Ericsson Annual Report 2000

FY2000 Annual Report · Ericsson

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OUR RESULTS

Annual Report 2000 Financial Statements

Ericsson Annual Report 2000
This document is the Ericsson Annual Report 2000 – Financial
Statements. Together with the Ericsson Annual Report 2000 –
Understanding our business it forms the Ericsson Annual Report
2000. If not accompanied by this document, Understanding our
business can be ordered from Ericsson Corporate
Communications, tel +46 8 719 0000.

Uncertain factors in the future
‘Safe Harbor’ Statement under the US Private Securities
Litigation Reform Act of 1995
Some statements in this annual report are forward looking and
actual results may differ materially from those stated. In addition
to the factors discussed, among other factors that may affect
results are product demand, effect of economic conditions,
exchange-rate and interest-rate fluctuations, impact of
competing products and their pricing, product development,
product introductions and technological difficulties, political risks
in the countries in which the Company has operations or sales,
supply constraints, and the results of customer financing efforts.

Cover: Oskar
In the Czech Republic, Ericsson installed a complete GSM system
in record time. Within six months of receiving the order, over 500
base stations were installed and put into operation.

Contents 2 Key Financial Highlights 3 Ericsson in brief 4 Board of Director’s Report 13 Consolidated Income Statement
14 Consolidated Balance Sheet 16 Consolidated Statement of Cash Flows 17 Parent Company Income Statement
18 Parent Company Balance Sheet 20 Parent Company Statement of Cash Flows 21 Notes to the Financial Statements
38 Auditors’ Report 39 Treasury and Financial Risks 42 Ten Year Summary 44 Board of Directors, Auditors and Company
Management 46 Segment Report 52 Share Information 54 Glossary 56 Shareholder Information 2001

Annual Report 2000 Financial Statements

Key financial highlights

Total consolidated results

(SEK billion)

Orders booked

Net Sales

Income before tax

Net income

Earnings per share, fully diluted (SEK)

Dividend (SEK)

Cash flow before financing activities

Return on capital employed (ROCE, %)

Equity ratio (%)

Number of employees

2000

292.3

273.6

28.7

21.0

2.65

0.50

6.4

26.5

37.7

Changes in%

1999

223.8

215.4

16.4

12.1

1.54

0.50

–2.4

19.0

35.2

105,129

103,290

Segment results

Orders booked

Network operators

Consumer products

Enterprise solutions

Other operations

Less inter-segment

Total

Sales

Network operators

Consumer products

Enterprise solutions

Other operations

Less inter-segment orders

Total

Operating income

Network operators1

Consumer products 2

Enterprise solutions

Other operations 3

Unallocated expenses

Total

Incl. capital gain from Juniper shares 1

Incl. restructuring costs 2

Incl. non-operational items 3

Market Area sales

Western Europe

Central- and Eastern Europe, Middle East & Africa

North America

Latin America

Asia Pacific

Total

212.4

57.0

17.8

18.6

–13.5

292.3

194.1

56.3

17.5

19.0

–13.3

273.6

48.5

–24.2

0.0

7.6

–0.7

31.2

15.4

–12.7

7.0

100.3

37.7

35.2

44.1

56.3

273.6

151.8

47.6

18.0

22.0

–15.6

223.8

149.9

46.4

17.3

16.8

–15.0

215.4

19.6

0.3

0.1

–2.5

17.6

–

–0.3

85.3

29.7

25.2

30.3

44.9

215.4

–1

–16

–13

–11

Annual Report 2000 Financial Statements

Ericsson in brief

Our main achievements in the year 2000:

• We took the lead in
Mobile Internet:

Named supplier in 22 of 33 announced
50 percent of GPRS market won with64agreements

agreements for 3G infrastructure

Complete WCDMA and CDMA 2000 systems product
portfolio launched

New data and network protocols launched,
including IP v6 and VOICE OVER IP
OVER WCDMA
PARTNERSHIPS formed with
MICROSOFT, IBM and WORLDCOM for development
of Mobile Internet applications

• We continued to lead 2G

mobile systems:
MAJOR CONTRACT WINS for new

or expanded networks achieved, including AT&T Wireless,
Telcel, Pegaso and China Telecom

GSM SYSTEMS SALES reached record levels

40PERCENT

of mobile traffic passes across Ericsson systems

• We took the lead in the wireline

migration market:

ENGINE gained35percent market share

SUBSTANTIAL DELIVERIES

of ENGINE made to BT, UK

ENGINE ACCESS RAMP, a platform for broadband
network access, LAUNCHED SUCCESSFULLY

• We established a strong position for

datacom and IP backbone:

PARTNERSHIP

formed with Juniper Networks Inc., USA, in Mobile Internet routers

BREAK-THROUGH ORDERS
won from Telia International and China Telecom

• We focused Consumer Products

on return to profit:

Clear strategy for CONSUMER PRODUCTS
defined and under implementation
SMARTPHONE R380,
GPRS/Bluetooth-enabled R520, youth orientatedT20

mobile phones and a new Bluetooth
headset introduced

Key financial objectives

•

Strong and competitive value growth for our shareholders is one of Ericsson's most important overall
objectives. Our long-term growth objectives were established in 1999, and remain unchanged:

We intend to grow faster than the market, at a rate of at least
20 percent annually, viewed over a five year period. To reach
this objective we will maintain or improve our positions in both
the Operator and the Consumer oriented areas of our business.
Ericsson strives to have a positive cash flow before strategic
acquisitions. Growth of at least 20 percent with a positive cash
flow requires a return on capital employed of between 20 and
25 percent for Ericsson as a whole.

We must therefore maintain an average operating margin of

at least 10 percent and a capital turnover of two or better.
Return requirements may vary for different parts of our

business. A lower operating margin can also be offset by a higher
rate of capital turnover.

Ericsson long term financial objectives:
For year 2000 we reached all our financial objectives
but one:
•SALES GROWTH: 27 PERCENT (TARGET + 20)
•CASH FLOW: POSITIVE SEK6.4 B. (TARGET POSITIVE)
•CAPITAL TURNOVER: 2.1 (TARGET 2)
•RETURN ON CAPITAL EMPLOYED: 26.5 PERCENT (TARGET 20-25)
•OPERATING MARGIN: 6.1 PERCENT (TARGET: >10)

Annual Report 2000 Financial Statements

Board of directors’ report

Ericsson’s mission is to understand its customers’
opportunities and needs and to provide communications
solutions better than any competitor. In doing so, Ericsson
shall generate a competitive economic return for its
shareholders.

Our long-term goals are to grow faster than the market,
with a return on capital employed of 20 to 25 percent
and with a positive cash flow before strategic
acquisitions.

Our strategy is to maintain our market leadership in
mobile systems and to establish Ericsson as the major
vendor for Mobile Internet solutions and as a top tier
supplier of carrier class multi-service networks with
broadband and IP capabilities. We intend to remain a
top tier player in mobile phones.

In our outlook for year 2000, we expected a revenue

growth of more than 20 percent, combined with a
substantial growth in earnings, while maintaining a
positive cash flow.

Developments during the year made us change the
outlook, so that after nine months we expected a higher
revenue growth of around 25 percent, but, due to the
difficulties in mobile phones, a reduced operating
margin of 6-7 percent compared to 8.2 percent last
year, and a negative cash flow.

The full year results are in line with the nine months

outlook, with a sales increase of 27 percent and
an adjusted operating margin of 6.1 percent.
The cash flow was improved over the forecast to be
positive through a sale of shares in Juniper Networks
in December.

The operational performance by our systems business
was very strong during the year, with a sales growth faster
than the market at sustained margins. We were
encouraged by a very favorable result in 3G awards plus
a strong penetration for our ENGINE solution in the
“Circuit-to Packet” market. In our handset business,
however, we incurred severe setbacks, which we are
addressing in our “Back to Profits”-program and with
accelerated outsourcing of manufacturing of phones. The
resulting overall financial performance is below our
goals, and we are taking vigorous actions to restore
profitability. The major area of concern is, of course, to
solve the problems in our Consumer Products division.
Our goal was also to strengthen our balance sheet and
achieve an equity ratio of 40 percent, compared to 35

percent last year. We reached 38 percent and are
determined to continue to focus on increased efficiency
in capital utilization during 2001.

Capital market, economy
The IT industry had a turbulent year in the stock
markets, driven by uncertainty about the “new economy”
and speed in market penetration of Internet services.
The stock market adjustment also had adverse impact
on the market capitalization of more traditional and
well-established telecom suppliers, in spite of the
favorable overall growth in mobile telephony. Our own
market capitalization, which almost tripled from 381 b.
to 1 073 b. in 1999 declined 21 percent to 852 b. by
the end of 2000. In relation to most of our main
competitors, however, our decline is less unfavorable.

Market and Competition

Network Operators
Continued strong subscriber growth and increased
minutes of usage per subscriber resulted in strong
traffic increases, which led to another year of favorable
development for mobile telephony infrastructure. We
managed to increase our market share in mobile
systems, where we are the undisputed market leader. In
fixed networks we achieved a strong market position
regarding solutions to migrate current circuit-switched
networks to packet-switched for handling of data and
Internet traffic.

License granting for 3G started, beginning in Japan

and Europe. Initially, license prices in auctions were
very high, but declined in auctions later in the year.
We have been even more successful than we could
hope for and been selected as vendor in 22 of 33
announced deals until the end of the year. This is in
recognition of our technology leadership and our proven
capabilities as a systems integrator and end-to-end
supplier. No competitor is close to this track record.

In the financial markets, some concerns were noticed
regarding the operators’ financing needs for build-out
of 3G networks. New “greenfield” operators were
expected to require substantial amounts of vendor
financing. Both operators and vendors have received
slightly downgraded credit ratings.

We continued to increase our market share also for
2G infrastructure equipment and also won a majority

Annual Report 2000 Financial Statements

Board of directors’ report

of the orders for GPRS-systems (“2.5G”).A favorable
development in 2000 was the decision by many US- and
Latin American operators to switch to GSM technology
for their 2.5G networks as a better transition path to 3G.
This will benefit us as the market leader in GSM/GPRS.
During the year we began to ship 2G CDMA systems,
as a result of our acquisition last year of Qualcomm’s
infrastructure division. We are the only supplier in the
market offering all mobile technologies. We also
introduced CDMA handsets during the year.

In 2000, we enjoyed strong demand for Ericsson’s
ENGINE solution for upgrading of existing networks
with capabilities for datacom and IP-based telephony.
ENGINE is to a large extent utilizing our own earlier
development in the broadband area, such as broadband
ISDN and optical transmission systems. Thanks to this
and our new generation of AXE switches with
substantially improved performance, sales and
profitability developed favorably also for the multi-
service networks operations.

Network Operators sales were particularly strong in the

US, Japan and Latin America. The sales development
in China was somewhat slower than anticipated, while
orders booked increased in the end of the year and we
believe capital expenditures for infrastructure is picking
up momentum.

Consumer Products
For Consumer Products, year 2000 was characterized
by strong market growth, where the global handset
volume increased 47 percent from 278 million units
sold in 1999 to around 410 million. We were however
unable to capitalize in full of this, mainly due to severe
problems regarding component supply and quality and
to some extent an unfavorable product mix in the
entry level segment. The component shortages relate to
a fire in a key component supplier’s plant as well as a
general component shortage in the market. We also
incurred quality deficiencies in shipments from another
supplier of key components. The shortages led to
severe delays in shipments and our products had to be
sold at extra discounts. In addition, substantial write-
offs of excess and obsolete components and
renegotiation of supplier contracts had to be made. An
action program including restructuring activities,
partnering and full outsourcing of manufacturing was

implemented, with the goal to have the handset
business back to profit in the second half of 2001.
With a unit volume of 43.3 million, an increase of
38 percent, we lost some market share, but we
maintained our number three position among handset
vendors. The price competition in handsets increased
in the fourth quarter, as a consequence of over-supply
mainly in Western Europe, where penetration in
many countries is now around operations 60 percent
or higher.

Enterprise and Other operations
Our Enterprise operations were reorganized during the
year. Increased focus was put on development of
Mobile Internet applications, which will be key for the
market development of 3G. The PBX and data
networks business developed unfavorably. We expect
to improve the business substantially going forward,
by restructuring of the distribution channels from in-
house to third party.

Other operations developed very well, in particular
Cables, which increased the sales of fiber optic cables
strongly. In our Microelectronics operations, Bluetooth
chips started to be shipped, and volumes are expected
to increase in the first half of 2001 after release of the
approved Bluetooth standard. Defense Systems also
had a good year. In the third quarter, Ericsson acquired
parts of Hewlett Packard’s minority share in the
Ericsson-Hewlett Packard joint venture for 1.4 b.
Ericsson then integrated the OSS software product
activities with the mobile systems operations. The
profitability in the remaining EHPT operations within
the OSS product segment was unsatisfactory.

Products
During the year, we launched a number of new products
and solution elements. In the infrastructure operations,
the enhanced AXE, the ENGINE solution, GPRS
and CDMA equipment were all very well received.
Our new service offering for managed network services
was also positively received and we won a number
of such contracts. Several new mobile phones were
introduced, such as the WAP phone R320, the smart-
phone R380, a CDMA phone and the T20, aimed at
the entry-level market.

Annual Report 2000 Financial Statements

Board of directors’ report

The Ericsson brand was further strengthened by

various activities. For the first time, Ericsson
participated on the COMDEX fair in the US, with
positive attention.

Patents
During the last two decades patents have become
increasingly more important for manufacturers within
the telecom and IT industries. A strong, well balanced
patent portfolio covering present and future
technologies and products is now a prerequisite for
success within these industries. Such an intangible
asset, although not directly traceable in the balance
sheet of a company, gives the patent holder strategic as
well as other business advantages, for example
possibilities to get access to technology through cross-
licensing with other companies. At the same time, this
focus on patents within the converging technologies
also means an increased exposure to allegations of
infringement of patents of others.

Since the beginning of the 1990’s, Ericsson has

safeguarded its investments in Research & Development
and met the intense competition by developing a world-
class patent portfolio to support its business. Accordingly,
Ericsson is well prepared to meet the challenges during
the next decade.

During 2000, Ericsson filed in excess of 1300 patent
applications to protect our intellectual property rights.

Production and supply
Component shortages were recognized in the industry
during the first three quarters of the year, resulting in
delivery delays and inventory build-up. In addition,
Ericsson was hit by consequences from a fire at a plant
belonging to a key component supplier to our mobile
phones. In other areas, our supply was greatly improved
with considerably shorter lead times for many products.
We are also in trials with several customers and vendors
for e-commerce solutions. Outsourcing of production
continued under year 2000 within both mobile phones
and infrastructure, as a reflection of our strategic intent
to focus on more value adding areas of development
and systems integration. At the end of the year, we
decided to outsource all manufacturing of mobile
phones and in January, 2001, we signed a memorandum
of understanding with Flextronics for this, where
production will be transferred in the first half of 2001.

Focused organization
We continued to increasingly focus our business
operations on core areas and divested Private Radio
Systems and Energy Systems operations during the year.
Also most of our real estate properties were sold and real
estate management activities in Sweden were outsourced
during the year. Also outsourced were activities for
internal computer and local area network support in
Sweden and other European countries. Manufacturing
and design activities in Longuenesse, France, and
Östersund and Katrineholm, Sweden, were outsourced
in the beginning of the year to Solectron, AU-system
and Flextronics.

Acquisitions, partnerships and

venture capital funds
In November, we acquired Microwave Power Devices
Inc. (MPD) with important competence as a developer
of multi-carrier power amplifiers, essential for next
generation mobile networks. MPD will be renamed
Ericsson Amplifier Technology Inc. The joint venture
with Microsoft was established during the year. Its
first product, Outlook via Mobile, was launched. We
also entered a partnership with Juniper Networks to
deliver data-ready Mobile Internet solutions.

The cooperation among the industry leaders in the
Symbian joint venture for the EPOC operating system
for mobile devices continued successfully, as did the
WAP forum for advancement of a standard protocol
for mobile phone applications. These joint ventures are
key in establishing de facto standards as a base for
application development, which will be a key driver for
a fast adoption of 3G services. As a major 3G vendor,
we are, of course, actively participating in the 3G
Partnership Program (3GPP) for further development
of the 3G standard.

In order to support the development of Mobile Internet

applications, products and services, we initiated and
participated in a number of venture capital initiatives
during the year in cooperation with financial power-
houses: Ericsson Venture Partners together with
Investor, Industrivärden and Merrill Lynch, and imGO
with Investor and Hutchison Whampoa.

In addition, we also made some direct investments in

companies to support Mobile Internet applications,
content and technology, such as Red Jade, Merrimac
Industries, Littauer Technologies and Mediatude.

Annual Report 2000 Financial Statements

Board of directors’ report

In preparation for an expected massive roll out of 3G
networks starting at the end of year 2001, we entered
a number of cooperation agreements with reputable
construction companies such as ABB, SKANSKA and
NCC. The objective is to safeguard sufficient capacity
and competence to satisfy network build-out demand.

Financial results
Orders booked increased by 31 percent and sales by
27 percent (33 percent and 29 percent, for comparable
units), slightly above our outlook.

Argentina in particular, plus Brazil. Also in Latin
America, operators will go the GSM/GPRS-way to 3G.
In Asia Pacific, the two major markets China and
Japan showed slightly different developments. China
had moderate sales increases, but strong orders booked.
Sales in Japan were very strong but orders increased
slower. It seems as if the market in China is beginning
to pick up momentum after a comparatively low
investment level in 2000.

Exports from Sweden were 158 (131) b., up 21
percent, including sales to consolidated companies.

Orders and sales in our Network Operator segment

Other operating revenue includes capital gains net of

developed well during the year with orders up 40
percent and sales up 29 percent. Strong demand for
2G infrastructure and ENGINE were main drivers.
In our mobile phones business, sales increased by
21 percent and units shipped by 38 percent. Sales
and gross margins were severely impacted by delivery
problems from a key supplier, leading to delays and
reductions in sales, lower prices and large inventory
write-offs. In addition, we also decided to implement
an aggressive restructuring program for the phone
operations and incurred additional costs. A total of
12.7b. of restructuring charges burdened the operating
income of –24.2b., for phones. The restructuring is
expected to generate annual savings of 15b from 2002.
Sales increases slowed down the fourth quarter, in
particular in Western Europe, North America and Japan.
In Europe, operators have begun to cut subsidies of
mobile phones, reducing the growth of new subscribers
and slowing down replacement. As the penetration is
now around 60 percent in many countries, the main
objective for operators is to keep the current customer
base. A number of firm contracts for 3G were signed
in the fourth quarter, underlining our leading position.
ENGINE continues to dominate the “Circuit-to-
Packet” market. A major break through order for IP
backbone network including Juniper routers was won
with Telia International.

Our North American operations increased sales for the
year strongly. Operators have decided to go for GSM for
their 2.5G networks as a way into 3G, which is favorable
for us as the market leader in GSM and GPRS. GPRS
trials are ongoing. CDMA sales started to pick up
momentum and a strategic order for cable modems
was won.

In Latin America, sales were very strong in Mexico and

minorities of 25.2b. of which 19.3b. are operational,
including 15.4b. from sales of shares in Juniper
Networks. Non-operational capital gains of 5.9b. are
the results from divesting of Energy Systems and real
estate properties. A pension premium refund in
Sweden of 1.1b. is also included among Other
operating revenues and considered non-operational.
Operating expenses were 33 percent of sales, above

our target of 30 percent, due to increased R&D
investments and ramp-up of capacity for 3G as a
consequence of higher than expected volume of 3G
awards. R&D expenses increased 27 percent, the
same rate as sales, whereas Selling and G&A
expenses increased slower.

