United States

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

___________

FORM 20-F/A

o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 2005.

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report_______________________

Commission file number 0-13722

AKTIEBOLAGET SKF

(Exact name of registrant as specified in its charter)

SKF Incorporated

(Translation of Registrant's Name into English)

Kingdom of Sweden

(Jurisdiction of Incorporation or Organization)

SE-415 50

Gothenburg, Sweden

(Address and Principal Executive Offices)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

B Shares, par value SEK 2.50

SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION

PURSUANT TO SECTION 15(d) OF THE ACT:

None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

Class B Shares: 404,615,210

Class A Shares: 50,735,858

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  X No

If this report is an annual or transition report, indicate by check mark if the Registrant is required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  X No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes  X No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer X Accelerated Filer Non-Accelerated Filer

If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

Indicate by check mark which financial statement item the Registrant has elected to follow

Item 17 X Item 18

Explanatory Note

The Company is filing this amendment to its annual report on Form 20-F for the year ended 31 December 2005 (filed with the Securities and Exchange Commission (the “SEC”) on 5 April 2006 (the “original filing”)) to correct for the classification between major categories of cash flows, in the Group cash flow statements for the years ended 31 December 2005, 2004, and 2003. See Statements of Cash Flow; Note 32, SKF’s transitions to IFRS; and Note 34, Restatement to Statements of Cash Flow in Item 17.

In addition, the Company has attached hereto the exhibits required as a result of this amendment. Except for these specific corrections, the company has not made any modifications or updates to the original filing on Form 20-F and all of the other information contained in the original filing remains unchanged. This amendment does not describe other information, events or developments occurring after the original filing, including exhibits, or modify or update those disclosures affected by any subsequent events. This amendment should be read in conjunction with the company’s filings made with the SEC subsequent to the original filing, as information in such reports and documents may update or supersede certain information contained in this amendment. This amendment retains the page numbering of the original filing for ease of reference.

PART III

ITEM 17. FINANCIAL STATEMENTS

The following financial statements are filed as part of this Annual Report on Form 20-F as amended by Form 20-F/A.

	Page
Report of Independent Registered Public Accounting Firm KPMG Bohlins AB	F-1
Report of Independent Registered Public Accounting Firm Deloitte AB	F-2
Consolidated Income Statements for the years ended December 31, 2005, 2004 and 2003	F-3
Consolidated Balance Sheets at December 31, 2005, 2004 and 2003	F-4
Consolidated Statements of Cash Flow for the years ended December 31, 2005, 2004 and 2003	F-5
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2005, 2004 and 2003	F-7
Notes to the consolidated financial statements	F-8
Schedule II: Valuation and qualifying accounts	F-58

ITEM 18. FINANCIAL STATEMENTS

Not applicable.

ITEM 19. EXHIBITS

6.	For information regarding Earnings Per Share, please see Note 1 “Accounting Principles”, to the consolidated financial statements filed as part of this Form 20-F as amended by Form 20-F/A.
	Earnings Per Share is calculated using the weighted-average number of shares outstanding during the year.
8.	List of Subsidiaries.*
12.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed as a part of the Annual Report on Form 20-F and not refiled as part of this Form 20-F/A

97

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Gothenburg February 27, 2007

Aktiebolaget SKF

(publ)

By: /s/Tom Johnstone	/s/ Tore Bertilsson
Name: Tom Johnstone	Name: Tore Bertilsson
Title: President and	Title: Chief Financial Officer
Group Chief Executive

98

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

AB SKF (publ)

We have audited the consolidated balance sheet of AB SKF (publ) and subsidiaries as of December 31, 2005, and the related consolidated income statements, cash flows and changes in shareholders’ equityfor the year then ended. In connection with our audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule of valuation and qualifying accounts for the year ended December 31, 2005. These consolidated financial statements and financial statement schedule are the responsibility of the management of AB SKF (publ). Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AB SKF (publ) and subsidiaries as of December 31, 2005, and the result of their operations and their cash flows for the year then ended, in conformity with International Financial Reporting Standards (IFRSs). Also in our opinion, the related financial statement schedule as of and for the year ended December 31, 2005, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 32 to the consolidated financial statements in 2005, AB SKF (publ) changed its basis of accounting from accounting principles generally accepted in Sweden to International Financial Reporting Standards.

International Financial Reporting Standards vary in certain significant respects from generally accepted accounting principles in the United States of America. Information relating to the nature and effect of such differences is summarized in Note 33 to the consolidated financial statements.

As discussed in Note 34, the Company has restated its consolidated statement of cash flows for the year ended December 31, 2005.

Gothenburg, Sweden

March 30, 2006 (except as to note 34, which is as of February 27, 2007)

KPMG Bohlins AB

Thomas Thiel

Authorized Public Accountant

99

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Aktiebolaget SKF

We have audited the accompanying consolidated balance sheets of Aktiebolaget SKF and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the years then ended. Our audits also included the financial statement schedule of valuation and qualifying accounts for each of the two years in the period ended December 31, 2004.  These financial statements and financial statement schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Aktiebolaget SKF and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years then ended, in conformity with International Financial Reporting Standards as adopted by the European Union.  Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

International Financial Reporting Standards as adopted by the European Union vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net profit for each of the two years in the period ended December 31, 2004 and the determination of shareholders’ equity at December 31, 2004 and 2003, to the extent summarized in Note 33.

As discussed in Note 32 to the financial statements, in 2005 the Company changed its basis of accounting from accounting principles generally accepted in Sweden to International Financial Reporting Standards as adopted by the European Union.  The 2004 and 2003 financial statements have been restated in accordance with International Financial Reporting Standards as adopted by the European Union.

As discussed in Note 34, the statements of cash flows have been restated for the years ended December 31, 2004 and 2003.

Deloitte AB

Gothenburg, Sweden

March 30, 2006 (February 27, 2007 as to the effects of the restatement discussed in Note 34).

100

Consolidated income statements

F-3

			AB SKF AND SUBSIDIARIES
			Years ended December 31
Millions of Swedish kronor except earnings per share	Note		2005		2004		2003
Net sales		2		49 285		44 826		41 377
Cost of goods sold		5,6		-36 931		-33 766		-32 081
Gross profit				12 354		11 060		9 296
Selling expenses		6		-6 874		-6 367		-5 829
Administrative expenses		6		-410		-328		-279
Other operating income				388		305		367
Other operating expense				-303		-233		-267
Profit/loss from associated and jointly controlled companies		11		172		-3		19
Operating profit				5 327		4 434		3 307
Financial income		7		701		142		-52
Financial expense		7		-775		-489		-454
Profit before taxes				5 253		4 087		2 801
Taxes		8		-1 646		-1 111		-703
Net profit				3 607		2 976		2 098
Net profit attributable to:
Shareholders of AB SKF				3 521		2 926		2 042
Minority interests				86		50		56
Basic earnings per share after tax (SEK)		18		7.73		6.421		4.481
Diluted earnings per share after tax (SEK)		18		7.70		6.421		4.481

¹ Earnings per share have been recalculated to reflect the effects of the share split and redemption in 2005.

The accompanying notes are an integral part of the consolidated financial statements

101

Consolidated balance sheets

F-4

			AB SKF AND SUBSIDIARIES
			As of December 31
Millions of Swedish kronor	Note		2005		2004		2003
ASSETS
Non-current assets
Intangible assets		9		1 583		1 079		874
Property, plant and equipment		10		11 119		11 012		11 138
Investments in jointly controlled and associated companies		11		1 174		26		98
Investments in equity securities		12		270		281		266
Deferred tax assets		8		862		718		940
Financial and other assets		13		819		496		472
				15 827		13 612		13 788
Current assets
Inventories		14		9 931		8 985		8 429
Trade receivables		15		7 948		7 406		6 516
Tax receivables				71		119		126
Other receivables		16		1 500		1 327		1 351
Financial receivables		17		2 693		489		3 366
Cash and cash equivalents		17		2 379		3 076		2 976
				24 522		21 402		22 764
Total assets				40 349		35 014		36 552
EQUITY AND LIABILITIES
Equity attributable to shareholders of AB SKF
Share capital		18		1 138		1 423		1 423
Share premium				564		564		564
Share options reserve 27				-		27		13
Investment revaluation reserve12				12		–		–
Hedging reserve29				-4		–		–
Translation reserve				248		-1 295		-881
Retained earnings				15 671		16 022		14 234
Equity attributable to minority interest				604		504		499
				18 233		17 245		15 852
Non-current liabilities
Loans		21		4 145		904		1 246
Provisions for post-employment benefits		19		4 916		4 655		7 885
Deferred tax liabilities		8		1 092		1 091		1 124
Other provisions		20		1 418		1 266		1 425
Other liabilities				100		56		112
				11 671		7 972		11 792
Current liabilities
Financial liabilities		23		249		212		372
Trade payables				3 821		3 898		3 183
Tax payables				459		487		285
Other provisions		20		792		661		946
Other liabilities		24		5 124		4 539		4 122
				10 445		9 797		8 908
Total equity and liabilities				40 349		35 014		36 552

The accompanying notes are an integral part of the consolidated financial statements

102

Consolidated statements of cash flow - Restated

F-5

			AB SKF AND SUBSIDIARIES
			Years ended December 31
Millions of Swedish kronor	Note		2005		2004		2003
Operating activities
Profit before taxes				5 253		4 087		2 801
Adjustments for
Depreciation, amortization and impairment		6		1 752		1 733		1 812
Net gain(-) on sales of property, plant and equipment				-29		-17		-11
Net gain(-) on sales of equity securities				-52		–		–
Net gain(-) on sales of equity securities associated companies				-63		–		–
Net gain(-) on sales of businesses				-10		-21		-63
Other non cash items				26		159		781
Income taxes paid				-1 618		-858		-930
Post-employment defined benefits				-417		-3 636		-544
Jointly controlled and associated companies				57		-2		12
Changes in working capital
Inventories				-671		-648		-74
Trade receivables				-142		-907		-109
Trade payables				-156		755		-264
Other operating assets and liabilities, net				443		441		166
Net cash flow from operations				4 373		1 086		3 577
Investing activities
Purchase of intangible assets		9		-171		-111		-113
Sales of intangible assets				–		1		1
Purchase of property, plant and equipment		10		-1 623		-1 401		-1 379
Sales of property, plant and equipment				93		59		192
Acquisitions of businesses, net of cash and cash equivalents		3		-419		-644		-89
Sales of businesses, net of cash and cash equivalents		4		57		93		331
Investments in equity securities				–		-40		-51
Sales of equity securities				80		24		5
Investments in financial and other assets				-5 430		-2 439		-5 808
Sales of financial and other assets				3 469		5 272		5 858
Net cash flow used in investing activities				-3 944		814		-1 053
Net cash flow after investments before financing				429		1 900		2 524
Financing activities
Proceeds from medium- and non-current loans				3 249		123		–
Repayment of medium- and non-current loans				-321		-624		-450
Change in current loans				7		-31		-42
Payment of finance lease liabilities				-3		-13		-9
Cash dividends to AB SKF shareholders				-1 366		-1 138		-911
Cash dividends to minority shareholders				-33		-39		-40
Redemption of shares				-2 846		–		–
Net cash flow used in financing activities				-1 313		-1 722		-1 452

103

F-6
Increase(+)/decrease(-) in cash and cash equivalents			-884		178		1 072
Cash and cash equivalents at January 1			3 076		2 976		2 033
Cash effect excluding acquired companies			-911		115		1 072
Cash effect of acquired companies	3		27		63		-
Cash effect of exchange transactions		11		-32		-		-
Effects of exchange rate differences on cash held				219		-78		-129
Cash and cash equivalents at December 31				2 379		3 076		2 976

The accompanying notes are an integral part of the consolidated financial statements

104

Consolidated statements of changes in shareholders' equity

F-7

	AB SKF AND SUBSIDIARIES
Millions of Swedish kronor	Share capital		Share premium		Share options reserve		Investment revaluation reserve		Hedging reserve		Translation reserve		Retained earnings		Minority interest		Total
Opening balance 2003-01-01		1 423		564		-		-		-		-		13 103		570		15 660
Exchange differences arising on translation of foreign operations		-		-		-		-		-		-881		-		-93		-974
Other transactions with minority owners		-		-		-		-		-		-		-		6		6
Profit for the year		-		-		-		-		-		-		2 042		56		2 098
Recognition of share-based payments		-		-		13		-		-		-		-		-		13
Dividends		-		-		-		-		-		-		-911		-40		-951
Closing balance 2003-12-31		1 423		564		13		-		-		-881		14 234		499		15 852
Exchange differences arising on translation of foreign operations		-		-		-		-		-		-414		-		-39		-453
Other transactions with minority owners		-		-		-		-		-		-		-		33		33
Profit for the year		-		-		-		-		-		-		2 926		50		2 976
Recognition of share-based payments		-		-		14		-		-		-						14
Dividends		-		-		-		-		-		-		-1 138		-39		-1 177
Closing balance 2004-12-31		1 423		564		27		-		-		-1 295		16 022		504		17 245
Effect of adopting IAS 39		-		-		-		31		84		-		85				200
Opening balance 2005-01-01		1 423		564		27		31		84		-1 295		16 107		504		17 445
Exchange differences arising on translation of foreign operations		-		-		-		-		-		1 543		-19		101		1 625
Other transactions with minority owners		-		-		-		-		-		-		-		-54		-54
Profit for the year		-		-		-		-		-		-		3 521		86		3 607
Recognition of share-based payments		-		-		1		-		-		-		-		-		1
Exercise of share options		-		-		-28		-		-		-		-11		-		-39
Dividends		-		-		-		-		-		-		-1 366		-33		-1 399
Redemption of shares		-285		-		-		-		-		-		-2 561		-		-2 846
Release on disposal of investments in equity securities and cash-flow hedges		-		-		-		-11		-84		-		-		-		-95
Change in fair value of investments in equity securities and cash flow hedges		-		-		-		-8		-4		-		-		-		-12
Closing balance 2005-12-31		1 138		564		-		12		-4		248		15 671		604		18 233

The accompanying notes are an integral part of the consolidated financial statements

105

F-8

Notes to the consolidated financial statements

Amounts in millions of Swedish kronor unless otherwise stated. Amounts in parentheses refer to comparable figures for 2004 and 2003, respectively.

1 Accounting policies

Significant accounting policies Basis of presentation The consolidated financial statements of the SKF Group are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), which includes interpretations from the International Financial Reporting Interpretations Committee (IFRIC). Those portions of IFRS not adopted by the EU have no material effect on this report. Furthermore, the Group is in compliance with requirements from the Swedish Financial Accounting Standards Council RR30, "Additional Accounting Rules for Group Accounts" as well as relevant interpretations (URA) issued by the Council's Emerging Issues Task Force. The financial statements are presented in Swedish Kronor (SEK) rounded to the nearest million, and are prepared on the historical cost basis except as disclosed in the accounting policies below. Basis of consolidation The consolidated financial statements include the Parent Company, AB SKF, and each of those companies in which it directly or indirectly, exercises control. Such control is usually achieved with an ownership representing more than 50% of the voting rights. AB SKF and its subsidiaries are referred to as "the SKF Group" or "the Group". Consolidated shareholders' equity includes the Parent Company's equity and the part of the equity in subsidiaries, which has arisen after the subsidiary's acquisition. Minority interests are shown as a separate category within equity, with the minority share of net profit being specified after the net profit. Intercompany accounts, transactions and unrealized profits have been eliminated in the consolidated financial statements. Business combinations and goodwill All business combinations are accounted for in accordance with the purchase method. At the date of acquisition, the acquired assets, liabilities and contingent liabilities (net identifiable assets) are measured at fair value, which requires the use of estimates. Acquired land, buildings and equipment are usually independently appraised. Financial assets and liabilities (including post-employment benefits), as well as inventories, are recorded using references to available market information. The fair values of significant intangible assets are derived either with the assistance of independent valuation experts, or internally using appropriate valuation techniques generally based on forecasted future cash flows. Any excess of the cost of acquisition over fair values of net identifiable assets of the acquired business including contingent liabilities is recognized as goodwill. Any deficiency of the cost of acquisition below such fair values is credited to profit and loss in the period of acquisition. Goodwill is not amortized but is reviewed at least annually for impairment. Any impairment loss is recognized in profit and loss and is not subsequently reversed. Investments in jointly controlled and associated companies Companies, in which the Group has a significant influence, are referred to as associated companies. Significant influence is usually achieved when the Groupowns 20 to 50% of the voting rights. Investments in associated companies are reported in accordance with the equity method.

Investments where the Group as a venturer and together with other venturers, jointly control the economic activities of the investment through a contractual arrangement between the venturers, are defined as jointly controlled entities. Such investments are accounted for using the equity method. Under the equity method, the carrying value of the investments is equal to the Group's share of shareholders' equity in these companies, determined in accordance with the accounting policies of the Group as well as any goodwill arising upon acquisition. The Group's share in the result of these companies is based on their pre-tax profit/loss and taxes, respectively. Classification The assets and liabilities classified as current are expected to be recovered or settled within twelve months from the balance sheet date. All other assets and liabilities are recovered or settled later. No other liabilities than loans, financial leases and certain derivative instruments are expected to be settled later than five years from the balance sheet date. Segment information The Group's primary segment is based on customer segments, which agrees to the Group's operational division structure. The secondary segment information is based on geographical location of the customer to whom the sale is made as well as the geographical location of subsidiaries' assets and capital expenditures. Sales between business units are made on market conditions, with arms-length principle. Segment results represent the contribution of the segments to the profit of the Group, and include some allocated corporate expenses. Unallocated items consist mainly of remaining corporate expenses, including some research and development activities, net costs relating to prior organization or disposed operations, profit from certain associated companies and certain costs which cross over segment lines for which management believes no reasonable basis for allocation exists. Segment assets include all operating assets used by a segment and consist principally of plant, property and equipment, external trade receivables, inventories, other receivables, prepayments and accrued income. Segment liabilities include all operating liabilities used by a segment and consist principally of external trade payables, other provisions, accrued expenses and deferred income. Unallocated assets and liabilities include all tax items and items of a financial, interest-bearing nature, including post-employment benefit assets and provisions. Additionally, unallocated items include items related to central corporate activities, including research and development, as well as items related to previously mentioned unallocated result items included in results of operations. Inter-segment receivables and payables arising from the sales between segments, are not considered segment assets and liabilities as such items are sold to and settled directly with SKF Treasury Centre, the Group's internal bank, thereby becoming financial in nature.

