Ericsson Annual Report 2001

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FY2001 Annual Report · Ericsson

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A n n u a l R e p o r t 2 0 0 1 Financial Statements

What were the benefits
of the efficiency program?

Have you
reduced the
volatility in your
earnings?

How did you turn
cash flow from
negative to positive?

What are you
doing to improve
profitability?

F i n a n c i a l h i g h l i g h t s 2 0 0 1

Sales and orders
booked, SEK b.

TOTAL CONSOLIDATED RESULTS – PRO FORMA**
(SEK billion)
2001

250

200

150

100

100,000

80,000

60,000

40,000

20,000

Orders booked

Sales

2000

2001

Number of employees

2000

2001

Total

Sweden

Sales by segment,
SEK b. and percent

23.1
(11%)

33.4
(16%)

154.3
(73%)

Mobile systems

Multi-service networks

Other operations

Sales by market area,
SEK b. and percent

25.2
(12%)

32.1
(15%)

56.4
(27%)

Europe, Middle
East and Africa

Asia Pacific

Latin America

North America

97.1
(46%)

Orders booked
Net Sales
Adjusted operating margin
Adjusted income before tax
Net income
Earnings per share, fully diluted (SEK)
Dividend per share (SEK)
Cash flow before financing activities
Return on capital employed (ROCE)
Equity ratio
Number of employees

201.8
210.8
– 9%
– 21.1
– 21.3
– 2.69
0
4.2
–16%
29%
85,200

2000

239.1
221.6
8%
14.3
21.0
2.65
0.50
6.4
27%
38%
105,100

Change

–16%
– 5%

–19%

SEGMENT RESULTS – PRO FORMA**
(SEK billion)

2001

2000

Change

Orders booked
Systems
Other operations
Less inter-segment orders

Total

Sales
Systems
Other operations
Less inter-segment sales

Total

Adjusted operating income*
Systems
Phones
Other operations
Unallocated

Total

* Adjusted for items affecting comparability

– Capital gain Juniper Networks
– Non-operational capital gains
– Pension refund
– Restructuring costs

SALES BY MARKET AREA – PRO FORMA**
(SEK billion)

Europe, Middle East and Africa
North America
Latin America
Asia Pacific

Total

182.8
28.5
– 9.5

201.8

187.8
33.4
–10.4

210.8

2.9
–14.6
– 4.4
–1.7

–17.9

5.5
0.3
–
–15.0

2001

97.1
25.2
32.1
56.4

210.8

213.2
39.5
–13.6

239.1

194.7
40.2
–13.3

221.6

32.6
–16.2
2.2
–1.9

16.7

15.4
5.9
1.1
– 8.0

2000

108.4
25.3
38.0
49.9

221.6

–14%
– 28%

–16%

– 4%
–17%

– 5%

Change

–10%
0%
–16%
13%

– 5%

**Pro forma format: Sony Ericsson Mobile Communications are accounted for under
the equity method and included in “Earnings from Joint Ventures and Associated
Companies.” The results of the phone activities retained by Ericsson are included in
“Other operations.”

Focused on return to profitability
Year 2001 was a tough year in the telecom business.
Like most of our competitors, Ericsson incurred
considerable losses for the year. Our relative market
position improved, however, and after decisive
restructuring and cost control efforts, our objective
for 2002 is to achieve an operating margin of over
five percent.

Our industry has a strong growth potential and we
look forward with optimism on Ericsson’s role as the
top-class vendor to top-class operators. Due to the
uncertainty in the telecom market under current
economic conditions, we believe a solid upturn may
be a couple of years away.

Our long-term financial objectives are unchanged:
• to grow faster than the market, which means

a growth of more than 20 percent in a few years

• a return on capital employed of 20–25 percent
• a positive cash flow
• an operating margin of at least ten percent

Contents

Board of Directors’ Report p2
Consolidated Income Statement p11
Consolidated Income Statement – Pro forma p12
Consolidated Balance Sheet p13
Consolidated Statement of Cash Flows p14
Parent Company Income Statement p15
Parent Company Balance Sheet p16
Parent Company Statement of Cash Flows p18
Notes to the Financial Statements p19

Auditors’ Report p38
Treasury and Financial Risk Management p39
Segments and Market Areas p42
Ten Year Summary p50
Board of Directors and Corporate Management p52
Share Information p54
Shareholder Information p56
Uncertainties in the Future (Safe Harbor Statement) p57

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

B o a r d o f D i r e c t o r s ’ R e p o r t

In this Board of Directors’ report, comments regarding the income
statement items refer to a pro forma Income Statement version
(see page 12), prepared to facilitate comparisons between years. In
this pro forma version, restructuring charges are reported visibly,
excluded from Cost of Sales and Operating expenses respectively,
and the results of handset operations transferred to Sony Ericsson
Mobile Communications are reported included in Share in
Earnings of joint ventures and associated companies, as if the
equity method had been applied for the full year 2000 and 2001.
Total income is not affected by these changes.

This report contains “forward-looking statements”. See “Uncertain
Factors in the Future” on page 57.

Strategy and goals

Ericsson has a long-term perspective when assessing the market
development. The current downturn in general economic
conditions and its effects on near-term demand for
telecommunications equipment and services has not changed
this. We work in an industry with excellent growth potential and
Ericsson has the market leading position in systems, which we
intend to improve and grow faster than the market. The
penetration of mobile subscribers across the world has yet only
reached 16 percent. Compared to a penetration level of around 75
percent in Western Europe, there is still a large growth potential
in many markets. Our aim is to stay ahead as the number one
supplier for Mobile Internet solutions and continue as a top tier
vendor for carrier-class multiservice networks based on IP.

We are determined to be a top-tier player also in the handset

market – both regarding development, design, marketing and
sales of mobile multi-media terminals, through our joint venture
with Sony, and through licensing of platform technology
developed in-house.

Our long-term goals are unchanged:

• to grow faster than the market, which means a growth of more

than 20 percent in a few years

• a return on capital employed of 20–25 percent
• a positive cash ﬂow
• an operating margin of at least 10 percent

Market environment

In early 2001, we still expected a net growth for the year in our
outlook for the full year 2001. Our optimism was based on strong
orders in the end of year 2000, and continued strength both in
orders and sales in early 2001. Soon after, general economic
conditions and the telecom market changed dramatically for the
worse, presenting us with a number of challenges:
• An urgent need to protect our cash position and payment

readiness

• A need to rightsize the company and streamline the operations

according to a lower business volume

• Fast completion of the restructuring of our handset business

to improve proﬁtability, reduce income volatility and adapt to
a new market structure.

Financial markets, global economy The ﬁnancial markets for
equities, bonds and loans grew very cautious in the beginning of
the year, particularly regarding the Internet-, IT- and telecom
sectors. Rating institutions began to downgrade companies,
which added to the ﬁnancing difficulties and costs. Later in the
year, a general economic downturn in Latin America caused
further tightening.

Earnings per share diluted (SEK)

Operating expenses (SEK b.)

3.00

2.00

1.00

–1.00

–2.00

–3.00

1997

1998

1999

2000

2001

2000

2001

Administrative expenses

Selling expenses

Research and development
and other technical expenses

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

Telecom market and competition The ﬁnancing difficulties led to
drastic cuts in capital expenditures by many operators, as
compared with the high investment level of the previous year.
The decline was most accentuated in Western Europe, where
operators had the largest debt burdens and the additions of
subscribers slowed down rapidly, compared to year 2000. We
were forced to renegotiate and postpone planned delivery
schedules and new orders were sharply reduced. In the second
half, the situation deteriorated markedly also in Latin America.
The situation was better in certain markets, particularly in China
and Eastern Europe. In USA, a decline in TDMA sales was
almost fully offset by increased GSM sales. In Japan, however, the
transition to 3G led to a sharp decline for our PDC systems sales,
which was not yet compensated by similar volumes of 3G
shipments.

We were successful in improving our market leading positions

in mobile systems during the year, both for 3G and GSM. In
North and Latin America, we won a major market share of
contracts from operators migrating from TDMA to GSM/GPRS
as the path to 3G. In China we won our ﬁrst large contract for
CDMA equipment. In Europe, we passed an important
milestone on the way to Mobile Internet as we were awarded our
ﬁrst contract for multi-media messaging service (MMS) systems,
for handling of pictures, animations and sound. Sales in Mobile
Systems declined by 2 percent compared to year 2000,
attributable to strong reductions in Western Europe and Latin
America, partly offset by increased sales in Asia Paciﬁc and
Eastern Europe.

For Multiservice Networks the year started with strong orders
and sales. Mid year, however, a sharp downturn occurred in Latin
America, when operators stopped their investments in traditional
narrow-band switching equipment, and in the end of the year,
also our European customers reduced capital expenditures.

Overall sales declined by 9 percent. Continued good orders
growth for our packet switching solution ENGINE was not
enough to offset this. We have signed some 70 ENGINE
contracts representing a market share over 40 percent.

The total market for handsets also declined compared to year

2000, with the number of units sold down from 409 million
units to 390. The reduction was mainly attributable to a lower
number of new subscribers in Europe. Ericsson’s sales of phones
during the ﬁrst nine months were down approximately 45
percent, due to an unfavorable product mix and ongoing
restructuring.

The handset market is now in a transition phase to a new
structure, with vendors specializing in different layers of the
value chain: platform development, application development,
handset design, marketing and distribution, as opposed to the
current structure, where suppliers are developing and selling
complete phones. We adapted to this shift and at the same time
restructured our handset business. By sharply reducing the cost
base, we lowered our exposure to future market volatility.

We formed a joint venture with Sony for design, marketing

and sales of next generation multimedia terminals. We are
convinced that our expertise in telephony and radio technology
combined with Sony’s strength in consumer electronics,
multimedia and entertainment will enable the joint venture to
create exciting products. We also believe we are very well
positioned to have a strong market presence, capitalizing on
Ericsson’s relations with leading telecom operators and Sony’s
distribution and service networks and consumer marketing
experience. Under our strong brand names, we as partners target
to make Sony Ericsson Mobile Communications the market
leader in terminals for the Mobile Internet in 4 to 5 years.

Net sales by quarter (SEK b.)

2000
Q1

2001
Q1

Other operations

Multiservice networks

Mobile systems

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

B o a r d o f D i r e c t o r s ’ R e p o r t

Ericsson will continue to be a developer and licensor of core
platform technology. Sony Ericsson is our ﬁrst customer, and we
already have agreements with other manufacturers of mobile
devices.

Partnerships and venture capital activities Ericsson and
Microsoft continue to work together regarding mobile Internet
applications. The form changed from a jointly owned company
to a cooperation agreement.

Ericsson and Juniper Networks launched a jointly owned
(60 percent/40 percent) company for cooperation regarding IP
routers.

The partnership regarding the Symbian operating system for

mobile devices continued. New members were added, among
them Sony Ericsson Mobile Communications, with 1.6 percent
of the stock. Ericsson still holds 19.4 percent.

Many areas of development were related to 2.5G, 3G and
Mobile Internet. Signiﬁcant achievements during 2001 were:
• continued progress in industrialization, veriﬁcation and inter-
operability tests of 3G equipment. We also performed the ﬁrst
3G roaming call between Japan and UK and released TRAM –
a Tool for Radio Access Management, supporting operators in
planning 3G networks

• a new generation of GSM base stations, RBS 2206 HiCap,

with increased capacity and reduced costs

• a new release of GPRS, which put us in the lead regarding

functionality and also lead to a rapid roll out of commercial
GPRS service among Ericsson customers

• a new state-of-the-art generation AXE, AXE 810, in a very
compact design with an open architecture facilitating
integration of own and 3rd party equipment

• an enhanced version of ENGINE with increased capacity to

New cooperation initiatives with other vendors to support

manage also very large exchanges

Mobile Internet development were: the Mobile Commerce
Platform, for safe mobile commerce services, Mobile Games
Interoperability forum (MGI), and MMS interoperability forum
for Multimedia Messaging Services.

We established Ericsson Mobility World for support and

cooperation with 3rd party developers of applications and
devices.

In addition to the previous venture capital partnerships,
Ericsson Venture Partners and imGO, Ericsson participated
during 2001 with a minority stake in b-business partners,
focusing on e-business between enterprises.

Products, R&D and IPR In spite of the ongoing cost reductions,
which affected also R&D activities, total spending increased by
SEK 5.3 b. or 15 percent from year 2000. We have increased our
investments in core areas as 3G, while pruning costs in a number of
other areas. R&D as percent of sales increased to 19 (16) percent.

• several new mobile phones with good market reception, for

example the high-end T68 GPRS phone with color screen and
internal antenna. We also launched a number of modules for
wireless machine-to-machine (M2M) communication.
Our perhaps most important assets are our intellectual

property rights. We are very careful in protecting these through
patents and defending them against infringement. Their
importance lies not only in potential license revenues, but also in
the cross-licensing opportunities that a strong patent portfolio
offers.

During 2001, we applied for close to 1,100 (1,300) new

patents. We also signed some license agreements, among those a
major agreement with Samsung, Korea, for mobile telephony
technology.

Cash flow before financing activities (SEK b.)

–2

–4

–6

–8

–10

1997

1998

1999

2000

2001

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

Financial results

The result for the year was a substantial loss, with an income
before tax of SEK –30.3 (28.7) b. Adjusted operating income was
SEK –17.9 (16.7) b. The major reasons for the decline were a
continued loss in Phones of SEK –14.6 (–16.2) b. and a sharp
drop for Systems to SEK 2.9 (32.6) b. or from 17 percent to
2 percent of sales. This was driven by continued increased R&D
investments in 3G, unfavorable product mix, and reduced gross
margins from price pressure, lower volumes and excess capacity
costs. Strong cost reduction actions could not offset the effects of
a market turn-around from growth to decline. Other operations
also developed unfavorably and generated SEK –4.4 b. of losses,
mainly due to sharply reduced sales for Microelectronics and
Cables businesses. Non-operational capital gains of SEK
5.8 (21.3) b. were generated, SEK 5.5 b. of which through the sale
of remaining shares in Juniper Networks in the ﬁrst quarter.
Financial net was SEK –2.0 (–1.5) b. due to increased borrowing.

manufacturing and implementation could not be reduced
quickly enough to avoid excess capacity. Additional margin
pressure came from initial costs and price pressure from break-
through contracts for GSM and CDMA in North America and
China respectively.

In the second quarter, we launched a massive Efficiency
Program to reduce costs to the new market scenario with no
near-term growth. Provisions of SEK 11 b. were made to cover
such costs. The targeted reduction in annual run rate for
operating expenses of SEK 20 b. was nearly achieved. The
reduction in the individual fourth quarter was SEK 4.5 b. The
adjusted operating margin in Systems, excluding restructuring
costs and non-operational items, was 2 percent, down from 17
percent last year. The adjusted operating margin includes
increased R&D investments for 3G products, and provisions of
SEK 1.7 b. for increased customer ﬁnancing risks in Latin
America, due to deteriorating economic conditions there.

Operating margin by Segment

Systems
For the ﬁrst time since 1991, this year’s order bookings were less
than sales. Strong orders at the end of 2000 resulted in good sales
in early 2001, but 2001 order bookings were adversely affected by
very restrictive capital expenditures by operators in primarily
Western Europe and Latin America.

Under the adverse market conditions, the results in our
systems business relative to our competitors were reasonably
good, with a decline in sales of 4 percent from SEK 195 b. to
188 b., and an SEK 2.9 (32.6) b. adjusted operating income before
restructuring charges.

Mobile Systems sales declined 2 percent and Multiservice
Networks 9 percent. In the declining market, price competition
was intensiﬁed, product mix became unfavorable, with sharp
declines for TDMA and PDC systems, and ﬁxed costs in

Phones
The adjusted operating income in Phones was SEK –14.6
(–16.2) b. This was caused by a 45 percent decrease in sales for the
ﬁrst nine months compared to last year, and lower margins due
to price competition and an unfavorable product mix. Excess
capacity, inventory write-downs, and high warranty costs due to
product quality problems in the beginning of the year were other
signiﬁcant contributing factors. The major part of the loss was
incurred during the ﬁrst nine months of the year.

From October, most of the handset operations, dramatically
downsized through restructuring activities, were transferred to a
joint venture with Sony.

The joint venture got off to a good start, with a fast

integration of transferred operations from the partners, in total
4,000 employees. The JV beneﬁted from a good product
portfolio, including a number of popular high-end GPRS

Income before taxes (SEK b.)

Sales and Orders booked (SEK b.)

–10

–20

–30

–40

250

200

150

100

1997

1998

1999

2000

2001

2000

Sales

Orders booked

2001

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

B o a r d o f D i r e c t o r s ’ R e p o r t

phones. The sales in the fourth quarter were somewhat lower
than expected due to a much lower market demand and the JV
incurred a loss of which our share was SEK –0.7 b.

Other Operations
Remaining handset activities, manufacturing in China, mobile
platforms and Bluetooth and remaining phase-out costs, in total
SEK –2.4 b., are included in Other Operations. Total adjusted
operating income in Other operations was SEK –4.4 (2.2) b. In
addition to the loss from retained handset operations, low sales
volumes for Cables, Microelectronics, and Enterprise all
contributed to the loss. Defense Systems operations were
proﬁtable.

Financial income and expenses, Taxes and Earnings per share

Due to increased borrowing and also a strong build up of our
cash position and payment readiness, both interest income and
interest expense increased over last year. Financial net was
SEK –2.0 (–1.5) b.

Taxes were positive due to the reported negative Income
before tax. The average tax rate was back to a more normal level
of 30 percent, compared to last year’s level of 27 percent caused
by non-taxable capital gains.

Earnings per share (EPS) diluted were SEK –2.69 (2.65). (No

dilution is considered this year, due to the loss, since it would
improve the EPS.) EPS per US GAAP was SEK –3.14 (2.94). In
previous years, EPS per US GAAP has normally been higher than
EPS per Swedish GAAP. This year it is lower, due to negative net
impact of capitalization of development costs for software
products, different rules regarding timing of recognition of
restructuring costs plus effects of market valuation of certain
derivatives.

Balance sheet, Financing and Cash flow Year 2001 early presented
us with great challenges, particularly in terms of cash ﬂow and
equity ratio. During the ﬁrst quarter we incurred negative cash
ﬂow of SEK 17.7 b., which we addressed with some very focused
actions, taken at the same time as conditions in the capital
markets started to get more difficult.

The largest reason for the negative cash ﬂow was a sharp rise
in accounts receivable. A special program to deal with this was
initiated and all top managers’ bonus targets were reset and
linked to a positive cash ﬂow for Ericsson for the full year. Days
sales outstanding (DSO) increased from 82 days at the end of
year 2000 to 116 days at the end of the ﬁrst quarter and were
reduced to 88 days by the end of the year. Inventory turnover
also ﬁrst declined and later regained some of the fall-back in a
similar way.

Customer ﬁnancing in total increased during the year from

SEK 21 b. to SEK 26 b. An increased portion was reﬁnanced
externally – at the end of 2001, only approximately one third was
on-balance, compared to half at the end of 2000. In a credit
portfolio of in total SEK 16.1 b. sold in the market in the fourth
quarter, we managed to include a substantial share of future
commitments, which will keep our exposure on a controllable
level. SEK 2 b. improved cash ﬂow 2001.