R&D and other technical expenses, including

development costs on customer orders increased by
26 percent to 43.8 b. or 16 (16) percent of Net Sales.
Overall, we achieved an adjusted operating margin

of 6.1 percent, excluding the capital gain of 15.4 b.
from sale of Juniper shares, the additional restructuring
provision in phones of 8.0b. and non-operational items
of 7.0b.

Income effects of changed currency exchange rates
compared to the rates during last year were around
+1.3b. For mobile phones, however, effects were negative
around -3.4b. due to unfavorable exposure from purchases
in Japanese yen and US dollars combined with a large
share of revenues in Euros.

Income before tax was 28.7 (16.4) b., up 75 percent.

The tax rate year to date was as low as 27 percent,
since portions of the capital gains were non-taxable.

Earnings per share, fully diluted, were SEK 2.65 (1.54).
The dilutive effect of this year’s employee stock option
programs was around 0.2 percent. Earnings per share
according to US GAAP were SEK 2.94 (1.92).

Annual Report 2000 Financial Statements

Board of directors’ report

Inventory turnover for the year reached 5.2 (4.8),
affected by inventory write-downs. Our target was a
level of more than 5.0. Receivables turnover for the
year was 3.9 (3.7) turns, slightly below target of 4.0.
Customer financing is granted very selectively and
preferably as bridge-financing until our customers find
permanent solutions. During the year, we managed
to reduce gross on-balance sheet financing by 17
percent, whilst off-balance sheet gross exposure
increased only slightly.

Investments in tangible fixed assets were 12.3b., of

which 5.1b. in Sweden.

The equity ratio at year-end was 37.7 (35.2) percent.

We did not reach our target of 40 percent and we
will continue our efforts to improve capital efficiency,
in particular regarding inventory and receivables.

Cash flow before financing activities year to date was
6.4 (-2.4) b., with the positive effects of sales of shares
and divestment of Energy Systems and real estate
offsetting increases in inventory and receivables.

Cash flow from financing activities includes cash
receipts from sales of convertible debentures and cash
outlays for repurchases of our own stock related to the
employee stock option programs.

Network operators
With order growth and sales stronger than the market,
operating margin improved to 17 (13) percent. Orders
and sales were strong for all mobile standards, and
good order bookings were achieved for our ENGINE
solution. Also Mini-link transmission equipment had a

strong increase from last year. The operating income
reflects an increased investment level in R&D and
other preparations for rapid rollout of 3G.

Consumer products
We increased unit sales by 38 percent to 43.3 million
units. Revenues in SEK grew slower, by 21 percent,
to 56.3b., a result of lost sales due to component
supply, unfavorable product mix and an over-supply
situation in the end of the year, with strong price
erosion. The full year loss at –16.2b. is in line with
guidance after nine months and includes 4.7b. of
restructuring charges. Additional restructuring provisions
of 8b. were made at year-end, of which 2b. relate to
the original restructuring program and an additional
6b. relate to the complete outsourcing of
manufacturing of phones to Flextronics. In the third
quarter, we entered an outsourcing agreement with
Taiwan-based ARIMA, for development and
production of mobile phones according to our
specifications. A similar agreement was entered with
another Taiwanese company, GVC, in January, 2001.

Enterprise solutions
The consulting business grew substantially during the
year and was increasingly focused on Internet applications.
Orders and sales were flat and the operating margin
was slightly down, however, in the traditional business
with enterprise communications solutions of PBXs and
data networks we are reorganizing the distribution
channels in order to improve the profitability.

Segment results 2000

Segment (SEK b.)

Network Operators

Consumer Products

Enterprise Solutions

Other operations

Unallocated

Inter-segment sales

Total

Adjustments:

Capital gain Juniper

Non-operational items

Additional restructuring

Operating income

Orders
booked

212.4

57.0

17.8

18.6

–13.5

292.3

Order
growth
percent

–1

–16

Sales
growth
percent

Adjusted
Operating
income

33.1

–16.2

1.7

–1.9

16.7

Sales

194.1

56.3

17.5

19.0

–13.3

273.6

Adjusted
Operating
margin
2000
percent

–29

Adjusted
Operating
margin
1999

percent Employees

70,317

16,840

8,324

8,520

1,128

105,129

15.4

7.0

–8.0

31.2

Annual Report 2000 Financial Statements

Board of directors’ report

Other operations and unallocated costs
During the year we have divested our Energy systems
business and real estate properties. These effects are
reported among non-operational capital gains. Among
remaining business operations, Cables, Defense systems
and Microelectronics all had very strong sales increases.
Orders increased very well too, except in Defense systems,
where a large ERIEYE order last year makes this year’s
bookings lower. Unallocated costs decreased more than
20 percent compared to last year. A pension premium
refund of 1.1b. is included in non-operational items.

New segment reporting for 2001
For enhanced comparability with peer companies in our
industry as well as competitive reasons, we will in 2001
report orders, sales and operating income according
to our primary areas of business - Systems, Phones and
Other operations. Within the Systems business, orders
and sales for mobile systems and multi-service networks
will be separately disclosed, although there is a high
degree of integration within systems for R&D,
customers, implementation and support services.

Changes within Ericsson during the year
A new organization was implemented during the second
half to enhance Ericsson’s competitive position in a
market with converging telecom and data networks
and new operators. The business operations directly
addressing our key markets will be handled in three
divisions:
•• Mobile Systems
•• Multi-service Networks
•• Consumer Products

Three additional divisions were established to focus on
development and supply of products and services in core
areas of infrastructure business:

Global Services, with focus on systems implementation
and integration plus other key services, such as network
management and optimization. We know that many
operators will need new network management tools
and services for the increasingly complex networks we
will see in 3G, with new types of traffic and new
business models for billing and revenue generation.

Data Backbone and Optical networks, with focus

on packet-switching and IP telephony to support

multi-service networks as well as Mobile networks with
data traffic capabilities for fixed and Mobile Internet.
Internet applications, which we look upon as an
important ingredient for operators to be successful in
the 3G environment, to be competitive and to generate
traffic and revenue in their networks.

These divisions will enhance the competitiveness of
Ericsson’s infrastructure offering to our key network
operator customers of mobile and fixed networks.
The previous segment Enterprise Solutions was
restructured, with consulting operations transferred
to the new Internet applications division and internal
IT support activities organized as a new internal
service unit. The remaining enterprise market related
activities for PBXs, business phones and data networks
were organized in a new unit, “Enterprise Networks”,
included in Other business operations, and its sales
and distribution channels in local Ericsson companies
are planned to be spun-out and sold to a third party.

Other business operations now include Cables, Defense

systems, Enterprise Networks and Microelectronics.

At the beginning of the year, Private Radio Systems

was sold to US-based Com-Net Critical
Communications with no material capital gain. Energy
Systems were sold to Emerson on April 1, with a net
capital gain of 4.5b. Most of our real estate properties
were sold during 2000, with a net capital gain of 1.5b.

The component distribution activities within the
Microelectronics operations were sold to France-based
Electrodis.

Employees
At year-end 2000, Ericsson had 105,129 employees
world-wide, a net increase of 1,839 during the year,
mainly as a result of increased R&D efforts for 3G. A
reduction of approximately 5,900 related to outsourced
or divested operations was offset by additions of 400 in
purchased units and 7,400 in other increases.

Extensive employee training activities were held during

2000 to increase the knowledge and understanding
of the Internet. All employees were encouraged to take
certificates in PC and general data/Internet skills.
During the year, two seven year employee stock
option programs were implemented, affecting around
8,000 employees. For year 2000, these programs had
a dilutive effect on earnings per share of 0.2 percent.

Annual Report 2000 Financial Statements

Board of directors’ report

Environmental issues
Ericsson has production operations in nine countries, for
the assembly of electronic components and manufacturing
of cables and components. The environmental impact
of these operations consists of emissions to air and
water, waste products and noise. Chemicals used
include flux and soldering paste and powder lacquer.
Life cycle analysis of our products show the largest
impact on the environment to be their energy
consumption in use. Ericsson is fully exploiting the
IT industry’s inherent possibilities to miniaturize
products and reduce their energy consumption, which
often reduces the unfavorable environmental impact
for a given function considerably.

Swedish regulations requiring permissions or reporting
Ericsson has 14 production facilities in Sweden. For
seven of these, permission is required for operations
due to noise or emissions into air or water, while five
units are obliged to report certain hazardous activities.
No material requests or complaints have been received
during the year.

ISO-certificates
The ISO 14001 environmental management system
is scheduled for implementation in all production
units. In Sweden, most of Ericsson’s production units
have already been certified with remaining units to be
audited in 2001.

Environmental liabilities
Within the environmental management system, the
Company’s environmental liabilities are continuously
monitored. When needed, additional controls are
made of real estate properties and production facilities.
Around half of the Company’s manufacturing units are
located in Sweden.

In connection with the sales during 2000 of a majority
of the Company’s real estate properties, environmental
liabilities were identified and resolved. For the Swedish
units, the total remaining liability for environmental
damages is less than SEK 40 million. For units outside
Sweden, only one material damage is known concerning
a facility in Holland. The liability issue is now regulated
in an agreement with the Dutch authorities and a
provision for this liability is made in the accounts.

No other material liabilities are known.

For further information on Ericsson’s environmental

activities, please see our separate Environmental
Report for 2000.

The Board of Directors and board procedures
On January 7, 2000, Lars-Eric Petersson resigned from
the Board of Directors in relation to being appointed
Chairman of Telia, the Swedish network operator.
Messrs Niall FitzGerald and Eckhard Pfeiffer were
elected directors of the Board at the Annual General
Meeting on March 31, 2000.

The Board of Directors of Telefonaktiebolaget LM

Ericsson consists of nine directors elected by the
shareholders at the Annual General Meeting, as well as
three employee representatives, each with a deputy,
appointed by their respective employee organization.
Eleven Board meetings were held during year 2000.
The observations made by the Company auditors have
been reported to the Board.

The work of the Board is subject to a work procedure
of the Board adopted and revised by the Board at least
once a year. The work procedure stipulates the division
of work among the Board and its three committees and
between the Board and the President and the CEO,
respectively. The members of the three committees,
Audit, Finance and Remuneration are all Board
members. The Board has authorized each committee to
decide on certain issues and the Board may also provide
extended authorization to a committee to decide on
specific matters.

Management changes
Effective February 15, Jan Wäreby, previously Executive
Vice President Market area Europe/Middle East/Africa,
succeeded Johan Siberg as Executive Vice President for
the Consumer Products segment. Johan Siberg, Executive
Vice President, assumed a position as coordinator of
Swedish operations, reporting to the President.

Ragnar Bäck and Karl Alsmar, Presidents in our Italian

and German subsidiaries, took up positions as
Executive Vice Presidents head of of Market Area
Western Europe and Market Area Central- and Eastern
Europe, Middle East and Africa respectively. Per-Arne
Sandström was appointed Executive Vice President,
and head of Market Area North America, succeeding
Bo Dimert, who retired.

Annual Report 2000 Financial Statements

Board of directors’ report

phones and increased 3G investments. Later in the
year we will begin to benefit from the restructuring
of our phones business.

For the full year 2001, we expect sales to grow

between 15 and 20 percent and an operating margin
in the range of 6-8 percent.

Parent company Telefonaktiebolaget LM Ericsson
The parent company’s results include the operations
conducted on commission basis by Ericsson Treasury
Services AB and Ericsson Credit AB. The commission
agreement with Ericsson Telecom AB was cancelled as
per January 1, 2000, at which time also assets of 6.6 b.
were transferred.

The parent company has branch- and representative
offices in 44 (45) countries. Net Sales for the parent
company were 1.2 (15.4) b. The lower sales are related
to the termination of the commission agreement with
Ericsson Telecom AB. Income after financial items was
9.0 (3.2) b.

Major changes in the company’s financial position were:
•• increased investments of 11b., of which 9.5b.

in subsidiaries in Sweden

•• increased short-term and long-term loans to

subsidiaries of 18.2b.

•• increased cash and short-term cash investments

of 8.7 b.

These investments were financed primarily through
increased internal borrowings. At year-end, cash and
short-term cash investments amounted to 25.8 (17.1) b.

Repurchase of shares
Repurchase of shares became possible in Sweden in
2000 due to new legislation. Ericsson has utilized this
opportunity and repurchased 1.8 million shares related
to an employee stock option program. Such shares are
not entitled to dividends.

Carl Olof Blomquist was appointed Senior Vice
President and Head of Corporate function Legal Affairs.

Three new divisions were established mid-year, led by
Executive Vice Presidents:
•• Data Backbone and Optical Networks, Mike Thurk
•• Internet Applications, Haijo Pietersma
•• Global Services, Bert Nordberg

Effective January 1, 2001, the Board of Directors
appointed President Kurt Hellström also Chief
Executive Officer.

Post closing events
In January, Ericsson was appointed also by Portuguese
operator TMN as a 3G supplier. Ericsson has entered a
partnership in Japan with eBANK to advance the use
of e-commerce in Japan. The services will be made safe
using Ericsson’s products: the Internet payment server
Safetrader™ and the Jalda™ system.

In January, Ericsson won another significant order for
ENGINE with WorldCom. Ericsson is supporting faster
roll out of 3G through the opening on March 1 of two
centers for 3G inter-operability testing, where other
vendors can bring their equipment to be tested against
Ericsson’s complete systems.

Ericsson is also forming a wholly owned company
dedicated to support Internet services in mobile and
multiservice networks, Ericsson Internet Applications
and Solutions AB. At the same time, the division Internet
Applications is dissolved, and Executive Vice President
Haijo Pietersma will leave Ericsson. The Internet Solutions
organization is transferred to division Global Services.

Outlook for year 2001
A more uncertain economic environment and a more
cautious capital market contribute to more uncertainty
also in our industry. However, we remain optimistic
about our business.

We have won most of the contracts for the next
generation networks. Therefore we are increasing
investments to secure our fast start in 3G.

For the first quarter 2001, we see continued strong

growth for systems and lower sales for phones.
Overall, we expect to increase sales by around 15 percent
for comparable units. Income before tax is expected
to be around zero, affected by operating losses in

Annual Report 2000 Financial Statements

Proposed disposition of earnings
Available for distribution by the shareholders at the
Annual General Meeting are SEK 21,128,328,952.

The Board of Directors proposes that earnings be distributed as follows:

An unchanged dividend of SEK 0:50
per share to be paid to shareholders
duly registered on the Record date

The remainder to be retained within
the business

Total amount available

SEK 3,954,289,352

SEK 17,174,039,600

SEK 21,128,328,952

1,804,000 Ericsson B shares held as treasury stock by the parent company
are not entitled to a dividend.

Stockholm January 26, 2001
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Tom Hedelius
Deputy chairman

Göran Lindahl

Peter Sutherland

Göran Engström

Lars Ramqvist
Chairman

Marcus Wallenberg
Deputy chairman

Sverker Martin-Löf

Clas Reuterskiöld

Eckhard Pfeiffer

Niall FitzGerald

Jan Hedlund

Per Lindh

Kurt Hellström
President and CEO

Annual Report 2000 Financial Statements

Consolidated
Income
Statement

Years ended December 31, SEK m.

Note

2000

1999

1998

Net sales

Cost of sales

Gross margin

Research and development and other technical expenses

Selling expenses

Administrative expenses

Other operating revenues

Share in earnings of associated companies

Operating income

Financial income

Financial expenses

Income after financial items

Minority interest in income before taxes

Income before taxes*

Taxes

Income taxes for the year

Minority interest in taxes

Net income

Earnings per share, basic SEK

Earnings per share, fully diluted, SEK

*Capital gains/losses, net of minority, included in income before taxes

Operational gains/losses

Non-operational gains/losses

Ratios – Income statements items as percentage of net sales

Gross margin

Operating expenses

Operating margin

Adjusted operating margin**

Return on sales

Other Ratios

Return on capital employed

Capital employed turnover

Accounts receivable turnover

Inventory turnover

**Operating income adjustments for items affecting comparability

Capital gain Juniper Networks

Non-operational gains/losses

Pension premium refund

Additional restructuring provision in Consumer Products

Total adjustments

Adjusted operating income

273,569

–180,392

93,177

–41,921

–34,706

–13,311

215,403

–125,881

89,522

–33,123

–30,005

–11,278

184,438

–105,251

79,187

–28,027

–24,108

–8,922

27,652

274

31,165

2,929

–4,449

29,645

–953

28,692

–7,998

324

21,018

2.67

2.65

25,229

19,296

5,933

34.1%

32.9%

11.4%

6.1%

12.5%

2,224

250

17,590

2,273

–2,971

16,892

–506

16,386

–4,358

102

12,130

1.55

1.54

1,843

2,171

–328

41.6%

34.5%

8.2%

8.3%

9.2%

995

148

19,273

2,228

–2,465

19,036

–826

18,210

–5,409

240

13,041

1.67

234

876

–642

42.9%

33.1%

10.4%

10.8%

11.7%

26.5%

19.0%

24.9%

2.1

3.9

5.2

15,383

5,933

1,100

–8,000

14,416

16,749

2.1

3.7

4.8

–

–328

–

–328

17,918

2.1

3.8

4.2

–

–642

–

–642

19,915

Annual Report 2000 Financial Statements

Consolidated
Balance Sheet

December 31, SEK m.

Note

2000

1999

Assets
Fixed assets

Intangible assets

Tangible assets

Financial assets

Equity in associated companies

Other investments

Long-term customer financing

Other long-term receivables

Current assets

Inventories

Receivables

Accounts receivable - trade

Short-term customer financing

Other receivables

Short-term cash investments

Cash and bank

Total assets

7, 23, 25

12,833

22,378

2,790

2,484

6,364

3,657

10,548

24,719

2,712

1,751

6,657

4,972

50,506

51,359

43,933

25,701

74,973

1,267

44,029

18,779

16,827

63,584

1,749

31,227

13,415

15,593

199,808

151,269

250,314

202,628

Assets pledged as collateral

435

2,068

Annual Report 2000 Financial Statements

December 31, SEK m.

Note

2000

1999

Consolidated
Balance Sheet

Stockholders’ equity, provisions and liabilities
Stockholders’ equity

Capital stock

Reserves not available for distribution

Restricted equity

Retained earnings

Net income

Non-restricted equity

7,910

32,600

40,510

30,158

21,018

51,176

91,686

4,893

32,618

37,511

19,535

12,130

31,665

69,176

Minority interest in consolidated subsidiaries

2,764

2,182

Provisions

27,650

22,552

Long-term liabilities

Notes and bond loans

Convertible debentures

Liabilities to financial institutions

Other long-term liabilities

Current liabilities

Current maturities of long-term debt

Current liabilities to financial institutions

Advances from customers

Accounts payable — trade

Income tax liabilities

Other current liabilities

17, 20

15,884

4,346

1,320

744

22,294

3,188

12,289

6,847

30,156

5,080

48,360

105,920

17,486

5,453

1,448

567

24,954

1,491

10,519

6,437

21,618

2,397

41,302

83,764

Total stockholders’ equity, provisions and liabilities1

250,314

202,628

Of which interest-bearing provisions and liabilities 46,563 (45,020) (current portion 15,477 (12,010))

Contingent liabilities

11,184

10,127

Annual Report 2000 Financial Statements

Consolidated Statements
of Cash Flows

Years ended December 31, SEK m.