106

F-9

Translation of foreign financial statements All foreign subsidiaries report in their functional currency being the currency of the primary economic environment in which the subsidiary operates. Upon consolidation, all balance sheet items have been translated to SEK based on the year-end exchange rates. Income statement items are translated at average exchange rates. The resulting translation adjustments that have arisen since January 1, 2003, the date of transition to IFRS, are presented as a separate component of shareholders' equity. Such translation differences are recognized in profit and loss upon the disposal of the foreign operation.   Translation of items denominated in foreign currency Transactions in foreign currencies during the year have been translated at the exchange rate prevailing at the respective transaction date. Trade receivables and trade payables and other receivables and payables denominated in foreign currency have been translated at the exchange rates prevailing at the balance sheet date. Such exchange gains and losses are included in other operating income and other operating expense. Other foreign currency items have been included in financial income and financial expense.   Hedging as from January 1, 2005 Cash flow hedges Hedge accounting has been applied to derivative financial instruments, which are effective in offsetting the variability in the cash flows from forecasted external sales. Forward exchange and currency option contracts were used as hedging instruments. Changes in fair value of these derivative financial instruments designated as hedging instruments and meeting the criteria for hedging future cash flows were recognized on the balance sheets and directly in equity, for their effective portion. In the same period during which the forecasted net sales affect the income statement the cumulative gain or loss recognized in equity is recycled to the income statement and recognized on the sales line. When a hedging instrument or hedge relationship is terminated but the hedged transaction still is expected to occur, the cumulative gain or loss at that point remains in equity and is removed from equity and recognized in the income statement under financial items when the committed or forecast transaction is recognized in the income statement. However, if the hedged transaction is no longer expected to occur, the cumulative gain or loss reported in equity is immediately transferred to the income statement under financial items. Fair value hedges Hedge accounting has been applied to derivative financial instruments which are effective in hedging the exposure to changes in fair value of foreign borrowing. The currency and interest risk exposure has been hedged by cross-currency interest rate swaps. Changes in fair value of these derivative financial instruments designated as hedging instruments and meeting the criteria for fair value hedges are recognized on the balance sheet and in the income statement under financial items. The carrying amount of the hedged item is adjusted for the gain or loss attributable to the hedged risk. The gain or loss is recognized in the income statement under financial items.   Economic hedges Derivatives which provide effective economic hedges but for which hedge accounting as defined by IAS 39 is not applied to are accounted for as trading instruments. Changes in the fair value of these economic hedges are immediately recognized in the income statement under financial items.   Share-based payments The fair value at grant date of option programme 2003, which vested in February 2005, was initially recognized directly in equity and amortized as an expense over the vesting period. The fair value was determined using the Black&Scholes options valuation model. The terms and conditions upon which the options were granted were taken into account when applying the valuation method. The amount recognized as an expense was adjusted to reflect the actual number of share options that vested. The exercise of options under this program is recognized directly in equity. No initial fair value of option programs 2001 and 2002, which were granted in February 2001 and 2002 and vested in February 2003 and 2004, respectively, was required to be recognized according to IFRS 1 transition rules. Exercise of options under these two programs is recorded in operating profit as under previous Swedish GAAP. A provision calculated on the estimated fair value of the options on reporting date is recorded for social charges to be paid by the employer when the options are exercised. The fair value of the options is calculated as the difference in exercise price of the options and market price of the SKF B share. For the cash-settled share-based compensation granted to the Board of Directors of the Parent Company, a provision based on the fair value of the SKF B share on reporting day is made. The expense is recognized in operating profit.

107

F-10

Revenue recognition Revenues are recognized when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from the sale of goods and services is generally recognized when (1) an arrangement with a customer exists, (2) delivery has occurred or services have been rendered, (3) the price is fixed or determinable, and (4) collection of the amount due is reasonably assured. Contracts and customer purchase orders are generally used to determine the existence of such an arrangement. Shipping documents and customer acceptance are used, when applicable, to verify delivery. Whether the price is fixed or determinable are assessed based on the payment terms associated with the transaction. Collectibility is assessed based primarily on the creditworthiness of the customer as determined by credit limit control and approval procedures, as well as the customer's payment history. Approval procedures include approval of new customers by management. Accruals for customer rebates are recorded at the time of revenue recognition. Rebates are recognized as a reduction of sales. Revenues from service and/or maintenance contracts where the service is delivered to the customer at a fixed price is accounted for on a straight-line basis over the duration of the contract or under the percentage-of completion method based on the ratio of actual costs incurred to total estimated costs expected to be incurred. Any anticipated losses on contracts are recognized in full in the period in which losses become probable and estimable.   Property, plant and equipment (PPE) Machinery and supply systems, land, buildings, tools, office equipment and vehicles which are held for use in the production or supply of goods or services or for administrative purposes are stated in the balance sheet at cost or deemed cost, less accumulated depreciation and impairment losses. For a description of deemed cost see Note 32. SKF applies a component approach to depreciation. This means that where items of PPE are comprised of different components having a cost significant in relation to the total cost of the items, such components are depreciated separately. Depreciation is provided on a straight-line basis and is calculated based on historical cost. The rates of depreciation are based on the estimated useful lives of the assets, which are subject to annual review. These useful lives are based upon estimates of the periods during which the assets will generate revenue based to a large extent of historical experience of usage and technological development. The useful lives are: o 33 years for buildings and installations; o 10-20 years for machinery and supply systems; o 10 years for control systems within machinery and supply systems; o 4-5 years for tools, office equipment and vehicles. Depreciation is included in cost of goods sold, selling or administrative expenses depending on where the assets have been used.   Intangible assets other than goodwill Intangible assets other than goodwill are stated at initial cost less accumulated amortization and impairment losses. Amortization is made on a straight-line basis over their estimated useful lives, which are subject to annual review. The useful lives are based to a large extent on historical experience, the expected application, as well as other individual characteristics of the asset. The useful lives are: o Patents and similar rights ranging from 6 to 11 years; o Capitalized software normally 4 years; o Capitalized customer relationships ranging from 5 to 15 years; o Capitalized development expenditures ranging from 3 to 7 years;. o Other intangible assets normally from 3 to 5 years; o Those intangible assets where there is no foreseeable limit to the period over which the asset is expected to generate net cash flows, are considered to have indefinite useful lives, and no amortization is made. Amortization is included in cost of goods sold, selling or administrative expenses depending on where the assets have been used.   Capitalization of software The Group capitalizes software for internal use if it is probable that the future economic benefits that are attributable to it will flow to the company and the cost can be reliably measured. In evaluating capitalization, management considers new functionality and/or increased standard of performance to be significant evidence that future economic benefits will be achieved.   Research and development Research expenditures as well as development expenditures not meeting the capitalization criteria described below, are charged to cost of goods sold in the consolidated income statement when incurred. Expenditures during the development phase are capitalized as intangible assets when, according to management's judgment, it is probable with a high degree of certainty, that they will result in future economic benefits for the Group. Stringent criteria must be met before a development project results in the recording of an intangible asset. Such criteria include the ability to complete the project, proof of technical feasibility and market existence, as well as intention and ability to use or sell the asset and the ability to reliably measure the expenditures during the development phase. Management considers the existence of a customer order as significant evidence of technological and economic feasibility.   Leases A lease agreement that, according to management's judgment, transfers substantially all the benefits and risks of ownership to the Group is accounted for as a finance lease. Finance leases are recorded as plant, property and equipment initially at an amount equal to the present value of the minimum lease payments during the lease term. Finance leases are depreciated in a manner consistent with the Group's normal useful lives for owned plant, property and equipment. Lease payments are apportioned between the finance charge and the reduction of the outstanding finance lease obligation. The finance charge is allocated to periods during the lease term as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Other leases are accounted for as operating lease, where rental expenses are recognized in the income statement, on a straight-line basis, over the lease term.   Inventories Inventories are stated at the lower of cost (first-in, first-out basis) or market value (net realizable value). Raw materials and purchased finished goods are valued at purchase cost. Work in process and manufactured finished goods are valued at production cost. Production cost includes direct production cost such as material and labour, as well as manufacturing overhead as appropriate. Net realizable value is defined as selling price less costs to complete and costs to sell. As actual selling prices and selling costs are not known, managements best estimate, based on current price and cost levels are used. Net realizable value includes write-downs for both technical and commercial obsolescence made on an individual subsidiary basis. Such obsolescence is assessed by reference to the rate of turnover for each inventory item.  

108

F-11

Cash and cash equivalents Cash and cash equivalents comprise cash on hand, bank deposits, debt securities, and other liquid investments that have a maturity of three months or less at the time of acquisition.   Long-term employee benefits Employee benefits, which are both earned and paid out during employment, and are expected to be settled more than twelve months after they are earned yet before employment ends, are long-term employee benefits. These include part-time retirements programs, anniversary bonuses, long-stay and jubilee payments. All such programs are calculated using the projected credit unit method and appropriate assumptions, as both are described under post-employment benefits, except that all actuarial gains and losses are recognized immediately.   Critical accounting policies involving significant management judgment The following accounting polices involve management judgments that are considered to have the most significant effect on the consolidated financial statements.   Income taxes General Taxes include current taxes on profits, deferred taxes and other taxes such as taxes on capital, actual or potential withholding on current and expected transfers of income from Group companies and tax adjustments relating to prior years. Income taxes are recognized in the income statement, except to the extent that they relate to items directly taken to equity, in which case they are recognized in equity. Significant management judgment is required in determining current tax liabilities and assets as well as deferred tax liabilities and assets. The process involves estimating the current tax exposure together with assessing temporary differences arising from differing treatment of items for tax and accounting purposes. In particular, management must assess the likelihood that deferred tax assets will be recoverable from future taxable income.   Current taxes All the companies within the Group compute current income taxes in accordance with the tax rules and regulations of the countries where the income is taxable. Provisions have been made in the consolidated financial statements for estimated taxes on earnings of subsidiaries expected to be remitted in the following year, but not for tax liabilities, which may arise on distribution of the remaining unrestricted earnings of foreign subsidiaries as they can be distributed free of tax or as SKF does not intend to internally distribute them in the foreseeable future.   Deferred taxes The Group utilizes a balance sheet approach for measuring deferred taxes, which requires deferred tax assets and liabilities to be recorded based on enacted tax rates for the expected future tax consequences of existing differences between accounting and tax reporting bases of assets and liabilities, and tax loss and tax credit carry-forwards. Such tax loss and tax credit carry-forwards can be used to offset future income. Deferred tax assets are recorded to the extent that it is probable that sufficient future taxable income will be available to allow the recognition of such benefits.   Other taxes Other taxes refer to taxes other than income taxes, which should not be included elsewhere in the income statement.   Financial instruments as from January 1, 2005 Financial assets and financial liabilities are recognized on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Settlement day recognition is applied for financial assets and liabilities other than derivatives, which are recognized at trade date. Financial instruments are recorded initially at cost, which usually equals fair value at the time of acquisition. Transaction costs are included in the initial measurement of financial assets and liabilities that are not measured at fair value through profit and loss. Subsequent measurement depends on the designation of the instrument, as determined by management, as follows: o Investments in equity securities (other than interests in jointly controlled and associated companies) are designated as available for sale. Changes in fair value of equity investments with a reliable fair value are recognized directly in equity, except for impairment losses, which are recognized in the income statement. When the investments are derecognized the cumulative gain or loss recognized in equity is removed from equity and recognized in the income statement. If the fair value of an unquoted equity security cannot be reliably measured the investment is measured at cost; o Deposits for which substantially all initial investment is expected to be recovered, comprising principally funds held with landlords and other service providers, trade receivables, loans granted and funds held with banks are designated as loans and receivables and measured at amortized cost using the effective interest method. Impairment losses are recognized where there is objective evidence of impairment; o Financial assets other than those designated as available for sale or loans and receivables are designated as financial assets at fair value through profit and loss; o Loans and other financial liabilities are measured at amortized cost using the effective interest method. Liabilities that are hedged against changes in fair value, however, are recorded at fair value. o Derivatives, comprising foreign exchange contracts, currency options, cross-currency and interest rate swaps and embedded derivatives are always recognized at fair value in the income statement unless they are designated and effective cash flow hedging instruments; o Derivatives embedded in other financial instruments or other non-financial host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contract and the host contract is not carried at fair value with unrealized gains or losses reported in profit or loss.   Financial assets are derecognized when the contractual rights to the cash flow have expired or been transferred together with substantially all risks and rewards. Financial liabilities are derecognized when they are extinguished.   Critical accounting policies involving key sources of estimation uncertainty The following accounting policies involve key assumptions and /or estimates that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.    

109

F-12

Impairment of long-lived assets and assets with indefinite lives Long-lived assets Intangible assets and plant, property and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The determination is performed at the cash generating unit (CGU) level. Factors that are considered important are: o Underperformance relative to historical and forecasted operating results; o Significant negative industry or economic trends; o Significant changes relative to the asset including plans to discontinue or restructure the operation to which the asset belongs. When there is an indication that the carrying value may not be recoverable based on the above indicators, the profitability of the product line to which the asset belongs is analyzed to further confirm the nature and extent of the indication. When an indication is confirmed an impairment loss is recognized to the extent that the carrying amount of the affected CGU exceeds its recoverable amount.   Assets with indefinite lives Goodwill and other intangibles with indefinite lives are tested annually for impairment at the CGU level where an impairment loss is recognized if the carrying amount exceeds the recoverable amount.   Calculating the impairment loss The recoverable amount is the greater of the estimated net selling price and value in use. For those CGU's acquired during the year, the net selling price, being the purchase price, is used as recoverable amount. Such net selling price has been developed with reference to discounted cash flows and observable market prices and therefore, without evidence to the contrary, it is assumed to be the greater value. For other CGUs the recoverable amount has been determined on the basis of value in use. In assessing value in use, a discounted future cash flow model (DCF) is used. The DCF model involves a number of significant assumptions and estimates in the forecasting of future operating cash flows, including terminal values, the number of years on which to base the cash flow projections, market growth rates, revenue volumes, production costs, and working capital requirements. Forecasts of future operating cash flows are based on the best estimates of future revenues and operating expenses using historical trends, general market conditions, industry trends and forecasts and other available information. Terminal values are based on the Gordon Growth model, which includes a growth factor representing inflation expected in the country in which the assets operate. Forecasts for operating cash flow are adjusted by an appropriate discount rate derived from our costs of capital plus reasonable risk premiums, including market risk and small company premium, at the date of evaluation. Management determines the discount rate to be used based on the risk inherent in the related activity's current business model and industry comparisons. Predicting these key variables involves uncertainty about future events and market conditions, and therefore actual outcomes may be significantly different.   Provisions In general, a provision is recognized when there is a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. As the estimates involve uncertainty about future events outside the control of the Group, the actual outcomes may be significantly different.   Restructuring provisions including termination benefits Restructuring provisions for programs that materially change the manner in which the SKF Group operates, are recognized when a detailed formal plan has been established and a public announcement of the plan has occurred creating a valid expectation that the plan will be carried out. Restructuring provisions often include termination benefits, which can be either voluntary or involuntary. Termination benefits are recognized in accordance with the above, except where there is a service requirement in connection with the benefits, in which case the cost is spread over the service period. Restructuring provisions involve estimates about the timing and cost of the planned future activities. The most significant estimates involve the costs necessary to settle employee severance or other employee separation obligations, as well as the costs involved in contract cancellations and other exit costs. Such estimates are based upon historical experience and the expected future cash outflows, based on the current status of negotiations with the affected parties and/or their representatives.   Provisions for litigation Provisions for litigations are estimates of the future cash flows necessary to settle the obligations. Such estimates are based upon the nature of the litigation, the legal processes and potential level of damages in the jurisdiction in which the litigation has been brought, the progress of the cases, the opinions and view of internal and external legal counsel and other advisors regarding the outcome of the case, and experience with similar cases.   Warranty provisions Warranty provisions involve estimates about the outcome of warranty claims resulting from defective products, which include estimates for potential liability for damages caused by such defects to our customers or to the customers of our customers and potential liability for consequential damages. Assumptions are required for both determining the likelihood of favourable outcomes of warranty disputes and the cost incurred when replacing the defective products and compensating customers for damages caused by our products. Warranty provisions are estimated with consideration of historical claims statistics, expected costs to remedy and the average time lag between faults occurring and claims to the company.   Post-employment benefits The post-employment provisions and assets arise from defined benefit obligations in plans which are either unfunded or externally funded. For the unfunded plans, benefits paid out under these plans come from the all-purpose assets of the company sponsoring the plan. The related provisions carried in the balance sheet represent the present value of the defined benefit obligation less the fair value of plan asset and adjusted for unrecognized actuarial gains and losses and past service costs. Under externally funded defined benefit plans, the assets of the plans are held separately from those of the Group, in independently administered funds. The related balance sheet provision or asset represents the deficit or excess of the fair value of plan assets over the present value of the defined benefit obligation, taking into account any unrecognized actuarial gains or losses and past service cost. However,

110

F-13

an asset is recognized only to the extent that it represents a future economic benefit which is actually available to the Group for example in the form of reductions in future contributions, or refunds from the plan. When such excess is not available it is not recognized, but is disclosed in the notes. The projected credit method is used to determine the present value of all defined benefit obligations and the related current service cost and where applicable, past service cost. Valuations are carried out annually for the most significant plans and on a regular basis for other plans. External actuarial experts are used for these valuations. Estimating the obligations and costs involves the use of assumptions. Such assumptions vary according to the economic conditions of the country in which the plan is located and are adjusted to reflect market conditions at every year-end. However, the actual costs and obligations that in fact arise under the plans may be materially different from the estimates based on the assumptions due to changing market and economic conditions. The most sensitive assumptions are related to the discount rate, expected return on assets, future compensation increases and health care cost rates. The selection of the discount rate is based on rates of return on high-quality, fixed-income investments (high quality corporate bonds, and in countries where there is no deep market for such bonds, government bonds) that, if invested at the valuation date, would provide the necessary future cash flows to pay the benefits when due. The expected return on assets is based on the market expectations (at the beginning of each period) for returns over the entire life of the related obligation. In developing the long term rate of return, management considers the historical returns and the future expected return based on current market developments for each asset class as well as the target allocations of the portfolio. The salary growth assumptions reflect the non-current actual experience, the near term outlook and assumed inflation. Health care cost trend rates are developed based on historical cost data, the near term outlook, and an assessment of likely non-current trends. Actuarial gains and losses arise mainly from changes in actuarial assumptions and differences between actuarial assumptions and what has actually occurred. They are recognized in the income statement, over the remaining service lives of the employees, only to the extent that their net cumulative amount exceeds 10% of the greater of the present value of the obligation or of the fair value of the plan assets at the end of the previous year. For all defined benefits plans the actuarial cost charged to the income statement consists of current service cost, interest cost, expected return on plan assets (only funded plans) and past service cost as well as any amortized actuarial gains and losses. The past service cost for changes in pension benefits is recognized when such benefits vest, or amortized over the periods until vesting occurs. Interest cost and the expected return on assets to the extent that it covers that plan's interest cost, is classified as financial expense. Other expense items as well as any remaining expected return on assets and all defined contribution expenses are allocated to the operations based on the employee's function as manufacturing, selling, or administrative. The defined benefit accounting described above is applied only in the consolidated accounts. Subsidiaries, including the Parent Company, continue to use the local statutory pension calculations to determine pension costs, provisions and assets in the stand-alone statutory reporting. Some post-employment benefits are also provided by defined contribution schemes, where the Group has no obligation to pay benefits after payment of an agreed-upon contribution to the third party responsible for the plan. Such contributions are recognized as expense when incurred. A portion of the ITP pensions arrangements in Sweden is financed through insurance premiums to Alecta. This arrangement is considered to be a multi-employer plan where defined benefit accounting is required. Alecta is currently unable to provide the information needed to do such accounting. As a result, such insurance premiums paid are currently accounted for as a defined contribution expense.   Change in accounting principles January 1, 2005 As from January 1, 2005 the Group implemented IFRS 5 "Assets held for sale and discontinued operations", and IFRS 4 "Insurance contracts". These had no effect upon the Groups financial statements. As from January 1, 2005 the Group implemented IAS 39 "Financial Instruments Measurement and recognition", and the amendment to IAS 39 "Transition and initial recognition of financial assets and financial liabilities". The effect of this change in accounting policy at January 1, 2005 was an increase to equity of 200, net of tax. The SKF Group has chosen not to restate comparable 2003 and 2004 financial information for the requirements of IAS 39, as allowed by these transition rules and therefore these years continue to reflect previous Swedish GAAP.   Hedging under previous Swedish GAAP for years 2003 and 2004 Under previous Swedish GAAP, changes in fair value of derivatives hedging anticipated transactions did not need to be recognized on the balance sheet until the hedged item was recognized. Received and paid premiums for options hedging currency flows were reported as financial income or expense during the contract period. Financial assets and liabilities in foreign currency hedged by individual companies were, if applicable, valued at the spot rate of the underlying forward exchange contracts and discounts and premiums were reported as financial income or expense over the contract period. When the currency of investments and borrowings denominated in another currency than reporting currency was changed by currency swap contracts, these swap contracts were taken into account when translating the investments and borrowings to Swedish kronor. For interest rate swaps hedging loans accrued interest was reflected per closing date as financial income or financial expense. Interest rate swaps hedging financial assets classified as current financial assets were valued at market rate and resulting gains and/or losses were reflected as financial income or expense.   Financial instruments under previous Swedish GAAP for years 2003 and 2004 Under previous Swedish GAAP, debt securities classified as held to maturity were recorded at acquisition value. Debt securities which represented highly liquid assets and which were bought and held principally for selling them in the near term were classified as current financial assets and were recorded at fair value with gains and losses recorded as financial income or financial expense. Fair value was determined on basis of market prices at the balance sheet date.