The working capital improvements took place gradually, and
positive cash ﬂows were reported for the last three-quarters, with
SEK 16.4 b. in the last quarter alone, which brought the total to
SEK 4.2 b. Further improvements in working capital
performance will still have high priority for 2002.

Equity ratio and Payment readiness (percent)

Investments in tangible assets (SEK b.)

40%

30%

20%

10%

1997

1998

1999

2000

2001

1997

1998

1999

2000

2001

Payment readiness

Equity ratio

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

Organization and employees

Organization and Management changes During 2001, the
previous divisional structure was modiﬁed to have ﬁve business
units responsible for product management, supported by a
number of core units for development and supply. The previous
ﬁve market areas were combined to three, and special Global
Customer Units were formed to better serve certain large
customers operating in multiple countries. In the context of our
efficiency program, the number of market units was also
consolidated from more than 100 to 35.

A number of changes were made in Ericsson’s corporate

executive team during 2001:
• Executive Vice President Haijo Pietersma resigned and

Executive Vice Presidents Bengt Forssberg, Johan Siberg and
Kjell Sörme retired

• A new COO function was established and Per-Arne

Sandström was appointed

• New Market Area managers were appointed:

The Americas: Gerhard Weise
Europe, Middle East & Africa: Mats Dahlin
Asia Paciﬁc: Ragnar Bäck

• New Business Unit managers were appointed:

Mobile Systems – WCDMA & GSM: Einar Lindquist
Mobile Systems – CDMA: Åke Persson
Multiservice Networks: Johan Bergendahl
Transport & Transmission: Björn Olsson
Global Services: Bert Nordberg

The negative cash ﬂow in the ﬁrst quarter plus the increasing

market uncertainty highlighted the need for a strong
reinforcement of our payment readiness. Therefore a borrowing
program was launched in the second quarter to increase cash and
to extend the maturity proﬁle of borrowings through
amortization of short-term loans. The program was successful,
and around SEK 26 b. raised.

To safeguard our freedom of action, we increased payment

readiness during the year from 11 to 28 percent, thereby
establishing a necessary cushion for potential swings in the cash
ﬂow. Adjusted for this temporarily increased cash balance, the
equity ratio at year-end, 29 percent, would have been
approximately 35 percent.

During the year, we made no material acquisitions, except for
our equity stake of SEK 2.8 b. in the joint venture Sony Ericsson
Mobile Communications and the SEK 0.3 b. purchase of
Hewlett-Packard’s remaining 19 percent holding in Ericsson
Hewlett-Packard (EHPT). Operational support systems were
transferred into Mobile Systems operations within Ericsson,
while billing products remain in EHPT.

Certain assets were divested:

• in the ﬁrst quarter, remaining shares in Juniper Networks were
sold with a capital gain of SEK 5.5 b. and a cash ﬂow of the
same magnitude

• in the second quarter, distribution operations within

Enterprise Systems were sold to Apax with no capital gain, but
with a cash ﬂow of SEK 3.4 b.

• during the year, real estate assets and operations, including our
London office at St. James’s place, were sold with a net capital
gain of SEK 1.3 b. and a cash ﬂow of SEK 4.7 b.

• in the fourth quarter, computers, servers and production test
equipment worth SEK 2.0 b. were sold, and SEK 8.0 b. of test
plants for software were sold and leased-back in a ﬁnancial
lease transaction.

Number of employees

100,000
1000

80,000
800

60,000
600

40,000
400

20,000
200

1997

1998

1999

2000

2001

Sweden

Total

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

B o a r d o f D i r e c t o r s ’ R e p o r t

Employees In the beginning of 2001, Ericsson had 105,000
employees. This number increased to 107,000 during the ﬁrst
quarter. Then the Efficiency Program was launched and certain
divestitures were made, which together reduced number of
employees by 22,000 to be 85,000 by year-end:
Efficiency Program
Back-to-Proﬁt program in Phones
Outsourcing/divestitures

10,600
4,000
7,400

Total

22,000

In addition, the number of consultants and temporary
workers was reduced from around 15,000 in March to less than
7,000 by year-end.

is continuously striving to reduce environmental impact from
production. No signiﬁcant environmental liabilities are known.

Board of Directors and Board procedures

All Directors of the Board were re-elected at the Annual General
Meeting held on March 28, 2001. The Board of Directors
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.

Sixteen Board meetings were held during year 2001.

Observations made by the Company auditors have been reported
to the Board.

These actions were necessary to reduce cost levels and remain

The work of the Board is subject to a Work Procedure,

competitive in a contracting market.

Employee share-based compensation During the year, 47.5
million employee stock options in the 2001 program were
granted to 15,000 employees. A stock purchase plan with
matching contributions 1:1 was also decided, and will be
implemented in 2002. To hedge potential cash ﬂow and secure
delivery of matching shares, a stock issue and a subsequent
repurchase of 155 million shares as treasury stock was made. This
increased restricted capital stock by SEK 155 m. and reduced
unrestricted capital stock by SEK 156 m.

Restructuring and Efficiency Program In order to mitigate the
adverse effects of the sharply declining sales, an efficiency
program was launched in the second quarter, mainly related to
Systems and aiming at reductions in expenses of approximately
SEK 20 b. per year. An acceleration of the ongoing Back-to-
Proﬁt-program in Phones was also made, in order to speed up
restructuring in preparation for a partnership with Sony.
Provisions of SEK 15 b. were made for charges under these
programs. Both programs were carried out according to plan and
projected reductions in run-rates of costs were achieved, which is
essential for performance improvement in 2002.

Environmental issues The ISO 14001, environmental
management system is implemented in all Ericsson production
units. As the ﬁrst company, Ericsson received a global ISO 14001
certiﬁcation. Ericsson was ranked number one in the
communications technology industry in Dow Jones’ index for
sustainability.

Ericsson has production operations in x countries for
manufacturing of cables and components and assembly of
electronic products. Ericsson has 14-x production facilities in
Sweden. For 7-y of these, permissions for emissions/noise are
required and for 5-z, hazardous activities shall be reported. Ericsson

adopted and revised by the Board at least once a year. The Work
Procedure stipulates the distribution of work among the Board
and its three committees and between the Board and the
President. The members of the three committees, Audit, Finance
and Remuneration, are appointed by the Board among its
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.

The Audit Committee consists of three members appointed

by the Board. The present members are Clas Reuterskiöld,
Chairman, Peter Sutherland and Jan Hedlund. In short, the
Audit Committee’s area of responsibility covers review of the
scope and execution of audits performed, review of ﬁnancial
reporting, internal audit functions, matters and reservations
arising from audits performed and audit fees.

The Finance Committee consists of four members appointed

by the Board. The present members are Lars Ramqvist,
Chairman, Tom Hedelius, Marcus Wallenberg and Göran
Engström. In short, the Finance Committee’s area of
responsibility covers to resolve investments and divestments,
capital contributions to companies inside and outside the
Ericsson Group, raising of loans, issuance of guarantees and
similar undertakings, provision of credits to customers and
suppliers as well as to continuously monitor the Group’s ﬁnancial
risk exposure.

The Remuneration Committee consists of two members

appointed by the Board. The present members are Göran
Lindahl, Chairman, and Sverker Martin-Löf. In short, the
Remuneration Committee’s area of responsibility covers to
review and prepare, for resolution by the Board, strategies and
general guidelines for compensation to employees, including
incentive plans and retirement compensation, as well as speciﬁc
proposals for salary, other remuneration and retirement
compensation to the President, Executive Vice Presidents, and
other officers reporting directly to the President.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

At the Annual General Meeting of Shareholders on March 28,

The number of mobile phones sold in 2001 was approximately

2001, the shareholders voted for the establishment of a
Nomination Committee, consisting of representatives of the
owners and the Chairman of the Board. The Board of Directors
is authorized to appoint the members of the Nomination
Committee in co-operation with major shareholders of the
Company. The present members are Lars Ramqvist, Chairman of
the committee, Percy Barnevik, Investor, Bo Rydin,
Industrivärden, Anders Ek, Robur, and Lars Otterbeck, Alecta.
The main task of the committee is to nominate individuals to be
elected Directors of the Board. The Nomination Committee
shall also prepare and present for resolution by the Annual
General Meeting a proposal for Board of directors’ fee. The
proposals of the Nomination committee shall be a part of the
notice to the general meeting at which the Board members are
appointed.

At the Board meeting on October 26, 2001, Lars Ramqvist
announced that he will not be available for re-election at the
Annual General Meeting in March 2002 and that the
Nomination Committee had nominated Michael Treschow
Chairman elect. Michael Treschow is currently President & C E O
of Electrolux. The Board has elected Lars Ramqvist Honorary
Chairman of the Board effective from the Annual General
Meeting 2002.

Post closing events

Ericsson has won its ﬁrst global contract to supply Multimedia
Messaging Services (MMS) software to Vodafone Group Plc
( U K ). The companies have agreed a rollout schedule that will see
commercial availability of the service in Europe from the middle
of this year.

Ericsson Mobile Platforms has signed a licensing agreement

regarding mobile phone technology for 2.5G and 3G / U M TS
with LG Electronics (Korea).

A contract is signed with Verizon Wireless (USA) for

Ericsson’s CDMA 2000 AAA (Authentication, Authorization and
Accounting) solution for Verizon’s CDMA 2000 1X RTT Express
Network.

A deposit of SEK 5.5 b. was made in January as a security for

the above-mentioned ﬁnancial lease of test plants until ﬁnal
reﬁnancing is in place.

Market view

390 million, close to our forecasted 400 million. In 2002, we
anticipate up to 10 percent unit volume growth, driven by new
subscribers as well as increased availability of replacement phones
with GPRS, Bluetooth, color screens and multi-media
messaging.

The slowdown in the telecommunications equipment market

continued during the fourth quarter, resulting in a more or less
ﬂat mobile systems market for the full year. The wireline systems
market contracted signiﬁcantly and is likely to shrink further
during 2002.

These market conditions are expected to persist well into 2002

with the ﬁrst half considerably weaker than the second. We
maintain our view that the global market for mobile systems will
be ﬂat to down 10 percent in 2002. However, the North
American market may show modest growth as operators upgrade
to GSM/GPRS, 3G/EDGE and C D M A2000.

The build-out of several 3G networks in Europe and Asia has
begun with launch of commercial services planned for later this
year. The number of 3G subscribers could reach well over one
million by the end of the year, depending on the availability of
phones.

Our market view is based on discussions with our customers
and on the current macro-economic outlook. We have assumed:
• that the market downturn will last well into 2002
• that there will be signiﬁcant net subscriber additions, with

increasing usage per subscriber

• that GPRS traffic will gradually build up of over the next 12

months

• that deployment of 3G systems will accelerate in the second

half of 2002.

Outlook for the year 2002

In the third quarter report, we stated that our sales of Mobile
Systems during 2002 were expected to be at least in line with the
market development of ﬂat to down 10 percent. We also stated an
objective of an operating margin over 5 percent for the full year,
even if net sales decline as much as 10 percent compared to 2001.

We maintain this outlook for the full year 2002 with an
operating loss in the ﬁrst quarter and results improving over the
year. Our objective is also to generate positive cash ﬂow for the
full year.

For the ﬁrst quarter of 2002, we expect sales to be

During 2001 the number of mobile subscribers worldwide grew
from 721 to about 950 million, in line with our forecasted growth
of around 30 percent. We expect about 200 million new
subscribers to be added in 2002, a solid growth rate of 20–25
percent. Our long-term forecast of 1.6 billion mobile subscribers
by the end of 2005 remains unchanged.

approximately SEK 40 b., with Mobile Systems sales declining
and particularly weak sales in Multiservice Networks. Income
before taxes is expected to be at about the same level as in the ﬁrst
quarter of 2001, including a small loss from Sony Ericsson
Mobile Communications. We will implement necessary cost
reductions on an ongoing basis to meet our operational targets.

Annual Report 2001 F i n a n c i al S t a t e m e n t s

B o a r d o f D i r e c t o r s ’ R e p o r t

Pro forma reporting in 2002 Next year, Ericsson will apply
changed Swedish accounting principles, affecting primarily the
treatment of development expenses. Subject to feasibility tests,
development expenses will be capitalized and subsequently
amortized. No adjustment of previous years is allowed, which
means that during the ﬁrst 3–4 years of usage, reported operating
income will increase, as capitalized amounts will exceed
amortization.

Ericsson is of the opinion that the resulting income is not
comparable with previous years and may mislead investors.
Ericsson has, however, for US GAAP purposes, already
capitalized development expenses for many years. For improved
comparability, we will therefore present pro forma income
statements, reﬂecting income as if capitalization according to the
new Swedish GAAP had been made also in previous years.

In these pro forma statements we will also report results of the

handset operations transferred to Sony Ericsson Mobile
Communications net under “Share in earnings of joint ventures
and associated companies” as if equity accounting had been
applied for year 2001. The total income amount will not be
changed.

Parent company Telefonaktiebolaget LM Ericsson

The Parent company business consists mainly of corporate
management and holding company functions. It also includes
activities performed on a commission basis by Ericsson Treasury
Services AB and Ericsson Credit AB regarding internal banking
and customer credit management. The Parent company has
branch and representative offices in 15 (15) countries.

In the second quarter, as decided at the Annual General
Meeting, a stock issue and a subsequent stock repurchase was
carried out related to the 2001 employee stock option and stock
purchase plans. The stock issue increased the capital stock in
restricted stockholders’ equity by SEK 155 m. and the repurchase
of shares reduced non-restricted equity by SEK 156 m.

Net sales for the year amounted to SEK 1.4 (1.2) b. and

income after ﬁnancial items was SEK –6.4 (9.0) b. Write-downs
of investments in subsidiaries have affected income by
SEK –19.0 b.

Major changes in the company’s ﬁnancial position were:

• Increased investments in subsidiaries of SEK 9.1 b.
• Increased current and long-term commercial and ﬁnancial

receivables from subsidiaries of SEK 25.7 b.

• Increased cash and short-term cash investments of SEK 23.2 b.
These investments were ﬁnanced primarily through increased
internal borrowing of SEK 44.3 b. and increased short and long-
term external borrowing of SEK 22.0 b. At year-end, cash and
short-term cash investments amounted to SEK 49.0 (25.9) b.
In Ericsson Credit AB, cash ﬂow was positively affected by

increased sales to the credit market of customer ﬁnancing
receivables.

Proposed disposition of earnings

Non-restricted equity available for distribution by the
shareholders at the Annual General Meeting is
SEK 13,289,420,303.

The Board of Directors proposes that no dividend be paid,

and that the whole amount be retained within the business.

Stockholm January 25, 2002
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Tom Hedelius
Deputy chairman

Göran Lindahl

Peter Sutherland

Göran Engström

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

Lars Ramqvist
Chairman

Marcus Wallenberg
Deputy chairman

Sverker Martin-Löf

Clas Reuterskiöld

Eckhard Pfeiffer

Jan Hedlund

Kurt Hellström
President and CEO

Niall FitzGerald

Per Lindh

C o n s o l i d a t e d I n c o m e S t a t e m e n t

Years ended December 31, SEK m.

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 joint ventures and 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, diluted, SEK

* Of which items affecting comparability

Non-operational capital gains/losses, net
Capital gain, Juniper
Pension refund
Restructuring costs

Total

Adjusted operating income
Adjusted income before taxes

Ratios – Adjusted Income statement items as percentage of net sales

Adjusted gross margin
Adjusted operating expenses
Adjusted operating margin

Capital gains/losses, net of minority, included in income before taxes
Operational gains/losses
Non-operational gains/losses

Ratios – Income statement items as percentage of net sales
Gross margin
Operating expenses
Operating margin
Return on sales

Other Ratios
Return on capital employed
Capital employed turnover
Accounts receivable turnover
Inventory turnover

Note

2001

2000

1999

231,839

–173,900

57,939

– 46,640
–31,694
–14,185

273,569
–180,392

93,177

– 41,921
– 34,706
–13,311

215,403
–125,881

89,522

– 33,123
– 30,005
–11,278

8,207
–721

–27,094

3,743
–5,782

–29,133

–1,176

–30,309

8,813
232

–21,264

–2.69

347
5,453
–
–15,000

–9,200

–17,894
–21,109

28.6%
37.0%
–7.7%

5,979
5,632
347

25.0%
39.9%
–11.7%
–10.1%

–15.8%
1.6
3.5
4.8

27,652
274

31,165

2,929
– 4,449

29,645

– 953

28,692

–7,998
324

21,018

2.67

2.65

5,933
15,383
1,100
– 8,000

14,416

16,749
14,276

36.8%
32.7%
6.1%

25,229
19,296
5,933

34.1%
32.9%
11.4%
12.5%

26.5%
2.1
3.9
5.2

2,224
250

17,590

2,273
– 2,971

16,892

– 506

16,386

– 4,358
102

12,130

1.55

1.54

– 328
–
–
–

– 328

17,918
16,714

41.6%
34.5%
8.3%

1,843
2,171
– 328

41.6%
34.5%
8.2%
9.2%

19.0%
2.1
3.7
4.8

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

C o n s o l i d a t e d I n c o m e S t a t e m e n t – P r o f o r m a

CONSOLIDATED INCOME STATEMENT – PRO FORMA

Pro forma format, reﬂecting results with parts of Phones transferred to the joint venture Sony Ericsson Mobile Communications, accounted for under
the equity method, and retained parts included in Other operations, and with items affecting comparability reported separately. No change in reported
total income numbers are made.

SEK m

Net sales
Cost of sales

Gross margin
Gross margin as percentage of net sales

Restructuring costs

Gross margin after restructuring costs

Research and development and other technical expenses
Selling expenses
Administrative expenses

Operating expenses
Operating expenses as percentage of net sales

Restructuring costs

2001

2000

210,837

221,586
–138,123 –120,617

72,714
34.5%

100,969
45.6%

Jan-Dec
Change

– 5%
15%

– 28%

–4,858

67,856

100,969

– 33%

15%
3%
–7%

–40,247
–26,927
–11,175

–78,349
37.2%

– 34,949
– 26,072
–12,004

–73,025
33.0%

–6,242

Operating expenses including restructuring costs

–84,591

–73,025

16%

Other operating revenues
Share in earnings of joint ventures and associated companies
Restructuring costs, Phones

Operating income*
Operating margin as percentage of net sales

Financial income
Financial expenses

Income after financial items

Minority interest in income before taxes

Income before taxes

Taxes

Net Income

*Of which items affecting comparability

Non-operational capital gains/losses, net
Capital gain, Juniper
Pension refund
Restructuring costs

Total

Adjusted operating income
Adjusted operating margin
Adjusted income before taxes

8,209
–14,668
–3,900

–27,094
–12.9%

27,132
–15,911
– 8,000

31,165
14.1%

3,743
–5,782

2,929
– 4,449

28%
30%

–29,133

29,645

–1,176

– 953

23%

–30,309

28,692

9,045

–7,674

–21,264

21,018

347
5,453
–
–15,000

5,933
15,383
1,100
– 8,000

–9,200

14,416

–17,894
–8.5%
–21,109

16,749
7.6%
14,276

Restructuring costs included in cost of sales and operating expenses are shown separately to facilitate comparisons between years.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

C o n s o l i d a t e d B a l a n c e S h e e t

December 31, SEK m.