Operations
Net income

Adjustments to reconcile net income to cash

Minority interest in net income

Undistributed earnings of associated companies

Depreciation and amortization

Capital gains on sale of fixed assets

Taxes

Changes in operating net assets

Inventories

Customer financing, short-term and long-term

Accounts receivable — trade and other operating assets

Provisions and other operating liabilities

Cash flow from operating activities

Investments

Investments in tangible assets

Sales of tangible assets

Acquisitions/sales of other investments, net

Net change in capital contributed by minority

Other

Cash flow from investing activities

Cash flow before financing activities

Financing

Changes in current liabilities to financial institutions, net

Issue of convertible debentures

Proceeds from issuance of other long-term debt

Repayments of long-term debt

Gain on sale of own stock options and convertible debentures1

Repurchase of own stock 1

Dividends paid

Cash flow from financing activities

Effect of exchange rate changes on cash

Net change in cash

Cash and cash equivalent, beginning of period

Cash and cash equivalent, end of period

Note

2000

1999

1998

21,018

12,130

13,041

629

–70

10,936

–25,278

1,859

–18,305

946

–19,545

16,962

–10,848

–12,293

6,620

22,643

264

17,244

404

7,382

–1,399

–947

714

722

–19,562

13,463

12,925

–9,085

625

–4,768

134

–2,270

–15,364

586

–359

6,081

–230

–2,301

–2,056

–5,727

–10,695

9,054

7,394

–8,965

632

–8,865

–56

–17,219

6,396

–2,439

–9,825

799

1,048

1,760

–1,296

2,018

–386

–4,179

–236

438

6,598

29,008

35,606

3,854

15,163

–1,515

–

–4,010

13,550

–336

10,775

18,233

29,008

955

3,366

–1,332

–

–3,800

–792

–277

–10,894

29,127

18,233

Annual Report 2000 Financial Statements

Years ended December 31, SEK m.

Note

2000

1999

1998

Parent Company
Income Statement

Net sales

Cost of sales

Gross margin

Research and development and other technical expenses

Selling expenses

Administrative expenses

Other operating revenues

Operating income

Financial income

Financial expenses

Income after financial items

Appropriations to (–)/transfers from untaxed reserves

Changes in depreciation in excess of plan

Changes in other untaxed reserves

Contributions from subsidiaries, net

Income before taxes

Income taxes for the year

Net income

1,195

–1,669

–474

–166

–1,581

–1,142

3,061

–302

12,352

–3,090

8,960

144

700

15,375

–10,944

4,431

16,836

–11,657

5,179

–5,386

–4,116

–2,580

3,155

–4,496

9,915

–2,202

3,217

371

–2,691

–2,320

5,292

–6,324

–2,370

–1,889

2,666

–2,738

6,052

–1,942

1,372

204

–174

4,749

9,804

6,189

6,151

–671

9,133

–623

5,566

–419

5,732

Annual Report 2000 Financial Statements

Parent Company
Balance Sheet

December 31, SEK m.

Note

2000

1999

Assets
Fixed assets

Intangible assets

Tangible assets

Financial assets

Investments

Subsidiaries

Associated companies

Other investments

Receivables from subsidiaries

Long-term customer financing

Other long-term receivables

Current assets

Inventories

Receivables

Accounts receivable — trade

Short-term customer financing

Receivables from subsidiaries

Other receivables

Short-term cash investments

Cash and bank

7, 25

8, 9

35,353

1,008

22,682

6,320

1,370

66,946

102

629

35,757

9,648

17,361

8,501

72,001

828

24,364

1,039

17,925

6,320

2,129

52,714

952

2,402

178

22,336

9,184

12,062

5,028

52,142

Total assets

138,947

104,856

Assets pledged as collateral

322

1,845

Annual Report 2000 Financial Statements

December 31, SEK m.

Note

2000

1999

Parent Company
Balance Sheet

Stockholders’ equity, provisions and liabilities
Stockholders’ equity

Capital stock

Share premium reserve

Revaluation reserve

Statutory reserve

Restricted equity

Retained earnings

Net income

Non-restricted equity

Untaxed reserves

Provisions

Long-term liabilities

Notes and bond loans

Convertible debentures

Liabilities to financial institutions

Liabilities to subsidiaries

Other long-term liabilities

Current liabilities

Current maturities of long-term debt

Current liabilities to financial institutions

Advances from customers

Accounts payable — trade

Liabilities to subsidiaries

Income tax liability

Other current liabilities

17, 20

12, 17

7,910

3,685

6,741

18,356

11,995

9,133

21,128

39,484

4,893

1,941

9,681

16,535

10,734

5,566

16,300

32,835

5,262

5,406

2,833

5,513

15,884

4,346

322

13,345

33,934

2,713

4,756

527

45,360

265

3,779

57,434

17,486

5,453

370

3,454

26,816

587

929

252

821

25,601

229

5,867

34,286

Total stockholders’ equity, provisions and liabilities

138,947

104,856

Contingent liabilities

13,406

11,611

Annual Report 2000 Financial Statements

Parent Company
Statement of Cash Flows

Years ended December 31, SEK m.

Note

2000

1999

1998

9,133

5,566

5,732

Operations
Net income

Adjustments to reconcile net income to cash

Depreciation and amortization

Capital gains (–)/losses on sale of fixed assets

Appropriations to/transfers from (–) untaxed reserves

Unsettled contributions from (–)/to subsidiaries

Unsettled dividends

Changes in operating net assets

Inventories

Customer financing, short-term and long-term

Accounts receivable — trade and other operating assets

Provisions and other operating liabilities

Cash flow from operating activities

Investments

Investments in tangible assets

Sales of tangible assets

Acquisitions/sales of other investments, net

Lending, net

Other

Cash flow from investing activities

–2,268

–144

–190

–3,800

–514

4,023

–771

5,527

–91

331

–3,174

–24,086

1,705

–25,315

322

2,320

–5,200

–3,904

655

–6,188

–155

1,752

–4,791

–368

1,810

–5,185

–4,397

–1,705

–9,845

442

1,022

–30

–4,700

–2,290

164

–164

5,133

–237

5,072

–396

247

–5,978

–4,706

–10,833

Cash flow before financing activities

–19,788

–14,636

–5,761

Financing

Changes in current liabilities to financial institutions, net

Changes in current liabilities to subsidiaries

Proceeds from issuance of other long-term debt

Repayments of long-term debt

Repurchase of own stock

Dividends paid

Other

Cash flow from financing activities

Net change in cash

Cash and cash equivalent, beginning of period

Cash and cash equivalent, end of period

3,797

29,628

–

–55

–386

–3,918

–506

28,560

8,772

17,090

25,862

890

11,120

13,323

–556

–

–3,904

456

21,329

6,693

10,397

17,090

–206

–4,181

2,645

–428

–

–3,410

269

–5,311

–11,072

21,469

10,397

Annual Report 2000 Financial Statements

Notes to the financial statements

Accounting principles

The consolidated financial statements of
Telefonaktiebolaget LM Ericsson and its subsidiaries
(“the Company”) are prepared in accordance with
accounting principles generally accepted in Sweden,
thereby applying the Swedish Financial Accounting
Standards Council’s (RR) recommendations. These
accounting principles differ in certain respects from
those in the United States. For a description of major
differences, see Note 24.

A Principles of consolidation
The consolidated financial statements include the
accounts of the Parent Company and all subsidiaries.
Subsidiaries are all companies in which the Company
has an ownership and directly or indirectly has a voting
majority or by agreement has a decisive influence.
Intercompany transactions have been eliminated.
The consolidated financial statements have been
prepared in accordance with the purchase method,
whereby consolidated stockholders’ equity includes
equity in subsidiaries and associated companies earned
only after their acquisition.

In the consolidated Income Statement, minority
interests are, in deviation from the Swedish Financial
Accounting Standards Council’s recommendation RR01,
divided into two items; share in income before taxes
and share in taxes. The reason is that this method,
considering the significant minority interest holdings
in the group during the last years, gives a more fair
view of the important measure Income before taxes.

Material investments in associated companies, where

voting stock interest is at least 20 percent but not
more than 50 percent, are accounted for according to
the equity method. Ericsson’s share of income before
tax in these companies is reported in item “Share in
earnings of associated companies”, included in the
Operating Margin. Taxes are included in item “Taxes”.
Unrealized internal profits in inventory in associated
companies purchased from subsidiaries are eliminated in
full in the consolidated accounts. Investments in
associated companies are shown at equity after
adjustments for unrealized intercompany profits and
unamortized goodwill (see (B) below).

Undistributed earnings of associated companies

included in consolidated restricted equity are reported
as “Equity proportion reserve”. Minor investments in
associated companies and all other investments are

accounted for as Other investments, and carried at the
lower of cost or fair market value.

B Goodwill
Goodwill, positive and negative, resulting from
acquisitions of consolidated companies is amortized/
reversed according to individual assessment of each item’s
estimated economic life, resulting in amortization
periods of up to 20 years. Depending on the nature of
the acquisition, goodwill amortizations are reported
under “Research and development and other technical
expenses”, “Selling expenses” or ‘‘Administrative
expenses”.

C Translation of foreign currency financial

statements
For most subsidiaries and associated companies, the
local currency is the currency in which the companies
primarily generate and expend cash, and is thus
considered their functional (business) currency. Their
financial statements plus goodwill related to such
companies, if any, are translated to SEK using the
current method, whereby any translation adjustments
are reported directly to stockholders’ equity. When a
company accounted for in accordance with these
principles is sold, accumulated translation adjustments
are included in the consolidated income.

Financial statements of companies with finance

activities or other companies, having such close relations
with the Swedish operations that their functional currency
is considered to be the Swedish krona, are labeled
“integrated companies” and are translated using the
monetary method. Adjustments from translation of
financial statements of these companies are included in
the consolidated Income Statement (see Note 14).
Financial statements of companies operating for

example in countries with highly inflationary economies,
whose functional currency is considered to be another
currency than local currency, are translated in two
steps. In the first step, remeasurement is made into the
functional currency. Gains and losses resulting from
this remeasurement are included in the consolidated
Income Statement. In the second step, from the
functional currency to Swedish kronor, balance sheet
items are translated at year-end exchange rates, and
income statement items at the average rates of exchange
during the year. The resulting translation adjustments

Annual Report 2000 Financial Statements

Notes to the
financial statements
Accounting principles

are reported directly against stockholders’ equity. In
our opinion, the remeasurement method, which is in
accordance with U.S. GAAP FAS 52, gives a more fair
view of these financial statements, since companies
concerned operate in de facto US dollar-, Euro- or
Deutchmark-based economies.

between actual and hedged flows are recognized in
income as soon as they are identified.

Financial assets and liabilities, including unrealized

gains and losses on derivatives, are reported net in
the Balance Sheet only when accounting principles so
permit, for example when ISDA-agreements are signed.

D Translation of foreign currency items in

individual companies
In the financial statements, receivables and liabilities
in foreign currencies have been translated at year-end
exchange rates.

Gains and losses on foreign exchange are divided into

operational and financial. Net operational gains and
losses are included in Cost of sales. Gains and losses
on foreign exchange attributable to financial assets are
included in financial income, and gains and losses related
to financial liabilities are included in financial expenses.
Translation effects related to permanent financing of

foreign subsidiaries are reported directly to
Stockholders’ equity, net of tax effects.

E Valuation of short-term cash investments and

derivatives
Short-term cash investments held by companies other
than Ericsson Treasury Services AB are valued at the
lowest of acquisition cost plus accrued interest and
market value.

Short-term cash investments and interest related

derivatives in Ericsson Treasury Services AB are valued
to the lowest of total acquisition cost and total market
value in accordance with the lower of cost or market
principle. Unrealized gains are reserved.

Derivative instruments are used mainly to hedge
financial interest and currency risks. Forward exchange
options and investments hedging certain positions have
been valued in a manner reflecting the accounting for
the hedged position. Interest-related derivatives linked
to specific investments or loans or which are applied to
hedge interest positions are valued in the same manner
as the hedged position.

Gains and losses from derivatives in Ericsson Treasury
Services AB are reported net as other financial income/
expenses. For other companies, gains and losses are
reported in the same manner as the underlying position.
When a transaction hedged in advance ceases to be
an exposure, the hedge is closed. Hereby deviations

F Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated
depreciation, adjusted with net value of revaluations.

Annual depreciation is reported as plan depreciation,
generally using the straight-line method, with estimated
useful lives of, in general, 40 years on buildings, 20 years
on land improvements, 3 to 10 years on machinery and
equipment, and up to 5 years on rental equipment.
Depreciation is included in Cost of Sales and in the
respective functional operating expenses.

G Inventories
Inventories are valued at the lower of cost or market
on a first-in, first-out (fifo) basis. Consideration has
been given to risks of obsolescence.

H Revenue recognition
Sales revenue is recorded upon delivery of products,
software and services according to contractual terms
and represent amounts realized, excluding value-added
tax, and are net of goods returned, trade discounts
and allowances.

Revenue from construction-type contracts is

recognized successively. If costs required to complete
such contracts are estimated to exceed remaining
revenues, provision is made for estimated losses.

For sales between consolidated companies, as a rule
the same pricing is applied as in transactions with other
customers, taking into account, however, that certain
costs do not arise in transactions between affiliated
companies.

I Research and development costs
Research and development costs are expensed as
incurred. Costs based on orders from customers are
included in Cost of sales.

J Leasing
Property leases with the company as lessee are normally
expensed over the term of the lease. The Company

Annual Report 2000 Financial Statements

Notes to the
financial statements
Accounting principles

M Employee stock options
Compensation costs of providing shares or rights to shares
are charged to the income statement over the vesting
period. The compensation cost is the difference
between the market price of the share at grant date
and the price to be paid by the employee.

When the options are exercised, in certain countries,

social security charges are to be paid on the value of
the employee benefit. During the vesting period,
preliminary social security charges are accrued. These
are reduced by income from hedging arrangements.

N Earnings per share
Basic earning per share are calculated by dividing net
income by the average number of shares outstanding
during the year.

Diluted earnings per share are calculated by dividing
adjusted net income by the sum of the average number
of shares outstanding plus all additional shares
that would have been outstanding if all convertible
debentures were converted and stock options are
exercised. Net income is adjusted by reversal of
interest expense for convertible debentures net of tax.

O Operations on commission basis reported in

the Parent Company
Ericsson Treasury Services AB and Ericsson Credit AB
conducted their operations on commission basis for the
Parent Company as in 1999.

The commission agreement between Ericsson

Telecom AB and the Parent Company, signed in 1987,
was cancelled as per January 1, 2000. Therefore, the
company is not included in the Parent Company figures.

applies the Swedish Financial Accounting Standards
Council’s recommendation No. 6 for material lease
contracts. Accordingly, certain leasing contracts are
capitalized and reported as acquisitions of tangible
assets and as other current liabilities and other long-
term liabilities.

K Deferred tax in untaxed reserves
The Company reports deferred taxes attributable to
temporary differences between the book value of assets
and liabilities and their tax value, and also deferred tax
receivables attributable to unutilized loss carryforwards
with a probability to be used greater than 50 percent.
Appropriations and Untaxed reserves are not reported

in the consolidated financial statements. Such items
reported by consolidated companies have been reversed,
applying the current tax rate applicable in each country.
The deferred tax so calculated is shown in the
consolidated income statement as Deferred taxes.
The after-tax effect is stated in the income statement
as part of net income for the year, and in the balance
sheet as restricted stockholders’ equity.

The accumulated deferred tax liability is adjusted

each year by applying the current tax rate in each
country and is reported in the consolidated balance
sheet as Deferred tax. An adjustment of deferred tax
liability attributable to changes in tax rates is shown
in the consolidated income statement as a part of the
deferred tax expense for the period.

L Statement of cash flows
Statement of Cash Flows is prepared principally in
accordance with recommendation RR07 from the
Swedish Financial Accounting Standards Council.
The Statement of Cash Flows shows changes in the
cash position during the year attributable to operations,
investing activities and financing activities respectively.
Foreign subsidiaries’ transactions are translated at the

average exchange rate during the period. Subsidiaries
purchased and/or sold, net of cash acquired/sold, are
reported as cash flow from investment activities and do
not affect reported cash flow from operations.

In preparation of the Statement of Cash Flows,

changes in deferred tax assets and liabilities have been
taken into account. Cash consists of cash, bank and
short-term investments due within 12 months.

Annual Report 2000 Financial Statements

Notes to the
financial statements

In millions of Swedish kronor
(except per share amounts),
unless otherwise stated.

Net sales by market area and business segment

Market areas

Consolidated

2000

1999

1998

Western Europe*

100,234

85,329

75,650

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

37,701

29,736

21,806

35,193

25,175

18,560

44,118

30,263

25,537

56,323

44,900

42,885

273,569 215,403 184,438

*Of which Sweden

8,732

7,551

8,509

*Of which EU

94,293

80,345

71,094

Parent Company

2000

1999

1998

Commissions, license fees
and other operating revenues

Net losses (–) on sales of
tangible assets

Total

3,128

3,210

2,735

-67

–55

–69

3,061

3,155

2,666

Financial income and expenses

Consolidated

Financial Income

Result from securities and
receivables accounted for
as fixed assets

Other interest income and
similar profit/loss items

Parent Company

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU

2000

1999

1998

7,832

8,839

1,037

3,075

2,476

Total

–

107

273

2,036

2,159

202

2,362

2,957

Financial Expenses

Interest expenses and
similar profit/loss items

1,195

15,375

16,836

Total

–

2,346

8,047

2,062

7,903

Financial Net

2000

1999

1998

1,624

1,426

892

1,305

2,929

847

2,273

1,336

2,228

4,449

–1,520

2,971

–698

2,465

–237

2000

1999

1998

Business segments

Consolidated

2000

1999

Network operators and
service providers

Consumer products

Enterprise solutions

Other operations

194,074 149,943

56,343

46,444

17,479

17,345

19,027

16,750

Less: inter segment sales

–13,354

–15,079

Total

273,569 215,403

Parent Company sales are mainly related to business segment Network
operators and service providers.

Other operating revenues

Consolidated

2000

1999

1998

Gains on sales of intangible
and tangible assets

Losses on sales of intangible
and tangible assets

Gains on sales of investments
and operations

Losses on sales of investments
and operations

Sub-total

Commissions, license fees
and other operating revenues

Total

2,107

307

–731

–244

–303

24,133

1,733

1,208

–231

–397

25,278*

1,399

2,374

825

27,652

2,224

–764

230

765

995

Operational gains/losses
Network operators and service providers
Consumer products
Enterprise solutions
Other operations
Non operational gains/losses
Total

17,817
911
99
545
5,906
25,278

Annual Report 2000 Financial Statements

Parent Company

Financial Income

Result from participations
in subsidiaries

Dividends*

6,531

7,750

4,026

Net gains on sales

228

–

468

Result from participations
in associated companies

Dividends

Net gains on sales

125

1,925

122

123

Result from other securities
and receivables accounted
for as fixed assets

Dividends

Net gains on sales

182

–

Other interest income and
similar profit/loss items

Subsidiaries

Other**

Total

2,253

1,106

1,365

553

892

658

12,352

9,915

6,052

Financial Expenses

Losses on sales of participations
in subsidiaries

Losses on sales of participations
in associated companies

–

Interest expenses and similar
profit/loss items

109

–

Subsidiaries

Other

Other financial expenses

Total

Financial Net

1,619

1,452

3,090

9,262

887

1,104

1,197

2,202

7,713

824

1,942

4,110

Dividends from Ericsson Cables Holding AB, in 1998 of SEK 1,420 m. has been
reported as a net write-down of the investment in the company.
Of the total amount, SEK –596 m. in 2000, SEK –4 m. in 1999, SEK –150 m. in
1998 is attributable to hedge of net investments in foreign subsidiaries.

Swedish companies’ interest expenses on pension liabilities are included
in the interest expenses shown above.