111

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Under previous Swedish GAAP, loans and other financial liabilities were measured at cost and related fees, transaction costs and premiums and discounts were amortized over the period until maturity on a straight-line basis. Under previous Swedish GAAP, derivative instruments used for trading purposes were recognized at fair value in the income statement. Derivatives hedging forecasted transactions did not need to be recognized on the balance sheet until the hedged item was recognized. Embedded derivatives were neither required to be recognized nor separately accounted for.   IFRS issued but not effective Numerous IFRS have been issued yet are not effective for the year ending December 31, 2005. IFRS effective January 1, 2006, having no material impact upon the Group are: o Amendment IAS 19 (December 2004) "Actuarial gains and losses, group plans, and disclosures" and consequential amendment to IAS 1, allows an option to immediately recognize in equity actuarial gains and losses arising from post-employment defined benefit calculations. The Group has chosen not to apply this option and will continue to defer such actuarial gains and losses. Further, the amendment requires additional disclosures related to post-employment defined benefit plans for which the Group will comply with in the 2006 annual report; o Amendment IFRS 1 and IFRS 6 (June 2005); o IFRS 6 "Exploration for and evaluation of mineral resources"; o Amendment IAS 39 (June 2005) "The fair value option" o Amendment IAS 39 (August 2005) "Financial guarantee contracts" o IFRIC 5 "Rights to interests from decommissioning restoration and environmental rehabilitation funds"   IFRS where the impact upon the Group has not been determined: Effective January 1, 2006: o Amendment IAS 21 (December 2005) "Net investment in a foreign operation"; o IFRIC 4 "Determining whether an arrangement contains a lease" o Amendment IAS 39 (April 2005) "Cash flow hedges of intra-group transactions" Effective January 1, 2007: o IFRS 7 "Financial Instruments: Disclosures" o Amendment IAS 1 (August 2005) "Capital disclosures" o IFRIC 6 "Liabilities arising from participating in a specific market - waste electrical and electronic equipment"; o IFRIC 7 "Applying the restatement approach under IAS 29 Financial reporting in hyperinflationary economies" o IFRIC 8 "Scope of IFRS 2" .

2 Segment information

Customer segment The SKF Group is divided into five divisions, each one focusing on specific customer groups worldwide. Previously published amounts have been reclassified to conform to the current Group structure in 2005. The Industrial Division is responsible for sales to industrial OEM customers and for the product development and production of a wide range of bearings (including spherical and cylindrical roller bearings and angular contact ball bearings), lubrication systems, linear motion products and couplings. The division has four specialist business areas, Lubrication, Railways, Actuation & Motion Control and Couplings. The Service Division is responsible for sales to the industrial aftermarket, mainly via a network of some 7 000 distributor locations. The division also supports industrial customers with knowledge-based service solutions to optimize plant asset efficiency. The SKF Reliability Systems business area offers consulting and mechanical services, predictive and preventive maintenance, condition monitoring, decision-support systems and performance based contracts. SKF Logistics Services deals with logistics and distribution for both the SKF Group and external customers. The Automotive Division is responsible for sales to the car, light truck, heavy truck, bus and vehicle component industries and the vehicle service market and also for product development and the production of bearings, seals and related products and service solutions.

The products include wheel hub bearing units, taper roller bearings, seals, special automotive products and complete repair kits for the vehicle service market The Electrical Division is responsible for sales to manufacturers of electric motors, household appliances, electrical components for the automotive industry, power tools, office machinery and two-wheelers and also for the product development and production of deep-groove ball bearings and bearing seals. Of the division’s total sales, some 70% are made through other divisions. The Aero and Steel Division is divided into SKF Aerospace and SKF Forgings and Rings. SKF Aerospace is responsible for sales, product development and the production of bearings, seals and components for aircraft engines, gearboxes and airframes and also for offering various services including the repair of bearings. SKF Forgings and Rings is responsible for sales, product development and the production of forgings and rings, primarily for the bearing industry. The division results included results of the Ovako Steel operations through April 2005. Ovako Steel was responsible for product development and the production of special steels and steel components for the bearing industry and also for other industries with demanding applications. Starting from May 2005, the division results included the result from the jointly controlled entity Oy Ovako Ab. See Note 11 for a description of the Ovako exchange transaction.

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	Net sales						Sales including intra-group Sales
	2005		2004		2003		2005		2004		2003
Industrial		12 773		10 785		9 665		19 183		16 640		15 139
Service		15 995		14 115		12 947		17 533		15 554		14 307
Automotive		15 146		14 054		13 344		17 021		15 679		14 804
Electrical		2 102		1 931		1 833		7 426		6 824		6 459
Aero and Steel		3 198		3 874		3 551		5 136		6 584		6 016
Other operations		71		67		37		282		68		40
Eliminations		-		-		-		-17 296		-16 523		-15 388
		49 285		44 826		41 377		49 285		44 826		41 377

	Operating profit						Depreciation, amortization and impairments
	2005		2004		2003		2005		2004		2003
Industrial		1 933		1 585		1 456		456		462		457
Service		2 078		1 688		1 414		115		95		117
Automotive		452		612		471		652		532		556
Electrical		357		297		172		360		387		399
Aero and Steel		463		206		-179		174		293		438
Other operations		14		1		-24		-		-		-
Eliminations and unallocated items		30		45		-3		-5		-36		-155
		5 327		4 434		3 307		1 752		1 733		1 812

Of the Group’s total income from jointly controlled and associated companies, 188 (0 and 0) was included in the Aero and Steel Division, -5 (-4 and -7) in the Automotive Division, 1 (1 and 1) in the Service Division and the remainder was included as unallocated.

	Assets						Liabilities
	2005		2004		2003		2005		2004		2003
Industrial		10 289		8 831		7 662		2 419		2 120		1 946
Service		4 831		4 325		3 883		1 570		1 309		1 196
Automotive		9 000		8 117		7 951		2 373		2 291		2 039
Electrical		4 010		3 699		3 774		1 454		1 375		1 282
Aero and Steel		3 533		3 970		3 958		732		1 226		1 108
Other operations		60		45		45		110		47		8
Eliminations and unallocated items		8 626		6 027		9 279		13 458		9 401		13 121
		40 349		35 014		36 552		22 116		17 769		20 700
Unallocated assets and liabilities include all tax items and items of a financial interest bearing nature, including post-employment benefit assets and provisions. For further information see Note 1, Segment information.

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	Additions plant, property, equipment and intangible assets
	2005		2004		2003
Industrial		670		521		432
Service		81		107		86
Automotive		506		477		479
Electrical		373		285		215
Aero & Steel		148		144		238
Eliminations and unallocated items		16		-22		42
		1 794		1 512		1 492

Geographical segments

The SKF Group has more than 100 factories in approximate 20 countries. Roller bearings, bearing units and seals for the automotive- and industrial OEM producers and for the aftermarket are produced in Europe, North America and Asia. Ball bearings are also produced in South Africa. Linear motion products and machine tools are made in Europe and Asia.

SKF has some two million customers worldwide. Products for the industrial and vehicle service market are sold through a network of distributors and dealers in some 15 000 locations in some 140 countries. Mechanical services, predictive and preventive maintenance, condition monitoring, decision-support systems and performance-based contracts comprise a relatively small but growing business with customers worldwide.

	Net sales by customer location
	2005		2004		2003
North America		9 930		9 152		9 244
Europe		27 671		25 717		23 401
Asia / Pacific		8 381		6 659		5 912
Other		3 303		3 298		2 820
		49 285		44 826		41 377

	Assets
	2005		2004		2003
North America		6 255		5 179		5 631
Europe		27 743		25 014		26 759
Asia / Pacific		5 606		4 396		3 871
Other		2 254		1 643		1 455
Eliminations		-1 509		-1 218		-1 164
		40 349		35 014		36 552

	Additions to plant, property, equipment and intangible assets
	2005		2004		2003
North America		173		106		184
Europe		1 222		1 298		1 154
Asia/Pacific		345		99		111
Other		113		57		50
Eliminations		-59		-48		-7
		1 794		1 512		1 492

3 Acquisitions

	2005		2004		2003
Fair value of net assets acquired
Intangible assets		36		163		32
Property, plant and equipment		52		337		5
Financial assets		4		2		-
Purchase of remaining minority holdings		40		5		-
Financial liabilities		-17		-112		-2
Deferred taxes and provisions		-27		-186		-18
Net working capital and current taxes		50		286		7
Cash and cash equivalents		27		63		-
		165		558		24
Goodwill		301		149		65
Total consideration		466		707		89
Less:
Cash and cash equivalents acquired		-27		-63		-
Consideration payable		-20		-		-
Cash outflow on acquisitions		419		644		89

114

F-17

In 2005, the Group acquired businesses amounting to 466, primarily: ·Jaeger Industrial Ltd., Taiwan, a leading manufacturer of electromechanical actuators, electronic control units and complete actuation systems; ·Sommers Industriteknik AB, a distributor of Vogel lubrication systems located in Linköping, Sweden; ·The remaining 25% minority of Aeroengine Bearings UK, Ltd. The company designs, manufactures and sells bearings for main shafts and gearboxes for jet engines. 75% of the company was acquired in 2002; ·The remaining 30% minority of the Dutch service company Machine Support BV. Machine Support specializes in precision geometric alignment and rotating machine alignment. 70% of the company was acquired in 2000. In connection with business acquisitions in 2005, the Group acquired 36 of intangible assets other than goodwill. The most significant of those newly acquired intangible assets was 26, assigned to customer relationships which is being amortized over an estimated useful life of 8-15 years. The most significant acquisition 2005 occurred in the Industrial Division, when SKF acquired 100% of the issued share capital in the Taiwanese company Jaeger Industrial Ltd. The company is headquartered in Taipei, Taiwan and has manufacturing facilities in Taiwan and in China. The acquisition was completed June 1, 2005, for a total consideration of 379. Goodwill consists of assembled work force, market shares and synergies. With the addition of the Jaeger Group’s product range, SKF was reinforcing its position in the fast growing market for electromechanical actuators, linear drives and actuation systems. The acquisition was in line with the SKF Group’s strategy to grow in the area of mechatronics and to develop products and processes with higher added value to improve customers’ competitiveness. Jaeger Group contributed 147 of net sales and 1 of net loss for the period between the date of acquisition and December 31.   If the acquisition had been completed on January 1, 2005, total Group net sales for the year would have been 49 399, and net profit for the year would have been 3 610. (Unaudited)

	Book		Fair value		Fair
Jaeger Group	value		adjustments		value
Net assets acquired
Intangible assets		4		28		32
Property, plant and equipment		34		15		49
Financial assets		6		-1		5
Financial liabilities		-17		-		-17
Deferred taxes and provisions		-2		-23		-25
Net working capital and current taxes		59		-1		58
Cash and cash equivalents		23		–		23
		107		18		125
Goodwill						254
Total consideration						379
Less:
Cash and cash equivalents acquired						-23
Consideration payable						-20
Cash outflow on acquisition						336
Total consideration satisfied by:
Cash						376
Directly attributable costs						3
Total consideration						379

115

F-18

In 2004, the Group acquired businesses amounting to 707, primarily:

·   Willy Vogel AG, a German-based group in the field of lubrication systems;

·   Vibration Engineers and Consultants Pvt. Ltd., an India-based condition-monitoring service provider;

·   The remaining 40% of Anhui Cr Seals Co. Ltd, China, a producer of seals. 60% of the company was acquired in 1997.

In connection with business acquisitions in 2004, the Group acquired 163 of intangible assets other than goodwill. The most significant of those newly acquired intangible assets included 77, assigned to customer relationships and amortized over an estimated useful life of 15 years and 40, assigned to acquired capitalized software and amortized over an estimated useful life of 3-10 years. Additional 37 of acquired intangible assets have been assigned to trade name and are not subject to amortization.

The most significant acquisition in 2004 occurred in the Industrial Division, when SKF acquired 100% of the issued share capital in the German based company Willy Vogel AG, one of the world leaders in the field of lubrication systems. The Vogel Group has two manufacturing units in Germany, one in France, one in the USA and one in Japan. Vogel has also sales operations in these countries as well as in Belgium, Hungary, Italy, the Netherlands and Spain.

The acquisition was completed on July 8, 2004, for a total consideration of 678 paid in cash, whereof acquisition related expenses amounted to 11. Cash acquired was 63, giving a net cash outflow arising on acquisition of 615.

Consideration price for the equity	678
Less:
Book value of net assets	325
Fair value adjustments of net assets	324
Deferred taxes from valuation	-116
Fair value of net assets acquired	533
Goodwill	145

 

Fair value of net assets consists primarily of trade name, software, customer relationships and property, plant and equipment. Goodwill consist of assembled work force and synergies, since the acquisition has a very strong fit with SKFs products, customers and technologies and will enable SKF to develop and deliver more advanced solutions and increase offered customer values. Vogel Group contributed 427 of net sales and 16 of operating profit for the period between the date of acquisition and December 31.

In 2003, the Group acquired several minor businesses totalling 89, primarily:

· BFW Coupling Services Ltd., Canada, a world leading company in lineboring;

·Scandrive Control AB, a leading Swedish manufacturer of integrated servo-gears for the printing industry. Scandrive manufactures compact integrated actuation units incorporating a servo-gear technology;

·Rolling Stock Supply & Service Pty Ltd., one of the leading railway bearing service companies in Australia. The company is a major supplier of new and reconditioned wheel set bearings and axleboxes for railway rolling stock on the Australian, New Zealand and Asian markets.

In connection with business acquisitions in 2003, the Group acquired 32 of intangible assets other than goodwill. The most significant of those newly acquired intangible assets 11, assigned to customer relationships and amortized over an estimated useful life of 5 years and 12, assigned to acquired patents and amortized over an estimated useful life of 11 years.

4 Divestments
	2005		2004		2003
Net assets disposed of
Property, plant and equipment		56		-		120
Financial assets		3		72		98
Deferred taxes and provisions		-18		-		-
Net working capital and current taxes		6		-		50
		47		72		268
Profit		10		21		63
Total consideration and cash inflow		57		93		331

Divestments in 2005

January 1, 2005, SKF sold Ovako La Foulerie S.A, its factory for hot rolled rings in Carignan, France, to the Italian steel company Fomas S.p.A.

Divestments in 2004

Sale of businesses related mainly to the divestment of SKF’s shares in the associated company Momentum Industrial Maintenance Supply AB.

Divestments in 2003

Sale of businesses related to the Group’s component manufacturing operations in Veenendaal, The Netherlands, as well as holdings in NN Euroball Aps. NN Euroball Aps was a venture created by the SKF Group, NN Inc. and FAG in 2000 for the production of steel balls in Europe.

116

F-19

5 Research and development

Research and development expenditures totalled 837 (784 and 750). Additionally, the Group entered into external research contracts where the Group produces prototypes of various products on behalf of a third party. Expenses under such contracts were 8 (10 and 11).

6 Depreciation, amortization and impairments
Depreciation, amortization and impairments were accounted for as	2005		Depreciation		Amortization		Impairments		2004		2003
Cost of goods sold		1 556		1 367		39		150		1 571		1 647
Selling expenses		182		109		32		41		149		154
Administrative expenses		14		9		5		-		13		11
		1 752		1 485		76		191		1 733		1 812

7 Financial income and financial expense
	2005		2004		2003
Financial income
Dividends		8		7		7
Capital gain		63		–		–
Share swaps		150		–		–
Interest income and similar items		215		198		194
Financial exchange gains and losses		265		-63		-253
		701		142		-52
Financial expense
Interest on post-retirement benefits		-235		-290		-427
Interest expense and similar items		-244		-242		-277
Financial exchange gains and losses		-296		43		250
		-775		-489		-454

8 Taxes
Taxes on profit before taxes	2005		2004		2003
Current taxes		-1 609		-1 034		-1 006
Deferred tax		-5		-49		298
Other taxes		-32		-28		5
		-1 646		-1 111		-703

Deferred taxes for 2005 included a tax benefit of 72 (148 and 141) related to the net change in previous unrecognized deferred tax assets. Of this income, 94 (83 and -1) represented an adjustment of the opening balance of the unrecognized deferred tax assets. The adjustment related to a change in circumstances where profitability improved, which affected the judgment on the realizability of the related deferred tax asset in future years. Changes in tax rates used to calculate deferred tax had an impact of -10 (6 and 9). In 2005, 4 of current taxes were related to items charged directly to equity.

117

F-20

Net deferred taxes per type	2005		Translation difference		Acquisitions and divestments		Other changes*		Charged in income statement		Charged to equity		Effect of adopting IFRS		2004		2003
Provisions for post-employment benefits		-964		-132		3		10		103		-		-		-948		-1 019
Tax loss carry-forwards		-80		-25		-		-		25		-		-		-80		-98
Inventories		216		57		-		-6		37		-		-		128		103
Property, plant and equipment		1 406		103		1		-108		-69		-		-		1 479		1 517
Other		-358		-56		2		8		-106		-		-		-206		-319
Fair value of investments in equity securities and
derivative hedging instruments		10		-		-		-		15		-43		38		-		-
		230		-53		6		-96		5		-43		38		373		184
Shown on the balance sheet as
Liabilities		1 092		38		6		-121		83		-44		39		1 091		1 124
Assets		-862		-91		-		25		-78		1		-1		-718		-940
		230		-53		6		-96		5		-43		38		373		184

* The Ovako Steel exchange transaction is reflected in the category “Other changes”, for further details, see Note 11.

Unrecognized deferred tax assets

At the balance sheet date, the Group had deferred total tax assets of 314 (342 and 379) related to tax loss carry-forwards, whereof 234 (262 and 281) were not recognized due to the uncertainty of future profit streams. Similarly, no deferred tax assets were recognized for certain deductible temporary differences amounting to 111 (155 and 272). Of these unrecognized deferred tax assets 64 were related to tax losses which will expire during the period 2006 to 2010. The remaining unrecognized assets will expire after 2011 and/or may be carried forward indefinitely.

