4 237

Cash dividends, AB SKF shareholders –480 –480

Sale of bonus shares 2 2Reported income

for the year 488 488Closing balance 1991-12-31 1 412 455 2 380 4 247

Cash dividends, AB SKF shareholders –480 –480

Reported income for the year 824 824

Closing balance 1992-12-31 1 412 455 2 724 4 591

Reported income for the year 504 504

Closing balance 1993-12-31 1 412 455 3 228 5 095

40

NOTE 13 – ASSETS PLEDGED

1993 1992 1991

Mortages in leasehold, land 1 1 11 1 1

NOTE 14 - CONTINGENT LIABILITIES

1993 1992 1991

Guarantees in respect of 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 parentcompany and some of its subsidiaries. At closing day theamount 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 193Belgium 8 22 30 22 618Total 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 theChairman 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.

41

40

Bearings and seals

T he demand curve for ball androller bearings has been indecline since year-end 1989.

This trend was reversed in 1993.Conditions leveled off, albeit at a lowlevel, during the first part of the fiscalyear. Towards the end of the year, thesigns of a recovery became increas-ingly strong and deliveries started torise. Although this was a reflection ofgeneral conditions in the world mar-ket, there were considerable differ-ences between the major bearingmarkets.

Europe accounts for approximately55 percent of SKF’s sales, whichmeans developments in this marketare decisive to the Group’s ability tomeet its established profitability tar-gets. A comparison of the best monthin the European economic cycle –December 1989 – with the bottomlevel recorded during 1993 shows adifference of nearly 40 percent. Thisloss of volume imposed a substantialstrain on the bearing industry. Asstated in previous annual reports,SKF implemented a forceful cost-savings program throughout therecession in order to adapt opera-tions to the new market conditions.

The strategy that the SKF Groupdecided to adopt when the economystarted to decline in 1990 was tolower the break-even point, to enablethe Group to generate earnings evenat the lowest levels of volume. This

was to be achieved through costreductions and the release of capital.

Today, when demand appears to beincreasing again, this policy has en-abled the Group to leave the reces-sion with a break-even point that issubstantially lower than it was before.SKF has not only maintained butincreased its share of the Europeanand the global bearing market.

In the North American market,which accounts for more than 25 per-cent of the SKF Group’s sales,demand for bearings has risen slowlybut steadily since the end of 1990.North America and Europe, theworld’s two largest bearing markets,showed completely different trends.Those bearing producers that arehighly dependent on the NorthAmerican market – for exampleAmerican manufacturers – did notexperience the same loss of volumeas manufacturers based in Europe.SKF also strengthened its position inthis market.

In Japan, the third largest bearingmarket, demand started to declineabout a year later than in Europe andis still decreasing. However, sinceSKF has a market share of less thanone percent, its exposure to Japan isminimal. The Japanese market is sup-plied almost exclusively by domesticmanufacturers.

SKF gains strength in automotivesectorThe largest single purchaser of SKF’sbearings is the automotive industry,which takes one third of the Group’stotal sales. During 1993, 16 percent oftotal sales was delivered directly tomanufacturers of cars, 9 percent tomanufacturers of trucks, and 8 per-cent to the vehicle replacement-mar-ket. In Europe, SKF is the clearleader among suppliers of bearings tothe automotive industry. SKF is alsoconsiderably more dependent on

vehicle manufacturers in Europethan on those in the U.S.A.

Production of cars in Europe wasdown by approximately 15 percent onthe 1992 figure. Truck productiondecreased by approximately 20 per-cent during the same period. Thisnaturally had a negative impact onSKF’s sales. However, the decline inSKF’s deliveries to this customer seg-ment, which also includes manufac-turers of electric motors, whose pur-chasing and delivery patterns aresimilar to those of the automotiveindustry, were substantially less thanproduction cutbacks. SKF’s share ofthe European automotive marketincreased.

Ford’s new ‘world car’, theMondeo, was launched in March,1993. SKF has an agreement withFord which names the Group as theglobal supplier of all Hub Units,McPherson strut bearings and driveshaft bearing units for the FordMondeo. So far, this model has beenmarketed only in Europe, and it wasnamed as European Car of the Yearin 1993. Ford has had considerablesuccess with sales of this model, andthis success naturally benefits SKFtoo. During 1994, Ford will beginmanufacturing and marketing the carin the U.S.A., where it will be mar-keted under two names: the FordContour and the Mercury Mystique.

Rolling bearings and seals constitute the SKF Group’s core business andaccounted for 93 percent of total sales in 1993.

The product program includes a large variety of ball and roller bear-ings, special bearings, seals, tools for mounting and dismounting of bearings,lubricants and measuring and control instruments as well as engineering con-sultancy and training packages.

The manufacturing of these products is carried out at around 50 facto-ries in 15 countries. The sales organization consists of a global network ofwholly owned sales companies and more than 7 000 industrial distributors.