Income taxes for the year

Intangible assets

Notes to the
financial statements

Licenses,
trademarks and

Patents and
purchased
research
and

Consolidated

similar rights development Goodwill

Total

Acquisition costs

Opening balance

Acquisitions

Balances regarding
acquired and
sold companies

Sales/disposals

Translation difference
for the year

1,423

105

1,170

11,136

13,729

2,309

2,503

–4

–175

–6

–34

–26

–27

–36

–236

908

982

Closing balance

1,410

1,232

14,300

16,942

Accumulated depreciation

Opening balance

–1,159

–405

–1,617

–3,181

Depreciation for
the year

Balances regarding
acquired and
sold companies

Sales/disposals

Translation difference
for the year

–120

–98

–761

–979

109

–46

–7

151

–60

–113

Closing balance

–1,213

–477

–2,419

–4,109

Net carrying value

197

755

11,881

12,833

Parent Company

Acquisition costs

Opening balance

Acquisitions

Sales/disposals

Closing balance

Accumulated depreciation

Opening balance

Depreciation for the year

Sales/disposals

Closing balance

Net carrying value

Patents, licenses,
trademarks and similar rights

457

–

–346

111

–401

–23

346

–78

Consolidated

2000

1999

1998

Income tax current

Income tax deferred

–9,059

–4,756

–5,214

1,061

398

–195

Tax on profit for the year

–7,998

–4,358

–5,409

As explained under Accounting Principles (K), the Company reports
deferred taxes attributable to untaxed reserves. The Company also
reports deferred taxes attributable to temporary differences between
the book values of assets and liabilities and their tax values.

In addition, the Company reports deferred tax assets attributable to
unutilized loss carryforwards, if the likelihood that they will be used is
deemed to be greater than 50 percent. At December 31, these
unutilized loss carryforwards amounted to SEK 1,059 m. The final
years in which these loss carryforwards can be utilized are shown in the
following table. The Parent Company had no unutilized loss
carryforwards.

Year of expiration

2001

2002

2003

2004

2005

2006 or later

Total

Amount

240

624

1,059

The Parent Company’s deferred taxes for the period amount to
SEK 105 m., SEK 491 m. 1999, and SEK –158 m. 1998.

Earnings per share

Consolidated

2000

1999

1998

Earnings per share, basic

Net income

21,018

12,130

13,041

Average number of shares
outstanding (millions)

7,869

2.67

7,817

1.55

7,801

1.67

Earnings per share, fully diluted

Net income

21,018

12,130

13,041

Interest expenses on
convertible debentures,
net of income taxes

Net income after
full conversion

Average number of shares
after full conversion and
exercise of stock options
(millions)

207

185

265

21,225

12,315

13,306

8,004

2.65

7,987

1.54

7,988

1.67

Annual Report 2000 Financial Statements

Notes to the
financial statements

Tangible assets

Consolidated

Acquisition costs

Opening balance

Acquisitions

Balances regarding acquired
and sold companies

Sales/disposals

Reclassifications

Translation difference for the year

Closing balance

Accumulated depreciation

Opening balance

Depreciation for the year

Balances regarding acquired and
sold companies

Sales/disposals

Reclassifications

Translation difference for the year

Land and
buildings

Machinery

Other
equipment

10,073

390

–43

–4,762

332

272

6,262

–2,429

–407

1,349

–67

–71

16,111

3,499

–241

–2,122

1,474

473

19,194

–9,980

–5,488

232

1,879

–263

25,000

5,525

–265

–4,527

1,038

905

27,676

–15,990

–4,061

169

3,050

–575

Closing balance

–1,609

–13,555

–17,405

Accumulated revaluations, net

Opening balance

Depreciation for the year

Sales/disposals

Translation difference for the year

Closing balance

303

–1

–75

243

–

Construction
in process
and advance
payments

1,628

2,879

–2

–133

–2,844

1,569

–

Total

52,812

12,293

–551

–11,544

1,691

54,701

–28,399

–9,956

417

6,278

–909

–32,569

306

–1

–75

246

Net carrying value

4,896

5,639

10,274

1,569

22,378

Parent Company

Acquisition costs

Opening balance

Acquisitions

Sales/disposals

Reclassifications

Closing balance

Accumulated depreciation

Opening balance

Depreciation for the year

Sales/disposals

Closing balance

Accumulated revaluations, net

Opening balance

Sales/disposals

Closing balance

Net carrying value

Land and
buildings

Machinery

Other
equipment

Construction
in process
and advance
payments

366

–416

–63

–5

–6

425

–

–258

—

167

–378

–3

225

–156

–

1,306

–1,246

130

–952

–26

910

–68

–

118

–66

–56

–

Total

2,215

–1,986

320

–1,393

–34

1,203

–224

–6

Annual Report 2000 Financial Statements

Financial assets

Notes to the
financial statements

Equity in associated companies

Other financial assets

Consolidated

Opening balance

Share in earnings

Taxes

Translation difference for the year

Dividends

Acquisitions

Sales

Closing balance

2,712

274

–99

–138

–29

Consolidated

Acquisition costs

Opening balance

Acquisitions/credits granted

Other
investments

Other
Long-term
customer
long-term
financing receivables

1,742

3,469

9,513

4,764

5,100

1,377

Sales/repayments

–2,265

–5,962

–2,819

Translation difference
for the year

111

2,790

Closing balance

2,975

8,426

3,744

Goodwill, net, constitutes SEK 76 m. (125) of the investments.

Dividends received from companies accounted for under the equity

method were SEK 131 m. in 1999 and SEK 12 m. in 1998.

Parent Company

Investments

Other
Associated
Subsidiaries companies investments

Accumulated revaluations

Opening balance

Revaluations for the year

Closing balance

–

Opening balance

24,364

1,039

Acquisitions and stock issues

Shareholders’ contribution

Revaluations for the year

Reclassifications

Sales

3,125

7,874

–

–2

–8

–

–22

–48

Closing balance

35,353

1,008

–

–6

Accumulated write-downs 1

Opening balance

–12

–2,856

–128

Write-downs for the year

Sales/repayments

Translation difference
for the year

Closing balance

–480

–11

–357

1,210

–18

–59

–521

–2,062

–2

–87

Net carrying value

2,484)3

6,364

2
3,657

Write-downs are included in Selling expenses due to the close relation to operations.
Of which deferred tax assets SEK 1,034 m. (SEK 964 m. 1999).
Market value per December 31, 2000 for listed shares was SEK 7,630 m.

Parent Company

Acquisition costs

Opening balance

Acquisitions/credits granted

Sales/repayments

Translation/revaluation
difference for the year

Closing balance

Accumulated write-downs

Opening balance

Sales/repayments

Write-downs for the year

Closing balance

Other
Long-term
customer
long-term
financing receivables

8,072

4,623

–5,240

–

7,455

–1,752

967

–350

–1,135

2,129

211

–

–970

1,370

–

Net carrying value

6,320

1,370

Annual Report 2000 Financial Statements

Notes to the
financial statements

Investments

The following listing shows certain shareholdings owned directly and
indirectly by the Parent Company. A complete listing of shareholdings,
prepared in accordance with the Swedish Annual Accounts Act and

filed with the Swedish Patent and Registration Office, may be obtained
upon request to: Telefonaktiebolaget LM Ericsson, Corporate Financial
Reporting and Analysis, SE-126 25 Stockholm, Sweden.

Shares directly owned by the parent company

Type

Company

Reg. No.

Domicile

Percentage of
ownership

Par
value

Subsidiaries
I
I
I
I
I
I
I
I
I
I
I
I
I
II
II
II
II
III
III

556137-8646
556090-3212
556028-1627
556056-6258
556251-3258
556381-7609
556251-3266
556250-2046
556329-5657
556250-9454
556212-7398
556549-1098
556577-9799
556018-0191
556030-9899
556044-9489
556381-7666
556329-5673
556326-0552

Ericsson Utvecklings AB
Ericsson Enterprise AB
Ericsson Microwave Systems AB
Ericsson Radio Systems AB
Ericsson Telecom AB
Ericsson Gämsta AB
Ericsson Mobile Communications AB
Ericsson Radio Access AB
Ericsson Sverige AB
Ericsson Business Consulting AB
Ericsson Software Technology AB
Ericsson Microelectronics AB
EHPT Sweden AB
SRA Communication AB
AB Aulis
Ericsson Cables Holding AB
LM Ericsson Holding AB
Ericsson Treasury Services AB
Ericsson Credit AB
Other
Ericsson Austria AG
LM Ericsson A/S
Oy LM Ericsson Ab
Ericsson France S.A.
Ericsson GmbH
Ericsson Communications Systems Hungary Ltd.
Ericsson Treasury Ireland Ltd.
Ericsson Financial Services Ireland
Ericsson S.p.A.
Ericsson A/S
Ericsson Corporatio AO
Ericsson AG
Ericsson Holding Ltd.
Other
Ericsson Holding II Inc.
Cía Ericsson S.A.C.I.
Teleindustria Ericsson S.A.
Other
Teleric Pty Ltd.
Beijing Ericsson Mobile Communication Co. Ltd.
Ericsson Ltd.
Ericsson (China) Company Ltd.
Nanjing Ericsson Communication Co. Ltd.
Ericsson Communication Private Ltd.
Ericsson Telecommunications Sdn. Bhd.
Ericsson Telecommunications Pte. Ltd.
Ericsson Taiwan Ltd.
Ericsson (Thailand) Ltd.
Other

Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Austria
Denmark
Finland
France
Germany
Hungary
Ireland
Ireland
Italy
Norway
Russia
Switzerland
United Kingdom
Europe (excluding Sweden)
United States
Argentina
Mexico
United States, Latin America
Australia
China
China
China
China
India
Malaysia
Singapore
Taiwan
Thailand
Other countries

I
I
I
II
I
I
III
III
II
I
I
I
II

II
I
I

II
I
I
I
I
I
I
I
I
I

Associated companies
III
III
I

AB LM Ericsson Finans
Ericsson Project Finance AB
Ericsson Nikola Tesla
Other

556008-8550
556058-5936

Sweden
Sweden
Croatia

Annual Report 2000 Financial Statements

100
100
100
100
100
100
100
100
100
100
100
100
81
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
72
100
100
100
100
–
88)1
100
100
–
100
25)2
100
100
51
100
70
100
80
49 )3
–

Total

90 )4
91)5
49
–

Total

10
360
30
50
100
162
361
20
100
85
1
60
–
47
14
455
105
1
5
–
60
90
80
144
39
800
81
143
18,421
156
950
–
74
–
–
5
n/a
–
20
5
2
50
11
525
2
–
240
15
–

–

29
425
196
–

–

Carrying
value

17
335
151
636
2,520
1,024
5,516
41
100
252
67
60
881
145
6
969
1,122
2
5
708
662
216
195
485
341
120
3,924
1,403
105
194
4
–
757
79
10,591
10
572
135
99
36
2
369
76
105
4
1
19
4
288

35,353

41
510
330
127

1,008

Notes to the
financial statements

Investments continued

Shares owned by subsidiaries

Type

Company

Subsidiaries
I
I
I
I
I
II
II
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

Ericsson Cables AB
Ericsson S.A.
MET S.A.
LM Ericsson Ltd.
Ericsson Telecomunicazioni S.p.A.
Ericsson Holding International B.V.
Ericsson Holding Netherland B.V.
Ericsson Telecommunicatie B.V.
Ericsson España S.A.
Ericsson Ltd.
Ericsson Mobile Communications (U.K.) Ltd.
Ericsson Communications Inc.
Advanced Computer Communications Inc.
Ericsson Inc.
Ericsson NetQual Inc.
Ericsson WebCom Inc.
Ericsson Wireless Communication Inc.
Ericsson IP Infrastructure Inc.
Ericsson Amplifier Technologies Inc.
Ericsson Telekomunikasyon A.S.
Ericsson Telecomunicações S.A.
Ericsson Servicos de Telecomunicações Ltda
Ericsson Telecom S.A. de C.V.
Nippon Ericsson K.K.
Ericsson Mobile Communications Sdn Bhd Malaysia
Ericsson Consumer Products Asia Pacific Pte Ltd.
Ericsson Australia Pty. Ltd.

Associated Companies
Symbian Ltd.
I

Key to type of company

I
II
III

Manufacturing, distributing and development companies
Holding companies
Finance companies

Reg. No.

Domicile

Percentage of
ownership

556000-0365

Sweden
France
France
Ireland
Italy
The Netherlands
The Netherlands
The Netherlands
Spain
United Kingdom
United Kingdom
Canada
USA
USA
USA
USA
USA
USA
USA
Turkey
Brazil
Brazil
Mexico
Japan
Malaysia
Singapore
Australia

United Kingdom

100
100
100
100
72
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
98
98
100
90
100
100
100

Through subsidiary holdings, total holdings amount to 100% of Ericsson Holding II Inc.
Through subsidiary holdings, total holdings amount to 49% of Beijing Ericsson
Mobile Communications Co. Ltd., but the voting power is in excess of 50%.
Through subsidiary holdings, total holdings amount to 100% of Ericsson (Thailand) Ltd.
Voting power is 40%.
Voting power is 49%.

The subsidiary, Ericsson S.p.A., is listed on the Milan stock exchange
in Italy.

Ericsson’s share of the market value as per December 31, 2000,
was SEK 8,278 m.

Inventories

Raw material, components and consumables

Manufacturing work in process

Finished products and goods for resale

Contract work in process

Less advances from customers

Inventories, net

2000

19,907

3,723

4,499

17,771

–1,967

43,933

Consolidated
1999

2000

Parent Company
1999

13,324

1,823

1,972

13,398

–4,816

25,701

–

–9

105

–

104

774

–31

952

Annual Report 2000 Financial Statements

Notes to the
financial statements

Accounts receivable — trade

Stockholders’ equity

Consolidated
1999

2000

Parent Company
1999
2000

Capital stock
Capital stock at December 31, 2000, consisted of the following:

Notes and
accounts receivable 74,591

63,380

–

2,292

Receivables from
associated companies

382

204

Total

74,973

63,584

102

110

2,402

A shares (par value SEK 1.00)

656,218,640

B shares (par value SEK 1.00)

7,254,116,972

Number of

shares Aggregate
par value

outstanding

656

7,254

7,910

7,910,335,612

Allowances for doubtful accounts amounting to SEK 2,014 m. (2,550)
and SEK 275 m. (479) in the Parent Company, which has reduced the
amounts shown above, include amounts for estimated losses based on
commercial risk evaluations.

Receivables and payables — subsidiaries

Parent Company

2000

1999

Long-Term Receivables*

Financial receivables

Current Receivables

Commercial receivables

Financial receivables

Total

Long-Term Liabilities*

Financial liabilities

Current Liabilities

Commercial liabilities

Financial liabilities

Total

22,682

17,925

1,548

2,989

34,209

19,347

35,757

22,336

648

2,296

44,712

23,305

45,360

25,601

The capital stock of the Company is divided into two classes: Class A
shares (par value SEK 1.00) and Class B shares (par value SEK 1.00).
Both classes have the same rights of participation in the net assets
and earnings of the Company. Class A shares, however, are entitled to
one vote per share while Class B shares are entitled to one thousandth
of one vote per share.

During the year 1,804,000 of the above stated Ericsson B shares

have been repurchased by the Parent Company.

Reserves not available for distribution
In accordance with statutory requirements in Sweden and certain other
countries in which the Company is operating, restricted reserves, not
available for distribution, are reported.

According to the Swedish Annual Accounts Act, tangible and financial
assets may be revalued, provided they have a reliable and lasting value
significantly greater than book value. Revaluation amounts must either
be used for stock issue/stock split or be appropriated to a revaluation
reserve. When assets are sold or discarded, the revaluation reserve
shall be reduced correspondingly.

Cumulative translation adjustments

Opening balance

13,345

3,454

Changes in cumulative translation adjustments

Closing balance

–2,115

1,975

–140

Changes in cumulative translation adjustments include changes regarding
recalculation of goodwill in local currency, SEK 779 m. (SEK 393 m),
net gain/loss (–) from hedging of investments in foreign subsidiaries,
SEK –360 m. (SEK 38 m.) and SEK 9 m. (SEK 1 m.) from sold/liquidated
companies.

Currency gains/losses resulting from translation of financial statements

of integrated companies are included in the following items in the
consolidated income statement:

Cost of sales

Financial income

Taxes

Total

2000

165

–41

125

1999

–11

–3

Including non-interest bearing receivables and liabilities, net, amounting to SEK 6,224
m. (11,772). Interest-free transactions involving current receivables and liabilities may
also arise at times.

Other receivables

Consolidated
1999

2000

Parent Company
1999
2000

Receivables in
associated companies 3,083

Prepaid expenses

Accrued revenues

Advance payments
to suppliers

Deferred tax assets

4,790

5,124

1,440

6,533

2,358

3,231

3,083

887

3,413

2,163

1,828

404

437

–

283

651

–

Other

Total

23,059

18,255

44,029

31,227

6,644

9,648

6,407

9,184

Annual Report 2000 Financial Statements

Stockholders’ equity continued

Changes in stockholders’ equity

Notes to the
financial statements

Consolidated

Opening balance

Repurchase of own stock

Stock dividend

Conversion of debentures

Capital discount

Proceeds from unclaimed
stock dividend shares

Dividends paid

Gains on sale of own options
and convertable debentures

Revaluation of fixed assets

Transfer between non-restricted
and restricted reserves

Changes in cumulative
translation adjustments

Net income 2000

Closing balance

Capital
stock

4,893

–

2,941

–

Equity
proportion
reserve

1,289

–

Other
restricted
reserves

31,329

–

–2,941

1,839

–105

–

–7

Total
restricted
equity

37,511

–

1,915

–105

–

–7

113

–893

–780

7,910

1,402

–

1,975

–

31,198

1,975

–

40,510

Non-
restricted
equity

31,665

–386

–

–3,919

2,018

–

780

–

21,018

51,176

Total

69,176

–386

1,915

–105

–3,919

2,018

–7

1,975

21,018

91,686

Of retained earnings, SEK 86 m. will be appropriated to reserves not
available for distribution, in accordance with the proposals of the
respective companies’ boards of directors. In evaluating the consolidated
financial position, it should be noted that earnings in foreign companies
may be subject to taxation when transferred to Sweden and that, in

some instances, such transfers of earnings may be limited by currency
restrictions.

Consolidated unrestricted retained earnings are translated at the

year-end exchange rate. Cumulative translation adjustments have been
distributed among unrestricted and restricted stockholders’ equity.

Parent Company

Opening balance

Repurchase of own stock

Stock dividend

Conversion of debentures

Capital discount

Proceeds from unclaimed
stock dividend shares

Dividends paid

Net income 2000

Closing balance

Capital
stock

4,893

–

2,941

–

Total

premium Revaluation
reserve

reserve)1

Statutory
reserve

restricted Disposition
reserve

equity

Other
retained
earnings

Non-
restricted
equity

Total

1,941

9,681

16,535

100

16,200

16,300

32,835

–

1,839

–95

–

–2,941

–

1,915

–95

–

–386

–

1,915

–95

–3,919

9,133

7,910

3,685

6,741

18,356

100

21,028

21,128

39,484

1996 and prior years’ share premium is included in Statutory reserve.

Untaxed reserves

Parent Company

Accumulated depreciation in excess of plan

Intangible assets

Tangible assets

Total accumulated depreciation in excess of plan

Other Untaxed Reserves

Tax equalization reserve

Reserve for doubtful receivables

Income deferral reserve

Total other untaxed reserves

Total Untaxed Reserves

Jan. 1

Appropriations/
withdrawals(–)

Dec. 31

112

123

127

3,409

1,747

5,283

5,406

–

–74

–127

–389

446

–70

–144

3,020

2,193

5,213

5,262

Changes in other untaxed reserves in the Parent Company in 1999 consisted
of the following: withdrawal of tax equalization reserve, SEK 127 m. (127);

appropriations to reserve for doubtful receivables, SEK 2,289 m. (53) and
allocation to income deferral reserve SEK 529 m. (354).

Annual Report 2000 Financial Statements

Notes to the
financial statements

Provisions

Consolidated
1999

2000

Parent Company
1999
2000

During 2000, debentures in the amount of SEK 1,391 m. were
converted to 20,466,176 B shares. A conversion of all outstanding
debentures would increase the number of shares with 76,622,912.
During the period of January 1 through January 22, 2001, additional
debentures, carrying rights to dividends for 2000, were converted to
47,092 B shares. During the year a convertible debenture loan, issued
in 1993, fell due for payment. In 2000 debentures of SEK 525 m. were
converted to 49,414,094 B shares. A total of SEK 5 m was repaid on
the due date.