ASSETS
Fixed assets
Intangible assets
Tangible assets
Financial assets

Equity in joint ventures and associated companies
Other investments
Long-term customer financing
Other long-term financial assets

Current assets
Inventories
Receivables

Accounts receivable – trade
Short-term customer financing
Other receivables

Short-term cash investments
Cash and bank

Total assets

STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES
Stockholders’ equity

Capital stock
Reserves not available for distribution

Restricted equity

Retained earnings
Net income

Non-restricted equity

Minority interest in consolidated subsidiaries

Provisions

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

Total stockholders’ equity, provisions and liabilities1

1 Of which interest-bearing provisions and liabilities 81,761 (46,563), current portion 20,324 (15,477)

Assets pledged as collateral
Contingent liabilities

Note

2001

2000

7, 23, 25

17, 20

13,066
16,075

4,497
3,100
4,225
13,739

54,702

12,833
22,378

2,790
2,484
6,364
3,657

50,506

24,910

43,933

57,438
2,174
41,993
36,046
32,793

195,354

250,056

8,066
29,593

37,659

52,192
–21,264

30,928

68,587

3,532

34,171

41,656
4,437
5,154
887

52,134

3,622
16,702
4,803
19,546
1,850
45,109

91,632

250,056

2,615
15,583

74,973
1,267
44,029
18,779
16,827

199,808

250,314

7,910
32,600

40,510

30,158
21,018

51,176

91,686

2,764

27,650

15,884
4,346
1,320
744

22,294

3,188
12,289
6,847
30,156
5,080
48,360

105,920

250,314

435
11,184

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

C o n s o l i d a t e d S t a t e m e n t o f C a s h F l o w s

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
Other operating assets, provisions and liabilities, net

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
Repayment of long-term debt
Stock issue
Gain on sale of own stock options and convertible debentures
Repurchase of own stock
Dividends paid

Cash flow from financing activities

Effect of exchange rate changes on cash

Net change in cash

Note

2001

2000

1999

–21,264

21,018

12,130

943
926
7,749
–6,126
–16,905

20,103
1,777
19,454
–7,340

–683

–8,306
9,683
5,322
–67
–1,766

4,866

629
–70
10,936
– 25,278
1,859

–18,305
946
–10,446
7,863

–10,848

–12,293
6,620
22,643
10
264

17,244

404
18
7,382
–1,399
– 947

714
722
– 9,911
3,812

12,925

– 9,085
625
– 4,768
134
– 2,270

–15,364

4,183

6,396

– 2,439

2,542
–
34,427
–4,361
155
–
–156
–4,295

28,312

738

33,233

799
1,048
1,760
–1,296
–
2,018
– 386
– 4,179

– 236

438

6,598

3,854
58
15,163
–1,515
–
–
–
– 4,010

13,550

– 336

10,775

Cash and cash equivalents, beginning of period

35,606

29,008

18,233

Cash and cash equivalents, end of period

68,839

35,606

29,008

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

P a r e n t C o m p a n y I n c o m e S t a t e m e n t

Years ended December 31, SEK m.

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
Deferred income taxes

Net income

2000 adjusted according to RR9 – Income taxes. See Accounting Principles and Notes.

Note

2001

1,374
–1,547

–173

–70
–3,446
–1,386

3,066

–2,009

19,224
–23,645

–6,430

4
1,172

1,176
115

–5,139
–219
612

–4,746

2000

1,195
–1,669

– 474

–166
–1,581
–1,142

3,061

– 302

12,352
– 3,090

8,960

74
70

144
700

9,804
– 671
–113

9,020

1999

15,375
–10,944

4,431

– 5,386
– 4,116
– 2,580

3,155

– 4,496

9,915
– 2,202

3,217

371
– 2,691

– 2,320
5,292

6,189
– 623
–

5,566

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

P a r e n t C o m p a n y B a l a n c e S h e e t

December 31, SEK m.

Note

2001

2000

ASSETS
Fixed assets
Intangible assets
Tangible assets
Financial assets
Investments

Subsidiaries
Joint ventures and associated companies
Other investments
Receivables from subsidiaries
Long-term customer financing
Other long-term financial assets

Current assets
Inventories
Receivables

Accounts receivable — trade
Short-term customer financing
Receivables from subsidiaries
Other receivables

Short-term cash investments
Cash and bank

Total assets

Assets pledged as collateral

2000 adjusted according to RR9 – Income taxes. See Accounting Principles and Notes.

7, 25

8, 9

111
61

44,483
3,725
54
29,673
1,894
2,919

82,920

33
96

35,353
1,008
84
22,682
6,320
1,918

67,494

805
2,197
54,495
10,237
36,399
12,616

116,751

199,671

1,493

102
629
35,757
10,117
17,361
8,501

72,470

139,964

322

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

December 31, SEK m.

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

Total stockholders’ equity, provisions and liabilities

Contingent liabilities

2000 adjusted according to RR9 – Income taxes. See Accounting Principles and Notes.

Note

12, 17

2001

2000

8,066
3,694
20
6,741

18,521

18,035
–4,746

13,289

31,810

4,086

5,055

41,656
4,437
272
45,574
128

92,067

3,344
318
17
807
57,376
–
4,791

66,653

7,910
3,685
20
6,741

18,356

13,125
9,020

22,145

40,501

5,262

2,833

15,884
4,346
322
13,345
37

33,934

2,713
4,756
34
527
45,360
265
3,779

57,434

199,671

23,597

139,964

13,406

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

P a r e n t C o m p a n y S t a t e m e n t o f C a s h F l o w s

Years ended December 31, SEK m.

OPERATIONS
Net income

Adjustments to reconcile net income to cash
Depreciation and amortization
Write-downs and capital gains (–)/losses on sale of fixed assets
Appropriations to/transfers from (–) untaxed reserves
Unsettled contributions from (–)/to subsidiaries
Unsettled dividends
Deferred taxes

Changes in operating net assets
Inventories
Customer financing, short-term and long-term
Accounts receivable — trade
Other operating assets, provisions and liabilities, net

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

Note

2001

2000

1999

–4,746

9,020

5,566

56
18,983
–1,176
38
–3,700
–612

1
2,858
–1,373
12,015

22,344

–20
23
–9,196
–14,037
–1,343

–24,573

56
– 2,268
–144
–190
– 3,800
–113

2
– 514
–708
3,960

5,527

– 91
331
– 3,174
– 24,086
1,705

– 25,315

322
41
2,320
– 5,200
– 3,904
–

655
– 6,188
– 450
2,047

– 4,791

– 368
1,810
– 5,185
– 4,397
–1,705

– 9,845

Cash flow before financing activities

–2,229

–19,788

–14,636

Financing
Changes in current liabilities to financial institutions, net
Changes in current liabilities to subsidiaries
Proceeds from issuance of other long-term debt
Repayment of long-term debt
Stock issue
Repurchase of own stock
Dividends paid
Other

Cash flow from financing activities

Net change in cash

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

2000 adjusted according to RR9 – Income taxes. See Accounting Principles and Notes.

–4,400
8,980
28,244
–3,582
155
–156
–3,953
94

25,382

23,153

25,862

49,015

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

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

ACCOUNTING PRINCIPLES

B Goodwill

The consolidated ﬁnancial statements of Telefonaktie-
bolaget 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.

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”.

A Principles of consolidation

C Translation of foreign currency financial statements

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.

For most subsidiaries, joint ventures 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.

In the consolidated Income Statement, minority interests

Financial statements of companies with ﬁnance activities

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 gives a fairer 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
proportion to ownership 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.

Interests in joint ventures are accounted for according to

the equity method.

or other companies, having such close relations with the
Swedish operations that their functional currency is
considered to be the Swedish krona, 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 are reported directly against stockholders’
equity. The remeasurement method, which is in accordance
with US GAAP FAS 52, gives a fairer view of these ﬁnancial
statements than a translation directly to Swedish kronor,
since companies concerned operate in de facto US dollar- or
Euro-based economies.

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.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

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.

assets are amortized over a maximum period of 5 years. See B
above for amortization of goodwill. Amortisation and
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.

E Valuation of and accounting for financial instruments

H Receivables

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 investments, interest related derivatives and
the interest component in foreign exchange 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. Foreign exchange derivatives
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 between
actual and hedged ﬂows are recognized in income as soon as
they are identiﬁed.

Financial assets and liabilities are reported net when a
legally enforceable right for offset exists and there is intent
to settle on a net basis or to realise the asset and settle the
liability at the same time.

F Intangible and tangible fixed assets

Intangible and 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. Intangible

Receivables are reported at anticipated realizable value.

Sales of trade receivables and customer ﬁnancing accounts

are reﬂected as a reduction of receivables in the
accompanying Balance Sheets and the proceeds received are
included in cash ﬂows from operating activities in the
accompanying Statements of Cash Flows.

For sale of receivables with recourse a provision has been
recorded for the estimated value of the recourse liability. The
excess of the recourse obligation over the recorded liability is
included in contingent liabilities.

I 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
proportionally with the progress. The stage of completion is
based on the value of the parts delivered in proportion to the
total contract value. If costs required to complete such
contracts are estimated to exceed remaining revenues,
provisions are made for estimated losses.

Customer contracts include a high degree of integration
between different products, software and services, and are
often a mix of construction-type contracts and normal
delivery contracts. A disclosure in accordance with RR10,
§39a, and RR11, §35b, regarding the amounts for different
categories of revenue is considered misleading and is not
calculated by the Company.

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

J Research and development costs

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

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

K Leasing

Financial leasing contracts are capitalized and reported as
tangible assets and as other current liabilities and other long-
term liabilities.

L Deferred tax

The Group and, as from 2001, also the Parent company
report 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 to the extent that it is probable
that future taxable proﬁts will be available against which the
unused tax losses can be utilised.

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.

Deferred tax assets and liabilities are, in deviation from

the Swedish Financial Accounting Standards Council’s
recommendation RR09, reported as current and long-term
in the Balance Sheet, since the Company considers that this
method gives a fairer view of the Company’s position.

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.

Deferred tax assets on internal proﬁt in inventory are
calculated to reﬂect the tax effect in the periods in which the
temporary differences are expected to reverse.

M Statement of Cash Flows

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 and cash equivalents consist of cash, bank
and short-term investments due within 12 months.

N 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 related hedging arrangements.

O Earnings per share

Basic earnings 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 were exercised (potential
ordinary shares). Net income is adjusted by reversal of
interest expense for convertible debentures net of tax.

Potential ordinary shares are treated as dilutive when, and

only when, their conversion to ordinary shares decrease net
proﬁt per share.

P Changes in accounting principles in 2002

The Swedish Financial Accounting Standards Council
(Redovisningsrådet) has issued the following
recommendations, which will be adopted by the Company
in 2002:
• Business Combination (RR1:00)
• Intangible assets (RR15)
• Provisions, contingent liabilities and contingent assets

(RR16)

• Impairment of assets (RR17)
• Discontinuing operations (RR19)
• Borrowing costs (RR21)
• Related party disclosure (RR23)

RR15 is expected to have a material positive effect on

income for 2002.

Presentation of ﬁnancial statements (RR22) will be

adopted from January 1, 2003.

Q 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 2000.

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 accounts for 2000 and 2001.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

1 Net sales by market area and business segment

3 Financial income and expenses

MARKET AREAS
Consolidated

Western Europe*
Central and Eastern Europe,
Middle East & Africa
North America
Latin America
Asia Pacific

Total

* Of which Sweden
* Of which EU

Parent company

Western Europe*
Central and Eastern Europe,
Middle East & Africa
North America
Latin America
Asia Pacific

Total

* Of which Sweden
* Of which EU

BUSINESS SEGMENTS
Consolidated

Systems
of which Mobile Systems

Multiservice Networks

Phones
Other operations
Less: Inter segment sales

Total

2001

2000

1999

71,105 100,234

85,329

35,867
31,379
34,516
58,972

37,701
35,193
44,118
56,323

29,736
25,175
30,263
44,900

231,839 273,569 215,403

7,341
66,561

8,732
94,293

7,551
80,345

2001

2000

1999

–

7,832

1,143
–
231
–

1,374

–
–

1,037
-
107
33

3,075
273
2,036
2,159

1,195

15,375

–
–

2,346
8,047

2001

2000

187,777 194,747
154,343 158,083
36,664
33,434
56,279
23,567
35,927
30,816
–10,321 –13,384

231,839 273,569

Parent company sales are mainly related to business segment Systems.

2 Other operating revenues

Consolidated

2001

2000

1999

Consolidated

2001

2000

1999

Financial Income
Result from securities and
receivables accounted for
as fixed assets
Other interest income and
similar profit/loss items

Total

Financial Expenses
Interest expenses and
similar profit/loss items

Financial Net

1,605

1,624

1,426

2,138

3,743

1,305

2,929

847

2,273

5,782

4,449

2,971

–2,039

–1,520

– 698

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

Parent company

2001

2000

1999

Financial Income
Result from participations
in subsidiaries
Dividends*
Net gains on sales
Result from participations
in associated companies

14,442
7

6,531
228

7,750
–

Dividends
Net gains/losses (–) on sales

23
–6

125
1,925

122
123

Result from other securities
and receivables accounted
for as fixed assets

Dividends
Net gains on sales

Other interest income and
similar profit/loss items

Subsidiaries
Other**

Total

–
37

2
182

2
–

3,674
1,047

2,253
1,106

19,224

12,352

1,365
553

9,915

* Anticipated dividends amount to SEK 3,700 m. in 2001, SEK 3,800 m. in

2000 and SEK 3,900 m. in 1999.

** Of the total amount, SEK –978 m. in 2001, SEK –596 m. in 2000, and
SEK –4 m. in 1999 is attributable to hedge of net investments in foreign
subsidiaries.

1,962

2,107

307

Parent company

2001

2000

1999

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

–1,317

–731

– 244

5,830

24,133

1,733

–349

– 231

– 397

6,126

25,278

1,399

2,081

2,374

825

8,207

27,652

2,224

Parent company

2001

2000

1999

Financial Expenses
Losses on sales of participations
in subsidiaries
Write-down of investments
in subsidiaries
Losses on sales of participations
in associated companies
Interest expenses and similar
profit/loss items
Subsidiaries
Other

Other financial expenses

Total

19,000

–

109

–

2,080
2,536
12

1,619
1,452
19

23,645

3,090

–4,421

9,262

887
1,197
9

2,202

7,713

3,068

3,128

3,210

Financial Net

–2

– 67

– 55

3,066

3,061

3,155

Parent company’s interest expenses on pension liabilities are included in
the interest expenses shown above.

Commissions, license fees
and other operating revenues
Net losses (–) on sales of
tangible assets

Total

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

4 Income taxes for the year

INCOME STATEMENT
The following items are included in Income taxes for the year:

A reconciliation between actual tax income (– expense) for the year
and the theoretical tax income (– expense) that would arise when applying
the tax rate in Sweden, 28 percent of Income before taxes, shows as
follows:

Consolidated
2000

2001

Parent company
2000

2001

–5,033

– 8,927

–241

– 671

216

– 33

–

13,742

1,061

612

–113

Current income taxes
for the year
Current income taxes
related to prior years
Deferred income/
expense (–) taxes
related to temporary
differences
Share of taxes in joint
ventures and associated
companies

Income taxes for the year

8,813

–7,998

–112

– 99

–

393

–

–784

Deferred tax income and expenses
The amounts of deferred tax income and expenses are shown in the
following table.

Consolidated
2000

2001

Parent company
2000

2001

Deferred tax income*
Deferred tax expenses*

17,429
–3,687

5,288
– 4,227

612
–

15
–128

Income before taxes
Tax rate in Sweden (28%)
Effect of foreign tax rates
Current income taxes
related to of prior years
Tax effect of expenses that
are non-deductible for
tax purpose
Tax effect of income that
are non-taxable for
tax purpose
Tax effect of changes
in tax rates
Tax effect related to
write-downs of investments
in subsidiaries
Tax effect of tax losses
carryforwards, net

Consolidated
2000

2001

Parent company
2000

2001

–30,309
8,487
986

28,692
– 8,033
–730

–5,139
1,439
–

9,804
– 2,745
–

216

– 33

–

–864

–1,506

–220

–136

260

2,395

4,472

2,097

–

–5,320

–123

233

–

Income taxes for the year

9,045 * –7,674 *

393

–784

* Of which minority interest in taxes –232 (–324).

Deferred taxes
income/expense, net

* Related to temporary differences

13,742

1,061

612

–113

The Consolidated effective tax rate is 30 (27) percent. In the Parent
company the effective tax rate is 8 (8) percent.

Consolidated
Deferred income tax refer to tax losses carryforwards by SEK 7,986 m.
(388) and to certain provisions for restructuring, off-balance sheet
customer ﬁnancing, warranty commitments and allowances for doubtful
receivables.

Deferred tax expenses refer to reversal of temporary differences
regarding certain opening provisions for restructuring and warranty
commitments.

Parent company
Deferred income tax refer to provisions for customer ﬁnancing
commitments and certain pension obligations.

Consolidated
Tax effect of expenses that are non-deductible refer to depreciation of
goodwill and other non-deductible expenses.

Tax effect of income that are non-taxable refer mainly to capital gains.

Parent company
Tax effect of expenses that are non-deductible refer mainly to option
expenses, tax on dividend and foreign income.

Tax effect of income that are non-taxable refer mainly to dividends.

BALANCE SHEET
Deferred tax assets and liabilities
Tax effects of temporary differences have resulted in deferred tax assets
and liabilities as follows:

Deferred tax assets,
current
Deferred tax assets,
long-term
Deferred tax liabilities,
current
Deferred tax liabilities,
long-term

Consolidated
2000

2001

Parent company
2000

2001

11,321

6,533

9,591

1,034

216

770

1,662

2,311

771

858

–

469

548

–

Consolidated
Deferred tax assets refer to tax losses carryforwards and certain provisions
for restructuring, off-balance sheet customer ﬁnancing, warranty
commitments and allowances for doubtful receivables. Deferred tax assets
regarding tax losses carryforwards amount to SEK 8,525 m. (515) of which
SEK 335 m. (306) is reported as current and SEK 8,190 m. (209) is
reported as long-term.

Deferred tax liabilities refer mainly to untaxed reserves.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

6 Intangible assets

Licenses,

trademarks and
similar rights

Patents and
aquired
research and
develop-
ment

Goodwill

Total

Consolidated

1,410
207

Accumulated acquisition costs
Opening balance
Acquisitions
Balances regarding
acquired and
sold companies
Sales/disposals
Translation difference
for the year

– 30
–120

1,232
83

14,300 16,942
763

473

–
–

–
– 32

–30
–152

999

1,121

Closing balance

1,566

1,338

15,740 18,644

Accumulated depreciation
Opening balance
Depreciation for
the year
Balances regarding
acquired and
sold companies
Sales/disposals
Translation difference
for the year

–1,213

– 477

– 2,419 –4,109

–156

– 95

–1,123 –1,374

22
92

–
–

–
7

22
99

– 81

–11

–124

–216

Closing balance

–1,336

– 583

– 3,659 –5,578

Net carrying value

230

755

12,081 13,066

Parent company

Accumulated acquisition costs
Opening balance
Acquisitions

Closing balance

Accumulated depreciation
Opening balance
Depreciation for the year

Closing balance

Net carrying value

Patents, licenses,
trademarks
and similar rights

111
105

216

–78
–27

–105

111

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

Parent company
Deferred tax assets refer mainly to provisions for customer ﬁnancing
commitments and certain pension obligations.