Corporate income tax

The corporate statutory income tax rate in Sweden was 28% in 2005, 2004 and 2003. The actual tax rate on profit before taxes was 31% (27 and 25).

Reconciliation of the statutory tax in Sweden to the actual tax	2005		2004		2003
Tax calculated on statutory tax rate in Sweden		-1 471		-1 144		-784
Difference between statutory tax rate in Sweden and’
foreign subsidiaries  weighted statutory tax rate		-251		-105		-40
Other taxes		-32		-28		5
Permanent differences		89		-62		-12
Tax loss carry-forwards, net of changes in unrecognized deferred tax assets		28		1		43
Current tax referring to previous years		-52		100		-86
Other		43		127		171
Actual tax		-1 646		-1 111		-703

Gross value of tax loss carry-forwards

At December 31 2005, certain subsidiaries, had tax loss carry-forwards amounting to 1 146 (1 135 and 1 157), which are available for offset against future profits. Such tax loss carry-forwards expire as follows:

2006	44
2007	33
2008	94
2009	114
2010	172
2011 and thereafter	689

118

F-21

9 Intangible assets
	2005		Additions		Businesses acquired		Disposals		Impairments		Other		Translation effects		2004
Acquisition cost
Goodwill		1 195		-		301		-		-		6		98		790
Patents, trademarks and similar rights		121		1		8		-		-		0		7		105
Capitalized software		694		118		-		-14		-		3		10		577
Capitalized customer relationships		142		-		26		-		-		-		10		106
Leaseholds		34		2		-		-		-		-1		4		29
Capitalized development		46		12		2		-		-		-		4		28
Other intangible assets		70		38		-		-		-		-1		2		31
		2 302		171		337		-14		-		7		135		1 666

	2005		Amortization		Businesses acquired		Disposals		Impairments		Other		Translation effects		2004
Accumulated amortization and impairments
Goodwill		138		-		-		-		24		3		4		107
Patents, trademarks and similar rights		35		9		-		-		7		-2		2		19
Capitalized software		446		39		-		-14		11		3		2		405
Capitalized customer relationships		38		8		-		-		-		-		5		25
Leaseholds		13		2		-		-		-		-		1		10
Capitalized development		23		9		-		-		2		-		2		10
Other intangible assets		26		9		-		-		4		-1		3		11
		719		76		-		-14		48		3		19		587
Net book value		1 583		95		337		-		-48		4		116		1 079

119

F-22

	2004		Additions		Businesses acquired		Disposals		Impairments		Other		Translation effects		2003
Acquisition cost
Goodwill		790		-		149		-		-		-5		-57		703
Patents, trademarks and similar rights		105		26		42		-		-		-3		-2		42
Capitalized software		577		71		40		-		-		-15		-4		485
Capitalized customer relationships		106		-		77		-		-		-		-2		31
Leaseholds		29		-		-		-1		-		-		-1		31
Capitalized development		28		12		3		-		-		15		-2		0
Other intangible assets		31		2		1		-		-		-1		-3		32
		1 666		111		312		-1		-		-9		-71		1 324

	2004		Amortization		Businesses acquired		Disposals		Impairments		Other		Translation effects		2003
Accumulated amortization and impairments
Goodwill		107		-		-		-		21		-		-19		105
Patents, trademarks and similar rights		19		3		-		-		-		-3		-		19
Capitalized software		405		73		-		-		49		-4		-1		288
Capitalized customer relationships		25		5		-		-		-		-		-2		22
Leaseholds		10		1		-		-		-		-		-		9
Capitalized development		10		6		-		-		1		4		-1		0
Other intangible assets		11		5		-		-		-		-		-1		7
		587		93		-		-		71		-3		-24		450
Net book value		1 079		18		312		-1		-71		-6		-47		874

	2003		Additions		Businesses acquired		Disposals		Impairments		Other		Translation effects		2003 Opening balance
Acquisition cost
Goodwill		703		-		65		-		-		-		-96		734
Patents, trademarks and similar rights		42		2		12		-		-		-14		-3		45
Capitalized software		485		111		-		-		-		-11		-8		393
Capitalized customer relationships		31		-		11		-		-		-		-5		25
Leaseholds		31		-		-		-1		-		7		-4		29
Capitalized development		0		-		-		-		-		-		-		0
Other intangible assets		32		-		9		-		-		-		-1		24
		1 324		113		97		-1		-		-18		-117		1 250

120

F-23

	2003		Amortization		Businesses acquired		Disposals		Impairments		Other		Translation effects		2003 Opening balance
Accumulated amortization and impairments
Goodwill		105		-		-		-		18				-5		92
Patents, trademarks and similar rights		19		3		-		-		4		-3		-1		16
Capitalized software		288		87		-		-		-		-2		-1		204
Capitalized customer relationships		22		2		-		-		18		-		-		2
Leaseholds		9		2		-		-		-		2		-		5
Capitalized development		0				-		-		-				-		0
Other intangible assets		7		4		-		-		-		2		1		0
		450		98		0		0		40		-1		-6		319
Net book value		874		15		97		-1		-40		-17		-111		931

Impairment losses for 2005, 2004 and 2003 results from weakening market conditions in some minor businesses in Europe and North America.

Cash generating units (CGUs) containing significant intangible assets with indefinite useful lives

	Carrying amount of intangible assets with indefinite lives		Basis for recoverable amount	Discount rate
CGU 2005	Goodwill	Tradename
Jaeger Group (acquired 2005)	261	-	Net selling price	-
Vogel Group (acquired 2004)	155	39	Value in use	18
Sealing Solutions North America 1 (acquired 1990)	294	–	Value in use	19
CGU 2004
Vogel Group AG (acquired 2004)	145	37	Net selling price	-
Sealing Solutions North America 1 (acquired 1990)	245	–	Value in use	19
CGU 2003
Sealing Solutions North America 1 (acquired 1990)	236	–	Value in use	15

¹ Sealing Solutions North America previously named Chicago Rawhide.

The tradename Vogel is considered to have an indefinite life due to the fact that it is a well established name in the field of lubrication systems. The goodwill included in the above CGUs are individual intangible assets that are material to the Group.

121

F-24

10 Property, plant and equipment
	2005		Additions		Businesses acquired		Disposals		Impairments		Other1		Translation effects		2004
Acquisition cost
Buildings		5 080		185		3		-171		-		-373		388		5 048
Land and land improvements		773		67		14		-11		-		-39		47		695
Machinery and supply systems		21 313		842		12		-661		-		-1 989		1 772		21 337
Machine toolings, factory fittings, etc		2 812		189		13		-215		-		-362		246		2 941
Construction in process including advances		922		340		10		-10		-		-348		57		873
		30 900		1 623		52		-1 068		-		-3 111		2 510		30 894

	2005		Depreciation		Businesses acquired		Disposals		Impairments		Other		Translation effects		2004
Accumulated depreciation and impairments
Buildings		2 808		207		-		-137		81		-330		188		2 799
Land and land improvements		192		5		-		-5		8		-28		9		203
Machinery and supply systems		14 494		1 069		-		-644		50		-1 728		1 249		14 498
Machine toolings, factory fittings, etc		2 287		204		-		-218		4		-284		199		2 382
		19 781		1 485		-		-1 004		143		-2 370		1 645		19 882
Net book value		11 119		138		52		-64		-143		-741		865		11 012

¹ The Ovako Steel exchange transaction is reflected under "Other", see Note 11.

	2004		Additions		Businesses acquired		Disposals		Impairments		Other		Translation effects		2003
Acquisition cost
Buildings		5 048		143		109		-45		-		214		-114		4 741
Land and land improvements		695		4		67		-11		-		-22		-11		668
Machinery and supply systems		21 337		867		134		-604		-		-109		-581		21 630
Machine toolings, factory fittings, etc		2 941		203		24		-110		-		-19		-75		2 918
Construction in process including advances		873		184		3		-2		-		-142		-13		843
		30 894		1 401		337		-772		-		-78		-794		30 800

	2004		Depreciation		Businesses acquired		Disposals		Impairments		Other		Translation effects		2003
Accumulated depreciation and impairments
Buildings		2 799		145		-		-35		7		19		-58		2 721
Land and land improvements		203		8		-		-5		-		4		-2		198
Machinery and supply systems		14 498		1 171		-		-579		5		-80		-421		14 402
Machine toolings, factory fittings, etc		2 382		227		-		-111		6		-22		-59		2 341
		19 882		1 551		-		-730		18		-79		-540		19 662
Net book value		11 012		-150		337		-42		-18		1		-254		11 138

122

F-25

	2003		Additions		Businesses acquired		Disposals		Impairments		Other		Translation effects		2003 Opening balance
Acquisition cost
Buildings		4 741		96		-		-246		-		40		-258		5 109
Land and land improvements		668		7		-		-45		-		9		-24		721
Machinery and supply systems		21 630		924		-		-1 035		-		306		-1 271		22 706
Machine toolings, factory fittings, etc		2 918		177		5		-89		-		-177		-191		3 193
Construction in process including advances		843		175		-		-		-		-148		-43		859
		30 800		1 379		5		-1 415		-		30		-1 787		32 588

	2003	Depreciation	Businesses acquired	Disposals	Impairments	Other	Translation effects	2003 Opening balance
Accumulated depreciation and impairments

Buildings	2 721	129	-	-130	14	-2	-104	2 814
Land and land improvements	198	5	-	-6	1	2	-2	198
Machinery and supply systems	14 402	1 163	-	-902	154	166	-829	14 650
Machine toolings, factory fittings, etc	2 341	208	-	-87	0	-138	-150	2 508
	19 662	1 505	-	-1 125	169	28	-1 085	20 170
Net book value	11 138	-126	5	-290	-169	2	-702	12 418

Impairment losses in 2005 for property, plant and equipment amounted to 143 and are mainly related to the closure of two factories in the USA, the bearing factory in Aiken, South Carolina, and the seals factory in Springfield, South Dakota. These factories were mainly manufacturing products for the automotive industry. The recoverable amount of the relevant assets has been determined on the basis of the fair value less costs to sell, where the basis to determine fair value has been the market price for similar assets on the active market. The impairment losses include a reversal of impairment amounting to 17. The reversal of impairment refers to an impairment a minor operation which did not materialize.

Impairment losses 2004 result from the Group's initiatives to optimize manufacturing performance on a regional and global basis.

The majority of impairment losses during 2003 are related to the restructuring of the Ovako Steel business in Sweden. No individual impairments during 2004 and 2003 are deemed significant.

Finance leases included in property, plant and equipment consisted of the following	2005		2004		2003
Acquisition value
Buildings		27		40		40
Machinery and supply systems		2		2		8
Machine toolings, factory fittings, etc		1		57		54
		30		99		102
Accumulated depreciation
Buildings		26		35		37
Machinery and supply systems		2		1		3
Machine toolings, factory fittings, etc		1		44		31
		29		80		71
Net Book Value		1		19		31
Tax value of Swedish real estate
Land		102		137		132
Buildings		297		529		536
		399		666		668

123

F-26

11 Jointly controlled and associated companies
Investments in jointly controlled and associated companies	2005		2004		2003
Investments in jointly controlled companies		964		17		13
Investments in associated companies		10		9		85
Subordinated debt to Ovako Ab		200		-		-
		1 174		26		98

AB SKF, Rautaruukki Corporation and Wärtsilä Corporation merged their long steel businesses into a newly created jointly controlled entity Oy Ovako Ab. SKF received a 26.5% ownership in Oy Ovako Ab in exchange for their contribution of Ovako Steel business. In connection with the exchange transaction all joint owners issued subordinated debt to the new company according to their ownership percentages. SKF’s subordinated debt amounted to 200.

Net assets contributed in exchange for 26.5% of Oy Ovako Ab	2005
Non-current assets		712
Current assets		1 488
Total assets		2 200
Non-current liabilities		792
Current liabilities		644
Total liabilities		1 436
Net Assets		764

Specification of investments in jointly controlled and associated companies	Hol-ding in per-cent		Number of shares		Currency		Nominal value in local currency, millions		Book value in the parent company 2005		Book value in the consolidated accounts 2005		Book value in the parent company 2004		Book value in the consoli-dated accounts 2004		Book value in the parent company 2003		Book value in the consoli-dated accounts 2003
Held by parent company
Jointly controlled companies
Oy Ovako Ab, Finland		26.5		2 650		EUR		3		39		931		-		-		-		-
Associated companies
Endorsia.com International AB, Göteborg, Sweden		20		34 000		SEK		3		5		6		4		4		9		5
AEC Japan Co. Ltd., Japan		50		400		JPY		20		1		1		1		1		-		-
Momentum Industrial Maintenance Supply AB, Göteborg, Sweden*		-		-		-		-		-		-		-		-		55		71
										45		938		5		5		64		76

* The investment in Momentum Industrial Maintenance Supply AB, Göteborg, Sweden was disposed of in 2004.

124

F-27

Specification of investments in jointly controlled and associated companies	Holding in percent		Number of shares		Currency		Book value in the consolidated accounts 2005		Book value in the consolidated accounts 2004		Book value in the consolidated accounts 2003
Held by subsidiaries
Jointly controlled companies
International Component Supply, Ltda, Brazil		50		18 667		BRL		33		17		13
Associated companies
CoLinx LLC, USA		25		1		USD		3		3		6
Willy Vogel Hungaria Kft, Hungaria		50.83		1		HUF		0		0		-
Gemeinnützige
Wohnungsbaugesellschaft,
Schweinfurt GmbH, Germany 1								-		1		-
Other								0		0		3
Total investments in jointly controlled and associated companies								974		26		98

¹ The investment in Gemeinnützige Wohnungsbaugesellschaft, Schweinfurt GmbH, Germany was disposed of in 2005.

Income from jointly controlled and associated companies (before taxes)	2005		2004		2003
Jointly controlled companies		170		-4		-7
Associated companies		2		1		26
		172		-3		19
Aggregated financial statements of jointly controlled and associated companies		2005		2004		2003
Non-current assets		2 773		408		517
Current assets		5 363		126		360
Total Assets		8 136		534		877
Equity		3 680		287		417
Non-current liabilities		2 442		54		152
Current liabilities		2 014		193		308
Total equity and liabilities		8 136		534		877
Net sales		8 808		486		977
Profit before taxes		498		11		32

125

F-28

12 Investments in equity securities
Name and location	Holding in percent		Number of shares		Currency		Nominal value in local currency, millions		Book value
Held by Parent Company
S2M, France		11.9		153 093		EUR		0		11
Wafangdian Bearing Company Limited, China		19.7		65 000 000		CNY		65		162
NN, Inc., USA		4.5		700 000		USD		7		59
Other shares and securities										10
										242
Held by subsidiaries
GKS Gemeinschaftskraftwerk
Schweinfurt GmbH, Germany		10.3		1		EUR		2		24
Other										4
										28
Total										270

On January 1, 2005, when the SKF Group adopted IAS 39, an amount of 34 representing the difference in fair value and book value of equity securities classified as available for sale was recorded in equity in accordance with the allowed transitional provisions. The fair value change recognized for the allowed quoted equity instruments, Wafangdian Bearing Company Limited and NN, Inc., was 10. For other equity instruments valuation techniques based on observable market prices for comparable equity instruments was used in order to arrive at a realistic estimate of the fair value recognized, 24. In 2005, a cumulative gain of 11 was removed from equity and recognized in the income statement when available-for-sale equity instruments were sold. As of December 31, 2005, a cumulative gain of 14 was reported in equity. The cumulative gain for the quoted equity instruments, Wafangdian Bearing Company Limited and NN, Inc., was 1 and 13 for equity instruments for which valuation technique was used as described. The fair value of quoted shares was determined as the last price paid for the share.

13 Non-current financial and other assets
Non-current financial assets	2005		2004		2003
Non-current financial receivables		130		134		134
Debt securities		20		19		23
Derivatives		191		-		-
		341		153		157
Other non-current assets
Defined benefit assets		138		48		24
Other non-current receivables		340		295		291
		478		343		315
Total		819		496		472

Non-current financial assets per currency	2005	2004	2003
USD	28	23	25
SEK	206	20	19
EUR	59	70	69
INR	16	13	17
Other currencies	32	27	27
	341	153	157

126

F-29

	2005						2004				2003
Non-current financial assets	Book value		Fair value		Interest rate		Book value		Fair value		Book value		Fair value
Non-current financial receivables		130		126		0.0- 7.0		134		124		134		144
Debt securities		20		20		5.0		19		19		23		23
Derivatives		191		191		-		-		-		-		-
		341		337				153		143		157		167

Non-current financial receivables have fixed interest rates until maturity with the exception of interest-free deposits mainly for rent. Debt securities amounting to 20 have no fixed interest rate and are replaced by new ones as soon as they mature. Non-current financial assets are measured at fair value with the exception of non-current financial receivables which are measured at amortized cost. The fair value of derivatives is based on quoted market price. For non-current financial receivables valuation techniques based mainly on discounted cash flow analyses was used.

14 Inventories
	2005		2004		2003
Raw materials and supplies		2 144		2 145		1 761
Work in process		1 582		1 528		1 516
Finished goods		6 205		5 312		5 152
		9 931		8 985		8 429

Inventory values are stated net of a provision for net realizable value of 681 (671 and 603). The amount charged to expense for net realizable provisions during the year was 78 (78 and 21). Reversals of net realizable provisions during the year were 52 (25 and 21).

15 Trade receivables
	2005		2004		2003
Trade receivables		7 481		6 987		6 277
Trade notes receivable		679		614		437
Allowance for doubtful accounts		-212		-195		-198
		7 948		7 406		6 516

The change in allowance for doubtful accounts charged against profit amounted to 33 (23 and 28).

16 Other receivables
	2005		2004		2003
Other current receivables		791		827		851
Jointly controlled and associated companies		194		13		-
Prepaid expenses		277		205		328
Accrued income		160		241		68
Advances to suppliers		78		41		104
		1 500		1 327		1 351

127

F-30

17 Current financial assets
	2005		2004		2003
Current investments with maturity > 3 months
Debt securities		2 354		190		2 885
Derivatives		186		-		-
Deposits		153		299		481
		2 693		489		3 366
Cash and cash equivalents
Debt securities		611		1 496		1 751
Deposits		707		686		259
Cash and bank accounts		1 061		894		966
		2 379		3 076		2 976

18 Share capital and earnings per share
The share capital at December 31, 2005,
Consisted of the following shares (quota value SEK 2.50 per share)
	Number of shares authorized and outstanding		Aggregate quota value
A shares		84 789 305*		212
B shares		484 399 530*		1 211
Opening balance 2005-01-01		569 188 835		1 423
Share redemption A shares		-19 345 413		-49
Share redemption B shares		-94 492 354		-236
Converted A shares		-14 708 034		-37
Converted B shares		14 708 034		37
A shares		50 735 858		126
B shares		404 615 210		1 012
Closing balance 2005-12-31		455 351 068		1 138

The 2005 Annual General Meeting's resolution on a share split 5:1 and a subsequent redemption of 113 837 767 shares was implemented during the year. As a result of the procedure, the share capital of the Parent Company was reduced by 285. An A share has one vote and a B share has one-tenth of one vote. At the Annual General Meeting on April 18, 2002, it was decided to insert a share conversion clause in the Articles of Association which allows owners of A shares to convert those to B shares. Since the decision was taken 176 200 389 A shares have been converted to B shares. The number of shares have been recalculated to reflect the share split in 2005.