943

3,037

Stockholm Inter Bank Offered Rate

Pensions and similar
commitments

Deferred taxes

Warranty
commitments

Other provisions

9,318

3,080

4,432

10,820

8,398

1,220

3,607

9,327

Total

27,650

22,552

–

1,890

2,833

2,476

5,513

The pension liabilities include the Parent Company’s and other Swedish
companies’ obligations in the amount of SEK 7,344 m. (6,483) in
accordance with an agreement with the Pension Registration Institute
(PRI), which is covered by a Swedish law on safeguarding of pension
commitments. The Parent Company’s pension liabilities include an
obligation in the amount of SEK 634 m. (2,788) in accordance with its
agreement with PRI.

Other provisions include amounts for risks regarding off-balance
sheet customer financing, patent disputes, restructuring and changes
in technique and markets.

Current liabilities to financial institutions
and unused lines of credit

Liabilities to financial institutions consist of bank overdrafts, bank loans
and other short-term financial loans. Unused portions of short-term lines
of credit for the Company amounted to SEK 7,470 m. and for the Parent
Company SEK 705 m. In addition, the Parent Company had unused long-
term lines of credit amounting to SEK 9,499 m. The Company has also
unutilized commercial paper and medium term note programs
amounting to SEK 16,517 m.

Long-term liabilities

Other current liabilities

Consolidated
1999

2000

Parent Company
1999
2000

Consolidated
1999

2000

Parent Company
1999
2000

Notes and bond
loans (maturing
2001 – 2009)

Convertible
debentures
(maturing 2003)

Liabilities to
financial
institutions

Liabilities to
subsidiaries

Other

Total

15,884

17,486

15,884

17,486

Accrued expenses

33,854

27,233

Prepaid revenues

842

966

Liabilities to associated
companies

277

823

4,346

5,453

4,346

5,453

1,320

1,448

322

370

–

744

–

13,345

3,454

22,294

24,954

33,934

26,816

13,387

12,280

48,360

41,302

Other

Total

567

Assets pledged as collateral

Consolidated long-term liabilities maturing five years or more after the
balance sheet date:

Consolidated

Advances
Liabilities
to financial
from
institutions customers

Notes and bond loans and
liabilities to financial institutions

Other

Total

5,108

382

5,490

Real estate mortgages

Bank deposits

Other

Total

–

313

411

–

257

716

–

2,806

3,779

738

1,691

3,409

5,867

Total
2000

313

435

Total
2000

298

322

Total
1999

1,824

208

2,068

Total
1999

1,824

1,845

The Parent Company has one convertible debenture loan outstanding.
The loan, in the amount of SEK 6,000 m., was issued in 1997. Of the
total amount, convertible debentures amounting to SEK 4,859 m. were
sold to Ericsson employees, and SEK 1,141 m. were sold to the wholly
owned subsidiary AB Aulis. During the year the convertible debentures
were sold externally, and up until October 15, 2000, debentures were
offered at market price to new employees. The debentures which carry
an interest defined as 12 months STIBOR1 less 1.5 percent, are
convertible to B shares from November 19, 1999, up to and including
May 30, 2003. After the stock dividend and split in 2000, the
conversion price is SEK 59 per share.

In the 1997 consolidated accounts, a capital discount amounting to

SEK 816 m. was calculated, based on a market interest rate of 6.87
percent. The capital discount was credited to the Statutory reserve as
an addition to capital in the consolidated financial statements as well
as in the Parent Company (Share premium reserve) in accordance with
the Swedish Financial Accounting Standards Council’s recommendation
RR03. The capital discount is charged to income as interest expense
during the period of the loan.

Annual Report 2000 Financial Statements

Parent Company

Bank deposits

Other

Total

Advances
Liabilities
to financial
from
institutions customers

298

322

–

At December 31, 2000, the Parent Company had no pledged assets in
favor of subsidiaries. However, under certain conditions, it may pledge
collateral for certain subsidiaries’ pension obligations.

Contingent liabilities

Leasing

Notes to the
financial statements

Consolidated
1999

2000

Parent Company
1999
2000

Leasing obligations
Assets under Financial leases, recorded as tangible assets, consist of:

Guarantees

for customer
financing

for accounts
receivable

Other contingent
liabilities

7,551

7,497

5,802

6,756

1,607

1,104

–

1,000

Financial leases

Acquisition costs

Land and buildings

Machinery

2,026

1,526

7,604

3,855

Other equipment

Total

11,184

10,127

13,406

11,611

Of the guarantees assumed by the Parent Company, SEK 6,608 m. in 2000,
and SEK 4,582 m. in 1999, are related to subsidiaries.

Statement of Cash Flows

Consolidated
Interest paid in 2000 was SEK 3,416 m. (2,560) and interest received
was SEK 2,959 m. (1,516). Income taxes paid were SEK 5,780 m.
(5,563).

Non-cash transaction under “Cash flow from operating activities” not
reported separately is current year increase in pension liabilities of SEK
920 m. (SEK 342 m. in 1999 and SEK 855 m. in 1998).

Non-cash items in “Financing activities”
In 2000, conversions of debentures were made for SEK 76 m. (1999
SEK 15 m., 1998 SEK 4 m.).

Acquisitions/sales of other investments

Consolidated

Cash

Goodwill

Intangible assets

Other net assets

Purchase price for acquired subsidiaries

Cash in acquired subsidiaries

Other acquisitions

Sales

Acquisitions/sales, net

–35

–2,310

–2

–2,264

–969

25,841

22,643

Parent Company
Interest paid in 2000 was SEK 1,178 m. (693) and interest received
was SEK 1,854 m. (302). Income taxes paid were SEK 356 m. (354).

Specification of net change in cash attributable to cancellation of the

commission agreement with Ericsson Telecom AB as of January 1,
2000 is shown below. The change in cash, amounting to SEK -12 m.,
is shown as Acquisitions/sales of other investments, net.

2000

1999

193

410

629

184

268

291

215

532

141

238

Accumulated depreciation

Land and buildings

Machinery

Other equipment

Net carrying value

361

294

At December 31, 2000, future payment obligations for leases were
distributed as follows:

2001

2002

2003

2004

2005

2006 and later

Financial Operating
leases

leases

131

107

383

3,003

2,659

2,357

1,985

2,125

6,366

18,495

During the year, sale-leaseback transactions concerning real estate
have been made. The lease agreements have been classified as
operating leases, as the terms have been established at fair value and
for limited amounts.

Expenses for the year for leasing of assets were SEK 2,984 m. (SEK

1,647 m. in 1999 and SEK 1,770 m. in 1998), of which variable cost
SEK 208 m.

Leasing income
Some consolidated companies lease equipment, mainly telephone
exchanges, to customers. These leasing contracts vary in length from
1 to 14 years.

The acquisition value of assets leased to others under Operating
leases amounted to SEK 505 m. at December 31, 2000 (December
31, 1999: SEK 523 m.). Accumulated depreciation amounted to SEK
418 m. and net investments to SEK 87 m. at December 31, 2000
(December 31, 1999: SEK 422 m. and SEK 101 m., respectively).

Net investment in Sales-type leases and Financial leases amounted
to SEK 14 m. at December 31, 2000 (December 31, 1999: SEK 17 m.).
Future payments receivable for leased equipment are distributed as

Parent Company

Inventories

Customer financing, accounts receivable —
trade and other operating assets

Provisions and other operating liabilities

Sales of tangible assets

Lending, net

947

5,291

–5,192

391

–10,897

Proceeds from issuance of other long-term debt

9,456

follows:

2001

2002

2003

2004

2005 and later

Investments, other

Net change in cash

–8

–12

Less: interest

Net investment

Sales-type and Operating
leases
Financial leases

–

–3

–

Annual Report 2000 Financial Statements

Notes to the
financial statements

Reconciliation to accounting principles generally accepted in the U.S.

Elements of the Company’s accounting principles which differ significantly
from generally accepted accounting principles in the United States
(U.S. GAAP) are described below:

A Revaluation of assets
Certain tangible assets have been revalued at amounts in excess of
cost. Under certain conditions, this procedure is allowed in accordance
with Swedish accounting practice. Revaluation of assets in the primary
financial statements is not permitted under U.S. GAAP. Depreciation
charges relating to such items have been reversed to income.

B Capitalization of software development costs
In accordance with Swedish accounting principles, software development
costs are charged against income when incurred. The Company
practices U.S. GAAP FAS No. 86 “Accounting for the Cost of
Computer Software to be Sold, Leased or Otherwise Marketed” and
effective 1999, it has adopted SOP 98-1, “Accounting for the costs of
Computer Software Developed or Obtained for Internal use”.
According to these statements, development costs are capitalized after
the product involved has reached a certain degree of technological
feasibility. Capitalization ceases and amortization begins when the
product is ready for its intended use. The company has adopted an
amortization period for capitalized software to be sold of three years
and for capitalized software for internal use of three to five years.

Development costs for
software to be sold

Capitalization

Amortization

Write-downs

2000

1999

1998

10,349

7,898

7,170

–6,664

–4,460

–3,824

–

3,685

–989

2,449

–

3,346

Write-downs of previously capitalized software costs amounting to
SEK 989 m. was made in 1999 since one project was reclassified to
non-commercial.

Development costs for software
for internal use

Capitalization

Amortization

2000

990

–542

448

1999

1,463

–152

1,311

1998

–

C Capital discount on convertible debentures
In accordance with Swedish accounting principles, the 1997/2003
convertible debenture loan and its nominal interest payments are
valued at present value, based on market interest rate. The difference
from the nominal amount, the capital discount, is credited directly to
equity. (Please refer to Note 17 for details.) In accordance with U.S.
GAAP, convertible debenture loans are reported as liabilities at nominal
value. When calculating income and equity in accordance with U.S.
GAAP, the effects of the capital discount are reversed.

D Restructuring costs
The rules for providing for payroll related expenses are stricter according
to U.S. GAAP. For termination benefits, U.S. GAAP requires for a liability
to be recognized that prior to the date of the final financial statements,
the benefit arrangements be communicated to employees. There is no
such requirement under Swedish GAAP.

E Pensions
The Company participates in several pension plans, which in principle
cover all employees of its Swedish operations as well as certain
employees in foreign subsidiaries. The Swedish plans are administered
by an institution jointly established for Swedish industry (PRI) in which
most companies in Sweden participate. The level of benefits and
actuarial assumptions are established by this institution and, accordingly,
the Company may not change these.

Effective 1989, the Company has adopted FAS No. 87, Employer’s
Accounting for Pensions, when calculating income according to U.S.
GAAP. The effects for the Company of using this recommendation
principally relate to the actuarial assumptions, and that the calculation
of the obligation should reflect future compensation levels. The difference
relative to pension liabilities already booked at the introduction in 1989
is distributed over the estimated remaining service period.

F Pension premium refund
SPP, a Swedish insurance company, has announced a refund of pension
premiums paid, of which a portion has been refunded during the year.
In accordance with Swedish accounting practice, the total refund is
credited to income. In accordance with U.S. GAAP, only the amount
SPP actually paid is credited to income.

G Sale-leaseback of property
During the year, the Company sold property which was leased back to
subsidiaries. In Sweden, the gain on sale of property is credited to
income, if the rent to be paid is in par with market price. In accordance
with U.S. GAAP, the part of the gain exceeding present value of future
lease payments is credited to income when occurred. The remaining
part is distributed during the lease period.

H Other
Hedge accounting
The Company has forward currency exchange contracts and options
as hedges of firm commitments as well as budgeted cash flows regarding
sales and purchases. According to Swedish accounting practice, both
kinds are considered hedges and are not valued at market. According
to U.S. GAAP, contracts and options not related to firm commitments
are valued at market.

In-process research and development
Under U.S. GAAP, acquired technology, including in-process research
and development is to be charged to expenses if this technology has
not reached technological feasibility and has no alternative use. Under
Swedish GAAP, acquired technology is amortized to income over its
expected economic life.

Tax on undistributed earnings in associated companies
In accordance with Swedish accounting practice, no accrual is made
for withholding taxes on undistributed profits of companies which are
consolidated applying the equity accounting method. Under U.S.
GAAP, the company holding shares should accrue for withholding
taxes on possible repatriation of profits.

Capitalization of interest expenses
In accordance with Swedish accounting practice, the Company has
expensed interest costs incurred in connection with the financing of
expenditures for construction of tangible assets. Such costs are to
be capitalized in accordance with U.S. GAAP, and depreciated as the
assets concerned. Capitalization amounting to SEK 88 (81) m. has
increased income and amortization amounting to SEK 79 (151) m.
was charged against income for the period when calculating income
in accordance with U.S. GAAP.

Annual Report 2000 Financial Statements

Notes to the
financial statements

Reconciliation to accounting principles generally accepted in the U.S. continued

I Deferred Income Taxes
Deferred tax is calculated on all U.S. GAAP adjustments to income.

J Adjustment of Net Income
Application of U.S. GAAP as described above would have had the
following approximate effects on consolidated net income. It should be
noted that, in arriving at the individual items increasing or decreasing
reported net income, consideration has been given to the effect of
minority interests.

K Unrealized gains and losses on securities
available-for-sale
In accordance with Swedish accounting principles investments are
valued at lower of cost and market. Under U.S. GAAP securities
available for sale that have readily determinable fair values shall be
measured at fair value in accordance with FAS No. 115 “Accounting
for Certain Investments in Debt and Equity Securities”. Unrealized
gains and losses shall be included in other comprehensive income.

Adjustment of Net Income

2000

1999

1998

Items increasing reported net income

L Comprehensive income
The Company has adopted FAS No 130, “Reporting Comprehensive
Income”. Comprehensive income includes net income and other changes
in equity, except those resulting from transactions with owners.

Comprehensive income

2000

1999

1998

Depreciation on revaluation
of assets

Capitalization of software
development costs

to be sold

for internal use

Capital discount on
convertible debentures

Restructuring costs

3,685

448

147

2,700

6,981

2,449

1,311

3,346

–

116

400

120

–

4,304

3,499

Items decreasing reported income

Pensions

Pension premium refund

Sale-leaseback

Other

Deferred income taxes

Net increase in net income

146

856

1,361

238

2,005

4,606

2,375

416

–211

–

–472

1,251

1,195

3,109

–

258

954

1,001

2,498

Net income as reported in the
consolidated Income Statement 21,018

12,130

13,041

Approximate net income
per U.S. GAAP

23,393

15,239

15,539

Approximate net income in
accordance with U.S. GAAP

Other comprehensive income

23,393

15,239

15,539

Translation adjustments

2,326

–2,442

732

Translation adjustments for
sold/liquidated companies

Hedging for investments

Unrealized gains and losses on
securities available-for-sale

Minimum pension liability

Deferred income taxes

Total other
comprehensive income

Approximate comprehensive
income in accordance with
U.S. GAAP

–500

–107

–1,847

8,527

657

–47

–2,403

–

670

3,689

749

24,063

18,928

16,288

Adjustment of Equity

2000

1999

1998

Increases

Capitalization of software
development costs

to be sold

for internal use

Reported earnings per share,
fully diluted

Approximate earnings per share
per U.S. GAAP,
fully diluted

16,878

13,193

10,744

1,759

1,311

2.65

1.54

1.67

Unrealized gains and losses on
available-for-sale securities

6,680

8,527

2.94

1.92

1.97

Pensions

Capitalization of interest, net
after cumulative depreciation

Restructuring costs

300

211

3,100

422

202

400

–

885

273

–

Reductions

Revaluation of assets

Capital discount on
convertible debentures

Pension refund

Sale-leaseback

Deferred income taxes

Other

28,928

24,055

11,902

114

419

856

1,361

8,197

450

372

566

–

434

682

–

6,731

3,092

–54

488

11,397

7,615

4,696

Adjustment of stockholders’
equity, net

17,531

16,440

7,206

Reported stockholders’ equity 91,686

69,176

63,112

Approximate equity
according to U.S. GAAP

109,217

85,616

70,318

Annual Report 2000 Financial Statements

Notes to the
financial statements

Reconciliation to accounting principles
generally accepted in the U.S. continued

Adjustment of certain balance sheet items
according to U.S. GAAP

SEK m.

As per reported
Balance Sheet
Dec 31
1999

Dec 31
2000

As per
U.S. GAAP
Dec 31
1999

Dec 31
2000

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions:

Expected dividend yield

Expected volatility

Risk-free interest rate

Expected life of option
(in years)

2000

1.0%

35.4%

6.0%

3.1

1999

1998

–

Intangible assets

12,833

10,548

31,343

24,828

Tangible assets

22,378

24,719

22,475

24,544

Other investments

2,484

1,751

9,164

10,278

Accounts receivable 74,973

63,584

76,580

63,584

Tax assessment values (Sweden)

Other receivables

44,029

31,227

44,866

33,133

Minority interest
in equity

Provisions

Convertible
debentures

Other current
liabilities

2,764

2,182

2,756

2,177

27,650

22,552

18,060

30,489

Land and land
improvements

4,346

5,453

4,765

6,019

Buildings

Consolidated
1999

2000

Parent Company
1999
2000

216

385

2,656

162

48,360

41,302

48,560

40,902

Provisions include the tax effect of undistributed earnings in associated companies.

M Statement of Cash Flows
The Company in principle follows FAS No. 95 when preparing the Statement
of Cash Flows. According to FAS No. 95, however, only cash, bank and
short-term investments with due dates within 3 months shall be considered
cash and cash equivalents, rather than within 12 months. Applying this
definition would mean following adjustments of reported cash:

Special information regarding the Parent Company

Sales of the Parent Company were SEK 1,195 m. (SEK 15,375 m.), of
which exports accounted for 100 (85) percent. Consolidated
companies were customers for 0 (67) percent of the Parent Company’s
sales, while 40 (65) percent of the Company’s total purchases of
goods and services were from such companies.

Consolidated, SEK m.

2000

1999

1998

1997

Loans totaling SEK 0.6 m. have been made to a total of 60

Short-term cash
investments, cash
and bank,
as reported

Adjustment for
items with maturity
of 4–12 months

Cash and cash
equivalents as per
U.S. GAAP

35,606

29,008

18,233

29,127

employees for the purchase of shares in LM Ericsson’s Share Savings
Fund.

The Parent Company has guaranteed up to an amount of SEK 0.4

m. for loans obtained by employees for the purchase of housing.

–16,129

–9,731

–5,978

–15,004

19,477

19,277

12,255

14,123

N Stock compensation plan
The Company, as permitted under FAS 123 “Accounting for Stock Based
Compensation”, applies Accounting Principles Board Opinion 25 (“APB
25”) and related interpretations in accounting for its plans under U.S.
GAAP. No compensation expense has been reflected in the consolidated
Income Statement because no compensation expense arises when the
strike price of the employee’s stock options equals the market value of
the underlying stock at grant date, as in the case of options granted to
the employees.

