Ericsson Annual Report 2002

FY2002 Annual Report · Ericsson

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Annual Report 2002

Contents

Forward-looking Statements
Board of Directors(cid:213) Report
Financial Statements
Accounting Principles
Notes to the Financial Statements
Auditors(cid:213) Report
Treasury and Customer Finance — Financial Risk Management
Information on the Company
Segments and Market Areas
Directors, Corporate Management and Auditors
Five-year Summary
Risk Factors
Share Information
Shareholder Information

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F O R W A R D - L O O K I N G S T A T E M E N T S

¥ 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 systems and services may
fail to be accepted at the rates or levels we anticipate;

¥ our customer structure, where the number of customers may
be reduced due to consolidation in the industry, and the
remaining customers will become larger, and the negative
business consequences of a loss of, or significant decline in,
our business with such a customer;

¥ the impact of a downgrading of our credit rating;
¥ defaults by our customers under significant customer

financing arrangements;

¥ product development risks, including our ability to adopt
new technologies and to develop commercially viable
systems and services, 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 on
time with good quality, and risks related to concentration of
purchases from a single vendor or proprietary or outsourced
production in a single facility; and

¥ our ability to recruit and retain highly qualified

management and other employees.

Certain of these factors are discussed in more detail elsewhere

in this Annual Report, including under (cid:210)Risk Factors(cid:211) and
(cid:210)Information on the Company(cid:211). We undertake no obligation to
publicly update or revise any forward-looking statements,
whether as a result of new information, future events or
otherwise, except as required by law or stock exchange
regulation.

Forward-looking Statements

This Annual Report includes (cid:210)forward-looking statements(cid:211)
and includes assumptions about future market conditions,
operations and results.

The words (cid:210)believe(cid:211), (cid:210)expect(cid:211), (cid:210)anticipate(cid:211), (cid:210)intend(cid:211), (cid:210)may(cid:211),

(cid:210)plan(cid:211) and similar expressions are intended to identify these
statements. Forward-looking statements appear in a number of
places including, without limitation, (cid:210)Board of Directors(cid:213)
Report(cid:211), (cid:210)Risk Factors(cid:211) and (cid:210)Information on the Company(cid:211),
and include statements regarding:
¥ strategies, goals and growth prospects;
¥ future plans and potential for future growth;
¥ liquidity, capital resources and capital expenditure, and our

credit ratings;

¥ growth in demand for our systems and services;
¥ our joint venture activities;
¥ economic outlook and industry trends;
¥ developments of our markets and competition;
¥ the impact of regulatory initiatives;
¥ research and development expenditure;
¥ plans to launch new products, systems and services; and
¥ expected cost savings from our various cost reduction

measures.

Although we believe that the expectations reflected in these

and other forward-looking statements are reasonable, we can
give no assurance that these expectations will prove to be
correct. Because these statements involve risks and
uncertainties, results could differ materially from those set out
in the forward-looking statements as a result of:
¥ conditions in the telecommunications industry and general
economic conditions in the markets in which we operate,
and our ability to adapt to rapid changes in market
conditions;

¥ political, economic and regulatory developments in the

markets in which we operate, including allegations of health
risks from electromagnetic fields and increasing cost of
licenses to use radio frequencies;

¥ management(cid:213)s ability to develop and execute a successful
strategy, including partnerships, acquisitions, divestitures
and ability to manage growth and decline and to execute
cost-reduction efforts;

¥ financial risks, including foreign exchange rate changes,

interest rate changes, credit risks in relation to
counterparties, risks of confiscation of assets in foreign
countries and risks of insufficient liquidity to execute
payments;

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

B O A R D O F D I R E C T O R S (cid:213) R E P O R T

Board of Directors(cid:213) Report

This report contains (cid:210)forward-looking statements(cid:211). See
(cid:210)Forward-looking Statements(cid:211) on page 1.

Figures within brackets represent last year.

STRATEGY AND GOALS
Ericsson(cid:213)s core business is to be a preferred vendor of carrier-
class telecommunication systems and services to leading
operators of mobile and fixed networks. We believe that we are
the leading supplier of mobile communication systems,
including 2G, 2.5G and 3G systems, and we have a strong
position in solutions for fixed networks regarding next
generation of IP-based communication of voice and data.

During the last two years, the telecommunications industry

has seen a dramatic downturn from the phenomenal growth
during the years 1997 to 2000. As this is an industry with
relatively few but large vendors and customers, it takes time for
the industry to adjust to such a large decline in the market as
the one we have been exposed to recently. Consequently, the
last years have been characterized by negative results reported
by most vendors and massive restructuring efforts and layoffs.
This said, however, we want to emphasize that we have a

positive long-term view of the market. We strongly believe this
is a growth industry. The need for telecommunications is still
large and growing. The penetration of mobile telephony world-
wide is only 18 percent. Many countries have penetration levels
as high as 70—80 percent, but many developing countries are
still below 5 percent. There are now more than 1.1 billion
mobile subscribers in the world, with around 190 million new
subscribers added in 2002, i.e. more than 500,000 subscribers
per day. We believe that the number of mobile subscribers
remains on track to exceed 1.5 billion within three years, with
165—180 million net additions anticipated in 2003.

The penetration of fixed line telephony is approximately
17 percent. The subscriber base is, however, almost the same as
for mobile, and the combined penetration is still below 20
percent. Accordingly, there is a large growth potential in
increasing the number of subscribers. In addition, we expect
the usage per subscriber to increase due to lower tariffs, new
applications and services. On top of this, next generation
networks will add data traffic and we will see more machine-to-
machine communications in mobile and fixed networks.
Our customer base includes most of the largest mobile
network operators, many of which operating on a regional or
global scale. Our strategy is to develop products and systems to
offer the best solutions to these sophisticated customers, to
expand our business through increased focus on value added
services, and to be present where the customer(cid:213)s business is.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Mobile operators are becoming fewer and larger through
mergers and acquisitions and organic growth. The 20 largest
operators together now serve 75 percent of all subscribers
worldwide. Ericsson is a supplier to 18 of the 20.

Our goal is to maintain and improve our market leadership
in combination with a recovery of our financial performance.
For 2003, we believe we will be able to maintain our market
share in mobile systems, and in the current uncertain
environment we focus on reducing costs and adjusting to the
market conditions. We recognize that it is necessary to provide
a competitive return on our shareholders(cid:213) investments, and our
intention is to return to profit some time this year.

MARKET ENVIRONMENT
In line with industry consensus, we believe the mobile systems
market declined by approximately 20 percent during 2002 to
an estimated USD 42 billion. This was due in part to over-
investments in 2001 with excess capacity as a result. In 2002,
many operators also had to postpone needed expenditures to
conserve cash and improve their financial position, due to the
negative sentiment in the financial markets regarding the
telecom industry. Consequently, the service quality of many
networks decreased beyond our expectations during the year. In
our opinion there is a need for increased capacity in many
markets. The implementation of third generation (3G)
networks also developed somewhat slower than we anticipated
due to financial problems of certain operators, unavailability of
handsets as well as issues in several markets regarding building
permits for sites and towers.

The market for fixed infrastructure, which includes
traditional circuit-switching, broadband access, optical
transmission and multi-service networks, declined by more
than 30 percent during 2002.

Complementing the infrastructure market, there is a large
and growing opportunity for providing services to network
operators. Excluding network rollout services, which are
embedded within the systems infrastructure market, the
available market in 2003 for professional services is estimated
to be approximately USD 30 billion, with a compounded
annual growth rate of more than 10 percent. Professional
services include systems integration, network operations
outsourcing as well as a range of other advisory and operational
support services.

In the current downturn for infrastructure, competition
among vendors increased. Price pressure intensified on both 2G
equipment and for new 3G contracts. As we are accustomed to a
certain degree of price erosion every year, we believe that we
have been able to cope with this increased competition
reasonably well.

Our sales declined by 31 percent for comparable units. We
believe we kept our market share in mobile systems despite
this, however, as the decline is, to a large extent, attributable to
low sales of TDMA and PDC systems. The overall market for
these technologies declined sharply and we have previously had
a relatively large share of our sales in these areas. Our sales in
GSM/WCDMA declined by only 14 percent, indicating a
sustained strong market position. We have also mitigated our
decline through increased focus on services sales. Our sales of
value added services such as network integration, network
management and consulting increased year over year by
11 percent and now constitute 15 percent (9 percent) of total
Systems sales.

Sales by Market Area 2001—2002

Market Area (SEK billion)

2002

2001 Change

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

Total

74
23
13
36

97
25
32
56

— 24%
— 8%
— 59%
— 36%

146

210

— 31%

The decline in sales during 2002 was largest in Latin America
due to local macro-economic conditions. The planned shift in
the region from TDMA technology to GSM was stalled. In
North America this shift generated good demand and the
overall decline was moderate. In Europe the subscriber growth
was moderate, as the penetration is already high and third
generation investments have not yet picked up momentum. It
is in Europe the effects of financial constraints on operators(cid:213)
capital expenditures were most visible, due to the effects of the
previous investments in licenses and acquisitions of other
operators. In Asia Pacific, the decline was largely attributable
to China, where the investments in 2001 created excess capacity
which has been reduced during 2002, and Japan, where a sharp
decline in investments in PDC technology was not offset by
corresponding WCDMA volumes.

Financial Markets
The telecom industry is currently in a correction phase after the
abnormal growth in 1997—2000 and over-investments in
certain markets in 2001. This has affected the financial market(cid:213)s
view of the industry and access to capital has been severely
restricted for many operators and vendors. The rating agencies
have also continued to lower their ratings. Both Moody(cid:213)s and
Standard & Poor(cid:213)s downgraded Ericsson and other telecom
industry players on several occasions.

In this financial market environment, we successfully
managed to secure additional funding through a stock issue
that raised SEK 29 billion net in increased cash.

B O A R D O F D I R E C T O R S (cid:213) R E P O R T

Partnerships and Joint Ventures
Handsets and terminals are an important element of our end-
to-end strategy — i.e. to be able to offer our customers solutions
that work with carrier-class performance and reliability. Our
joint venture with Sony, Sony Ericsson Mobile
Communications, is therefore an important partnership.
Compared with the large losses in our handset operations in
previous years, our strategy to right-size and then find a partner
has developed well. Sony and we have demonstrated our
continued full commitment to this exciting business by
announcing that we will increase our investment by EUR 150
million each in the beginning of 2003, to provide Sony Ericsson
increased working capital for expected growth.

We also cooperate with Juniper Networks for data backbone

solutions, and we continue to work with external application
developers in Ericsson Mobility World to stimulate the creation
of applications for 3G.

Products, R&D and IPR
We have reviewed our products and services thoroughly and
consolidated them into a clear and integrated portfolio. We
now focus our efforts on the most valuable products for our
customers: GSM, ENGINE, AXE and 3G. We have outsourced
non-core products and services to partners and discontinued or
sold others. This and the ongoing concentration of R&D sites
are key elements for our return to profit. We have not let our
cost cutting harm our core products, and we continue to
enhance our patent portfolio, which we believe is one of the
strongest in the industry. In addition to licensing of mobile
platform technology, we have also entered into license
agreements for systems technology with Samsung and Huawei
during the year.

The major part of our R&D efforts have been focused on
strengthening our market-leading position in mobile systems.
The results are strong enhancements in our product portfolio for
both 2G and 3G, with increased width regarding both standards
and frequency bands, new functionality, improved performance
and increased cost efficiency for our customers and us.

Some highlights:

¥ a new generation radio base stations and mobile switches for

GSM, with strong performance improvement and lower
running costs for operators

¥ new and improved GSM-systems for GPRS
¥ radio base stations with EDGE functionality for the US

market

¥ 3G WCDMA solutions have been verified and tested for inter-

operability

¥ a new product generation for CDMA2000 1X with market
leading performance, based on the same technology and
system platforms as GSM/WCDMA

¥ a new high-capacity MINI-LINK version of short-haul radio

links

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

B O A R D O F D I R E C T O R S (cid:213) R E P O R T

¥ we have made a strong improvement in our market position
for service platforms and mobile services for messaging,
wireless Internet and mobile media. We are now the clear
market leader in MMS and pre-paid

¥ we also leverage our R&D spending by basing our wireline
products to a large extent on the same technology and
platforms as for wireless networks, thereby increasing cost
efficiency and competitiveness for AXE switches and ENGINE
solutions

¥ Ethernet DSL (digital subscriber line) Access is Ericsson(cid:213)s new
generation broadband access solution with unique scalability
for cost-effective use also in places with fewer users.

FINANCIAL RESULTS
Income before taxes was SEK —23.3 billion, a SEK 7.0 billion
lower loss compared to SEK —30.3 billion in 2001. Excluding
approximately SEK 9 billion of items affecting comparability
each year, adjusted income before tax was SEK —14.5 and —21.1
billion respectively. The net improvement of SEK 6.6 billion is
a result of a sharp reduction in the previous losses in Phones,
partially offset by a loss for Systems:

(SEK billion)

2002

2001 Change

Systems
Phones
Other operations and Unallocated
Financial net
Minority interests

Total

— 4.9
—1.3
— 6.3
—1.5
—0.5

3.2
—14.6
— 6.8
—1.8
—1.1

—14.5

— 21.1

— 8.1
13.3
0.5
0.3
0.6

6.6

Items affecting comparability were SEK —8.8 (—9.2) billion,
consisting of certain capital gains, restructuring costs and the
net effect in 2002 of SEK 3.2 billion of capitalization of
development costs. We adjust this amount for comparability
purposes since 2002 is the first year of capitalization and
development costs are reduced with SEK 3.2 billion net, as
there is not yet a representative accumulated capitalized base to
amortize.

The net effect of changes in foreign currency exchange rates
compared to the rates one year earlier was positive by SEK 1.7
billion. The effects were positive in the first three quarters but
changed to a negative of SEK —0.1 billion in the fourth quarter
due to the decline in the value of USD. The negative effect was
delayed due to hedging.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Segment Results

Systems
Orders booked, net, for Systems declined by 37 percent from
2001 to SEK 115 billion. Adjusted for order cancellations,
however, order intake decline was 30 percent. Orders, net,
declined less for GSM/WCDMA — 25 percent. Bookings for the
mature mobile technologies TDMA and PDC were down around
80 percent, and orders for multi-service networks decreased
more than 50 percent. Services orders were 30 percent (23
percent) of total orders.

We won some important contracts regarding multi-media
services (MMS) with Vodafone, Telecom Italia Mobile, Amena,
Wind, China Mobile, Orange, Telenor, Telcel and others, and
we participated in the world(cid:213)s first full-scale MMS launch in
Hungary. We are happy to see that these new types of services
are picking up momentum. We were also booking orders for
WLAN solutions to complement GPRS and WCDMA technology
in (cid:210)hot spots(cid:211), such as airports and shopping malls.

We won a break-in contract for CDMA in China, which was
strategically important fur us. We need to increase the volume
of this business to make it profitable. On the fixed network side
we continued to get ENGINE business in Australia, China,
Colombia, Egypt, Norway, Sweden and the UK, and we will
deliver IP backbone products from our joint venture with
Juniper to China, Germany and other markets. We secured
contracts for outsourced network management in Belgium,
Brazil and Australia.

Net sales for Systems were SEK 132 (189) billion, a decline of

30 percent year over year. GSM/WCDMA sales declined only
14 percent, indicating a continued very solid market position,
whereas TDMA, PDC and fixed network equipment sales
declined around 60 percent.

The reduced revenues could not be sufficiently compensated

by lower costs during the year. Adjusted operating income,
excluding restructuring costs, the net effect of capitalization of
development expenses and non-operational capital gains, was
SEK —4.9 (3.2) billion.

Through restructuring efforts and reduced excess capacity,
operating income improved gradually over the year. Adjusted
also for additional risk provisions for customer financing,
adjusted operating income was positive SEK 0.2 billion and 0.4
billion respectively in the third and fourth quarters.

Phones
The adjusted operating loss in Phones in year 2001, of SEK 14.6
billion was sharply reduced to SEK 1.3 billion. This is a result of
the dramatic restructuring and downsizing in 2001 and the
partnering with Sony. The joint venture Sony Ericsson Mobile
Communications started with a product portfolio inherited
from the joint venture partners and had a successful first
quarter and reached break-even. A number of strong new
products were created during 2002. Certain delays in launches
of new products, however, led to lower volumes than
anticipated and resulted in a full year loss before taxes.

Items adjusting income consist of a net positive amount of
SEK 0.2 billion related to restructuring of our previous handset
business. Lagging costs of SEK 1.6 billion for inventory write-
downs, scrapping and warranty costs were offset by an
insurance compensation of SEK 1.8 billion related to damages as
a consequence of a fire in a supplier(cid:213)s factory.

Sony Ericsson sold 22.9 million units during the year, which
is approximately 6 percent of the estimated 395 million units
sold-through worldwide. This should be compared to 390
million units sold-through in 2001. We believe that the total
units sold-through during 2003 will be more than 430 million
units.

Other Operations
Total sales in Other operations declined by 26 percent from last
year. This is a net of sharp reductions for the Microelectronics,
Network Technology and Enterprise operations, resulting in
operating losses. Sales in our Defense business were almost flat
and the operations developed well. Revenue in the mobile
platform licensing business increased strongly, with contracts
with Sony Ericsson and also third party handset manufacturers,
such as Benefon, GVC, LG Electronics, Microcell and TCL
Mobile communications. This business is still in investment
mode and volumes are not yet sufficient to break even.

Other operations also include a couple of support units for
internal IT-services and facility management. During the year,
some excess space due to employee reductions resulted in
unabsorbed costs in the facility management unit.

Total adjusted operating income was SEK —4.7 (—5.1) billion.
During the year, we sold parts of the Microelectronics unit to
Infineon. We will continue to purchase products from Infineon,
and we will also operate a factory in Stockholm for Infineon
during 2003 and 2004.

Financial Income and Expenses, Taxes
and Earnings per Share
Financial net improved from SEK —1.8 billion to SEK —1.5
billion. The main driver was income from the proceeds of the
stock issue in September 2002. Financial expenses increased
somewhat during the year as a result of increased interest rates
in our EMTN-program, triggered by several rating downgrades
by Moody(cid:213)s and Standard and Poor(cid:213)s.

Minority interests were reduced due to lower income in units

with minority holdings.

Income taxes for the year are net positive due to deferred tax

assets recognized based on reported losses. However, with
insufficient taxable income reported in Sweden, certain foreign
withholding taxes were not possible to deduct from income
taxes in Sweden. In addition, rulings in tax court cases resulted
in denied tax deductions for the capital discount on convertible
debentures and other costs.

Earnings per share were SEK —1.51 (—1.94).

B O A R D O F D I R E C T O R S (cid:213) R E P O R T

Balance Sheet, Financing and Cash Flow
Total assets were reduced by SEK 50 billion or almost
20 percent. The decrease was largely related to working capital,
with inventory down SEK 11 billion and accounts receivable SEK
21 billion.

A new type of asset from 2002, due to implementation of
new Swedish GAAP (RR15), is capitalized development expenses
of SEK 3.2 billion.

Customer financing credits on-balance declined slightly,
despite the addition of a previous off-balance sheet credits,
including SEK 4.1 billion to Mobilcom. As a consequence,
off-balance sheet customer financing was reduced from SEK 13
billion to less than SEK 2 billion during 2002.

Due to further losses in 2002, deferred tax assets increased

from SEK 21 billion at the beginning of the year to SEK 26
billion. Approximately half of this amount is related to
temporary differences, i.e. cost is not yet claimed as a deduction
in a tax return, and consequently no expiry time is currently
consumed. The remainder represents declared tax losses, of
which the absolute majority is related to Sweden, with an
unlimited period of utilization, or other countries with up to
20 years of utilization.

Cash and short-term cash investments decreased marginally
from SEK 69 billion to SEK 66 billion, due to the net effect of
repayment of debt and the cash infusion of SEK 29 billion from
the stock issue.

Stockholders(cid:213) equity increased by net SEK 5 billion, as the
loss of SEK 19 billion and negative effects of changes in foreign
currency exchange rates of SEK 5 billion were offset by the SEK
29 billion addition from the stock issue. The equity ratio
increased from 28 percent to 37 percent.

Interest-bearing liabilities were repaid over the year by
SEK 29 billion, and net debt of SEK 21 billion at the end of
2001 was turned into a net cash position of SEK 6 billion at the
end of the year.

Cash flow before financing activities in 2002 was SEK —7.1
(6.7) billion. A negative cash flow from income of SEK —20.8
billion was partly compensated by reduced working capital of
SEK 10.8 billion. There were substantial reductions in
inventory and accounts receivable, and we reached the goals of
an inventory turnover of 5 times and days sales outstanding
around 90. Capitalization of development expenses of SEK —3.4
billion is reported under investing activities. Other investing
activities generated SEK 6.4 billion, including releases of cash
collaterals for off-balance sheet customer financing of SEK 3.3
billion, proceeds from sales of parts of Microelectronics of SEK
2.3 billion and net sales of R&D units of SEK 0.5 billion. Cash
flow improved gradually during the year and was positive in
the fourth quarter by SEK 1.6 billion. Adjusting for one-offs,
such as dissolved customer finance off-balance sheet portfolio
including Mobilcom credits of SEK 4.1 billion and R&D unit
sales proceeds of SEK 0.5 billion, cash flow before financing
activities in the fourth quarter was SEK 5.2 billion.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

B O A R D O F D I R E C T O R S (cid:213) R E P O R T

ORGANIZATION AND EMPLOYEES
Organization and Management
In the beginning of the year, the operations for Mobile Systems
and Multi-service Networks were merged to achieve synergies
related to the increased demand for integrated wireless and
wireline solutions with common service platforms and
transport networks.

Restructuring program
In addition to the efficiency program launched in 2001, we
implemented further restructuring measures in 2002. The
actions in 2001 reduced the run-rate in operating expenses by
SEK 20 billion from SEK 88 billion to SEK 68 billion. The new
measures are expected to reduce annual operating expenses by
another SEK 30 billion and bring the run-rate to SEK 38 billion
in the end of 2003. Reductions in cost of sales are also planned
in order to offset effects of price pressure and to improve the
gross margin by 2—4 percentage points net.

During the year, numerous measures were taken to reduce

costs and headcount.
¥ Market units have been further reduced to lower selling

expenses and achieve better resource utilization of
implementation workforce. This has reduced excess capacity
costs and overhead costs

¥ Workforce reductions were made in our own factories, and
transfer of production to countries with lower costs was
carried out or initiated for both outsourced and own
production

¥ A substantial reduction in the number of local design centers
was carried out from over 80 sites to around 40 with a target
of 25

¥ Costs for internal IS/IT operations were trimmed
¥ In Sweden, some 20 legal entities were merged into one large
operating company, Ericsson AB. We expect this will reduce
operating expenses.

As a result, the annual run-rate in operating expenses was
reduced from SEK 68 billion in the beginning of the year to
SEK 51 billion in the fourth quarter. The program is well on
track to reach the target level of SEK 38 billion.

Employees
The planned restructuring efforts are intended to bring
headcount below 60,000 employees at the end of 2003. The
initiated restructuring activities, including divestments, have
reduced the number of employees by 24 percent during the
year from 85,200 to 64,600 at year-end.

Employee compensation
Share-based compensation
Share-based compensation is based on Swedish practice
regarding grant sizes and values. These are modest in
comparison with international standards. All executives and
other key contributors are eligible, and vesting is on a time
basis only. Most previous grants were made at strike prices well
above the current market price, with the options now in so
called under water status. Early in 2002, a stock purchase plan
was also launched under which employees are entitled to
purchase Ericsson stock for a limited amount of their base
salary. If the employee continues the employment with Ericsson
for three years and keeps the shares, then the Company will
match the purchased shares one-for-one. All 35 million shares
available under the program were reserved for future matching
or utilized under the terms of the program during the year.

For the stock purchase plan, a compensation cost is
recognized, based on the market price on the employee(cid:213)s
investment date, and allocated over the vesting period. Total
salary cost for the stock purchase plan is approximately SEK 100
million per year over the three-year vesting period. In certain
countries, social security charges are to be paid when shares are
matched based on the employee benefit. Such social security
charges are accrued during the respective vesting periods.

In November 2002, 53 million additional options, with a
strike price of SEK 7.80 were granted to employees as part of
the Stock Option Plan 2001‒2002. The program consists of 7-
year stock options, which vest gradually during three years
with one third of granted options for each year of service. All of
the available 101 million options in the plan have now been
granted during 2001 and 2002.

No salary costs are recognized for our current stock option
plans, as the strike prices have been equal to market prices at
grant dates. This is in accordance with generally accepted
accounting principles in Sweden. In certain countries, social
security charges are to be paid if and when options are used,
based on the employee benefit.

We have estimated the effects on salary costs if employee
stock options had been accounted for at fair value at grant date.
(Please see Note 29 to the financial statements).

Performance-based compensation
A substantial part of executive remuneration is performance-
based. A part of an executive(cid:213)s salary is variable and depending
on achievement of certain targets. The level of base pay plus
variable pay is set to make it possible to reach a salary level
equal to the upper quartile level in the general industry. The
variable portion of salary varies from 0 to 50 percent. For 2002,
no payout was made to any executive or the approximately 200
top managers, since corporate performance targets were not
met. However, for a number of non-executive managers eligible
to variable pay programs, a smaller portion, up to 20 percent of
the variable pay amount, may have been paid out depending on
achievement of local individual targets.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

B O A R D O F D I R E C T O R S (cid:213) R E P O R T

The Remuneration Committee reviewed and prepared, 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 or the Chief Operating
Officer.

At the Annual General Meeting of Shareholders in 2001, the

shareholders voted for the establishment of a Nomination
Committee, consisting of representatives of the owners and the
Chairman of the Board. The Annual General Meeting of
Shareholders appoints the members of the Nomination
Committee. The Nomination Committee nominated
individuals to be elected Directors of the Board and also
prepared and presented for resolution by the Annual General
Meeting a proposal for Board of Directors(cid:213) fee.

On June 6, 2002, an Extraordinary General Meeting of

Shareholders authorized the Board to carry out a new stock issue.

STOCK ISSUE AND SHARES
A stock issue was successfully carried out during the year and
finalized early September. The issue was oversubscribed and
generated SEK 29 billion in net proceeds.

The number of class B shares increased to 15,164 million.

Number of shares outstanding

(million)

Class A
Class B

Total

As of December 31,

2001

656
7,253

7,909

2002

656
15,164

15,820

Due to the decline of the stock price, the ratio on the NASDAQ
exchange of American Depositary Shares (ADS) to shares was
changed in October 2002 from 1:1 to 1:10 to avoid having an
ADS priced below one USD.

POST-CLOSING EVENTS
In January, 2003, Ericsson sold its optoelectronics operations to
Northlight Optronics AB.

On January 29, Ericsson and Sony announced that the two
companies had decided to make an additional capital injection
to their 50/50-owned joint venture Sony Ericsson Mobile
Communications of EUR 150 million each in the first quarter.

Environmental issues
Ericsson(cid:213)s ranking among companies in the communications
technology industry in Dow Jones(cid:213) sustainability index was
number two in 2002.

Ericsson is continuously striving to reduce environmental
impact from products and processes. Ericsson has production
operations in ten countries for manufacturing of cables and
components and assembly of electronic products. Ericsson has
twelve production facilities in Sweden. For six of those,
permissions for emissions/noise are required and for five,
hazardous activities shall be reported. No significant
environmental liabilities are known.

BOARD OF DIRECTORS AND BOARD PROCEDURES
At the Annual General Meeting on March 27, 2002, four
Directors resigned and three new Directors were elected. The
Board of Directors consists of eight 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 organizations. Tom Hedelius,
Deputy Chairman since 1991, has announced that he will not
be available for re-election at the Annual General Meeting
2003.

The work of the Board is subject to a work procedure,

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 Board among its members appoints the
members of the three committees: Audit, Finance and
Remuneration. 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.

Thirteen Board meetings were held during 2002. Among the
matters resolved were the stock issue, certain divestments, such
as the sales of parts of Microelectronics to Infineon, effects of
new US and Swedish regulations on corporate governance and
financial reporting, the restructuring program and customer
financing matters, such as sales and cancellations of off-balance
sheet credit portfolios. The company auditors have presented to
the Board their observations from the audit.

The Audit Committee reviewed the scope and execution of

audits performed, the financial reporting, the internal audit
functions, matters and observations arising from audits
performed and audit fees.

The Finance Committee resolved matters regarding
investments and divestments, capital contributions to
companies inside and outside the Ericsson Group, raising of
loans, issuance of guarantees and similar undertakings, and
granting of credits to customers or suppliers and monitored the
Group(cid:213)s financial risk exposure.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

B O A R D O F D I R E C T O R S (cid:213) R E P O R T

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 16 (15)
countries.

Net sales for the year amounted to SEK 2.0 (1.4) billion and
income after financial items was SEK 2.3 (—6.4) billion. Write-
downs of investments in subsidiaries have affected income by
SEK —3.8 (—19.0) billion.

Major changes in the company(cid:213)s financial position for the

year were:
¥ Decreased commercial and financial receivables from

subsidiaries of SEK 35.5 billion

¥ Increased short-term and long-term customer financing of

SEK 6.2 billion

¥ Increased investments in subsidiaries of SEK 6.1 billion

¥ Short- and long-term internal borrowings decreased by SEK
37.2 billion. Notes, bond loans and convertible debentures,
including short-term portion, decreased by SEK 5.4 billion.
Stockholders(cid:213) equity has increased by SEK 30.1 billion and
cash and short-term cash investments have increased by SEK
10.3 billion, mostly due to the stock issue in September
2002. At year-end, cash and short-term cash investments
amounted to SEK 59.3 (49.0) billion.

In accordance with the conditions of the Stock Purchase Plan
for Ericsson employees, 1,893,195 shares from treasury stock
were distributed during the fourth quarter to employees who
left Ericsson. An additional 291,635 shares were sold during the
fourth quarter, in order to cover social security payments
related to the Stock Purchase Plan. The holding of treasury
stock at December 31, 2002, was 154,360,278 Class B shares.

PROPOSED DISPOSITION OF EARNINGS
Non-restricted equity available for distribution by the
shareholders at the Annual General Meeting is
SEK 14,401,459,586.

The Board of Directors proposes that no dividend is paid and

the whole amount is retained within the business.