Investments in subsidiaries, joint ventures
and associated companies
Due to losses in certain subsidiaries the book value of certain investment
in subsidiaries, joint ventures and associated companies are less than the
tax value of these investments. However, since deferred tax assets have
been reported with respect to losses in these companies and the
uncertainty as to which deductions can be realized in the future, with
respect to the above differences between book and tax value, these
amounts are not reported.

Tax losses carryforwards
Deferred tax assets regarding not utilized losses carryforwards are reported
to the extent that realization of the related tax beneﬁt through the future
taxable proﬁts is probable also when considering the period during which
these can be utilized as described below.

At December 31 2001 these unutilized losses carryforwards, essentially

all reﬂected as an asset, amounted to MSEK 27,613.

The ﬁnal years in which these losses carryforwards can be utilized are

shown in the following table:

Year of expiration

2002
2003
2004
2005
2006
2007 or later

Total

2001

500
133
36
214
716
26,014

27,613

The Parent company has no unutilized loss carryforwards.

Tax effects reported directly to stockholders’ equity
Tax effects reported directly to stockholders’ equity regarding equity hedge
amount to SEK 233 m. (140).

5 Earnings per share

Consolidated

2001

2000

1999

Earnings per share, basic
Net income
Average number of shares
outstanding (millions)

Earnings per share, diluted
Net income
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)

–21,264

21,018

12,130

7,909

7,869

7,817

–2.69

2.67

1.55

–21,264

21,018

12,130

176

207

185

–21,088

21,225

12,315

7,988

8,004

7,987

2.65

1.54

* Not applicable: Potential ordinary shares are not considered when their

conversion to ordinary shares would increase earnings per share.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

7 Tangible assets

Consolidated

Accumulated 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

Closing balance

Accumulated revaluations, net
Opening balance
Depreciation for the year
Sales/disposals
Translation difference for the year

Closing balance

Net carrying value

Parent company

Accumulated acquisition costs
Opening balance
Acquisitions
Sales/disposals

Closing balance

Accumulated depreciation
Opening balance
Depreciation for the year
Sales/disposals

Closing balance

Net carrying value

Land and
buildings

6,262
341

– 3
– 4,709
579
579

3,049

Machinery

Other
equipment

Construction
in process
and advance
payments

19,194
3,299

– 84
– 8,711
882
668

15,248

27,676
2,487

– 254
–7,840
1,428
1,232

24,729

1,569
2,179

– 22
–182
– 2,889
42

697

–1,609
– 314

–13,555
–1,408

–17,405
– 4,685

3
1,051
–
– 283

56
5,191
– 87
– 396

94
6,377
87
– 803

–1,152

–10,199

–16,335

243
–
– 212
7

1,935

–
–
–
–

–

3
–
– 3
–

–

Total

54,701
8,306

–363
–21,442
–
2,521

43,723

–32,569
–6,407

153
12,619
–
–1,482

–27,686

246
–
–215
7

–
–

–
–
–
–

–

–
–
–
–

–

5,049

8,394

697

16,075

Land and
buildings

Machinery

Other
equipment

Construction
in process
and advance
payments

23
–
–

–
–
–

–

167
–
–155

–156
–1
146

–11

130
20
– 46

104

– 68
– 28
29

– 67

–
–
–

–

–
–
–

–

Total

320
20
–201

139

–224
–29
175

–78

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

OTHER FINANCIAL ASSETS

Consolidated

Accumulated acquisition costs
Opening balance
Acquisitions/credits granted
Sales/repayments
Translation difference
for the year

Closing balance

Accumulated revaluations
Opening balance
Revaluations for the year
Sales/repayments
Translation difference
for the year

Closing balance

Accumulated write-downs 1
Opening balance
Write-downs for the year
Sales/repayments
Translation difference
for the year

Closing balance

Net carrying value

Other
Long-term long-term
financial
assets

customer
financing

Other
investments

2,975
973
– 387

8,426
1,564
– 3,929

3,744
11,968
– 2,054

168

126

242

3,729

6,187

13,900

30
–
– 30

–

– 521
– 45
– 3

– 2,062
–1 422
1,556

– 60

– 34

– 87
–79
10

– 5

– 629

–1,962

–161

3,100 2

4,225

13,739

1 Write-downs are included in Selling expenses due to the close relation to

operations.

2 Market value per December 31, 2001 for listed shares was SEK 587 m. with

a net carrying value of SEK 332 m.

3 Of which deferred tax assets SEK 9,591 m. (1,034).

Parent company

Accumulated acquisition costs
Opening balance
Acquisitions/credits granted
Sales/repayments
Long term deferred tax receivables
Translation/revaluation
difference for the year

Closing balance

Accumulated write-downs
Opening balance
Write-downs for the year
Sales/repayments

Closing balance

Net carrying value

Other
Long-term long-term
financial
assets

customer
financing

7,455
1,248
– 5,901
–

1,918
1,237
– 627
858

–

– 467

2,802

2,919

–1,136
– 465
693

– 908

1,894

–
–
–

–

2,919

* Opening balance is adjusted according to RR9 – Income taxes. See

Accounting Principles and Notes.

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

8 Financial assets

EQUITY IN JOINT VENTURES AND ASSOCIATED COMPANIES

Consolidated

Opening balance
Share in earnings
Taxes
Translation difference for the year
Dividends
Acquisitions
Sales

Joint Associated
ventures companies

–
–702
60
–135
–
2,752
–

2,790
–19
–172
71
– 29
61
–180

Closing balance

1,975

2,522

Goodwill, net, amounts to SEK 19 m. (76) of the investments.
Dividends received from companies accounted for under the equity
method were SEK 138 m. in 2000 and SEK 131 m. in 1999.

Share of assets, liabilities and income in joint ventures

Consolidated

Fixed assets
Current assets
Provisions
Long-term liabilities
Current liabilities

Net assets

Net sales
Income before taxes
Net income

Assets pledged as collateral
Contingent liabilities

Total

2,790
–721
–112
–64
–29
2,813
–180

4,497

623
5,659
318
–
3,989

1,975

4,840
–702
– 642

15
112

The associated ﬁnance companies, AB LM Ericsson Finans and Ericsson
Project Finance AB, are accounted for in accordance with the equity
method. The companies' total assets amount to SEK 14.2 b. and are
ﬁnanced by the Company at SEK 4.0 b. and by external ﬁnancing at
SEK 9.0 b. In Ericsson Project Finance AB, external loans of SEK 5.7 b.
are ﬁnancing customer credits of the same amount. Ericsson has, through
a guarantee assumed a ﬁrst loss risk of SEK 2.9 b., remaining risk,
SEK 2.8 b., is carried by the creditors. Ericsson’s guarantees of loans of the
above associated companies are included in contingent liabilities.

Parent company

Investments
Opening balance
Acquisitions and
stock issues
Shareholders’
contribution
Revaluations for
the year
Write-downs
Reclassifications
Sales

Sub-
sidiaries

Joint Associated
ventures companies

Other
investments

35,353

–

1,008

2,503

2,752

27,000

–
–19,000
–
–1,373

–

–
–
–
–

–

–
–
–10
– 26

973

–

2
–
10
– 42

Closing balance

44,483

2,752

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

9 Investments

The following listing shows certain shareholdings owned directly and
indirectly by the Parent company. A complete listing of shareholdings,

SHARES OWNED DIRECTLY BY THE PARENT COMPANY

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.

Type Company

Reg. No.

Domicile

Percentage of
ownership

Par value
in local
currency

Carrying
value

556137-8646
556090-3212
556028-1627
556056-6258
556251-3258
556251-3266
556250-2046
556329-5657
556128-5924
556250-9454
556212-7398
556577-9799
556606-5438
556018-0191
556030-9899
556381-7666
556381-7609
556329-5673
556326-0552

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

Ericsson Utvecklings AB
Ericsson Enterprise AB
Ericsson Microwave Systems AB
Ericsson Radio Systems AB
Ericsson Telecom AB
Ericsson Mobile Communications AB
Ericsson Radio Access AB
Ericsson Sverige AB
Ericsson Business Innovation AB
Ericsson Global IT Services AB
Ericsson Software Technology AB
EHPT Sweden AB
Ericsson Juniper Networks Mobile IP AB
SRA Communication AB
AB Aulis
LM Ericsson Holding AB
Ericsson Gämsta AB
Ericsson Treasury Services AB
Ericsson Credit AB
Other (Sweden)
Ericsson Austria AG
LM Ericsson A/S
Oy LM Ericsson Ab
Ericsson Participations S.A.
Ericsson GmbH
Ericsson Communications Systems Hungary Ltd.
LM Ericsson Holdings Ltd.
Ericsson Treasury Ireland Ltd.
Ericsson Financial Services Ireland
Ericsson S.p.A. 7
Ericsson A/S
Ericsson Corporatio AO
Ericsson AG
Ericsson Holding Ltd.
Other (Europe, excluding Sweden)
Ericsson Holding II Inc.
Cía Ericsson S.A.C.I.
Teleindustria Ericsson S.A.
Other (United States, Latin America)
Teleric Pty Ltd.
Beijing Ericsson Mobile Communication Co. Ltd
Ericsson Ltd.
Ericsson (China) Company Ltd.
Nanjing Ericsson Communication Co. Ltd.
Ericsson Telecommunications Ltd.
Ericsson Telecommunications Sdn. Bhd.
Ericsson Telecommunications Pte. Ltd.
Ericsson Taiwan Ltd.
Ericsson (Thailand) Ltd.
Other countries

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

II
I
I

II
I
I
I
I
I
I
I
I
I

Joint ventures and associated companies
I
III
III
I

Sony Ericsson Mobile Communications AB 556615-6658
556008-8550
AB LM Ericsson Finans
556058-5936
Ericsson Project Finance AB
Ericsson Nikola Tesla
Other

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
Ireland
Italy
Norway
Russia
Switzerland
United Kingdom

United States
Argentina
Mexico

Australia
China
China
China
China
Indien
Malaysia
Singapore
Taiwan
Thailand

Sweden
Sweden
Sweden
Croatia

100
100
100
100
100
100
100
100
100
100
100
100
60
100
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
41 3
100
70
100
80
49 4
–

10
360
30
50
100
361
20
100
–
85
1
100
–
47
14
105
162
1
5
–
60
90
80
144
39
1,301
2
81
300
18,421
156
950
–
74
–
–
5
n/a
–
20
5
2
50
9
725
2
–
240
15
–

17
335
151
636
6,520
9,716
41
100
801
252
67
2,247
50
145
6
1,122
324
2
5
661
664
216
195
485
341
120
14
3,924
2,951
105
194
4
–
757
64
9,508
10
572
133
99
36
2
369
61
147
4
1
19
4
286

Total

–

44,483

50
90 5
91 6
49
–

Total

50
29
425
196
–

–

2,752
41
510
330
92

3,725

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

9 Investments continued

SHARES OWNED BY SUBSIDIARIES

Type Company

Reg. No.

Domicile

Percentage of
ownership

Subsidiaries
I
I
II
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 Network Technologies AB
Ericsson Microelectronics AB
Ericsson Cables Holding AB
Ericsson France S.A.
LM Ericsson Ltd.
Ericsson Telecomunicazioni S.p.A.
Ericsson Holding International B.V.
Ericsson Nederland B.V.
Ericsson Telecommunicatie B.V.
Ericsson España S.A.
Ericsson Ltd.
Ericsson Mobile Communications (U.K.) Ltd.
Ericsson Canada 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
Ericsson Consumer Products Asia Pacific Pte Ltd.
Ericsson Australia Pty. Ltd.

Associated Companies
Symbian Ltd.
I

Key to type of company
I Manufacturing, distributing and development companies
II Holding companies
III Finance companies

10 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

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

556000-0365
556611-6389
556044-9489

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

1 Through subsidiary holdings, total holdings amount to 100% of Ericsson

Holding II Inc.

2 Through subsidiary holdings, total holdings amount to 49% of Beijing
Ericsson Mobile Communications Co. Ltd., but the voting power is in
excess of 50%.

3 Through subsidiary holdings, total holdings amount to 51% of Nanjing

Ericsson Communication Co. Ltd.

4 Through subsidiary holdings, total holdings amount to 100% of Ericsson

(Thailand) Ltd.
5 Voting power is 40%.
6 Voting power is 49%.
7 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, 2001, was
SEK 4,706 m.

2001

9,185
1,224
5,728
13,653
–4,880

24,910

Consolidated
2000

2001

Parent company
2000

19,907
3,723
4,499
17,771
–1,967

43,933

1
–
3
5
–7

1
–
2
9
– 9

11 Accounts receivable — trade

14 Stockholders’ equity

Consolidated
2000

2001

Parent company
2000

2001

Capital stock
Capital stock at December 31, 2001, consisted of the following:

Notes and
accounts receivable
Receivables from
associated companies

Total

56,404

74,591

1,034

382

57,438

74,973

753

805

–

102

Allowances for doubtful accounts amounting to SEK 2,655 m. (2,014) and
SEK 276 m. (275) in the Parent company, which has reduced the amounts
shown above, include amounts for estimated losses based on commercial
risk evaluations.

Retention receivables, recognised as revenue was SEK 6,924 m. at

December 31, 2001.

12 Receivables and payables — subsidiaries

Parent company

Long-Term Receivables*
Financial receivables
Current Receivables
Commercial receivables
Financial receivables

Total

Long-Term Liabilities*
Financial liabilities
Current Liabilities
Commercial liabilities
Financial liabilities

Total

2001

2000

29,673

22,682

2,218
52,277

1,548
34,209

54,495

35,757

45,574

13,345

381
56,995

648
44,712

57,376

45,360

* Including non-interest bearing receivables and liabilities, net, amounting
to SEK –17,212 m. (6,224). Interest-free transactions involving current
receivables and liabilities may also arise at times.

13 Other receivables

Receivables from
associated companies
Prepaid expenses
Accrued revenues
Advance payments
to suppliers
Deferred tax assets
Other

Consolidated
2000

2001

Parent company
2000

2001

2,586
3,389
5,824

3,083
4,790
5,124

603
11,321
18,270

1,440
6,533
23,059

2,564
716
598

–
771
5,588

2,163
404
437

–
469
6,644

Total

41,993

44,029

10,237

10,117

A shares (par value SEK 1.00)
B shares (par value SEK 1.00)

Number of
shares
outstanding

656,218,640
7,409,285,367

8,065,504,007

Aggregate
par value

656
7,410

8,066

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 155,000,000 of the above stated Ericsson B shares have

been repurchased by the Parent company. The total number of treasury
stock at December 31, 2001 is 156,804,000.

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 were revalued in previous years, provided they had 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 is reduced correspondingly.

Cumulative translation adjustments

Opening balance
Changes in cumulative translation adjustments

Closing balance

–140
2,110

1,970

Changes in cumulative translation adjustments include changes regarding
recalculation of goodwill in local currency, SEK 996 m. (SEK 779 m), net
gain/loss (–) from hedging of investments in foreign subsidiaries, SEK
–600 m. (SEK –360 m.) and SEK 5 m. (SEK 9 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

2001

134
28
9

171

2000

165
– 41
1

125

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

14 Stockholders’ equity continued

Changes in stockholders’ equity

Consolidated

Opening balance
Stock issue
Repurchase of own stock
Conversion of debentures
Capital discount
Dividends paid
Transfer between non-restricted
and restricted reserves
Changes in cumulative
translation adjustments
Net income 2001

Capital
stock

7,910
155
–
1
–
–

–

–
–

Equity
proportion
reserve

1,402
–
–
–
–
–

Other
restricted
reserves

31,198
–
–
10
–1
–

Total
restricted
equity

40,510
155
–
11
–1
–

Non-
restricted
equity

51,176
–
–156
–
–
– 3,954

Total

91,686
155
–156
11
–1
–3,954

–102

– 5,024

– 5,126

5,126

–

–
–

2,110
–

–
– 21,264

2,110
–21,264

68,587

Closing balance

8,066

1,300

28,293

37,659

30,928

Of retained earnings, SEK 52 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.

Total

Capital
stock

premium Revaluation
reserve

reserve1

Statutory
reserve

restricted Disposition
reserve

equity

Other
retained
earnings

Non-
restricted
equity

Total

Parent company

Opening balance according to
adopted balance sheet for last year
Adjustment due to change
in accounting principles

Opening balance adjusted to RR09
Stock issue
Repurchase of own stock
Conversion of debentures
Capital discount
Dividends paid
Net income 2001

Closing balance

7,910

3,685

–

7,910
155
–
1
–
–
–

8,066

–

3,685
–
–
10
–1
–
–

3,694

–

20
–
–
–
–
–
–

–

6,741
–
–
–
–
–
–

18,356
155
–
11
–1
–
–

6,741

18,521

6,741

18,356

100

21,028

21,128

39,484

–

1,017 2

1,017

100
–
–
–
–
–
–

100

22,045
–
–156
–
–
– 3,954
– 4,746

22,145
–
–156
–
–
– 3,954
– 4,746

40,501
155
–156
11
–1
–3,954
–4,746

13,189

13,289

31,810

1 1996 and prior years’ share premium is included in Statutory reserve.
2 Opening balance is adjusted according to RR9 – Income taxes. See Accounting Principles and Notes.

In the Income statement for 2000 Income taxes for the year has increased by SEK 113 m. to SEK 784 m. In the Balance sheet for 2000 Other long-term
receivables have increased by SEK 548 m. to SEK 1,918 m. and Other short-term receivables have increased by SEK 469 m. to SEK 10,117 m.

15 Untaxed reserves

Parent company

Accumulated depreciation in excess of plan
Intangible assets
Tangible assets

Total accumulated depreciation in excess of plan

Other Untaxed Reserves
Reserve for doubtful receivables
Income deferral reserve

Total other untaxed reserves

Total Untaxed Reserves

Appropriations/
withdrawals(–)

Jan. 1

Dec. 31

11
38

3,020
2,193

5,213

5,262

16
– 20

– 4

247
–1,419

–1,172

–1,176

27
18

3,267
774

4,041

4,086

Changes in other untaxed reserves in the Parent company in 2000 consist of the following: withdrawal of tax equalization reserve, SEK 127 m. (127 in
1999); appropriations to reserve for doubtful receivables, SEK 389 m. (–2,289 in 1999) and allocation to income deferral reserve SEK 446 m. (529 in 1999).
Deferred tax liability, not accounted for, on untaxed reserves, amounts to SEK 1,144 m. in 2001, SEK 1,473 m. 2000 and SEK 1,514 m. 1999.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

16 Provisions

Pensions and similar
commitments
Deferred taxes
Warranty
commitments
Restructuring
Other provisions

Consolidated
2000

2001

Parent company
2000

2001

10,104
1,878

4,435
7,075
10,679

9,318
3,080

4,432
3,378
7,442

889
–

–
47
4,119

5,055

943
–

–
–
1,890

2,833

Total

34,171

27,650

The pension liabilities include the Parent company’s and other Swedish
companies’ obligations in the amount of SEK 7,459 m. (7,344) in
accordance with an agreement with the Pension Registration Institute
(PRI), which are covered by a Swedish law on safeguarding of pension
commitments. The Parent company’s pension liabilities include an
obligation in the amount of SEK 532 m. (634) in accordance with an
agreement with PRI.