If the Company had chosen to adopt the optional recognition provisions

of FAS 123 for its stock option plans, net income and earnings per
share in accordance with U.S. GAAP. would have been changed to the
pro forma amounts indicated below:

Net income

Approximate net income
per U.S. GAAP

Approximate net income,
proforma, per U.S. GAAP

2000

1999

1998

23,393

15,239

15,539

21,882

15,239

15,539

Earnings per share, fully diluted

Approximate earnings
per share, per U.S. GAAP

Approximate earnings
per share, proforma,
per U.S. GAAP

2.94

1.92

1.97

2.75

1.92

1.97

Annual Report 2000 Financial Statements

Average number of employees and
remuneration in 2000 and 1999

Average number of employees

Consolidated

Men Women

2000
Total

Men Women

1999
Total

Western
Europe*

45,229 17,993 63,222 48,597 19,134 67,731

Central and
Eastern
Europe,
Middle East
& Africa

North
America

Latin
America

Asia
Pacific

Total

*Of which
Sweden

*Of which
EU

3,419

1,182

4,601

3,119

1062

4,181

8,903

4,532 13,435

8,189

3,985 12,174

5,568

2,238

7,806

6,571

2,054

8,625

8,497

3,992 12,489

7,826

4,429 12,255

71,616 29,937 101,553 74,302 30,664 104,966

26,726 11,153 37,879 30,254 12,939 43,193

44,164 17,685 61,849 47,368 18,868 66,236

Parent
company

Men Women

2000
Total

Men Women

1999
Total

366

319

Western
2,664
Europe*
Reconciliation to accounting principles
generally accepted in the U.S. continued
Central and
Eastern Europe,
Middle East
& Africa

685

653

722

568

Latin America

1,268

3,932

645

Total

977

437

1,414

3,237

1,346

4,583

*Of which
Sweden

*Of which
EU

319

366

685

2,670

1,269

3,939

319

366

685

2,670

1,269

3,939

Wages and salaries and social security
expenses

Wages and
salaries

Social security
expenses

Of which
pension costs

Consolidated
1999

2000

Parent Company
1999
2000

38,970

37,068

631

1,997

13,161

11,305

384

1,131

2,062

2,151

289

522

Wages and salaries per geographical area

Consolidated
1999

2000

Parent Company
1999
2000

Western Europe*

25,393

25,159

425

855

Central and
Eastern Europe,
Middle East
& Africa

North America

Latin America

Asia Pacific

1,062

6,322

2,502

3,692

839

6,360

1,816

2,894

Total

38,970

37,068

*Of which Sweden

14,576

14,308

*Of which EU

24,665

24,415

Board of Directors, President and
Corporate Executive Vice Presidents

(of which bonus and similar)

204

141

–

631

425

(8)

–

1,997

1,855

(6)

Remuneration in foreign currency has been translated to Swedish kronor
at average exchange rates for the year.

Stock option plans
Option plans have been implemented as a complementary remuneration
to key employees:

Notes to the
financial statements

Benefits to members of the Board, and
the Company Management
During the year, Lars Ramqvist in his capacity as Chairman of the Board of
Directors received a fee of sek 2,500,000 plus sek 100,000 for his work
as member of the Finace Committee. These fees were determined by
the Board of Directors within the total amount of Board fees approved by
the Annual General Meeting.

Members and deputy members of the Board who are Ericsson
employees received no remuneration or benefits other than their
entitlements as employees. However, a fee of sek 900 per meeting was
paid to the employee representatives of the Board.

The value of the benefits paid to Lars Ramqvist in his capacity as Chief
Executive Officer amounts to sek 12,000,000, which amount, together
with the benefits earned by him and provided for during 1999, was paid
during year 2000.

The salary paid to Kurt Hellström in his capacity as President amounts
to sek 7,561,240 and the value of benefits, including compensation for
tax, provided to him, amounts to sek 9,040,119. Provision has also
been made for a bonus to Kurt Hellström of sek 222,386 earned 2000.
Sven Christer Nilsson, the former President, is also entitled to agreed
severance pay from July 7, 1999 up to July 8, 2001, in the aggregate
amounting to sek 10,664,303. During 2000, severance pay amounting
to sek 7,007,148 was paid.

The following rules regarding severance pay and pension apply to
the President, Executive Vice Presidents and Senior Vice Presidents.

Severance payments are not made if an employee resigns voluntarily.

The same applies if employment is terminated as a result of flagrant
disregard of responsibilities. Notice given by the employee, when such
significant structural changes or other events occur that, in a determining
manner, affect the content of work or the condition for respective
positions, is equated with notice of termination served by the company.
Upon termination of employment, severance pay amounting to two years’
salary is normally paid. In certain cases, if the employee is 50 years of
age or older, 40 to 60 percent of the employees final salary, depending
on age, is paid annually to age 60. Such payments are made currently
during the pertinent period and cease at age 60.

The basic security in the pension arrangements for the President

Executive Vice Presidents and Senior Vice Presidents consists of
affiliation with the so-called ITP plan or corresponding arrangements.
The employee’s pension is premium-based. For the portion of a salary
in excess of 20 basis amounts, the company pays to a capital insurance
an amount that is related both to the age of the executive and to the
executive’s salary plus a standard bonus. Most of the Executive Vice
Presidents and Senior Vice Presidents are already covered by this system.
As described in earlier Annual Reports, the following principles apply

to other Executive Vice Presidents: The benefits due under the so-
called ITP plan apply, supplemented by the portion of salary and
bonus exceeding ITP, from age 65. In addition, the employee has the
right to retire with a pension at age 60, at the earliest. Following which
the pension is based on the current pensionable salary at retirement
Average number of employees and
and amounts to between 40 and 70 percent of this salary. Subject to
remuneration in 2000 and 1999
certain conditions, this pension is also paid if the employee is entitled
to severance pay at age 60.

Costs of pensions for the former President, the President, one former
and twelve Executive Vice Presidents amounted to SEK 53,1 m. during
the year.

Plan

1998

1999

2000

Type

2,5 million (post split)
7-year call options
issued by third party

Exercisable

1999

Employees
affected

500

Fees to auditors

1,4 million (post split)
7-year call options
issued by Ericsson

In 3 lots (30/40/30%)
3–5 years respectively
after grant to year 7

50,4 million (post split) 7-year In 3 lots, 1/3 per year
call options issued
by Ericsson

1–3 years respectively
after grant to year 7

1,800

8,000

Audit fees

Parent company

Other companies

The options for the 1998 plan were granted in 1999. Grants for the
1999 plan took place on March 1, 2000 and grants for the 2000-plan
were made on January 17, 2000. In addition to options issued to
employees 6,7million stock options have been issued for hedging of
social security costs. The dilutive effect on earnings per share of this
year’s employee stock option programs was around 0,2 percent.

Fees for other services

Parent company

Other companies

Total fees

Price)-
waterhouse)-

Coopers

KPMG

Others

Total

100

144

–

119

175

Annual Report 2000 Financial Statements

Auditor’s report

To the Annual General Meeting of the shareholders

of Telefonaktiebolaget LM Ericsson (publ)

Corporate identity number 556016-0680
We have audited the annual statements, the consolidated
statements, the accounting records and the administration
of the Board of Directors and the President of
Telefonaktiebolaget LM Ericsson (publ) for the year.
These statements and the administration of the company
are the responsibility of the Board of Directors and the
President. Our responsibility is to express an opinion
on the annual statements, the consolidated statements
and the administration based on our audit.

We conducted our audit in accordance with generally
accepted auditing standards in Sweden. Those standards
require that we plan and perform the audit to obtain
reasonable assurance that the annual statements and
the consolidated statements are free of material
misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures
in the statements. An audit also includes assessing the
accounting principles used and their application by the
Board of Directors and the President, as well as
evaluating the overall presentation of information in
the annual statements and the consolidated statements.
As a basis for our opinion concerning discharge from
liability, we examined significant decisions, actions

taken and circumstances of the company in order to be
able to determine the liability, if any, to the company of
any board member or the President. We also examined
whether any board member or the President has, in any
other way, acted in contravention of the Companies Act,
the Annual Statements Act or the Articles of Association.
We believe that our audit provides a reasonable basis for
our opinion set out below.

The annual statements and the consolidated statements

have been prepared in accordance with the Annual
Accounts Act and, thereby, give a true and fair view of
the company’s and the group’s financial position and
results of operations in accordance with generally
accepted accounting principles in Sweden.

We recommend to the Annual General Meeting of
shareholders that the income statements and balance
sheets of the parent company and the group be adopted,
that the profit of the parent company be dealt with in
accordance with the proposal of the Board of Directors
and that the members of the Board of Directors and
the President be discharged from liability for the
financial year.

Stockholm, January 26, 2001

Carl-Eric Bohlin
Authorized Public Accountant

PricewaterhouseCoopers

Olof Herolf
Authorized Public Accountant

PricewaterhouseCoopers

Thomas Thiel
Authorized Public

Accountant

Annual Report 2000 Financial Statements

Treasury and financial risk management

Ericsson has a financial policy approved by the Board
of Directors regulating the management of financial
risks. To support this, Ericsson has established
Treasury Centers in Stockholm, Dublin, Singapore and
Dallas (collectively known as Ericsson Treasury
Services, the Group’s internal bank), and a Corporate
Treasury unit in London.

The primary focus of the Treasury organization is to

manage and control financial exposures in a manner
consistent with underlying business risks. It aims to
neutralize adverse effects on underlying business
profitability caused by fluctuations in the financial
markets.

Responsibility for identifying and hedging financial
risks arising in the Group’s operations rests with the
individual Ericsson companies. Risks are hedged
through Ericsson Treasury Services, which in turn
manages the Group’s exposure centrally within risk
limits given by the Board.

Stock option programs for employees have created an

exposure for Ericsson to the development of our own
share price. An increase in share price will result in
higher salary related expenses, a risk which has been
hedged through the purchase of LME B shares and call
options.
Ericsson classifies other financial risks as either
market, credit or liquidity risks.

Market risk
Market risk is divided into two categories: foreign
exchange risk and interest rate risk.

Foreign exchange risk management
Ericsson reports in Swedish Krona and today operates
in more than 140 countries. Foreign currency
denominated assets, liabilities, sales and purchases,
together with a large cost base in Sweden, result in
substantial foreign exchange exposures.

Foreign exchange risks are classified as either

economic exposure, transaction exposure or translation
exposure.

Economic exposure
Ericsson is very dependent on the development of
exchange rates in the Swedish Krona and on economic
conditions in Sweden. Around 40 percent of all
employees and 25 percent of total production is

located in Sweden, but Sweden accounts for just
3 percent of all sales. With this substantial cost base in
Swedish Krona, for example, adverse exchange rate
developments during 2000 have had a negative impact
on Ericsson compared to our competitors with costs
denominated in Euro. Normally, Ericsson does not
hedge economic exposure.

Transaction exposure
An analysis of net exposures for the whole Group
including revenues and costs by currency shows a
major net revenue exposure in Euro, but a more
balanced position for US dollars. A +/-10 percent
change in exchange rates between the Swedish Krona
and Euro or US dollars, would have an approximate
impact of +/- SEK 3.0 billion and +/- SEK 0.3 billion
respectively, before any hedging effects are considered.
Ericsson would from this perspective benefit from

Swedish participation in the European Monetary
Union with a currency conversion to Euro. The
unfavorable effects of the weaker Euro during 2000
were more than offset by hedging activities, and by
positive developments in a number of other currencies
in which Ericsson also has a net revenue exposure (such
as Japanese Yen, British Pounds, Thai Baht and
others).

Translation exposure
As Ericsson has many subsidiaries operating outside
of Sweden, the value in Swedish Krona of Ericsson’s
foreign investments is exposed to exchange rate
fluctuations. Translation exposure in foreign subsidiaries
is hedged within a policy established by the Board:

•• Monetary net in companies translated using the

temporal method (translation effects in investments
affecting the income statement) is hedged to
100 percent.

•• Equity in companies translated using the current
method (translation effects reported directly in
stockholders’ equity in the balance sheet) is hedged
selectively up to 20 percent of the total equity.

The translation differences reported in equity during
the year were positive SEK 2.0 billion, mainly due to
a weaker Swedish Krona.

Annual Report 2000 Financial Statements

Treasury & financial
risk management

Interest bearing

financial assets

and liabilities

Interest rate risk management
Ericsson is exposed to interest rate risks through
market value fluctuations of certain balance sheet
items and changes in interest expenses and revenues.
Interest rate risks are managed centrally by Ericsson
Treasury Services. The Group hedges its interest rate
exposure by using derivative instruments, such as
forward rate agreements, interest rate swaps and futures.

During 2000, interest rate periods for interest
bearing financial assets and liabilities were short-
term and balanced.

Credit risk
Credit risk is divided into three categories: customer
financing risk, country risk and financial credit risk.

Customer financing risk management
Ericsson’s credit approval process requires that all
major customer financing commitments involve the
Finance Committee of the Board of Directors.

Ericsson works actively with our customers in early
discussions to structure financing of new investments
in the best possible way. Vendors can add considerable
value to this process and sometimes extend vendor
loans. Focus has, however, in many cases shifted to
vendors bridging the funding gap until medium and
longer-term debt facilities are in place. Often this
results in only short-term involvement, with an
emphasis on a role as intermediary between the
customer and financial markets. Our objective is to
find suitable off-balance sheet financing solutions.
At the beginning of 2000, Corporate Customer

Finance was established as a separate finance function
reporting directly to the Chief Financial Officer. Risk
management is centralized and Regional Corporate
Customer Finance offices have been positioned in all
Market Areas.

As of December 31, 2000, total gross customer

financing amounted to SEK 19.6 b., of which
SEK 10.0 b. were on-balance sheet for the Ericsson
Group, while the remainder were guaranteed off-
balance sheet items.

A decrease in total credit risk relating to customer

financing over the period is the result of successful
efforts to transfer existing vendor loans (in particular
in Brazil and the US) to the international bank market.
No actual credit losses were incurred during the year.
A small number of credits have been successfully
restructured.

Country risk management
Country risk measures Swedish companies’ risk in
relation to all foreign receivables and guarantees,
equity investments in foreign subsidiaries and
associated companies and lending from the internal
bank by foreign subsidiaries.

Financial credit risk management
Financial instruments carry an element of risk that
counterparties may be unable to fulfil their
obligations. Ericsson Treasury Services limit this risk
by investing excess liquidity primarily in government
paper, as well as commercial paper and corporate
bonds, with short-term ratings of at least A2/P2 and
long-term ratings of at least A. No credit losses were
incurred during the year.

Ericsson Treasury Services' external investments, as of

December 31, 2000, SEK billions.

Security

Treasury Bills

Cash, Bank Deposits

Commercial Paper

Floating Rate Notes

Mortgage CP

Corporate Bonds

Treasury Bonds

Mortgage Bonds

Total

2000

13.2

5.6

1.9

1.1

0.5

0.3

0.2

1999

7.0

5.7

2.1

0.0

0.8

2.1

0.1

23.0

17.8

Ericsson Treasury Services’ exposure in derivative
instruments is valued at market daily and expressed as
a liability to, or receivable from, each counterparty.
Netting contracts (ISDA agreements) are in force for
all counterparties, substantially reducing the risk.

Annual Report 2000 Financial Statements

Treasury & financial
risk management

Ericsson’s long-term objective is to achieve payment
readiness (defined as cash and temporary investments
less short-term borrowings plus long-term unused
credit commitments) of between 7 and 10 percent of
sales to adapt to changes in liquidity requirements.

Payment readiness, as of December 31, 2000, was 11

percent of sales (12 percent in 1999).

To support this long-term payment readiness

objective, Ericsson policy stipulates that the greater
part of borrowings should be long-term or covered by
long-term credit facilities.

Ratings, as of December 31, 2000

Rating agency

Moody’s

Standard & Poor’s

Long-term Short-term

A+

P-1

A-1

During 2000 Moody’s and Standard & Poor’s revised
Ericsson’s rating outlook from stable to negative.
Ericsson’s current long-term rating A1/A+ is one of
the highest among its peers.

Liquidity risk
Ericsson maintains sufficient liquidity through cash
management, investments in highly liquid fixed
income securities and negotiation of committed and
uncommitted credit lines for potential funding needs.

Ericsson defines liquidity as cash and short-term
investments (to 12 months). During 2000 liquidity
increased by SEK 6.6 billion. Net liquidity, after
deduction of short-term interest bearing financial
liabilities, increased by SEK 3.1 billion. Net liquidity
is affected by changes in operating net assets and long-
term debt and equity. A build up in working capital -
especially inventories - adversely affected the Group’s
liquidity position in 2000. The year was characterized
by a number of initiatives that had a positive liquidity
impact including sales of real estate, divestments of
operations and sales of financial instruments. These
initiatives generated SEK 26.6 billion in total.
Short and long-term borrowing programs and
committed credit facilities remained unchanged.

Funding programs and long-term committed credit facilities,

available and utilized, as of December 31, 2000, SEK millions.

Program/Facility

Amount

Utilized

Available

US Commercial Paper
Program (USD 500m)

European Commercial
Paper Program (USD 700m)

Swedish Commercial
Paper Program (SEK 5,000m)

European Medium Term
Program (USD 2,500m)

Long-Term Committed Credit
Facility (USD 1,000m)

Total

4,750

6,649

4,018

2,631

5,000

695

4,305

23,748

18,917

4,831

9,499

49,646

23,630

26,016

Annual Report 2000 Financial Statements

Ten year summary

SEK Million

Results for the year

Net sales

Operating income 1

Financial net

Income before taxes 1

Year-end position

Total assets 1

Working capital

Capital employed

Tangible assets

Stockholders’ equity 1

Interest-bearing provisions and liabilities

Other information

Earnings per share fully diluted, SEK 1, 2, 3, 4, 5

– in accordance with U.S. GAAP, fully diluted 2, 4, 5

Cash dividends per share, SEK 2, 4, 5

Shares outstanding

– average (in thousands) 2, 4, 5

Additions to tangible assets

Depreciation on tangible assets

Research and development

– expenses

– as percent of net sales

Ratios

Return on equity, percent 1

Return on capital employed, percent 1

Equity ratio, percent 1

Debt-equity ratio 1

Current ratio

Statistical data, year-end

Backlog of orders

Number of employees

– World wide

– Sweden

*
1

For 2000, proposed by the Board of Directors.
1991–1992 adjusted for change in accounting principles.
1991–1994 adjusted for stock issue and 4-for-1 stock split.
1991–1995 adjusted for stock dividend element of the stock issue in 1995.
1991–1997 adjusted for stock issue 1:1.
1991–1999 adjusted for 4-for-1 stock split.

2000

1999

1998

273,569

31,165

–1,520

28,692

250,314

93,879

141,013

22,378

91,686

46,563

2.65

2.94

0.50*

215,403

17,590

–698

16,386

202,628

66,037

116,378

24,719

69,176

45,020

1.54

1.92

0.50

184,438

19,273

–237

18,210

167,456

52,978

92,637

22,516

63,112

27,474

1.67

1.97

0.50

7,869,445

7,817,164

7,800,900

12,293

9,957

38,968

14.2

26.1

26.5

37.7

0.5

1.6

9,085

6,532

28,330

13.2

18.3

19.0

35.2

0.6

1.6

8,965

5,545

25,189

13.7

22.5

24.9

38.9

0.4

1.6

101,215

83,976

78,990

105,129

42,431

103,290

44,040

103,667

44,979

Working capital
Current assets less current non-interest-bearing provisions and
liabilities.

Capital employed
Capital employed is defined as total assets less noninterest-bearing
provisions and liabilities.

Earnings per share
See Accounting principles for information of principles for calculation
earnings per share. For earnings per share in accordance with U.S.
GAAP, see note 24 to the Financial Statements.

Return on equity
Defined as net income expressed as a percentage of average adjusted
stockholders’ equity (based on the amounts at January 1 and
December 31).