Stockholm February 3, 2003
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Tom Hedelius
Deputy chairman

Michael Treschow
Chairman

Marcus Wallenberg
Deputy chairman

Peter Sutherland

Peter Bonfield

Eckhard Pfeiffer

Sverker Martin-L(cid:154)f

Lena Torell

Per Lindh

G(cid:154)ran Engstr(cid:154)m

Kurt Hellstr(cid:154)m
President and CEO

Jan Hedlund

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Notes

CONSOLIDATED INCOME STATEMENT

Years ended December 31, SEK million

Net sales
Cost of sales
Restructuring costs

Gross margin

Research and development and other technical expenses
Selling expenses
Administrative expenses
Capitalization of development expenses, net
Restructuring costs

Total operating expenses

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

Operating income1)

Financial income
Financial expenses

Income after financial items

Minority interest in income before taxes

Income before taxes1)

Taxes
Income taxes for the year
Minority interest in taxes

Net income

Average number of shares, basic million
Average number of shares, diluted million
Earnings per share, basic SEK
Earnings per share, diluted SEK

1) Of which items affecting comparability

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

Total

Adjusted gross margin
Adjusted operating expenses
Adjusted operating margin
Adjusted income before taxes
Adjusted return on sales

2) 2001 and 2000 figures are restated for:

F I N A N C I A L S T A T E M E N T S

2002

145,773
— 98,635
— 5,589

41,549

— 29,331
— 20,422
— 9,556
3,200
— 6,292

— 62,401

20012)

20002)

20013)

20003)

210,837
—138,123
— 4,858

67,856

— 40,247
— 27,585
—11,175
—
— 6,242

— 85,249

221,586
—120,617
—

100,969

— 34,949
— 26,563
—12,004
—
—

—73,516

231,839
—165,555
— 8,345

57,939

— 43,094
— 30,844
—12,409
—
— 6,655

— 93,002

273,569
—172,892
—7,500

93,177

— 41,421
— 35,197
—13,311
—
— 500

— 90,429

543

8,575

27,463

8,398

27,983

—1,220
230

— 21,299

4,253
— 5,789

—14,662
— 3,900

— 27,380

4,815
— 6,589

— 22,835

— 29,154

— 488

— 23,323

—1,155

— 30,309

4,165
145

8,813
232

—19,013

— 21,264

12,573
12,684
—1.51
—1.51

— 42
—
—
—11,962
3,200

— 8,804

47,138
— 59,309
— 8.6%
—14,519
— 5.7%

10,950
11,072
—1.94
—1.94

347
5,453
—
—15,000
—

— 9,200

72,714
—79,007
— 8.6%
— 21,109
— 6.3%

—16,088
— 8,000

30,828

3,698
— 4,887

29,639

— 947

28,692

—7,998
324

21,018

10,896
11,100
1.93
1.91

5,933
15,383
1,100
— 8,000
—

14,416

100,969
—73,516
7.4%
14,276
9.1%

—715
—

97
—

— 27,380

30,828

4,815
— 6,589

— 29,154

—1,155

— 30,309

8,813
232

— 21,264

10,950
11,072
—1.94
—1.94

347
5,453
—
—15,000
—

— 9,200

66,284
— 86,347
—7.8%
— 21,109
— 5.8%

3,698
— 4,887

29,639

— 947

28,692

—7,998
324

21,018

10,896
11,100
1.93
1.91

5,933
15,383
1,100
— 8,000
—

14,416

100,677
— 89,929
6.0%
14,276
7.3%

— Changed accounting principles in Sweden 2002 regarding consolidation of companies according to new RR1.
— Results with parts of Phones transferred to the joint venture Sony Ericsson Mobile Communications accounted for under the equity method reported

under Share in earnings of joint ventures and associated companies.

Income statement as reported in 2000 and 2001. Restated for changed accounting principles in Sweden 2002 regarding consolidation of companies
according to new RR1.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

F I N A N C I A L S T A T E M E N T S

CONSOLIDATED BALANCE SHEET

December 31, SEK million

Notes

2002

20012)

Assets
Fixed assets
Intangible assets
Tangible assets
Financial assets

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

Current assets
Inventories
Receivables

Accounts receivable — trade
Short-term customer financing
Other receivables
Short-term cash investments
Cash and bank

Total assets

Stockholders(cid:213) equity, provisions and liabilities
Stockholders(cid:213) equity

Capital stock
Reserves not available for distribution

Restricted equity

Retained earnings
Net income

Non-restricted equity

Minority interest in consolidated subsidiaries

Provisions
Pensions
Other 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(cid:213) equity, provisions and liabilities1)

Assets pledged as collateral
Contingent liabilities

7, 23, 24

17, 20

12,609
9,964

1,835
2,243
12,283
24,533
2,132

65,599

13,066
16,641

3,135
3,101
7,933
9,591
6,980

60,447

13,419

24,910

36,538
1,680
24,817
48,252
17,962

142,668

208,267

15,974
39,950

55,924

36,696
—19,013

17,683

73,607

2,469

10,997
21,357

32,354

33,074
—
3,043
949

37,066

11,083
2,392
2,672
12,469
619
33,536

62,771

57,236
6,833
39,171
36,046
32,878

197,074

257,521

8,066
29,593

37,659

52,192
— 21,264

30,928

68,587

3,653

10,104
22,831

32,935

41,656
4,437
7,906
887

54,886

3,622
22,068
4,803
19,511
1,856
45,600

97,460

208,267

257,521

2,800
3,116

10,857
12,299

1) Of which total interest-bearing provisions and liabilities 60,617 (89,879), of which current portion 13,475 ( 25,690).

2) Restated for changed accounting principles in Sweden 2002 regarding consolidation of companies according to new RR1.

10 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

CONSOLIDATED STATEMENT OF CASH FLOWS

Years ended December 31, SEK million

OPERATIONS
Net income

Adjustments to reconcile net income to cash
Depreciation and amortization
Taxes
Capital gains/losses on sale of fixed assets, net
Other non-cash items

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
Capitalization of development expenses
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
Sale/repurchase of own stock
Dividends paid

Cash flow from financing activities

Effect of exchange rate changes on cash

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

F I N A N C I A L S T A T E M E N T S

Notes

2002

20011)

20001)

—19,013

— 21,264

21,018

6,537
— 9,171
721
81

8,599
— 2,140
9,839
— 5,541

—10,088

— 2,738
2,977
2,703
— 3,442
503
2,981

2,984

7,828
—16,983
— 6,126
1,724

20,103
3,903
19,653
—7,420

1,418

— 8,726
10,155
5,393
—
— 83
—1,488

5,251

11,020
1,873
— 25,278
574

—18,305
— 2,752
—10,404
8,135

—14,119

—12,643
6,415
22,643
—
13
—1,959

14,469

—7,104

6,669

350

—17,168
—
540
— 6,072
28,940
—
2
— 645

5,597

—1,203

— 2,710

3,343
—
35,169
— 8,470
155
—
—156
— 4,295

25,746

738

33,153

4,929
1,048
5,206
— 3,622
—
2,018
— 386
— 4,179

5,014

438

5,802

68,924

35,771

29,969

66,214

68,924

35,771

1) Restated for changed accounting principles in Sweden 2002 regarding consolidation of companies according to new RR1.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 11

F I N A N C I A L S T A T E M E N T S

CONSOLIDATED STOCKHOLDERS(cid:213) EQUITY

Years ended December 31, SEK million

Opening Balance
Stock issue, net
Sale of own stock
Stock purchase plan
Conversion of debentures
Repurchase of own stock
Dividends paid
Gains on sale of own options and convertible debentures
Changes in cumulative translation effects due to changes
in foreign currency exchange rates
Net income
Other changes

Closing balance

2002

68,587
28,940
2
12
—
—
—
—

— 4,921
—19,013
—

73,607

2001

91,686
155
—
—
11
—156
— 3,954
—

2,110
— 21,264
—1

68,587

2000

69,176
—
—
—
1,915
— 386
— 3,919
2,018

1,975
21,018
—111

91,686

12 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

PARENT COMPANY INCOME STATEMENT

Years ended December 31, SEK million

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

Transfers from untaxed reserves

Changes in depreciation in excess of plan
Changes in other untaxed reserves

Contributions to (—)/from subsidiaries, net

Income before taxes
Income taxes for the year

Net income

F I N A N C I A L S T A T E M E N T S

2002

2,017
— 2,358

— 341

— 37
— 3,099
—1,345

2,769

— 2,053

12,997
— 8,620

2,324

20
1,977

1,997
— 2,184

2,137
—1,027

1,110

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
393

— 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
—784

9,020

Notes

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 13

F I N A N C I A L S T A T E M E N T S

PARENT COMPANY BALANCE SHEET

December 31, SEK million

Notes

2002

2001

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

Stockholders(cid:213) equity, provisions and liabilities
Stockholders(cid:213) 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(cid:213) equity, provisions and liabilities

Assets pledged as collateral

Contingent liabilities

14 E R I C S S O N A N N U A L — R E P O R T 2 0 0 2

6
7, 24

8, 9
8, 9
8
12
8
8

12
13

17
17
17
12, 17
17

79
38

50,600
3,210
39
20,916
9,099
905

84,886

111
61

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

82,920

98
1,156
27,735
13,133
47,752
11,563

101,439

186,325

15,974
24,726
20
6,741

47,461

13,291
1,110

14,401

61,862

2,089

3,586

33,074
—
411
18,716
102

52,303

10,931
21
14
264
47,022
306
7,927

66,485

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

116,751

199,671

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

186,325

199,671

1,918

16,587

1,493

23,597

PARENT COMPANY STATEMENT OF CASH FLOWS

Years ended December 31, SEK million

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 used in investing activities

Cash flow before financing activities

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
Sale of own stock
Dividends paid
Other

Cash flow from financing activities

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

F I N A N C I A L S T A T E M E N T S

Notes

2002

2001

2000

1,110

— 4,746

9,020

49
3,792
—1,997
2,254
— 3,108
347

—
— 6,164
1,399
2,323

— 2
7
—1,275
— 6,503
— 2,219

— 9,992

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

— 9,987

— 2,229

—19,788

— 293
— 3,666
232
— 4,641
28,940
—
2
—
— 287

20,287

10,300

49,015

59,315

— 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

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 15

F I N A N C I A L S T A T E M E N T S

PARENT COMPANY STATEMENT OF CHANGES IN STOCKHOLDERS(cid:213) EQUITY

Years ended December 31, SEK million

Opening balance

Adjustments due to changes in accounting principles

Adjusted opening balance
Stock issue, net
Repurchase of own stock
Sale of own stock
Conversion of debentures
Capital discount
Proceeds from unclaimed stock dividend shares
Dividends paid
Net income

Closing balance

2002

31,810

—

31,810
28,940
—
2
—
—
—
—
1,110

61,862

2001

39,484

1,017

40,501
155
—156
—
11
—1
—
— 3,954
— 4,746

31,810

2000

32,835

—

32,835
—
— 386
—
1,915
— 95
1
— 3,919
9,133

39,484

16 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Accounting Principles

The consolidated financial statements of Telefonaktiebolaget
LM Ericsson and its subsidiaries ((cid:210)the Company(cid:211)) are prepared
in accordance with accounting principles generally accepted in
Sweden, applying the Swedish Financial Accounting Standards
Council(cid:213)s (Redovisningsr(cid:140)det) recommendations (RR). These
accounting principles differ in certain respects from generally
accepted accounting principles in the United States (US GAAP).
For a description of major differences as applicable to the
Company(cid:213)s financial statements, see Note 29.

In 2002 the following recommendations were adopted:
¥ Consolidated Financial Statements (RR1:00)
¥ Intangible assets (RR15)
¥ Provisions, contingent liabilities and contingent assets

(RR16)

¥ Impairment of assets (RR17)
¥ Earnings per share (RR18)
¥ Discontinuing operations (RR19)
¥ Interim financial reporting(RR20)
¥ Borrowing costs (RR21)
¥ Related party disclosure (RR23).

As a consequence of the adoption of RR1:00, certain finance
companies previously accounted for under the equity method
were consolidated. Previous years are restated. RR15 had a
material positive effect on income for 2002. Only prospective
application is allowed.

PARENT COMPANY
The financial statements of the Parent Company are also
prepared in accordance with accounting principles generally
accepted in Sweden. Investments in subsidiary and associated
companies are accounted for on a cost basis. Parent Company
income includes dividends received from subsidiaries and other
inter-company revenues and costs, which are eliminated in the
consolidated accounts.

RESTATEMENT OF FINANCIAL STATEMENTS
As from January 1, 2002, Ericsson consolidates certain finance
companies previously accounted for under the equity method.
The consolidated financial statements for 2000 and 2001 have
been restated. In accordance with RR 1:00, these companies
were consolidated by the Company since it retains the majority
of the residual or ownership risks of the entity. The entities
were previously not consolidated by the Company since
Ericsson does not own a majority of the voting power or control
the companies through an agreement with the other
shareholders, which were requirements for consolidation in the
previous standard, RR 1:96, followed by Ericsson through 2001.

A C C O U N T I N G P R I N C I P L E S

The Parent Company financial statements have not been
restated to reflect the changed classification of these entities to
subsidiaries.

The adoption of RR 1:00 has not resulted in any change to
net income (loss) or stockholders(cid:213) equity for year 2000 or 2001.
The restatement of the balance sheet resulted in an increase in
consolidated total assets (primarily short-term and long-term
customer financing) and an increase in consolidated total
liabilities (primarily current and long-term liabilities to
financial institutions) of SEK 7,465 million as of December 31,
2001 and SEK 12,968 million as of December 31, 2000.

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Parent Company and all subsidiaries. Subsidiaries are all
companies in which the Company has an ownership and
directly or indirectly has a voting majority or by agreement has
a decisive influence or it retains the majority of the residual or
ownership risk of the entity. Intercompany transactions have
been eliminated.

The consolidated financial statements have been prepared in

accordance with the purchase method, whereby consolidated
stockholders(cid:213) equity includes equity in subsidiaries and
associated companies earned only after their acquisition.

In the consolidated Income Statement, minority interests are,

in deviation from RR1:00, divided into two items; share in
income before taxes and share in taxes. The reason is that this
method gives a more fair view of the important measure
Income before taxes.

Material investments in associated companies, including
joint ventures, where voting stock interest is at least 20 percent
but not more than 50 percent, are accounted for according to
the equity method. Ericsson(cid:213)s share of income before tax in
these companies is reported in item (cid:210)Share in earnings of joint
ventures and associated companies(cid:211), included in Operating
Income. Taxes are included in item (cid:210)Taxes(cid:211). 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 Goodwill below).

Undistributed earnings of associated companies included in

consolidated restricted equity are reported as (cid:210)Equity
proportion reserve(cid:211), as detailed in Note 14. Minor investments
in associated companies and all other investments are accounted
for as Other investments, and carried at the lower of cost or fair
value.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 17

A C C O U N T I N G P R I N C I P L E S

GOODWILL
Goodwill, positive and negative, resulting from acquisitions of
consolidated companies is amortized/reversed according to
individual assessment of each item(cid:213)s estimated economic life,
resulting in amortization periods of up to 20 years. Depending
on the nature of the acquisition, goodwill amortization is
reported under (cid:210)Research and development and other technical
expenses(cid:211), (cid:210)Selling expenses(cid:211) or (cid:212)(cid:212)Administrative expenses(cid:211).

TRANSLATION OF FINANCIAL STATEMENTS
IN FOREIGN CURRENCY
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 consolidated stockholders(cid:213)
equity. When a company accounted for in accordance with
these principles is sold, accumulated translation adjustments
are included in consolidated income.

Financial statements of companies with finance activities and
other companies, having such close relations with the Swedish
operations that their functional currency is considered to be
SEK, 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 a currency other than the local
currency, are translated in two steps. In the first step, re-
measurement 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 SEK, 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
consolidated stockholders(cid:213) equity. The remeasurement method
gives a more fair view of these financial statements than a
translation directly to SEK, since companies concerned operate
in de facto USD- or EUR-based economies.

TRANSLATION OF FOREIGN CURRENCY ITEMS IN
INDIVIDUAL COMPANIES
In the financial statements, receivables and liabilities in foreign
currencies have been translated at year-end exchange rates.
Gains and losses on foreign exchange are divided into

operational and financial. Net operational gains and losses are
included in (cid:210)Cost of sales(cid:211). 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.

18 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Translation effects related to permanent financing of foreign
subsidiaries are reported directly to consolidated stockholders(cid:213)
equity, net of tax effects.

VALUATION OF AND ACCOUNTING FOR FINANCIAL
INSTRUMENTS
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
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 interest rate gains are reserved.

For companies other than Ericsson Treasury Services AB
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 rate-
related derivatives linked to specific investments or loans or
which are applied to hedge interest rate 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. As a result, 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 set-off exists and there is intent to settle
on a net basis or to realize the asset and settle the liability at the
same time.

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 assets are
amortized over a period of maximum 5 years. See Goodwill
above for amortization of goodwill. Amortization and
depreciation is included in (cid:210)Cost of Sales(cid:211) and in the respective
functional operating expenses.

The costs of computer software developed or obtained for
internal use as well as the costs incurred for the development of
software that will be sold, leased or otherwise marketed are, in
accordance with RR15, capitalized as intangible assets when
technological feasibility has been established and when future
economic benefits can be demonstrated. See also Research and
Development Costs.

Impairment reviews of tangible and intangible fixed assets,

including goodwill, are performed whenever there is an
indication of possible impairment. The carrying values of fixed
assets, including goodwill related to those assets, are not
considered to be recoverable when the expected discounted cash
flows from those assets are less than their carrying values. An
impairment loss is determined based on the amount by which
the carrying value exceeds the fair value of those assets. Losses
on fixed assets to be disposed of are determined in a similar
manner, taking into account the selling price reduced by the
costs of disposal.

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.

RECEIVABLES
Receivables are reported at anticipated realizable value.

Sales of trade receivables and customer financing accounts are
reflected as a reduction of receivables in the balance sheets and
the proceeds received are included in cash flows from operating
activities.

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 provision is
included in contingent liabilities.

REVENUE RECOGNITION
The majority of our products and services are sold as a part of a
contract. The nature of the products and services being sold,
and the contractual terms taken as a whole, determine the
appropriate revenue recognition method.

Sales revenues are recorded net of value added taxes, goods

returned, trade discounts and allowances.

Revenue from hardware is recognized with reference to all
significant contractual terms when there is persuasive evidence of
an arrangement, when the product has been delivered, when the
fee is fixed and determinable and when collection is reasonably
assured and provided that there are no undelivered elements that
are essential to the functionality of the delivered elements.

Revenue from software is also recognized with reference to all

significant contractual terms when persuasive evidence of an
arrangement exists, the product has been delivered, the fee is
fixed and determinable and when collection is reasonably
assured.

A C C O U N T I N G P R I N C I P L E S

For delivery-type contracts that have multiple elements,
revenue is allocated to each element based on evidence of fair
values. When vendor specific objective evidence of fair value is
not available for all elements we defer the recognition of
revenue until all elements have been delivered or evidence of
fair value exists for the undelivered elements. We do not
generally provide extended payment terms but may provide
customer financing on construction-type contracts.

Revenues from construction-type contracts are generally

recognized using the percentage-of-completion method.
Completion is measured using either the milestone output
method or the cost-to-cost method. The terms of construction-
type contracts generally define certain milestones which, in
addition to providing basis for progress billing, are also the
basis of measuring the degree of completion of the contract.
Revenues from contracts associated with new technology are
not recognized until specified functionality has been achieved,
customer acceptance has been obtained and other contractual
terms have been satisfied. The profitability of long-term
contracts is periodically assessed and revised, if necessary, based
on changes in circumstances. Provisions for losses are
immediately recorded when such losses become known.

Revenue for maintenance services, including post-contract
customer support, is recognized ratably over the contract term.
Revenue for training, consulting, engineering, installation and
other services is generally recognized when these services are
performed.

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-type
contracts. A disclosure in accordance with RR10, ⁄39a, and
RR11, ⁄35b, regarding the amounts for different categories of
revenue is considered not meaningful and is not calculated by
the Company.

For sales between consolidated companies, the same pricing

is normally applied as in transactions with other customers,
taking into account, however, that certain costs do not arise in
transactions between affiliated companies.

RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as
incurred. However, the costs incurred for the development of
software that will be sold, leased or otherwise marketed are
capitalized when technological feasibility has been established.
These capitalized costs are subject to an ongoing assessment of
recoverability based on anticipated future revenues and changes
in technologies. Costs that are capitalized include direct labor
and related overhead. Amortization of capitalized development
costs begins when the product is available for general release.
Amortization is made on a product-by-product basis according
to either the straight-line method over periods not exceeding
five years or the sales ratio method. Unamortized capitalized
development costs determined to be in excess of net realizable
value are expensed immediately.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 19

A C C O U N T I N G P R I N C I P L E S

Research and development costs directly related to orders

from customers are accounted for as a part of cost of sales.

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

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 utilized.

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 included in the consolidated income statement in
Income taxes for the year. 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(cid:213) equity.

Deferred tax assets and liabilities are, in deviation from RR9,

reported as current and long-term in the balance sheet, since
the Company considers that this method gives a more fair view
of the Company(cid:213)s financial 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 included in the consolidated income statement in
Income taxes for the year.

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 be reversed.

STATEMENT OF CASH FLOWS
Foreign subsidiaries(cid:213) 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.

EMPLOYEE STOCK OPTIONS AND STOCK
PURCHASE PLAN
No compensation cost is recognized for any of our current stock
option plans, as the employee strike price is equal to the market
price at grant date. When the options are exercised, however,
social security charges are to be paid, in certain countries, on
the value of the employee benefit; based on the difference
between the market price of the share and the strike price.
During the vesting period, preliminary costs for such social
security charges are accrued. In some plans, these costs are
reduced by income from related hedging arrangements.

For the stock purchase plan, a compensation cost, based on
market price of the share at the employee(cid:213)s investment date, is
recognized in the income statement and accrued during the
vesting period. When shares are matched, social security
charges are to be paid in certain countries on the value of the
employee benefit. The employee benefit is based on the share(cid:213)s
market value at the matching date. During the vesting period,
preliminary social security charges are accrued.

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.

CHANGES IN ACCOUNTING PRINCIPLES IN 2003
The following new recommendations will be adopted by the
Company in 2003:
¥ Presentation of financial statements (RR22)
¥ Investment property (RR24)
¥ Segment reporting (RR25)
¥ Events after the balance sheet date (RR26)
¥ Financial instruments: Disclosure and presentation (RR27)
¥ Accounting for Government Grants (RR28)

Cash and cash equivalents consist of cash, bank and short-

term investments due within 12 months.

The recommendation Employee Benefits (RR29) will be

adopted from January 1, 2004.

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 and 2001.

20 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

2002

74,124
23,068
12,676
35,905

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

145,773

210,837

8,303
43,396

6,656
59,206

2001

1,143
—
231
—

1,374

—
—

Notes to the financial statements

1 NET SALES BY MARKET AREA AND BUSINESS SEGMENT

Market areas
Consolidated

Europe1), Middle East & Africa
North America
Latin America
Asia Pacific

Total

1) Of which Sweden
1) Of which EU

Parent Company

Europe1), Middle East & Africa
North America
Latin America
Asia Pacific

Total

1) Of which Sweden
1) Of which EU

Parent Company sales are mainly related to business segment Systems.

Business segments
Consolidated

Systems

of which Mobile Systems
of which Multi-Service Networks

Phones
Other operations
Less: Intersegment sales

Total

Export from Sweden including internal sales

2) 2001 and 2000 figures are restated for:

2002

1,715
—
302
—

2,017

—
—

2002

131,955
120,256
11,699
—
23,533
— 9,715

145,773

86,695

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

20012)

20002)

2001

2000

106,972
31,379
34,516
58,972

231,839

7,341
66,561

137,935
35,193
44,118
56,323

273,569

8,732
94,293

108,426
25,247
38,036
49,877

221,586

7,150
72,682

2000

1,055
—
107
33

1,195

—
—

2001 2)

2000 2)

2001

2000

188,697
161,554
27,143
—
31,762
— 9,622

210,837

110,717

196,173
166,484
29,689
—
37,553
—12,140

221,586

127,502

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

231,839

121,277

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

273,569

158,338

— Changed accounting principles in Sweden 2002 regarding consolidation of companies according to new RR1.
— Results from parts of Phones transferred to the joint venture Sony Ericsson Mobile Communications, reported under Share in earnings of joint ventures and

associated companies for the full year.

— Transfer of services activities from Multi-service Networks to Mobile Systems.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 21

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

2 OTHER OPERATING REVENUES

Consolidated

Gains on sales of intangible
and tangible assets
Losses on sales of intangible
and tangible assets
Capital losses on tangible assets
related to restructuring
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) 2001 and 2000 figures are restated for:

2002

20011)

20001)

20012)

20002)

166

1,962

2,107

1,962

2,107

— 251

—1,317

—731

—1,317

—731

— 311

267

— 593

—722

1,265

543

—

5,830

— 349

6,126

2,249

8,575

—

24,133

5,830

24,133

— 231

25,278

2,185

27,463

— 349

6,126

2,272

8,398

— 231

25,278

2,705

27,983

associated companies for the full year.

Income statement as reported in 2000 and 2001. Restated for changed accounting principles in Sweden 2002 regarding consolidation of companies according
to new RR1.

Parent Company

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

Total

2002

2001

2000

2,770

—1

2,769

3,068

— 2

3,066

3,128

— 67

3,061

22 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

3 FINANCIAL INCOME AND EXPENSES

Parent Company

2002

2001

2000

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

Consolidated

2002

2001

2000

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

1,049

2,677

2,393

3,204

4,253

2,138

4,815

1,305

3,698

5,789

6,589

4,887

—1,536

—1,774

—1,189

Subsidiaries
Other

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

Other financial expenses

Total

Financial Net

—

3,800

19,000

—

2,399
2,370
14

2,080
2,536
12

8,620

23,645

4,377

— 4,421

1,619
1,452
19

3,090

9,262

Swedish companies(cid:213) interest expenses on pension liabilities are
included in the interest expenses shown above.

Parent Company

2002

2001

2000

Financial Income
Result from participations
in subsidiaries
Dividends1)
Net gains on sales

Result from participations
in associated companies

Dividends
Net gains/losses (—) on sales
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
Other2)

Total

5,077
20

14,442
7

6,531
228

48
—

58
24

23
— 6

—
37

125
1,925

2
182

3,346
4,424

3,674
1,047

2,253
1,106

12,997

19,224

12,352

1) Anticipated dividends amount to SEK 3,100 million in 2002, SEK 3,700

million in 2001 and SEK 3,800 million in 2000.

2) Of the total amount, SEK 2,161 million in 2002, SEK —978 million in 2001 and

SEK —596 million in 2000 is attributable to hedge of net investments in
foreign subsidiaries.

Parent Company(cid:213)s interest expenses on pension liabilities are
included in the interest expenses shown above.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 23

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

4 INCOME TAXES FOR THE YEAR

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

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

2002

— 2,579
—1,456
7,996
204

Consolidated
2001

2000

— 5,108
216
13,680
25

— 8,920
— 33
1,008
— 53

2002

—187
— 493
— 347
—

Income taxes for the year

4,165

8,813

—7,998

—1,027

Parent Company
2001

2000

— 241
22
612
—

393

— 671
—
—113
—

—784

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

Deferred tax income
Deferred tax expenses

Deferred taxes income/expense, net

2002

10,269
— 2,273

Consolidated
2001

2000

17,429
— 3,749

5,288
— 4,325

7,996

13,680

963

Parent Company
2001

2000

612
—

612

15
—128

—113

2002

29
— 376

— 347

Consolidated
Deferred income taxes refer to tax losses carryforwards by
SEK 5,615 million (SEK 7,986 million in 2001, SEK 388 million
in 2000) and to certain provisions for mainly restructuring,
inventory write-down, warranty commitments and allowances
for doubtful receivables.

Deferred tax expenses refer to reversal of temporary

differences regarding certain provisions for restructuring and
warranty commitments.

Parent Company
Deferred income taxes refer mainly to provision for certain
pension obligations. Deferred tax expenses refer to reversal of
temporary differences regarding provisions for customer
financing commitments.

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, is shown in the table:

Income before taxes
Tax rate in Sweden (28%)
Effect of foreign tax rates
Current income taxes related to 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

Income taxes for the year

2002

—23,321
6,530
47
—1,456
—1,091
365
— 21
—
— 64

Consolidated
2001

2000

— 30,309
8,487
986
216
— 864
260
83
—
—123

28,692
— 8,033
—730
— 33
—1,506
2,395
—
—
233

4,3101)

9,0451)

—7,674

Parent Company
2001

2000

— 5,139
1,439
—
22
— 220
4,472
—
— 5,320
—

9,804
— 2,745
—
—
—136
2,097
—
—
—

393

—784

2002

2,137
— 598
—
— 493
— 584
1,712
—
—1,064
—

—1,027

1) Of which minority interest in taxes SEK 145 million (SEK 232 million in 2001, SEK 324 million in 2000).

Consolidated
Income taxes related to prior years consist mainly of foreign
withholding taxes that were not deductible due to insufficient
taxable income, and due to rulings by Swedish tax authorities
disallowing deductions of capital discounts on convertible
debentures and other costs.

Tax effect of expenses that are non-deductible include
amortization of goodwill, tax on capital discount and costs
related to customer financing.

Parent Company
Income taxes related to prior years consist mainly of non-
deductible capital discounts on convertible debentures and
other costs.

Tax effect of expenses that are non-deductible refer mainly to

costs related to customer financing, non-deductible group
contribution and tax on capital discount.

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

dividends.

24 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Balance sheet
Deferred tax assets and liabilities
Tax effects of temporary differences including unutilized tax
loss carryforwards have resulted in deferred tax assets and
liabilities as follows:

Consolidated Parent Company
2001
2002

2002

2001

Deferred tax assets, current
1,514
Deferred tax assets, long-term 24,533
233
Deferred tax liabilities, current
Deferred tax liabilities, long-term 1,278

11,321
9,591
346
1,662

591
691
—
—

771
858
—
—

Consolidated
Deferred tax assets refer to tax loss carryforwards and temporary
differences due to certain provisions for mainly restructuring,
inventory write-down, warranty commitments and allowances
for doubtful receivables. Deferred tax assets regarding tax losses
carryforwards amount to SEK 13,567 million (SEK 8,525 million
in 2001, SEK 515 million in 2000) of which SEK 143 million
(SEK 335 million in 2001, SEK 306 million in 2000) is reported
as current and SEK 13,424 million (SEK 8,190 million in 2001,
SEK 209 million in 2000) is reported as long-term.

Deferred tax liabilities refer mainly to capitalization of

software development costs.

Deferred tax assets are expected to be utilized as we believe
Ericsson will be able to report sufficient taxable income in the
future to benefit from these tax reductions. Most of the tax loss
carryforwards are related to countries with long or indefinite
periods of utilization, mainly Sweden. Of the SEK 13,567
million in deferred tax assets related to tax loss carryforwards,
SEK 10,300 million will not expire until 2008 or later.

Parent Company
Deferred tax assets refer mainly to costs related to customer
financing 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 those 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 also to losses in these companies and due to the
uncertainty as to which deductions can be realized in the
future, with respect to the above differences between book and
tax value, no additional deferred tax assets are reported for these
differences.

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

Tax loss carryforwards
Deferred tax assets regarding unutilized tax loss 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, 2002, these unutilized tax loss carryforwards,
amounted to SEK 45,782 million. The tax effect of the tax losses
carryforwards is reported as assets.

The final years in which these loss carryforwards can be

utilized are shown in the following table:

Year of expiration

2003
2004
2005
2006
2007
2008 or later

Total

2002

417
139
180
314
388
44,344

45,782

The Parent Company has no unutilized tax loss carryforwards.

Tax effects reported directly to stockholders(cid:213) equity
Tax effects reported directly to stockholders(cid:213) equity amount to
SEK 523 million (SEK 233 million 2001, SEK 140 million 2000).

5 EARNINGS PER SHARE

Consolidated

Net income
Average number
of shares (millions)

Earnings per share, basic2)

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 (million)

2002

20012)

20002)

—19,013 — 21,264

21,018

12,573

10,950

10,896

—1.51

—1.94

1.93

—19,013 — 21,264

21,018

219

176

207

—18,794 — 21,088

21,225

12,684

11,072

11,100

Earnings per share, diluted

—1.511)

—1.941)

1.91

1) Potential ordinary shares are not considered when their conversion to

ordinary shares would increase earnings per share.