Other provisions include amounts for risks regarding off-balance sheet

customer ﬁnancing, patent disputes and changes in technique and
markets.

17 Long-term liabilities

Notes and bond loans
(maturing 2003 – 2009)
Convertible debentures
(maturing 2003)
Liabilities to financial
institutions
Liabilities to
subsidiaries
Other

Consolidated
2000

2001

Parent company
2000

2001

41,656

15,884

41,656

15,884

4,437

4,346

4,437

4,346

5,154

1,320

272

322

–
887

–
744

45,574
128

13,345
37

Total

52,134

22,294

92,067

33,934

Long-term liabilities maturing more than ﬁve years after the balance sheet
date:

Notes and bond loans and
liabilities to financial institutions
Other

Total

9,274
452

9,726

8,873
–

8,873

Of the long-term loans, SEK 22,181 m. (bond issues of EUR 2,000 m. and
GBP 224 m.) have interest rates linked to the company’s credit rating. The
interest rate will increase/decrease 0.25 percent per annum for each rating
notch per rating agency (Standard & Poor’s and Moody’s) by which either
or both have publicly announced a rating decrease/increase of the
company’s credit rating below BBB+/Baa1. The interest rate applicable to
these bond issues can not be less than the initial interest rate in the loan
agreement.

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 in 2000 and in the same year debentures were sold
externally. 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.

1 Stockholm Inter Bank Offered Rate

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.

During 2001, debentures in the amount of SEK 10 m. were converted

to 168,395 B shares. A conversion of all outstanding debentures would
increase the number of shares with 76,454,504. During the period of
January 1 through January 22, 2002 no additional conversions were made.

18 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 11,025 m. of which the
Parent company SEK 4,456 m. In addition, the Parent company had
unused long-term lines of credit amounting to SEK 17,005 m. and
unutilized commercial paper- and medium term note programs
amounting to SEK 38,572 m. Of total unused lines of credit of SEK
28,030 m., SEK 10,124 m. had conditions linked to the Group’s credit
rating.

19 Other current liabilities

Consolidated
2000

2001

Parent company
2000

2001

Liabilities to associated
companies
Accrued expenses
Prepaid revenues
Other short term liabilities

Total

1,077
32,156
1,173
10,703

277
33,854
842
13,387

45,109

48,360

256
1,876
469
2,190

4,791

257
716
–
2,806

3,779

20 Assets pledged as collateral

Real estate mortgages
Chattel mortgage
Bank deposits
Other

Total

Parent company

Bank deposits
Other

Total

Liabilities
to financial
institutions

Advances
from
customers

–
1
1,281
1,273

2,555

60
–
–
–

Liabilities
to financial
institutions

Advances
from
customers

1,281
212

1,493

–
–

–

Total
2001

60
1
1,281
1,273

2,615

Total
2001

1,281
212

1,493

Total
2000

24
–
313
98

435

Total
2000

298
24

322

At December 31, 2001, the Parent company had no pledged assets in favor
of subsidiaries. However, under certain conditions, it may pledge
collateral for certain subsidiaries’ pension obligations.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

Consolidated
2001

Parent company
2001

Consolidated

Parent company
Interest paid in 2001 was SEK 3,323 m. (1,178) and interest received was
SEK 5,487 m. (1,854). Income taxes paid were SEK 93 m. (356).

Major non-cash items in Investments are:
Acquisitions/sales of other investments, net in 2001 with

SEK 21,603 m., 2000 SEK 5,504 m. and 1999 SEK 26 m.

Speciﬁcation of net change in cash attributable to cancellation of the
commission agreement with Ericsson Telecom AB as of January 1, 2000.
The change in cash, amounting to SEK –12 m., is shown in year 2000 as
Acquisitions/sales of other investments, net.

Inventories
Customer financing, accounts receivable
— trade and other operating assets
Provisions and other operating liabilities
Sales of tangible assets
Lending, net
Proceeds from issuance of other long-term debt
Investments, other

Net change in cash

23 Leasing

947

5,291
– 5,192
391
–10,897
9,456
8

–12

LEASING OBLIGATIONS
Assets under ﬁnancial leases, recorded as tangible assets, consist of:

2001

–
– 3,998
9,320

5,322

Financial leases

Acquisition costs
Land and buildings
Machinery
Other equipment

Accumulated depreciation
Land and buildings
Machinery
Other equipment

Net carrying value

2001

2000

–
182
1,284

1,466

–
24
263

287

1,179

193
26
410

629

58
26
184

268

361

At December 31, 2001, future payment obligations for leases were
distributed as follows:

Consolidated

2002
2003
2004
2005
2006
2007 and later

Financial Operating
leases

leases

8,256
85
27
–
–
6

3,829
3,542
2,649
2,099
1,956
9,177

8,374

23,252

Expenses for the year for leasing of assets were SEK 3,785 m. (SEK 2,984
m. in 2000 and SEK 1,647 m. in 1999), of which variable cost SEK 203 m.

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

21 Contingent liabilities

Guarantees

for customer
financing
for accounts
receivable
Other contingent
liabilities

Total

Consolidated
2000

2001

Parent company
2000

2001

13,904

7,551

13,854

5,802

–

1,607

–

1,679

2,026

9,743

7,604

15,583

11,184

23,597

13,406

Of the guarantees assumed by the Parent company, SEK 9,529 m. in 2001
and SEK 6,608 m. in 2000 are related to subsidiaries.

22 Statement of Cash Flows

Consolidated
Interest paid in 2001 was SEK 3,374 m. (3,416) and interest received was
SEK 2,850 m. (2,959). Income taxes paid were SEK 4,873 m. (5,780).

Non-cash transaction under “Cash ﬂow from operating activities” not

reported separately is current year increase in pension liabilities of SEK
786 m. (SEK 920 m. in 2000 and SEK 342 m. in 1999).

Acquisitions/sales of other investments

Consolidated

Purchase price for acquired subsidiaries
Other acquisitions
Sales

Acquisitions/sales, net

“Cash ﬂow from investing activities” includes the following major items:

Consolidated

Investment in Sony Ericsson joint venture
Proceeds from sales of:

Juniper
Enterprise distribution
Real estate
PC and test equipment

2001

–2,800

5,500
3,400
4,700
2,100

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

The company sold certain assets relating to test plant equipment for

software testing in Sweden and the US for SEK 7,897 m. in December
2001. The assets were leased back from the purchaser over a period of one
year. In minimum lease payments a residual value guarantee of
SEK 6,753 m. is included for 2002 and interest of SEK 229 m.

This transaction is being accounted for as a ﬁnancial (capital) lease in
the consolidated accounts, which means that no capital gain is reported
with the ﬁnancial lease being reported net of such gain. In the Parent
company accounts this transaction is accounted for as an operating lease.
The lease contains various options including purchase options at amounts
approximating fair market value at any time during the term of the lease.
The Company has in January 2002 made a deposit of SEK 5,516 m. to
secure certain obligations under the lease.

At December 31,2001, future payment obligations for leases for the

Parent company were distributed as follows:

Parent company

2002
2003
2004
2005
2006
2007 and later

Financial Operating
leases

leases

–
–
–
–
–
–

–

9,732
1,871
1,464
1,211
1,065
5,222

20,565

LEASING INCOME
Some consolidated companies lease equipment, mainly telephone exchanges,
to customers. These leasing contracts vary in length from 1 to 8 years.

The acquisition value of assets leased to others under Operating leases
amounted to SEK 419 m. at December 31, 2001 (December 31, 2000: SEK
505 m.). Accumulated depreciation amounted to SEK 412 m. and net
investments to SEK 7 m. at December 31, 2001 (December 31, 2000: SEK
418 m. and SEK 87 m., respectively).

Net investment in Sales-type leases and Financial leases amounted to

SEK 3 m. at December 31, 2001 (December 31, 2000: SEK 14 m.).

Future payments receivable for leased equipment are distributed as

follows:

Consolidated

2002
2003
2004

Net investment

Parent company

2002
2003
2004

Sales-type and
Financial leases

Operating
leases

2
1
1

5
–
–

Financial
leases

Operating
leases

–
–
–

–

8,323
278
34

8,635

The Parent company’s operating lease income refers mainly to lease of
testplant equipments to subsidiaries.

24 Reconciliation to accounting principles generally
accepted in the US

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

A Capitalization of software development costs

In accordance with Swedish accounting principles, software development
costs are charged against income when incurred. The Company practices
US GAAP SFAS 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 SFAS 86, 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

2001

2000

1999

7,091
–7,661
–1,214

10,349
– 6,664
–

7,898
– 4,460
– 989

–1,784

3,685

2,449

Write-downs of previously capitalized software costs amounting to SEK
1,214 m. was made in 2001 as a result of product reviews.

Development costs for software
for internal use

Capitalization
Amortization

2001

2000

1999

993
–1,344

– 351

990
– 542

448

1,463
–152

1,311

Amortization of previously capitalized software costs amounting to SEK
1,344 was made in 2001 mainly related to old software.

B 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 US GAAP,
convertible debenture loans are reported as liabilities at nominal value.
When calculating income and equity in accordance with US GAAP, the
effects of the capital discount are reversed.

C Restructuring costs

The rules for providing for payroll related expenses are stricter according
to US GAAP. For termination beneﬁts, US 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.

D 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 SFAS 87, Employer’s
Accounting for Pensions, when calculating income according to US
GAAP. The effects for the Company of using this recommendation

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

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.

E Pension premium refund

In 2000, Alecta (former SPP), a Swedish insurance company, announced a
refund of pension premiums paid, of which a portion was refunded
during the year. In accordance with Swedish accounting practice, the total
refund was credited to income. In accordance with US GAAP, only the
amount Alecta actually paid is credited to income.

During 2001 the Company has utilized the major part of the portion

not refunded in 2000. In accordance with US GAAP, this amount is
credited to income.

F Sale-leaseback of property

During 2000 and 2001, the Company sold property which was leased
back to subsidiaries and treated as an operating lease. 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 US 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.

G Hedge accounting

The Company adopted SFAS 133, Accounting for Derivative Instruments
and Hedging Activities on January 2001 for calculating income and equity
according to US GAAP. SFAS 133 requires Ericsson to recognise all
derivatives as either assets or liabilities measured at fair value Adoption of
SFAS 133 resulted in a cumulative after tax increase in net income of SEK
421 m. and a decrease in other comprehensive income of SEK 1,665 m. in
the ﬁrst quarter of 2001.

Under SFAS 133 for derivatives designed as a cash ﬂow hedge the gain
or loss is reported in other comprehensive income and affects net income
ﬁrst when the hedged exposure also affects this income. The ineffective
portion of the gain and loss affects net income immediately.

According to Swedish accounting practice forward currency exchange

contracts and options, which are hedge of ﬁrm commitments as well as
budgeted cash ﬂows regarding sales and purchases, are both accounted for
as hedges. Consequently, they are valued in a manner reﬂecting the
accounting for the hedged position and are not valued at market.
According to US GAAP valid for 2000 and 1999, contracts and

options not related to ﬁrm commitments are valued at market.

H Other

In-process research and development
Under US 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.

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 US GAAP. Depreciation
charges relating to such items have been reversed to income.

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 US GAAP, and depreciated as the assets
concerned. Capitalization amounting to SEK 64 (88) m. has increased
income and amortization amounting to SEK 64 (79) m.
was charged against income for the period when calculating income
in accordance with US GAAP.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

I Deferred Income Taxes

Deferred tax is calculated on all US GAAP adjustments to income.

J Adjustment of Net Income

Application of US 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.

Adjustment of Net Income

2001

2000

1999

Items increasing reported net income
Pensions
Pension premium refund
Capital discount on
convertible debentures
Other
Deferred income taxes

Items decreasing reported income
Capitalization of software
development costs

197
809

–146
– 856

– 416
–

116
129
2,014

147
371
– 2,005

116
1,194
–1,251

3,265

– 2,489

– 357

to be sold
for internal use

Sale-leaseback
Restructuring costs
Hedge accounting

Net increase/decrease
in net income
Net income as reported in the
consolidated Income Statement

Net income per US GAAP
before cumulative effect
of accounting change

Earnings per share,
before cumulative effect of
change of accounting principle
Cumulative effect of
accounting change, net of taxes
Net income per US GAAP
after cumulative effect
of accounting change

Reported earnings
per share, diluted
Earnings per share per US GAAP,
diluted, after cumulative effect
of accounting change

–1,784
–351
–815
–1,642
–2,233

3,685
448
–1,361
2,700
– 608

2,449
1,311
–
400
– 694

–6,825

4,864

3,466

–3,560

2,375

3,109

–21,264

21,018

12,130

–24,824

23,393

15,239

–3.14 *

2.65

1.54

421

–

–24,403

23,395

15,239

–2.69 *

2.65

1.54

–3.09 *

2.94

1.92

* Potential ordinay shares are not considered when their conversion to

ordinary shares would increase earnings per share.

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 US GAAP securities available for sale
that have readily determinable fair values shall be measured at fair value in
accordance with SFAS 115 “Accounting for Certain Investments in Debt
and Equity Securities”. Unrealized gains and losses shall be included in
other comprehensive income.

L Comprehensive income
The Company has adopted SFAS 130, “Reporting Comprehensive
Income”. Comprehensive income includes net income and other changes
in equity, except those resulting from transactions with owners.

Comprehensive income

2001

2000

1999

Adjustment of certain balance sheet items
according to US GAAP

Net income in accordance
with US GAAP

Other comprehensive income
Translation adjustments
Translation adjustments for
sold/liquidated companies
Net gain/loss on cash flow hedges
Hedging for investments
Unrealized gains and losses on
securities available-for-sale
Minimum pension liability
Deferred income taxes
Cumulative effect of
accounting change, net (see G)

Total other
comprehensive income

Comprehensive income in
accordance with US GAAP

–24,403

23,393

15,239

2,710

2,326

– 2,442

5
2,096
–833

9
–
– 500

1
–
53

–6,424
–392
1,445

–1,847
25
657

8,527
– 47
– 2,403

Intangible assets
Tangible assets
Other investments
Accounts receivable
Other receivables
Minority interest
in equity
Provisions
Convertible
debentures
Other current
liabilities

–1,665

–

M Statement of Cash Flows

–3,058

670

3,689

–27,461

24,063

18,928

As per reported
Balance Sheet
Dec 31
2000

Dec 31
2001

13,066
16,075
3,100
57,438
41,993

12,833
22,378
2,484
74,973
44,029

As per
US GAAP
Dec 31
2000

31,343
22,475
9,164
76,580
44,866

Dec 31
2001

29,481
16,296
3,355
57,438
41,946

3,532
34,171

2,764
27,650

3,531
29,783

2,756
18,060

4,437

4,346

4,740

4,765

45,109

48,360

48,024

48,560

Adjustment of Equity

2001

2000

1999

Increases
Capitalization of software
development costs

to be sold
for internal use

Unrealized gains and losses on
available-for-sale securities
Pensions
Capitalization of interest, net
after cumulative depreciation
Restructuring costs

Reductions
Capital discount on
convertible debentures
Pension refund
Sale-leaseback
Deferred income taxes
Hedging
Other

Adjustment of stockholders’
equity, net
Reported stockholders’ equity

Equity according
to US GAAP

15,094
1,408

16,878
1,759

13,193
1,311

255
99

211
1,458

6,680
300

211
3,100

8,527
422

202
400

18,525

28,928

24,055

–303
–47
–2,176
–4,487
–2,196
–102

– 419
– 856
–1,361
– 8,197
– 332
– 232

– 566
–
–
– 6,731
276
– 594

–9,311

11,397

7,615

9,214
68,587

17,531
91,686

16,440
69,176

77,801 109,217

85,616

The Company in principle follows SFAS 95 when preparing the
Statement of Cash Flows. According to SFAS 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:

Consolidated, SEK m.

2001

2000

1999

1998

Short-term cash
investments, cash
and bank,
as reported
Adjustment for
items with maturity
of 4–12 months

Cash and cash
equivalents as per
US GAAP

68,839

35,606

29,008

18,233

–28,182 –16,129

– 9,731

– 5,978

40,657

19,477

19,277

12,255

N Stock compensation plan

The Company, as permitted under SFAS 123 “Accounting for Stock Based
Compensation”, applies Accounting Principles Board Opinion 25 (“APB
25”) and related interpretations in accounting for its plans under US
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 SFAS 123 for its stock option plans, net income and earnings
per share in accordance with US GAAP. would have been changed to the
pro forma amounts indicated below:

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

2001

2000

1999

27 Average number of employees
and remuneration in 2001 and 2000

Average number of employees

–24,824

23,393

15,239

Consolidated

Men Women

2001
Total

Men Women

2000
Total

Western
Europe*
Central and
Eastern Europe,
Middle East
and Africa
North
America
Latin
America
Asia
Pacific

45,223 17,247 62,470

45,229 17,993 63,222

3,491

1,181

4,672

3,419

1,182

4,601

6,947

2,910

9,857

8,903

4,532 13,435

4,969

1,787

6,756

5,568

2,238

7,806

7,894

3,770 11,664

8,497

3,992 12,489

Total

68,524 26,895 95,419

71,616 29,937101,553

* Of which
Sweden
* Of which

27,703 11,432 39,135

26,726 11,153 37,879

44,144 16,982 61,126

44,164 17,685 61,849

Parent
Company

Men Women

2001
Total

Men Women

2000
Total

Western
Europe*
Central and
Eastern Europe,
Middle East
& Africa
Latin America

Total

* Of which
Sweden
* Of which

380

465

845

319

366

685

857
7

51
3

908
10

1,244

519 1,763

653
5

977

69
2

722
7

437

1,414

380

465

845

319

366

685

380

465

845

319

366

685

Wages and salaries and social security expenses

Wages and
salaries
Social security
expenses
Of which
pension costs

Consolidated
2000

2001

Parent company
2000

2001

41,227

38,970

14,293

13,161

3,704

2,062

795

484

345

631

384

289

N o t e s t o t h e F i n a n c i a l S t a t e m e n t s

Net income
Net income per US GAAP
before cumulative effect
of accounting change
Net income, pro forma,
per US GAAP before cumulative
effect of accounting change

Earnings per share, diluted
Earnings per share per
US GAAP before cumulative
effect of accounting change
Earnings per share, pro forma,
per US GAAP before cumulative
effect of accounting change

–26,165

21,882

15,239

–3.14 *

2.94

1.92

–3.31 *

2.75

1.92

* Potential ordinary shares are not considered when their conversion to

ordinary shares would increase earnings per share.