Bearings and seals(SEK m) 1993 1992 1991

Net sales. . . . . . . . . . . . 27 199 22 690 24 347Loss after financial incomeand expense . . . . . . . –329 –1 264 –135Additions to property, plantand equipment . . . . 847 1 022 1 624Number of employees registered . . . . . . . . . . 38 203 41 523 43 490

Industrial distributors 27%

Cars 16%

Trucks9%

Railways3%

Heavyindustry 6%

Generalmachinery15%

Aero-space4%

Electricalindustry5%

End-users6%

Vehicle replacement9%

sales byapplication field 1993

41

The new Saab 900 had a successfulintroduction during 1993. SKF waschosen as the supplier for almost allof the bearing applications. All fourwheels are equipped with SKF HubUnits. The rear wheels are fitted withthe latest generation of Hub Units,with integrated speed sensors for theABS system and the speedometer.

SKF also supplies the Hub Unitsfor other European models, such asthe new Opel Astra, Citroën Xantiaand Fiat Punto.

Opel’s V6 engine for the Vectraand Omega models and Saab is fittedwith automatic belt tensioner unitsfrom SKF.

During 1993, Volvo TruckCorporation, the world’s second larg-est manufacturer of heavy trucks,introduced its new generation ofheavy trucks, the FH series, to a verypositive reception from the market.

42

SKF is the main supplier of bearingsto Volvo Truck Corporation and forthe FH series.

RFT S.p.A., an Italian subsidiaryof SKF, manufactures bearing sealsand other seals for shock absorbers.Despite the weakness of car sales, thecompany strengthened its position inthe market. RFT won new customersand increased its market share amongexisting customers.

U.S. and South Korean markets alsoshow gainsIn the American market, productionof cars rose by almost 8 percent andproduction of heavy trucks by morethan 30 percent. SKF’s sales of bear-

ings to these customers exceeded theproduction increases by a substantialmargin, reflecting the fact that SKFalso improved its market share inthese areas. Chrysler and Ford areamong the major customers for bear-ings.

General Motors, the largest carmanufacturer in the U.S.A., has itsown bearing production facilities, butSKF has also established itself in thisarea as the supplier of a freewheelunit for automatic transmissions. GMis the largest customer for the oilseals produced by CR, SKF’s NorthAmerican seals manufacturing com-pany.

SKF experienced continued suc-cess as a supplier of Hub Units to theheavy trucks segment. New contractswere secured during the year.

During 1993, SKF began produc-tion of Hub Units at its plant inGlasgow, Kentucky. Commissioningof the plant went smoothly, and deliv-eries to the American customers areproceeding according to plan.

In South Korea, the world’s fastest-growing car market, SKF has beenactive for some time as a supplier ofHub Units to Hyundai and KIA.Deliveries to both these customersare increasing and showing positivedevelopment.

Bearings and seals

Production of cars in other car-pro-ducing countries, such as Argentinaand Brazil, increased strongly during1993. SKF has substantial shares ofthese markets and increased its sales.

The coordination between SKF’smanufacturing units in Argentina andBrazil continued, resulting in lowerproduction costs. A new manufactur-ing process for Hub Units was intro-duced in Brazil, providing increasedcapacity to serve this rapidly growingmarket.

SKF also strengthened its positionin the Indian market, despite rela-tively weak demand in the car and

truck sector. Preparatory work wasalso conducted during 1993 for themerger of SKF Bearings IndiaLimited and Skefko India BearingCompany Limited. The latter is asales company for imported SKFproducts. The merger is to be com-pleted during the first quarter of1994.

Weak investment climateThe investment climate in Europeremained weak throughout the entirefiscal year. The low level of activity inGermany set its mark on Europe.Production in the German machinery

industry decreased by approximately10 percent compared with 1992. Theexport-oriented machinery industryin Italy developed well. SKFstrengthened its share of this marketsegment. Sales decreased in the U.K.– particularly to heavy industry,where reduced investment and cut-backs in the mining industry inhibiteddemand.

The American machinery industryshowed a gradual improvement dur-ing 1993. New business opportunitiesfor SKF emerged in the steel industryand among manufacturers of gear-boxes. SKF’s concentration on TFO

44

Bearings and seals

(Trouble Free Operation) paid divi-dends in the form of new customersand increased market shares.

In 1991, SKF began manufacturingplain bearings in the U.S.A. The newoperation made a weak start due tothe recession that has affected theU.S. construction industry during thepast few years. However, ordersreceived gradually increased duringthe second half of 1993, and the plantin Colebrook, Connecticut, showedan improvement in earnings. Otherimportant purchasers of plain bear-ings are the materials-handling andmining sectors.

Demand in Sweden increasedgradually during 1993, and SKFstrengthened its position in the steeland paper industries. The improveddemand was mainly attributable tothe export-oriented companies.

SKF’s South African subsidiarywas able to resume sales of Swedish-manufactured products following thelifting of the trade ban that had beenin force for many years. A drive torecapture lost market shares began,and has so far been successful.Modernization of the plant inUitenhage was also started followingthe removal of the Swedish invest-ment ban.

Railway bearings – an expandingmarketOne customer group that showedgood growth in 1993 was manufactur-ers of rolling stock for railways. InEurope, high-speed trains had thehighest priority, while the goods wag-ons segment remained sluggish.