Annual Report 2000 Financial Statements

1997

1996

1995

1994

1993

1992

1991

167,740

18,757

17,218

124,266

10,758

412

10,152

147,440

112,152

53,095

80,165

19,225

52,624

23,146

1.52

1.63

0.44

36,180

61,411

17,754

40,456

17,545

0.91

1.02

0.31

98,780

8,164

7,615

90,832

29,394

51,566

15,521

34,263

15,554

0.73

0.89

0.22

82,554

6,553

–386

5,610

72,999

20,899

41,611

13,678

23,302

16,522

0,54

0.66

0.17

62,954

3,530

3,108

67,490

20,869

40,168

12,363

21,305

16,868

0.39

0.47

0.14

47,020

1,754

–204

1,241

56,637

20,063

35,842

11,093

17,720

16,321

0.07

0.19

0.11

45,793

2,282

–189

1,595

50,080

17,497

31,539

10,477

17,050

12,913

0.13

0.23

0.11

7,754,968

7,676,336

7,077,536

6,950,120

6,865,088

6,594,112

6,587,968

7,237

5,422

20,906

12.5

25.7

29.9

38.7

0.4

1.7

7,188

4,216

17,467

14.1

19.0

22.4

39.1

0.4

1.5

6,457

3,614

15,093

15.3

18.9

20.7

39.6

0.4

1.6

5,137

3,004

13,407

16.2

17.7

18.2

34.4

0.7

1.5

3,805

2,651

10,924

17.4

14.5

12.9

34.5

0.7

1.6

3,847

2,193

7,377

15.7

2.8

9.6

34.5

0.8

1.6

3,583

1,863

7,054

15.4

5.3

12.0

38.1

0.7

1.7

77,499

63,401

48,401

45,671

45,296

38,050

28,777

100,774

45,360

93,949

43,896

84,513

42,022

76,144

36,984

69,597

31,796

66,232

29,979

71,247

31,244

Return on capital employed
Defined as the total of operating income plus financial income as a
percentage of average capital employed (based on the amounts at
January 1 and December 31).

Equity ratio
Defined as the total of stockholders’ equity and minority interest in
equity of consolidated subsidiaries, expressed as a percentage of
total assets.

Debt-equity ratio
Defined as total interest-bearing provisions and liabilities divided by
the total of stockholders’ equity and minority interest in equity of
consolidated subsidiaries.

Current ratio
Current assets divided by the sum of current provisions and liabilities.

Capital turnover
Net sales divided by average capital employed.

Accounts receivable turnover
Net sales divided by average accounts receivable.

Inventory turnover
Cost of sales divided by average inventory.

Return on sales
Operating income plus Financial income divided by net sales.

Annual Report 2000 Financial Statements

Board of Directors and Auditors

Lars Ramqvist (1938*)

1
Chairman and (until December 31, 2000) CEO. Chairman of the Finance
Committee of the Board. Doctor of Philosophy. Honorary Doctor of
Technology. Honorary Doctor of Philosophy. Chairman of the Boards of
Skandia and Volvo. Member of the Boards of AstraZeneca and SCA. Member
of the Royal Swedish Academy of Sciences, the Royal Swedish Academy of
Engineering Sciences and the European Round Table of Industrialists.
Member since 1990
Shares held: LME B 30,206
Convertible debentures: 145,347**

2 Tom Hedelius (1939*)
Deputy Chairman and member of the Finance Committee of the Board.
Honorary Doctor of Economics. Chairman of the Boards of Handelsbanken,
Bergman & Beving, Svenska Le Carbone and the Foundation of Anders
Sandrew. Deputy Chairman of Industrivärden. Member of the Boards of Volvo
and SCA. Member of SAS Assembly of Representatives.
Member since 1991
Shares held: LME B 72,616

3 Marcus Wallenberg (1956*)
Deputy Chairman and member of the Finance Committee of the Board.
President of Investor. Deputy Chairman of Saab. Member of the Boards of
Astra, AstraZeneca, Investor, Scania, Stora Enso, SAS Assembly of
Representatives, and the Foundation of Knut and Alice Wallenberg.
Member since 1996
Shares held: LME B 352,000

4 Kurt Hellström (1943*)
President and (as of January. 1, 2001) CEO. Member of the Board
of Atlas Copco.
Shares held: LME B 22,692
Convertible debentures: 145,347**
Options1

6 Göran Engström (1948*)
Employee representative and member of the Finance Committee
of the Board. Member since 1994
Shares held: LME B 4,774
Convertible debentures: 99,120**

Jan Hedlund (1946*)

7
Employee representative and member of the Audit Committee of the Board.
Member since 1994
Convertible debentures: 75,520**

8 Göran Lindahl (1945*)
Chairman of the Remuneration Committee of the Board. Honorary Doctor of
Technology. President and CEO of ABB Ltd (until December 31, 2000).
Member of the Boards of ABB Ltd. and DuPont. Member of the Salomon
Smith Barney International Advisory Board. Member since 1999
Shares held: LME B 50,000

9 Per Lindh (1957*)
Employee representative.
Member since 1994

10 Sverker Martin-Löf (1943*)
Member of the Remuneration Committee of the Board. President and CEO of
SCA. Member of the Boards of the Federation of Swedish Industries and the
Swedish Forest Industries Ass.Member since 1991
Shares held: LME B 8,000

11 Eckhard Pfeiffer (1941*)
Chairman of the Board of Intershop Communications AG. Member of the
Boards of General Motors Corp., Hughes Electronics Corp., IFCO Systems,
N.V., NxView Technologies. Member of the Business Council and the
Advisory Board of Deutsche Bank. Member since 2000
Shares held: LME B 15,200

5 Niall FitzGerald (1945*)
President and CEO of Unilever PLC. Member of the Board of Merck & Co.
Inc.
Member since 2,000
Shares held: LME B 796

12 Clas Reuterskiöld (1939*)
Chairman of the Audit Committee of the Board. President and CEO of
Industrivärden. Member of the Boards of Handelsbanken, SCA, Sandvik and
Skanska. Member since 1994
Shares held: LME B 40,000

Annual Report 2000 Financial Statements

Ericsson Executive Team

Corporate Management

Ragnar Bäck (1944*)

Jan Uddenfeldt (1950*)

Kurt Hellström (1943*)

President and CEO

Shares held: LME B 22,692

Convertible debentures: 145,347**

Western Europe

Technology

Shares held: LME B 1,000

Shares held: LME B 2,756

Convertible debentures: 145,347**

Employee options 1

Bengt A. Forssberg (1937*)

Sten Fornell (1948*)

Executive Vice President and

Chief Financial Officer

Shares held: LME B 176,000

Employee options 1

Heads of Business
Divisions
(Executive Vice Presidents)

Mats Dahlin (1954*)

Mobile Systems

Shares held: LME B 8,000

Employee options 1

Einar Lindqvist (1959*)

Multiservice Networks

Shares held: LME B 1,000

Employee options 1

Bert Nordberg (1956*)

Global Services

Shares held: LME B 1,000

Convertible debentures: 145,347**

Employee options 1

Haijo Pietersma (1953)

Internet Solutions

Convertible debentures: 145 347**

Employee options 1

Michael Thurk (1952*)

Data Backbone and Optical

Networks

Shares held: LME B 2,000

Convertible debentures: 145,347**

Employee options 1

Jan Wäreby (1956*)

Consumer Products

Shares held: LME B 1,000

Convertible debentures: 145,347**

Employee options 1

Heads of Market Areas
(Executive Vice Presidents)

Karl Alsmar (1949*)

Central & Eastern Europe,

Middle East and Africa

Shares held: LME B 18,000

Employee options 1

Latin America

Shares held: LME B 4,000

Other Operations

Convertible debentures: 145,347**

Bo Andersson (1951*)

Employee options 1

President, Ericsson Microelectronics

Per-Arne Sandström (1947*)

North America

Shares held: LME B 2,904

Shares held: LME B 5 208

Convertible debentures: 145,347**

Options 1

Convertible debentures: 145,347**

Ulf Berg (1951*)

Employee options 1

President, Ericsson Microwave

Kjell Sörme (1939*)

Asia Pacific

Systems

Options 1

Shares held: LME B 125,592

Bernt Ericsson (1945*)

Convertible debentures: 145,347**

Vice President, Ericsson Foresight

Employee options 1

Shares held: LME B 6 984

Swedish Operations
(Executive Vice President)

Johan Siberg (1944*)

Corporate Office Sweden

Shares held: LME B 60,000

Convertible debentures: 145,347**

Options 1

Jöran Hoff (1943*)

President, Ericsson Business

Innovation

Options 1

Convertible debentures: 145 347**

Thomas Ivarsson (1954*)

Employee options 1

President, Ericsson Hewlett-Packard

Heads of Corporate
functions
(Senior Vice Presidents)

Shares held: LME B 26

Convertible debentures: 145,347**

Options 1

Janne Sjödén (1944*)

Carl Olof Blomqvist (1951*)

President, Ericsson Network

Legal Affairs

Technologies

Employee options 1

Shares held: LME B 2 000

Björn Boström (1947*)

Supply and Information Technology

Convertible debentures: 145,347**

Options 1

Shares held: LME B 2,228

Lars Svensson (1950*)

Convertible debentures: 145,347**

President, Ericsson Enterprise

Employee options 1

Shares held: LME B 412

Roland Klein (1954*)

Communications

Shares held: LME B 2,000

Employee options 1

Torbjörn Nilsson (1953*)

Marketing and Strategic

Business Developments

Shares held: LME B 23,301

Convertible debentures: 436,041**

Options 1

* Year of birth

** Convertible debentures 1997/2003
with a conversion rate of SEK 59

1 For further information on the option

plans for year 1999 and 2000,
see the Board of Directors’ Report
under ‘Employees’.

Convertible debentures: 145,347**

Employee options 1

Britt Reigo (1943*)

People and Culture

Shares held: LME B 12,000

Convertible debentures: 145,347**

Employee options 1

Annual Report 2000 Financial Statements

13 Peter Sutherland (1946*)
Member of the Audit Committee of the Board. Honorary Doctor.
Chairman of the Boards of Goldman Sachs International and BP
Amoco. Member of the Boards of Investor, ABB Ltd. and the
Foundation of the World Economic Forum. Member since 1996

14 Monica Bergström (1961*)
Employee representative.
Member since 1998
Convertible debentures: 75,520**

15 Christer Binning (1946*)
Employee representative.
Member since 1994
Convertible debentures: 145,347**

16 Åke Svenmarck (1942*)
Employee representative
Member since 2000

Statutory Auditors
Carl-Eric Bohlin
Authorized Public Accountant, PricewaterhouseCoopers.

Olof Herolf

Authorized Public Accountant, PricewaterhouseCoopers.

Thomas Thiel

Authorized Public Accountant

Deputy Auditors
Bo Hjalmarsson

Authorized Public Accountant, PricewaterhouseCoopers.

Jeanette Skoglund

Authorized Public Accountant, PricewaterhouseCoopers.

Stefan Holmström

Authorized Public Accountant

Segments and Market Areas

Segments

Net sales by segment by quarter (SEK m.)

Year to date

0003A

0006A

0009A

2000
0012A

9903A

9906A

9909A

1999
9912A

Network operators & service providers

38,718

84,819

132,693

194,074

28,505

Consumer products

Enterprise solutions

Other operations

14,794

28,145

3,858

5,343

7,864

9,935

42,483

11,635

14,269

56,343

17,479

19,027

9,696

3,446

3,312

64,314

20,064

7,841

7,301

99,208

149,943

29,797

11,949

11,326

46,444

17,345

16,750

Less: Inter segment sales

–3,628

–6,645

–9,620

–13,354

–3,388

–7,137

–10,632

–15,079

Total

Change

Network operators
& service providers

Consumer products

Enterprise solutions

Other operations

Less: Inter segment sales

Total

Isolated quarters

Network operators
& service providers

Consumer products

Enterprise solutions

Other operations

59,085 124,118 191,460 273,569

41,571

92,383

141,648

215,403

0003A

0006A

0009A

0012A

36%

53%

12%

61%

42%

32%

40%

36%

–7%

34%

43%

–3%

26%

–10%

35%

29%

21%

14%

–11%

27%

2000
Q4

38,718

14,794

3,858

5,343

46,101

13,351

4,006

4,591

47,874

14,338

3,771

4,334

61,381

13,860

5,844

4,758

28,505

9,696

3,446

3,312

35,809

10,368

4,395

3,989

34,894

9,733

4,108

4,025

1999
Q4

50,735

16,647

5,396

5,424

Less: Inter segment sales

–3,628

–3,016

–2,975

–3,734

–3,388

–3,749

–3,495

–4,447

Total

Change

Network operators & service providers

Consumer products

Enterprise solutions

Other operations

Less: Inter segment sales

Total

59,085

65,033

67,342

82,109

41,571

50,812

49,265

73,755

36%

53%

12%

61%

42%

29%

–9%

15%

–20%

28%

37%

47%

–8%

–15%

37%

21%

–17%

–12%

–16%

11%

Annual Report 2000 Financial Statements

Orders booked by segment by quarter (SEK m.)

Year to date

0003A

0006A

0009A

2000
0012A

9903A

9906A

9909A

1999
9912A

Segments

Network operators & service providers

57,465

102,735

152,262

212,440

Consumer products

Enterprise Solutions

Other operations

Less: Inter segment sales

14,562

27,988

5,486

5,854

–3,893

9,428

10,770

–6,726

42,123

13,097

14,724

57,001

17,834

18,573

32,672

10,116

4,259

3,795

69,879

110,916

151,762

20,196

8,835

8,134

31,948

13,290

12,769

47,552

17,978

22,021

–9,340

–13,504

–3,381

–7,371

–11,111

–15,485

Total

Change

79,474

144,195

212,866

292,344

47,461

99,673

157,812

223,828

0003A

0006A

0009A

0012A

Network operators & service providers

Consumer products

Enterprise solutions

Other operations

Less: Inter segment sales

Total

76%

44%

29%

54%

15%

67%

47%

39%

32%

–9%

45%

37%

32%

–1%

15%

–16%

35%

Isolated quarters

Network operators & service providers

57,465

Consumer products

Enterprise solutions

Other operations

14,562

5,486

5,854

45,270

13,426

3,942

4,915

49,527

14,135

3,669

3,954

40%

20%

–1%

–16%

–13%

31%

2000
Q4

60,178

14,878

4,737

3,849

32,672

10,116

4,259

3,795

37,207

10,080

4,576

4,339

41,037

11,752

4,455

4,635

1999
Q4

40,846

15,604

4,688

9,252

Less: Inter segment sales

–3,893

–2,832

–2,614

–4,164

–3,381

–3,990

–3,740

–4,374

79,474

64,721

68,671

79,478

47,461

52,212

58,139

66,016

47%

–5%

–58%

–5%

20%

2000
0012A

70,317

16,840

8,324

8,520

1,128

9903A

9906A

9909A

65,530

14,116

9,856

11,046

669

65,909

14,053

10,329

11,278

809

65,359

14,970

10,262

11,474

712

1999
9912A

64,695

16,446

9,615

11,525

1,009

Total

Change

Network operators & service providers

Consumer products

Enterprise solutions

Other operations

Less: Inter segment sales

Total

76%

44%

29%

54%

15%

67%

22%

33%

–14%

13%

–29%

24%

21%

20%

–18%

–15%

–30%

18%

Number of employees by segment by quarter

0003A

0006A

0009A

Network operators & service providers

63,616

17,290

9,130

11,257

1,030

65,005

17,710

8,687

8,839

1,076

66,973

18,137

8,739

8,461

1,084

Consumer products

Enterprise solutions

Other operations

Unallocated

Total

Change

Network operators & service providers

Consumer products

Enterprise solutions

Other operations

Unallocated

Total

102,323

101,317

103,394

105,129

101,217

102,378

102,777

103,290

–3%

22%

–7%

54%

–1%

26%

–16%

–22%

33%

–1%

21%

–15%

–26%

52%

–13%

–26%

12%

Annual Report 2000 Financial Statements

Segments

Adjusted operating income and operating margin by segment by quarter (SEK m.)

Year–to–date

Network operators & Service providers

Consumer products

Enterprise solutions

Other operations

Unallocated*

Total adjusted operating income

Adjustments

Non–operational items

Additional restructuring

Capital gain Juniper Networks

As percentage of net sales

Network operators & Service providers

Consumer products

Enterprise solutions

Other operations

Total

0003A

5,760

457

543

–414

6,375

0006A

0009A

2000
0012A

15,581

23,688

33,072

–1,829

–5,932

–16,195

–21

1,060

–256

1,925

1,708

–1,257

–1,171

–1,858

9903A

2,108

–23

–222

221

–205

9906A

5,758

–56

–216

629

–666

9909A

1999
9912A

10,919

19,637

–675

–382

426

253

403

–1,098

–2,439

13,534

18,254

16,749

1,879

5,449

9,190

17,918

5,838

7,264

7,033

–8,000

15,383

0003A

15%

10%

11%

0006A

18%

–6%

11%

0009A

18%

–14%

–2%

13%

10%

–93

–287

–328

9903A

9906A

9909A

–6%

–3%

11%

–2%

–3%

1999
9912A

13%

1999
Q4

2000
0012A

17%

–29%

2000
Q4

Isolated quarters

Network operators & Service providers

5,760

9,821

8,107

9,384

2,108

3,650

5,161

8,718

Consumer products

Enterprise solutions

Other operations

Unallocated*

Total adjusted operating income

Adjustments

Non–operational items

Additional restructuring

Capital gain Juniper Networks

As percentage of net sales

Network operators & Service providers

Consumer products

Enterprise solutions

Other operations

Total

–2,286

–4,103

–10,263

457

543

–414

6,375

–50

517

–843

7,159

–235

865

278

–217

–687

4,720

–1,505

1,879

–23

–222

221

–205

–33

408

–461

3,570

–619

–166

–203

–432

3,741

928

446

–23

–1,341

8,728

5,838

1,426

–231

–8,000

15,383

15%

10%

11%

21%

–17%

–1%

11%

17%

–29%

–6%

20%

2000
Q4

15%

–74%

–5%

–2%

–93

–194

–6%

10%

15%

–6%

–4%

–5%

–41

1999
Q4

17%

12%

“Unallocated” consists mainly of costs for corporate staffs, certain goodwill amortization and non–operational gains and losses

Annual Report 2000 Financial Statements

Segment reporting
New format for 2001

Orders booked by segment by quarter (SEK m.)

Isolated quarters

Systems

of which mobile system

multi service networks

Phones

Other operations

Less: Intersegment sales

Total

2000
Total YTD

57,944

48,471

9,473

14,562

11,266

–4,298

45,559

37,286

8,273

49,706

39,981

9,725

13,426

14,135

8,725

7,674

59,891

213,100

49,871

175,609

10,020

14,878

8,086

37,491

57,001

35,751

–2,989

–2,844

–3,377

–13,508

79,474

64,721

68,671

79,478

292,344

Net sales by segment by quarter (SEK m.)

Isolated quarters

Systems

of which Mobile System

Multi Service Networks

Phones

Other operations

2000
Total YTD

38,910

32,481

6,429

46,433

37,858

8,575

48,087

38,722

9,365

14,794

13,351

14,338

9,297

8,504

8,087

61,253

194,683

49,022

158,083

12,231

13,860

10,039

36,600

56,343

35,927

Less : Intersegment sales

–3,916

–3,255

–3,170

–3,043

–13,384

Total

59,085

65,033

67,342

82,109

273,569

Adjusted operating income segment by quarter (SEK m.)

Isolated quarters

Systems

Phones

Other operations

Unallocated*

Total

Adjustments

Total YTD

5,753

9,812

8,242

9,416

33,223

457

578

–413

6,375

–2,286

–4,103

–10,263

–16,195

480

–847

7,159

492

1,579

–687

–1,858

4,720

–1,505

16,749

Non–operational items

Additional restructuring

Capital gain Juniper Networks

5,838

1,426

–231

7,033

–8,000

15,383

Adjusted operating margin by segment by quarter

Isolated quarters

Systems

Phones

Other operations

Total

15%

11%

21%

–17%

11%

17%

–29%

15%

–74%

–2%

Number of employees by segment by quarter

Systems

Phones

Other operations

Unallocated*

Total

0003A

0006A

0009A

64,836

17,290

19, 167

1,030

66,207

17,710

16,324

1,076

68,571

18,137

15,602

1,084

102,323

101,317

103,394

105,129

2000
YTD

17%

–29%

2000
0012A

71,102

16,840

16,059

1,128

“Unallocated” consists mainly of costs for corporate staffs, certain goodwill amortization and non–operational gains and losses

Annual Report 2000 Financial Statements

Market Areas

Net sales by Market Area by quarter (SEK m.)