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

2001

2000

1999

Expected dividend yield
Expected volatility
Risk-free interest rate
Expected life of option
(in years)

0.6%

1.0%
40.2% 35.4%
6.0%

5.5%

4.8

3.1

–
–
–

–

25 Tax assessment values (in Sweden)

Land and land
improvements
Buildings

Consolidated
2000

2001

Parent company
2000

2001

24
–

50
216

24
–

28
7

26 Special information regarding the Parent company

Sales of the Parent company were SEK 1,374 m. (SEK 1,195 m.), of which
exports accounted for 100 (100) percent. Consolidated companies were
customers for 0 (0) percent of the Parent company’s sales, while 53 (40)
percent of the Company’s total purchases of goods and services were from
such companies.

The Parent company has guaranteed up to an amount of SEK 0.2 m.

for loans obtained by employees.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

Wages and salaries per geographical area

Consolidated
2000

2001

Parent company
2000

2001

26,527

25,393

488

425

Western Europe*
Central and
Eastern Europe,
Middle East
and Africa
North America
Latin America
Asia Pacific

Total

* Of which Sweden
* Of which EU

1,381
6,910
2,572
3,837

1,062
6,322
2,502
3,692

41,227

38,971

14,954
25,679

14,576
24,665

302
–
5
–

795

488
488

118

8.4

204
–
2
–

631

425
425

(8)

Board of Directors, the President,
the former President and present
and former Executive Vice Presidents
(of which bonus and similar paid for
2000 and 1999 respectively)

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:

Exercise
price, SEK

Employees
affected

212.81

1,800

132.80

8,000

Plan

1999

2000

2001

Type

Exercisable

1.4 million
(post split)
7-year
employee call
options issued
by Ericsson

50.4 million
(post split)
7-year
employee call
options issued
by Ericsson

47.5 million
employee
call options
issued
by Ericsson

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

In three lots,
1/3 per year

1– 3 years

respectively
after grant
to year 7

In three lots,
1/3 per year

1– 3 years

respectively
after grant
to year 7

The salary paid and the value of beneﬁts provided to Kurt Hellström

in his capacity as President and CEO amounted to SEK 16,941,114.
Sven Christer Nilsson, the former President, was entitled to a
severance pay from July 7, 1999 up to July 8, 2001, in the aggregate
amounting to SEK 10,664,303. During 2001, severance pay amounting to
SEK 3,642,604 was paid to the former President.

The following rules regarding severance pay and pension apply to the

President, the 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 and

the 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 members of the Corporate Management:

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 and amounts to between 40 and 70 percent of this
salary. Subject to 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, former and

present Executive Vice Presidents amounted to SEK 45,5 m. during the
year.

15,000

28 Fees to auditors

64.00
and
57.00
(two
grants)

Audit fees
Parent company
Other companies

Fees for other services
Parent company
Other companies

Total fees

Grants for the 1999 plan took place on March 1, 2000 and grants for the
2000 plan were made on January 17, 2000 and in addition to options
issued to employees 6.7 million stock options have been issued for
hedging of social security costs. The 2001 options were granted on 14 May
2001 (44.9 million) and 19 November 2001 (2.6 million).

The dilutive effect on earnings per share for 2001 of outstanding

employee stock option plans was less than 0.1 percent.

Remuneration to members of the Board
and the Corporate Management
During the year the following fees have been paid to the Directors
appointed by the Annual General Meeting: the Chairman SEK 2,500,000,
Deputy Chairmen SEK 750,000 each and other Directors SEK 500,000
each. In addition, each such Director serving on a Board committee has
received a fee of SEK 100,000.

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 1,000 per meeting was
paid to the employee representatives of the Board. Further, employee
representatives being also members of a committee of the Board received a
fee of SEK 100 for each committee meeting.

Price-
waterhouse-
Coopers

KPMG

Others

Total

4
46

8
100

108

158

–
5

–
2

n/a
n/a

n/a

4
53

8
105

113

170

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

A u d i t o r s (cid:213) R e p o r t

To the Annual Ge n e ral Meeting of the shareholders of
Telefonaktiebolaget L M Ericsson (publ) corporate identity number
556016-0680
We have audited the annual statements, the consolidated
statements, the accounting re c o rds and the administration of
the Board of Di rectors and the President of
Telefonaktiebolaget L M Ericsson (publ) for the year 2 0 0 1.
These statements and the administration of the company are
the responsibility of the Board of Di rectors and the Pre s i d e n t .
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 25, 2002

Carl-Eric Bohlin
Au t h o r i zed Public Ac c o u n t a n t
Pr i c e w a t e rhouseCoopers A B

Olof Herolf
Au t h o r i zed Public Ac c o u n t a n t
Pr i c e w a t e rhouseCoopers A B

Thomas Thiel
Au t h o r i zed Public Ac c o u n t a n t

3 8

Annual Report 2001 F in a n c i a l S t a t e m en t s

T r e a s u r y a n d F i n a n c i a l R i s k M a n a g e m e n t

Ericsson has a ﬁnancial policy approved by the Board of
Directors regulating the management of ﬁnancial risks. The
Finance Committee of the Board is responsible for the
continuous monitoring of Ericsson’s ﬁnancial risk exposure and
for approving certain matters regarding investments, loans,
guarantees or customer ﬁnancing commitments.

Internally, the Corporate Treasury and Corporate Customer
Finance functions manage ﬁnancial risks and issue policies in this
regard to Group companies. For handling of cash management
and hedging activities, Ericsson has established Treasury Centers
in Stockholm, Dublin, Singapore and Dallas (collectively known
as Ericsson Treasury Services, the Group’s internal bank).

The primary tasks of the Treasury organization are to manage

and control ﬁnancial exposures in a manner consistent with
underlying business risks, to actively manage the Group’s ﬁnancial
assets and liabilities and to ensure that the Group always has
sufficient ﬁnancing in place through loans and committed credit
arrangements.

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.

Ericsson classiﬁes ﬁnancial risks as either market, credit,

country or funding and liquidity risks.

MARKET RISK

Market risk is divided into three categories: foreign exchange
risk, interest rate risk and risk related to the Ericsson share price.

Foreign Exchange Risk Management

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

Foreign exchange risks are classiﬁed as either economic

exposure, transaction exposure or translation exposure.

Economic Exposure Ericsson is dependent on the development
of SEK exchange rates and on economic conditions in Sweden.
Around 44 percent of all employees and 20 percent of global
production is located in Sweden whilst Sweden accounts for just
3 percent of all sales. With this substantial SEK cost base, a
gradually weaker SEK exchange rate during 2001 has had a
positive impact on Ericsson compared to our competitors with
costs denominated in EUR or USD. Normally, Ericsson does not
hedge economic exposure.

Transaction Exposure An analysis of net exposures for the whole
Group including revenues and costs for 2001 by currency,
excluding parts of Consumer Products transferred to Sony
Ericsson, shows a major net revenue exposure in USD, EUR,
CNY, JPY and GBP. A +/-10 percent change in exchange rates
between the SEK and Ericsson’s largest currency exposures would
give the following effects (SEK b.) USD 1.9, EUR 1.2, CNY 1.0,
JPY 0.8, GBP 0.4, before any hedging effects are considered.
Both committed and forecasted transaction exposures are hedged,
mainly using currency forwards, to safeguard business margins.

As per December 31, 2001, anticipated net transaction

exposures in USD, JPY, GBP and EUR were hedged for the next
9–12 months. Unrealized currency forwards carried a market
value of approximately SEK –2 b. Due to a weaker SEK exchange
rate during 2001, an unhedged position would have increased
earnings by approximately SEK 2 b.

Translation Exposure Ericsson has many subsidiaries operating
outside of Sweden. These foreign investments are 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 exposed equity. The translation differences reported in
equity during the year were positive SEK 2.1 b., mainly due to
a weaker Swedish Krona.

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 net interest
rate exposure by using derivative instruments, such as forward
rate agreements, interest rate swaps and futures. Ericsson’s
established policy is to create a net position where all interest
rates are ﬂoating.

During 2001 interest rate ﬁxing periods for interest bearing

ﬁnancial assets and liabilities were short-term and balanced.

Risk related to the Ericsson share price

Ericsson is exposed to the development of its own share price
through stock option and stock purchase plans for employees.
The obligation to deliver shares under these plans is covered by
holding ERIC B shares and warrants for issuance of new ERIC B
shares. An increase in the share price will result in social security

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

T r e a s u r y a n d F i n a n c i a l R i s k M a n a g e m e n t

charges, which represents a risk to both Ericsson’s income
statement and cash ﬂow. The income statement exposure in some
of the option programs is hedged through the purchase of call
options. The cash ﬂow exposure is fully hedged through the
holding of ERIC B shares and through the purchase of call
options on ERIC B shares.

CREDIT RISK

Ericsson divides Credit risk into three categories: customer
ﬁnancing risk, ﬁnancial credit risk and operational credit risk.

Customer Financing Risk Management

Ericsson’s credit approval process requires that all major
commitments to extend ﬁnancing support to customers be
approved by 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. Ericsson can add considerable value to this process
and sometimes extend vendor loans. In most cases, Ericsson’s role
is to bridge the short-term funding gap until medium and long-
term external ﬁnancing solutions are in place. Our objective is to
ﬁnd suitable off-balance sheet ﬁnancing solutions with as limited
recourse to Ericsson as possible.

Corporate Customer Finance units operate in all Market
Areas to support the business in the early stages of negotiations.
To the extent customer credits are not immediately transferred to
banks, the consolidated company, Ericsson Credit AB, manages
the bulk of remaining outstanding vendor loan exposures. Some
of our off-balance sheet customer ﬁnancing is provided by
associated ﬁnance companies, such as Ericsson Project Finance
AB and AB LM Ericsson Finans. Any recourse to Ericsson for
credit risk relating to off-balance sheet ﬁnancing is reported as
contingent liabilities. The exposure from outstanding vendor
loans and credit commitments is handled centrally.

As of December 31, 2001, total gross customer ﬁnancing
amounted to SEK 26.4 b., of which SEK 8.9 b. were on-balance
sheet for the Ericsson Group, while the remainder were
guaranteed off-balance sheet items. Around two thirds of the

total outstanding exposure is now off Ericsson’s balance sheet.
This reﬂects the efforts made to reduce on-balance sheet credits
and improve cash ﬂow.

The level of total credit risk relating to customer ﬁnance has

increased over the period. However, transfer of risk to the
ﬁnancial markets continues. In December 2001, Ericsson placed
a portfolio of vendor credits valued at SEK 16.4 b. on the market,
leading to a transfer of approximately SEK 2 b. of vendor credits
from Ericsson’s balance sheet. The remainder represents credits
against future commitments, thereby improving Ericsson’s risk
proﬁle and reducing future cash outﬂow. Some vendor loans have
been repaid during the year.

Credit losses incurred during the year have been limited. A
small number of credits have also been successfully restructured.
Risk provisions are made for all credits. The level of provision is
determined individually for each credit based on a conservative
assessment of the risk exposure.

Financial Credit Risk Management

Financial investments and derivatives carry an element of risk
that counterparties may be unable to fulﬁll their obligations.

Ericsson Treasury Services limits these risks 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.

Table 1 – Ericsson Treasury Services’ external investments,
as of December 31, 2001, SEK b.

Security

Treasury Bills
Cash, Bank Deposits
Commercial Paper
Floating Rate Notes
Mortgage CP
Corporate Bonds
Treasury Bonds
Mortgage Bonds

Total

2001

2000

19.3
11.7
11.1
1.9
–
1.0
2.9
0.2

48.1

13.2
5.6
1.9
1.1
0.5
0.3
0.2
0.2

23.0

Interest bearing financial
assets, SEK 81.6 b.

2.6

6.2

Interest bearing financial
liabilities, SEK 81.8 b.

10.1

72.8

51.3

Short-term assets

Long-term assets

Deposits with associated
companies

20.3

Long-term liabilities

Short-term liabilities

Pension liabilities

Assets – 100% floating rate interest

Liabilities – 95.4% floating rate interest

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

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

Operational Credit Risk Management

The year was characterized by successful efforts to reduce
outstanding accounts receivable in order to minimize credit risk
and reduce working capital. Action has been taken to improve
the management and collection process of receivables.

COUNTRY RISK

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 to foreign subsidiaries.

FUNDING AND LIQUIDITY RISK

Ericsson maintains sufficient liquidity through cash
management, investments in highly liquid ﬁxed income
securities, and by having sufficient committed and uncommitted
credit lines in place for potential funding needs.

Ericsson deﬁnes liquidity as cash and short-term investments

(up to 12 months). During 2001, liquidity increased by SEK
33.2 b. Net liquidity, after deduction of short-term interest
bearing ﬁnancial liabilities, increased by SEK 28.4 b.

During the year, funding programs and long-term committed

credit facilities were signiﬁcantly increased; the Euro Medium
Term Note Program by USD 2,500 m., the US Commercial
Paper Program by USD 500 m. and the Euro Commercial Paper
Program by USD 800 m. Long-term committed credit facilities
were increased by USD 600 m. Medium Term Note and
Commercial Paper Programs are formats for issuing securities in
the debt capital and money markets subject to market conditions
and does not represent committed credit facilities.

In October, 2001, a EUR 400 m. credit facility with the

European Investment Bank was signed.

COUNTRY RISK
Total risk by geographical area
SEK 139 b.

13.2

21.4

24.8

48.1

Western Europe

Latin America

North America

Asia Pacific

Eastern & Central Europe,
Middle East & Africa

31.1

Table 2 – Funding programs and long-term committed credit facilities,
available and utilized, as of December 31, 2001, SEK millions.

Program/Facility

Amount

Utilized

Available

European Medium Term Note
Program (USD 5,000m)
US Commercial Paper
Program (USD 1,000m)
European Commercial Paper
Program (USD 1,500m)
Swedish Commercial Paper
Program (SEK 5,000m)
Long-Term Committed Credit
Facilities (USD 1,600m)*

Total year end 2001

Total year end 2000

53,141

46,139

7,002

10,628

15,942

5,000

17,005

101,716

46,139

49,646

23,630

10,628

15,942

5,000

17,005

55,577

26,016

SEK 6 b. of long-term committed credit facilities are subject to conditions
linked to our credit rating.

Ericsson’s objective is to have a payment readiness (deﬁned as
cash and short-term investments less short-term borrowings plus
long-term unused credit commitments) of between 7 and 10
percent of sales to meet rapid changes in liquidity requirements.
During periods of increased uncertainty, the payment readiness
target may be signiﬁcantly higher. During 2001 payment
readiness was increased to exceptionally high levels by raising
long-term debt and increasing long-term committed credit
facilities. Bond issues and bank loans increased long-term
borrowings during the year by SEK 29.7 b.

Payment readiness, as of December 31, 2001, was 28 percent of

sales (11 percent in 2000).

To support the long-term payment readiness objective,
Ericsson policy stipulates that the greater part of borrowings
should be long-term or supported by long-term credit
commitments.

During 2001 Moody’s and Standard & Poor’s lowered their
ratings two notches respectively. The outlook remained negative
with both agencies.

Ratings, as of December 31, 2001

Rating agency

Moody’s
Standard & Poor’s

COUNTRY RISK
Total risk by category
SEK 139 b.

4.2

9.1

13.7

50.1

Long-term

Short-term

Baa1
BBB+

P-2
A-2

61.6

Equity

Subs. & Ass. Companies accounts
receivable and internal lending

Customer financing

External accounts receivable

Bank lending support

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

S e g m e n t s a n d M a r k e t A r e a s

ORDERS BOOKED BY SEGMENT BY QUARTER (SEK m.)

Year to date

Systems

of which Mobile Systems

Multiservice Networks

Phones
Other operations
Less: Intersegment orders

Total

Isolated quarters

Systems

of which Mobile Systems

Multiservice Networks

Phones
Other operations
Less: Intersegment orders

Total

NET SALES BY SEGMENT BY QUARTER (SEK m.)

Year to date

Systems

of which Mobile Systems

Multiservice Networks

Phones
Other operations
Less: Intersegment sales

Total

Isolated quarters

Systems

of which Mobile Systems

Multiservice Networks

Phones
Other operations
Less : Intersegment sales

Total

0003

0006

0009

57,944
48,471
9,473
14,562
11,266
– 4,298

103,503
85,757
17,746
27,988
19,991
–7,287

153,219
125,738
27,481
42,113
27,665
–10,131

2000
0012

213,164
175,609
37,555
56,937
35,751
–13,508

0103

0106

0109

62,583
52,625
9,958
7,178
8,239
–2,501

113,286
94,841
18,445
14,813
13,764
–5,198

148,561
125,430
23,131
22,234
17,902
–7,150

2001
0112

182,757
156,370
26,387
22,234
25,974
–9,488

79,474

144,195

212,866

292,344

75,499

136,665

181,547

221,477

57,944
48,471
9,473
14,562
11,266
– 4,298

45,559
37,286
8,273
13,426
8,725
– 2,989

49,716
39,981
9,735
14,125
7,674
– 2,844

2000
Q4

59,945
49,871
10,074
14,824
8,086
– 3,377

62,583
52,625
9,958
7,178
8,239
–2,501

50,703
42,216
8,487
7,635
5,525
–2,697

35,275
30,589
4,686
7,421
4,138
–1,952

2001
Q4

34,196
30,940
3,256
0
8,072
–2,338

79,474

64,721

68,671

79,478

75,499

61,166

44,882

39,930

0003

0006

0009

38,910
32,481
6,429
14,794
9,297
– 3,916

85,343
70,339
15,004
28,145
17,801
–7,171

133,440
109,061
24,379
42,473
25,888
–10,341

2000
0012

194,747
158,083
36,664
56,279
35,927
–13,384

0103

0106

0109

44,127
35,336
8,791
7,170
7,249
–2,614

94,843
76,356
18,487
15,317
14,162
–5,610

137,798
111,923
25,875
23,567
19,671
–7,735

2001
0112

187,777
154,343
33,434
23,567
30,816
–10,321

59,085

124,118

191,460

273,569

55,932

118,712

173,301

231,839

38,910
32,481
6,429
14,794
9,297
– 3,916

46,433
37,858
8,575
13,351
8,504
– 3,255

48,097
38,722
9,375
14,328
8,087
– 3,170

2000
Q4

61,307
49,022
12,285
13,806
10,039
– 3,043

44,127
35,336
8,791
7,170
7,249
–2,614

50,716
41,020
9,696
8,147
6,913
–2,996

42,955
35,567
7,388
8,250
5,509
–2,125

2001
Q4

49,979
42,420
7,559
0
11,145
–2,586

59,085

65,033

67,342

82,109

55,932

62,780

54,589

58,538

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

ADJUSTED OPERATING INCOME AND OPERATING MARGIN BY SEGMENT BY QUARTER (SEK m.)