During 1993, SKF secured signifi-cant orders for bearings and axle-

boxes for the two Italian high-speedtrains, the Pendolino and the ETR500. Deliveries began during 1993and will continue until the end of1995. The bearings are equipped withABS and temperature sensors.

Sales of bearings for the German,French and Swedish high-speedtrains were also made during 1993.

Another area showing stronggrowth during 1993 was the newlydeveloped designs of low-floor tramsfor light rail transit systems, particu-larly in Germany.

During 1993, SKF received amajor order for traction motor bear-ings for a new generation of locomo-tives developed by General Motors’Electro-Motor Division, EMD, in theU.S.A. EMD’s order for 350 locomo-tives for an American railway opera-tor, is the largest order of its kind inthe U.S.A. in modern times.

During 1993, SKF signed its largestcontract ever with the Chinese rail-ways organization. The scope of theagreement comprises 30 000 cylindri-cal roller bearings for axleboxes.Deliveries started during 1993 andwill continue throughout 1994. Theproject includes an option for deliv-ery of an additional 10 000 bearings.

Continued economies squeezeairline industryAs a consequence of the poor profitsituation of the major airlines, andthe U.S. Defense Department’s pro-gram of economies, there was adecrease in the number of new air-craft delivered, which resulted in con-tinued contraction of the market foraircraft engine bearings. There is nosign of a recovery at present.

As a result, MRC Bearings, SKF’sAmerican manufacturer of aircraftengine bearings, continued to reducepersonnel, while at the same timeworking shorter hours to hold downproduction levels.

To some extent, it was possible tocompensate for the decline in salesduring 1993 through increased salesto helicopter manufacturers, sincethis segment showed a more favor-able trend. Boeing and Sikorsky, aswell as McDonnell Douglas, con-cluded new agreements with MRCcovering component deliveries fortheir helicopter ranges.

Textile machinery componentsfocused on ChinaThe Specialty Components Division’smain business consists of textilemachinery components. Most of themajor customers, especially theJapanese, were affected by thedecline in demand for spinningmachines. As a result, demand forSKF’s textile machinery componentscontinued to decline during 1993 andsales were down by approximately 15percent. SKF therefore focused itsefforts on securing new marketshares and forming strategic partner-ships in China. One example of thisactivity is a joint venture withShanghai Erfangji Co. in Shanghai,China, to manufacture spinningspindles for spinning machines. As aresult, production at SKF’s subsidiarySMM Spindel AG in Switzerland isto be discontinued. SKF, which owns50 percent of the new company, willbe responsible for sales outsideChina, while Shanghai Erfangji willbe in charge of the domestic market.

The textile machinery componentsbusiness area also reduced its productrange to concentrate its activities onthe most profitable segments. During1993, some production began to betransferred from the plant inCannstatt, Germany, to the sisterfacility in Singapore as a cost-savingmeasure.

Weak development in theafter-marketDemand was weaker in the after-market than in other customer seg-ments, in both Europe and theU.S.A.

This was partly because the exten-sive network of distributors has helddown its purchasing in the last fewyears, thereby substantially reducingtheir inventories.

Moreover, the continuous improve-ments in SKF’s delivery serviceenable distributors to operate withsmaller inventories than before. InEurope, however, the willingness totie up capital was also influenced bythe recession, so that in many casesinventories were allowed to fall toexcessively low levels.

The exception was the U.K., whereSKF’s subsidiary, SKF (U.K.)Limited, showed a good increase insales to distributors.

Europe excl. Sweden 50%

Sweden 3% North

America 27%

Rest ofthe world 20%

sales bygeographical area 1993

45

Bearings and seals

SKF GmbH in Germany continuedto expand its distributor network ineastern Germany.

SKF further enlarged its salesorganization in eastern Europe. Anew sales office was opened inLjubljana, Slovenia, and a regionaloffice including a technical center wasset up in Katowice in southernPoland. In common with the centersestablished earlier in Budapest andPrague, the Katowice center will beused for training customers’ mainte-nance personnel, mainly in theheavier industries.

Signs of recovery began to appearin the western parts of the formerComecon region, where Poland is themain market. Industrial productioncontinued to decline in other parts ofthe region, however, and severalareas are still affected by politicalunrest.

During 1993, SKF’s facilities ineastern Europe were linked to theGroup’s internal data communicationnetwork. Five of these regionaloffices are now directly linked toSKF’s plants and central warehouses,resulting in improved customer anddelivery services.

In Latin America, which consists oftypical after-markets, there was nosignificant change in demand. Thepolitical unrest in Central Americahad a negative impact on business,and the recession in Europe alsoinfluenced the consumption of bear-ings in the region.

Strong growth in Asia Pacific regionThe Asia Pacific region, excludingJapan, continued to grow, and SKF’ssales increased. The rate of increasewas more than 20 percent in mostmarkets. The leading positionattained in these markets is attribut-able to the presence of SKF’s ownorganization to support and developits network of distributors, theGroup’s high level of service and thehigh quality of its products and ser-vices.

In the large American after-market, which is dominated by a fewmajor distributors, demand remainedrelatively unchanged compared with1992. Working closely with its distrib-utors, SKF cultivated its most impor-tant customers during 1993 with aview to selling its Trouble FreeOperation concept. One example of

the success of this strategy is GeorgiaPacific, a paper manufacturer with 22plants in the U.S.A., which now pur-chases SKF products exclusively.Shell Oil named SKF “the bearing ofchoice”, which means that all Shell’splants now have SKF as standard andwill not accept substitutes.