2) 2001 and 2000 adjusted for stock dividend element of stock issue.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 25

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

6 INTANGIBLE ASSETS

Consolidated

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

Closing balance

Accumulated amortization
Opening balance
Amortization for the year
Balances regarding acquired
and sold companies
Sales/disposals
Translation difference for the year
Closing balance

Net carrying value

Parent Company

Accumulated acquisition costs
Opening balance
Acquisitions

Closing balance

Accumulated amortization
Opening balance
Amortization for the year

Closing balance

Net carrying value

Licenses,
trademarks
and similar
rights

Patents and
acquired
research and
development

Goodwill

Capitalized
development
costs,
to be sold

Capitalized
acquired
development
costs, for
internal use

Capitalized
internal
development
costs, for
internal use

Total

1,566
106

— 21
— 273
— 59

1,319

—1,336
—138

4
212
34
—1,224

1,338
165

—
— 370
— 31

1,102

— 583
—191

—
360
23
— 391

711

15,740
—

—17
—178
— 2,611

12,934

— 3,659
—1 064

17
7
368
— 4,331

8,603

—
3,074

—
—
—

3,074

—
— 223

—
—
—
— 223

2,851

—
220

—
—
—

220

—
—11

—
—
—
—11

209

—
148

18,644
3,713

—
—
—

— 38
— 821
— 2,701

148

18,797

—
— 8

—
—
—
— 8

— 5,578
—1,635

21
579
425
— 6,188

140

12,609

Patents, licenses
trademarks
and similar rights

216
—

216

—105
— 32

—137

26 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

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

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 revaluation, net
Opening balance
Translation difference for the year

Closing balance

Accumulated write-downs, net
Opening balance
Write-downs for the year
Sales/disposals/reversals of write-downs
Translation difference for the year

Closing balance

Net carrying value

Land and
buildings

Machinery
and other
technical
assets

Other
equipment,
tools and
installations

Construction
in process
and advance
payments

3,049
207
—73
— 812
—71
— 355

1,945

—1,147
— 216
11
384
34
168

—766

38
— 2

— 5
—
—
1

— 4

1,211

15,248
431
—1,861
— 2,874
— 22
—752

10,170

— 9,335
—1,618
1,594
1,886
—
475

— 6,998

—
—

—

— 864
—101
773
13

—179

2,993

25,417
1,859
— 418
— 5,307
583
— 2,054

20,080

—16,405
— 3,680
—136
4,480
— 34
1,252

—14,523

—
—

—

— 52
— 60
—
10

—102

5,455

697
241
—117
— 53
— 490
27

305

—
—
—
—
—
—

—

—
—

—

—
—
—
—

—

305

Opening balances regarding accumulated depreciation/write-down are restated to show our write-downs separately.

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

Machinery
and other
technical
assets

Other
equipment,
tools and
installations

Construction
in process
and advance
payments

23
—
—

—
—
—

—

12
—
—12

—11
—
11

104
2
— 37

— 67
—16
29

— 54

—
—
—

—

—
—
—

—

Total

44,411
2,738
— 2,469
— 9,046
—
— 3,134

32,500

— 26,887
— 5,514
1,469
6,750
—
1,895

— 22,287

38
— 2

— 921
—161
773
24

— 285

9,964

Total

139
2
— 49

—78
—16
40

— 54

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 27

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 in 2002

Joint
ventures

Associated
companies

Consolidated

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

Closing balance

1,975
—1,333
230
—73
—
—
—

799

Total

3,135
—1,220
204
—156
— 8
246
— 366

1,160
113
— 26
— 83
— 8
246
— 366

1,036

1,835

Dividends received from companies accounted for under the
equity method were SEK 27 million in 2001 and SEK 35 million
in 2000.

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

854
5,767
437
13
5,372

799

19,107
—1,333
—1,103

139
75

Parent Company

Investments
Opening balance
Acquisitions and
stock issues
Shareholders(cid:213)
contribution
Write-downs
Reclassifications
Sales

Closing balance

Sub-
sidiaries

Other
Joint Associated invest-
companies ments

ventures

44,483

2,752

1,358

12,007
— 3,800
516
— 3,964

50,600

—

—
—
—
—

2,752

973

—
—
— 506
— 35

458

—
—
—10
—7

28 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Other financial assets 2002

Other
investments
in shares
and partici-
pations

Consolidated

Long-
term

Other
long-
term
customer Deferred financial
financing3)
assets

taxes

Accumulated
acquisition costs
Opening balance
Additions
Sales/repayments/
deductions
Reclassifications
Translation difference
for the year

Closing balance

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

Closing balance

3,730
519

— 887
—

— 218

3,144

11,329
13,043

— 4,460
—

—709

19,203

9,591
9,203

7,141
437

—1,156
8,044

— 5,148
—

—1,149

24,533

—125

2,305

— 629

— 3,396

— 334

— 3,134

— 43
—

105

— 901

1,353
—1,748

— 6,9201)

—

—
—

—

—161

—

— 6
—

— 6

—173

2,132

Net carrying value

2,2432)

12,283

24,533

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

operations.

2) Market value per December 31, 2002, for listed shares was SEK 382 million

with a net carrying value of SEK 756 million.

3) From time to time, customer financing amounts may include equity
instruments or equity-related instruments in our customers due to
reconstruction activities of troubled debt. This is a result of that we
sometimes receive such instruments as security for our receivable. Our
policy is to sell such instruments as soon as feasible.

Parent Company

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

Closing balance

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

Closing balance

Net carrying value

Long-term
customer
financing

Deferred
taxes

Other
long-term
financial
assets

2,802
11,796
—1,780

—

12,818

— 908
—1,615
—1,625
429

— 3,719

9,099

858
—
—167

—

691

—
—
—
—

—

2,061
47
—1,877

—17

214

—
—
—
—

—

691

214

9 INVESTMENTS

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

Shares owned directly by the Parent Company

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

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

556056-6258
556251-3266
556250-9454
556606-5438
556251-3258
556137-8646
556018-0191
556030-9899
556381-7666
556381-7609
556329-5673
556326-0552
556058-5936

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

Ericsson AB
Ericsson Shared Services AB
Ericsson Global IT Services AB
Ericsson Juniper Networks Mobile IP AB
Ericsson Telecom AB
Ericsson Utvecklings AB
SRA Communication AB
AB Aulis
LM Ericsson Holding AB
Ericsson G(cid:138)msta AB
Ericsson Treasury Services AB
Ericsson Credit AB
Ericsson Project Finance AB
Other
Ericsson Austria GmbH
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. 4)
Ericsson A/S
Ericsson Corporatio AO
Ericsson AG
Ericsson Holding Ltd.
Other (Europe, excluding Sweden)
Ericsson Holding II Inc.
US Statutory Trust 2001
C(cid:146)a Ericsson S.A.C.I.
Teleindustria Ericsson S.A.
Other (United States, Latin America)
Teleric Pty Ltd.
Ericsson Ltd.
Ericsson (China) Company Ltd.
Nanjing Ericsson Panda Communication Co. Ltd.
Ericsson India Private Ltd.
Ericsson Malaysia Sdn. Bhd.
Ericsson Telecommunications Pte. Ltd.
Ericsson Taiwan Ltd.
Ericsson (Thailand) Ltd.
Other countries
Total

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

II
III
I
I

II
I
I
I
I
I
I
I
I

Joint ventures and associated companies
I
I
I

Sony Ericsson Mobile Communications AB
Ericsson Nikola Tesla
Beijing Ericsson Mobile Communications Co. Ltd
Other
Total

556615-6658

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
United States
Argentina
Mexico

Australia
China
China
China
India
Malaysia
Singapore
Taiwan
Thailand

Sweden
Croatia
China

100
100
100
60
100
100
100
100
100
100
100
100
100
—
100
100
100
100
100
100
100
100
100
72
100
100
100
100
—
100
100
100
100
—
100
100
100
251)
100
70
100
80
492)
—

50
49
25 3)
—

50
361
85
—
100
10
47
14
105
162
1
5
469
—
4
90
13
22
20
1,301
2
81
300
10
156
5
—
74
—
—
22
5
n/a
—
20
2
50
5
725
2
—
240
15
—
—

50
196
5
—
—

12,636
5,916
252
87
6,520
17
145
6
1,122
324
2
5
567
623
664
216
195
485
341
120
14
3,924
2,951
105
194
5
—
757
136
9,508
198
10
1,549
133
99
2
369
37
147
4
1
19
4
191
50,600

2,752
330
36
92
3,210

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 29

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

556577-9799
556000-0365
556128-5924
556090-3212
556028-1627
556329-5657
556250-2046
556044-9489
556008-8550

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

Ericsson Shared Services V(cid:138)st AB
Ericsson Network Technologies AB
Ericsson Business Innovation AB
Ericsson Enterprise AB
Ericsson Microwave Systems AB
Ericsson Sverige AB
Ericsson Radio Access AB
Ericsson Cables Holding AB
AB LM Ericsson Finans
Ericsson France S.A.
LM Ericsson Ltd.
Ericsson Telecommunicazioni S.p.A.
Ericsson Holding International B.V.
Ericsson Nederland B.V.
Ericsson Telecommunicatie B.V.
Ericsson Espa(cid:150)a S.A.
Ericsson Telekomunikasyon A.S.
Ericsson Ltd.
Ericsson Mobile Communications (U.K.) Ltd.
Ericsson Canada Inc.
Ericsson Inc.
Ericsson NetQual Inc.
Ericsson WebCom Inc.
Ericsson Wireless Communications Inc.
Ericsson IP Infrastructure Inc.
Ericsson Amplifier Technologies Inc.
Ericsson Telecommunica(cid:141)(cid:155)es S.A.
Ericsson Servicos de Telecomunica(cid:141)(cid:155)es Ltda.
Ericsson Telecom S.A. de C.V.
Ericsson Australia Pty. Ltd.
Nippon Ericsson K.K.
Ericsson Mobile Communications Sdn Bhd
Ericsson Consumer Products Asia Pacific Pte Ltd.

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

100
100
100
100
100
100
100
100
100
100
100
72
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

Key to type of company

1 Through subsidiary holdings, total holdings amount to 51% of Nanjing Ericsson Panda

I Manufacturing, distribution and development companies
II Holding companies
III Finance companies

Communication Co. Ltd.

2 Through subsidiary holdings, total holdings amount to 100% of Ericsson (Thailand) Ltd.
3 Through subsidiary holdings, total holdings amount to 46% of Beijing Ericsson Mobile

Communications Co. Ltd.

4 The subsidiary Ericsson S.p.A. is listed on the Milan stock exchange in Italy. Ericsson(cid:213)s

share of the market value as per December 31, 2002, was SEK 3,348 million.

30 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

10 INVENTORIES

Consolidated Parent Company
2001
2002

2002

2001

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

4,348
653

9,185
1,224

2,990
9,935
— 4,507

5,728
13,653
— 4,880

13,419

24,910

—
—

1
4
— 3

1
—

3
5
—7

11 ACCOUNTS RECEIVABLE — TRADE

Consolidated Parent Company
2001
2002

2002

2001

Notes and accounts receivable
Receivables from
associated companies
and joint ventures

Total

35,814

56,561

753

724

675

36,538

57,236

805

Allowances for doubtful accounts amounting to SEK 1,909
million (SEK 2,655 million in 2001) and SEK 271 million
(SEK 276 million in 2001) in the Parent Company, which has
reduced the amounts shown above, include amounts for
estimated losses based on commercial risk evaluations.
Retention receivables recognized as revenues were SEK 5,378
million (SEK 6,924 million in 2001) at December 31, 2002.

12 RECEIVABLES AND PAYABLES — SUBSIDIARIES

Parent Company

Long Term Receivables1)
Financial receivables
Current Receivables
Commercial receivables
Financial receivables

Total

Long Term Liabilities1)
Financial liabilities
Current Liabilities
Commercial liabilities
Financial liabilities

Total

2002

2001

20,916

29,673

1,525
26,210

2,218
52,277

27,735

54,495

18,716

45,574

367
46,655

381
56,995

47,022

57,376

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

Included in Other are cash colleterals and restricted bank
deposits, amounting to SEK 4,962 million (SEK 1,032 million
in 2001).

14 STOCKHOLDERS(cid:213) EQUITY

Capital stock 2002
Capital stock at December 31, 2002, consisted of the following:

Parent Company

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

Number
of shares

Aggregate
par value

656,218,640
15,318,040,038

15,974,258,678

656
15,318

15,974

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.

The total number of treasury shares at December 31, 2002, is

154,360,278 (156,804,000 in 2001). The decrease in treasury
shares is due to the Stock purchase plan.

Cumulative translation adjustments

Opening balance
Changes in cumulative translation adjustments

Closing balance

1,970
— 4,921

— 2,951

Changes in cumulative translation adjustments include changes
regarding recalculation of goodwill in local currency of SEK
—1,515 million (SEK 996 million in 2001), net gain/loss (—) from
hedging of investments in foreign subsidiaries of
SEK 1,346 million (SEK —600 million in 2001) and
SEK —107 million (SEK 5 million in 2001) 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:

Including non-interest bearing receivables and liabilities, net, amounting to
SEK —29,506 million (SEK -17,212 million in 2001). Interest-free transactions
involving current receivables and liabilities may also arise at times.

13 OTHER RECEIVABLES

Cost of sales
Financial income
Taxes

Total

Consolidated Parent Company
2001
2002

2002

2001

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

461
2,245
2,582
545
1,514
17,470

176
3,389
5,824
603
11,328
17,851

—
759
754
—
591
11,029

2,564
716
598

—

771
5,588

Total

24,817

39,171

13,133

10,237

2002

2001

— 45
—198
3

— 240

134
28
9

171

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 31

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(cid:213) EQUITY (CONTINUED)

Changes in stockholders(cid:213) equity

Consolidated

January 1, 2002
Stock issue
Stock purchase plan
Sale of own stock
Transfer between non-restricted
and restricted reserves
Changes in cumulative
translation adjustments
Net income 2002

December 31, 2002

Capital
stock

8,066
7,908
—
—

—

—
—

15,974

Equity
proportion
reserve

Other
restricted
reserves

Total
restricted
equity

Non-
restricted
equity

491
—
—
—

181

—
—

672

29,102
21,032
—
—

37,659
28,940
—
—

30,928
—
12
2

Total

68,587
28,940
12
2

— 5,935

— 5,754

5,754

—

— 4,921
—

39,278

— 4,921
—

55,924

—
—19,013

17,683

— 4,921
—19,013

73,607

Of retained earnings, SEK 279 million will be appropriated to reserves not available for distribution, in accordance with the proposals of the respective companies(cid:213)
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, 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(cid:213) equity.

Consolidated

January 1, 2001
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

Other
restricted
reserves

Total
restricted
equity

Non-
restricted
equity

447

32,153

—
—
—
—
—

—
—

10
—1

—

— 5,170
2,110

—

40,510
155

—

11
—1

—

— 5,126
2,110

51,176

—

—156

—
—

— 3,954
5,126

—

— 21,264

December 31, 2001

8,066

491

29,102

37,659

30,928

Consolidated

January 1, 2000
Repurchase of own stock
Stock dividend
Conversion of debentures
Capital discount
Proceeds from unclaimed stock dividend shares
Dividends paid
Gains on sale of own options and convertible debentures
Revaluation of fixed assets
Transfer between non-restricted and restricted reserves
Changes in cumulative translation adjustments
Net income 2000

Capital
stock

4,893

—

2,941
76

—
—
—
—
—
—
—
—

Equity
proportion
reserve

Other
restricted
reserves

Total
restricted
equity

Non-
restricted
equity

348

—
—
—
—
—
—
—
—

—
—

32,270

—

— 2,941
1,839
—105
1
—
—

—7
— 879
1,975

—

37,511

—
—

1,915
—105
1
—
—

—7
—780
1,975

—

31,665
— 386

—
—
—
—

— 3,919
2,018

—

780

—

21,018

51,176

December 31, 2000

7,910

447

32,153

40,510

Parent Company

January 1, 2002
Stock issue
Sale of own stock
Net income 2002

December 31, 2002

stock

8,066
7,908
—
—

15,974

Share Revalua-

Capital premium

reserve 1)

tion Statutory
reserve

reserve

Total Disposi-
tion
reserve

restricted
equity

Other
retained
earnings

Non-
restricted
equity

3,694
21,032
—
—

24,726

20
—
—
—

6,741
—
—
—

6,741

18,521
28,940
—
—

47,461

100
—
—
—

100

13,189
—
2
1,110

14,301

13,289
—
2
1,110

14,401

61,862

Total

91,686
155
—156
11
—1
— 3,954
—
2,110
— 21,264

68,587

Total

69,176
— 386
0
1,915
—105
1
— 3,919
2,018
—7
0
1,975
21,018

91,686

Total

31,810
28,940
2
1,110

1) 1996 and prior years(cid:213) share premium are included in statutory reserve.

32 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

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

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

Jan. 1

Withdrawals

Dec. 31

27
18

3,267
774

4,041

4,086

—7
—13

— 20

—1,977
—

—1,977

—1,997

20
5

1,290
774

2,064

2,089

Swedish GAAP and tax regulations require a company to report certain differences between the tax basis and book value as an untaxed reserve in the balance sheet
of the stand-alone financial statements. Changes to these reserves are reported as an appropriation or withdrawal to untaxed reserves in the income statement.

Changes in other untaxed reserves in the Parent Company in 2000 consist of the following: withdrawal of tax equalization reserve, SEK 0 million (SEK 127 million in
2001); appropriations to reserve for doubtful receivables, SEK 247 million (SEK —389 million in 2001) and withdrawal of income deferral reserve SEK 1,419 million
(SEK —446 million in 2001). Deferred tax liability, not accounted for, on untaxed reserves, amounts to SEK 585 million in 2002, SEK 1,144 million in 2001 and SEK
1,473 million 2000.

16 PROVISIONS

Consolidated

Opening balance
Additions
To cover costs incurred
Excess amounts
Balances regarding acquired
and sold companies
Reclassification

Translation difference for the year

Closing balance

Parent Company

Opening balance
Additions
To cover costs incurred
Excess amounts
Reclassification
Translation difference for the year

Closing balance

Pensions
and similar
provisions

10,104
2,128
— 864
—

—1
—147

— 223

10,997

Deferred
taxes

Warranty
commitments

Restructuring

Customer
financing

2,009
1,142
—1,247
—

21
— 488

1,511

4,435
2,711
— 3,563
—

—
177

— 206

3,554

7,075
7,195
— 6,593
— 86

—14
157

—199

7,535

2,212
445
— 680
— 571

—
—1,126

—102

178

Total
other
provisions

22,831
17,521
—15,159
— 876

— 60
—1,490

—1,410

21,357

Other

7,100
6,028
— 3,076
— 219

— 67
— 210

— 977

8,579

Pensions
and similar
provisions

Restructuring

Customer
financing

889
264
— 54
—
57
—

1,156

47
63
— 8
—
— 39
—

3,769
84
—
—
—1,625
—

2,228

Other

350
3
—
—184
—19
—11

139

Pensions
The Company participates in local pension plans in countries in
which we operate. There are principally two types of pension
plans:
¥ Defined contribution plans, where the Company(cid:213)s only

obligation is to pay a pension premium to a fund or insurance
company on behalf of the employee. No liability is recorded
on the books.

¥ Defined benefit plans, where the Company(cid:213)s undertaking is to
provide pension benefits related to services rendered and salary
levels. These plans are managed in two ways:

— by setting up a trust to manage the company(cid:213)s contri-

butions to the plan, in which case the recorded provision
on the balance sheet is the net of benefit obligations and
plan assets.

— by recording of total accumulated benefits as a provision on

the balance sheet with no assigned plan assets. This
method is used in Sweden and subject to insurance with
the Pension Registration Institute (PRI) which is covered
by Swedish law on safeguarding of pension commitments.

In the Ericsson group, most companies have defined
contribution plans and therefor no pension provisions on the
books. In a dozen countries other than Sweden, the subsidiaries
have defined benefit plans with trust funds, and record the net

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 33

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

of accumulated benefit obligations and plan assets as
provisions. In Sweden, the total pension benefits are a mixed
solution, with some parts being defined contribution-type and
others defined benefit:
¥ social security payroll taxes for all employees include fees for

state-governed basic pension benefits. No liability is recorded
in company books.

¥ all blue-collar employee plans and certain parts of white-
collar plans, such as death and disability, are defined
contribution plans. Some parts of early-retirement plans are
also arranged as defined contribution plans.

¥ white-collar employees(cid:213) age pension benefits are defined
benefit-type plans. No trust is established and the full
liability is recorded on the books with compulsory insurance
coverage. The liability is calculated by a third party
institution, PRI, according to actuarial assumptions defined
outside the company(cid:213)s control. PRI also administers the
pension payments to employees.

The main part of total provisions for pensions and similar benefits
amounting to SEK 10,997 million, is attributable to the Swedish
pension plans, of which SEK 9,175 million (SEK 7,459 million in
2001) are PRI-liability. The Parent Company(cid:213)s pension liabilities
include an obligation in the amount of SEK 716 million (SEK 532
million in 2001) in accordance with an agreement with PRI.
In accordance with new Swedish accounting principles,
RR29, to be adopted in 2004, actuarial assumptions such as
future salary levels and expected return on any plan assets
among other, are required to disclose costs and net liabilities for
defined benefit plans.

Ericsson will apply RR29 in year 2004 and the cumulative

effect of the accounting change will be charged directly to
equity.

If Ericsson would have applied RR29 as of January 1, 2003,

the pension provisions would have been increased by
approximately SEK 2.8 billion. The effect on equity, net after
taxes, would have been approximately SEK 2 billion.

Deferred taxes
Deferred tax liabilities as of December 31, 2002, relate mainly
to capitalization of development costs.

Warranty commitments
Warranty provisions are made based on sales and contractual
warranty periods of products sold. As the sales have decreased
during the year compared to last year and warranties for Phones
are now included in the accounts of SEMC, provisions have also
decreased.

Restructuring
During 2001, two restructuring programs were implemented and
expenses of SEK 15 billion were recognized, of which SEK 7 billion
remained as unutilized provisions at the end of 2001. In 2002, the
remaining provisions have largely been reversed to cover actual
costs. At the end of this year, SEK 500 million remained and we

34 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

expect that these will be dissolved during the first quarter of
2003. During 2002, further restructuring activities were
implemented. At year end, provisions of SEK 7 billion related to
these activities remained. We expect that the main part of the
SEK 7 billion will be dissolved to cover costs during 2003 and the
remaining part during the first quarter of 2004.

Customer financing
Total provisions for off-balance sheet customer financing is the
sum of all individual provisions for each risk. The individual
provisions are based on a specific evaluation of each risk
exposure.

Other
A significant part is related to contractual penalties. Other
provisions also include amounts for risks related to patent and
other litigations and changes in techniques and markets. At
year end 2002, we were involved in two ongoing patent
litigations related to mobile communications, one with
Interdigital Communications Corporation and another with
Harris Corporation. We have in both cases contested the claim
of the other party.

17 LONG-TERM LIABILITIES

Consolidated Parent Company
2001
2002

2002

2001

Notes and bond loans
(maturing 2004— 2010)
Convertible debentures
(maturing 2003)
Liabilities to financial
institutions
Liabilities to subsidiaries
Other

33,074

41,656

33,074

41,656

—

4,437

—

4,437

3,043
—
949

7,906
—
887

411
18,716
102

272
45,574
128

Total

37,066

54,886

52,303

92,067

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

Consolidated Parent Company
2002

2002

Notes and bond loans and
liabilities to financial institutions
Other

Total

7,608
6

7,614

7,422
—

7,422

Of the long-term loans, SEK 21,484 million (note issuances of
EUR 2,000 million and GBP 226 million pursuant to our Euro
Medium Term Note program) have interest rates linked to the
company(cid:213)s credit rating. The interest rate will increase/decrease
0.25 percent per annum for each rating notch per rating agency
(Standard & Poor(cid:213)s and Moody(cid:213)s) by which either or both have
publicly announced a rating decrease/increase of the company(cid:213)s
credit rating from 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 was issued in 1997, in the amount of
SEK 6,000 million. Of the total amount, SEK 4,859 million
were sold to Ericsson employees and SEK 1,141 million were
sold to our wholly owned subsidiary AB Aulis. In 2000, Aulis(cid:213)
debentures were sold externally. The debentures bear interest at
12 months Stockholm Inter Bank Offered Rate (STIBOR) less
1.5 percent and are convertible to B shares from November 19,
1999, up to and including May 30, 2003. The loan matures on
June 30, 2003. The outstanding amount per December 31,
2002, was SEK 4,486 million. After the stock issue in 2002, the
conversion price is SEK 41,70 per share.

In the 1997 consolidated accounts, a capital discount
amounting to SEK 816 million 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(cid:213)s
recommendation RR03. The capital discount is charged to
income as interest expense during the period of the loan.

During 2002, debentures in the amount of SEK 0.03 million
were converted to 560 B shares. A conversion of all outstanding
debentures would increase the number of shares with
108,172,247.

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 5,603 million. The Parent Company has
none. The Parent Company had unused long-term lines of
credit amounting to SEK 14,045 million and unutilized
commercial paper and medium term note programs amounting
to SEK 36,005 million. Of total unused lines of credit of
SEK 19,648 million, SEK 5,267 million had conditions linked to
the Company(cid:213)s credit rating. Due to lowered credit ratings
access to liquidity under our commercial paper programs is
now limited.

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

19 OTHER CURRENT LIABILITIES

Consolidated Parent Company
2001
2002

2002

2001

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

Total

444
25,605
1,833
5,654

1,077
32,189
1,208
11,126

33,536

45,600

—
2,435
427
5,065

7,927

256
1,876
469
2,190

4,791

20 ASSETS PLEDGED AS COLLATERAL

Consolidated Parent Company
2001
2002

2002

2001

Real estate mortgages
Chattel mortgage
Bank deposits
Other

Total

—
—
2,800
—

60
1
3,007
7,789

2,800

10,857

—
—
1,918
—

1,918

—
—
1,281
212

1,493

The major items included in Bank deposits are collateral for
Swedish pension commitments amounting to SEK 1,500
million (SEK 0 in 2001) and collateral for inventory financing
amounting to SEK 773 million (SEK 0 in 2001).

The major items included in Bank deposits are Parent

Company collateral for Swedish subsidiaries(cid:213) pension
commitments amounting to SEK 1,500 million (SEK 0 in
2001). The bank deposits related to pension commitments has
in January 2003 increased to SEK 3,000 million.

21 CONTINGENT LIABILITIES

Consolidated Parent Company
2001
2002

2002

2001

Guarantees for customer financing 1,339
1,777
Other contingent liabilities

10,620
1,679

3,467
13,120

13,854
9,743

Total

3,116

12,299

16,587

23,597

Guarantees for customer financing relate to such arrangements,
where Ericsson is the guarantor for customers(cid:213) payment
obligations under credit facilities. A lender under these credit
facilities is normally a bank, which thus is the beneficiary of the
Ericsson guarantee, covering the entire or part of the
outstanding principal amount and accrued interest. The
guarantees for customer finance are shown above at their net
value (i.e. after provisions).

Of other contingent liabilities assumed by Ericsson,

consolidated SEK 635 million in 2002 (SEK 1,082 million in
2001) are related to guarantees for performance provided to
certain customers and SEK 830 million in 2002 (SEK 287
million in 2001) to guarantees for loans to other companies.
Of other contingent liabilities assumed by the Parent
Company, SEK 12,521 million in 2002 (SEK 9,529 million in
2001) are related to subsidiaries and eliminated in consolidated

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 35

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

accounts. The largest guarantees are for Swedish subsidiaries(cid:213)
pension commitments, SEK 8,242 million in 2002 (SEK 5,536
million in 2001), and subsidiaries(cid:213) borrowing from financial
institutions, SEK 1,883 million in 2002 (SEK 2,306 million in
2001). Other contingent liabilities also include Parent
Company guarantees for subsidiaries(cid:213) performance (bid bonds,
performance bonds and other similar instruments) provided to
certain customers and guarantees for loans to other companies.
The probability that Ericsson might need to make future

payments of substantial amounts under the guarantees is
remote.

22 STATEMENT OF CASH FLOWS

Consolidated
Interest paid in 2002 was SEK 3,342 million (SEK 3,822 million
in 2001, SEK 3,763 million in 2000) and interest received was
SEK 1,833 million (SEK 3,659 million in 2001, SEK 3,728
million in 2000). Income taxes paid were SEK 2,892 million
(SEK 4,873 million in 2001, SEK 5,780 million in 2000).
Included in Other non-cash items under Adjustments to
reconcile net income to cash are undistributed earnings of
associated companies and joint ventures and minority interest
in net income.

Non-cash transaction under (cid:210)Cash flow from operating
activities(cid:211) not reported separately is current year(cid:213)s increase in
pension liabilities of SEK 893 million (SEK 786 million in
2001, SEK 920 million in 2000).

Acquisitions/sales of other investments

Consolidated

Purchase price for acquired subsidiaries
Other acquisitions
Sales

Acquisitions/sales, net

2002

— 208
— 246
3,157

2,703

The major item in sales of SEK 3,157 million were net proceeds
from sales of parts of Microelectronics of SEK 2,313 million.

Investments, other
The major items were releases of cash collaterals for off-balance
sheet customer financing of SEK 3,273 million.

Parent Company
Interest paid in 2002 was SEK 4,286 million (SEK 3,323 million
in 2001, SEK 1,178 million in 2000) and interest received was
SEK 4,868 million (SEK 5,487 million in 2001, SEK 1,854
million in 2000). Income taxes paid were SEK 44 million
(SEK 93 million in 2001, SEK 356 million in 2000).

Major non-cash items in Investments are:
Acquisitions/sales of other investments, net, in 2002 of
SEK 8,104 million (SEK 21,603 million in 2001, SEK 5,504
million in 2000).

36 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

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 million, is shown in year 2000 as
Acquisitions/sales of other investments, net.

Parent Company

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:

Financial leases

Acquisition costs
Machinery
Other equipment

Accumulated depreciation
Machinery
Other equipment

Net carrying value

2002

2001

—
2

—
—1

—1

182
1,284

1,466

24
263

287

1,179

At December 31, 2002, future payment obligations for leases
were distributed as follows:

Consolidated

2003
2004
2005
2006
2007
2008 and later

Financial
leases

Operating
leases

7
5
4
3
0
2

3,339
2,884
2,254
1,952
1,792
7,601

19,822

Expenses in 2002 for leasing of assets were SEK 3,986 million
(SEK 3,406 million in 2001), of which variable expenses were
SEK 6 million (SEK 203 million in 2001).

The company sold certain assets relating to test plant

equipment for software testing in Sweden and the US for SEK
7,897 million in December 2001. The assets were leased back
from the purchaser over a period of one year.

This transaction was accounted for as a financial (capital)
lease in the consolidated accounts, and no capital gain was
reported. The entity owning these assets was acquired in 2002,
by the Parent Company, and this capital lease is no longer
reported in the consolidated accounts, as it has become internal.
The future internal leasing obligations and internal leasing

receivables are included in operating leases in the Parent
Company.

At December 31, 2002, future payment obligations for leases

for the Parent Company were distributed as follows:

Parent Company

2003
2004
2005
2006
2007
2008 and later

Financial
leases

Operating
leases

—
—
—
—
—
—

—

3,247
2,877
2,587
2,370
2,213
3,945

17,239

Leasing income
Some consolidated companies lease equipment, mainly
telephone exchanges, to customers. These leasing contracts vary
in length from 1 to 8 years. Leasing income also includes
income from sublease of property.

At December 31, 2002, future payment receivables are

distributed as follows:

Consolidated

2003
2004
2005
2006
2007
2008 and later

Parent Company

2003
2004
2005
2006
2007
2008 and later

Sales-type and
Financial leases

Operating
leases

263
200
143
112
5
3

726

35
36
36
37
28
62

234

Sales-type and
Financial leases

Operating
leases

—
—
—
—
—
—

—

1,531
1,251
1,181
1,145
1,109
51

6,268

The Parent Company(cid:213)s operating lease income is mainly due to
lease of test plant equipment to subsidiaries.

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

24 TAX ASSESSMENT VALUES IN SWEDEN

Consolidated Parent Company
2001
2002

2002

2001

Land and land improvements

25 SPECIAL INFORMATION REGARDING

THE PARENT COMPANY

Sales of the Parent Company in 2002 were SEK 2,017 million
(SEK 1,374 million in 2001), of which exports accounted for
100 percent (100 percent also in 2001). No consolidated
companies were customers of the Parent Company(cid:213)s sales in
2002 or 2001, while 66 percent (53 percent in 2001) of the
Company(cid:213)s total purchases of goods and services were from such
companies.

The Parent Company has guaranteed up to SEK 0.1 million

for loans obtained by employees.