Year to date

Systems
Phones
Other operations
Unallocated*

Total

Items affecting comparability:

– Non-operational capital gains/losses, net
– Capital gain Juniper Networks
– Pension refund
– Restructuring costs

Total

As percentage of Net Sales

Systems
Phones
Other operations

Total

Isolated quarters

Systems
Phones
Other operations
Unallocated*

Total

0003

0006

0009

5,641
569
578
– 413

15,280
–1,544
1,058
–1,260

23,392
– 5,517
1,550
–1,171

2000
0012

32,641
–15,613
1,579
–1,858

0103

0106

0109

1,808
–5,722
–118
–331

2,382
–10,350
25
–642

2,620
–14,559
–817
–1,069

2001
0112

2,881
–17,001
–2,058
–1,716

6,375

13,534

18,254

16,749

–4,363

–8,585

–13,825

–17,894

–
–
–
–

0003

14%
4%
6%

11%

4,738
–
1,100
–

6,164
–
1,100
–

5,933
15,383
1,100
– 8,000

42
5,453
–
–

3
5,453
–
–15,000

168
5,453
–
–15,000

347
5,453
–
–15,000

5,838

7,264

14,416

5,495

–9,544

–9,379

–9,200

0006

18%
– 5%
6%

11%

0009

18%
–13%
6%

10%

2000
0012

17%
– 28%
4%

0103

0106

0109

4%
–80%
–2%

3%
–68%
0%

2%
–62%
–4%

2001
0112

2%
n/a
n/a

–8%

–7%

–8%

9,639
– 2,113
480
– 847

8,112
– 3,973
492
89

5,641
569
578
– 413

6,375

2000
Q4

9,249
–10,096
29
– 687

1,808
–5,722
–118
–331

574
–4,628
143
–311

238
–4,209
–842
–427

2001
Q4

261
–2,442
–1,241
–647

7,159

4,720

–1,505

–4,363

–4,222

–5,240

–4,069

Items affecting comparability:

– Non-operational capital gains/losses, net
– Capital gain Juniper Networks
– Pension refund
– Restructuring costs

Total

–
–
–
–

4,738
–
1,100
–

1,426
–
–
–

– 231
15,383

– 8,000

42
5,453
–
–

–39
–
–
–15,000

5,838

1,426

7,152

5,495

–15,039

165
–
–
–

165

As percentage of Net Sales

Systems
Phones
Other operations

Total

14%
4%
6%

11%

21%
–16%
6%

11%

17%
– 28%
6%

2000
Q4

15%
–73%
0%

– 2%

1%
–57%
2%

1%
–51%
–15%

4%
–80%
–2%

–8%

–7%

–10%

–7%

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

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

179
–
–
–

179

2001
Q4

1%
n/a
n/a

S e g m e n t s a n d M a r k e t A r e a s

ORDERS BOOKED BY MARKET AREA BY QUARTER (SEK m.)

Year to date

0003

0006

0009

2000
0012

0103

0106

0109

2001
0112

25,048

50,870

71,807

105,684

29,042

47,697

60,895

68,934

17,388
9,148
9,695
18,195

24,503
19,082
19,312
30,428

32,104
27,326
33,053
48,576

40,972
37,977
44,959
62,752

11,273
7,320
12,638
15,226

17,606
13,183
22,723
35,456

29,548
19,954
26,989
44,161

33,455
29,767
33,332
55,989

79,474

144,195

212,866

292,344

75,499

136,665

181,547

221,477

2,924
23,261

6,010
47,523

7,983
67,194

9,876
99,951

1,998
27,565

5,135
45,356

6,294
57,855

9,379
64,437

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

0109

0112

–15%

–35%

0103

16%

–35%
–20%
30%
–16%

–5%

–32%
19%

0106

–6%

–28%
–31%
18%
17%

–5%

–15%
–5%

–8%
–27%
–18%
–9%

–15%

–21%
–14%

–18%
–22%
–26%
–11%

–24%

–5%
–36%

2001
Q4

Isolated quarters

2000
Q4

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

25,048

25,822

20,937

33,877

29,042

18,655

13,198

8,039

17,388
9,148
9,695
18,195

7,115
9,934
9,617
12,233

7,601
8,244
13,741
18,148

8,868
10,651
11,906
14,176

11,273
7,320
12,638
15,226

6,333
5,863
10,085
20,230

11,942
6,771
4,266
8,705

3,907
9,813
6,343
11,828

79,474

64,721

68,671

79,478

75,499

61,166

44,882

39,930

2,924
23,261

3,086
24,262

1,972
19,671

1,893
32,757

1,998
27,565

3,137
17,791

1,159
12,499

3,085
6,582

16%

–28%

–37%

–76%

–35%
–20%
30%
–16%

–5%

–32%
19%

–11%
–41%
5%
65%

–5%

2%
–27%

57%
–18%
–69%
–52%

–35%

–41%
–36%

–56%
–8%
–47%
–17%

–50%

63%
–80%

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

NET SALES BY MARKET AREA BY QUARTER (SEK m.)

Year to date

0003

0006

0009

2000
0012

0103

0106

0109

2001
0112

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

23,578

47,011

70,090

100,234

18,024

37,154

53,568

71,105

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

8,187
7,186
8,467
14,068

17,315
14,961
18,482
30,800

25,555
23,131
24,836
46,211

35,867
31,379
34,516
58,972

59,085

124,118

191,460

273,569

55,932

118,712

173,301

231,839

2,380
22,052

4,371
44,031

6,704
65,754

8,732
94,293

1,628
17,046

3,518
35,020

5,022
50,650

7,341
66,561

0103

0106

0109

0112

–24%

–21%

–24%

–29%

12%
–16%
9%
19%

–5%

–32%
–23%

3%
–22%
7%
30%

–4%

–20%
–20%

–1%
–17%
–14%
19%

–9%

–25%
–23%

2000
Q4

–5%
–11%
–22%
5%

–15%

–16%
–29%

2001
Q4

23,578

23,433

23,079

30,144

18,024

19,130

16,414

17,537

7,323
8,549
7,781
11,854

9,476
10,714
9,553
11,857

9,051
8,441
11,619
15,152

11,851
7,489
15,165
17,460

8,187
7,186
8,467
14,068

9,128
7,775
10,015
16,732

8,240
8,170
6,354
15,411

10,312
8,248
9,680
12,761

59,085

65,033

67,342

82,109

55,932

62,780

54,589

58,538

2,380
22,052

1,991
21,980

2,333
21,723

2,028
28,539

1,628
17,046

1,890
17,974

1,504
15,630

2,319
15,911

–24%

–18%

–29%

–42%

12%
–16%
9%
19%

–5%

–32%
–23%

–4%
–27%
5%
41%

–3%

–5%
–18%

–9%
–3%
–45%
2%

–19%

–36%
–28%

–13%
10%
–36%
–27%

–29%

14%
–44%

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

S e g m e n t s a n d M a r k e t A r e a s

EXTERNAL ORDERS BOOKED BY MARKET AREA AND SEGMENT (SEK m.)

Year to date 2001

Western Europe
Central- and Eastern Europe, Middle East & Africa
North America
Latin America
Asia Pacific

Total

Share of Total

Systems

Phones

Other

Total

49,996
31,058
23,342
29,171
48,824

7,506
1,842
5,123
2,257
4,834

11,432
555
1,302
1,904
2,331

68,934
33,455
29,767
33,332
55,989

Change
of Total vs. 2000 (%)

31%
15%
13%
15%
26%

– 35%
–18%
– 22%
– 26%
–11%

182,391

21,562

17,524

221,477

100%

–24%

82%

10%

100%

EXTERNAL NET SALES BY MARKET AREA AND SEGMENT (SEK m.)

Year to date 2001

Western Europe
Central- and Eastern Europe, Middle East & Africa
North America
Latin America
Asia Pacific

Total

Share of Total

TOP 10 MARKETS IN ORDERS AND SALES
Year to date 2001

Orders

United States
China
Italy
Mexico
Brazil
Japan
United Kingdom
Sweden
Spain
Germany

NUMBER OF EMPLOYEES BY SEGMENT BY QUARTER

Change
of Total vs. 2000 (%)

Systems

Phones

Other

Total

51,209
32,307
22,677
30,090
51,096

7,465
2,017
6,147
2,428
5,017

12,431
1,543
2,555
1,998
2,859

71,105
35,867
31,379
34,516
58,972

31%
15%
14%
15%
25%

187,379

23,074

21,386

231,839

100%

81%

10%

100%

Share of
total orders

Sales

13%
12%
7%
6%
5%
4%
4%
4%
4%
3%

United States
China
Mexico
Italy
United Kingdom
Brazil
Japan
Spain
Sweden
Turkey

– 29%
– 5%
–11%
– 22%
5%

–15%

Share of
total sales

13%
12%
6%
6%
5%
5%
4%
4%
3%
3%

2001
0112

67,898
0
15,861
1,439

0003

0006

0009

64,836
17,290
19,167
1,030

66,207
17,710
16,324
1,076

68,571
18,137
15,602
1,084

2000
0012

71,102
16,840
16,059
1,128

0103

0106

0109

75,081
14,461
16,453
1,264

76,636
7,837
14,005
1,343

71,392
6,439
13,774
1,344

102,323

101,317

103,394

105,129

107,259

99,821

92,949

85,198

0103

0106

0109

0112

16%
–16%
–14%
23%

16%
–56%
–14%
25%

–5%
–65% –100%
–1%
–12%
28%
24%

–1%

–10%

–19%

Systems
Phones
Other operations
Unallocated

Total

Change

Systems
Phones
Other operations
Unallocated

Total

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

ADJUSTED OPERATING INCOME AND OPERATING MARGIN BY SEGMENT BY QUARTER – PRO FORMA (SEK m.)

Year to date

Systems
Phones
Other operations
Unallocated*

Total

Items affecting comparability:

- Non-operational capital gains/losses, net
- Capital gain Juniper Networks
- Restructuring costs

Total

As percentage of Net Sales

Systems
Phones**
Other operations

Total

Isolated quarters

Systems
Phones
Other operations
Unallocated*

Total

Items affecting comparability:

- Non-operational capital gains/losses, net
- Capital gain Juniper Networks
- Restructuring costs

Total

As percentage of Net Sales

Systems
Phones**
Other operations

Total

0103

1,808
– 5,512
– 328
– 331

– 4,363

42
5,453
–

0106

2,382
– 9,964
– 361
– 642

0109

2,620
–13,947
–1,429
–1,069

– 8,585

–13,825

3
5,453
–15,000

168
5,453
–15,000

5,495

– 9,544

– 9,379

0103

4%
–
– 4%

– 9%

1,808
– 5,512
– 328
– 331

– 4,363

42
5,453
–

0106

3%
–
– 2%

– 8%

574
– 4,452
– 33
– 311

– 4,222

– 39
–
–15,000

5,495

–15,039

4%
–
– 4%

– 9%

1%
–
0%

– 8%

0109

2%
–
– 6%

– 9%

238
– 3,983
–1,068
– 427

– 5,240

165
–
–

165

1%
–
–17%

–11%

2001
0112

2,881
–14,649
– 4,410
–1,716

–17,894

347
5,453
–15,000

– 9,200

2001
0112

2%
–
–13%

– 8%

2001
Q4

261
–702
– 2,981
– 647

– 4,069

179
–
–

179

2001
Q4

1%
–
– 27%

–7%

* “Unallocated” consists mainly of costs for corporate staffs, certain goodwill amortization and non-operational gains and losses
** Calculation not applicable

Pro forma format, reﬂecting results with parts of Phones transferred to the joint venture Sony Ericsson Mobile Communications, accounted for under
the equity method, and retained parts included in Other operations. No change in reported total income numbers are made.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

S e g m e n t s a n d M a r k e t A r e a s

ORDERS BOOKED BY SEGMENT BY QUARTER – PRO FORMA (SEK m.)

Year to date

Systems

of which Mobile Systems

Multiservice Networks

Other operations
Less: Intersegment orders

Total

Isolated quarters

Systems

of which Mobile Systems

Multiservice Networks

Other operations
Less: Intersegment orders

Total

NET SALES BY SEGMENT BY QUARTER – PRO FORMA (SEK m.)

Year to date

Systems

of which Mobile Systems

Multiservice Networks

Other operations
Less: Intersegment sales

Total

Isolated quarters

Systems

of which Mobile Systems

Multiservice Networks

Other operations
Less: Intersegment sales

Total

NUMBER OF EMPLOYEES BY QUARTER – PRO FORMA

Year to date

Systems
Other operations
Unallocated

Total

0103

62,583
52,625
9,958
9,227
–2,501

69,309

62,583
52,625
9,958
9,227
–2,501

69,309

0103

44,127
35,336
8,791
8,247
–2,614

49,760

44,127
35,336
8,791
8,247
–2,614

49,760

0103

75,081
18,615
1,264

94,960

0106

113,286
94,841
18,445
15,653
–5,198

123,741

50,703
42,216
8,487
6,426
–2,697

54,432

0106

94,843
76,356
18,487
16,062
–5,610

105,295

50,716
41,020
9,696
7,815
–2,996

55,535

0106

76,636
16,167
1,343

94,146

0109

148,561
125,430
23,131
20,426
–7,150

161,837

35,275
30,589
4,686
4,773
–1,952

38,096

0109

137,798
111,923
25,875
22,236
–7,735

152,299

42,955
35,567
7,388
6,174
–2,125

47,004

0109

71,392
15,936
1,344

88,672

2001
0112

182,757
156,370
26,387
28,498
–9,488

201,767

2001
Q4

34,196
30,940
3,256
8,072
–2,338

39,930

2001
0112

187,777
154,343
33,434
33,381
–10,321

210,837

2001
Q4

49,979
42,420
7,559
11,145
–2,586

58,538

2001
0112

67,898
15,861
1,439

85,198

Pro forma format, reﬂecting results with parts of Phones transferred to the joint venture Sony Ericsson Mobile Communications, accounted for under
the equity method, and retained parts included in Other operations. No change in reported total income numbers are made.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

EXTERNAL ORDERS BOOKED BY MARKET AREA AND SEGMENT – PRO FORMA (SEK m.)

Year to date 2001

Europe, Middle East & Africa
North America
Latin America
Asia Pacific

Total

Share of Total

Systems

81,054
23,342
29,171
48,824

182,391

90%

EXTERNAL NET SALES BY MARKET AREA AND SEGMENT – PRO FORMA (SEK m.)

Year to date 2001

Europe, Middle East & Africa
North America
Latin America
Asia Pacific

Total

Share of Total

TOP 10 MARKETS IN ORDERS AND SALES – PRO FORMA
Year to date 2001

Systems

83,516
22,677
30,090
51,096

187,379

89%

Other

11,648
1,293
1,912
4,523

19,376

10%

Other

13,617
2,513
2,006
5,322

23,458

11%

Total

92,702
24,635
31,083
53,347

201,767

100%

Total

97,133
25,190
32,096
56,418

210,837

100%

Orders

China
United States
Italy
Mexico
Brazil
Japan
Sweden
United Kingdom
Spain
Germany

Share of
total orders

Sales

13%
11%
7%
6%
5%
5%
4%
4%
4%
4%

China
United States
Mexico
Italy
United Kingdom
Brazil
Japan
Spain
Sweden
Turkey

Share
of Total

46%
12%
15%
27%

100%

Share
of Total

46%
12%
15%
27%

100%

Share of
total sales

13%
11%
6%
6%
5%
5%
5%
4%
3%
3%

Pro forma format, reﬂecting results with parts of Phones transferred to the joint venture Sony Ericsson Mobile Communications, accounted for under
the equity method, and retained parts included in Other operations. No change in reported total income numbers are made.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

T e n Y e a r S u m m a r y

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 diluted, SEK 1, 2, 3, 4, 5

– in accordance with US GAAP, 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 and other technical expenses6

– as percent of net sales6

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

* For 2001, proposed by the Board of Directors.
1 1992 adjusted for change in accounting principles.
2 1992–1994 adjusted for stock issue and 4-for-1 stock split.
3 1992–1995 adjusted for stock dividend element of the stock issue in 1995.
4 1992–1997 adjusted for stock issue 1:1.
5 1992–1999 adjusted for 4-for-1 stock split.
6 1992–2000 adjusted to exclude Research and development cost regarding

customer orders included in Cost of sales.

2001

2000

1999

231,839
–27,094
–2,039
–30,309

250,056
102,504
153,880
16,075
68,587
81,761

–2.69
–3.14

0 *

7,908,660
8,306
6,407

46,640

20.1

–26.5

–15.8

28.8

1.1

1.7

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

7,869,445
12,293
9,957

41,921

15.3

26.1

26.5

37.7

0.5

1.6

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

7,817,164
9,085
6,532

33,123

15.4

18.3

19.0

35.2

0.6

1.6

87,414

101,215

83,976

85,198

37,328

105,129

42,431

103,290

44,040

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 US 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 2001 F i n a n c i a l S t a t e m e n t s

1998

1997

1996

1995

1994

1993

1992

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

7,800,900
8,965
5,545

28,027

15.2

22.5

24.9

38.9

0.4

1.6

167,740
18,757
48
17,218

147,440
53,095
80,165
19,225
52,624
23,146

1.52
1.63
0.44

7,754,968
7,237
5,422

24,242

14.5

25.7

29.9

38.7

0.4

1.7

124,266
10,758
412
10,152

112,152
36,180
61,411
17,754
40,456
17,545

0.91
1.02
0.31

7,676,336
7,188
4,216

19,837

16.0

19.0

22.4

39.1

0.4

1.5

98,780
8,164
58
7,615

90,832
29,394
51,566
15,521
34,263
15,554

0.73
0.89
0.22

7,077,536
6,457
3,614

16,891

17.1

18.9

20.7

39.6

0.4

1.6

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

6,950,120
5,137
3,004

13,762

16.7

17.7

18.2

34.4

0.7

1.5

62,954
3,530
8
3,108

67,490
20,869
40,168
12,363
21,305
16,868

0.39
0.47
0.14

6,865,088
3,805
2,651

10,976

17.4

14.5

12.9

34.5

0.7

1.6

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

6,594,112
3,847
2,193

8,945

19.0

2.8

9.6

34.5

0.8

1.6

78,990

77,499

63,401

48,401

45,671

45,296

38,050

103,667

44,979

100,774

45,360

93,949

43,896

84,513

42,022

76,144

36,984

69,597

31,796

66,232

29,979

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 2001 F i n a n c i a l S t a t e m e n t s

B o a r d o f D i r e c t o r s a n d C o r p o r a t e M a n a g e m e n t

Board of directors

Ericsson’s Articles of Association stipulate that the
Board of Directors shall consist of not less than
five and not more than twelve Directors, with not
more than six deputy Directors, elected each year
by the shareholders at the annual general meeting.
The term of office for a Director is one year, but
a Director may serve any number of consecutive
terms. In addition, under Swedish law, employees
have the right to appoint three Directors (and their
deputies). The Directors and deputy Directors
and the year in which they were appointed Director
(as of December 31, 2001) are as below:

1 Lars Ramqvist ( born1938 )
Director 1990. Chairman of the Finance Committee
of the Board. Former CEO of Ericsson. 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.
Shares held: LME B 30,206
Convertible debentures: 145,347*

2 Clas Reuterskiöld ( born 1939 )
Director 1994. Chairman of the Audit Committee
of the Board. Former President and CEO of
Industrivärden. Member of the Boards of
Industrivärden, Sandvik, Skandia and SSAB.
Shares held: LME B 50,000

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

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

7 Per Lindh ( born 1957 )
Director 1995 (Deputy 1994). Employee
representative.

4 Jan Hedlund ( born 1946 )
Director 1994. Employee representative and
Member of the Audit Committee of the Board.
Convertible debentures: 75,520*

8 Christer Binning ( born 1946 )
Deputy 1994. Employee representative.
Shares held: LME B 180
Convertible debentures: 145,347*

Corporate Management

3 Kurt Hellström
President and CEO. Member of the
Board of Atlas Copco.
Shares held: LME B 22,692
Convertible debentures: 145,347*
Employee options**

Sten Fornell
Executive Vice President and
Chief Financial Officer
Shares held: LME B 176,000
Employee options**

Per-Arne Sandström
Executive Vice President and Chief
Operating Officer
Shares held: LME B 2,904
Convertible debentures: 145,347*
Employee options**

Carl Olof Blomqvist
Senior Vice President and
General Counsel Legal Affairs
Employee options**

Björn Boström
Senior Vice President Supply and
Information Technology
Shares held: LME B 2,228
Convertible debentures: 145,347*
Employee options**

Roland Klein
Senior Vice President
Communications
Shares held: LME B 2,000
Employee options**

Torbjörn Nilsson
Senior Vice President Marketing and
Strategic Business Development
Shares held: LME B 23,031
Convertible debentures: 145,347*
Employee options**

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

9 Peter Sutherland ( born 1946 )
Director 1996. Member of the Audit Committee of
the Board. Honorary Doctor. Chairman of the Boards
of Goldman Sachs International and BP. Member
of the Boards of Investor, Royal Bank of Scotland
Group and the Foundation of the World Economic
Forum.