CR, which also sells to theAmerican after-market, improved itssales during the year. Since there wasno noticeable increase in demand,this improvement can be attributedmainly to increased market shares. Anumber of important new customers,with strong positions in the Americanafter-market, established links withSKF. This will result in increaseddeliveries during 1994.

46

Special steels

T he comprehensive reorgan-ization initiated by OvakoSteel during 1992 was pur-

sued further in 1993. The emphasiswas on two main aims: to focus onimproving the quality of products andservices, and to work towardsimproved cost effectiveness in theentire process – from developmentand production to sales and adminis-tration.

Investments in the quality areaincluded comprehensive training inquality issues and the formation ofgroups which were given the task offinding solutions to concrete qualityproblems. The enhanced level ofknowledge which resulted from thisendeavor, and improved inspectionprocedures, brought about a substan-tial reduction in total quality costs –the combined costs of prevention,inspection, rejected products andcompensation claims – during 1993.

A decision was also taken during1993 to invest in a hot scarfing plantto improve the surface quality onproducts. The plant is to be installedduring the third quarter of 1994.

Acknowledgement of quality-assu-rance efforts was received in the formof renewed ISO 9001 approval fromLloyds and quality approval awardsfrom PSA (which includes Peugeotand Citroën) and Ford.

Quality in the service area was alsoimproved. During 1992 a drive tohalve lead times was initiated. This

goal was achieved during 1993 as aresult of a far-reaching reorganiza-tion and close cooperation with SKF’sbearing operations. It is believed thatlead times could be cut by a further50 percent. The in-depth integrationof special steel and bearing opera-tions, within the framework of SKF’sChannel concept, is facilitating astreamlining of administrative activ-ities and enabling direct communica-tion between product and processdevelopment, planning, productionand logistics. In combination with astandardization of the product range,this process is gradually eliminatingthe need to maintain raw materialsinventories at bearing plants.

The integration process can be fur-ther expanded.

Approximately 45 percent ofOvako Steel’s production goes toSKF’s bearing production units.

The difficult market situation forspecial steel that prevailed during1992 also affected the first half of1993, resulting in strong pressure onmarket prices. This was accompaniedby a doubling of the scrap-metalprice during the first three quarters ofthe year. Scrap-metal is the raw mate-rial used for the production of steel inelectric furnaces. This price rise wascaused by increased demand for com-mercial steel from China, amongother countries.

However, the market situation forspecial steel began to show animprovement during the third quar-ter of 1993. Order bookings increasedand capacity utilization rose, so thatafter the summer vacation period thesteel production plant in Hofors,Sweden, was able to operate at fullcapacity. At the same time, the pros-pects for price rises improved insome of Ovako’s markets.

Special steels(SEK m) 1993 1992Net sales. . . . . . . . . . . . . . . . . . . . . . . . 2 891 3 076

Loss after financial incomeand expense. . . . . . . . . . . . . . . . . . . . –351 –442

Additions to property, plant and equipment . . . . . . . . . 80 55

Number of employeesregistered. . . . . . . . . . . . . . . . . . . . . . . 3 112 3 545

During 1991 Ovako was reported as an associatedcompany.

Ovako Steel is Europe’s leading manufacturer of rolling bearing steel and amajor producer of other special steels. The manufacturing program includeshot-rolled steel and cold-finished steel products in the form of bars, wire andtubes. In addition, the company produces rolled rings, forged components andOK couplings. The most important customer segments are the rolling bearingindustry, the automotive industry and the general engineering industry.

Ovako Steel has manufacturing units in Sweden, France, theNetherlands and the United States. Steel production operations are confined toHofors, in Sweden.

47

The central European countries,notably Germany, were an exceptionto this positive trend.

By applying a selective productand marketing strategy, Ovako Steelhas improved its product mix, and isnow, like other parts of SKF, wellpositioned to achieve positive devel-opment in the next few years.

Negotiations began during 1992 toclose down the ingot rolling mill andsubstantially cut back ancillary andadministrative personnel in Hällefors,Sweden. After completion of thesenegotiations in spring 1993, theemployees concerned left the com-pany during the second and thirdquarters. Following the closure, thesteel plant in Hofors now has a 100-percent hot flow right up to rolled bil-lets. The closure yielded quality aswell as cost benefits for Ovako Steel.

The new process for cold-drawntubing, which was first implementedin Hofors in 1992, was developed fur-ther in 1993, resulting in cost benefitsand improved product properties.

The Hällefors steel plant, which wasclosed down a few years ago, and therod mill in Hofors, were sold in 1993.