26 NUMBER OF EMPLOYEES
AND REMUNERATION

Employees
Average number of employees

Consolidated

Europe1), Middle
East and Africa
North America
Latin America
Asia Pacific

2002
Men Women Total

Men Women

2001
Total

37,968 13,380 51,348 48,714 18,428 67,142
9,857
2,910
1,787
6,756
3,770 11,664

2,223 7,989
913 4,251
2,959 9,832

5,766
3,338
6,873

6,947
4,969
7,894

Total

53,945 19,475 73,420 68,524 26,895 95,419

1) Of which Sweden 22,200
1) Of which EU

8,747 30,947 27,703 11,432 39,135
33,627 11,997 45,625 44,144 16,982 61,126

Parent Company

Europe1), Middle
East and Africa
Latin America

Total

1) Of which Sweden
1) Of which EU

2002
Men Women Total

Men Women

1,127
16

1,143

353
353

420 1,547
20

1,237
7

424 1,567

1,244

368
368

721
721

380
380

516
3

519

465
465

2001
Total

1,753
10

1,763

845
845

Number of employees, consolidated

Employees by region

Europe, Middle East and Africa1)
North America
Latin America
Asia Pacific

Total

1) Of which Sweden
1) Of which EU

As per December 31,
2000
2001

2002

47,700
6,328
2,822
7,771

60,743
8,929
5,333
10,193

71,144
13,481
8,457
12,047

64,621

85,198 105,129

30,241
44,467

37,328
56,427

42,431
66,241

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 37

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

Employees per segment

Systems
Phones
Other operations1) 2)
Unallocated2)

Total

As per December 31,
2000
2001

2002

51,390
—
12,846
385

68,525
—
16,286
387

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

64,621

85,198 105,129

1) Approximately 3,000 employees in our Phones segment were transferred to
Sony Ericsson Mobile Communications in 2001. Employees in retained
operations are now included in Other Operations.

In 2001, 750 employees were transferred from Unallocated to Other
operations due to internal reorganization.

The majority of our employees in Sweden belong to the
following trade unions: SIF (the Swedish Union of Salaried
Employees), the Swedish Association of Graduate Engineers,
the Swedish Union of Industrial Supervisors and the Swedish
Metal Worker(cid:213)s Union. Many of our employees located outside
Sweden, in particular those located in other European
countries, also belong to trade unions. Central and industry-
wide agreements on wages and salaries in Sweden were
renegotiated in 2001 and remain applicable through the first
quarter of 2004, resulting in an estimated average increase of
3.0—3.5 percent per annum. We believe that our relations with
these unions and our employees in general are good.

Remuneration
Wages and salaries and social security expenses

Consolidated Parent Company
2001
2002

2002

2001

Wages and salaries
Social security expenses
Of which pension costs

33,650
13,221
4,133

41,227
14,293
3,704

825
569
451

795
484
345

Wages and salaries per geographical area

Consolidated Parent Company
2001
2002

2002

2001

Europe1), Middle East
and Africa
North America
Latin America
Asia Pacific

Total

22,979
6,100
1,571
3,000

27,908
6,910
2,572
3,837

33,650

41,227

814
—
11
—

825

790
—
5
—

795

1) Of which Sweden
13,327
488
1) Of which EU
20,539
488
Remuneration in foreign currency has been translated to sek at
average exchange rates for the year.

14,954
25,679

516
516

38 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Ericsson(cid:213)s Remuneration Committee
The Board of Directors appoints members to Ericsson(cid:213)s
Remuneration Committee each year. During 2002, the
following Board members served on the Committee: Peter
Sutherland (Chairman), Lena Torell, Michael Treschow and Per
Lindh.

As mentioned in the section (cid:210)Board of Directors and Board

Procedures(cid:211), the Remuneration Committee(cid:213)s area of
responsibility includes to review and prepare for resolution by
the Board, strategies and general guidelines for compensation
of 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 or to the Chief Operating Officer.

The Remuneration Committee meets at least three times a
year. In November or December, the Committee will review
salary survey data to approve any increase to base pay for the
following year for executives. Increases, if any, are effective from
the following January. At the same meeting a decision will be
made on the incentive targets for the following year.

In January or February, the Committee will approve any
incentive payments to be made from the previous year(cid:213)s plan
and agree to any new long term incentive plan prior to being
presented to shareholders.

In the middle of the year the Committee meets again for a
strategic compensation review with representatives from the
Company. They will consider trends in compensation,
legislative changes, disclosure rules and the general global
environment surrounding executive pay. The outcome is to
agree the direction that Ericsson will follow so that program
designs and pay policies all align with the business.

Throughout Ericsson all remuneration decisions must
comply with Ericsson(cid:213)s compensation policies and must be
formally approved by the next most senior person in direct line
of authority.

Compensation policies and Remuneration
to Senior Executives and the Corporate Management
This note to the financial statements covers information about
employees and employee costs and is in accordance with
applicable laws, rules and recommendations. The remuneration
for Senior Executives and Corporate Management is reported in
accordance with recommendations issued by The Swedish
Industry and Commerce Stock Exchange Committee
(N(cid:138)ringslivets B(cid:154)rskommitt(cid:142), NBK) on August 15, 2002.
The Senior Executives are:
¥ the Chairman of the Board, Michael Treschow, and
¥ the President and Chief Executive Officer, Kurt Hellstr(cid:154)m.

The
Chairman
of the Board

The
Corporate
President Management

The

Total

overall structure.

The Corporate Management includes the following persons:
Per-Arne Sandstr(cid:154)m, Carl Olof Blomqvist, Sten Fornell,
Torbj(cid:154)rn Nilsson, Britt Reigo, Henry St(cid:142)nson, Jan Uddenfeldt,
Ragnar B(cid:138)ck, Mats Dahlin, Gerhard Weise and two previous
members of the Corporate Management, Bj(cid:154)rn Bostr(cid:154)m and
Roland Klein.

Remuneration to the Senior Executives
and the Management

(SEK)

Base salary/
board fee
Variable pay
Other benefits
Pension cost
Employee options

2,500,000 15,341,864 44,355,673 62,197,537
3,884,373
—
—
6,059,417
— 22,369,389 39,087,873 61,457,262
5,333,600
—

0
1,289,509

3,884,373
4,769,908

4,655,600

678,000

Total

2,500,000 39,678,762 96,753,427 138,932,189

Comments to the table
¥ 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 attended meeting was paid to each employee
representative on the Board. Further, employee
representatives being also members of a committee of the
Board received a fee of SEK 100 for each committee meeting.

¥ Members of the Board, who are not employees of the

company, have not received any other compensation than the
fees paid for board duties.

¥ Variable pay for the Corporate Management refers to short

term incentives paid for 2001.

¥ The President and the Corporate Management earned no

variable pay during 2002.

¥ As no component of other benefits was significant, these are

not reported separately.

¥ The pension cost for defined benefit plans has been

calculated according to IAS 19.

¥ Employee options were granted at no cost for the employee.
The value of granted options has been calculated according
to the Black & Scholes(cid:213) method.

Severance pay
For the President and the Corporate Management the following
applies.

Severance payments are not payable if an employee resigns
voluntarily, or if the employment is terminated as a result of
flagrant disregard of responsibilities. Notice of termination
given by the employee due to significant structural changes or
other events occurred that, in a determining manner, affect the
content of work or the condition for the position, is equated
with notice of termination served by the company. Upon
termination of employment, severance pay amounting to two
years(cid:213) salary is normally paid. Such payments are made

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

currently during the pertinent period and cease at retirement
age.

Ericsson(cid:213)s View on Compensation
Compensation is an ever changing environment. In such
circumstances it is vital to maintain direction by following
some basic principles:
¥ each program — from base pay through to benefits — is

designed to support and encourage specific behaviors and
outcomes.

¥ all the programs, taken together, should form a coherent

¥ many programs involve complex detail, but the fundamental

principles of each should be simple to understand.

International competitiveness and expatriation
Ericsson operates in several international markets — including
that for talent. However, we do not believe that there is a true
global market for executive talent, too many local cultural
factors intrude.

Our chosen method of operation in this environment is to set

pay levels according to competitive home country practice of
each executive — normally the most relevant market.
Consequently, we expect to tolerate some pay inequality
between executives of different nationalities in similar jobs.

Where an executive, for work reasons, is required to be based
outside his/her home country, Ericsson applies an expatriate pay
structure. This is based on competitive pay levels from a variety
of different countries, with additional payments to cover costs
associated with hardship, housing and transport. Payment is
based on EUR and adjusted for tax, cost-of-living and exchange
rates.

Fixed salary
We have a policy of tracking base pay for executives at the
median of the general industry of their respective home
country. The competitive level is set using comparative salary
survey data from several recognized independent consultants.
Salaries are compared on a job-to-job basis and also using a
recognized points factor job evaluation system.

Increases for executives are mainly based on movements in

this market data and the performance of the individual.

Variable pay
We believe that a substantial part of executive remuneration
should be performance based. Our policy is that together with
median base pay, the variable part should be designed to
achieve upper quartile total pay, compared to the general
industry.

In 2002, the variable payment target level was 25 percent of
base pay but actual payment could range from 0 to 50 percent.
This target applied to all executives including the President. In
2002, no variable pay was earned since performance targets
were not met.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 39

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

Because variable pay is integrated with base pay, targets are
chosen each year to be demanding but fair, consistent with the
prevailing business environment. In practise this means that
variable pay is not directly related to the absolute level of
profitability of the company.

Usually each executive has a range of financial and

measurable non-financial targets relating not only to the overall
Ericsson results, but also to his/her own area of responsibility.
Performance against the targets is measured and independently
audited each year.

Long term incentive
Ericsson does not yet aim for a specific competitive position
when making grants of stock options to executives. It has been
our custom, within limits, to follow Swedish practice when
deciding on grant sizes and values. These are modest in
comparison with international standards. Grants are usually
made once per year and all executives are eligible.

Although there are established grant guidelines — usually
based on the scope and the complexity of work tasks — variation
in grant size to an individual can be made for local competitive
reasons or for exceptional individual performance.

Most grants are at strike prices well above the current share
price. However, our view is that this is a fair alignment with
shareholders and therefore do not seek any repricing for the
underwater options. In accordance with current accounting
standards, the most recent plan design has not been expensed.
Since 1998 we have had a variety of different option designs and
some have been expensed and some not.

We do not offer any performance plans or other long term
stock price linked award schemes for executives. All employees
including executives — except for jurisdictions prohibiting such
schemes — were eligible to participate in the convertible
debenture programs offered in 1997 and the employee stock
purchase plan of 2002.

During 2002, the President was granted 150,000 employee
options. These options had an estimated fair market value at
the time of grant of SEK 678,000, calculated according to the
Black & Scholes(cid:213) method. Between 1999 and 2001, a total of
753,924 options have been granted to the President.

During 2002, the members of the Corporate Management

were granted a total of 1,030,000 employee options. These
options had an estimated fair market value at the time of grant
of SEK 4,655,600, calculated according to the Black & Scholes(cid:213)
method. Between 1999 and 2001, a total of 4,004,304 options
were granted to the Corporate Management.

The President and six members of the Corporate
Management also participate in Ericsson(cid:213)s convertible
debenture program 1997/2003, with a nominal value of SEK
145,347 each and a conversion rate of SEK 41,70 per share.

40 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Pension
Ericsson(cid:213)s policy regarding pension is to follow the competitive
practice in the home country of the executive.

There are different supplementary pension plans for the
President and the Corporate Management, either premium-
based or benefit-based plans. For all pension arrangements, the
pensionable salary consists of the annual base salary and the
target pay out according to the short term incentive plan.

For premium based pensions, the company pays to a capital

insurance company on salary portions in excess of 20 base
amounts (one base amount = SEK 37,900) a percentage of the
executive(cid:213)s pensionable salary, between 25 and 35 percent per
year, depending on the age of the executive. The pension age is
60/62 years and premiums are paid up to the retirement age.
From 65 years, the old age pension includes the ITP plan. For
most of our executives in Corporate Management, premium-
based pensions are applied.

For benefit-based pensions, the old age pension amounts to
45—70 percent of the executives(cid:213) pensionable salary, including
benefits in the ITP plan or corresponding arrangements. The
pension age is 60 years.

The President has the right to retire at the age of 60 years.
Between 60 and 65 years, his pension will be 70 percent of his
pensionable income, and from 65 years 50 percent, including
the benefits from the so called ITP plan. The President(cid:213)s
pensionable salary during 2002 was SEK 10,875,000. In the case
his employment with the company is terminated before the age
of 60 years, he will be entitled to the vested rights of his old
age pension.

Benefits
As with pensions, Ericsson follows the competitive practice of
the home country of an executive for benefits. While the
programs offered — particularly medical — may be similar, plan
designs vary widely according to the taxation and legal
framework in different countries.

Employee Share Ownership
Employee convertible debentures, options and shares
The below figures in relation to number of options, conversion
and exercise prices have, when appropriate, been subject to
recalculation as a result of bonus issue, split and new issue of
shares.

If all options outstanding as of December 31, 2002, were
exercised, all shares allocated for future matching under the
Stock Purchase Plan were transferred, and shares designated to
cover social security costs and payments were disposed of as a
result of the exercise and the matching, approximately 55
million B shares would be issued and approximately 142
million B shares, held as treasury stock, would be transferred.
The total, approximately 198 million B shares, corresponds to
1.25 percent of the total number of shares outstanding, 15,820
million.

Outstanding
options/
shares
as of
December

Shares
to cover
social
security
costs/

Type of plan

Year

31, 2002 payments Total

Option
Option
Option
Stock purchase

1999
2000
2001— 2002
2001

1
46
91
27

165

—
9
18
6

1
55
109
33

198

Convertible debentures
In 1997, convertible debentures of nominal SEK 4,859 million
were issued to employees. The debentures are convertible at the
option of the holder into B-shares for SEK 41.70 per share
through May 30, 2003. Outstanding loans as of December 31,
2002, equaled SEK 4,510,782,694 due June 30, 2003, to the
extent not converted.

Employee option plans
The following table sets forth information with respect to
employee options issued to senior management and other key
contributors as of December 31, 2002. Each employee option
gives the right to acquire one B share at the exercise price
applicable for the respective plan.

Option
Plan

No of
employees

1999

1,800

2000

8,000

2001—
2002

15,000

employee

Original
number Outstanding
options as
options of December exercise
date
granted

31, 2002

Final Exercise
price,
SEK

1.4
million

71.6
million

101.4
million

1
million

46
million

91
million

February
28, 2007

January
18, 2007

May 14/
November
19, 2008/
November
11, 2009

128

93.80

30.50/
25.70/
7.80

1999 Option plan
The 1999 Option Plan is based on 1.8 million repurchased
B shares, including shares designated for covering social
security payments. In March of 2000, employee options were
granted to approximately 1,800 key employees and senior
executives, corresponding to approximately 1.4 million shares.
Of the originally granted employee options, there remained, as
of December 31, 2002, options outstanding corresponding to
approximately 1 million shares. Each option entitles the holder
to purchase one B share at SEK 128. The options expire February
28, 2007, and are subject to vesting requirements, meaning that
they are exercisable as follows: 30 percent in 2003, an
additional 40 percent in 2004 and the remaining 30 percent in
2005.

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

Millennium stock option plan
The Millennium Stock Option Plan is based on warrants, i.e.
options that entitles the holder to subscribe for approximately
81.1 million new B shares, including warrants designated for
covering social security costs. In order to hedge the social
security cost we entered into an arrangement with a bank.
In January 2000, employee options, corresponding to

approximately 71.6 million shares, were granted to approximately
8,000 key employees and senior executives. Of the originally
granted employee options, there remained, as of December 31,
2002, options outstanding corresponding to approximately 46
million shares. Each employee option entitles the holder to
purchase one B share for SEK 93.80. The employee options expire
January 18, 2007 and are subject to vesting requirements,
meaning that one third is exercisable after one year, another third
after two years and the last third after three years.

The global stock incentive program 2001
The Global Stock Incentive Program 2001 is comprised by two
parts, one Stock Option Plan 2001—2002 and one Stock
Purchase Plan.

Stock option plan 2001—2002
The Stock Option Plan 2001—2002 is based on 120 million B-
shares (issued as C shares, repurchased and converted to B-
shares), including shares designated for covering social security
payments. In May and November 2001 (44.9 and 2.6 million
options respectively) and in November 2002 (53.9 million
options) employee options, corresponding to approximately
101.4 million shares, were granted to approximately 15,000 key
employees. Of the originally issued employee options, there
remained, as of December 31, 2002, employee options
outstanding corresponding to approximately 91 million shares.
Each employee option entitles the holder to purchase one B-
share for SEK 30.50 (the May 2001 grant), SEK 25.70 (the
November 2001 grant) and SEK 7.80 (the November 2002
grant), respectively. The options expire May 14, 2008 (the May
2001 grant), November 19, 2008 (the November 2001 grant)
and November 11, 2009 (the November 2002 grant), and are
subjects to vesting requirements, meaning that one third is
exercisable after one year, another third after two years and the
last third after three years from grant.

Stock purchase plan
The Stock Purchase Plan is based on 35 million B shares (issued
as C shares, repurchased and converted to B shares), including
shares designated for covering social security payments. During
a 24-month period participants are able to save up to 7.5
percent of the gross salary, not exceeding the equivalent of SEK
50,000 per twelve-month period, for purchase of B shares. If
the purchased shares are retained by the employee for three
years after the investment and employment with the Ericsson
Group continues during that time, the employee will be given
a corresponding number of B shares free of consideration, a so
called matching.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 41

In addition, we are party to related party transactions with our
owners Investor AB and AB Industriv(cid:138)rden as follows:

¥ Cooperation continued in the venture capital company

Ericsson Venture Partners.

¥ The holdings in the venture capital partnership imGO

were sold during the year by all the parties.

¥ Ericsson purchased Investor(cid:213)s and Industriv(cid:138)rden(cid:213)s

holdings in Ericsson Project Finance AB and AB LM
Ericsson Finans, which are now fully owned subsidiaries.

28 FEES TO AUDITORS

Price-
waterhouse-

Coopers KPMG

Others

Total

Audit fees
Parent Company
Other companies

Fees for other services
Parent Company
Other companies

311)
42

28
42

—
9

—
7

Total fees

143

1) Of which SEK 21 million has been charged to equity.

—
2

—
—

—

31
53

28
49

161

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

The Stock Purchase Plan was implemented in 2002 and a
majority of the employees were invited to participate. During
2002, approximately 27,000 employees in 71 countries
participated in the plan and invested in approximately 29.6
million shares. The initially scheduled 24-month period of
employee salary deductions and investments had to be pre-
terminated in the autumn of 2002, since all shares included in
the plan for future matching and for covering social security
payments had been reserved earlier than expected due to the
high participation rate and the low share price. There will be
no further employee investments made under the plan. As of
December 31, 2002, approximately 2.5 million shares of the
total 35 million shares available had been either transferred to
employees, through premature matching as a result of
redundancy, or sold on Stockholmsb(cid:154)rsen in order to cover the
social security payments incurred by the matching.

27 RELATED PARTY TRANSACTIONS

In October 2001, Sony Ericsson Mobile Communications
(SEMC) was organized as a joint venture between Sony
Corporation and Ericsson, and a substantial portion of our
handset operations was sold to SEMC. As part of the joint
venture, contracts have been entered into between Ericsson and
SEMC. During 2002, transactions were executed pursuant to
such contracts, including the following, based on terms
customary in the industry and on an arm(cid:213)s-length basis.

¥ Sales. The Company records sales regarding mobile phone

platform design.

¥ Royalty. Both owners of SEMC, Sony corporation and the

Company receives royalties for SEMC usage of trade marks
and intellectual property.

¥ Purchases. The Company purchases mobile phones from
SEMC due to that the Company has contracts for mobile
systems including also limited quantities of phones with
a number of customers.

¥ The owners have also issued guarantees to banks as
security for a SEMC subsidiary(cid:213)s loans in Japan. The
Company(cid:213)s guarantees up to SEK 824 million.

¥ Repair costs for remaining warranty periods were charged
to the Company for phones sold by the Company prior to
October 1, 2001.

Related party transactions
Sales
Royalty
Purchases

Related party balances
Receivables
Liabilities
Contingent liabilities

2002

952
320
414

274
146
824

42 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

29 RECONCILIATION TO ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED
IN THE US

Since Ericsson shares are also listed in the US on NASDAQ,
reconciliation of results to US GAAP is made. For additional
information required by foreign registrants, please refer to our
form 20-F, filed with the US Securities and Exchange
Commission.

Principal differences between Swedish GAAP
and US GAAP
The principal differences between Swedish GAAP and US GAAP
that affect our net income (loss), as well as our stockholders(cid:213)
equity, relate to the treatment of capitalization of development
expenses, provisions for restructuring, pension costs, hedge
accounting, marketable securities, deferred taxes and goodwill.
New Swedish GAAP recommendations related to development
costs and restructuring costs have been implemented. After the
Company(cid:213)s adoption of these new recommendations from 2002
no difference exists between Swedish and US GAAP amounts
capitalized by the Company for development costs. The income
statement and the balance sheet will differ between Swedish
and US GAAP, until amounts capitalized prior to 2002 have
been fully amortized. Since 2002 goodwill shall not be
amortized under US GAAP.

New US GAAP standards
In 2002, the following FASB standards were adopted:
¥ SFAS141, Business Combinations
¥ SFAS142, Goodwill and Other Intangible Assets
¥ SFAS144, Accounting for the Impairment or Disposal of

Long-Lived Assets

¥ SFAS145, Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13 and Technical
Corrections were adopted.

With exception for SFAS142 the adoptions did not have a
material impact on income 2002. The effects of the adoption of
SFAS142 are presented under H. Amortization of Goodwill and
K. Adjustment of Net Income below.

The following FASB standards will be adopted in 2003:
¥ SFAS143, Accounting for Obligations Associated with the

Retirement of Long-Lived Assets

¥ SFAS146, Accounting for Costs Associated with Exit or

Disposal Activities

¥ SFAS148, Accounting for Stock-Based Compensation —

Transition and Disclosure an amendment of FASB Statement
No. 123. The Company continues to apply the intrinsic value
method and presents separately the effects, net of tax effects,
as if the fair value method had been applied to all awards
¥ EITF00-21, Accounting for Revenue Arrangements with

Multiple Deliverables

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

¥ FIN45, Guarantor(cid:213)s Accounting and Disclosure Requirements

for Guarantees, Including Indirect Guarantees of
Indebtedness of Others

¥ FIN46, Consolidation of Variable Interest Entities, an

interpretation of ARB51.

The effect of these adoptions in 2003 are not yet evaluated by
the Company.

Significant differences between
Swedish GAAP and US GAAP

A. Capitalization of development costs
Prior to 2002, and in accordance with Swedish accounting
principles, software development costs were charged against
income when incurred. As described in Accounting Principles,
the Company in 2002 adopted RR15, (cid:210)Intangible assets(cid:211).
Consequently, intangible assets arising from internal
development have been recognized when the intangible asset
can be demonstrated to have technical feasibility and future
economic benefits.

The Company has adopted US GAAP SFAS86 (cid:210)Accounting for
the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed(cid:211) and SOP98-1, (cid:210)Accounting for the costs of
Computer Software Developed or Obtained for Internal use(cid:211).
According to SFAS86, 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 of three to five years.

The Company(cid:213)s capitalization of development costs under
Swedish and US GAAP is from 2002 identical, but amortization
amounts are different, since restating of prior years, for effects
of RR15, is not allowed according to Swedish GAAP.

Development costs for software
to be sold, before taxes

Capitalization
Amortization
Write-downs 1)
Less net amount already reported
per Swedish GAAP

2002

2001

2000

3,074
— 3,070
—1,171

7,091 10,349
— 6,664
—

—7,661
—1,214

— 2,851

—

— 4,018

—1,784

3,685

1) Write-down is made subject to impairment test regarding future revenue for

capitalized products.

Development costs for software
for internal use, before taxes

Capitalization
Amortization
Less net amount already reported
per Swedish GAAP

2002

2001

2000

368
— 941

— 349

— 922

993
—1,344

990
— 542

—

— 351

448

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 43

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

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 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 adopted SFAS87, (cid:212)(cid:212)Employer(cid:213)s
Accounting for Pensions(cid:213)(cid:213), when calculating income according
to US GAAP. The effects for the Company of using this
recommendation principally relate to the actuarial
assumptions, and that the calculation of the obligation should
reflect projected salary of each employee at retirement age. The
difference relative to pension liabilities already booked at the
introduction in 1989 is distributed over the estimated
remaining service period.

In addition to the Swedish defined benefit plans described in

Note 16, the Company have defined benefit plans in several
foreign countries, with major plans in the United States and
the United Kingdom.

For more information about pensions, see Note 16.

Provisions for pensions according to US GAAP
Weighted-average assumptions as of December 31

In percent

Discount rates
Expected rates of future salary increases
Expected investment return

In SEK million

Accumulated Benefit Obligation
Estimated future salary increases

Projected Benefit Obligation
Fair value of plan assets

Funded status
Unrecognized prior service cost
Unrecognized actuarial loss, net
Unrecognized net asset at initial application of SFAS87

Pension Provision as per US GAAP
Additional minimum pension liability

Total Pension Provision as per US GAAP

Sweden

5.0%
3.5%
—

Sweden

8,144
2,095

10,239
0

—10,239

—701 2)
2,804 3)
—10

— 8,146
0

— 8,146

2002
Other

6.0%
4.0%
7.3%

2002
Other

5,050
1,662

6,712
4,675

— 2,037
138
1,556
— 40

— 383
— 645

—1,028

Sweden

5.5%
3.5%
—

Total

Sweden

13,194
3,757

16,951

4,675 1)

—12,276
— 563
4,360
— 50

— 8,529
— 645

— 9,174

5,892
2,608

8,500
0

— 8,500
0
1,436
— 22

—7,086
0

—7,086

2001
Other

6.4%
4.3%
7.3%

2001
Other

5,881
1,789

7,670
5,556

— 2,114
257
1,309
—13

— 561
— 574

—1,135

1) Negative returns on plan assets and translation differences have reduced the value of plan assets during 2002.

2) Pension plan changes in Sweden have resulted in reduced benefits.

3) Unrecognized actuarial loss in Sweden increased due to lower interest rate for discounting and more unfavorable population demographics.

Total

11,773
4,397

16,170
5,556

—10,614
257
2,745
— 35

—7,647
— 574

— 8,221

44 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

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

According to SFAS142 goodwill is not subject to amortization
subsequent to the date of adoption. Goodwill shall be tested for
impairment both at adoption and annually. The Company has
performed such tests which did not result in write-downs of
goodwill.

The amortization of goodwill made according to Swedish

GAAP is reversed under US GAAP.

I. Deferred Income Taxes
Deferred tax is calculated on all US GAAP adjustments to
income, and the US GAAP balance sheet reflects the gross
recognition of deferred tax assets and liabilities.

J.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 are used.

K. Adjustment of Net Income
Application of US GAAP as described above would have had the
following 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.

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 2002 the Company has received the remaining part
not refunded in 2000 and 2001. In accordance with US GAAP,
this amount is credited to income.

F. Sale-leaseback of property
During 2000 and 2001, the Company sold real and personal
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 SFAS133, (cid:212)(cid:212)Accounting for Derivative
Instruments and Hedging Activities(cid:213)(cid:213), as amended, on January
1, 2001, for calculating income and equity according to US
GAAP. SFAS133 requires recognition of all derivatives as either
assets or liabilities measured at fair value.

Under SFAS133 for qualifying derivatives designated 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 income. The ineffective portion of the gain or loss
affects net income immediately.

According to Swedish accounting practice, forward currency
exchange contracts and options, which are used to hedge firm
commitments and 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.

Prior to 2001, contracts and options not related to firm
commitments were valued at market according to US GAAP.
Adoption of SFAS133 resulted in a cumulative after tax increase
in net income of SEK 421 million and a decrease in other
comprehensive income of SEK 1,665 million on January 1, 2001.

H. Amortization of goodwill
Under Swedish GAAP goodwill is amortized over its estimated
useful life according to Swedish GAAP. In June 2001, US GAAP
was changed due to the adoption SFAS141, (cid:210)Business
combinations(cid:211) and SFAS142, (cid:210)Goodwill and Other Intangible
Assets(cid:211). The adoption of SFAS141 did not have an impact on the
results of operations or financial condition of the Company.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 45

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

Adjustment of Net Income (loss)

2002

20012)

20002)

M. Trade receivables and customer financing

receivables and related borrowings

Under Swedish GAAP, financial assets and liabilities are
reported net, when a legally enforceable right for offset exists
and there is an intent to settle on a net basis or to realize the
asset and settle the liability at the same time. Under US GAAP,
the accounting for the offset of amounts related to these
contracts is not applicable and consequently, for US GAAP
purposes, the Company reported additional accounts receivable
and customer financing balances, and additional borrowings of
SEK 847 million respectively as of December 31, 2002 (SEK
3,781 million as of December 31, 2001).

Sales criteria for transfers of accounts receivable differ

between Swedish and US GAAP, with certain of the US GAAP
criteria such as the legal isolation requirement in SFAS140
being more prescriptive. Under Swedish GAAP, a receivable
should be de-recognized when an entity has lost control of the
contractual rights that comprise the receivable. As of December
31, 2002, no such transactions existed. At December 31, 2001,
amounts of SEK 4,061 million, were recorded as long-term
customer financing and a corresponding amount as a borrowing
for US GAAP purposes, since certain sales customer finance
credits under Swedish GAAP did not meet the requirements of
US GAAP for sale recognition. No gain or loss was recorded in
the Swedish GAAP accounts for these sales.

N. Comprehensive income
The Company has adopted SFAS130, (cid:210)Reporting
Comprehensive Income(cid:211). Comprehensive income includes net
income (loss) and other changes in equity, except those
resulting from transactions with owners.

Comprehensive net income

2002

2001

2000

Net income (loss) in accordance
with US GAAP

Other comprehensive income (loss)
Translation adjustments
Translation adjustments for sold/
liquidated companies
Net gain 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)

—19,918 — 24,403

23,393

— 6,160

2,710

2,326

—107
2,057
1,869

5
2,096
— 833

9
—
— 500

—199
—71
—1,024

— 6,424
— 392
1,445

—1,847
25
657

Total other comprehensive income (loss)

— 3,635

— 3,058

Comprehensive income (loss) in
accordance with US GAAP

— 23,553 — 27,461

24,063

—

—1,665

—

670

Items increasing reported net income (loss)
Pensions
Pension premium refund
Capital discount on convertible
debentures
Goodwill amortization
Deferred income taxes
Sale-leaseback
Hedge accounting

Items decreasing reported net income (loss)
Capitalization of software
development costs

412
47

124
1,064
966
113
2,884

5,610

197
809

—146
— 856

116
—
2,014
— 815
— 2,233

147
—
— 2,005
—1,361
— 608

88 — 4,829

to be sold
for internal use
Restructuring costs
Other

Net increase/decrease
in net income (loss)
Net income (loss) as
reported per Swedish GAAP

— 4,018
— 922
—1,240
— 335

—1,784
— 351
—1,642
129

3,685
448
2,700
371

— 6,515

— 3,648

7,204

— 905

— 3,560

2,375

—19,013 — 21,264

21,018

Net income (loss) per
US GAAP before cumulative
effect of accounting change
Earnings (loss) per share per US GAAP,
diluted before cumulative effect
of change of accounting principle2)
Cumulative effect of accounting change,
net of taxes
Net income (loss) per
US GAAP after cumulative
effect of accounting change

—19,918 — 24,824

23,393

—1.58 1)

— 2.27 1)

2.12

—

421

—

—19,918 — 24,403

23,393

Reported earnings (loss)
per share, diluted, per
Swedish GAAP2)
Earnings (loss) per share
per US GAAP, diluted,
after cumulative effect
of accounting change2)
Average number of shares,
diluted per US GAAP (million)2)
Basic earnings per share SEK
after cumulative effect of accounting
change per US GAAP2)
Average number of shares
basic (million) per US GAAP2)

—1.51 1)

—1.94 1)

1.91

—1.58 1)

— 2.23 1)

2.12

12,684

11,057

11,017

—1.58

— 2.23

2.15

12,573

10,950

10,896

1) Potential ordinary shares are not considered when their conversion to

ordinary shares would increase earnings per share.

2) 2000—2001 adjusted for stock dividend element of stock issue.

L. 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 SFAS115 (cid:210)Accounting for Certain Investments
in Debt and Equity Securities(cid:211). Unrealized gains and
unrealized temporary losses shall be included in other
comprehensive income. Other than temporary unrealized
losses shall be charged to income.