1 The opening balance has been recalculated to reflect the share split in 2005.

128

F-31

Earnings per share	2005
Net profit attributable to shareholders		3 521
Weighted number of ordinary shares in issue		455 351 068
Basic earnings per share		7.73
Adjustment for dilutive potential ordinary share		1 795 941
Weighted average diluted number of shares		457 147 009
Diluted earnings per share		7.70

Stock options allocated in 2001, 2002 and 2003 are as from 2005 accounted for as equity instruments and no liability is recorded for the difference in market price of the SKF B share and the exercise price of outstanding options. A diluted EPS is calculated considering the effects of dilutive potential ordinary shares, i.e. options that may entitle its holder to ordinary shares. Prior years have not been fully restated as allowed under the transitional provisions of IFRS 1, see Note 1. Under Swedish GAAP applied in 2004 and 2003 for financial instruments, unrealized gains in derivatives offsetting the unrealized cost for options not yet exercised were kept off-balance. For that reason no dilutive effect has been calculated for these years.

Basic earnings per share is calculated by dividing the earnings attributable to holders of ordinary equity of the Parent Company by the weighted average number of ordinary shares outstanding during the period. The weighted average number of ordinary shares outstanding in 2005, 2004 and 2003 was 455 351 068. The number has been recalculated to reflect the split and redemption in 2005.

Diluted earnings per share is calculated using the weighted average number of shares outstanding during the period adjusted for all dilutive potential ordinary shares. The average market price of the SKF B share for the reporting period is used.

19 Provisions for post-employment benefits

	2005								2004								2003
Reconciliation	Funded pension and other		Unfunded Pension		Other		Total		Funded pension and other		Unfunded Pension		Other		Total		Funded pension and other		Unfunded Pension		Other		Total
Defined benefit obligation		12 685		979		2 255		15 919		10 418		1 071		2 032		13 521		5 981		5 276		2 041		13 298
Fair value of plan assets		-10 797		-		-		-10 797		-8 782		-		-		-8 782		-5 636		-		-		-5 636
Unrecognized past service costs		13		-3		25		35		22		1		26		49		17		15		27		59
Unrecognized actuarial gains/losses(-)		-284		-95		1		-378		-108		-61		-12		-181		213		-166		90		137
Asset limitation		-		-		-		-		-		-		-		-		3		-		-		3
Net post-employment benefit liabilities		1 617		881		2 281		4 779		1 550		1 011		2 046		4 607		578		5 125		2 158		7 861
Reflected as
Assets		-137		-		-		-137		-48		-		-		-48		-24		-		-		-24
Provisions		1 754		881		2 281		4 916		1 598		1 011		2 046		4 655		602		5 125		2 158		7 885
Net post-employment benefit liabilities		1 617		881		2 281		4 779		1 550		1 011		2 046		4 607		578		5 125		2 158		7 861

Post-employment pension benefits The Group sponsors defined benefit pension plans in a number of companies, where the employees are eligible for retirement benefits based on pensionable remuneration and length of service. The most significant plans are in the USA, Germany, the U.K. and Sweden. The Swedish plan supplements a statutory pension where benefits are established by national organizations. Plans in Germany, the U.K. and the USA are designed to supplement these countries' social security pensions. Other post-employment benefits The majority of other post-employment benefits relate to post-retirement health care plans and retirement and termination indemnities. The post-retirement health care plans cover most salaried and hourly employees in the USA. These plans provide certain health care and life insurance benefits for eligible retired employees. The subsidiaries in Italy sponsor termination indemnities, TFR, in accordance with Italian law, which are paid out as a lump sum amount to all employees immediately upon termination, for any reason. The subsidiaries in France sponsor a retirement indemnity plan in accordance with French National Employer/Employee agreements where a lump sum is paid to employees upon retirement.

129

F-32

Geographical distribution of total defined benefit obligations	2005		2004		2003
Europe		9 333		8 236		7 816
Americas		6 399		5 134		5 358
Rest of the world		187		151		124
		15 919		13 521		13 298

Geographical distribution of total plan assets
Europe	5 447	4 540	1 382
Americas	5 247	4 151	4 167
Rest of the world	103	91	87
	10 797	8 782	5 636

Specification of total plan assets
Government bonds	2 464	2 003	867
Corporate bonds	919	765	422
Equity instruments	5 872	4 522	3 859
Real estate	957	428	312
Other, primarily cash and other financial receivables	585	1 064	176
	10 797	8 782	5 636

	2005								2004								2003
Reconciliation of post-employment benefit amounts in the balance sheet	Funded pension and other		Un- funded Pension		Un- funded Other		Total		Funded pension and other		Un- funded Pension		Un- funded Other		Total		Funded pension and other		Un- funded Pension		Un- funded Other		Total
Net post-employment benefit liabilities at January 1		1 550		1 011		2 046		4 607		578		5 125		2 158		7 861		589		5 209		2 398		8 196
Expense		151		89		165		405		237		98		184		519		101		353		166		620
Payments		-118		-53		-193		-364		-292		-52		-181		-525		-25		-289		-194		-508
Contributions		-53		-		-		-53		-3 111		-		-		-3 111		-36		-		-		-36
Acquisitions/ Divestments		13		1		-12		2		17		16		6		39		-		-		-		-
Transfers between funded and unfunded plans		-		-		-		-		4 113		-4 113		-		-		-		-		-		-
Other1		-3		-243		-7		-253		20		-2		-23		-5		-10		5		3		-2
Translation difference		77		76		282		435		-12		-61		-98		-171		-41		-153		-215		-409
Net post-employment benefit liabilities at December 31		1 617		881		2 281		4 779		1 550		1 011		2 046		4 607		578		5 125		2 158		7 861

¹ The effects of Ovako Steel exchange transaction is reflected under "Other", see Note 11.

130

F-33

Components of total post-employment benefit expense	2005		2004		2003
Defined benefit expense
Current service cost		336		306		274
Interest cost		722		666		769
Expected return on assets		-645		-492		-418
Curtailments		–		26		–
Past service cost		7		-3		-6
Other		-15		16		1
Post-employment defined benefit expense		405		519		620
Post-employment defined contribution expense		206		287		251
Total post-employment benefit expense		611		806		871
Whereof
Amounts charged to operating income		376		516		444
Amounts charges to financial expense		235		290		427
Total post-employment benefit expense		611		806		871
Actual return on plan assets		-1 185		-699		-1 029

SKF has commitments for retirement pensions and family pensions for office personnel in Sweden which are secured through an insurance policy with Alecta. This is a defined benefit plan covering several employers, a so-called multi-employer plan. Alecta is currently unable to provide defined benefit accounting for such participants, and therefore premiums paid to Alecta are accounted for as defined contribution expense. Fees for the year paid covering such arrangements amounted to 18 (22 and 16). Alecta´s profit in the form of the so-called collective consolidation level amounted to 129 (128 and 120). The collective consolidation level comprises the fair value of Alecta´s assets as a percentage of the insurance commitments calculated in accordance with Alecta´s insurance calculation principles and assumptions which are not in conformity with IAS 19.

Principal weighted-average assumptions	2005		2004		2003
Discount rate
Europe		4.4		4.9		5.0
Americas		5.7		6.0		6.2
Rest of the world		4.8		4.8		5.3
Expected return on plan assets
Europe		4.8		5.3		6.4
Americas		8.9		8.9		8.9
Rest of the world		5.2		5.6		5.5
Rate of salary increase
Europe		2.9		3.0		2.7
Americas		5.0		4.9		4.9
Rest of the world		4.3		4.2		4.2
Medical cost trend rate
USA		9.0		10.0		11.5

The assumed medical care cost trend rate at year end 2005 was 9% and is projected to decline by from 1.0% to 4.0% per year to an ultimate rate of 5.0% beginning 2013.

131

F-34

20 Other provisions
	2005		Provisions for the year		Utilized amounts		Reversal unutilized amounts		Other		Translation effect		2004		2003
Restructuring provisions		403		270		-183		-70		6		21		359		761
Environmental provisions		196		65		-19		-17		-41		15		193		220
Warranty provisions		351		152		-54		-129		-1		25		358		426
Long-term employee benefits		548		212		-109		-3		-1		34		415		357
Other		712		285		-150		-48		-25		48		602		607
		2 210		984		-515		-267		-62		143		1 927		2 371

Restructuring activities include, among other things, plant closures and relocations as well as significant changes in organizational structure. Restructuring provisions for 2005 include termination benefits and other exit costs related to the decision to close the Aiken and Springfield factories in the USA, as well as termination benefits resulting from rationalization measures in Fontenay, France. Restructuring provisions for 2004 relate to a number of minor personnel reduction programs. Restructuring programs for 2003 include termination benefits, and other exit costs involved in the closure of five factories as well as other personnel reduction programs. Environmental and warranty provisions cover obligations not settled at year-end. Long-term employee benefits include primarily jubilee bonuses and part-time retirement programmes which are provided to employees in certain countries, and are expected to be settled before employment ends. Other provisions include primarily litigation, insurance and anti-dumping duties.

21 Non-current loans
	2005				2004				2003
Non-current loans at the end of the year	Book value		Fair value		Book value		Fair value		Book value		Fair value
Bonds and debentures (maturing 2007-2010)		4 003		4 056		786		886		1 167		1 347
Bank loans (maturing 2014)		2		2		2		2		4		4
Other loans (maturing from 2010 to 2013)		140		145		116		111		75		71
		4 145		4 203		904		999		1 246		1 422

The current portion of non-current loans is included in current loans, see Note 23. For all loans, fair values have been assessed by discounting future cash flows at market interest rate for each maturity. The terms of certain loan agreements in the subsidiaries contain various restrictions, relating principally to the further pledging of assets. Of the non-current loans, 23 (24 and 31) were secured at December 31. At December 31, 2005, the Group had unutilized non-current lines of credit of 3 990 expiring in 2012. Commitment fees of 0.04% are required on these lines of credit

Maturities of non-current loans outstanding at December 31	2005
2007		792
2008		962
2009		23
2010		2 316
2011		20
2012 and thereafter		32
		4 145

132

F-35

Non-current loans outstanding at December 31 per currency	2005		Interest rate % 2005		2004		2003
USD		785		7.1-7.6		803		1 189
SEK		31		0.5-2.0		32		35
EUR		3 322		0.0-8.51		63		13
Other currencies		7		4.3-6.0		6		9
		4 145				904		1 246

¹ In 2005 the SKF Group issued a 100 million EUR three-year floating rate note and a 250 million EUR five-year bond. The fixed and floating EUR interest rate have been swapped into floating SEK interest rates. As of December 31, 2005, the floating 3 month´s STIBOR rate was 1.965%.

22 Leases
Future minimum lease payments at December 31, 2005	Operating leases
2006		275
2007		236
2008		186
2009		147
2010		103
2011 and thereafter		411
Total		1 358

Net rental expense related to operating leases was 244 (216 and 187). Contingent rentals, sub-lease revenues and future minimum lease payments for finance leases were not significant in any of the years presented.

23 Current financial liabilities

Current financial liabilities with maturity > 3 months	2005		2004		2003
Bank loans		25		96		15
Other current loans		3		3		2
Current portion of non-current loans		8		28		237
Derivatives		97		-		-
		133		127		254
Current loans with maturity =< 3 months
Bank loans		72		43		70
Other current loans		44		42		48
		116		85		118
Total		249		212		372

The maximum of the monthly current loans outstanding, excluding the short-term portion of long-term loans, was 429 (184 and 314). The average of monthly current loans outstanding during the year was 143 (140 and 177). The weighted average interest rate was 2.9% (3.2% and 3.4%). Average amounts outstanding and weighted average interest rates have been computed based on the amounts outstanding at the end of each month. The interest rate at December 31 was 3.5% (3.0% and 5.1%).The book value of current financial liabilities has been assumed to approximate fair value.

133

F-36

24 Other liabilities
	2005		2004		2003
Accrued salaries		743		731		605
Vacation pay		619		641		595
Social charges		552		489		459
Jointly controlled and associated companies		297		-		-
Other current liabilities		1 099		1 075		935
Accrued expenses and deferred income		1 814		1 603		1 528
		5 124		4 539		4 122

25 Assets pledged and contingent liabilities
Assets that have been pledged to secure loans and other obligations	2005		2004		2003
Mortgages on real estate		46		40		88
Chattel mortgages		69		78		90
		115		118		178

Mortgages are stated at the nominal value of the mortgage deeds. The pledged assets secured loans and other obligations of 33 (39 and 76) at December 31.

Contingent liabilities	2005		2004		2003
Guarantees		166		140		88
Other contingent liabilities		32		50		50
		198		190		138

Guarantees were made in respect of leases and loans, minor disposed operations and suppliers.

26 Related parties
	2005				2004				2003
The SKF Group´s transactions with related parties			Jointly				Jointly				Jointly
	Associated		controlled		Associated		controlled		Associated		controlled
	companies		entities		companies		entities		companies		entities
Sales of goods and services		2		24		2		10		-		9
Purchases of goods and services		12		1 459		11		57		11		48
Interest income		-		5		-		-		-		-
Interest expense		-		14		-		-		-		-
Receivables as 31 of December		0		394		13		0		-		0
Liabilities as 31 of December		0		297		0		0		0		0

Oy Ovako Ab became a related party to the SKF Group when the company began its operations in May 2005. Oy Ovako Ab transactions constituted 40% and 97% of the total sales and purchases, respectively of related party transactions in 2005. The Oy Ovako Ab related balances constitute 100% and 99% of liabilities and assets, respectively as of 31 December, 2005.

Knut och Alice Wallenbergs Stiftelse is the major shareholder of the Parent Company and had 28.6% (28.7 and 28.0) and 9.8% (9.8 and 10.1) of the voting rights and share capital. SKF has had no indication that Knut och Alice Wallenbergs Stiftelse has obtained its ownership interest in SKF for other than investment purposes. According to its statues, Knut och Alice Wallenbergs Stiftelse shall promote scientific research and educational activities, which benefit Sweden. The foundation is not involved in the development or manufacture of bearings. Knut och Alice Wallenbergs Stiftelse is known to have substantial investments in a number of diverse Swedish companies without seeking to exercise day-to-day control over each particular company. No significant transactions have been identified between the parties with the exception of dividend paid during the year.

For related party transactions involving key management, see Note 30.

134

F-37

27 Employee benefits and fees to the auditors
Employee benefits	2005		2004		2003
Salaries, wages and other remuneration		11 301		10 928		10 922
Equity compensation plan		47		23		24
Total post-employment benefits expense		611		806		871
Termination and other employee separation benefits		210		44		366
Other long-term employment benefits		209		127		139
Social charges		3 189		2 952		3 093
		15 567		14 880		15 415

Board directors and Presidents within the Group	2005		2004		2003
Salaries, wages and other remuneration		169		130		138
whereof variable salary		33		13		16

135

F-38

Salaries and other Remunerations for SKF Board of Directors, Chief Executive Officer and Group Management   Board of Directors The Chairman of the Board and the Board members are remunerated in accordance with the decision taken at the Annual General Meeting. At the Annual General Meeting held in 2005 it was decided that the Board be entitled to a fixed allotment of SEK 2 350 000, SEK 700 000 to be distributed to the Chairman of the Board and SEK 275 000 to each of the other Board members elected by the Annual General Meeting and not employed by the company. It was further decided that an allotment corresponding to the value of 800 SKF B shares be received by the Chairman, and an allotment corresponding to the value of 300 SKF B shares be received by each of the other Board members elected by the Annual General Meeting and not employed by the company (the references to 800 and 300 SKF B shares are before the share split decided by the Annual General Meeting 2005). When deciding upon the amount of the allotment, the value of an SKF B share shall be determined at the average latest payment rate according to the quotations on the OMX Stockholm Stock Exchange during the five trading days after publication of the company's press release for the financial year 2005. Finally it was decided that an allotment of SEK 300 000 for committee work shall be divided according to the decision of the Board among the Board members that are part of a committee established by the Board.   Chief Executive Officer Tom Johnstone, Chief Executive Officer and President of AB SKF received from the company in year 2005 as salary and other remunerations a total of SEK 9 092 640, of which SEK 3 000 000 was variable salary for 2004 performance. Tom Johnstone's fixed annual salary 2006 will amount to SEK 6 000 000. The variable salary paid out in 2005 could amount to a maximum of 60% of the fixed annual salary for year 2004 and was based on the financial performance of the SKF Group established according to the SKF management model which is a simplified economic value-added model called Total Value Added; TVA. The variable salary for year 2005 will be determined based on both the short and long term financial performance of the SKF Group. Tom Johnstone's retirement age is 60 years. Tom Johnstone is entitled to a lifelong benefit-based pension amounting to 37% of SEK 3 001 356 corresponding to SEK 1 110 502 per year. The amount SEK 3 001 356 shall be adjusted in accordance with the Income Base amount (defined in accordance with Chapter 1 § 6 of the law (1998:674) on income based retirement pension). The benefit-based pension is gradually earned according to the principles generally applied within the company. The pension is thereafter not conditioned upon future employment. In addition thereto AB SKF shall pay a yearly premium corresponding to 30% of the difference between Tom Johnstone's fixed annual salary and the amount on which Tom Johnstone's benefit-based pension is calculated as described above. This part of Tom Johnstone's pension benefit is fee based and vested. The cost for Tom Johnstone's pension benefits was recorded in the amount of SEK 1 908 919. The remuneration to the Chief Executive Officer did not include any stock option entitlements. Tom Johnstone holds from earlier allocations according to the AB SKF Stock Option Programme described below stock options allowing him to acquire 110 969 existing SKF B shares (the increase of the number of shares Tom Johnstone may acquire compared to the number specified in the Annual Report 2004 is a result of the share split decided by the Annual General Meeting 2005). In the event of termination at the request of AB SKF, Tom Johnstone will receive severance payments amounting to maximum two years' salary. Group Management SKF's Group Management (exclusive of the Chief Executive Officer), at the end of the year 12 people, received in 2005 salary and other remunerations amounting to a total of SEK 56 500 897, of which SEK 36 555 425 was fixed annual salary and SEK 14 824 743 was variable salary for 2004 performance (in relation to managers that have joined or left Group Management during the year, the fixed salary amounts are stated prorated to the period that each individual has been a member of Group Management). The variable salary parts could amount to a maximum percentage of the fixed annual salary and are determined primarily based on the financial performance of the SKF Group established according to the SKF management model TVA. The variable salary for year 2005 will be determined based on both the short and long term financial performance of the SKF Group. The remuneration to Group Management did not include any stock option entitlements. Group Management holds from earlier allocations according to the AB SKF Stock Option Programme stock options allowing them to acquire 349 875 existing SKF B shares (the increase of the number of shares Group Management may acquire compared to the number specified in the Annual Report 2004 is a result of the share split decided by the Annual General Meeting 2005). In the event of termination of employment at the request of AB SKF of a person in Group Management, that person will receive a severance payment amounting to a maximum of two years' salary. The SKF Group's Swedish defined-benefit pension plan for senior managers has a normal retirement age of 62 years. The Chief Executive Officer is not covered by this pension plan. The plan entitles the senior managers covered to receive an additional pension over and above the ordinary ITP-plan. This additional pension amounts to a yearly compensation from the retirement age of up to 32.5% of the pensionable salary above 20 basic amounts, provided the senior manager has been employed by the SKF Group for at least 30 years. The pension benefit is thereafter not conditioned upon future employment. During 2003 the Board decided to introduce a premium based Swedish supplementary pension plan for senior managers of the Swedish companies within the SKF Group. The normal retirement age is 62 years. The Chief Executive Officer is not covered by this pension plan. The plan covers, at the end of 2005, five senior managers and entitles them to an additional pension over and above the pension covered by the ITP-plan. The senior managers in question are not covered by the defined-benefit pension plan described in the previous paragraph. The company pays for the senior managers covered by the premium based plan contributions based on each individual's pensionable salary (i.e. the fixed monthly salary excluding holiday pay, converted to yearly salary) exceeding 30 Income Base amounts. This pension is fee-based and vested. For additional pension benefits to SKF's Group Management, over and above the pensions covered by the ITP-plan and other ordinary pension plans applied in relation to certain member's not resident in Sweden, a provision was recorded in the amount of 54 as at December 31, 2005. The cost for these additional pension benefits in year 2005 amounted to 17.