Europe excl. Sweden 44%

NorthAmerica25%

Rest ofthe world3%

Sweden28%

sales bygeographical area 1993

Generalmachinery 47%

Industrial distributors 7%

Trucks9%

Heavyindustry 21%

sales byapplication field 1993

Cars 14%

End-users1%

Vehiclereplacement1%

48

Parent Company Board of Directors

49

Parent Company Board of Directors

Board of Directors

anders scharp, StockholmBorn 1934. Chairman. Board membersince 1992.Chairman and Chief Executive OfficerAB Electrolux.Chairman Saab-Scania AB and IncentiveAB.Vice Chairman Investor AB and AtlasCopco AB.Board member Email Limited(Australia), The Swedish Employers’Confederation, The Association ofSwedish Engineering Industries and TheFederation of Swedish Industries.Shareholding in SKF: 5 000

göran johansson, GöteborgBorn 1945. Employee representative.Board member since 1975.First Vice Chairman ExecutiveCommittee of the City Council ofGöteborg.Chairman Liseberg AB.Board member Götaverken Miljö ABand Statens Vattenfallsverk.Shareholding in SKF: 100

mauritz sahlin, GöteborgBorn 1935. President and Group ChiefExecutive. Board member since 1976.Board member AB Export-Invest, Saab-Scania AB, Investor AB, ChalmersIndustriteknik (CIT), Sandvik AB, TheFederation of Swedish Industries and TheSwedish Employers’ Confederation.Shareholding in SKF: 28 092 plus 2 000warrants

gösta bystedt, StockholmBorn 1929. Board member since 1982.Chairman AB Export-Invest.Vice Chairman AB Electrolux and AxelJohnson AB. Board member ESAB AB, Atlas CopcoAB, Förvaltnings AB Hasselfors and TheFederation of Swedish Industries.

per-olof eriksson, SandvikenBorn 1938. Board member since 1987.Group President and CEO of SandvikAB.Chairman Svenska Kraftnät (SwedishNational Grid).Board member Sandvik AB, Handels-banken, SSAB Swedish SteelCorporation, AB Volvo and TheFederation of Swedish Industries.

giovanni mario rossignolo,Turin, ItalyBorn 1930. Board member since 1987.Chairman Industrie Zanussi, Atlas CopcoItalia, Perstorp Italia and Sanitari Pozzi.Vice Chairman and member of theEricsson S.p.A Executive Committee.Board member Ducati Energia andConsortium (Italy), Electrolux EspañaS.A. (Spain) and Schroder Bank.

sune carlsson, Kilchberg,SwitzerlandBorn 1941. Board member since 1991.Executive Vice President of the ABBGroup.

claes dahlbäck, StockholmBorn 1947. Board member since 1991.President Investor AB.Board member ASEA AB, AB Astra,Incentive AB, Vin & Sprit AB, ABElectrolux, Stora Kopparbergs BergslagsAB (STORA), Saab-Scania AB, ABBAB and Telefon AB LM Ericsson(Ericsson).

anders sjöberg, KungälvBorn 1935. Board member since 1992.Professor. President of ChalmersUniversity of Technology, Göteborg.Board member Skanska AB andHandelsbanken Västra Sverige.

stig blomberg, BollebygdBorn 1935. Employee representative.Board member since 1993.Chairman SIF (The Swedish Union ofClerical and Technical Employees inIndustry), AB SKF, Göteborg.Shareholding in SKF: 500

melker schörling, LidingöBorn 1947. Board member since 1993.President and Group Chief ExecutiveSkanska AB.Chairman Securitas AB and JMByggnads och Fastighets AB.Board member Skanska AB, AB Custos,Euroc AB and Posten (The Swedish Post).

Deputy Board members

lennart alverå, GöteborgBorn 1952. Employee representative.Deputy board member since 1987.Chairman Metalworkers’ Union, ABSKF, Göteborg.Shareholding in SKF: 20

clemens karlsson, LidköpingBorn 1934. Employee representative.Deputy board member since 1987.Vice Chairman SIF (The Swedish Unionof Clerical and Technical Employees inIndustry), Lidköping Machine Tools AB.Shareholding in SKF: 32

marcus wallenberg, StockholmBorn 1956. Deputy board member since1988.Vice Chairman AB Astra, AB Export-Invest and Saab-Scania AB.Board member Investor AB and SaabAutomobile AB.Deputy board member SILA, ABA andThe Knut and Alice WallenbergFoundation.Shareholding in SKF: 6 000

michael treschow, DrottningholmBorn 1943. Deputy board member since1992.President and Chief Executive OfficerAtlas Copco AB.Board member Saab Automobile AB.Shareholding in SKF: 800

50

Group organization

Ovako Steel Gunnar GremlinSKF Aerospace Ray Langton

SKF Specialty Components Tommy H KarlssonSKF Seals Ray Langton

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

SKF North America Ray LangtonSKF Europe Peter Augustsson

Public Affairs Lars G MalmerCorporate Planning Sten MalmströmManufacturing & Development Rolf JacobsonResearch Henning Wittmeyer

Finance & Information Systems Kaj ThorénTreasury Tore BertilssonLegal Krister PeilPersonnel & Quality Olle Ranäng

Group Chief Executive Mauritz Sahlin

51

Environment

T he primary purpose of a roll-ing bearing is to minimizefriction. As such the product

itself is environmentally compatible,since it helps to reduce energy con-sumption.