46 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

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

Changes in Comprehensive Income

2002

Opening balance, net of tax
Changes during the period

Closing balance, net of tax

Cumulative
translation
adjustments

Hedging for
investments

3,681
— 6,267

— 2,586

—1,711
1,346

— 365

Unrealized
gains and
losses on
available-
for-sale
securities

184
—143

Net gain/
loss on cash
flow hedge

Minimum
pension
liability

—156
1,480

1,324

— 414
— 51

— 465

Accumulated

other

compre-
hensive
income

1,584
— 3,635

— 2,051

Adjustment of Stockholders(cid:213) Equity

2002

2001

2000

Increases
Capitalization of software
development costs

to be sold
for internal use

Capitalization of interest, net
after cumulative depreciation
Goodwill
Hedging
Restructuring costs
Pensions

Reductions
Capital discount on
convertible debentures
Pension refund
Sale-leaseback
Deferred income taxes
Unrealized gains and losses on
available-for-sale securities
Other

11,076
486

15,094
1,408

16,878
1,759

172
1,064
2,744
217
440

211
—
— 2,196
1,458
99

211
—
— 332
3,100
300

16,199

16,074

21,916

—179
—
— 2,063
— 4,021

— 303
— 47
— 2,176
— 4,487

— 419
— 856
—1,361
— 8,197

— 314
— 26

255
—102

6,680
— 232

— 6,603

— 6,860

— 4,385

The Swedish GAAP balance sheet, including the amounts in the
above presentation, reflects the restatement discussed under
(cid:210)Accounting Principles, Restatement of financial statements(cid:211).
For purposes of US GAAP, the same adjustments were made to
appropriately consolidate subsidiaries that were not previously
consolidated.

O. Statement of Cash Flows
The Company follows SFAS95 when preparing the Statement of
Cash Flows, except that it considers cash, bank and short-term
investments with due dates within 12 months as cash and cash
equivalents, rather than within 3 months as required by
SFAS95. Applying this definition would mean following
adjustments of reported cash, with the offsetting difference
reflected in cash flow from investing activities in the Statement
of Cash Flows:

Consolidated

2002

2001

2000

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

66,214

68,924

35,771

—28,069 — 28,182 —16,129

38,145

40,742

19,642

Adjustment of stockholders(cid:213) equity, net
Reported stockholders(cid:213) equity

9,596
73,607

9,214
68,587

17,531
91,686

Cash and cash equivalents
as per US GAAP

Stockholders(cid:213) equity according
to US GAAP

83,203

77,801 109,217

Adjustment of certain balance sheet items
according to US GAAP, as per reported Balance Sheet

Swedish GAAP

Dec. 31 Dec. 31 Dec. 31
2002

2002

20012)

As per US GAAP
Dec. 31
20012)

12,609
Intangible assets
9,964
Tangible assets
Other investments
2,243
Long-term customer financing 12,283
36,538
Accounts receivable
24,817
Other receivables
Provisions1)
32,354
Convertible debentures,
long-term
Current maturities
of long-term debt
Other current liabilities
Long-term liabilities to
financial Institutions

11,083
33,536

3,043

—

13,066
16,641
3,101
7,933
57,236
39,171
32,935

25,235
10,109
1,929
12,283
37,385
29,726
35,717

29,481
16,862
3,356
14,712
58,299
39,124
34,869

4,437

—

4,740

3,622
45,600

11,262
36,856

3,622
51,060

7,906

4,798

15,681

P. Stock option plans
The Company, as permitted under SFAS123 (cid:210)Accounting for
Stock Based Compensation(cid:211), applies Accounting Principles
Board Opinion 25 (APB25) and related interpretations in
accounting for its stock option plans under US GAAP. No
compensation expense has been reflected in the consolidated
income statement as no compensation expense arises when the
strike price of the employee(cid:213)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 SFAS123 for its stock option plans, net income
(loss) and earnings (loss) per share in accordance with US GAAP
would have been changed to the amounts indicated below:

1) Of which short-term

19,678

20,306

19,461

20,245

2) Restated for changes in accounting principles in Sweden 2002 regarding

consolidation of companies according to the new RR1.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 47

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

Consolidated

2002

20012)

20002)

Net income (loss)
Net income per US GAAP before
cumulative effect of accounting change
Adjustment for recognitions
of provisions per SFAS123
Net income, adjusted, per
US GAAP before cumulative
effect of accounting change

Earnings (loss) per share, diluted
Earnings (loss) per share per
US GAAP before cumulative effect
of accounting change
Earnings (loss) per share, adjusted,
per US GAAP before cumulative
effect of accounting change

—19,918 — 24,824

23,393

—193

—1,341

—1,511

— 20,111 — 26,165

21,882

—1.581)

— 2.271)

2.12

—1.601)

— 2.391)

1.99

1) Potential ordinary shares are not considered when their conversion to

ordinary shares would increase earnings per share.

2) 2000—2001 adjusted for stock dividend element of stock issue.

The fair value of each option grant is estimated on the date of
the grant, using the Black & Scholes(cid:213) option pricing model
with the following weighted-average assumptions:

2002

2001

2000

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

0.6%

1.0%
43.1% 40.2% 35.4%
6.0%
3.1

5.4%
5.4

5.5%
4.8

Q. Valuation qualifying accounts and reserves
Reserves deducted from assets to which they apply:

Allowance for doubtful notes and accounts receivables and
customer financing for the years ended December 31, 2002,
2001 and 2000 (SEK million).

Description

2002

2001

2000

Balance beginning of period
Charged (credited) to cost and expenses
Charged (credited) to other accounts
Deductions

6,578
4,079
1,771
— 3,375

5,525
3,732
267
— 2,946

7,016
1,417
— 243
— 2,665

Balance end of period

9,053

6,578

5,525

48 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

A U D I T O R S (cid:213) R E P O R T

Auditors(cid:213) Report

To the Annual General Meeting of the shareholders of
Telefonaktiebolaget LM Ericsson (publ), corporate identity
number 556016-0680
We have audited the annual statements, the consolidated
statements, the accounting records and the administration of
the Board of Directors and the President of Telefonaktiebolaget
LM Ericsson (publ) for the year 2002. These statements and the
administration of the company are the responsibility of the
Board of Directors and the President. Our responsibility is to
express an opinion on the annual statements, the consolidated
statements and the administration based on our audit.
We conducted our audit in accordance with generally

accepted auditing standards in Sweden. Those standards require
that we plan and perform the audit to obtain reasonable
assurance that the annual statements and the consolidated
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the statements. An audit also includes
assessing the accounting principles used and their application
by the Board of Directors and the President, as well as
evaluating the overall presentation of information in the annual
statements and the consolidated statements.

As a basis for our opinion concerning discharge from liability,

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

The annual statements and the consolidated statements have

been prepared in accordance with the Annual Accounts Act
and, thereby, give a true and fair view of the company(cid:213)s and the
group(cid:213)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, February 3, 2003

Carl-Eric Bohlin
Authorized Public Accountant
PricewaterhouseCoopers AB

Olof Herolf
Authorized Public Accountant
PricewaterhouseCoopers AB

Thomas Thiel
Authorized Public Accountant

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 49

T R E A S U R Y A N D C U S T O M E R F I N A N C E — F I N A N C I A L R I S K M A N A G E M E N T

Treasury and Customer Finance
— Financial Risk Management

Our financial risk management is governed by a policy
approved by the Board of Directors. The Finance Committee of
the Board is responsible for the continuous monitoring of our
financial exposures and for approving certain matters regarding
investments, loans, guarantees and customer financing
commitments.

Internally, the Corporate Treasury and Corporate Customer

Finance functions manage financial risks and the Group(cid:213)s
financial assets and liabilities and issue policies governing our
consolidated companies.

The Corporate Treasury function(cid:213)s principal role is to ensure
that the group has sufficient financing in place through loans
and committed credit arrangements, to actively manage the
group(cid:213)s liquidity as well as financial assets and liabilities, and
to manage and control financial exposures in a manner
consistent with underlying business risks and financial policies.
We have established treasury centers in Stockholm, Dublin,
Singapore and Dallas (collectively known as Ericsson Treasury
Services) for cash management and handling of hedging
activities. The major part of the risks assumed by Ericsson
Treasury Services are hedged in the financial markets, but
Ericsson Treasury Services may also take positions in the
financial markets within the framework of the policy
established by the Board of Directors. The risk mandate, SEK
200 million, is based on a five percent change in exchange rates
against the total foreign exchange position and a one
percentage point change in interest rate. As of December 31,
2002, the market risk amounted to SEK 116 (151) million. This
is also complemented by a Value at Risk calculation given a
confidence level of 99 percent and a one-day horizon.

Our Corporate Customer Finance function(cid:213)s main objective is

to find suitable third-party financing solutions for our
customers and to minimize recourse to Ericsson. The Corporate
Customer Financing function operates in all market areas to
support the business in the early stages of negotiations. To the
extent customer loans are not immediately provided by banks,
the consolidated subsidiary Ericsson Credit AB manages the
bulk of Ericsson(cid:213)s own outstanding vendor credits. The
exposure from outstanding vendor loans and credit
commitments are monitored centrally by the Corporate
Customer Finance function.

FINANCIAL INSTRUMENTS
We use different financial instruments to hedge group financial
exposures arising from business operations, group funding and
asset and liability management. We define the financial
instruments as either primary or derivative. Primary

instruments are mainly loans, investments and foreign
exchange spot transactions. As a complement to the primary
instruments we use derivative instruments to reduce our
financial exposures. Derivatives used are mainly currency
swaps, interest rate futures and interest rate swaps. The use of
other types of derivatives is limited.

Except for the SEK 200 million risk mandate given to
Ericsson Treasury Services, all risk associated with our use of
financial instruments corresponds to actual and forecasted
currency and interest rate commitments.

We classify financial risks as either market risk, credit risk,

country risk or funding and liquidity risk.

MARKET RISK
Market risk is divided into three categories: foreign exchange
risk, interest rate risk and risk related to our share price.

Foreign Exchange Risk
Ericsson is domiciled in Sweden and reports in SEK and
currently conducts business in more than 140 countries.
We have significant revenues, costs, assets and debt in

currencies other than SEK, which result in substantial foreign
exchange exposures. Fluctuations in exchange rates between
SEK and foreign currencies may affect our earnings. It is our
policy to reduce this effect to the extent possible through a
variety of hedging activities.

Net risk in currency derivatives

(SEK billion)

Type of instrument
Net foreign exchange risk
in external currency derivatives

December 31,
2002

2001

2.9

2.7

In the table above, net foreign exchange risk in external
currency derivatives is expressed as the effect on the market
value of our currency derivatives portfolio of a five percent
change in exchange rates against the total currency derivatives
position. Offsetting items in the balance sheet, future
commitments and forecasted flows are not included.

Foreign exchange risks are classified as economic exposure,

transaction exposure or translation exposure.

50 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

T R E A S U R Y A N D C U S T O M E R F I N A N C E — F I N A N C I A L R I S K M A N A G E M E N T

Economic exposure
We are dependent on the development of exchange rates in SEK
and on economic conditions in Sweden. As of December 31,
2002, approximately 47 percent of all employees were located
in Sweden, while Sweden accounted for only 6 percent of total
sales in 2002. Our exports from Sweden are normally invoiced
in foreign currencies. With this substantial SEK-denominated
cost base, a gradually stronger SEK exchange rate during 2002
had a negative impact on us, compared to our competitors with
costs denominated in EUR or USD.

Transaction exposure
An analysis of net transaction exposures for 2002 by currency,
shows net revenue exposures in US Dollar (USD), Euro (EUR),
Chinese Renminbi (CNY), Japanese Yen (JPY) and British
Pound Sterling (GBP). A +/—10 percent change in the exchange
rates between SEK and the currencies with the largest
exposures would have had the following effects (in SEK billions)
on income before taxes in 2002 before any hedging effects are
considered: USD +/—1.6 (1.9), EUR +/—0.8 (1.2), CNY +/—0.7
(1.0), JPY +/—0.5 (0.8) and GBP +/—0.4 (0.4). Both committed
and forecasted transaction exposures are hedged to safeguard
business margins and to reduce volatility in earnings. Due to
the stronger SEK, the effects of hedging during 2002 increased
earnings by approximately SEK 2 billion, calculated by
comparing the average hedged rates on the hedge contract
portfolio as of January 1, 2002, with average spot rates during
2002. As of December 31, 2002, anticipated net transaction
exposures were hedged for the next 9—12 months, giving us
time to react to fluctuations in foreign exchange rates by
changing prices or renegotiating contracts with customers and
vendors. Unrealized currency forwards carried a positive market
value of approximately SEK 3 billion at year-end.

Hedging activities are centralized to Ericsson Treasury

Services to the extent possible. The local companies enter into
currency forward agreements with Ericsson Treasury Services,
which in turn reverses these transactions in the financial
markets. In general, internal sales from Sweden to subsidiaries
operating outside Sweden are made in the same currency as the
local company use when selling to the external customer, in
order to minimize the exposure in the non Swedish companies.

Translation exposure
We have many subsidiaries operating outside Sweden. The
value of such foreign investments is exposed to exchange rate
fluctuations, which affects the consolidated balance sheet and
income statement when translated to SEK. Translation exposure
in foreign subsidiaries is hedged according to the following
policy established by our Board of Directors:
¥ 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 are reported directly in stockholders(cid:213)

equity in the balance sheet) is hedged up to 20 percent in
selected companies. The translation differences reported in
equity during 2002 were negative SEK 4.9 billion, mainly
due to a stronger SEK.

Interest Rate Risk
We are exposed to interest rate risks through market value
fluctuations of certain balance sheet items and through changes
in interest expenses and revenues. Interest rate risks are
managed centrally by Ericsson Treasury Services. The net debt
position was SEK —5.6 billion at the end of 2002. In managing
our interest rate exposure we use derivative instruments, such
as forward rate agreements, interest rate swaps and futures.

Net risk in interest rate derivatives

(SEK million)

December 31,
2002

2001

Type of instrument
Forward rate agreements and interest rate forwards
Interest rate swaps
Interest rate futures

354.1

77.4
1,381.2 1,082.7
115.9

22.1

Net risk

1,725.8

889.5

In the table above, net risk in external interest rate derivatives
is expressed as the effect on the market value of our interest
derivatives portfolio of a change of one percentage point in
interest rates. The table describes the net interest rate risk in
external derivatives only, hence offsetting items in the balance
sheet, future commitments and forecasted flows are not
included. The calculation takes netting effects into account; the
total net risk is therefore not the sum of the individual
amounts.

Our aim is to avoid risk in the form of a mismatch between

fixed and floating interest bearing balance sheet items. To
achieve this, having large gross interest revenues and costs, we
strive to a position where all interest rates are floating.

Interest-bearing financial assets and liabilities

(SEK billion and percent)

As of December 31, 2002

Assets
Long-Term
Short-Term

Total

Liabilities
Long-Term1)
Short-Term1)
Pensions

Total

21.6
66.2

87.8

47.1
2.5
11.0

60.6

24.6%
75.4%

100.0%

77.7%
4.1%
18.2%

100.0%

1) Current maturities of long-term debt of SEK 11.1 billion is included in long-

term liabilities.

As of December 31, 2002, 94 percent (96 percent in 2001) of
our interest-bearing liabilities and 100 percent (100 percent in
2001) of our interest-bearing assets had floating interest rates.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 51

T R E A S U R Y A N D C U S T O M E R F I N A N C E — F I N A N C I A L R I S K M A N A G E M E N T

Risk Related to our 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 B shares in treasury and warrants for issuance of new B
shares. An increase in the share price will result in social
security charges, which represents a risk to both Ericsson(cid:213)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 B shares in treasury and through the
purchase of call options on B shares.

CREDIT RISK
Credit risk is divided into two categories: customer finance risk
and financial credit risk.

Customer Finance Risk
In common with industry practice, some of our customers
request that we arrange or provide financing for them as a
condition of obtaining or bidding for contracts in infrastructure
projects. Customer finance arrangements may include
financing provided in connection with the sale of our systems
and services, funding for other costs incurred by our customers
that are associated with network installation and integration of
our products or, on an exceptional basis, financing for working
capital purposes.

Our credit approval process requires that the Finance

Committee of the Board of Directors approve all commitments
in excess of USD 25 million to extend financing support to
customers.

Our customer finance arrangements are comprised of direct
lending by us to our customers or financial guarantees issued
by us in respect of lending to our customers by third party
sources. In most of our customer finance arrangements, we
maintain security interests, normally in the form of pledges of
equipment and/or pledges of shares. Restructuring efforts for
cases of troubled debt may lead to temporary holdings of such
equity interests. We seek to limit our customer financing
exposure, both in amount and duration of the credits given. To
achieve this, our strategy is to engage banks and other financial
institutions as early as possible in our customer finance
discussions. Initially, we may have to guarantee such
arrangements but our aim is to subsequently transfer all risk to
the financial markets.

Our customers generally request that we commit to customer

finance early in the process of negotiating a sale. We consider
customer finance as an alternative to be offered selectively to
our customers in the event that third party funding sources are
unavailable. By (cid:210)credit commitments(cid:211) included in this report,
we mean unutilized undertakings by Ericsson to make funds
available directly or indirectly (through a third party against an
Ericsson guarantee) under a legally binding credit agreement.
The terms of our commitments vary. In some cases, incremental
commitments become available to the customer as they sign
additional contracts with us. In other cases, the availability of
commitments is conditional to the customer meeting certain
future operational or financial requirements.

Accounting for customer finance
On-balance sheet credits are receivables due directly to us from
customers, which are recorded as assets on the balance sheet, at
their net book value i.e. offset by risk provisions for potentially
uncollectible amounts.

Off-balance sheet credits relate to credits, funded by a third-

party and with an Ericsson guarantee (covering a part or the
entire outstanding funded amount). Any recourse to us under
guarantees or other similar commitments for the credit risk
relating to third-party financing are reported as contingent
liabilities, net, after deductions of any risk provisions made.
Provisions made for these outstanding amounts are recorded as
liabilities on the balance sheet.

As of January 1, 2002, according to new Swedish GAAP, we
consolidate certain finance companies previously accounted for
under the equity method. Certain off-balance sheet credits
thereby became on-balance credits. The consolidated financial
statements for 2000 and 2001 have been restated.

Outstanding customer finance credits
As of December 31, 2002, our total outstanding risk exposure
relating to customer finance credits was SEK 21.8 billion. Loans
amounted to SEK 21.1 billion, of which SEK 0.8 billion was
guaranteed by third parties. In addition, SEK 1.5 billion was in
the form of off-balance sheet credits guaranteed by us. As of
that date, we also had unutilized commitments of SEK 14.0
billion. The outstanding customer loans and financial
guarantees relate to infrastructure projects in different
geographic markets and to a large number of customers. As of
December 31, 2002, of a total of 176 customer loans originated
by or guaranteed by us, the six largest customer finance
arrangements represented 63 percent of the total credit
exposure.

52 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

T R E A S U R Y A N D C U S T O M E R F I N A N C E — F I N A N C I A L R I S K M A N A G E M E N T

The table below summarizes our outstanding customer
finance credits as of December 31, 2000, 2001 and 2002.

Outstanding customer finance credits

(SEK billion)

On-balance sheet credits1)
Off-balance sheet credits2)

Total credits

Less third-party risk coverage3)

Ericsson risk exposure

On-balance sheet credits,
net book value4)

As of December 31,
2002

2001

18.7
12.8

31.5

— 4.7

26.8

21.1
1.5

22.6

—0.8

21.8

2000

21.6
5.1

26.7

— 6.6

20.1

18.1

14.8

14.0

1) The increase in on-balance credits by SEK 2.4 billion to SEK 21.1 billion
mainly reflects that credits previously recorded as off-balance have been
acquired. The major part of this increase, the Mobilcom credit, has been
transferred to a France Telecom bond risk as of March 3, 2003.

2) During 2002, off-balance sheet financing decreased significantly by SEK 11.3
billion to SEK 1.5 billion. This decrease is mainly the result of releases of
Ericsson as guarantor under credit facilities and cancellations of off-balance
arrangements, including a credit portfolio set up in 2001. The credit portfolio
enabled Ericsson to sell a number of credit receivables to a group of banks,
funding the portfolio against a first loss Ericsson guarantee. Ericsson is no
longer exposed to put arrangements with any form of triggers with financial
institutions.

3) Third-party risk coverage represents credit risk of our on-balance sheet
credits borne by third-party financial institutions. These are cases where
financial institutions and/or the Swedish Export Credits Guarantee Board
(EKN) cover some risk by issuing financial guarantees.

4) On-balance sheet credits, net book value is adjusted by risk provisions.

Outstanding exposure by region
Of our total outstanding customer finance credit exposure as of
December 31, 2002, 52 percent related to Latin America
(Mexico and Brazil represent 20 percent respectively of the total
global exposure), 25 percent to Western Europe, 13 percent to
Central and Eastern Europe/Middle East/Africa, 7 percent to
Asia/Pacific and 3 percent to North America. We have a
significant presence in emerging markets. Customers in these
markets frequently request financial support from us as a result
of unavailability of financing from local financial markets or
cross-border financing sources. Banks are generally reluctant to
bear the risk that political events could prevent customers in
these markets from fulfilling their payment obligations. These
political risks are partially mitigated by obtaining risk coverage
for our financing arrangements from various export credit
agencies, regional development banks and institutions such as
the World Bank Group, including the Multilateral Investment
Guarantee Agency (MIGA) and the International Finance
Corporation (IFC).

The rate of investment in telecommunications in Latin
America has declined as a result of the slow-down in regional
economy. We do not intend to take on significant additional
credit risk exposure in this region and instead we will focus on
collecting outstanding amounts under existing facilities.

Outstanding exposure by technology
As of December 31, 2002, 23 percent of our total outstanding
customer finance was in respect of 3G networks and the
remainder was in respect of 2.5G and 2G networks.

Credit losses
We made risk provisions for customer credits of SEK 3.1 billion
in 2002 and SEK 2.5 billion in 2001. The level of provision is
determined for each credit based on an assessment of the risk
exposure, taking into account commercial and political risk
factors. The provisions for all credits and financial guarantees
are reviewed on a regular basis. In 2002 and 2001, we incurred
credit losses of SEK 1.7 billion and SEK 1.3 billion respectively.
No losses were incurred in years 1999 and 2000.

Commitments to provide customer finance
The following table sets forth our unutilized commitments to
provide customer finance as of the dates indicated.

(SEK billion)

Finance commitments

As of December 31,
2002

2001

31.2

14.0

2000

18.2

As of December 31, 2002, 83 percent of our total committed
customer finance was in respect of 3G networks and the
reminder was in respect of 2.5G and 2G networks.

The following table sets forth as of December 31, 2002, how

scheduled draw-downs are expected to reduce outstanding
financing commitments. Draw-downs under existing financing
commitments are estimated to amount to SEK 3 billion during
2003. This is mainly due to delayed deployment of the 3G
projects supported by Ericsson financing.

(SEK billion)

Less than
1 year

1— 3
years

4— 5

5 years

years and more Total

Financing commitments1)

3.0

11.0

0.0

14.0

1) Financing commitments refer to credit arrangements with Ericsson or a third-

party as lender.

Financial Credit Risk
Financial instruments carry an element of risk in that
counterparts may be unable to fulfill their obligations. Ericsson
Treasury Services mitigates these risks by investing excess
liquidity primarily in government bonds and treasury bills,
commercial papers and corporate bonds, with short-term
ratings of at least A-2/P-2 and long-term ratings of at least A.
No credit losses were incurred during 2002.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 53

T R E A S U R Y A N D C U S T O M E R F I N A N C E — F I N A N C I A L R I S K M A N A G E M E N T

External investments through Ericsson Treasury Services

(SEK billion)

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

Total

As of December 31,
2002

2001

19.3
11.7
11.1
1.9
0.0
1.0
2.9
0.2

48.1

23.9
11.5
14.5
5.3
1.2
1.4
1.5
0.0

59.3

Ericsson Treasury Services(cid:213) exposure in derivative instruments
is, for operational and risk management purposes, valued at
market daily and expressed as a liability to, or receivable from,
each counterpart. Netting contracts (ISDA agreements) are in
force for all counterparts, substantially reducing the risk.

COUNTRY RISK
Country risk measures Swedish companies(cid:213) risk in relation to
all foreign receivables and guarantees, equity investments plus
retained earnings in foreign subsidiaries and associated
companies and lending from the internal bank to foreign
subsidiaries. The country risk measures risk on a gross basis
and cannot be compared with consolidated balance sheet items.

Total risk by geographical area

(SEK billion and percent)

Total risk
Geographical Area
Europe, Middle East & Africa
North America
Latin America
Asia Pacific

Total

As of December 31,
2002

2001

139

45%
18%
22%
15%

49%
16%
22%
13%

100% 100%

Tax, currency and other legal and economic restrictions in
certain countries can affect our ability to transfer funds within
the group and to provide funding to certain subsidiaries.
However, the impact of such restrictions is currently very
limited.

FUNDING AND LIQUIDITY RISK
We maintain 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.

We define liquidity as cash and short-term investments up to

twelve months. Under US GAAP, liquidity is defined as cash
and short-term investments up to three months. During 2002,
liquidity decreased by SEK 2.7 billion to SEK 66.2 billion and
net liquidity, after deduction of short-term interest bearing
financial liabilities, increased by SEK 9.5 billion to SEK 52.7

54 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

billion, mainly due to the SEK 29 billion of net proceeds from
the rights issue in September.

We finance our operations externally principally by

borrowing directly in the Swedish and international bank and
debt capital markets.

Funding programs and long-term committed credit facilities,
available and utilized

(SEK billion)

Euro Medium Term Note
program (USD 5,000m)1) 2)
US Commercial Paper program
(USD 1,000m)1)
Euro Commercial Paper program
(USD 1,500m)1)
Swedish Commercial Paper program
(SEK 5,000m)1)
Long-term Committed Credit Facilities
(USD 1,000m)
Long-term Committed Credit Facilities
(USD 600m)2)

Total year-end 2002
Total year-end 2001

As of December 31, 2002
Utilized Available

Amount

43.9

34.8

8.8

13.2

5.0

8.7

5.3

84.9
101.7

34.8
46.1

9.1

8.8

13.2

5.0

8.7

5.3

50.1
55.6

1) (cid:210)Amount(cid:211) reflect terms of facilities. However, our access to commercial

paper and bond markets may be effectively limited due to our credit ratings
and market conditions.

2) USD 600 million (SEK 5.3 billion) of long-term committed credit facilities and

two issuances of notes of EUR 2 billion and GBP 226 million (SEK 21.5
billion in total) issued under our Euro Medium Term Note program have
interest rates linked to our credit rating.

Our aggregate outstanding interest bearing liabilities were SEK
60.6 billion as of December 31, 2002. Long-term interest
bearing debt was SEK 58.2 billion, comprising long-term debt
of SEK 47.2 billion (including current maturities of long-term
debt of SEK 11.1 billion), with an average maturity of three
years, and provisions for pensions and similar commitments of
SEK 11.0 billion. Long-term debt consisted mainly of
borrowings under our Euro Medium Term Note program.
Short-term interest bearing liabilities were SEK 2.4 billion with
average maturity of three months. Short-term borrowing
consisted primarily of bank overdrafts, bank loans and other
short-term financial loans.

We have a USD 5.0 billion Euro Medium Term Note

program of which USD 4.0 billion was utilized at December 31,
2002. Issuances under this program are denominated in EUR,
USD, SEK and GBP and have an average maturity of three years.
The rating downgrades since January 2002 caused an estimated
increase in funding costs of approximately SEK 550 million per
year relating to two issuances of notes of EUR 2 billion and GBP
226 million (SEK 21.5 billion in total) under the program. No
new long-term debt was issued under the program during
2002.

Of the USD 1.6 billion (SEK 14.0 billion) long-term

committed credit facilities available to us as of December 31,
2002, our USD 600 million long-term committed credit
facility has interest rates linked to our credit rating as well as
certain financial covenants, which we need to comply with in

T R E A S U R Y A N D C U S T O M E R F I N A N C E — F I N A N C I A L R I S K M A N A G E M E N T

order to draw-down funds under the facility. Pursuant to these
covenants, prior to any draw-down, our net debt may not
exceed USD 4.5 billion and our payment readiness must be at
least USD 3.0 billion. Additionally, after June 30, 2004, our net
debt to EBITDA may not exceed 3 to 1. The nine downgrades
occurring since beginning of 2002 have triggered additional
annual commitment fees of SEK 17 million per year relating to
our undrawn USD 600 million facility. This facility was
amended in June 2002 to replace certain financial covenants
linked to our credit rating with other financial covenants.
According to the amended terms, a subsequent downgrade
from current rating levels will not result in any additional
increase in costs.

In October 2001, we entered into a EUR 400 million

(approximately SEK 3.6 billion) long-term committed credit
facility, but in February 2002, this facility became unavailable
to us after Moody(cid:213)s lowered our credit rating from Baa1 to Baa2
and it is not included in our total long-term committed
facilities. Our short-term borrowing requirements typically
peak in the middle of each quarter. Historically, we have relied
on our commercial paper programs in the Swedish, European
and U.S. markets to satisfy short-term liquidity needs. As of
December 31, 2002, our total programs amounted to the
equivalent of SEK 27 billion. However, our access to liquidity
under these programs is now limited. Our access to funding has
decreased and may continue to decrease or become more
expensive as a result of our operational and financial
performance and market conditions. Currently and in the near
term we anticipate using our cash position to satisfy short-term
liquidity requirements.

In December 2001, we entered into a one-year financial lease

agreement of USD 744 million (SEK 6.5 billion). The entity
owning these assets was acquired in December 2002 by the
Parent Company.

We have a securitization program amounting to USD 250
million with Eureka Securitization plc, under which we sell
trade receivables in the U.S., UK, Dutch and German markets
at an effective cost of one month LIBOR + 150 BP on a fully
drawn basis. The program is settled on a weekly basis with new
receivables sold to replace those collected during the week.
Eureka Securitization plc is externally managed and funded in
the commercial paper market. As of December 31, 2002, the
program was not utilized. The program is currently under
review following the Moody(cid:213)s rating downgrade of Ericsson
from Ba2 to B1 in February 2003.

Our long-term objective is to have a payment readiness of
between 7 and 10 percent of net sales to adapt to changes in
liquidity requirements. Payment readiness is an internal
measure, defined as net liquidity plus long-term unused credit
facilities (excluding undrawn committed facilities where we are
not able to meet borrowing conditions) expressed as percentage
of net sales. During periods of increased uncertainty, the
payment readiness target may be significantly higher. As of
December 31, 2002, payment readiness had increased to SEK

67.1 billion, corresponding to 46 percent of net sales, compared
to SEK 65.5 billion, corresponding to 28 percent of net sales, as
of December 31, 2001. The increase in percent is largely an
effect of lower net sales. The net proceeds of SEK 29 billion
from the rights issue in September had a positive effect on
payment readiness.

To support the long-term payment readiness objective, our
policy stipulates that the greater part of borrowings should be
long-term or covered by long-term credit facilities.

After the downgrade in February 2003, by Moody(cid:213)s, our

long-term credit rating is currently B1 (Moody(cid:213)s) and BB
(Standard & Poor(cid:213)s), both with negative outlook. The current
ratings by Moody(cid:213)s and Standard & Poor(cid:213)s are considered to be
below investment grade.

Since the beginning of 2002, our long-term credit ratings

have been downgraded nine times:

Credit rating

Date

January 1, 2002
February 18
May 16
June 17
July 22
July 26
August 1
September 12
November 7
February 17, 2003

Moody(cid:213)s

Standard
& Poor(cid:213)s

Baa1
Baa2

Baa3

Ba1

Ba2

BBB+

BBB—

BB+

On June 17, 2002, Moody(cid:213)s lowered our short-term credit
rating from P-2 to P-3, and on July 26, 2002, Moody(cid:213)s(cid:226) lowered
our short-term credit rating from P-3 to NP. On May 16, 2002,
Standard & Poor(cid:213)s lowered our short-term credit rating from
A-2 to A-3, and on August 1, 2002, Standard & Poor(cid:213)s lowered
our short-term credit rating from A-3 to B.