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Salaries and other remunerations received 2005
All amounts in SEK	Fixed salary/ fixed Board remuneration		Variable salary		Board remuneration based on value of SKF B share 1		Remuneration for committee work		Other benefits		Pension benefits cost
Chairman of the Board		700 000				254 960		75 000
CEO/President
Tom Johnstone		5 750 000		3 000 000						342 640		1 908 919
Group Management		36 555 4252		14 824 743						5 120 729		16 821 606
Total		43 005 425		17 824 743		254 960		75 000		5 463 369		18 730 525

¹ The remuneration was decided in year 2004, but paid in year 2005. The value of the SKF B share has been determined to SEK 318:70 based on the average latest payment rate according to the quotations on the Stockholm Stock Exchanges during the five trading days after publication of the company's press release for the financial year 2004.

² For managers that have joined or left Group Management during the year, the fixed salary amounts are stated prorated to the period that each individual has been a member of Group Management.

AB SKF's Stock Option Programme The Stock Option Programme started in year 2000 and grants were made from 2001 until 2003. Since 2004 the remuneration to the SKF Group managers does not include any allocations of stock options. Accordingly there was no possibility for SKF Group managers to receive stock options in relation to year 2005 performance.   The allocation of options under the Stock Option Programme was based on financial performance defined as the Group's management model and varied from year to year depending on if the financial targets were totally or partly reached. The options under the Stock Option Programme, which were granted free of charge, are not assignable or transferable and are linked to employment with the SKF Group. The options are exercisable during a period of six years starting two years from the date of grant provided the option holder is still employed with the SKF Group.   Costs and exercise of the Stock Option Programme The costs for the options allocated in year 2001 and 2002 under the Stock Option Programme, i.e. the difference in exercise price and share price at exercise date, are recognized in the income statement of the Group when the stock options are exercised. The stock option programme 2003, which vested in February 2005, was recognized as an increase in equity and expensed during the vesting period. The fair value at grant date was SEK 9.25 for each underlying share determined by Black & Scholes valuation model. A cost of 1 (14 and 13) representing the total initial fair value at grant date of 28 for option programme 2003 was recognized in 2005, 2004 and 2003, respectively. At exercise date, the difference in exercise price and share price of the options allocated under option programme 2003 is recorded directly in equity. The service contract with the financial institution handling the exercise of the Group's stock option programme is considered an executory contract for which no provision is recorded since both parties will perform to an equal extent under the contract. A provision amounting to 29 (14 and 12) has been recorded for social charges payable by the employer when stock options are exercised and the expense recognized in 2005 amounted to 24 (3 and 9). The social charges have been calculated for all outstanding options at December 31, 2005, based on the difference between exercise price and the price of the SKF B share, SEK 111.50, at December 31, 2005. The costs recognized for administration and consultancy fees were 1 (3 and 4) in 2005. In February 2003, the stock options granted in year 2001 became exercisable. In year 2005, stock options representing 373 090 (331 493 and 535 242) existing SKF B shares attributable to that grant were exercised. In 2005, the exercise cost for the Group, excluding social charges, amounted to 18 (8 and 11) of which 4 related to key management. In February 2004, the stock options granted in year 2002 became exercisable. In year 2005, stock options representing 1 049 436 (146 829) existing SKF B shares attributable to that grant were exercised. In 2005, the exercise cost for the Group, excluding social charges, amounted to 28 (1) of which 6 related to key management. A positive effect of 24 (10 and 11) from termination of share swap agreements hedging the Stock Option Programme reduced this cost, see Note 29. At the end of 2005, exercisable stock options granted in year 2001 and 2002 entitling the holders to acquire 1 624 547 existing SKF B shares had not yet been utilized. Based on the share price for the SKF B share at December 31, 2005, SEK 111.50, and the exercise price for the underlying shares, SEK 39.96 and SEK 56.49 respectively, the unrealized cost for the SKF Group, excluding social charges could be estimated to 96 (48 and 46). The cost was not recognized in the income statement of the Group. The future actual cost for the Group for stock options granted in year 2001 and 2002 will, however, be determined by the price of the SKF B share at exercise date.

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In February 2005, the stock options granted in year 2003 became exercisable. In year 2005, stock options representing 1 503 057 existing SKF B shares attributable to that grant date were exercised. The difference in exercise price and share price amounted to 43 of which 5 related to key management in 2005 and was recorded directly against equity. At the end of 2005, exercisable stock options granted in year 2003 entitling the holders to acquire 1 836 920 existing SKF B shares had not yet been utilized. Based on the share price for the SKF B share at December 31, 2005, SEK 111.50, and the exercise price for the underlying shares, SEK 53.51, the unrealized fair value was estimated to 107, excluding social charges. The amount was not recognized as a decrease of equity in 2005. The future actual fair value will be determined by the price of the SKF B share at exercise date.

Specification of the AB SKF’s Stock Option Programme1
	No. of options2) allocated		No. of people		Exercise price SEK		Theoretical value at allocation SEK		Exercise period		Outstanding options2) January 1		Forfeited Total (of which during the year)			Exercised during the year		Average price SEK 3)		Outstanding options2) Dec. 31		SKF B share Closing price Dec. 31
Grant 20014
2005		1 750 549		183		39.96		10.50		2003-07		788 013		97 801 (2 000	)		373 090		82.80		412 923		111.50
2004		1 750 549		183		39.96		10.50		2003-07		1 154 343		95 801 (34 837	)		331 493		70.50		788 013		74.00
2003		1 750 549		183		39.96		10.50		2003-07		1 689 585		60 964 (0	)		535 242		65.25		1 154 343		69.50
Grant 20024
2005		2 568 996		271		56.49		11.50		2004-08		2 269 321		160 672 (8 261	)		1 049 436		82.70		1 211 624		111.50
2004		2 568 996		271		56.49		11.50		2004-08		2 465 714		152 411 (49 564	)		146 829		70.50		2 269 321		74.00
2003		2 568 996		271		56.49		11.50		2004-08		2 523 539		103 282 (57 825	)		-		-		2 465 714		69.50
Grant 20034
2005		3 531 581		330		53.51		9.25		2005-09		3 357 397		191 604 (17 420	)		1 503 057		82.80		1 836 920		111.50
2004		3 531 581		330		53.51		9.25		2005-09		3 461 907		174 184 (104 510	)		-		-		3 357 397		74.00
2003		3 531 581		330		53.51		9.25		2005-09		3 531 581		69 674 (69 674	)		-		-		3 461 907		69.50

¹The number of shares, exercise prices, and theoretical values at allocation have been restated for the share split in 2005.

²Options mean the number of existing SKF B shares that the stock options entitle the holders to acquire.

³The price of the SKF B share ranged between SEK 75.00 and 110.75 at exercise dates.

⁴ The options were allocated in 2001, 2002 and 2003.

Fees to the auditors

Fees to Group statutory auditors were split as follows	2005		2004		2003
Audit fees		25		24		24
Audit related fees		2		5		5
Tax fees		1		2		3
Other fees to auditors		0		8		6
		28		39		38

The Parent Company’s share
Audit fees	1	1	1
Audit related fees	2	3	4
Tax fees	0	1	1
Other fees to auditors	0	0	0
	3	5	6

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At the Annual General Meeting of Shareholders in 2005 KPMG Bohlins AB was elected auditor for AB SKF until the Annual General Meeting of Shareholders in 2009. The fees for 2005 refer to KPMG Bohlins AB, whereas the fees for 2004 and 2003 refer to Arthur Andersen AB. As of June 1, 2002 Arthur Andersen AB and Arthur Andersen KB completed an asset purchase transaction with Deloitte & Touche ATR AB, whereby certain partners and employees joined the letter firm. As a consequence of this, Deloitte & Touche undertook to perform the audit on behalf of Arthur Andersen AB according to a special arrangement.

28 Average number of employees
	2005					2004					2003
	Number of employees		Whereof men			Number of employees		Whereof men			Number of employees		Whereof men
Parent Company in Sweden		150		59	%		136		60	%		134		58	%
Subsidiaries in Sweden		2 782		84	%		4 550		82	%		4 539		82	%
Subsidiaries abroad		34 522		80	%		33 816		79	%		32 959		80	%
		37 454		80	%		38 502		79	%		37 632		80	%

29 Risk management and hedging activities

The SKF Group's operations are exposed to various types of financial risks. The Group's financial policy includes guidelines and definitions of currency, interest rate, credit and liquidity risks and establishes responsibility and authority for the management of these risks. The policy states that the objective is to eliminate or minimize risk and to contribute to a better return through the active management of risks. The management of the risks and the responsibility for all treasury operations are largely centralized in SKF Treasury Centre, the Group's internal bank. The policy sets forth the financial risk mandates and the financial instruments authorized for use in the management of financial risks. Financial derivative instruments are used primarily to hedge the Group's exposure to fluctuations in foreign currency exchange rates and interest rates. The Group also uses financial derivative instruments for trading purposes, limited according to Group policy. The Group also has a policy for the management of financial risks involved in the stock options allocated in years 2001-2003. The Stock Option Programme (see Note 27) has been partially hedged by share swap arrangements. During 2005, forward exchange contracts, cross-currency swaps and currency options were the derivative financial instruments used by the Group to hedge foreign currency rate exposure. Cross-currency and interest rate swaps were used to manage the interest rate exposure on foreign currency borrowing by swapping fixed and floating interest rates in EUR to floating interest rates in SEK and on investments by swapping fixed interest rates to floating interest rates. Share swaps were used to reduce the costs related to the Stock Option Programme of the SKF Group.

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On January 1, 2005, when the SKF Group changed its accounting policy, an amount of 203 representing the gross fair value of derivatives not previously recognized was recorded in equity in accordance with the transitional provisions allowed under IFRS 1 for financial instruments recognized and measured under IAS 39. Of this amount 119 qualified for cash flow hedge accounting as defined by IAS 39 and was separately recognized in a hedging reserve in equity. As of December 31, the Group had outstanding cash flow hedging contracts as defined by IAS 39 of 2 815 maturing in 2006 and a cumulative change in fair value of -5 recognized in the hedging reserve in equity. In this amount a cumulative fair value of 22 related to cash flow hedging contracts of Oy Ovako Ab was included. In 2005, an exchange loss of 107 related to cash flow hedges was reclassified into the operating result. In 2005, the change in fair value of all derivatives, except for those qualifying for cash flow hedge accounting as defined by IAS 39, was recognized in the balance sheets as assets or liabilities and in the income statement as financial income or expense. On December 31, the unrealized gain of all derivatives amounted to 315 net. In the balance sheet 412 were included in assets and 97 in liabilities. Market quotes were obtained for all financial derivative instruments. Forward exchange contracts and currency swaps are valued at the forward rate. For currency options the Black & Scholes option pricing model is used. The future cash flows of interest rate swaps are discounted to present value using market interest rates for the relevant interest period. All forward exchange contracts and currency options will mature in 2006. For interest rate swaps the maturity dates vary from 2006 to 2011. Cross-currency interest rate swaps will mature in 2008 and 2010. The share swaps used to partially hedge the SKF Stock Option Programme will expire in 2007, 2008 and 2009.

The table below summarizes the gross contractual amounts of the Group’s derivative financial instruments as of December 31:
Type of instruments	2005		2004		2003
Forward exchange contracts		13 304		18 866		14 154
Currency options		22 619		2 468		2 304
Cross-currency and interest rate swaps		12 222		918		3 097
Share swaps		309		337		362
		48 454		22 589		19 917

The table below summarizes the gross contractual amounts of the Group’s derivative financial instruments by purpose:
Purpose	2005		2004		2003
Hedging of
- firm commitments		3 109		4 108		3 674
- anticipated transactions		4 407		2 871		4 733
- other internal bank activities		16 644		9 563		10 721
Share swaps		309		337		362
Trading		23 985		5 710		427
		48 454		22 589		19 917

The table below summarizes the change in fair value of the Group’s financial derivative instruments and the amount recognized as of December 31:

	2005		2004				2003
Type of instruments	Book and fair value		Book value		Fair value		Book value		Fair value
Forward exchange contracts		11		-5		57		118		139
Currency options		44		1		32		2		2
Cross-currency and interest rate swaps		69		0		0		-54		-53
Share swaps		191		-		87		-		81
		315		-4		176		66		169

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Certain business contacts may include embedded deriatives, which should be separately accounted for. As from 2005, such embedded derivatives are valued at fair value and recognized as either assets or liabilities in the balance sheet to correctly reflect the Group's financial position. At December 31, the fair value of such embedded derivatives amounted to 1 (23 and 20). The table below summarizes the notional amounts of the Group's outstanding contracts with embedded derivatives:

Type of contracts	2005		2004		2003
Exchange risk insurance
contracts		-		92		163
Sales/purchases in
third-party-currency		280		282		3
		280		374		166

Foreign currency exchange rate management

The Group is exposed to changes in exchange rates in the future flows of payments related to firm commitments and forecasted transactions and to loans and investments in foreign currency, i.e. transaction exposure. The Group's accounts are also affected by the effect of translating the results and net assets of foreign subsidiaries to SEK, i.e. translation exposure.

A sensitivity analysis based on year-end figures and on the assumption that everything else is equal shows that a weakening of 10% of the SEK against the USD has an effect from net currency flows on profit before taxes of approximately 450, excluding any effects from hedging transactions. The Group's exposure is primarily to the USD.

Transaction exposure

Transaction exposure mainly arises when manufacturing SKF companies sell their products to SKF companies situated in other countries to be sold to end-customers on that local market. Sales to end-customers are normally made in local currency. The Group's principal commercial flows of foreign currencies pertain to exports from Europe to North America and Asia and to flows of currencies within Europe.

Currency rates and payment conditions to be applied for the internal trade between SKF companies are set by SKF Treasury Centre. Internal invoicing during a quarter is made at fixed forward rates based on external market rates. Currency exposure and risk is primarily and to a large extent reduced by netting internal transactions. In some countries transaction exposure may arise from sales to external customers in a currency different from local currency.

The currency flows between SKF companies managed by SKF Treasury Centre in 2005 were through netting reduced from 44 000 to 5 400. This amount represented the Group's main transaction exposure in 2005

Net currency flows in 2005
Currency	Flows, MSEK		Average rate
USD		3 800		7.21
CAD		380		5.83
EUR		230		9.11
Other 1		990
SEK		-5 400

¹ Other is a sum comprising some 10 different currencies.

The Group's policy has been to hedge the currency flows for three to twelve months on an average. Cash flow hedge accounting of forecasted transactions as defined by IAS 39 has been limited to USD and CAD. These two currencies represent the main transaction exposure of the Group. Hedges of forecasted transactions complying with the Group's risk management policy but not qualifying for hedge accounting have been classified as economic hedges and accounted for as trading instruments, see Note 1. As from January 1, 2006, when the Amendment of IAS 39, "Cash Flow Hedge Accounting of Forecast Intragroup Transactions" is implemented, hedge accounting as defined by the amended IAS 39 will be limited to USD only. Forecasted currency flows from three months to one year will be hedged.

Group policy states that financial assets and liabilities should be invested or raised internally within the Group. All currency risk exposure related to the internal bank activities was hedged by forward contracts.

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The following tables summarize information on financial derivative instruments and transactions that are sensitive to fluctuations in foreign currency exchange rates, including forward exchange contacts, currency options, firmly committed sales transactions and anticipated sales transactions, internal bank activities as well as trading activities.

Forward Exchange Contracts	Nominal value Contract amount Gross		Net exposure long/short(-) currency position		Average price		Fair value 1 long/short(-)
Hedging of firm commitments
EUR		1 596		481		9.42		477
USD		628		-898		7.95		-919
BRL		121		-121		3.42		-120
PLN		113		-79		2.47		-78
Other		651		-166		–		-171
		3 109		-783				-811
Hedging of internal bank activities 2
EUR		3 014		1 447		9.40		1 442
USD		1 808		330		7.95		329
GBP		778		771		13.80		759
CAD		118		-118		6.85		-118
Other		472		-12		–		-6
		6 190		2 418				2 406
Hedging of anticipated transactions
USD		2 815		-2 815		8.04		-2 766
		2815		-2 815				-2 766
Trading
EUR		731		66		9.40		66
NOK		150		150		1.17		150
Other		309		99				101
		1 190		315				317
Total MSEK		13 304		-865				-854

¹ Fair value in this tabular presentation represents settlement value at December 31, 2005.

Fair value of currency forward contracts is specified per currency and therefore gain in one currency may be offset by loss in another currency.

² Internal bank activities include transactions related to currency management for funding of operations within the Group.

Some hedges, while complying with the Group's financial risk management policies for managing volatility risks in the financial market, do not qualify for hedge accounting treatment and are therefore classified as economic hedges and accounted for as trading instruments. The accounting policies for financial derivative instruments are described in Note 1.

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Currency Options			Contract currency	Contract amount	Strike price	Fair value gain/loss (-)
Hedging of anticipated transactions
	Written options	Call USD/Put SEK	USD	398	8.1000
			SEK	398
				796		-3
	Purchased options	Put USD/Call SEK	USD	398	7.9000
			SEK	398
				796		6
Trading
	Written options	Call EUR/Put USD	EUR	426	1.1890
			USD	426
				852		-1
		Call CHF/Put SEK	CHF	848	6.0840
		Call EUR/Put SEK	EUR	2 779	9.1950
		Call JPY/Put SEK	JPY	228	0.0660
		Call NOK/Put SEK	NOK	1 587	1.1713
			SEK	5 442
				10 884		-39
	Purchased options	Put EUR/Call USD	EUR	335	1.1890
			USD	335
				670		3
		Put CHF/Call SEK	CHF	606	5.8800
		Put EUR/Call SEK	EUR	1 235	9.3740
		Put JPY/Call SEK	JPY	1 153	0.0680
		Put NOK/Call SEK	NOK	1 305	1.1978
			SEK	4 298
				8 597		78
		Put/Call		12
		Various currencies		12
				24		0
Total MSEK				22 619		44

143

F-46

Translation exposure Translation exposure is defined as the Group's exposure to currency risk arising when translating the results and net assets of foreign subsidiaries to Swedish kronor. In accordance with Group policy, these translation effects on the Group's accounts are not hedged.   Interest rate risk management Interest rate exposure is defined as the Group's exposure to the effects of future changes in the prevailing level of interest rates. Liquidity and borrowing is concentrated to SKF Treasury Centre. By matching investments made by subsidiaries with borrowings of other subsidiaries, the interest rate exposure of the Group can be reduced. The exposure to currency and interest rate risk in foreign borrowing has been managed by cross-currency interest rate swaps. EUR loans with fixed and floating interest rates have been swapped into SEK loans with floating 3 months' interest rates. As of December 31, the hedged loans amounted to MEUR 350. The floating 3 months' STIBOR rate was 1.965%. The SKF Group policy states that the average interest period for investments must not exceed 12 months. As of December 31, 2005, the average interest period of the Group's investments was 2 months and for loans 6 months, taking into account cross-currency and interest rate swaps. Interest rate swaps were also used for trading purposes in 2005. As of December 31, the Group had net current financial assets (current financial assets less total loans) of 678 (2 449 and 4 724). A change of one percentage point in interest rates influences profit before taxes by approximately 11.