10 Sverker Martin-Löf ( born 1943 )
Director 1993 (Deputy 1991). Member of the
Remuneration Committee of the Board. President
and CEO of SCA. Member of the Boards of
Skanska, the Confederation of Swedish Enterprise
and the Swedish Forest Industries Ass.
Shares held: LME B 8,000

11 Eckhard Pfeiffer ( born 1942 )
Director 2000. Former President and CEO of
Compaq Computer Corp. Chairman of the Board of
Intershop Communications. Member of the Boards
of General Motors, Hughes Electronics, IFCO
Systems, Syntek Capital and Biogen. Member of
the Business Council and the Advisory Board of
Deutsche Bank.
Shares held: LME B 15,200

12 Niall FitzGerald KBE ( born 1945 )
Director 2000. Chairman and CEO of Unilever plc.
Member of the Board of Merck & Co. Inc.
Shares held: LME B 796

13 Monica Bergström ( born 1961)
Deputy 1998. Employee representative.
Convertible debentures: 75,520*

14 Åke Svenmarck ( born 1942 )
Deputy 2000. Employee representative.

16 Tom Hedelius ( born 1939 )
Director 1991. Deputy Chairman and member
of the Finance Committee of the Board. Former
Chairman of Handelsbanken, now honorary
Chairman. Honorary Doctor of Economics.
Chairman of the Boards of Bergman & Beving,
Svenska Le Carbone and the Foundation of Anders
Sandrew. Deputy Chairman of Industrivärden,
Addtech and Lagercrantz Group. Member of the
Boards of Volvo and SCA.
Shares held: LME B 72,616

15 Göran Lindahl ( born 1945 )
Director 1999. Chairman of the Remuneration
Committee of the Board. D.Sc. hc, PhD. hc. Former
President and CEO of ABB Ltd. Chairman designate
of Anglo American plc. Member of the Boards of
DuPont, Sony Corporation and Ratos. Member of
the Salomon Smith Barney International Advisory
Board.
Shares held: LME A 100,000 and B 50,000

Apart from Lars Ramqvist, no Director has held
any position in the management of Ericsson.
No Director has any other principal business
activity than the principal directorships listed
above and no Director has been elected on account
of any arrangement or understanding with major
shareholder, customer, supplier or other.

Britt Reigo
Senior Vice President People
and Culture
Shares held: LME B 12,000
Convertible debentures: 145,347*
Employee options**

Jan Uddenfeldt
Senior Vice President Technology
Shares held: LME B 2,756
Employee options**

Market Areas

Ragnar Bäck
Executive Vice President and
Head of Market Area Asia Pacific
Shares held: LME B 1,000
Convertible debentures: 145,347*
Employee options**

Mats Dahlin
Executive Vice President and
Head of Market Area Europe,
Middle East and Africa
Shares held: LME B 8,000
Employee options**

Gerhard Weise
Executive Vice President and
Head of Market Area Americas
Shares held: LME B 27,496
Convertible debentures: 145,347*
Employee options**

* Convertible debentures 1997/2003

with a conversion rate
of SEK 59.

** For further information on the

option plans for year 1999, 2000
and 2001, see “Employee
Ownership” under “Share
Information”.

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

S h a r e I n f o r m a t i o n

Stock exchange trading

Ericsson’s Series A and Series B shares are traded on the Stockholm
stock exchange, Stockholmsbörsen. The Ericsson ticker was changed
by Stockholmsbörsen on September 10, 2001 from LME A and LME B
to ERIC A and ERIC B. 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 Depository Receipts
(ADR) on NASDAQ, 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 36 billion shares were traded in 2001.
Of this number, about 59 (44) percent were traded on Stockholms-
börsen, 13.5 (31) percent on NASDAQ and 26.5 (24) percent on the
London Stock Exchange. Trading on other exchanges amounted to
about 1 percent of the total, unchanged from the previous year.

Share price trend

The total market value of the Ericsson share dropped 46 percent in
2001 to SEK 460 billion. Stockholmsbörsen’s OMX index decreased by
nearly 20 percent during the year. The NASDAQ composite index
decreased by 21 percent and the NASDAQ telecom index decreased by
49 percent in the same period. The Ericsson share decreased by 53
percent on NASDAQ. The difference to the development on
Stockholmsbörsen is mainly attributed to currency changes SEK/USD.

Shareholders

In all, about 85 (90) percent of Ericsson’s shares are owned by Swedish
and international institutions. At the end of 2001, about 52 (44.7)
percent of the shares were held in Sweden. 25.4 (28.9) percent of the
share were held in the US, 4.7 (5.2) percent in the UK, 4.5 (5.0)
percent in Luxembourg, 3.3 (2.5) percent in Switzerland, 3.0 (4.1)
percent in Germany and about 7.1 (9.6) percent in other countries.

Employee ownership

A convertible debenture loan amounting to SEK 6 b. 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.

No officer or Director of the Board owns more than one percent of

the company’s shares. Options have not been granted to Directors of
the Board. The number of options granted to each officer is classiﬁed
company information.

Around 2,000 key employees and senior executives were granted
1.4 million seven-year call-options based on earnings in 1999. The size
of the allotments was based on our earnings per share and the
individual’s salary and bonus categories.

At an Extraordinary General Meeting in November 1999, it was

decided to implement a stock option plan also for year 2000. In
accordance with this resolution 50.4 million employee options
(adjusted for split 4:1) were issued to approximately 8,000 employees.

At the 2001 Annual General Meeting it was decided to implement a
Global Stock Incentive Program comprising a Stock Option Plan and
a Stock Purchase Plan. The entire Global Stock Incentive Program
requires 155 million new issued shares. This requires a stock issue of
50.4 million shares if all options are exercised.
• Under the Stock Option Plan about 15,000 key contributors will
obtain employee options. The options will be granted during the
period 2001 and 2002. One hundred twenty million Ericsson B-
shares will be allocated to the Stock Option Plan, including a hedge
for social security cash outﬂow. During 2001, 47,5 million seven-
year employee options were granted.

• Most employees will be invited to participate in the Stock Purchase
Plan. Participating employees will, during a two-year period, be
able to save up to 7.5 percent of the gross salary, not exceeding the
equivalent of SEK 50,000 annually, for the purchase of Ericsson B-
shares. If the purchased shares are retained by the employee for
three years and employment at Ericsson continues during that
time, the employee will be given a corresponding number of shares
free of charge. Thirty-ﬁve million Ericsson B-shares will be
allocated to the Stock Purchase Plan, including a hedge for social
security cash outﬂow. The Stock Purchase Plan will be
implemented during 2002.

Share capital

As of December 31, 2001, Ericsson’s share capital amounted to
SEK 8,065,504,007 (7,910,335,612) represented by 8,065,504,007
shares. The par value of each share is SEK 1.00. As of December 31,
2001, the shares were divided into 656,218,640 Series A shares, each
carrying one vote, and 7,409,285,367 Series B shares, each carrying
one-thousandth of a vote.

On April 30, 155,000,000 new Series C shares were issued and later
re-purchased by the Parent company. These shares were later converted
into 155,000,000 Series B Shares.

During the period January 1 to January 22, 2002, no additional

conversions were made.

Share trend Stockholmsbörsen

Share turnover 2001

250

200

150

100

3,000

2,500

2,000

1,500

1,000

500

B-share (SEK)

OMX index

1997

1998

1999

2000

2001

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Stockholm

London

NASDAQ

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

ERICSSON SHARE DATA

Earnings per share, diluted (SEK)
P/E ratio, B shares2
Dividend (SEK)
Direct return %

Stockholmsbörsen share prices (SEK)
A at December 28
B at December 28
B high for year
B low for year

1 Adjusted for 4:1 split
2 P/E ratio: Price per share at December 31, divided by earnings per share diluted
3 For 2001, proposed by the Board of Directors
4 Adjusted for 1:1 stock dividend

CHANGES IN CAPITAL STOCK 1997– 2001

1997
1998
1998
1999
2000
2000
2000
2001
2001
2001

Conversions
Stock dividend
Conversions
Conversions
Stock dividend
Split
Conversions
Conversions
New issue
December 31

LARGEST SHAREHOLDERS BY VOTING RIGHTS, DECEMBER 31, 2001

Person or group

Investor AB
AB Industrivärden
Svenska Handelsbankens Pensionsstiftelse
Livförsäkrings AB Skandia
Pensionskassan SHB Försäkringsförening
Oktogonen, Stiftelsen
Gamla Livförsäkringaktiebolaget SEB-Trygg Liv
Svenska Handelsbankens personalstiftelse
EB-pensionstiftelsen
Tredje AP Fonden
SHB Fonder
Wallanders och Hedelius’ stiftelse
Fjärde AP-Fonden
Andra AP-Fonden
Första AP-Fonden
Foreign ownership 1
Others

Number of
A shares

256,660,096
186,000,000
35,500,000
32,962,932
31,680,000
12,560,000
12,094,720
10,000,000
8,639,067
4,276,900
4,026,000
3,200,000
2,191,000
2,191,000
2,191,000
6,308,455
45,741,220

2001

2000 1

1999 1

1998 1, 4

1997 1, 4

– 2.69
–
0 3
0

58.50
57.50
122.00
32.10

2.65
40
0.50
0.5

111
108
231
101

1.54
89
0.50
0.4

144
137
143
44

1.67
29
0.50
1.0

52
48
67
30

1.52
25
0.44
1.2

39
37
48
26

Number of shares

Capital stock

13,333,854
975,097,150
1,759,181
5,786,131

5,883,316,821
69,880,270
168,395
155,000,000
8,065,504,007

33,334,635
2,437,742,875
4,397,952
14,465,328
2,941,658,410
–
75,830,899
168,395
155,000,000
8,065,504,007

Number of
B shares

126,018,800
3,000,000
–
86,681,174
–
343,000
54,090,280
–
169,000
61,179,613
79,452,117
–
100,709,000
79,694,814
77,663,843
3,865,111,953
2,880,824,973

Percent
of total
B shares

1.70%
0.04%
0.00%
1.17%
0.00%
0.00%
0.66%
0.00%
0.00%
0.82%
1.07%
0.00%
1.36%
1.08%
1.05%
52.17%
38.88%

Voting
rights,
percent

38.70%
28.00%
5.30%
5.00%
4.80%
2.00%
1.80%
1.50%
1.30%
0.70%
0.60%
0.50%
0.30%
0.30%
0.30%
1.53%
7.30%

1:1

–
4:1

Percent
of total
A Shares

39.11%
28.34%
5.41%
5.02%
4.83%
1.91%
1.84%
1.52%
1.32%
0.65%
0.61%
0.49%
0.33%
0.33%
0.33%
0.96%
6.97%

Total

656,218,640

100.00%

7,409,282,904

100.00% 100.00%

1 According to SIS Ägarservice AB, 2001-12-28

Of which
Nats Cumco as Nominee (Total amount of ADR's
listed on NASDAQ. 1 ADR = 1 B share.)

–

1,082,552,463

14.61%

–

Annual Report 2001 F i n a n c i a l S t a t e m e n t s

Change of addre s s

Investor Relations

Shareholder who has changed name, mail-
ing address or account number should
notify his/her trustee as soon as possible,
or:
V P C A B
Box 7822
S E-103 97 Stockholm
Sweden.

Financial information from Ericsson

Interim re p o rt Ja n . - Ma rc h :
April 22, 2002
Interim re p o rt Ja n . - Ju n e :
July 19, 2002
Interim re p o rt Ja n . - Se p t . :
October 18, 2002
Interim re p o rt Ja n . - Dec. Full year re p o rt :
January, 2003
Annual re p o rt 2002:
March, 2003

Annual Reports and interim reports can
be ordered on the Internet: www.erics-
son.com/investor,
or by contacting:
Telefonaktiebolaget L M Er i c s s o n
S E-126 25 Stockholm, Sweden
Telephone: +46 8 719 0000

Ericsson C LO Li m i t e d
105 Wigmore Street
London, W1U 1QY, United Kingdom
Telephone: +44 20 7016 1000

Ericsson In c .
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

For general enquiries:
Europe and Africa:
investor.relations@lme.ericsson.se
Americas, Asia or Oceania: investor.rela-
tions@ericsson.com

Ga ry Pi n k h a m
Vice President, Investor Relations
Telefonaktiebolaget LM Ericsson
S E-126 25 Stockholm, Sweden
Telephone: +46 8 719 0000
Telefax: +46 8 719 1976
E-mail: gary.pinkham@ericsson.com

Maria Be rn s t r ö m
Director, Investor Relations
Telephone: +46 8 719 5340
E-mail: maria.bernstrom@lme.ericsson.se

Lotta Lu n d i n
Manager, Investor Relations
Ericsson C LO Limited
105 Wigmore Street
London, W1U 1QY, United Kingdom
Telephone: +44 20 7016 1000
Telefax:: +44 20 7016 1039
E-mail: lotta.lundin@clo.ericsson.se

Glenn Sa p a d i n
Manager, Investor Relations
Ericsson Inc.
100 Park Avenue, 27th floor
New York N Y 10017, U S A
Telephone: +1 212 685 4030
Telefax: +1 212 213 0159
E-mail: glenn.sapadin@ericsson.com

Lars Ja c o b s s o n
Vice President, Financial Reporting
and Analysis
Telephone: +46 8 719 9489
E-mail: lars.jacobsson@lme.ericsson.se

S h a r e h o l d e r I n f o r m a t i o n

The Annual General Meeting will be held
at the Globe Arena, Arenatorget,
Stockholm, at 4.30 p.m. on Wednesday,
March 27, 2002.

Shareholders intending to participate
in the Annual General Meeting must be
entered as shareholders in the share regis-
ter maintained by VPC AB (Swedish
Securities Register Center) not later than
March 15, 2002.

A shareholder whose shares are regis-

tered in the name of a trustee must be
temporarily entered in the share register
not later than March 15, 2002,
in order to participate in the Meeting.
Please note that this procedure is also due
for shareholders who are trading via the
Internet.

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
S E-126 25 Stockholm
Telephone:
+46 8 719 34 44, +46 8 719 44 98
between 10 a.m. and 4 p.m.,
facsimile +46 8 719 95 27,
or via e-mail: bolagsstaemma@lme.erics-
son.se
no later than 4 p.m. Thursday, March
21, 2002.

P ro x y

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 26, 2002.

D i v i d e n d

The Board of Directors and the President
have decided to propose to the Annual
General Meeting that no dividend is paid
for year 2001.

5 6

Annual Report 2001 F i n an c i a l S t a t e m en ts

Ericsson Annual Report 2001
This document is the Ericsson Annual Report 2001 — Financial Statements. Together with the Ericsson Business Review it forms the
Ericsson Annual Report 2001. If not accompanied by this document, the Business Review can be obtained from Ericsson Corporate Communications,
tel +46 8 719 0000.

Uncertainties in the Future
This report includes (cid:210)forward-looking information(cid:211) within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E
of the US Securities Exchange Act of 1934, as amended, and includes assumptions about future market conditions, operations and results. These
statements appear in a number of places and include statements re g a rding (i) strategies, outlook and growth prospects, (ii) positioning to deliver future
plans and to realize potential for future growth, (iii) liquidity and capital re s o u rces and expenditure, (iv) growth in demand, particularly for mobile
and fixed telecommunications infrastructure and terminals, (v) economic outlook, (vi) regulation and deregulation of the telecommunications market,
(vii) qualitative and quantitative disclosures about market risk, (viii) competition among vendors, (ix) restructuring plans, (x) sales volumes, (xi) re s e a rc h
and development expenditures and (xii) trend information. Although Ericsson believes that the expectations reflected in such forward - l o o k i n g
statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accord i n g l y, results may differ
materially from those set out in the forward-looking statements as a result of:
¥ general economic conditions in markets we operate in and our ability to adapt to rapid changes up or down in market conditions;
¥ political, economic and regulatory developments in markets where we operate, including allegations of health risks from electromagnetic fields

and increasing cost of licenses to use radio fre q u e n c i e s ;

¥ m a n a g e m e n t (cid:213)s ability to develop and execute a successful strategy, including partnerships, acquisitions, divestitures and to manage gro w t h / d e c l i n e

and to execute cost-reduction eff o r t s ;

¥ financial risks, including foreign exchange rate changes, interest rate changes, credit risks re g a rding business counterparts and risks of confiscation

of assets in foreign countries and risks of insufficient liquidity to execute payments;

¥ the impact of changes in product demand, pricing and competition, including erosion of sales prices, increased competition from existing or new

competitors or new technology and the risk that new products and services may fail to be accepted at the rates or levels we anticipate;

¥ customer structure, where number of customers may be reduced due to consolidations in the industry, and, where the remaining customers

become larg e r, the negative business consequences of a loss of or significant decline in business with such a customer incre a s e s ;

¥ cost overruns on significant multi-year fixed price contracts and extended payment terms;
¥ p roduct development risks, including our ability to adopt new technologies, including the Internet, and to develop commercially viable products,

our ability to acquire licenses to necessary technology, our ability to protect our intellectual property rights through patents and trademarks
and to defend them against infringement, and results of patent litigation;

¥ supply constraints, including component- or production capacity shortages, suppliers(cid:213) abilities to deliver products in time with good quality,

and risks related to concentration of purchases from a single vendor or own or outsourced production in a single facility;

¥ ability to recruit and retain highly qualified management and other employees.

P roject management Ericsson Corporate Communications
D e s i g n SAS Design, London
P ro d u c t i o n Paues Media, Stockholm
P h o t o g r a p h y Stefan Almers, Enda Bowe
P roduction coord i n a t o r Aralia, Stockholm
R e p ro g r a p h i c s S c a rena, Stockholm
P r i n t i n g Christer Persson Tryckeri AB, K(cid:154)ping, Sweden

EN/LZT 108 5525 R1A ' Telefonaktie bolaget LM Ericsson 2002

How did you manage
the demand for
vendor financing?

Which measures
strengthened the
balance sheet?

What is your
debt position
and liquidity?

Where will the
Sony Ericsson
results be reported?

How did
my shares
perform?

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