Given the current market conditions in the

telecommunications industry and the uncertainty of the
outlook for the industry, it is possible that we may suffer
additional downgrades. If our credit rating further deteriorates,
we will incur additional interest expenses. A downgrade from
current rating to B2 by Moody(cid:213)s or BB— by Standard & Poor(cid:213)s
would have an aggregate impact on our annual funding costs of
SEK 55 million solely in respect of notes outstanding under our
Euro Medium Term Note program. If we are unable to comply
with financial ratio covenants, we may need to repay or
refinance the related debt and/or other debt which contains
cross default provisions. This may have a materially adverse
impact on our financial condition.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 55

Lead market development through constant innovation
and the development of standards
Innovation and creativity are important elements of our
corporate culture. We have a long tradition of developing
innovative communication technologies, including
technologies which help to establish industry standards. For
example, we were leaders in the early shift from analogue to
digital mobile telephony, a critical stage of development for the
growth in wireless communications, and we have pioneered the
development of industry-wide technology standards such as
WCDMA, GPRS and Bluetooth. We will continue to support
innovation through our commitment to research and
development. In particular, we will continue to devote
significant resources to developing end-to-end communication
solutions to support the rapid expansion and integration of the
Internet and multi-media services. Our goal is to build our
business by developing and implementing solutions that will
drive network traffic and thereby enable our customers to
succeed.

Further develop our long-standing customer
relationships with network operators
We have strong relationships with the world(cid:213)s leading mobile
network operators and many of the world(cid:213)s leading fixed-line
operators. We believe we have a long-standing reputation for
reliable, innovative and cost-effective systems and services. As
the telecommunications industry consolidates into fewer, larger
network operators, we believe our position in the industry and
our strong customer relationships will be significant
competitive advantages for us. We will work with network
operators to tailor products, solutions and services to meet their
evolving needs, such as developing solutions for integrating
mobile and fixed telecommunications systems and providing
expanded network management services. We believe that our
ability to offer end-to-end solutions — systems, applications,
services and core handset technology — together with our in-
depth knowledge of customer requirements, make us well
positioned to assist network operators to optimize their
products and services.

I N F O R M A T I O N O N T H E C O M P A N Y

Information on the Company

HISTORY AND DEVELOPMENT
Telefonaktiebolaget LM Ericsson (publ) is a limited liability
company organized under the Swedish Companies Act. We
were incorporated on August 18, 1918, as a result of a merger
between AB LM Ericsson & Co. and Stockholms Allm(cid:138)nna
Telefon AB. Our origins date back to a manufacturing business
for communications equipment founded in Stockholm in 1876.
Our A and B shares are quoted on Stockholmsb(cid:154)rsen (the
Stockholm Exchange). Our B shares are also quoted on the
exchanges in D(cid:159)sseldorf, Frankfurt, Hamburg and London.
Our ADSs are quoted on NASDAQ. Our registered office is
located at Telefonv(cid:138)gen 30, S-126 25 Stockholm, Sweden,
telephone +46 8 719 00 00. Our agent in the United States is
Ericsson Inc., Vice President, Legal Affairs, 740 East Campbell
Road, Richardson, Texas 75081. Our web site is
www.ericsson.com. This web site address is not an active
hyperlink to our web site. Information on our web site does not
form part of this document.

BUSINESS OVERVIEW
We are an international leader in the development and supply
of advanced systems and services for mobile and fixed line
communications to network operators. Our broad range of
telecommunication and data communication products includes
end-to-end solutions, systems and services that enable mobile
and fixed-line networks to transmit voice, data and multi-
media communication with reliability, efficiency and speed.
Through our joint venture Sony Ericsson Mobile
Communications we offer a range of mobile handsets,
including handsets supporting multi-media applications, and
other personal communication devices. We also offer a variety
of other systems and services to other equipment and handset
suppliers related to our core expertise in telecommunications
technologies.

BUSINESS STRATEGY AND LONG-TERM GOALS
Our primary business objective is to strengthen our position as
a leading provider of communication systems and services in
combination with recovery of our financial performance. Our
strategy for achieving this objective calls for us to:
¥ Lead market development through constant innovation and

the development of standards;

¥ Further develop our long-standing customer relationships
with network operators and expand our business through
increased focus on value added services;

¥ Exploit our position as a global market leader; and
¥ Continue to control costs and further enhance efficiency.

56 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Exploit our position as a global market leader
We provide products and services to over 500 operators in over
140 countries. We have significant sales in each of the largest
geographic markets for telecommunications and are a supplier
of wireless communication equipment to the world(cid:213)s 10 largest
mobile network operators. Our expertise and experience in all
major mobile communication standards and proven track
record for quality and innovation have allowed us to develop
our business on a global basis. We are utilizing our strong
international presence and core competence in mobile
communications to expand into growth areas such as network
management services. We also aim to use our global reach to
develop alliances with suppliers and manufacturers in order to
increase our combined effectiveness. We believe that our global
presence and breadth of product offerings are competitive
advantages as our customers increasingly seek to provide
telecommunications services globally.

Continue to control costs and further
enhance efficiency
We continuously monitor and adjust our product portfolio to
focus on innovative products that can be produced by us on a
cost-effective basis and sold profitably. We work with suppliers
and manufacturers to exploit our economies of scale to secure
low-cost, high-quality components and produce our product
line more cost-effectively. We have implemented efficiency
programs resulting in increased standardization of internal
processes and support systems, which will allow us to quickly
adapt to market conditions and customer needs. We also have
introduced procedures to better evaluate and reward employees
based on performance. In addition, we focus on developing and
maintaining high levels of competence in our employees to
secure our leading market position and to stay in the forefront
of technology development.

Please see also (cid:210)Board of Directors(cid:213) Report, Strategy and

Goals(cid:211).

BUSINESS SEGMENTS
In the first quarter of 2002, we merged our operations for
mobile systems and multi-service networks to further exploit
the synergies between the two and to respond to increased
demand for integrated networks with common service
platforms and transport networks. We now conduct our
business in three business segments:
¥ Systems;
¥ Phones (through our 50/50 joint venture with Sony); and
¥ Other Operations.

I N F O R M A T I O N O N T H E C O M P A N Y

Systems
We offer a complete portfolio of solutions to operators for both
mobile systems and wireline multi-service networks. Our
solutions include a comprehensive portfolio of
telecommunication and data communication products
supported by a full range of implementation and network
management services. We sell our systems and services to over
500 operators worldwide. We work closely with our customers
to understand their businesses and their technology needs and
design tailored solutions to help them reach their strategic
objectives.

Mobile Systems — Industry and Technology
We provide mobile systems solutions to network operators that
enable reliable, efficient and cost effective wireless networking.
Wireless networking refers to communications networks that
allow end-users to receive voice and data communications using
mobile handsets or other wireless devices. Wireless
communications networks are often grouped by the technology
upon which they are based:
¥ First generation of wireless communication, or 1G, refers to
analog radio and analog and/or digital circuit switching
technologies mainly for mobile voice communications.
Circuit switching technology establishes a connection on
demand and holds it open, regardless of whether data is sent;
¥ Second generation wireless communication, or 2G, refers to
digital radio and digital circuit switching technologies that
enable networks to carry voice communications and limited
data transmissions. The majority of wireless communications
networks are currently based on 2G wireless technologies.
Many 2G networks have been enhanced with packet-switched
transmission capabilities for more efficient data
communication. A packet-based network is one in which
data is sent in small chunks, called packets. There is no fixed
path from the sender to the receiver, so each packet must
identify the source and destination. This is often referred to
as 2.5G; and

¥ Third generation wireless communication, or 3G, refers to
digital wireless communication networks based on packet-
switched network technology that enables voice, high-speed
data and multi-media communications.

Each generation of wireless technology is associated with
different international technology standards for wireless
communications networks. Transitioning from one generation
to the next, such as from 2G to 3G, requires network operators
and mobile handset manufacturers to adopt new and emerging
technology standards. We believe that the migration from basic
voice services to mobile multi-media services is the primary
technological shift facing today(cid:213)s wireless network operators.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 57

I N F O R M A T I O N O N T H E C O M P A N Y

The most widely deployed standards today are largely
comprised of 2G technologies and can be summarized as
follows:
¥ Global System for Mobile communications, or GSM, is used
throughout the world and is the most widely deployed
standard. GSM is a 2G wireless technology that uses time
slots within a specified radio frequency channel to
distinguish one call from another.

¥ Code Division Multiple Access, or CDMA (also known as

cdmaOne), is used in both the Americas and increasingly in
Asia. CDMA is a 2G wireless technology that uses coding
technology to distinguish one call from another, with all calls
in a specific cell transmitted over the entire range of radio
frequencies assigned to the network operator.

¥ Time Division Multiple Access, or TDMA, is used primarily in
North and South America. TDMA is a 2G wireless standard
that, like GSM, uses time slots within a radio frequency
channel to separate users(cid:213) conversations.

¥ Personal Digital Cellular, or PDC, is a digital wireless standard

based on TDMA technology used only in Japan.

The standards for 3G networks are as follows:

¥ Wideband Code Division Multiple Access, or WCDMA, is a 3G
wireless technology that combines wideband (5 MHz
(megahertz)) and CDMA-based radio access.

¥ Universal Mobile Telecommunications System, or UMTS, is often

used synonymously with WCDMA. UMTS is the term used for
the combination of the WCDMA radio standard and advanced
switching technologies when used in the 2.1 GHz (gigahertz)
band, as is the case in Europe. UMTS includes WCDMA radio
access technologies and core network specifications that are
based on the GSM standard.

¥ Enhanced Data Rates for Global Evolution, or EDGE, is used to
give 3G capabilities to networks based on the GSM standard
and TDMA technology.

¥ CDMA2000 1XEV/DO is used for CDMA networks that are
evolving to 3G standard for voice and high-speed data
mobility.

As described above, several technology standards have been
deployed to enable the 2G mobile communication networks
that are in operation today. The path of migration from a 2G
network to a 3G network varies depending on the technology
used by the existing 2G network. As a result, in order to
provide tailored solutions to a wide range of today(cid:213)s network
operators, infrastructure providers must have a fundamental
understanding of all existing and emerging standards. The
network components for 3G networks are similar to GSM/GPRS
networks with the addition of multi-service network nodes that
are capable of more efficiently transmitting both circuit and
packet-switched traffic. The 3G networks to be introduced by
GSM network operators will use the same GSM/GPRS core
network components to take advantage of previous investments
in their existing network in evolving from 2G to 3G.

58 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

In addition, due to the complexity and costs of

implementing a 3G network, many network operators are
upgrading their networks to intermediate technologies, such as
GPRS and CDMA2000 1X. Such intermediate technologies are
often referred to as (cid:210)2.5G(cid:211) services and can be described as
follows:
¥ GPRS is an enhancement of GSM networks. GPRS introduces
packet-switched data transmission and enables (cid:210)always on(cid:211)
mobility. The implementation of GPRS requires software
upgrades to an existing GSM network and the addition of
packet-switching nodes.

¥ CDMA2000 1X is a successor to the CDMA standard that

enables higher-speed wireless networks for data, voice and
multi-media communication. Ultimately, networks using
CDMA2000 1X will need to be further upgraded in order to
provide capacity levels equivalent to CDMA/EDGE.

2.5G allows operators to migrate end-users to premium services
without the need for major network reconstruction. This
migration, however, will represent a fundamental change in the
way services are managed and billed by network operators. Due
to 2.5G packet-switched data and (cid:210)always-on(cid:211) functionality,
network operators may charge end-users for the type and
amount of data they send and receive rather than the time they
are connected to the network. The transition to a charge-for-
data business model is a crucial step in the evolution of
network operators, as successful migration of network operators
to 3G systems in the future is expected to require the adoption
of a similar business model. Thus, if migration to 2.5G with
new business models becomes successful, market demand and
some network preparations will already be in place for 3G
migration.

Mobile Systems — Our Solutions
We believe we are the leading supplier of mobile
telecommunication systems, including 2G, 2.5G and 3G. Our
expertise in all major 2G standards and our role in developing
3G standards allow us to offer mobile telecommunications
systems that incorporate each of the major 2G, 2.5G and 3G
mobile technology standards. As a result, we are able to offer
tailored solutions to a network operator regardless of the
existing standard used in its network. Our systems offering
includes cell site equipment, radio base stations, base station
controllers and radio network controllers, mobile switching
centers, service application nodes and other nodes for billing
and operations support. A node is an element of a network,
which can be programmed for switching, routing, generating
billing records and other functions.

Sales of our mobile telecommunications systems consist
primarily of radio base stations, base station controllers and
switching centers. Radio base stations provide access and
interconnection between mobile handsets and the mobile
network. Base station controllers manage the traffic between
the radio base stations and mobile switching centers, which are

the nodes between the radio system and the public-switched
telephone network. Base station controllers, in conjunction
with mobile switching centers, effect call handovers between
radio base stations as subscribers move between cell sites while
engaged in a voice call or data transmission. We offer a
complete portfolio of radio base stations ranging from small
pico cells (i.e., small cells in a mobile network that boost
capacity and coverage within buildings) to high capacity macro
cell applications. Our mobile switching center and base station
controller are built from a common switching platform,
allowing them to be configured into multi-functional nodes.
This reduces the initial cost of circuit switching for smaller
networks while providing the flexibility to easily expand
capacity in the future. Another central feature of all our 2G GSM
radio base stations and base station controllers is their ability to
be upgraded on a cost-effective basis to enable 2.5G GPRS and
3G EDGE transmissions. Like our radio base station products,
our mobile switching center products have industry-leading
scalability and capacity. Our GSM radio base stations represent
more than one third of all GSM radio base stations in service
globally.

We also offer a full line of transmission systems using either

wireless or optical technologies. These systems are the
transmission links between the nodes of a mobile network. We
offer microwave radio links that can be used to (cid:210)backhaul(cid:211) the
traffic between radio base stations and base station controllers
as well as between base station controllers and mobile
switching centers. Wireless backhauling (i.e., transporting data
and voice from a network access point to a central switching
point in mobile systems) with microwave radio links reduces
the need for the operator to lease transmission capacity from
wireline operators resulting in significant cost savings for the
wireless operator. Our MINI-LINK is one of the market leaders
for such backhaul applications, with thousands of links
deployed. A new generation of MINI-LINK systems is now
being introduced with an expanded capacity to support the
increased traffic demands of Mobile Internet and 3G, as well as
to serve the market for fixed wireless broadband access.

By offering comprehensive upgrade paths for migrating to
high speed/high-capacity networks, we allow maximum use of
existing equipment and previous investments, thereby
improving network operators(cid:213) capital investment returns. We
believe that this approach is of central importance today
because most network operators are capital constrained at
present. We believe that our ability to meet the diverse
technology needs of our customers with high value-added
solutions has been instrumental in our being chosen as a
provider of wireless communication equipment to the world(cid:213)s
10 largest mobile network operators. We believe that these
operators account for more than 50 percent of all subscribers in
the world and we expect their share to increase with continued
industry consolidation.

I N F O R M A T I O N O N T H E C O M P A N Y

Our mobile telecommunications systems offering extends

beyond assisting network operators in optimizing and
upgrading network functionality. We also offer a suite of
Mobile Internet products, services and applications that enable
network operators, Internet Service Providers and content
providers to develop commercial opportunities presented by
new systems. Our products and applications enable services
such as messaging, personalization services, information
services, entertainment services, location-based services and m-
commerce. For example, we are actively developing the next
generation of messaging services called Multimedia Messaging
(MMS). We have also established Ericsson Mobility World, a
global network of regional centers and global and local web-
based facilities. This open industry-wide initiative is a growing
global network of more than 100,000 registered technology
professionals from a diverse base of companies, working in
partnership toward successfully implementing the Mobile
Internet.

Multi-Service Networks (cid:209) Industry and Technology
The last decade has seen a dramatic increase in the volume of
data that is being transmitted through wireline networks. The
development of the Internet and network connectivity, in
addition to increasing amounts of multi-media, data and voice
transmissions, have placed severe strains on the capacity
limitations of existing wireline networks. Modern networks
must also be able to reliably connect voice calls in real time
while transmitting irregular, and often very large, bursts of
data. Many network operators currently manage multiple
networks to accommodate voice, data, video and Internet
transmissions. Multiple networks, however, are expensive to
maintain and costly to upgrade.

Wireline network operators are moving from single-service

networks toward new multi-service networks that have the
ability to simultaneously handle multiple services, such as
voice, text and images. Offering these services requires wireline
operators to migrate from existing circuit-switched networks to
packet-switched networks. Circuit switched voice services,
however, are the primary revenue generator for today(cid:213)s wireline
network operators and a key area for continued profitability. As
a result, network operators are required to strike a careful
balance between making short-term investments in circuit-
switched products to protect current revenues and long-term
investments in packet-switching technology to prepare for the
future. In addition, due to the difficult economic climate and
volatile financial market conditions, many network operators
have been forced to reduce capital expenditure budgets and
implement cost-reduction measures without compromising
new and existing business ventures.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 59

I N F O R M A T I O N O N T H E C O M P A N Y

Multi-Service Networks — Our Solutions
We offer multi-service networking solutions to fixed-line
operators. We have a long history in wireline networking with
an installed base of access and transit lines equivalent to 160
million lines out of approximately 1.5 billion lines globally. We
supply wireline operators with systems solutions that allow
them to start to upgrade their legacy networks to efficiently
handle a mix of voice, data, video and Internet traffic. Our
solutions for multi-service networking include systems and
services for circuit switching, next generation (packet-
switched) networking and broadband (i.e., a channel with more
than two megabits per second of bandwidth). These solutions
enable network operators to start to replace multiple networks
with a unified multi-service network capable of handling all of
these services. The primary systems and services we offer for
multi-service networking are our AXE solution and our
ENGINE solution.

Our circuit-switched solutions are based on our AXE product
range, which is our open architecture communication platform
and the basis for our wireline and mobile systems. AXE is one of
the most widely used switching systems in the industry today.
AXE systems have been deployed in 135 countries, connecting
more than 500 million wireline and mobile subscribers. Our
AXE products include local switching centers that interconnect
individual access lines from homes and businesses to the
telephone network and transit switching centers that
interconnect local switching centers for calls between
subscribers connected to different local switches. By
establishing a transit-switching layer, operators are able to
minimize the number of trunks or inter-switch connections
between switching centers and optimize the traffic routes
within their network.

Our AXE solutions are tailored to meet specific needs for
different types of operators, from local dial tone providers to
long distance providers. A full range of software-based
supplementary subscriber services (such as Centrex, our
business services package, call forwarding and caller ID) are
available for additional revenue streams. These service
capabilities are continuously enhanced and expanded to ensure
that the operators using AXE are able to offer the latest and
most competitive subscriber features to their customers.

Our AXE-based circuit switching solutions are designed to
safeguard operators(cid:213) current profitability, while helping them
prepare for the future through continuous enhancements. The
latest AXE switch is a first step in a migration to a packet-based
multi-service network. Investments in AXE support a transition
to Ericsson(cid:213)s ENGINE multi-service network solution.

Our proprietary ENGINE solution is the world(cid:213)s leading

solution for upgrading narrowband networks to packet
switched networks. ENGINE enables networks to migrate from
a traditional circuit-based network to a packet-based network.
This migration to a packet-based network is a necessary step in
order to combine broadband Internet, voice and data traffic
into one multi-service network rather than three separate
networks.

We attribute part of the success of our ENGINE solution to
our pragmatic approach to migration and network evolution.
We recognize that, for most operators, building an entirely new
network is prohibitively expensive. By offering solutions that
provide flexible paths for network migration and evolution, we
satisfy the objective of the network operator to offer multiple
services on a cost-effective basis. Offering this flexibility and
scalability is fundamental to the success of our ENGINE
solution.

Services
We have the ability to offer a comprehensive range of services
to support network operators. These services include advisory
services, integration services and management services. Our
services organization has technical knowledge to support fixed
networks, data (IP and ATM) and all major mobile network
technologies.

We believe that services play an important role in our
business. Network operators are focusing increasingly on
reducing operating expenditures by optimizing the operation
and maintenance of their existing networks. This trend has been
reinforced by current constraints on the ability of many network
operators(cid:213) capital expenditure. As a result, an increasing number
of network operators are outsourcing network design, operations
and maintenance activities. Our comprehensive portfolio of
services can be customized or sold in packages to meet the needs
of existing and new network operators. We have established the
following broad categories of service areas.

Advisory services
We provide consulting services to network operators for
business planning and development, design and optimization
of networks and the introduction of new services and
management solutions. Our global competence development
program is designed to provide network operators with
training and education in order to improve staff competency
and develop skills in new product areas.

60 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Integration services
We provide services designed to make it possible for network
operators to implement new technologies and applications in a
swift and cost-effective manner. This area is comprised of
solutions for the roll-out of new networks, integration of end-
user applications or migration from one network standard to
another such as from 2G to 3G through network
implementation and integration, site acquisition and civil
works activities.

Management services
Our portfolio of management services is designed to assist
network operators to provide uninterrupted service and operate
their networks efficiently. It also includes solutions for
managing service levels by providing customers with technical
assistance, system maintenance and repair and return. We also
have the ability to assume full responsibility over network
operations and we have signed over 30 contracts to operate
networks on behalf of network operators.

Phones
Sony Ericsson Mobile Communications
In October 2001, we formed Sony Ericsson Mobile
Communications as a 50/50 joint venture with Sony
Corporation. We retained the intellectual property relating to
our core handset technology.

In association with the Sony Ericsson joint venture, we can
provide a full range of mobile handsets, including multi-mode
devices that combine different radio technologies, enabling
subscribers to roam between networks and facilitating easy
migration from 2G to 3G. Our 50 percent ownership interest in
Sony Ericsson also allows us to monitor the requirements and
preferences of the end-user market for mobile handsets, which
we see as an important driver for our mobile systems business
and supports our ability to provide end-to-end systems to our
customers.

We believe that as data-enabled GPRS and 3G handsets begin

to penetrate the marketplace, product design along with the
availability of games, music and other applications will take on
an increasingly important role in the end-user marketplace.
Our partnership with Sony allows us to combine our
knowledge of advanced mobile telecommunications
technologies with Sony(cid:213)s multi-media operations and its
expertise in developing, designing and branding household
consumer electronic devices, such as the Walkman and
Playstation. We entered into licensing arrangements to provide
platform technology to the joint venture. The Sony Ericsson
joint venture markets a full range of advanced multi-media
mobile handsets under the brand names (cid:210)Sony(cid:211), (cid:210)Ericsson(cid:211) and
(cid:210)Sony Ericsson(cid:211). By 2003, the joint venture will market all
mobile handsets under the (cid:210)Sony Ericsson(cid:211) brand, except for
smaller volumes of phase out models.

I N F O R M A T I O N O N T H E C O M P A N Y

Other Operations
This segment principally consists of technology licensing,
business innovation and enterprise systems, which we consider
part of our core operations and defense systems and network
technologies, which we consider non-core activities. It is our
current intention to divest certain non-core activities such as
network technologies (cables).

Technology Licensing
Mobile Platforms
Our Mobile Platforms group offers GSM 2G/GPRS/2.5G and
WCDMA/EDGE 3G technology platforms to manufacturers of
mobile handsets and other wireless devices on the open market.
These platform technologies are based on our global leadership
in standardization and our comprehensive intellectual property
portfolio. Ericsson technology platforms include complete
component specifications, printed circuit board layouts and
software. We also offer support and service in customizing these
platforms. By licensing our platforms, manufacturers can
launch new products with limited research and development
investments and can produce differentiation such as
applications, industrial design, distribution and branding. We
currently provide mobile platform products to several mobile
phone suppliers, including the Sony Ericsson joint venture,
among others.

Ericsson Technology Licensing
Ericsson Technology Licensing provides Bluetooth solutions
tailored for the mass-market to many of the world(cid:213)s largest
manufacturers. Based on technology initially developed by us
in the early 1990(cid:213)s, Bluetooth is a global low-power, low-cost
technology standard that enables stationary and mobile devices
to communicate wirelessly at short ranges. Our application-
oriented solutions incorporate the creation, development,
licensing and delivery of Bluetooth intellectual property. Our
Technology Licensing group provides a complete portfolio of
products and services including baseband, radio and software,
all supported by development tools, qualification, training and
consulting. We helped found the Bluetooth Special Interest
Group (SIG) and were the first company to put Bluetooth
consumer products into mass production.

Business Innovation
Our Business Innovation group develops ideas that could lead
to future core businesses. Working with both internal and
external project teams, our Business Innovations group seeks to
develop ideas that are in line with our core business and that
demonstrate strong potential for profitability.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 61

I N F O R M A T I O N O N T H E C O M P A N Y

Enterprise Systems
Our Enterprise Systems group provides mobile
communications systems and services that enable businesses,
government entities and educational institutions to have
seamless access to applications and services across multiple
locations. We focus on providing mobile solutions such as
wireless local area networks (WLAN), and mobile Intranet
solutions such as our Mobile Organizer and Virtual Office
products. We also provide business applications such as our
Contact Center product and unified messaging services. We sell
our enterprise systems via indirect distribution channels to
network operators, systems integrators, value-added resellers
and distributors.

Microelectronics
In September 2002, we sold the major part of our
microelectronics business to Infineon. We will continue to
purchase components from Infineon, and we will continue to
operate a component factory on behalf of Infineon for two years.
In the first quarter of 2003, we sold also the optoelectronics
part of these operations to Northlight Optronics AB.

Defense Systems
Our Defense Systems group supplies advanced airborne,
ground-based and marine radar systems. Versions of Ericsson
defense systems are operational in Sweden and more than 20
other countries.

Network Technologies (Cables)
Our Network Technologies group is a leading network
specialist providing a full-range of solutions that integrate
copper and optical cables and power networks. We organize our
group into four business areas: Fiber Networks, Interconnect,
Fusion Splicing, and Energy. Our primary markets include
Scandinavia, China, the United States, Brazil, the United
Kingdom and Thailand. A large portion of net sales from our
Network Technologies group is attributable to intersegment
sales.

SUPPLIERS
We purchase customized and standardized equipment and
components from a core group of global providers of electronics
manufacturing services including Flextronics, Solectron and
Sanmina-SCI. We also purchase equipment or components from
numerous local and regional suppliers. We are not dependent
on any one supplier for the provision of standardized
equipment or components. We generally place purchase orders
for our standardized equipment requirements pursuant to
global supply agreements, which we have negotiated with our
primary suppliers. Payment terms are generally 45—60 days.
The Sony Ericsson Mobile Communications joint venture has
outsourced the majority of production of mobile handsets to
Flextronics but also uses other contract manufacturers. A
number of our suppliers design and manufacture highly
specialized and customized components for our networks.
Although we work closely with our suppliers to avoid shortages
and ensure alternative sources of supply, we may not have
immediate access to alternative sources of supply for highly
specialized components, see (cid:210)Risk Factors — Risks Associated
with our Business — If our outside suppliers fail to deliver
satisfactory components and manufacturing services on time,
our financial results could be negatively impacted.(cid:211)

We work closely with our suppliers and consult with them
regularly at the executive, management and operational levels
with regard to our production requirements and design
specifications. We believe that this strategy has allowed us to
foster strong relationships with quality suppliers.

CUSTOMERS
We supply mobile systems to most major wireless network
operators, for example, in Europe to Hutchison, KPN, Orange,
T-Mobile, Telecom Italia Mobile, Telef(cid:151)nica, and Vodafone; in
North America to AT&T Wireless and Cingular; and in Asia
Pacific to China Mobile, China Unicom, NTT DoCoMo,
SingTel and Telstra. We provide our multi-service network
systems to large wireline operators around the world including
BT (British Telecom), China Telecom, Telef(cid:151)nica and Telmex,
among others. In 2002, approximately 50 percent of our net
sales were attributable to our ten largest customers and
approximately 65 percent to our 20 largest customers.

SALES, MARKETING AND SUPPORT
We use a direct sales force to market and sell our systems and
services to customers in over 140 countries. We divide our sales
and marketing operations into three primary market areas:
¥ Europe, Middle East and Africa;
¥ North, South and Central America; and
¥ Asia Pacific.

62 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

These primary markets are further subdivided into a total of 35
market units, with each typically representing a single country
or a group of countries depending on the extent of our business
activities in that region. The majority of these market units
operate locally through subsidiaries that are present in those
countries. We use our local knowledge to help our customers
move into new markets and our global scale to enable them to
achieve greater efficiencies and access to recognized world-class
resources wherever they operate. In addition to our market
units, we also operate global customer units that provide
focused sales and marketing activities targeted at our large
multinational customers.

Our market and global customer units are responsible for

every stage of the sales cycle, including identifying
opportunities, tailoring our solutions to the needs of individual
customer, and integrating our products into the customer(cid:213)s
network environment. The market and global customer units
rely on the expertise of primary business units in tailoring and
integrating our products for delivery to customers. As of
December 31, 2002 these business units are:
¥ Systems: Mobile Systems (WCDMA/EDGE/GSM/GPRS/TDMA
and PDC), Multi-Service Networks and Data Backbone;

¥ Mobile Systems: CDMA;
¥ Global Services; and
¥ Transmission and Transport Networks.

The market and global customer units are also responsible for
after-sales support and rely in particular on the Global Services
business unit in fulfilling this function. Frequently, a market
unit and customer unit will work together in providing
products, solutions and services to our large customers.

Our market and global customer units focus on offering
systems and services related to mobile systems and wireline
multi-service networks. Businesses in our Other operations
segment market their systems and services through internal
sales and marketing functions. Often these internal sales and
marketing teams work with our market and global customer
units in approaching certain markets or large customers with
whom we have a relationship.

RESEARCH AND DEVELOPMENT
We believe that our future success depends to a large part on
our continuing ability to deliver systems and services based on
advanced technologies. Accordingly, while we have already
rationalized significantly among our research and development
activities and our currently planned cost reduction measures
involve further reductions in research and development
spending, we remain committed to continue to make
significant investments in research and development that is
core to our future business, in particular in 3G technology. As
of December 31, 2002, we had over 20,000 employees actively
engaged in research and development. During 2002, our
research and development expenses was SEK 29.3 billion, or 20
percent of net sales.

I N F O R M A T I O N O N T H E C O M P A N Y

Our research activities are focused on technologies and

standards that are three to 10 years away from implementation.
We are currently conducting innovative research in areas such
as all IP-based networks, multi-carrier power amplifiers and in
systems beyond 3G technologies. We are also continuing to
conduct research into advanced 3G technologies based on
WCDMA.

Our product development teams usually work with
technologies that are less than three years away from
commercialization and focus on developing products rather
than the underlying technologies themselves. Our product
pipeline currently includes end-to-end solutions for all 3G
technologies, such as WCDMA, CDMA2000 and EDGE. In
addition, it includes products and enablers for Mobile Internet,
broadband and fixed-line solutions.

INTELLECTUAL PROPERTY AND LICENSING
As of December 31, 2002, we held over 12,000 patents
worldwide. In addition, we hold numerous trademarks all over
the world. We believe that patent and trademark protection is
an integral part of our business and complements the
technological expertise, innovative talent and marketing
capabilities of our employees. See (cid:210)Risk Factors-Risks
Associated with our Business. Our business and results of
operations will be harmed if we are found to have infringed
intellectual property rights of third parties, or if we are unable
to protect our intellectual property rights from challenges or
unauthorized third party use.(cid:211) By entering into cross-license
agreements and acquiring licenses when appropriate, we seek to
minimize our exposure to other patent holders.

Through many years of involvement in the development of

new mobile technologies, we have built up a considerable
portfolio of essential intellectual property rights relating to
advanced mobile telecommunications technologies. We hold a
substantial number of essential patents related to WCDMA, and
numerous essential patents related to other 3G standards,
including CDMA2000 and EDGE. We also hold important
patents for many other areas including ATM, WAP, WLAN,
mobile platforms and Bluetooth.