The tables below summarize as of December 31, 2005, the cross-currency and interest rate swaps of the Group. These derivatives were used to manage currency and interest rate exposure as well as for trading purposes. Notional amounts, weighted interest rates by contractual maturity dates and future cash flows are presented.

Cross-currency and interest rate swaps used to manage currency and interest exposure	Contract amount		Average fixed interest rate		Average floating interest rate		Maturity
Hedging of loans
MEUR 350		3 267		3.00		2.25		2008-2010
Hedging of assets
MSEK		1 960		2.93		1.87		2006-2011

Interest rate swaps for trading	Contract amount		Average fixed interest rate		Average floating interest rate		Maturity
Trading
MSEK		500		2.92		-		2007-2008
MEUR 40.7		384		2.98		-		2007-2008

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Cash flow of cross- currency and interest rate swaps - interest received/paid (-)	Contract amount gross		2006		2007		2008		2009		2010		2011		Total
Hedging of loans
Total at fixed rates		3 267		71		71		71		71		71		-		355
Total at floating rates		3 267		-45		-45		-48		-51		-25		-		-214
Hedging of assets
Total at fixed rates		1 960		-24		-21		-19		-12		-2		-6		-84
Total at floating rates		1 960		18		16		15		10		5		5		69
Trading
Total at fixed rates		884		-		-		-2		-		-		-		-2
Total at floating rates		884		-		-		-		-		-		-		-
Total		12 222		20		21		17		18		49		-1		124

Risk management - Stock Option Programme In 2000, a Stock Option Programme on SKF B shares already issued was introduced. The purpose of the SKF Stock Option Programme and the allocation model on which the grant of options is based are described in detail in Note 27. To reduce the cost for the Group that an increase in the market price of the SKF B share could result in when stock options allocated under the Stock Option Programme become exercisable, share swap arrangements were made with financial institutions. In 2005, the share swaps were valued at fair value with changes in fair value recognized on the balance sheet and in the income statement. The impact of the share swap agreements on the financial result in 2005 was 150 including changes in fair value, realized gains of terminated share swap agreements as well as dividend and redemption received and interest paid under the share swap agreements.. As at December 31, 2005, the number of SKF B shares constituting the notional amount agreed upon under the swap agreements and the basis for the swap calculations was 3 102 000. Under the swap agreements, the SKF Group will receive from the banks an amount equivalent to the dividend per share times the number of SKF B shares under the swap agreement and the SKF Group will quarterly pay to the bank an amount equivalent to STIBOR plus a spread over the notional amount of the swap agreement. The floating STIBOR rate at December 31 was 1.965%. The Board of AB SKF has proposed to the Annual General Meeting that a dividend of SEK 4 per share be paid to the shareholders. The maturity dates of the agreements are 2007, 2008 and 2009 but the SKF Group has the option to close the agreements partly or fully every quarter provided that notice has been given 30 days in advance.

In the table below the amounts to be received/paid by expected (contractual) maturity days are presented. The cash flow calculation is based on unchanged notional amount to maturity, 3 102 000, unchanged floating STIBOR rate, 1.965% and a dividend of SEK 4.

Share swaps	Nominal value Contract amount gross		2006		2007		2008		Total
Total, amount to receive		154.5		12		9		6		27
Total, amount to pay		154.5		-4		-3		-2		-9
Total MSEK		309		8		6		4		18

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Liquidity risk management Liquidity risk, also referred to as funding risk, is defined as the risk that the Group will encounter difficulties in raising funds to meet commitments. Group policy states that in addition to current loan financing, the Group should have a payment capacity in form of available liquidity and/or long-term committed credit facilities not falling below MEUR 300. In addition to own liquidity the Group had committed credit facilities of MEUR 300 syndicated by 10 banks at December 31, 2005. These facilities, which are unutilized, will expire in 2012. Available liquidity as per December 31 amounted to 4 886 (3 565 and 6 342). A good rating is important in the management of liquidity risks. The long-term rating of the Group by Standard & Poor and Moody's Investor Service is A- and A3, respectively, both with a stable outlook.   Credit risk management Credit risk is defined as the Group's exposure to losses in the event that one party to a financial instrument fails to discharge an obligation. The Group deals only with well-established international financial institutions. The Group does not obtain collateral or other security to support financial derivative instruments subject to credit risk. The Group's policy states that only well established financial institutions are approved as counterparties. The major part of these financial institutions have signed an ISDA-agreement (International Swaps and Derivatives Association, Inc.). Transactions are made within fixed limits and exposure per counterparty is continuously monitored. For financial derivative instruments and investments, the Group's credit risk exposure related to the two counterparties with the largest concentration of risks was 852 and 632, respectively, at December 31, 2005. The Group's concentration of credit risk related to trade receivables is limited primarily because of its many geographically and industrially diverse customers. Trade receivables are subject to credit limit control and approval procedures in all subsidiaries.

30 Men and women in Management and Board
	2005					2004					2003
	Number of persons		Whereof men			Number of persons		Whereof men			Number of persons		Whereof men
Board of Directors of the Parent Company		10		80	%		10		80	%		10		90	%
Group Management		14		86	%		16		88	%		15		93	%
Other Management		286		94	%		204		93	%		205		93	%
		310		93	%		230		92	%		230		93	%

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31 Events after the balance sheet date

The significant events that have occurred after December 31, 2005, until the date of the signing of this annual report on January 26, 2006, refer to

· The decision to rationalize the divisional structure and reduce the number of divisions within the Group, from five to three. As from January 1, 2006 the Aero and Steel Division as well as the Electrical Division will be integrated into the Automotive, Industrial and Service Divisions.

· The Board of Directors' proposal to the Annual General Meeting of the Parent Company to authorize the Board to decide upon the repurchase of the company's own shares.

· The Group's income- and balance sheets, as well as the Parent Company's income- and balance sheets, are subject to adoption on the Annual General Meeting in 2006.

32 SKF’s transition to International Financial Reporting Standards (IFRS)

Beginning 2005, the accounting policies of the SKF Group are in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Commission (EC). The date for SKF's transition to IFRS is January 1, 2003. SKF has until the end of 2004 prepared its consolidated financial statements in accordance with Swedish GAAP, which in recent years had been adapted to IAS/IFRS to a high degree. This, together with certain exceptions allowed by the IFRS transition rules which are described below, have limited the impact of the transition to IFRS. SKF's transition to IFRS at January 1 2003 is accounted for in accordance with IFRS 1, "First time adoption of International Financial Reporting Standards". IFRS 1 generally requires a company to determine its accounting policies and retrospectively apply these to determine its opening balance sheet under IFRS. However, the following allowed exceptions to this retrospective treatment have been chosen: ·SKF has elected to apply IFRS 3, "Business combinations", prospectively from date of transition January 1, 2003; ·SKF has chosen to set translation differences arising from the translation of foreign subsidiaries into Swedish kronor (SEK) according to IAS 21, "Effects of changes in foreign exchange rates", to zero at the transition date. Translation differences that arose before the date of transition to IFRS are not included as a separate component of equity but rather remain included within the other components of equity; ·SKF has elected to use revaluations to property, plant and equipment made under Swedish GAAP as deemed cost at the IFRS transition date, as allowed by IFRS 1; ·SKF has chosen not to restate comparable 2003 and 2004 financial information for the requirements of IAS 39, "Financial Instruments, Recognition and Measurement" as adopted by the EC; ·The transitional provisions under IFRS 1, allow that only options granted after November 7, 2002 that have not vested by January 1, 2005, are required to be valued and recorded. SKF has opted not to value and record their other two option programmes, options granted February 2001 with vesting February 2003, and options granted 2002 with vesting 2004. The useful lives and component split of all SKF's property plant and equipment were reviewed as required by IAS 16, "Plant and Property", in conjunction with the transition to IFRS. As a result the useful lives on certain machinery were increased from 14 or 17 years to 20 years, and were decreased on other machinery from 14 or 17 years to 10 years. Additionally, the control system within machinery was now identified as a significant item requiring separate depreciation in line with the component approach to depreciation. The above changes in accounting estimates did not have any impact upon the restated IFRS financial statements presented below, and does not result in a significant change to the annual depreciation charge. Previously published consolidated financial information prepared under Swedish GAAP for 2003 and 2004 has been restated to be in accordance with IFRS. The tables and explanatory notes below describe the differences in accounting policies between IFRS and Swedish GAAP which have had an impact on the balance sheet, income statement and statement of cash flow when transitioning to IFRS.

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Reconciliation of equity	note		Jan. 1 2003		YTD 2003		YTD 2004
Equity under Swedish GAAP				14 918		15 164		16 581
IFRS adjustments:
Capitalized software		a		148		163		47
Minority interest		b		570		499		504
Negative goodwill		c		66		10		8
Amortization of indefinite lived intangibles		d		-		68		128
Consequential impairments		f		-		-5		-8
Deferred taxes		g		-42		-47		-15
Total adjustments to IFRS				742		688		664
Total equity under IFRS				15 660		15 852		17 245
Specification of total adjustments to IFRS affecting total assets		note		Jan. 1 2003		YTD 2003		YTD 2004
Total assets under Swedish GAAP				37 796		36 326		34 847
IFRS adjustments:
Increase to intangible assets		a,d,f		148		226		167
Total adjustments to IFRS				148		226		167
Total assets under IFRS				37 944		36 552		35 014

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Specification of total adjustments to IFRS affecting total liabilities including minority interest under Swedish GAAP	note		Jan 1 2003		YTD 2003		YTD 2004
Total liabilities including minority interest under Swedish GAAP				22 878		21 162		18 266
IFRS adjustments:
Reclass of minority interest		b		-570		-499		-504
Decrease to provisions		c		-66		-10		-8
Decrease to provisions for deferred tax		g		42		47		15
Total adjustments to IFRS				-594		-462		-497
Total liabilities under IFRS				22 284		20 700		17 769

Reconciliation of net profit	note	YTD 2003	YTD 2004
Net profit under Swedish GAAP		2 039	2 959
IFRS adjustments:
Capitalized software	a	15	-117
Minority interest	b	56	50
Negative goodwill	c	-53	-1
Amortization on indefinite lived intangibles	d	64	70
Consequential impairment	f	-5	-3
Share-based payments	e	-13	-14
Deferred taxes	g	-5	32
Total adjustments to IFRS		59	17
Net profit under IFRS		2 098	2 976

Specification of total adjustments to IFRS affecting net profit under Swedish GAAP	note	YTD 2003	YTD 2004
Net profit under Swedish GAA		2 039	2 959
IFRS adjustments:
Cost of goods sold	a,c,f	-59	-69
Selling and administrative expenses	a,d,e,f	67	4
Taxes	g	-5	32
Reclassification of minority interest	b	56	50
Total adjustments to IFRS		59	17
Net profit under IFRS		2 098	2 976

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Explanatory notes:

a. Intangibles: capitalized software

Under IAS 38, "Intangibles", development costs on internally developed software must be recognized as an intangible asset when certain criteria are met and are measured at cost less amortization and impairment losses. The transition rules under IFRS 1 require the recognition of internally generated intangible assets meeting the recognition criteria at the date incurred, as from the original effective date (1999) of IAS 38, regardless of whether those intangible assets were expensed under previous GAAP. The balances of this adjustment to IFRS will be equal to amounts capitalized in SKF's reconciliation to US GAAP, since the capitalization of software development costs has been made for US GAAP purposes since 1999.

Swedish GAAP also required the capitalization of such costs effective beginning 2002, however it was not allowed under Swedish GAAP to recognize internally generated intangible assets that had been previously expensed. SKF applied a conservative approach to such capitalization 2003, and therefore additional amounts were capitalized for IFRS during 2003. During 2004, an impairment loss was recognized in the Q4 2004 IFRS results for certain capitalized intangible assets.

b. Minority interest

Under IAS 27 "Consolidated and Separate Financial Statements", minority interest is considered a separate component of equity in the balance sheet. On the income statement it is included in net profit, with the amounts attributable to the equity shareholders and the minority owners specified below the net profit line. Under Swedish GAAP, minority interest was shown on the balance sheet on a separate line between equity and liabilities, and was deducted in arriving at net profit in the income statement.

c. Negative goodwill

Under IFRS 3 "Business Combinations", negative goodwill still existing after a reassessment of fair values of the net assets acquired shall be recognized immediately in the income statement. Under Swedish GAAP, such negative goodwill was established as a provision and either utilized against future net losses of the acquired company, or amortized on a straight-line basis over the average remaining useful lives of the acquired property plant and equipment.

d. Amortization of intangibles with indefinite useful lives Under IAS 38 "Intangibles", intangibles with indefinite useful lives, which for SKF is primarily goodwill, are not amortized but measured at cost plus impairment losses. Under Swedish GAAP such intangibles were amortized on a straight-line basis over the economic life of the asset.

e. Share-based payment - Fair value of options

Under IFRS 2, "Share-based payments," the fair value at grant date of equity-settled share based options granted to the employees is to be recognized directly in equity, and amortized as an expense over the vesting period. SKF has one option program for which accounting according to IFRS 2 is required. These options were granted February 2003 with a vesting period ending January 31, 2005. The fair value of these options has been calculated using the Black & Scholes options valuation model.

f. Consequential impairment amounts

Due to the changed accounting policy where goodwill and other intangibles with indefinite lives are no longer amortized beginning as from January 1, 2003, the net book value of such intangibles increased during 2003 and 2004. As a direct consequence of the reversed amortization, certain of the intangibles required an additional impairment amount.

g. Deferred taxes on IFRS adjustments

Some of the IFRS adjustments listed above create a difference between the book-basis and the tax-basis of the underlying asset or liability for which deferred taxes have been provided.

h. Reclassification of provisions into current and non-current liabilities

SKF presents the balance sheet with current and non-current classifications. As a result, provisions that are expected to be settled within 12 months are included in current liabilities, and those provisions where settlement is more uncertain as to timing are included in non-current liabilities. Under Swedish GAAP all provisions were categorized separately from current and non-current liabilities.

Impact of IFRS on the statement of cash flow.

The Group's cash flow as reported under Swedish GAAP has been restated to meet the requirements of IAS 7 "Cash flows". According to IAS 7, SKF defines cash and cash equivalents to include only short-term highly liquid investments with maturity at acquisition date of three months or less. Under Swedish praxis a broader interpretation was made where readily marketable securities with a maturity exceeding three months were included. Under IAS 7 such instruments are not considered cash and cash equivalents, rather the net change in these securities are reported in financing activities. SKF's restated statements of cash flow for 2003 and for all periods in 2004 according to IAS 7 reflect cash and cash equivalents that are different to that disclosed in the cash flow statement under Swedish GAAP as short-term financial assets.

The table below shows the restated cash and cash equivalent amounts.

	Jan. 1 2003		YTD 2003		YTD 2004
Previously reported short term financial assets		5 530		6 342		3 565
Less: amounts with maturity > 3 months to be included in cash flows from financing activities under IAS 7		-3 497		-3 366		-489
Cash and cash equivalents under IFRS		2 033		2 976		3 076

IAS 7 requires certain cash flows to be reported as gross cash inflows and outflows. Under Swedish praxis these have previously been reported as net changes. Additionally, there are also different interpretations between IAS 7 and Swedish GAAP as to classification of cash flows as operating, financing or investing. The following specifies these presentation differences:

* Changes in marketable securities and other liquid assets have previously been reported under Swedish praxis on a net basis under financing activities as these amounts represent surplus borrowed funds invested in highly liquid assets. According to IAS 7 the changes in marketable securities and other liquid assets with a maturity greater than 3 months must be presented as gross cash inflows and outflows and included as investing activities.

* Changes in long-term financial assets have previously been reported under Swedish praxis on a net basis under financing activities. According to IAS 7 changes in non-current financial assets shall be reported as gross cash inflows and outflows and will now be included in investing activities;

* Under IAS 7, changes in investments as well as loans with a maturity greater than three months are reported as gross cash inflows and outflows. These have previously been reported under Swedish praxis on a net basis;

* Changes in post-employment benefit provisions have previously been reported under Swedish praxis on a net basis as a financing cash flow. Under IAS 7, all cash outflows from post employment defined benefit plans are considered operating cash flows. The adjustments to IFRS in net profit did not have any effect on cash flow.

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33 Summary of differences between IFRS and US GAAP

The SKF Group files an annual report; Form 20-F, with the US Securities and Exchange Commission (SEC). The Financial Statements of the Group are prepared in accordance with IFRS, which differ, in certain respects from US GAAP, as described below.   1. Deferred income taxes Adjustments for deferred income taxes in the reconciliation to US GAAP are attributable to the differences described below (see items 33.2 to 33.14). The adjustments also include a reversal of a deferred tax liability amounting to 144, which was previously recorded for US GAAP purposes only on the revaluation of fixed assets in Italy. This valuation was distributed as dividend in 2005 triggering tax expense already in the IFRS books.   2. Revaluation of plant, property and equipment Under previous GAAP, plant, property and equipment in certain countries has been revalued to an amount in excess of cost. Upon transition to IFRS, the Group elected to consider such revalued amounts as "deemed cost" as allowed by IFRS 1, "First-time adoption of IFRS", see Note 1. US GAAP however, does not permit the revaluation of tangible assets to amounts in excess of cost.   3. Capitalization of interest cost As allowed by IFRS the Group has elected not to capitalize interest cost incurred in connection with the financing of construction of plant, property and equipment. Under US GAAP interest costs should be capitalized during the construction period as part of the cost of the qualifying asset. The capitalized interest should be amortized over the estimated useful life of the asset as part of the depreciation charge.   4. Capitalization of development expenditures IFRS requires expenditures during the development phase to be capitalized as intangible assets if it is probable, with a high degree of certainty, that they will result in future economic benefits for the Group. Under US GAAP development expenditures are charged to expense when incurred.   5. Provisions for restructuring, termination benefits and impairment of plant, property and equipment Effective in 2003, provisions for restructuring and termination benefits for US GAAP are required to be in accordance with Statement of Financial Accounting Standard (SFAS) 146, "Accounting for costs associated with exit or disposal activities". SFAS 146 prescribes restrictive rules for when provisions for one-time involuntary termination benefits and other costs associated with such activities can be recorded. Generally, involuntary one-time termination benefits can only be recorded if there is no requirement on the part of the employee to work past a legal notification period or 60 days if no legal notification period exists. If some type of service is required past this period, then the provision should be allocated over the service period required. Other associated costs can only be recorded when a liability has been incurred. US GAAP SFAS 88 "Employers' accounting for settlements and curtailments of defined benefit pension plans and for termination benefits" allows provisions to be recorded for one-time voluntary termination benefits when the employees have accepted the offer. IFRS allows restructuring provisions, including both voluntary and involuntary termination benefits, and other costs associated with the restructuring to be recorded when a commitment to the plan is demonstrated via a public announcement, sufficient details of the plan are available, and the amounts can be reasonably estimated. However, if there is a requirement for service in connection with termination benefits, such benefits are considered "stay bonuses", and the cost is spread over the service period. In 2003, an impairment of plant, property and equipment was higher for IFRS than US GAAP due to differences in the beginning basis of such assets. Such difference was caused by the difference in adoption dates of the impairment rules under IFRS and US GAAP, where IFRS rules were first implemented after the US GAAP rules. The basis of such plant property and equipment for IFRS and US GAAP at December 31, 2003 is now the same. In 2005, a reversal of previous impairment was made under IFRS. This reversal is not allowed under US GAAP and has effected the income statement with -10 net of tax.   6. Gains on sales of real estate Gains on the sales of real estate that are leased back in the form of operational leases are realized at the date of the transaction for IFRS but should be deferred and amortized over the life of the lease according to US GAAP. Gains on sales of real estate in Spain, Sweden, the Netherlands, Belgium and France have been deferred in accordance with these principles.   7. Non-recurring bonus distribution As a result of historic overfunding, the Swedish insurance company Alecta pensionsförsäkring, a multi-employer pension plan, decided on a non-recurring bonus distribution to its clients. In 2003, the Group had received the total amount of the decided distribution of 250. According to US GAAP, only the cash received was recognized in earnings while IFRS allowed the full amount to be recognized prior to the receipt of cash.   8. Share-based compensation for employees The Group has employee stock option programs and records provisions for related social costs in accordance with IFRS. However, under US GAAP employer taxes on employee share-based compensation should not be recognized until the date of the event triggering the measurement and payment of the tax to the taxing authority, which is generally the date the option is exercised by the employee.