In contrast to many other modernindustrial products, bearings havefew components and consist of a lim-ited number of different materials. Interms of weight, steel is the maincomponent. It can be easily recycledwithin the steel industry. Mostmachines, vehicles and other prod-ucts that contain bearings are ulti-mately recycled, the scrap being usedas raw material for steel production.

The cage, a component used toseparate the rolling elements, is gen-erally of steel and sometimes non-ferrous metals, but increasingly isbeing made of plastics. Some bear-ings also incorporate seals to prevent

dirt from entering the bearing andthe oil and grease from leaking out.

Other materials found in bearingsare oils and greases, which functionas lubricants, to reduce frictionbetween the metallic surfaces. Tradi-tionally, technical and economic fac-tors have determined the selection oflubricants used in a bearing. Today,environmental aspects are alsoweighed into the assessment. As aresult, one type of grease, containingsmall amounts of lead, has beenreplaced by a more environmentallycompatible grease.

Most of the rubber materials usedin seals are environmentally compat-ible, even if ultimately burned incombustion facilities or steel plants.However, a small proportion can emithazardous substances in connectionwith combustion under certain condi-tions.

The materials used in plastic cagesare not harmful to the environment.

In what way, if at all, does theactual manufacturing process affectthe environment?

The production of a rolling bearingrequires the utmost precision, sincethe bearing itself is a precisionproduct. In the past, solvents wererequired in certain stages of produc-tion, to serve as cleaning media or inthe application of rust-proofingagents, for example. Trichloro-ethylene was a commonly used sol-vent. At an early stage, SKF initiatedthe development of a new method forcleaning bearings, with the aim ofeliminating the use of organic sol-vents in production. This resulted in acompletely new washing technologyinvolving the use of water and a smalldose of detergent additive, combinedwith ultrasonic vibration. The newtechnology is currently being intro-duced in the Group’s plants and isalso being sold in the open market.Thanks to such methods, it has beenpossible to phase out the use of envi-ronmentally hazardous trichloroethy-lene solvents in the production pro-cess at most of the Group’s plants.

Protecting the environment – both within and outside the Group’s own plants– is an important SKF policy. The SKF Group is one of the companies thathave signed the International Chamber of Commerce’s Business Charter forSustainable Development, which includes principles for environmentalmanagement.

This section contains a description of SKF’s main product, rolling bear-ings, and the process for manufacturing this product. Other operations will bedescribed at a later stage.

0

5 000

10 000

15 000

20 000

J F M A M J J A S O N D J F M A M J J A S O N D

water comsumption at the fontenay plant

m3 per month

Water saving through introduction of closed cooling system

1992 1993

52

Environment

The use of CFCs, which depletethe Earth’s ozone layer, has also beeneliminated and replaced by SKF’sown or other similar cleaningmethods.

In those cases when oil and sol-vents must nonetheless be used inproduction, this normally occurs inclosed systems, in order to minimizevapor emission in the plant. The air isanalyzed regularly to control the lev-els of oil mist and solvents.

All emissions into the outside air,including solid particles, are alsomeasured regularly, to ensure thatthey do not exceed established limits.

Substantial quantities of water areused in the production of rollingbearings. Since a large proportion isused for cooling only, it can be re-used, which means the real consump-tion of water is relatively low. Thiswater is not polluted and is thereforenot an environmental problem. Partof the water is used together with afew percent of oil as an emulsion tofunction as a coolant and lubricant inconnection with turning and grinding.This can also be recycled, although itmust finally be removed from thesystem. At that stage, it is either dis-charged to a sewer after on-site treat-ment, or transported to destructionfacilities as liquid waste.

The principal residual productsresulting from the bearing manufac-

turing process are steel chips, swarf,used oils, used solvents and generalindustrial waste.

The chips are always sold to scrapdealers or back to the steel plants,where they are melted. Accordingly,this residual product is recycled in itsentirety.

The swarf generated by grindingoperations consists of a mixture ofoxidized particles of bearing steel,particles from the grinding wheelsand residual grinding fluids. Theswarf is often processed by compa-nies licensed to handle such wasteand is finally sent to a landfill site.Over the past 15 years, SKF hasdevoted considerable effort to findingalternative methods of handling thiswaste, mainly with a view to its re-usewithin the metallurgical industry.Such methods have now been devel-oped and introduced at the plants inSweden, Germany, the U.S.A. andAustria. In France, swarf is used inthe production of cement. The Groupintends to introduce similar recyclingmethods at its other plants.

The new recycling methods havealso facilitated an increased re-use ofthe water in the grinding coolant,because very efficient filter pressesare used for cleaning it. Used oils,emulsions and solvents as well asgeneral industrial waste are handled

by public authorities or licensedprivate companies.

The transition in recent years frompure oil to emulsions and totallywater-based cutting fluids hasresulted in better working environ-ments with less oil mist in the air andreduced waste oil.

All SKF facilities – plants as well asoffices – are devoting continuousefforts to reducing the volume ofwaste and sorting waste at source inorder to facilitate recycling.