Our intellectual property rights are valuable business assets

and we license these rights to some other infrastructure
suppliers, but also to a number of handset manufacturers and
wireless applications developers, in return of royalty payments.

JOINT VENTURES, COOPERATION
ARRANGEMENTS AND VENTURE CAPITAL
In addition to our joint venture with Sony, which we describe
in (cid:210)Information about the Company(cid:211), we are engaged in joint
ventures, cooperation arrangements and venture capital
initiatives with a number of industry participants.

Ericsson Juniper Networks Mobile IP
In November of 2000, we formed a company with Juniper
Networks, named Ericsson Juniper Networks Mobile IP, of

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 63

I N F O R M A T I O N O N T H E C O M P A N Y

which we own 60 percent. This venture combines our mobile
IP expertise with Juniper(cid:213)s experience in IP routing systems to
facilitate the interaction between mobile voice networks and IP
data networks. The joint venture provides Mobile Internet
routing products to customers including Internet Service
Provider(cid:213)s and wireless network operators building GPRS and
3G networks.

Symbian
We also participate in the development of the EPOC wireless
operating system through approximately 19 percent ownership
interest in Symbian. Symbian was established as a private
company in June 1998 and is jointly owned by Ericsson, Nokia,
Matsushita (Panasonic), Motorola, Psion, Sony Ericsson and
Siemens. Symbian is a software licensing company that supplies
the Symbian Operating System for data-enabled mobile
handsets. Our involvement in Symbian helps to promote and
develop this advanced, open operating system, which we
believe will be instrumental in facilitating the growth of the
Mobile Internet.

Venture Capital
In order to support the development of Mobile Internet
applications, systems and services, we continue to participate in
a number venture capital investments. We make direct
investments through our operating subsidiaries in companies
that are strategic to our core businesses. We also make direct
investments in smaller start-up companies through our
Business Innovation group. In addition to direct investments,
we have also formed joint ventures to facilitate and support our
venture capital activities. For example, Ericsson Venture
Partners was formed in 2000 together with Investor AB, AB
Industriv(cid:138)rden and Merrill Lynch. The venture focuses on
investments in the communications industry in Europe, the
Americas and the Middle East with particular emphasis on the
Mobile Internet market.

PARENT COMPANY OPERATIONS
The business of our parent company, Telefonaktiebolaget LM
Ericsson, consists mainly of corporate management and holding
company functions. Parent company operations also include
internal banking and customer credit management activities
performed by Ericsson Treasury Services AB and Ericsson Credit
AB. As of December 31, 2002, our parent company had branch
and representative offices in 16 countries and had
approximately 1,300 employees.

MATERIAL CONTRACTS
Effective October 1, 2001, we formed Sony Ericsson Mobile
Communications AB as a 50/50 joint venture with Sony
Corporation. Ericsson and Sony each contributed SEK 2.8
billion in cash to the capital of the joint venture. Pursuant to
two Master Purchase Agreements, one relating to the transfer
of the Ericsson handset business and one relating to the transfer

of the Sony handset business, and related agreements, both
partners sold substantially all of their respective handset
businesses to the joint venture. We retained ownership of our
intellectual property rights for mobile phone platform
technology, which is licensed to the joint venture and other
handset manufacturers.

LEGAL PROCEEDINGS
We are party to a variety of legal proceedings arising in the
ordinary course of business involving allegations of breach of
contract, improper delivery of goods or services, product
liability, infringement of intellectual property rights and other
matters.

We are subject to claims that mobile handsets and other
telecommunications devices that generate electromagnetic
fields expose users to health risks. At present, a substantial
number of scientific studies conducted by various independent
research bodies have indicated that electromagnetic fields, at
levels within the limits prescribed by public health authority
safety standards and recommendations, cause no adverse effect
to human health.

Like other companies operating in the telecommunications
industry, because our products comprise complex technology,
we experience litigation regarding patent and other intellectual
property rights. Third parties have asserted, and in the future
may assert, claims against us alleging that we infringe their
intellectual property rights. If we do not succeed in any such
litigation, we could be required to expend significant resources
to pay damages, develop non-infringing products/technology or
to obtain licenses to the products/technology which is the
subject of such litigation. However, we cannot be certain that
any such licenses, if available at all, will be available to us on
commercially reasonable terms. Also, defending these claims
may be expensive and divert the efforts of our management and
technical personnel. In particular, we are currently party to two
unrelated lawsuits where plaintiffs (Harris Corp. and
InterDigital Communications Corp.) allege that we have
infringed one or more of their U.S. patents through our sales of
certain GSM and TDMA products in the United States. In the
Harris lawsuit, the jury found on October 30, 2002, that we
had willfully infringed the one patent-in-suit and that the
patent is valid. We believe that the jury(cid:213)s decision is wrong.
The Court has not yet ruled. Should the Court render a final
judgment against us, we will appeal. The InterDigital lawsuit
is scheduled for trial starting on May 15, 2003. While we are
confident that we ultimately will prevail in each of these two
lawsuits, there can be no assurances thereof. If we do not
prevail, we may have to expend significant resources to pay
damages and we could be enjoined in the United States from
selling any products found to infringe unless we either modify
those products or obtain licenses to the patents found to be
valid and infringed.

In the U.S, asbestos claims are brought against Ericsson as it

is for several hundreds of other companies. The claims are

64 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

related to the Anaconda Wire & Cable business within
Ericsson(cid:213)s joint venture with Atlantic Richfield formed in 1980.
This business was later merged fully into Ericsson and in 1988
sold to Alcatel. Anaconda manufactured cables for the US Navy
during 1946—51 that contained small amounts of asbestos, well
below the applicable safety limits. The liability for the navy
cables has remained with Ericsson and we have been targeted
with lawsuits since 1983. Since then, Ericsson has successfully
defended all asbestos lawsuits and we have settled none. We
have insurance coverage for those lawsuits, however no
payments from this coverage have been made to claimants.

COMPETITORS
In our Mobile Systems and Multi-Service Networks segments,
we compete with large and established communication
equipment manufacturers. Although competition varies
depending on the products and services, our most significant
competitors in wireless communication include Alcatel,
Lucent, Motorola, Nokia, Nortel and Siemens. With respect to
wireline communication equipment, the competition is less
concentrated and includes, among others, Alcatel, Cisco,
Lucent, Nortel and Siemens. We also compete with numerous
local and regional manufacturers and providers of
communication equipment and services. We expect the
communication equipment market to continue to undergo
consolidation, which should strengthen the surviving
companies but decrease the number of competitors. In our
view, financial strength will be a significant factor in this
process. We believe the most important competitive factors in
this industry include existing customer relationships, the
ability to cost-effectively upgrade or migrate the installed base,
technological innovation, product design, compatibility of
products with industry standards, and the ability to attract and
retain the key personnel necessary to develop successful
products.

In our Other operations segment, our competitors vary

widely depending on the product or service being offered. We
face significant competition with regard to substantially all of
these products and services.

I N F O R M A T I O N O N T H E C O M P A N Y

ORGANIZATIONAL STRUCTURE
For a listing of our significant subsidiaries, please see Note 9 to
our consolidated financial statements.

PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2002, no land, buildings, machinery and
equipment were pledged as collateral for outstanding
indebtedness. During 2000 and 2001, we also disposed of the
majority of the real properties we owned.

We believe that our principal properties are suitable for our

present needs, but, due to restructuring and reduced
headcount, we currently have certain amounts of excess space,
which we are working to reduce.

We have set forth below information regarding our

manufacturing facilities.

Property

Products

Owned/
Leased

Size
sq. meters

Sweden, Nyn(cid:138)shamn
Sweden, Kista
Sweden, Kalmar
Sweden, Kumla
Sweden, G(cid:138)vle

Sweden, Skellefte(cid:140)
Sweden, M(cid:154)lndal

Sweden, Bor(cid:140)s
Sweden, Katrineholm

Sweden, Hudiksvall
Sweden, Falun
US, Lynchburg
US, San Diego
US, Hauppange
Spain, Bilbao
Brazil, Sao Jose
dos Campos
China, Shanghai
China, Nanjing

China, Chongqing

Leased
Leased

Leased
Leased
Leased
Leased
Leased

Mobile Systems
Mobile Systems
Power Modules
Mobile Systems
Mobile Systems
Assembly
Network Material
Leased
Sensor and Network Leased
production
MINI-LINK
Mobile Systems,
Switching systems
Cables
Cables
Mobile Systems
Mobile Systems
Power Amplifiers
Data Modules
Mobile Systems
Assembly
Power Modules
Mobile Systems,
Switching systems
MINI-LINK

Leased
Leased
Owned
Leased
Owned
Owned
Owned

Leased
Owned

Leased

14,000
5,300
14,000
40,000
96,000

1,500
16,000

33,200
17,000

50,000
40,000
8,400
2,000
4,000
6,600
22,100

2,000
7,200

500

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 65

S E G M E N T S A N D A R E A S

ORDERS BOOKED BY SEGMENT BY QUARTER

Year to date (SEK million)

0103

0106

0109

0112

0203

0206

0209

0212

20011)

2002

Systems

of which Mobile Systems
of which Multi-Service Networks

Other operations
Less: Intersegment orders

Total

Change

Systems

of which Mobile Systems
of which Multi-Service Networks

Other operations
Less: Intersegment orders

Total

62,822
54,731
8,091
9,011
— 2,524

113,779
98,568
15,211
15,211
— 5,249

149,085
129,932
19,153
19,983
—7,231

183,281
161,433
21,848
27,411
— 8,925

37,701
35,008
2,693
6,268
— 2,076

68,898
63,253
5,645
12,575
— 4,315

86,836
79,440
7,396
18,025
—7,173

115,341
106,036
9,305
22,716
— 9,706

69,309

123,741

161,837

201,767

41,893

77,158

97,688

128,351

0203

— 40%
— 36%
— 67%
— 30%
—

— 40%

0206

— 39%
— 36%
— 63%
—17%
—

— 38%

0209

— 42%
— 39%
— 61%
—10%
—

— 40%

0212

— 37%
— 34%
— 57%
—17%
—

— 36%

Isolated quarters (SEK million)

20011)

2002

Systems

of which Mobile Systems
of which Multi-Service Networks

Other operations
Less: Intersegment orders

Total

Change

Systems

of which Mobile Systems
of which Multi-Service Networks

Other operations
Less: Intersegment orders

Total

62,822
54,731
8,091
9,011
— 2,524

50,957
43,837
7,120
6,200
— 2,725

35,306
31,364
3,942
4,772
—1,982

34,196
31,501
2,695
7,428
—1,694

37,701
35,008
2,693
6,268
— 2,076

31,197
28,245
2,952
6,307
— 2,239

17,938
16,187
1,751
5,450
— 2,858

28,505
26,596
1,909
4,691
— 2,533

69,309

54,432

38,096

39,930

41,893

35,265

20,530

30,663

— 40%
— 36%
— 67%
— 30%
—

— 40%

— 39%
— 36%
— 59%
2%
—

— 35%

— 49%
— 48%
— 56%
14%
—

— 46%

—17%
—16%
— 29%
— 37%
—

— 23%

1) 2001 adjusted to reflect parts of Phones transferred to Sony Ericsson Mobile Communications.

66 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

NET SALES BY SEGMENT BY QUARTER

Year to date (SEK million)

0103

0106

0109

0112

0203

0206

0209

0212

20011)

2002

S E G M E N T S A N D A R E A S

Systems

of which Mobile Systems
of which Multi-Service Networks

Other operations
Less: Intersegment sales

Total

Change

Systems

of which Mobile Systems
of which Multi-Service Networks

Other operations
Less: Intersegment sales

Total

44,367
37,046
7,321
8,025
— 2,632

95,429
80,167
15,262
15,534
— 5,668

138,576
117,503
21,073
21,542
—7,819

188,697
161,554
27,143
31,762
— 9,622

33,323
30,036
3,287
5,706
— 2,063

68,104
61,834
6,270
11,733
— 4,326

98,716
90,066
8,650
17,509
—7,201

131,955
120,256
11,699
23,533
— 9,715

49,760

105,295

152,299

210,837

36,966

75,511

109,024

145,773

0203

— 25%
—19%
— 55%
— 29%
—

— 26%

0206

— 29%
— 23%
— 59%
— 24%
—

— 28%

0209

— 29%
— 23%
— 59%
—19%
—

— 28%

0212

— 30%
— 26%
— 57%
— 26%
—

— 31%

Isolated quarters (SEK million)

20011)

2002

Systems

of which Mobile Systems
of which Multi-Service Networks

Other operations
Less: Intersegment sales

Total

Change

Systems

of which Mobile Systems
of which Multi-Service Networks

Other operations
Less: Intersegment sales

Total

44,367
37,046
7,321
8,025
— 2,632

51,062
43,121
7,941
7,509
— 3,036

43,147
37,336
5,811
6,008
— 2,151

50,121
44,051
6,070
10,220
—1,803

33,323
30,036
3,287
5,706
— 2,063

34,781
31,798
2,983
6,027
— 2,263

30,612
28,232
2,380
5,776
— 2,875

33,239
30,190
3,049
6,024
— 2,514

49,760

55,535

47,004

58,538

36,966

38,545

33,513

36,749

— 25%
—19%
— 55%
— 29%
—

— 26%

— 32%
— 26%
— 62%
— 20%
—

— 31%

— 29%
— 24%
— 59%
— 4%
—

— 29%

— 34%
— 31%
— 50%
— 41%
—

— 37%

1) 2001 adjusted to reflect parts of Phones transferred to Sony Ericsson Mobile Communications.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 67

S E G M E N T S A N D A R E A S

ADJUSTED OPERATING INCOME AND OPERATING MARGIN BY SEGMENT BY QUARTER

Year to date (SEK million)

0103

0106

0109

0112

0203

0206

0209

0212

20011)

2002

1,966
— 5,512
— 603
— 256

2,215
— 9,964
— 243
— 673

2,861
—13,947
—1,863
— 983

3,239
—14,649
— 5,111
—1,659

— 2,799
—
—1,343
— 305

— 3,495
— 442
— 2,318
—700

— 4,604
— 992
— 3,477
—1,109

— 4,907
—1,331
— 4,715
—1,542

— 4,405

— 8,665

—13,932

—18,180

— 4,447

— 6,955

—10,182

—12,495

Systems
Phones
Other operations
Unallocated2)

Total

Items affecting comparability:

— Non—operational capital gains/losses, net
— Capital gain Juniper Networks
— Restructuring costs, net
— Capitalization of development exp., net

Total

As percentage of Net Sales

Systems
Phones3)
Other operations

Total

42
5,453
—
—

5,495

3
5,453
—15,000
—

168
5,453
—15,000
—

347
5,453
—15,000
—

— 9,544

— 9,379

— 9,200

20011)

0103

4%
—
— 8%

— 9%

0106

2%
—
— 2%

— 8%

0109

2%
—
— 9%

— 9%

0112

2%
—
—16%

— 9%

20011)

102
—
—
1,005

1,107

0203

— 8%
—
— 24%

—12%

Isolated quarters (SEK million)

Systems
Phones
Other operations
Unallocated2)

Total

Items affecting comparability:

— Non—operational capital gains/losses, net
— Capital gain Juniper Networks
— Restructuring costs, net
— Capitalization of development exp., net

Total

As percentage of Net Sales

Systems
Phones3)
Other operations

Total

1) 2001 figures are restated for:

1,966
— 5,512
— 603
— 256

249
— 4,452
360
— 417

646
— 3,983
—1,620
— 310

— 4,405

— 4,260

— 5,267

378
—702
— 3,248
— 676

— 4,248

42
5,453
—
—

5,495

— 39
—
—15,000
—

—15,039

165
—
—
—

165

4%
—
— 8%

— 9%

20011)

0%
—
5%

— 8%

1%
—
— 27%

—11%

179
—
—
—

179

1%
—
— 32%

—7%

— 2,799
—
—1,343
— 305

— 4,447

102
—
—
1,005

1,107

— 8%
—
— 24%

—12%

99
—
—1,482
1,915

217
—
— 5,691
2,556

— 42
—
—11,962
3,200

532

— 2,918

— 8,804

2002

0209

— 5%
—
— 20%

— 9%

0212

— 4%
—
— 20%

— 9%

2002

—1,109
— 550
—1,159
— 409

— 303
— 339
—1,238
— 433

0206

— 5%
—
— 20%

— 9%

— 696
— 442
— 975
— 395

— 2,508

— 3,227

— 2,313

— 3
—
—1,482
910

118
—
— 4,209
641

— 575

— 3,450

2002

— 4%
—
— 20%

—10%

— 2%
—
—16%

—7%

— 259
—
— 6,271
644

— 5,886

—1%
—
— 21%

— 6%

— Changed accounting principles in Sweden 2002 regarding consolidation of companies according to new RR01.
— Results with parts of Phones transferred to the joint venture Sony Ericsson Mobile Communications, accounted for under the equity method reported under

Share in earnings of joint ventures and associated companies 2001

2) (cid:210)Unallocated(cid:211) consists mainly of costs for corporate staffs and non—operational capital gains/losses

3) Calculation not applicable

68 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

ORDERS BOOKED BY MARKET AREA BY QUARTER

Year to date (SEK million)

0103

0106

0109

0112

0203

0206

0209

0212

20011)

2002

S E G M E N T S A N D A R E A S

Europe, Middle East and Africa2)
North America
Latin America
Asia Pacific

Total

2) Of which Sweden
2) Of which EU

Change

Europe, Middle East and Africa2)
North America
Latin America
Asia Pacific

Total

2) Of which Sweden
2) Of which EU

37,329
6,191
11,581
14,208

59,083
10,473
20,847
33,338

81,096
14,830
24,731
41,180

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

19,493
7,003
4,846
10,551

37,184
12,837
8,195
18,942

46,738
17,310
9,612
24,028

65,448
22,877
9,575
30,451

69,309

123,741

161,837

201,767

41,893

77,158

97,688

128,351

1,827
25,289

4,665
40,610

5,654
50,814

8,675
57,057

2,437
8,877

4,943
21,316

6,289
25,160

7,620
34,003

0203

0206

— 48%
13%
— 58%
— 26%

— 40%

33%
— 65%

— 37%
23%
— 61%
— 43%

— 38%

6%
— 48%

0209

— 42%
17%
— 61%
— 42%

— 40%

11%
— 50%

0212

— 29%
—7%
— 69%
— 43%

— 36%

—12%
— 40%

Isolated quarters (SEK million)

2001 1)

2002

Europe, Middle East and Africa2)
North America
Latin America
Asia Pacific

Total

2) Of which Sweden
2) Of which EU

Change

Europe, Middle East and Africa2)
North America
Latin America
Asia Pacific

Total

2) Of which Sweden
2) Of which EU

37,329
6,191
11,581
14,208

21,754
4,282
9,266
19,130

22,013
4,357
3,884
7,842

11,606
9,805
6,352
12,167

19,493
7,003
4,846
10,551

17,691
5,834
3,349
8,391

9,554
4,473
1,417
5,086

18,710
5,567
— 37
6,423

69,309

54,432

38,096

39,930

41,893

35,265

20,530

30,663

1,827
25,289

2,838
15,321

989
10,204

3,021
6,243

2,437
8,877

2,506
12,439

1,346
3,844

1,331
8,843

— 48%
13%
— 58%
— 26%

— 40%

33%
— 65%

—19%
36%
— 64%
— 56%

— 35%

—12%
—19%

— 57%
3%
— 64%
— 35%

— 46%

36%
— 62%

61%
— 43%
—101%
— 47%

— 23%

— 56%
42%

1) 2001 adjusted to reflect parts of Phones transferred to Sony Ericsson Mobile Communications.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 69

S E G M E N T S A N D A R E A S

NET SALES BY MARKET AREA BY QUARTER

Year to date (SEK million)

0103

0106

0109

0112

0203

0206

0209

0212

20011)

2002

Europe, Middle East and Africa2)
North America
Latin America
Asia Pacific

Total

2) Of which Sweden
2) Of which EU

Change

Europe, Middle East and Africa2)
North America
Latin America
Asia Pacific

Total

2) Of which Sweden
2) Of which EU

23,357
5,528
7,707
13,168

48,575
11,077
16,716
28,927

69,642
16,984
22,408
43,265

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

17,606
4,072
4,311
10,977

36,666
10,135
7,416
21,294

53,438
16,516
10,282
28,788

74,124
23,068
12,676
35,905

49,760

105,295

152,299

210,837

36,966

75,511

109,024

145,773

1,492
14,901

3,135
30,568

4,397
43,626

6,656
59,206

1,974
10,867

4,559
21,935

6,235
31,128

8,303
43,396

0203

— 25%
— 26%
— 44%
—17%

— 26%

32%
— 27%

0206

— 25%
— 9%
— 56%
— 26%

— 28%

45%
— 28%

0209

— 23%
— 3%
— 54%
— 33%

— 28%

42%
— 29%

0212

— 24%
— 8%
— 61%
— 36%

— 31%

25%
— 27%

Isolated quarters (SEK million)

20011)

2002

Europe, Middle East and Africa2)
North America
Latin America
Asia Pacific

Total

2) Of which Sweden
2) Of which EU

Change

Europe, Middle East and Africa2)
North America
Latin America
Asia Pacific

Total

2) Of which Sweden
2) Of which EU

23,357
5,528
7,707
13,168

25,218
5,549
9,009
15,759

21,067
5,907
5,692
14,338

27,491
8,206
9,688
13,153

17,606
4,072
4,311
10,977

19,060
6,063
3,105
10,317

16,772
6,381
2,866
7,494

20,686
6,552
2,394
7,117

49,760

55,535

47,004

58,538

36,966

38,545

33,513

36,749

1,492
14,901

1,643
15,667

1,262
13,058

2,259
15,580

1,974
10,867

2,585
11,068

1,676
9,193

2,068
12,268

— 25%
— 26%
— 44%
—17%

— 26%

32%
— 27%

— 24%
9%
— 66%
— 35%

— 31%

57%
— 29%

— 20%
8%
— 50%
— 48%

— 29%

33%
— 30%

— 25%
— 20%
—75%
— 46%

— 37%

— 8%
— 21%

1) 2001 adjusted to reflect parts of Phones transferred to Sony Ericsson Mobile Communications.

70 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

EXTERNAL ORDERS BOOKED BY MARKET AREA AND SEGMENT

Year to date 2002 (SEK million)

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

Total

Share of Total

EXTERNAL NET SALES BY MARKET AREA AND SEGMENT

Year to date 2002 (SEK million)

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

Total

Share of Total

TOP 10 MARKETS IN ORDERS AND SALES

S E G M E N T S A N D A R E A S

Systems

Other

Total

54,510
22,164
8,919
28,583

10,938
713
656
1,868

65,448
22,877
9,575
30,451

Share
of Total

51%
18%
7%
24%

114,176

14,175

128,351

100%

89%

11%

100%

Systems

Other

Total

62,724
22,444
11,803
33,871

11,400
624
873
2,034

74,124
23,068
12,676
35,905

Share
of Total

51%
16%
9%
24%

130,842

14,931

145,773

100%

90%

10%

100%

Year to date
Orders

United States
China
Italy
Saudi Arabia
Sweden
United Kingdom
Spain
Japan
India
Russia

Share of
total orders

17%
8%
8%
6%
6%
4%
3%
3%
3%
2%

Sales

United States
China
Italy
Sweden
Japan
United Kingdom
Saudi Arabia
Spain
Mexico
India

Share of
total sales

15%
9%
7%
6%
4%
4%
4%
3%
3%
2%

NUMBER OF EMPLOYEES BY SEGMENT BY QUARTER

Year to date (SEK million)

0103

0106

0109

0112

0203

0206

0209

0212

20011)

2002

Systems
Phones
Other operations1)
Unallocated

Total

75,897
12,299
18,623
440

77,448
5,675
16,284
414

72,111
4,277
16,167
394

68,525
—
16,286
387

66,301
—
15,315
396

61,392
—
14,383
446

57,808
—
13,509
406

51,390
—
12,846
385

107,259

99,821

92,949

85,198

82,012

76,221

71,723

64,621

Total excluding Phones

94,960

94,146

88,672

85,198

82,012

76,221

71,723

64,621

Change excluding Phones

Systems
Other operations
Unallocated

Total

0203

0206

0209

—13%
—18%
—10%

—14%

— 21%
—12%
8%

—19%

— 20%
—16%
3%

—19%

0212

— 25%
— 21%
—1%

— 24%

1) Includes Bluetooth, Mobile Platforms and selected parts of Phones not transferred to Sony Ericsson Mobile Communications.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 71

D I R E C T O R S , S E N I O R M A N A G E M E N T A N D A U D I T O R S
D I R E C T O R S , S E N I O R M A N A G E M E N T A N D A U D I T O R S

Directors, Senior Management and Auditors

Board of Directors
Our Board of Directors consists of eight directors elected by the
shareholders at the Annual General Meeting on March 27,
2002, and three employee representatives, each with a deputy,
appointed by the respective trade union.

We have three Board of Directors committees and, in

addition, a nomination committee comprised of the Chairman

of the Board of Directors and representatives of our primary
shareholders. The committees are described below under the
heading (cid:210)Board Procedures and Committees(cid:211).

The members of our Board, the year of their respective
original election, their age, position, and their respective
holdings of shares, convertible debentures and options as of
December 31, 2002, are as follows:

Name

Michael Treschow
Tom Hedelius1)
Marcus Wallenberg1)
Peter L. Bonfield
Lena Torell
Sverker Martin-L(cid:154)f1)
Eckhard Pfeiffer
Peter Sutherland1)
G(cid:154)ran Engstr(cid:154)m

Jan Hedlund

Per Lindh

Monica Bergstr(cid:154)m

Christer Binning

(cid:129)ke Svenmarck

Member
since

2002
1991
1996
2002
2002
1993
2000
1996
1994

1994

1995

1998

1994

2000

Age

Position

B shares

(in SEK) 2)

Options 3)

Convertible
debentures
1997/2003

59
63
45
57
57
59
61
56
55

Chairman
Deputy Chairman
Deputy Chairman
Director
Director
Director
Director
Director
Employee
Representative
Employee
Representative
Employee
Representative
Deputy Employee
Representative
Deputy Employee
Representative
Deputy Employee
Representative

770,000
145,232
704,000
—
—
52,000
3,040
—
10,275

875

—

407

1,418

—

—
—
—
—
—
—
—
—
99,120

75,520

—

75,520

145,347

—

—
—
—
—
—
—
—
—
1,200

—

1) Mr. Hedelius and Mr. Martin-L(cid:154)f are also directors of AB Industriv(cid:138)rden and Mr. Wallenberg and Mr. Sutherland are also directors of Investor AB. Investor AB and

AB Industriv(cid:138)rden are our two largest shareholders, based on voting rights.

2) Conversion rate SEK 41.70.

3) Number of B shares assuming full exercise of options under applicable plan.

72 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2
72 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

D I R E C T O R S , S E N I O R M A N A G E M E N T A N D A U D I T O R S

Michael Treschow, Chairman (since 2002)
Chairman of the Board of Directors. Chairman of the Finance
and Nomination Committees. Member of the Remuneration
Committee. Member of the Board of Directors of Electrolux AB
and Atlas Copco AB. Deputy Chairman of the Federation of
Swedish Enterprise.

Peter Sutherland, Director (since 1996)
Chairman of the Remuneration Committee. Honorary Doctor.
Chairman of the Board of Directors of Goldman Sachs
International and British Petroleum. Member of the Board of
Directors of Investor AB, Royal Bank of Scotland Group, and
the Foundation of the World Economic Forum.

Lena Torell, Director (since 2002)
Member of the Remuneration Committee. Doctor of Physics.
Professor. President of the Royal Swedish Academy of Science.
Member of the Board of Directors of Imego AB, Universeum AB
and the European Council of Applied Sciences and Engineering.

G(cid:154)ran Engstr(cid:154)m, Director (since 1994)
Member of the Finance Committee. Employee representative.

Jan Hedlund, Director (since 1994)
Member of the Audit Committee. Employee representative.

Per Lindh, Director (since 1995)
Member of the Remuneration Committee. Employee
representative.

Monica Bergstr(cid:154)m, Deputy Director (since 1998)
Employee representative.

Christer Binning, Deputy Director (since 1994)
Employee representative.

(cid:129)ke Svenmarck, Deputy Director (since 2000)
Employee representative.

No director currently holds a management position at Ericsson.
No director has been elected pursuant to an arrangement or
understanding with any major shareholder, customer, supplier
or other person. No director has a family relationship with any
other director or executive officer.

Tom Hedelius, Director (since 1991)
Deputy Chairman of the Board of Directors and member of the
Finance Committee. Honorary Chairman of Svenska
Handelsbanken AB. Honorary Doctor of Economics. Chairman
of the Board of Directors of AB Industriv(cid:138)rden, Bergman &
Beving AB, Svenska Le Carbone AB and the Foundation of
Anders Sandrew. Deputy Chairman of Addtech Lagercrantz
Group AB and the Jan Wallander and Tom Hedelius
Foundation. Member of the Board of Directors of Volvo AB
and Svenska Cellulosa Aktiebolaget SCA. Tom Hedelius has
announced that he declined re-election to our Board of
Directors as from the Annual General Meeting in 2003.

Marcus Wallenberg, Director (since 1996)
Deputy Chairman of the Board of Directors and member of the
Finance Committee. President and Chief Executive Officer of
Investor AB. Deputy Chairman of Saab AB and SE-Banken AB.
Member of the Board of Directors of, among others,
AstraZeneca PLC, Investor AB, Scania AB, Stora Enso Oy and
the Knut and Alice Wallenberg Foundation.

Sir Peter L. Bonfield ,CBE, Director (since 2002)
Member of the Audit Committee. Member of the Board of
Directors of AstraZeneca PLC, Mentor Graphics Inc., and TSMC
Ltd. Vice President of the British Quality Foundation.
Member of the International Advisory Group of Salomon Smith
Barney. Fellow of the Royal Academy of Engineering.

Sverker Martin-L(cid:154)f, Director (since 1993)
Chairman of the Audit Committee. Chairman of the Board of
Directors of Svenska Cellulosa Aktiebolaget, SCA and Skanska
AB. Member of the Board of Directors of Boliden AB, Svenska
Handelsbanken AB, AB Industriv(cid:138)rden and the Confederation
of Swedish Enterprises.

Eckhard Pfeiffer, Director (since 2000)
Member of the Audit Committee. Chairman of the Board of
Directors of Intershop Communications. Member of the Board
of Directors of General Motors Corporation, Hughes
Electronics Corporation, IFCO Systems, Syntek Capital and
Biogen Inc. Member of the Advisory Board of Deutsche Bank.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 73

D I R E C T O R S , S E N I O R M A N A G E M E N T A N D A U D I T O R S

Corporate Management
The table below discloses the senior members of our corporate management, the year of appointment to their current position or
hire date, as applicable, their age, position and holdings of shares, convertible debentures and options as of December 31, 2002:

Name

Kurt Hellstr(cid:154)m

Sten Fornell

Per-Arne Sandstr(cid:154)m

Ragnar B(cid:138)ck
Mats Dahlin
Gerhard Weise
Carl Olof Blomqvist
Henry St(cid:142)nson
Torbj(cid:154)rn Nilsson
Britt Reigo
Jan Uddenfeldt

Appointed
year

Age

Position

A shares

B shares

(in SEK) 1)

Options2)

Convertible
debentures
1997/2003

1999

2000

2001

2000
1998
2001
1999
2002
1998
1988
1998

58
48
55
52
47
50
60
52

President
& Chief Executive Officer
Executive Vice President
& Chief Financial Officer
Executive Vice President
& Chief Operating Officer
Executive Vice President
Executive Vice President
Executive Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President
Senior Vice President

—

—
—
—
6,080
—
—
—
—

45,384

145,347

1,256,040

352,216

—

830,920

105,830

145,347

878,324

49,128
30,941
54,992
9,546
10,000
49,399
12,000
12,570

145,347
—
145,347
—
—
145,347
145,347
—

688,236
835,432
686,388
638,816
452,000
820,600
728,224
781,672

1) Number of B shares assuming conversion of debentures at SEK 41.70 per B share.