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Under IFRS 2, the fair value at grant date of stock option programme 2003, which vested in February 2005, was to be recognized directly in equity and amortized as an expense over the vesting period. The fair value was determined using the Black- Scholes valuation model. The exercise of options under this program is recognized directly in equity. In accordance with US GAAP the Group applies APB Opinion 25 and no initial recognition of fair value was made. The cost at exercise of options is recorded in the income statement.   9. Provisions for post-employment benefits and for pensions and post-retirement benefits Pensions and post-retirement benefits are considered post-employment benefits under IFRS and are accounted for by the Group in accordance with IAS 19 "Employee benefits". Under IFRS, defined benefit post-employment obligations and expenses are actuarially determined in the same manner as US GAAP SFAS 87 "Employers' accounting for pensions" and SFAS106 "Employers' accounting for postretirement benefits other than pensions", using the projected unit credit method. However, some significant differences exist between IFRS and US GAAP: ·IAS 19 had been implemented effective January 1, 2003 under previous GAAP, and consequently no adjustment was needed upon the Group's transition to IFRS. SFAS 87 was implemented in 1989 for non-US Plans and in 1987 for US Plans, and SFAS 106 was implemented in 1993. The difference in implementation dates causes a significant difference in accumulated gains and losses, where the accumulated gains and losses under IFRS were zero, whereas under US GAAP the accumulated gains and losses have been accumulating since the implementation dates noted above; ·Under IFRS, the past service cost and expense resulting from plan amendments are recognized immediately if vested or amortized until vested. Under US GAAP, prior service costs are generally recognized over the average remaining service life of the plan participants; ·Under IFRS the estimated return on assets is based on actual market values while the US GAAP allows an estimated return on assets based on market-related values; ·Under US GAAP an additional liability should be recognized and charged to other comprehensive income when the accumulated benefit obligation exceeds the sum of the fair value of plan assets and unrecognized past service cost, if any, and this excess is not covered by the liability recognized in the balance sheet. Such "minimum liability" is not required under IFRS. The adjustment in the US GAAP reconciliation represents a combination of the above differences.   10. Derivative instruments and hedging activities As from 2005, all derivatives are recognized at fair value in the balance sheets and all changes in fair value are recognized in earnings unless they are designated and effective hedging instruments. The IFRS accounting policies applied for derivatives and hedging comply with US GAAP and therefore no adjustment is needed for 2005. The SKF Group has chosen not to restate comparable 2004 and 2003 financial information for the requirements of IAS 39, "Financial Instruments: Recognition and Measurements" as allowed under the transitional provisions of IFRS 1. The hedge accounting rules under previous Swedish GAAP applied for 2004 and 2003 did not satisfy the hedge accounting criteria under U.S GAAP and therefore all outstanding financial derivative instruments are recognized at fair value in the U.S GAAP balance sheets and all changes in fair value are recognized in earnings.   11. Negative goodwill Under IFRS any excess of net identifiable assets and liabilities acquired over the cost of an acquisition, after insuring that the fair values of assets are not overstated, is recognized in the income statement. For US GAAP, any excess of the fair value of the identifiable assets and liabilities acquired over the cost of the acquisition is first used to reduce the fair values assigned to non-current assets on a pro rata basis. If any excess still exists it is recognized immediately in the income statement as an extraordinary gain. For the Group all such negative goodwill was allocated to plant property and equipment. Consequently the amounts increasing net profit under US GAAP as of December 31, 2003, 2004 and 2005 refer to amortization of the reduced carrying amounts of the non-current assets for US GAAP.   12. Goodwill and other intangible assets Under IFRS starting January 1, 2003, goodwill and other intangible assets are accounted for in accordance with IAS 38 "Intangible assets" which among other things requires that goodwill and other intangibles with indefinite lives should not be allocated but rather tested annually for impairment and more frequently if circumstances indicate a possible impairment. The impairment process for such intangibles is described in Note 1. While the accounting for such intangibles is mainly similar under US GAAP, there are certain differences: ·SFAS 142 "Goodwill and other intangible assets" was adopted January 1, 2002 for US GAAP purposes meaning that amortization stopped in 2002 while under IFRS amortization of such intangibles stopped 2003; ·Goodwill impairment test is performed at cash generating unit (CGU) level and is for US GAAP purposes comprised of two steps. The initial step is designed to identify potential goodwill impairment by comparing an estimate of the fair value of the applicable cash generating unit to its carrying value, including goodwill. The Group's measurement of fair value is based on an evaluation of future discounted cash flows consistent with those utilized in the Group's annual planning process for impairment tests. If the carrying value exceeds fair value, a second step is performed, which compares the implied fair value of the applicable cash generating unit's goodwill with the carrying amount of that goodwill, to measure the amount of goodwill impairment, if any.   Under IFRS impairments of 24, 21 and 21 were recorded as a result of the 2005, 2004 and 2003 annual impairment tests, respectively. For US GAAP purposes impairments totalling 32, 28 and 38 were recorded under US GAAP for 2005, 2004 and 2003, respectively.

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Changes in the carrying amount of goodwill for US GAAP purposes were as follows during each of the years ended December 31:

	2005		2004		2003
Balance at January 1 for US GAAP reporting purposes		725		650		717
Impairments		-32		-28		-35
Goodwill arising from acquisitions of businesses		301		144		65
Foreign currency translation and other adjustments		105		-41		-97
Balance at December 31 for US GAAP reporting purposes		1 099		725		650

13. Investments in equity securities

The Group classifies investments in equity securities as available for sale. Under IFRS these investments are carried at fair value, if reliably measurable, with changes in fair value recognized directly in equity. Quoted market prices and valuation techniques are used for estimating fair value. In accordance with the transitional provisions allowed under IFRS 1 for financial instruments recognized and measured under IAS 39, "Financial Instruments, Recognition and Measurement", the SKF Group chose not to restate comparable 2004 and 2003 financial information for the requirements of IAS 39. In accordance with US GAAP, the SKF Group applies SFAS 115, "Accounting for certain investments in debt and equity securities". SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair market values and for all debt securities. The investments classified as available for sale are reported at fair value with unrealized gains or losses included in shareholders' equity. Investments in equity securities not quoted in an active market are reported at cost less other than temporary impairments, if any. Under Swedish GAAP applied for 2004 reversal of previously recorded impairment charges were recorded in net profit and loss.

14. Minority interests

In accordance with IFRS minority interests are presented as an item within equity and the profit attributable to minority interests is specified below the net profit line. Under US GAAP minority interests are shown as a separate category from equity and liabilities in the balance sheet and the share of the profit attributable to minority interests is shown as a separate line in the income statement.

15. Comprehensive income according to SFAS 130

IFRS does not require the presentation of comprehensive income in addition to net profit for the year. The comprehensive income required to be presented under US GAAP was as follows:

	2005		2004		2003
Net profit in accordance with US GAAP		3 589		2 750		2 478
Other comprehensive income net of tax:
Translation adjustments		1 650		-482		-990
Minimum pension liability		-4		-139		17
Unrealized gains on equity securities		-		48		11
Amortization from implementation of SFAS 133		-		-		-11
Release on disposals of cash flow hedges		84		-		-
Change in fair value of investments in equity securities and cash flow hedges		12		-		-
Other comprehensive income		1 574		-573		-973
Comprehensive income in accordance with US GAAP		5 163		2 177		1 505

16. Diluted earnings per share

All dilutive potential shares related to the stock option programs of the Group have been considered in determining diluted earnings per share.

All earnings per share amounts in 2004 and 2003 have been restated to reflect the effects of a 5:1 share split combined with a redemption procedure in 2005. Through this procedure the shareholders received four new shares and a redemption share that was mandatorily redeemed for SEK 25.

17. New accounting principles adopted in 2005 for US GAAP

During 2005 the Group adopted SFAS 151 "Inventory costs - an amendment of ARB No.43, chapter 4". SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. The adoption of SFAS 151 did not have a material effect on the Group's consolidated financial position or results of operations reported in accordance with US GAAP.

In March 2005, the FASB issued Interpretation No. 47, "Accounting for conditional asset retirement obligations - an interpretation of FASB Statement No. 143" (FIN47). This Interpretation clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, "Accounting for Asset Retirement Obligations" (SFAS 143), refers to a legal obligation to perform an asset retirement activity in which the timing and /or method of settlement are conditional on a future event that may or may not be within the control of the entity. An entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The adoption of FIN47 had no impact on the Group's consolidated financial position or results of operations reported in accordance with US GAAP.

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18. New accounting principles to be adopted in future periods for US GAAP In December 2004, the FASB issued SFAS 123 (revised 2004), "Share-based payment." The revised standard eliminates the alternative used by the Group in accounting for share-based compensation using the intrinsic value method Accounting Principles Board (APB) Opinion No. 25. The revised standard generally requires the recognition of the cost of employee services based on the grant date fair value of equity or liability instruments issued. The effective date for the Group is January 1, 2006. Although the revised standard applies to new awards granted after the effective date, the revised standard also may, in certain instances, impact the accounting for awards granted before the effective date. The impact of the adoption of the revised standard on the Group's consolidated financial position and results of operations reported in accordance with US GAAP has not been determined. In December 2004, the FASB issued SFAS 153, "Exchanges of nonmonetary assets - an amendment of APB Opinion No. 29." APB Opinion No. 29 provided an exception to the basic fair value measurement principle for exchanges of similar productive assets. That exception required that some nonmonetary exchanges, although commercially substantive, be recorded on a carryover basis. SFAS 153 eliminates the exception to fair value measurement for exchanges of similar productive assets and replaces it with a general exception to fair value measurement for exchange transactions that do not have commercial substance - that is, transactions that are not expected to result in significant changes in the cash flows of the reporting entity. SFAS 153 is effective prospectively for the Group in accounting for nonmonetary asset exchanges under US GAAP occurring after December 31, 2005.   In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments. SFAS No. 155 amends SFAS No. 133 and SFAS No. 140, and allows financial instruments that have embedded derivatives that otherwise would require bifurcation from the host to be accounted for as a whole, if the holder irrevocably elects to account for the whole instrument on a fair value basis. Subsequent changes in the fair value of the instrument would be recognized in earnings. The standard also: · Clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133; · Establishes a requirement to evaluate interests in securitized financial assets to determine whether interests are freestanding derivatives or are hybrid financial instruments that contain an embedded derivative requiring bifurcation; · Clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and · Amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest ( that is itself a derivative financial instrument ).   SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity´s first fiscal year that begins after September 15, 2006. The Company is currently evaluating the impact adoption of SFAS No. 155 on its financial position and results of operations.   In June 2005, the EITF reached a consensus on Issue No.05-5, "Accounting for early retirement or post-employment programs with specific features (such as terms specified in Altersteilzeit early retirement arrangements)". This issue provides guidance on the accounting for the bonus feature in German Altersteilzeit (ATZ) early retirement programs and states that the bonus feature and the additional contributions into the German government pension scheme under a Type II ATZ arrangement should be accounted for as a post-employment benefit under FASB Statement 112, "Employers' Accounting for Post-employment Benefits-an amendment of FASB Statements No. 5 and 43". An entity should recognize the additional compensation over the period from the point at which the employee signs the ATZ contract until the end of the active service period. The issue also states that the employer should recognize the government subsidy when it meets the necessary criteria and is entitled to the subsidy. EITF No.05-5 should be applied to fiscal years beginning after December 15, 2005, and reported as a change in accounting estimate effected by a change in accounting principle as described in paragraph 19 of FASB Statement 154, "Accounting Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3". The impact of EITF Issue No 04-13 and 05-5 on the Group's consolidated financial position or results of operations reported in accordance with US GAAP has not yet been assessed.   19. Summary The application of US GAAP would have the following effect on consolidated net profit, shareholders' equity and earnings per share:

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Net profit	2005		2004		2003
In accordance with IFRS
as reported in the consolidated income statements		3 607		2 976		2 098
Items increasing/decreasing net profit:
33.1 Deferred income taxes		194		100		-264
33.2 Depreciation on revaluation of assets including effect in connection with sale		17		19		18
33.3 Capitalization of interest cost		-39		-24		-23
33.4 Capitalization of development expenditures		-5		-18		-
33.5 Provisions for restructuring and asset impairments		-96		-315		487
33.6 Gains on sales of real estate		26		29		29
33.7 Non-recurring bonus distribution		-		-		1
33.8 Share-based compensation for employees		21		-32		21
33.9 Post-employment benefits/Pensions		-54		21		61
33.10 Derivative instruments and hedging activities		-		90		120
33.11 Negative goodwill		12		11		4
33.12 Amortization and impairment of goodwill and other intangible assets		-8		-8		-18
33.13 Investments in equity securities		-		-49		-
33.14 Minority interest		-86		-50		-56
Net change in net profit		-18		-226		380
Net profit in accordance with US GAAP		3 589		2 750		2 478

Shareholders’ equity	2005		2004		2003
In accordance with IFRS as reported in the consolidated balance sheets		18 233		17 245		15 852
Items increasing/decreasing shareholders’ equity:
33.1 Deferred income taxes		-393		-565		-771
33.2 Reversal of revaluation of assets		-185		-184		-211
33.3 Capitalization of interest cost		136		174		198
33.4 Capitalization of development expenditures		-23		-18		-
33.5 Provisions for restructuring and asset impairments		5		101		416
33.6 Gains on sales of real estate		-110		-136		-165
33.8 Share-based compensation for employees		29		-34		12
33.9 Post-employment benefits/Pensions		1 193		1 026		1 321
33.10 Derivative instruments and hedging activities		-		210		120
33.11 Negative goodwill		-88		-94		-107
33.12 Amortization and impairment of goodwill and other intangible assets		42		40		51
33.13 Investments in equity securities		-13		10		15
33.14 Minority interest		-604		-504		-499
Net change in shareholders’ equity		-11		26		380
Shareholders’ equity in accordance with US GAAP		18 222		17 271		16 232
Earnings per share, in SEK		2005		2004		2003
Basic earnings per share in accordance with US GAAP		7.88		6.041		5.441
Weighted average number of shares outstanding		455 351 068		455 351 068		455 351 068
Diluted earnings per share in accordance with US GAAP		7.85		6.031		5.441
Adjusted weighted average number of shares outstanding		457 147 009		456 361 012		455 820 204

¹ Earnings per share have been recalculated to reflect the effects of the share split and redemption in 2005.

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Note 34 Restatement to Statements of Cash Flow

The statements of cash flows for the years 2005, 2004 and 2003 have been restated to correct for the classifications between the major categories of cash flows, which are specified in the table and notes below.

2005	As previously published		As restated
Post employment defined benefit plans (a)		-364		-417
Net cash flow from operations		4 426		4 373
Investments in financial and other assets (b)		-55		-5 430
Sales of financial and other assets (b)		42		3 469
Net cash flow used in investing activities		-1 996		-3 944
Net cash flow after investments before financing		2 430		429
Change in marketable securities and other liquid assets (b)		-1 948		-
Contributions to post-employment benefit plans (a)		-53		-
Net cash flow used in financing activities		-3 314		-1 313
Increase +/ (decrease)- in cash and cash equivalents		-884		-884

2004	As previously published	As restated
Post employment defined benefit plans (a)	-525	-3 636
Net cash flow from operations	4 197	1 086
Investments in financial and other assets (b)	-61	-2 439
Sales of financial and other assets (b)	36	5 272
Net cash flow used in investing activities	-2 044	814
Net cash flow after investments before financing	2 153	1 900
Change in marketable securities and other liquid assets (b)	2 858	-
Contributions to post-employment benefit plans (a)	-3 111	-
Net cash flow used in financing activities	-1 975	-1 722
Increase +/ (decrease)- in cash and cash equivalents	178	178

2003	As previously published		As restated
Post employment defined benefit plans (a)		-508		-544
Net cash flow from operations		3 613		3 577
Investments in financial and other assets (b)		-68		-5 808
Sales of financial and other assets (b)		53		5 858
Net cash flow used in investing activities		-1 118		-1 053
Net cash flow after investments before financing		2 495		2 524
Change in marketable securities and other liquid assets (b)		65		-
Contributions to post-employment benefit plans (a)		-36		-
Net cash flow used in financing activities		-1 423		-1 452
Increase +/ (decrease)- in cash and cash equivalents		1 072		1 072

(a) The cash outflows related to contributions to pension plans are to be considered as operating as they represent payments on behalf of employees. Previously SKF had classified contributions to post-employment defined benefit plans as part of the financing activities as the decision to fund these plans was made in the context of financing SKF's overall obligations.

(b) Cash flows relating to marketable securities and other liquid assets are to be considered as investing activities. Further, since the original maturities of these investments are greater than three months, it is preferable to present them on a gross basis. Previously, SKF had classified these activities as part of financing activities as the investments are part of the overall financing program at SKF.

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AKTIEBOLAGET SKF AND SUBSIDIARIES

SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS

Years ended December 31, 2005, 2004 and 2003

Amounts in millions of SEK

			Charged		Charged
	Balance at		(credited)		(credited)				Balance
	beginning		to cost and		to other				at end
	of period		Expenses		accounts (1)		Deductions		of period
Allowance for doubtful
accounts receivable
2003		238		28		-11		-57		198
2004		198		23		1		-27		195
2005		195		33		10		-26		212

NOTE: (1) Principally currency translation adjustments and acquired and divested reserves.

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