Year–to–date

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU*

Change

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU

Isolated quarters

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU

Change

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU

0003A

0006A

0009A

2000
0012A

9903A

9906A

9909A

1999
9912A

23,578

47,011

70,090

100,234

17,350

36,374

55,890

85,329

7,323

8,549

7,781

11,854

16,799

19,263

17,334

23,711

25,850

27,704

28,953

38,863

37,701

35,193

44,118

56,323

59,085

124,118

191,460

273,569

2,380

4,371

6,704

8,732

4,779

4,179

4,920

10,343

41,571

1,685

12,621

11,387

12,186

19,815

19,528

17,610

18,916

29,704

29,736

25,175

30,263

44,900

92,383

141,648

215,403

3,868

5,461

7,551

22,052

44,031

65,754

94,293

16,261

34,299

52,411

80,345

0003A

36%

53%

105%

58%

15%

42%

41%

36%

0006A

29%

33%

69%

42%

20%

34%

13%

28%

0009A

25%

32%

57%

53%

31%

35%

23%

25%

0012A

17%

27%

40%

46%

25%

27%

16%

17%

2000
Q4

1999
Q4

23,578

23,433

23,079

30,144

17,350

19,024

19,516

29,439

7,323

8,549

7,781

11,854

59,085

2,380

9,476

10,714

9,553

11,857

65,033

1,991

9,051

8,441

11,619

15,152

67,342

2,333

11,851

7,489

15,165

17,460

82,109

2,028

4,779

4,179

4,920

10,343

41,571

1,685

7,842

7,208

7,266

9,472

6,907

6,223

6,730

9,889

50,812

49,265

2,183

1,593

10,208

7,565

11,347

15,196

73,755

2,090

22,052

21,980

21,723

28,539

16,261

18,038

18,112

27,934

36%

53%

105%

58%

15%

42%

41%

36%

23%

21%

49%

31%

25%

28%

–9%

22%

18%

31%

36%

73%

53%

37%

46%

20%

16%

–1%

34%

15%

11%

–3%

Annual Report 2000 Financial Statements

Market Areas

Orders booked by Market Area by quarter (SEK m.)

Year–to–date

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU

Change

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU

Isolated quarters

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU

Change

Western Europe*

Central and Eastern Europe,
Middle East & Africa

North America

Latin America

Asia Pacific

Total

*Of which Sweden

*Of which EU

0003A

0006A

0009A

2000
0012A

9903A

9906A

9909A

1999
9912A

25,048

50,870

71,807

105,684

19,096

40,380

63,882

95,707

17,388

24,503

32,104

40,972

9,197

14,764

25,786

30,626

9,148

19,082

27,326

37,977

6,024

12,523

9,695

19,312

33,053

44,959

3,432

11,032

19,622

17,816

27,468

27,797

18,195

30,428

48,576

62,752

9,712

20,974

30,706

42,230

79,474

144,195

212,866

292,344

47,461

99,673

157,812

223,828

2,924

6,010

7,983

9,876

1,565

3,517

5,248

7,182

23,261

47,523

67,194

99,951

17,826

37,990

60,050

90,562

0003A

31%

89%

52%

182%

87%

67%

87%

30%

0006A

26%

66%

52%

75%

45%

71%

25%

0009A

12%

25%

39%

86%

58%

35%

52%

12%

0012A

10%

34%

38%

62%

49%

31%

38%

10%

2000
Q4

1999
Q4

25,048

25,822

20,937

33,877

19,096

21,284

23,502

31,825

17,388

9,148

9,695

18,195

79,474

2,924

7,115

9,934

9,617

12,233

64,721

3,086

7,601

8,244

13,741

18,148

68,671

1,972

8,868

10,651

11,906

14,176

79,478

1,893

9,197

6,024

3,432

9,712

47,461

1,565

5,567

6,499

7,600

11,262

52,212

1,952

11,022

7,099

6,784

9,732

4,840

7,846

9,981

11,524

58,139

66,016

1,731

1,934

23,261

24,262

19,671

32,757

17,826

20,164

22,060

30,512

31%

89%

52%

182%

87%

67%

87%

30%

21%

28%

53%

27%

24%

58%

20%

–11%

–31%

16%

103%

86%

18%

14%

–11%

83%

36%

19%

23%

20%

–2%

Annual Report 2000 Financial Statements

Share information

Stock exchange trading
Ericsson’s Series A and Series B shares are traded on
the OM Stockholm Stock Exchange, and the Series B
shares are also traded on the exchanges in Düsseldorf,
Frankfurt, Hamburg, London and Paris, and on the
“Swiss Exchange” in Switzerland. Ericsson shares are
also traded in the United States in the form of American
Depositary Receipts (ADRs) through the NASDAQ
system, under the symbol ERICY. Each ADR represents
one Series B share.

Ericsson shares have been traded in Euros in Frankfurt
and Paris since January 1, 1999. More than 17 billion
shares were traded in 2000. Of this number, about 44
(48) percent were traded on the OM Stockholm Stock
Exchange, 31 (22) percent via the NASDAQ exchange
and 24 (29) percent on the London Stock Exchange.
Trading on other exchanges amounted to about 1
percent of the total, unchanged from the previous year.
During 1993 a subordinated convertible debenture
loan was issued with a par value of SEK2,171,719,760
and with a term of seven years. These convertibles
were traded on the OM Stockholm Stock Exchange
and as American Depositary Debentures (ADDs) on
the NASDAQ system. The convertibles and the ADDs
carried the right to convert to the Ericsson B shares.
Last day for conversion was May 31, 2000. Date of
maturity for the 1993/2000 convertible debenture
loan was June 30, 2000. At that date, less than 1
percent of the outstanding convertible debenture loan
remained unexchanged and was redeemed including
one final interest payment.

Share price trend
The total market value of the Ericsson share dropped
21 percent in 2000 to SEK852 billion. The index for
the OM Stockholm Stock Exchange decreased by 12
percent during the year. The NASDAQ composite index
decreased by 39 percent and the NASDAQ telecom
index decreased by 54 percent in the same period. The
Ericsson share decreased by 32 percent on NASDAQ. The
difference to the development on OM Stockholmsbörsen
is mainly attributed to currency changes SE/USD.

Shareholders
In all, about 90 percent of Ericsson’s shares are owned
by Swedish and international institutions. At the end
of 2000, about 55 (55) percent of the shares were held

outside Sweden, with 29 (33) percent in the US, 5 (6)
percent in the UK, 5 (2) percent in Luxemburg, 4 (4)
percent in Germany, and 12 (12) percent in countries.

Employee ownership
The Ericsson Savings Fund (Ericssons Allemansfond)
was started in 1984. The Fund, which has 1,156
participants, invests in Ericsson’s shares. At the end
of 2000 the Fund held 3,540,000 shares. The price
per unit at year-end was SEK5,762 (SEK7,568).
A convertible debenture loan amounting to

SEK6,000 Million was issued in 1997 with
preferential rights to Ericsson’s employees. Employees
who joined Ericsson after October 10, 1997, were
given an opportunity to purchase convertible
debentures issued by AB Aulis, an Ericsson company.
In 1998, an option plan was implemented for 500

key personnel, who were allotted seven-year call
options in Ericsson. The size of the allotment was
decided by earnings per share for 1998, and the
employee salary and bonus category. Based on the
same principles, some 2,000 key employees and senior
executives received seven-year employee options based
on earnings in 1999. At an Extraordinary General
Meeting in November, 1999, it was decided to
implement a stock option plan also for fiscal year
2000. In accordance with this resolution, 50.4 million
employee options (adjusted for split 4:1) were issued
to approximately 8,000 employees.

Share capital
As of December 31, 2000, Ericsson’s share capital
consisted of SEK7,910,335,612 (4,892,846,303),
represented by 7,910,335,612 shares. The par value of
each share is SEK1.00. As of December 31, 2000, the
shares were divided into 656,218,640 Series A shares,
each carrying one vote, and 7,254,116,972 Series B
shares, each carrying one-thousandth of a vote.

On April 18, 2000 Ericsson effected a stock dividend

through which the par value of the share increased
from SEK2.50 to SEK4.00, followed by a stock split
4:1. The share capital increased to SEK7,844,422,428,
represented by 7,844,422,428 shares. As a consequence
of the split, the par value of the share is SEK1.00.

During the period January 1 to January 22, 2001,
convertible debentures related to convertible liabilities
for 1997 were converted to 47,092 B shares.

Annual Report 2000 Financial Statements

Share data

Earnings per share, fully diluted (SEK)

P/E ratio, B shares 2

Dividend (SEK)

Direct return %

2000)1

2.65

0.50)3

0.5

OM Stockholm Stock Exchange share prices (SEK)

A at December 29

B at December 29

B high for year

B low for year

111

108

231

101

Adjusted for 4:1 split
P/E ratio = Price per share at December 31, divided by earnings per share fully diluted
For 2000, proposed by the Board of Directors
Adjusted for 1:1 stock dividend

1999)1

1998)1, 4

1997)1, 4

1996

1, 4

Share information

1.54

0.50

0.4

144

137

143

1.67

0.50

1.0

1.52

0.44

1.2

0.91

0.31

1.2

Changes in capital stock 1996–2000

1996

1997

1998

1999

2000

January 1

Conversions

Stock dividend

Conversions

Stock dividend

Split

Conversions

December 31*

of which treasury stock 1,804,000

Number of shares

Capital stock

957,614,897

2,394,037,243

3,547,308

8,868,270

13,333,854

33,334,635

1:1

975,097,150

2,437,742,875

1,759,181

5,786,131

4,397,952

14,465,328

–

2,941,658,410

4:1

5,883,316,821

–

69,880,270

75,830,899

7,910,335,612

Largest shareholders by voting rights, December 31, 2000

Number
of shares

Voting rights
percent

AB Industrivärden

Investor AB

Wallenberg-stiftelser

Svenska Handelsbankens Pensionsstiftelse

Livförsäkrings AB Skandia

Pensionskassan SHB Försäkringsförening

Oktogonen, Stiftelsen

SEB-Trygg Liv

SEB-stiftelsen

Svenska Handelsbankens personalstiftelse

Fjärde AP-Fonden

Svenska Handelsbankens aktiefonder

Wallanders och Hedelius’ stiftelse

Foreign ownership

186,000,000

273,506,800

109,172,096

41,600,000

76,852,806

31,680,000

12,903,000

64,594,900

11,322,120

10,000,000

302,060,000

51,047,972

3,200,000

4,292,228,436

28.0

22.2

16.5

5.4

5.0

4.8

1.9

1.8

1.7

1.5

1.4

0.6

0.5

1.9

Annual Report 2000 Financial Statements

Glossary

This glossary has been prepared for a broad group of readers who may not be familiar with

technical terms in this Annual Report. However, brief definitions of these terms cannot provide

complete explanations.

ADSL (Asymmetrical Digital Subscriber Line)
A method to increase transmission speed in a copper
cable. ADSL facilitates the division of capacity into a
channel with higher speed to the subscriber, typically
for video transmission, and a channel with
significantly lower speed in the other direction.

Edge
A technology that gives GSM and TDMA similar
capacity to handle services for the third generation of
mobile telephony. Developed to enable the
transmission of large amounts of data at a high speed,
384 kilobits per second in mobile applications.

ATM (Asynchronous Transfer Mode)
A technology for broadband transmission of voice, data
and video transmission of telecom signals in large
amounts. In addition to high-capacity signal trans-
mission, ATM provides considerable flexibility, since
the individual subscriber is able to adapt the capacity
of a switched connection to current requirements.

AXE
An open architecture, Ericsson’s communications
platform. A system for computer-controlled digital
exchanges that constitute the nodes in large public
telecommunications networks. The basis for Ericsson’s
wireline and mobile systems.

Bluetooth
A radio technology developed by Ericsson and other
companies built around a new chip that makes it
possible to transmit signals over short distances
between phones, computers and other devices without
the use of wires.

CDMA (Code Division Multiple Access)
A technology for digital transmission of radio signals
between, for example, a mobile phone and a radio
base station. In CDMA, a frequency is divided into a
number of codes.

Circuit Switching
A switched circuit is only maintained while the sender
and recipient are communicating, as opposed to a
dedicated circuit which is held open regardless of
whether data is being sent or not.

Epoc
An operating system for mobile terminals, developed
by Symbian (Ericsson joint-venture company
including Matsushita, Motorola, Nokia and Psion).

GPRS (General Packet Radio Service)
A packet-switched technology that enables high-speed
(115 kilobits per second) wireless Internet and other
data communications.

GSM (Global System for Mobile Communication)
Originally developed as a pan-European standard for
digital mobile telephony, GSM has become the world’s
most widely used mobile system. It is used on the
900 MHz and 1800 MHz frequencies in Europe,
Asia and Australia, and the 1900 MHz frequency in
North America and Latin America.

IP (Internet Protocol)
The Internet protocol defines how information travels
between networks across the Internet.

ISDN (Intergrated Services Network)
A technology which offers high speed transmission
of voice, data and video through existing fixed line
infrastructure.

ISP (Internet Service Provider)
A company specializing in offering end-users access
to the Internet. As a rule does not have own
communications network but functions as a link
between the user and the network operator.

ITU (International Telecommunication Union)
A United Nations agency that deals with
telecommunications issues.

Annual Report 2000 Financial Statements

LAN (Local Area Network)
A small data network covering a limited area, such
as within a building or group of buildings.

Packet switching
A method of switching data in a network where
individual packets of a set size and format are
accepted by the network and delivered to their
destinations. The sequence of the packets is
maintained and the destination established by the
exchange of control information (also contained
in the packets) between the sending terminal and
the network before the transmission starts.

PBX (Private Branch Exchange)
An exchange system used in companies and
organizations to handle internal and external calls.

PDC (Personal Digital Cellular)
A Japanese standard for digital mobile telephony in
the 800 MHz and 1500 MHz bands.

Router
A data switch that handles connections between
different networks. A router identifies the addresses
on data passing through the switch, determines
which route the transmission should take and
collects data in so-called packets that are then sent
to their destinations.

SMS (Short Message Service)
Available on digital networks, allowing messages of up
to 160 characters to be sent and received via the network
operator’s message center to your mobile phone.

3GPP (Third-generation Partnership Project)
A global cooperative project in which standardization
bodies in Europe, Japan, South Korea and the United
States as founders are coordinating WCDMA issues. See
also WCDMA.

TDMA (Time Division Multiple Access)
A technology for digital transmission of radio signals
between, for example, a mobile phone and a radio base
station. In TDMA, the frequency band is split into a
number of channels that are stacked into short time

units so that several calls can share a single channel
without interfering with one another. TDMA is also
the name of a digital technology based on the IS-136
standard. TDMA is the current designation for what
was formerly known as D-AMPS.

UMTS (Universal Mobile Telecommunications

System)
The name of the third-generation mobile phone
standard in Europe, standardized by ETSI.

VOIP (Voice over Internet Protocol)
A technology for transmitting ordinary phone
calls over the Internet using packet-linked routes.
Also called IP telephony.

WAP (Wireless Application Protocol)
A free, unlicensed protocol for wireless
communications that makes it possible to create
advanced telecommunications services and to access
Internet pages from a mobile telephone. WAP is
the de facto standard that is supported by a large
number of suppliers.

WCDMA (Wideband Code Division Multiple Access)
A technology for wideband digital radio
communications of Internet, multimedia, video and
other capacity-demanding applications. WCDMA,
developed by Ericsson and others, has been selected
for the third generation of mobile phone systems in
Europe, Japan, Korea and the US. The technology
is also the principal alternative being discussed in the
remaining parts of the world.

WDM (Wavelength Division Multiplexing)
A technology that uses optical signals on different
wavelengths to increase the capacity of fiber
optic networks in order to handle a number of services
simultaneously.

W-LAN (Wireless-Local Area Network)
A wireless version of the LAN.

Annual Report 2000 Financial Statements

Shareholder information 2001

The Annual General Meeting will be held at the Globe
Arena, Arenatorget, Stockholm, at 4,30 p.m. on
Wednesday, March 28, 2001.

Shareholders intending to participate in the Annual
General Meeting must be entered as shareholders in the
share register maintained by VPC AB (Swedish Securities
Register Center) not later than March 16, 2001.

A shareholder whose shares are registered in the
name of a trustee must temporarily be entered in the
share register not later than March 16, 2001, in order
to participate in the Meeting.

Notice of participation in the Annual General

Meeting
In addition to the requirements listed above,
shareholders shall provide notice of attendance to:

Telefonaktiebolaget LM Ericsson
Corporate Legal Affairs
SE-126 25 Stockholm, Sweden
Tel: +46 8 719 3444 or +46 8 719 4498
(between 10 a.m. and 4 p.m. daily),
fax: +46 8 719 9527
or e-mail: bolagsstaemma@lme.ericsson.se
not later than 4 p.m. Thursday, March 22, 2001.

Proxy
In order to attend and vote as proxy on behalf of a
shareholder at the Meeting, a power of attorney must
be presented to the Company, preferably at the above
address not later than March 27, 2001.

Dividend and Dividend Payment
A resolution adopted by shareholders at the Annual
General Meeting will specify the date on which the
share register and related list of pledge holders will be
reconciled as the record day. The Board of Directors
and President have proposed April 2, 2001 as the
record date. If the proposal is approved, dividends are
expected to be paid by VPC AB to all registered
shareholders on April 5, 2001.

Change of Address
Shareholders who have changed their name, mailing
address or account number should notify their trustees
as soon as possible, or VPC AB, Box 7822, SE-103 97
Stockholm, Sweden.

Financial information from Ericsson
April 20, 2001
Interim report Jan.–March
July 20, 2001
Interim report Jan.–June
October 26, 2001
Interim report Jan.–Sept.
Interim report Jan.-Dec. Full year report. January 2002
March 2002
Annual report 2001

Annual Reports and Interim reports can be ordered
on the Internet: www.ericsson.com/investors, or
by contacting:

Telefonaktiebolaget LM Ericsson
SE-126 25 Stockholm, Sweden
Telephone: +46 8 719 0000

Ericsson CLO Limited
1, St James’s Square
London, SW1Y 4ER, United Kingdom
Telephone: +44 20 7451 5000

Ericsson Inc.
100 Park Avenue, 27th floor
New York NY 10017, U.S.A.
Telephone: +1 212 685 4030

Information about Ericsson is available on the Internet:
www.ericsson.com

Investor Relations
Gary Pinkham
Vice President, Investor Relations
100 Park Avenue, 27th floor
New York NY 10017, U.S.A.
Telephone: +1 212 685 4030
Telefax: +1 212 213 0159
E-mail: gary.pinkham@ericsson.com

Maria Bernström
Director, Investor Relations
Telefonaktiebolaget LM Ericsson
SE-126 25 Stockholm, Sweden
Telephone: +46 8 719 0000
Telefax: +46 8 719 1976
E-mail: maria.bernstrom@lme.ericsson.se

Lotta Wiklund
Manager, Investor Relations
Ericsson CLO Limited
1, St James´s Square
London SW1Y 4ER, Great Britain
Telephone: +44 20 7451 5000
Telefax: +44 20 7451 5669
E-mail: lotta.wiklund@clo.ericsson.se

Annual Report 2000 Financial Statements

ISSN 1100 - 8962

Telefonaktiebolaget LM Ericsson
SE-126 25 Stockholm

Project management Ericsson Corporate Communications
Design and production SAS Design, London, UK
Photography Mike Goldwater, Stefan Almers
Production coordinator Aralia
Reprographics Scarena AB
Printing Christer Persson Tryckeri AB, Köping