PCB oils were introduced severaldecades ago as efficient and fire-proof transformer coolants.Subsequently, it was discovered thatPCBs were toxic and could be trans-formed into an even more hazardoussubstance at the temperatures fre-quently reached in connection withfires. PCBs are also accumulated inliving organisms. As a result, SKFdecided at an early stage to stopusing transformers and other equip-ment that contained PCBs, and manyplants have already completed thisprocess. However, since the switchrequires considerable investment, itwill take several years to completelyeliminate all equipment containingPCBs.

The packaging used for theGroup’s products is made exclusivelyof environmentally compatible mate-rials. Customers may also return used

0

50

100

150

200

250

300

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

solvent emissions from the göteborg plant

tons/year Trichloroethylene Hydrocarbon solvents

53

Environment

packaging to Group plants for re-usewhen this is possible.

Regular environmental audits areconducted to ensure that the Group’sproduction facilities continuouslyoperate within the framework of theregulations and permits issued byauthorities, and that they adhere tothe SKF Group’s environmental pol-icy. An additional purpose of theseaudits is to identify potential environ-mental risks and to stimulate furtherimprovements.

At each SKF plant, one or severalemployees have been assignedresponsibility for coordinating envi-ronmental activities.

One essential feature of environ-mental work is to create a soundworking environment for employees.A major problem in the productionprocess is the noise level. Accord-ingly, considerable effort has beendevoted to reducing noise, throughsuch measures as encapsulating themachinery and equipment that createhigh noise levels. At places wherenoise levels remain high, the use ofhearing protection equipment is com-pulsory. Noise levels in plants aremeasured regularly, and the hearingof employees working in noisy loca-tions is also examined regularly.

SKF and the environmentThe SKF Group’s overall objective isto attain long-term and sustainedprofitability. The main task related tothis objective is to develop, produce,and market products and servicesthat satisfy the needs of our custom-ers and at the same time are safe fortheir intended use. They should beefficient in their use of energy, pro-tective of the environment, and berecyclable or safely disposable.

• The term “environment” in thispolicy includes the external environ-ment and the internal working condi-tions as well as health and safety.

• Requirements according to currentlaws and regulations are to be consid-ered as minimum requirements.

• All SKF companies shall maintainlong-term environmental plans whichshall be continually adapted to devel-opments, new discoveries, and expe-riences relating to the environment.

• Operations shall be conducted in amanner that protects the environ-ment and conserves energy and natu-ral resources. Environmental perfor-mance shall be continuouslyimproved.

• Environmental effects shall betaken into account when businessdecisions are made.

• SKF companies shall strivetowards a constructive communica-tion with their local communities aswell as all environmental authoritiesconcerned.

• Suppliers and sub-contractors shallbe influenced to adopt the principlesof this policy.

• SKF companies shall provide safeand attractive workplaces for allemployees and shall ensure that theemployees are sufficiently educatedand trained to apply this policy intheir daily work.

• Regular assessments of compliancewith this policy shall be conducted byall SKF companies. Environmentalperformance shall be measured andreported regularly to shareholders,employees, and the public.

0

50

100

150

200

250

300

1986 1987 1988 1989 1990 1991 1992 1993

freon consumption at the schweinfurt plant

tons/year CFC HCFC

54

Distribution of shares as per December 31, 1993London 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 556Year 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 onevote and a B share has one-thousandth of one vote.

In 1992, the Annual General Meeting abolished the clause restricting the acquisitionof shares by foreign nationals and other controlled persons.

The SKF share is traded in the U.S.A. through the NASDAQ system via AmericanDepositary Receipts (ADR).

Changes in share capital 1982–1993Amount paid Share capital Number of shares

SEK m SEK m in millions

1982 Bonus issue 1:4 1 350 27.01989 Split 4:1 1 350 108.01990 Conversion of debentures 62 1 412 113.0

Trading in SKF sharesNumber of shares

Year Stockholm London Stockholm, SEK m

1989 8 426 000 1 8021990 13 845 000 10 226 000 1 7271991 27 212 000 38 896 000 2 6591992 44 497 000 81 900 000 4 0641993 69 120 000 92 532 000 6 940Source: Stockholm Stock Exchange, London Stock Exchange

Shares and shareholders

40

60

80

100

120

140

160

180

200

40

60

80

100

120

140

160

180

200

Swedish price index according to AffärsvärldenMaximum and minimum purchase prices per month

PRICE DEVELOPMENT OF THE SKF B SHARE

SEK SEK

1989 1990 1991 1992 1993

55

Option certificatesIn 1990, AB SKF issued 11 000 000 option certificates.Each option entitles the holder to subscribe for one newB share at the price of 190 Swedish kronor through June30, 1995.

Convertible bondsIn May, 1992, AB SKF issued zero coupon convertiblebonds amounting to 145 million ECU after a 8.75 per-cent discount. At full conversion, 8 437 650 B shares willbe issued. (See note 23 – Convertible bonds).

Shares and shareholders

Share savings fund for employeesSKF Aktiesparfond, a savings fund in which SKFemployees in Sweden could save during the period 1981to 1984 was liquidated during 1991, as changes in tax leg-islation made this type of fund unfavorable. The fund’sassets, SKF shares, were distributed to the members.

A new fund with the same purpose, SKF Allemans-fond, was started in April 1984. Most of the means of thefund have been invested in SKF shares. On December31, 1993, the SKF Allemansfond had 917 members andassets amounting to 67 million Swedish kronor.

Distribution of shareholdingNumber of shareholders Percent Number of shares Percent

1- 1 000 36 292 92.1 8 129 706 7.21 001- 10 000 2 752 7.0 6 738 666 6.0

10 001- 100 000 261 0.7 8 643 765 7.6100 001- 101 0.2 89 484 923 79.2

Subtotal 39 406 100.0 112 997 060 100.0Unclaimed bonus shares 2 496 0.0

112 999 556 100.0Source: VPC AB’s public share register as of 1993-12-30

Ten largest shareholdersNumber Number In percent of In percent ofof shares of votes share capital voting rights

1) AB Investor 15 875 052 15 875 052 14.1 32.22) Skanska AB 12 440 000 12 440 000 11.0 25.23) Fond 92–94 3 600 000 2 201 400 3.2 4.54) Fjärde Allmänna Pensionsfonden 2 846 800 2 846 800 2.5 5.85) Försäkringsbolaget SPP 2 696 386 1 682 351 2.4 3.46) Abu Dhabi Investment Authority 2 000 000 2 000 1.8 0.07) Trygg Ömsesidig Livförsäkring 1 680 588 1 506 574 1.5 3.18) Export-Invest AB 1 150 000 1 150 1.0 0.09) 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 76.0Source: 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 – 5.70Dividend per A and B share 3.00 3.50 4.25 4.25 4.25 – –Total dividends in millions of Swedish kronor 324 378 459 480 480 – –Purchase price of B shares atyear-end on the Stockholm Stock Exchange 58 99 157 66 94 74 132

Shareholders’ equity per share 87 91 101 108 91 79 80Risk-bearing capital per share 99 103 116 126 107 92 80Yield 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 – 23.21) 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.

1)

56

Seven-year review of the SKF Group

Amounts in millions of Swedish kronorunless 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 200Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 983 1 042 1 143 1 137 969 1 437 1 392

Other operating income . . . . . . . . . . . . . . . . . . . . 212 177 305 164 238 148 273Operating 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 97Financial 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 – 669Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 430 – 543 – 989 – 719 – 66 280 24Equity 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 – 645Extraordinary income and expense, net of taxes . . . . . 0 – – 14 142 – – 214 314Minority 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 692Trade accounts receivable . . . . . . . . . . . . . . . . . . . 3 889 4 348 4 941 4 976 4 973 5 332 5 655Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 550 7 130 8 382 9 954 9 426 9 435 9 220Other current assets . . . . . . . . . . . . . . . . . . . . . . . 665 672 662 931 1 126 1 050 1 187Property, plant and equipment . . . . . . . . . . . . . . . . 6 737 7 032 7 504 9 057 11 327 11 227 11 826Other 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 228Other short-term liabilities. . . . . . . . . . . . . . . . . . . 4 456 5 052 5 765 6 107 6 571 7 119 7 680Long-term loans (including convertible loans) . . . . . . 2 681 1 989 1 940 3 769 4 443 6 517 7 044Other long-term liabilities . . . . . . . . . . . . . . . . . . . 4 163 4 461 5 213 5 564 6 189 6 777 8 104Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . 147 125 146 240 172 113 127Shareholders’ 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 1.9Return on capital employed . . . . . . . . . . . . . . . . . . 12.2 14.3 20.0 12.7 3.0 – 3.5 3.4Return on shareholders’ equity . . . . . . . . . . . . . . . . 8.1 10.1 14.0 7.3 – 10.3 – 15.3 – 7.4Profit margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.0 10.0 12.3 8.3 2.2 – 2.4 2.2Turnover of total assets, times. . . . . . . . . . . . . . . . . 0.85 0.89 0.97 0.92 0.84 0.84 0.86Share of risk-bearing capital . . . . . . . . . . . . . . . . . . 46.8 46.8 48.7 44.6 36.4 31.5 26.6Solvency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.6 41.5 43.0 39.6 35.9 27.6 26.7Loss/earnings per share, kronor . . . . . . . . . . . . . . . 6.65 8.80 13.65 7.70 – 10.40 – 13.20 – 5.70Shareholders’ 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 933Sweden . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 88 76 98 129 140 238

Research and development expenses . . . . . . . . . . . . 398 414 465 534 538 473 552Average 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 975Number of employees registered at December 31 . . . . 45 685 47 178 49 413 53 995 52 469 45 151 41 394Salaries, 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 salesBearings and seals ** . . . . . . . . . . . . . . . . . . . . 18 515 20 115 23 754 26 476 24 347 22 690 27 199Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 094 1 165 1 246 1 332 1 978 1 731 –Special steels . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – 3 076 2 891Other and eliminations **. . . . . . . . . . . . . . . . . – 5 – 32 66 – 42 – 23 – 848 – 890

19 604 21 248 25 066 27 766 26 302 26 649 29 200Loss/income after financial income and expense

Bearings and seals ** . . . . . . . . . . . . . . . . . . . . 1 073 1 399 2 399 1 709 – 135 – 1 264 – 329Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 142 127 40 – 103 – 117 –Special steels . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – – 442 – 351Other 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.

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