2) Aggregate number of B shares assuming full exercise of options under applicable plan.

Our President, Chief Executive Officer and Executive Vice
Presidents are appointed by our Board of Directors.

The Chief Executive Officer, the Chief Operating Officer, the
Chief Financial Officer, the other Executive Vice Presidents and
the Heads of Corporate Functions (including the Chief
Financial Officer) comprise the corporate management. All
members and the year of appointment are as follows:

Kurt Hellstr(cid:154)m
President (since July, 1999) and Chief Executive Officer (since
January, 2001). Prior to assuming this position, Mr. Hellstr(cid:154)m
was the Head of Market Area Asia Pacific.

Sten Fornell
Executive Vice President and Chief Financial Officer (since
January 2000). Head of Corporate Function Finance. Prior to
assuming this position, Mr. Fornell was the Chief Financial
Officer of Division Mobile Systems.

Per-Arne Sandstr(cid:154)m
Executive Vice President (since March 2001) and Chief
Operating Officer (since September 2001). Prior to assuming
this position, Mr. Sandstr(cid:154)m was the Head of Market Area
North America.

Ragnar B(cid:138)ck
Executive Vice President (since March 2000). Head of Market
Area Asia Pacific (since November 2001). Prior to assuming
this position, Mr. B(cid:138)ck was the Head of Market Area Western
Europe.

Mats Dahlin
Executive Vice President (since October 1998). Head of Market
Area Europe, Middle East and Africa (since November 2001).
Prior to assuming this position, Mr. Dahlin was the Head of
Division Mobile Systems.

Gerhard Weise
Executive Vice President (since May 2001). Head of Market
Area Americas. Prior to assuming this position, Mr. Weise was
the Head of Market Area Latin America.

Carl Olof Blomqvist
Senior Vice President and General Counsel (since May 1999).
Corporate Function Legal Affairs. Prior to assuming this
position, Mr. Blomqvist was a partner of the Mannheimer
Swartling law firm.

Henry St(cid:142)nson
Senior Vice President (since May 2002). Corporate Function
Communications. Prior to assuming this position, Mr. St(cid:142)nson
was the Head of SAS Group Communication, SAS AB.

Torbj(cid:154)rn Nilsson
Senior Vice President (since October 1998). Corporate Function
Marketing and Strategic Business Development. Prior to
assuming this position, Mr. Nilsson was the Head of Strategic
Business Development, Mobile Systems.

Britt Reigo
Senior Vice President (since January 1988). Corporate Function
People and Culture. Prior to assuming this position, Mrs.
Reigo was the Director of Inflight Services, SAS AB.

74 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

D I R E C T O R S , S E N I O R M A N A G E M E N T A N D A U D I T O R S

Jan Uddenfeldt
Senior Vice President (since October 1998). Corporate Function
Technology. Prior to assuming this position, Mr. Uddenfeldt
was the Head of Technology and worldwide R&D Operations,
Mobile Systems.

Carl-Henrik Svanberg
As of April 8, 2003, Carl-Henric Svanberg will be appointed
President and Chief Executive Officer of Ericsson. Prior to
assuming this position, Mr. Svanberg has since 1994 been the
President and Chief Executive Officer of the Assa Abloy Group.

No member of the corporate management has a family
relationship with any Director or corporate management
member.

No member of corporate management has any principal

business activities other than those listed above, and no
member of corporate management has been appointed on
account of any arrangement or understanding with any major
shareholder, customer, supplier or other person.

BOARD PRACTICES
The Board designates, through a work procedure, how various
responsibilities will be distributed among the Board and its
committees and between the Board and the President. This
work procedure is revised and adopted by the Board at least
once a year. The Board has generally authorized each committee
to decide on certain issues and may also provide extended
authorization to a committee to decide on specific matters.

The Audit Committee consists of four directors appointed by

the Board. The present members are Sverker Martin-L(cid:154)f,
Chairman of the committee, Sir Peter L. Bonfield, Eckhard
Pfeiffer and Jan Hedlund. The Audit Committee is primarily
responsible for reviewing annual and interim financial
statements, overseeing the audit process, including audit fees,
resolving matters arising during the course of audits and
coordinating internal audit functions.

Pursuant to the Board(cid:213)s work procedure, the Audit
Committee reviews the audited financial statements with
management and the independent auditors, including the
conformity with generally accepted accounting principles. The
Audit Committee also reviews with management the
reasonableness of significant estimates and judgments made in
preparing the financial statements, as well as the quality of the
disclosures in the financial statements. In addition, the Audit
Committee reviews the auditors(cid:213) independence from
management and the company, including the impact of non-
audit-related services provided to the company.

The Finance Committee consists of four directors appointed

by the Board. The present members are Michael Treschow,
Chairman of the committee, Tom Hedelius, Marcus
Wallenberg and G(cid:154)ran Engstr(cid:154)m. The Finance Committee is
primarily responsible for handling matters regarding
acquisitions and divestments, capital contributions to

companies inside and outside the Ericsson group, raising of
loans, issuances of guarantees and similar undertakings and
approvals of financing support to customers in excess of USD 25
million, as well as continuously monitoring the group(cid:213)s
financial risk exposure.

The Remuneration Committee consists of four directors

appointed by the Board. The present members are Peter
Sutherland, Chairman of the committee, Lena Torell, Michael
Treschow and Per Lindh. The Remuneration Committee is
primarily responsible for reviewing and preparing proposals of
salary and other remuneration, including retirement
compensation, to the President, Executive Vice Presidents, and
other officers reporting directly to the President or the Chief
Operating Officer. These proposals are then presented to the
Board for resolution. In addition, the committee is responsible
for strategies and general guidelines with respect to employee
compensation, including incentive plans and retirement
compensation.

The Nomination Committee consists of Michael Treschow,
Chairman of the committee, and the following sharholder
representatives: Claes Dahlb(cid:138)ck, Investor, Anders Ek, Robur,
Anders Nyr(cid:142)n, Industriv(cid:138)rden and Lars Otterbeck, Alecta.

The main task of the committee is to nominate individuals

for election to the Board of Directors. The Nomination
Committee also prepares proposals concerning directors(cid:213) fees,
which are presented at the Annual General Meeting for
resolution, and presented in Note 26.

The Nomination Committee will propose for resolution by
the Annual General Meeting 2003 that the Chairman receives
an additional temporary remuneration of SEK 5.5 million for
each of the years 2002 and 2003.

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

Olof Herolf
Authorized Public Accountant, PricewaterhouseCoopers

Thomas Thiel
Authorized Public Accountant

Deputy auditors
Bo Hjalmarsson
Authorized Public Accountant, PricewaterhouseCoopers

Jeanette Skoglund
Authorized Public Accountant, PricewaterhouseCoopers

Stefan Holmstr(cid:154)m
Authorized Public Accountant

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 75

F I V E - Y E A R S U M M A R Y

Five-year Summary

SEK million

Net sales
Operating income
Financial net
Income before taxes
Net income

Year-end position
Total assets
Net Assets
Working capital
Capital employed
Tangible assets
Stockholders(cid:213) equity
Minority interests
Interest-bearing provisions and liabilities

Other information
Earnings per share, diluted, SEK2) 4) 6)

— in accordance with US GAAP, diluted2) 4) 6)

Cash dividends per share, SEK2) 4)
Stockholders(cid:213) equity (SEK per share)
Number of shares (in millions)

— outstanding, at end of period
— average, basic2) 4)
— average, diluted2) 4)

Additions to tangible assets
Depreciation on tangible assets
R&D and other technical expenses3)
— as percentage of net sales3)

Ratios
Return on equity
Retrun on capital employed
Equity ratio
Debt-equity ratio
Current ratio
Capital turnover
Inventory turnover
Accounts receivable turnover
Return on sales
Payment readiness

— as percentage of net sales

Net debt

Statistical data, year-end
Orders booked, net
Backlog of orders
Number of employees

— Worldwide
— Of which in Sweden

2002

20015)

20005)

19995)

19985)

145,773
— 21,299
—1,536
— 23,323
—19,013

208,267
76,076
73,694
136,693
9,964
73,607
2,469
60,617

—1.51
—1.58
01)
4.65

15,820
12,573
12,684
2,738
5,514
33,455
23.0%

— 26.7%
—11.4%
36.5%
0.8
1.7
1.0
5.1
3.1
—11.7%
67,152
46.1%
— 5,597

128,351
63,228

64,621
30,421

231,839
— 27,380
—1,774
— 30,309
— 21,264

257,521
72,240
104,998
162,119
16,641
68,587
3,653
89,879

—1.94
— 2.27
0
8.67

7,909
10,950
11,072
8,726
6,486
46,640
20.1%

— 26.5%
—14.3%
28.1%
1.2
1.7
1.5
4.8
3.4
— 9.7%
60,239
26.0%
20,955

221,477
87,414

85,198
37,328

273,569
30,828
—1,189
28,692
21,018

263,282
94,587
97,261
154,014
23,104
91,686
2,901
59,427

1.91
2.12
0.36
11.59

7,909
10,896
11,100
12,643
10,040
41,921
15.3%

26.1%
24.8%
35.9%
0.6
1.6
2.0
5.0
3.8
12.6%
23,567
8.6%
23,657

215,403
17,469
— 557
16,386
12,130

211,412
71,492
70,426
124,393
24,974
69,176
2,316
52,901

1.11
1.39
0.36
8.84

7,829
10,824
11,060
9,227
6,548
33,123
15.4%

18.3%
18.1%
33.8%
0.7
1.6
1.9
4.8
3.5
9.3%
24,389
11.3%
22,932

184,438
19,163
—127
18,210
13,041

172,658
65,295
53,434
96,934
22,746
63,112
2,183
31,639

1.20
1.42
0.36
8.09

7,805
10,801
11,060
9,016
5,567
28,027
15.2%

22.5%
24.1%
37.8%
0.5
1.6
2.0
4.2
3.6
11.8%
11,703
6.3%
12,949

292,344
101,215

105,129
42,431

223,828
83,976

103,290
44,040

187,415
78,990

103,667
44,979

1) For 2002, proposed by the Board of Directors.

2) 1998—1999 adjusted for 4-for-1 stock split.

3) 1998—2000 adjusted to exclude research and development costs regarding

customer orders included in cost of sales.

4) 1998—2001 adjusted for stock dividend element of stock issue.

5) Restated for changed accounting principles in Sweden 2002 regarding

consolidation of companies according to new RR1.

6) Potential ordinary shares are not considered when their conversion to

ordinary shares would increase earnings per share.

76 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

F I V E - Y E A R S U M M A R Y

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

Capital employed
Capital employed is defined as total assets less non-interest-
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 29 to the Financial
Statements.

Equity ratio
Defined as the total of stockholders(cid:213) 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(cid:213) equity and minority
interest in equity of consolidated subsidiaries.

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

Cash dividends per share
Defined as dividends paid divided by average number of shares,
basic.

Capital turnover
Net sales divided by average capital employed.

Stockholders(cid:213) equity (SEK per share)
Defined as Stockholders(cid:213) equity divided by the number of
shares outstanding.

Return on equity
Defined as net income expressed as a percentage of average
adjusted stockholders(cid:213) equity (based on the amounts at January
1 and December 31).

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).

Inventory turnover
Cost of sales divided by average inventory.

Accounts receivable turnover
Net sales divided by average accounts receivable.

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

Payment readiness
Defined as cash and short-term investments less short-term
borrowings plus long-term unused credit commitments.
Payment readiness is also shown as a percentage of net sales.

Net debt
Defined as total interest bearing liabilities less cash and short-
term investments.

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 77

R I S K F A C T O R S

Risk Factors

You should carefully consider all the information in this Annual
Report and, in particular, the risks outlined below.

RISKS ASSOCIATED WITH OUR BUSINESS
An extended downturn in the telecommunications industry
will continue to negatively impact our business and results
of operations.
We operate globally in the telecommunications markets and
are subject to conditions particular to the markets for
telecommunications infrastructure, equipment and services. As
2001, 2002 was a challenging year for the telecommunications
industry. We reported a SEK 19.0 billion net loss in 2002. The
beginning of 2003 has shown no signs of improvement and the
near term market outlook still remains uncertain. The
development in the telecommunications industry effects our
ability to achieve our financial goal of returning to profit at
some point in 2003. Currently, the timing and strength of
recovery of the markets in which we operate is highly
unpredictable. If the telecommunications markets continue to
show slow or negative growth, our business will continue to be
negatively impacted.

We are subject to the impact of economic conditions in
areas in which we operate.
Current conditions in many of the large economies in which we
operate and the global economy remain very uncertain. As a
result, it is difficult to estimate the global and regional
economic development. Currently our business is negatively
affected by the unfavorable conditions in Latin America. The
future direction of the overall local and global economies,
including changes in fiscal, monetary and regulatory policies
worldwide may have a significant impact on our overall
performance.

Many of our customers have reduced and are continuing
to reduce capital expenditure and, as a result, demand for
our systems and network roll-out services have declined
and may continue to decline.
Many of our current and potential customers are network
operators with high levels of indebtedness and, in some cases,
emerging or weak revenue streams. Adverse economic
conditions, network over-capacity due to excess build-out, lack
of funding for telecom development and overspending on
license fees have forced network operators to undertake
restructuring and cost-cutting initiatives. In light of market
conditions, many of our customers delayed delivery of orders
previously placed and implemented drastic reductions in
capital expenditure in 2002 as compared to 2001 and even more
so in comparison with 2000, and may continue to further
reduce capital expenditure. As a result, demand for our systems
and network roll-out services has declined. If the demand for

our systems and services weakens further or remains weak on
account of the financial condition of our customers, market and
industry conditions or otherwise, this is likely to have a
material adverse effect on our business, results of operations and
financial condition.

We may experience greater variability in our operating
results than in the past and may have increased difficulty in
accurately predicting future operating results.
Our business is subject to a wide variety of factors that impact
our quarterly and annual operating results from period to
period. The current economic slowdown in certain regions and
uncertainties in the telecommunications market may continue
to negatively impact the timing of network capacity build-
outs, including the introduction of new technologies such as
3G. As a result, our operating results may fluctuate
significantly from period to period and possibly more than they
have historically.

In addition, uncertainties arising from these factors, in

particular during difficult economic conditions, make
preparing estimates of our future operating results even more
difficult than usual and may lead us to revise our estimates
and/or strategies more frequently than in the past. As a result,
any of these factors could have a material adverse impact on our
operations such that the results of operations for any period will
not necessarily be indicative of results to be expected in future
periods.

We may be adversely affected by the significant changes
that we expect in the wireless telecommunications
industry. In particular, the 3G technologies, WCDMA, EDGE
and CDMA2000, may not become commercially
successful, which could be detrimental to our competitive
and financial position.
The wireless telecommunications industry is undergoing
significant changes. These include the continuation of digital
upgrades in existing analog wireless systems, evolving industry
standards, ongoing improvements in the capacity and quality
of digital technology, the integration of wireless and wireline
services, shorter development cycles for new services, evolution
to 3G standards and changes in end-user needs and preferences.
In general, this causes uncertainty over future demand for our
systems, products and services and the prices that we will be
able to charge for these systems, products and services.

A selected number of service providers have introduced new
3G services and serveral others have announced that they intend
to introduce 3G services in the future. We expect that 3G
services will combine the attributes of faster speed, greater data
capability, better portability and greater functionality. WCDMA
is a 3G technology developed by us and others, which enables
wideband digital radio communications. WCDMA has been

78 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

selected for the third generation of mobile telephone systems in
Europe, Japan and, to a lesser extent, the United States and
other markets. EDGE and CDMA2000 are technologies
developed to increase the capacity of and transmission speed of
existing 2G networks to 3G standards.

However, there are competing technological standards and
several options within each standard, and there could be vendor-
proprietary variations and rapid technological innovation in
connection with 3G roll-outs in various locations around the
world. Moreover, other technologies, such as wireless local area
networks, could provide additional competition for some
services. If any or all of these alternative 3G technologies were to
become commercially successful, we may not be able to shift
our technology focus quickly or efficiently enough to
successfully compete. Technological changes can also affect the
price we are able to obtain for systems and services.
Accordingly, there can be no assurances that technological
changes will not materially adversely affect us.

We engage in customer finance, which exposes us to
certain credit and other risks regarding our customers.
Some of these customers do not yet have established
revenue streams.
For a discussion of our customer finance arrangements, see
(cid:210)Treasury and Customer Finance — Financial Risk
Management, Credit Risk(cid:211).

As reflected in that section, our customer finance

arrangements make us vulnerable to adverse changes in our
customers(cid:213) businesses and expose us to credit risks. The risks
may be significant, particularly in relation to network operators
with limited experience or no proven track record. While we
evaluate our customer credits on a regular basis, defaults on our
customer financing could occur for reasons beyond our control
and could result in restructuring of the financing arrangements
or credit losses. Such an event could have a material adverse
effect on our business, results of operations or financial
condition.

Failure to successfully implement our cost reduction
measures may adversely affect our financial results.
During 2002, we announced the implementation of significant
further cost reduction measures in connection with our first
quarter results. Together with the savings under the (cid:210)Efficiency
Program(cid:211), adopted in 2001, we expect all these measures to
have the effect of decreasing our annual level of operating
expenses by approximately SEK 50 billion, as compared to the
beginning of 2001, when fully implemented by the end of
2003. These anticipated cost savings are based on our estimates,
however, and may not materialize. In addition, our cost
reduction measures are based on current conditions and do not
take into effect future cost increases that may result from
changes in our industry or operations, including new business
developments, wage and price increases or other factors. Our
failure to successfully implement these planned cost-reduction

R I S K F A C T O R S

measures or the potential that these efforts may not generate
the level of cost savings we expect going forward, could
negatively impact our financial results as well as our ongoing
operations.

Our financial instruments contain rating triggers, financial
ratios and other covenants that may affect our access to
and cost of funds.
For a discussion of debt facilities that are impacted by changes
in our credit rating or our compliance with financial ratios or
other covenants see (cid:210)Treasury and Customer Finance —
Financial Risk Management, Funding and Liquidity Risk(cid:211).

As reflected in that section, our long-term credit rating was
downgraded several times during 2002, thereby limiting our
access to funding and increasing our funding costs. Our current
long-term credit rating, February 2003, is B1 (Moody(cid:213)s) and BB
(Standard & Poor(cid:213)s). If we are unable to avoid further
downgrading or comply with these financial ratio or other
covenants, we may need to repay or refinance the related debt
and/or other debt which contains cross-default provisions. We
cannot assure you that we in such a situation would be able to
refinance our indebtedness or obtain additional funding.

Our access to short term funding has decreased and may
continue to decrease or become more expensive as a
result of or operational and financial conditions and
market conditions.
For a discussion of our access to short term funding see
(cid:210)Treasury and Customer Finance — Financial Risk
Management, Funding and Liquidity Risk(cid:211).

Our commercial paper and other short term debt is currently

rated B (Standard & Poor(cid:213)s) and Not Prime (Moody(cid:213)s). Our
credit rating and the number of large commercial paper issuers
whose recent credit downgrades have placed them in this
market may restrict our access to short-term credit. At the end
of 2002, we had no outstanding commercial paper and we
cannot assure you that we will have access to the commercial
paper market in the future.

Our business has substantial cash requirements and we
may require additional sources of funds if our current
sources are unavailable or insufficient to satisfy these
requirements, and we cannot assure you that these
additional sources of funds will be available or available on
reasonable terms.
We have substantial cash requirements in connection with our
operations, research and development, capital expenditure, cost
reduction measures, customer financing programs and debt
service obligations. If the cash we generate from our operations
or that we can access under our credit facilities or from other
sources is not available when needed or is insufficient to satisfy
our requirements, we may require additional sources of funds.
We cannot assure you that any required additional sources of
funds would be available or available on reasonable terms,

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 79

R I S K F A C T O R S

particularly in light of our existing debt levels and credit
ratings. If we do not generate sufficient amounts of capital to
support our operations, service our debt, continue our research
and development and customer financing programs or we do
not generate sufficient amounts of capital at the times and on
the terms required by us, our business will likely be adversely
affected.

Our A shareholders have voting control over the company.
Under our current capital structure, each A share has a
thousand times the voting power of each B share. Accordingly,
as of December 31, 2002, our A shareholders held 4.1 percent of
our capital stock and 97.7 percent of our voting rights. Of our
two largest shareholders, based on voting rights, Investor AB
held 5.3 percent of our capital stock and 38.3 percent of our
voting rights and AB Industriv(cid:138)rden held 2.5 percent of our
capital stock and 27.7 percent of our voting rights as of
December 31, 2002. As a result, our A shareholders, and in
particular Investor AB and AB Industriv(cid:138)rden, have the ability
to exert significant influence over certain actions requiring
shareholder approval, including the election of directors and
appointment of officers, and may have the ability to influence
our policy. As such, decisions made by Investor AB or AB
Industriv(cid:138)rden may influence our business, results of operations
and financial condition.

The telecommunications market is undergoing
consolidation, which increases our dependence on key
customers.
Many significant participants in the telecommunications
market are merging and consolidating as a result of competitive
pressures, and we expect this trend to continue. This
consolidation process will likely decrease the number of
potential significant customers for our systems and services. For
the year ended December 2002, our ten largest customers
accounted for almost 50 percent of our net sales and our 20
largest customers accounted for approximately 75 percent of our
net sales. Fewer significant customers will increase our reliance
on key customers and, due to the increased size of these
companies, may negatively impact our bargaining position and
profit margins. The loss of, or a reduced role with, a key
customer due to industry consolidation could negatively
impact our business, results of operations and financial
condition.

We are dependent on developing new products, which are
complex and may not be successful in the market.
Product life cycles in our industry can be short and therefore we
expend considerable resources in product development and are
actively engaged in designing new products and solutions and
updating our existing products and solutions. Introducing new
products requires significant management time and a high
level of financial and other commitments to research and
development and may not always result in success. Many of our
products incorporate advanced technologies, such as 3G
technologies, that are untested or are undergoing testing. Our
development of new products may also require us to license
third-party technologies and successfully integrate such
technologies with our products, which may add to the already
large cost of bringing a new product to market. We are also
actively engaged in the development of technology standards,
such as WCDMA, EDGE, CDMA2000 and Bluetooth, which we
are incorporating into our products and systems. In order to be
successful, those standards must be accepted by relevant
standardization bodies and by the industry as a whole. Our
sales and earnings may suffer if we invest in developing and
marketing technologies and technology standards that do not
function as expected, are not adopted in the industry or are not
accepted in the marketplace within the timeframe we expect, or
at all.

We operate in the highly competitive telecommunications
markets and our profitability will be affected if we are not
able to compete effectively.
The markets for our products are highly competitive in terms
of pricing, product and service quality, the timing of
development and introduction of new products, customer
service and terms of financing. We face intense competition
from significant competitors. Our competitors may implement
new technologies before we do, allowing them to offer more
attractively priced or enhanced products, services or solutions
than we provide. Some of our competitors may have greater
resources in certain business segments or geographic markets.
We may also encounter increased competition from new market
entrants, alternative technologies or alternative
telecommunications platforms. Our operating results depend to
a significant extent on our ability to compete in this market
environment, in particular on our ability to adapt to changes in
the markets to introduce new products to the market and to
reduce the cost of new and existing products.

80 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

We have certain long-term contracts, which expose us to
risks of cost overruns and extended payment terms.
We currently have certain long-term contracts under which the
prices are reduced during the life of the contract, according to a
pre-negotiated schedule. These long-term contracts are
typically awarded on a competitive bidding basis and the profit
margins on these contracts may vary from the original
estimates as a result of changes in estimated costs, productivity,
specifications or timing. In addition, these contracts frequently
include extended payment terms, which will require us to
recover costs incurred in performing these contracts over the
term of the contract. These contracts generally also provide for
penalties and termination rights in the event of our failure to
deliver on time or if our products do not perform. Should any of
these contracts become unprofitable or be terminated due to
any or several of these reasons, our operating results will be
negatively impacted.

If our outside suppliers fail to deliver satisfactory
components and manufacturing services on time, our
financial results could be negatively impacted.
We are dependent on our suppliers to obtain timely and
adequate delivery of components and manufacturing services.
As part of our current business strategy, we have outsourced
substantially all of our mass production manufacturing. If we
are unable to identify manufacturers who are willing to
contract with us on competitive terms and devote adequate
resources to fulfill their obligations to us, or if we do not
properly manage these relationships, our customer
relationships, reputation or competitiveness may suffer.

We have experienced component shortages in the past that

have adversely affected our operations. Although we work
closely with our suppliers to avoid shortages and to arrange for
alternative sources of supply, we cannot assure you that we will
not experience component shortages in the future. We also rely
on a limited number of suppliers for a number of our
components, as well as a core group of electronics
manufacturing services (EMS) companies for the manufacture of
our products, which increases our dependence on these
suppliers. A reduction or interruption in component supply, a
significant increase in the price of one or more components or
manufacturing services or constraints on our suppliers(cid:213) capacity
during periods of significant demand could have a material
adverse effect on our business, results of operations or financial
condition.

R I S K F A C T O R S

Liability claims related to and public perception of the
potential health risks associated with electromagnetic
fields may negatively impact our business.
We are subject to claims that mobile handsets and other
telecommunications devices that generate electromagnetic
fields expose users to health risks. At present, a substantial
number of scientific studies conducted by various independent
research bodies have indicated that electromagnetic fields, at
levels within the limits prescribed by public health authority
safety standards and recommendations, cause no adverse effect
to human health. However, any perceived risk or new scientific
findings of adverse health effects of mobile communication
devices and equipment could adversely affect us through a
reduction in sales. Although we comply with all current safety
standards and recommendations regarding electromagnetic
fields, we cannot assure you that we will not become the
subject of product liability claims or be held liable for such
claims or be required to comply with future regulatory changes
that may have an adverse effect on our business.

Our business and results of operations will be harmed if
we are found to have infringed intellectual property rights
of third parties, or if we are unable to protect our
intellectual property rights from challenges or
unauthorized third party use.
Like other companies operating in the telecommunications
industry, because our products comprise complex technology,
we experience litigation regarding patent and other intellectual
property rights. Third parties have asserted, and in the future
may assert, claims against us alleging that we infringe their
intellectual property rights. If we do not succeed in any such
litigation, we could be required to expend significant resources
to pay damages, develop non-infringing products/technology or
to obtain licenses to the products/technology, which is the
subject of such litigation. However, we cannot be certain that
any such licenses, if available at all, will be available to us on
commercially reasonable terms. Also, defending these claims
may be expensive and divert the efforts of our management and
technical personnel. In particular, we are currently party to two
unrelated lawsuits where plaintiffs allege that we have
infringed one or more of their U.S. patents through our sales of
certain GSM and TDMA products in the United States. While
we are confident that we will prevail in each of these two
lawsuits, there can be no assurances thereof. If we do not
prevail, we may have to expend significant resources to pay
damages and we could be enjoined in the United States from
selling any products found to infringe unless we either modify
those products or obtain licenses to the patents found to be
valid and infringed.

In addition, third parties may attempt to appropriate our
confidential information and proprietary technologies and
processes used in our business, which we may be unable to
prevent. Existing laws of some countries in which we conduct
business may offer only limited protection of our intellectual

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 81

well as the orders and services network operators place with or
require from suppliers of network systems and services such as
us. Similarly, tariff regulation that adversely affects the pricing
of new services could affect the sales of our systems and services.
Environmental, health and safety and privacy regulations may
increase costs and restrict operations of telecommunications
companies and network operators. The indirect impact of these
changes in regulation could affect our business adversely even
though the specific regulations do not directly apply to us or
our products.

We are subject to regulatory, foreign exchange and other
risks associated with international operations.
We conduct business in over 140 countries around the world
with the majority of our sales originating from countries in
Western Europe and the Asia Pacific region. Changes in
regulatory requirements, tariffs and other trade barriers, price
or exchange controls or other governmental policies in the
countries in which we conduct business could limit operations
and make the repatriation of profits difficult. In addition, the
uncertainty of the legal environment in some regions could
limit our ability to enforce our rights. Our results could also be
materially adversely affected by weak economic conditions in
countries in which we do significant business as well as by
changes in foreign currency exchange rates, which can
introduce significant volatility to our rates of growth. We also
have extensive operations in emerging markets such as China,
Latin America, the Middle East and Africa which involves
certain risks, including volatility in gross domestic product,
civil disturbances, economic and governmental instability,
nationalization of private assets and the imposition of exchange
controls. Please see (cid:210)Treasury and Customer Finance — Financial
Risk Management, Market Risk(cid:211).

We are dependent upon hiring and retaining highly
qualified management and other employees.
Our future success depends in part on our continued ability to
hire, develop, motivate and retain engineers and other qualified
personnel needed to develop successful new products, support
our existing product range and provide services to our
customers. There can be no assurance that we will continue to
be successful in attracting and retaining highly qualified
employees in the future, especially in light of our prior and
planned headcount reductions.

R I S K F A C T O R S

property rights, if at all. We rely upon a combination of trade
secrets, confidentiality policies, nondisclosure and other
contractual arrangements, and patent, copyright and trademark
laws to protect our intellectual property rights; however, the
steps we take in this regard may not be adequate to prevent or
deter infringement or other misappropriation of our
intellectual property, and we may not be able to detect
unauthorized use or take appropriate and timely steps to
enforce our intellectual property rights.

If our mobile handset joint venture arrangement with Sony
or other arrangements with strategic partners do not
progress as planned, our business could be negatively
impacted.
In 2001, we formed Sony Ericsson Mobile Communications, a
joint venture with Sony Corporation for the development,
design, sales and distribution of mobile handsets, to which we
transferred substantially all of our handset business. If this joint
venture is unsuccessful on account of unsuccessful or delayed
product development, limited market acceptance of new
products or for any other reason, we may not be able to
compete successfully or at all in the mobile handset market. For
example, the delayed launch of the joint venture(cid:213)s R600
handset had a negative impact on its second quarter 2002
results. We have also entered into other strategic development
arrangements with third parties, typically involving the
contribution by each party of various resources including
technology, research and personnel, and we may continue to do
so in the future. If these arrangements do not develop as
expected, whether as a result of having incorrectly assessed our
needs or the capabilities of our strategic partners, our ability to
work with joint venture partners or otherwise, our ability to
develop new products and solutions may be constrained and
this may harm our competitive position in the market.
Additionally, charges relating to our portion of any losses from,
or commitments to contribute additional capital to, joint
ventures may adversely affect our financial condition or results
of operations.

Changes to the regulatory environment for
telecommunications systems and services could
negatively impact our business.
Our industry is heavily regulated, and both our customers and
we may be affected by changes in regulation of
telecommunications systems and services. For example, changes
in regulation that impose more stringent, time-consuming or
costly planning, zoning or building approval requirements
regarding the construction of base stations and other network
infrastructure could adversely affect the timing and costs of
new network construction or expansion and the commercial
launch and ultimate commercial success of these networks.
Expensive government license fees can cause network operators
to incur substantial indebtedness and fundamentally affect
operators(cid:213) businesses, profitability and financial condition, as

82 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

R I S K F A C T O R S

Currency fluctuations may adversely affect the trading
prices of our B shares and ADSs and the value of any
distributions we make thereon.
Because our B shares are quoted in domestic currencies on local
exchanges and the ADSs are quoted in USD, fluctuations in
exchange rates between the SEK and currencies in which the B
shares or ADSs are quoted may affect the value of your
investment. In addition, because we pay cash dividends in
Swedish kronor, fluctuations in exchange rates may affect the
value of distributions if your arrangements with your bank,
broker or depositary, in the case of ADSs, call for distributions
to you in local currencies.

Please refer to (cid:210)Treasury and Customer Finance — Financial

Risk Management, Market Risk(cid:211).

RISKS ASSOCIATED WITH OUR SHARES
Our share price has been and may continue to be volatile.
Our share price has been volatile due in part to the high
volatility in the securities markets generally, and in
telecommunications and technology companies(cid:213) shares in
particular, as well as developments from quarter to quarter
which impact our financial results. Factors other than our
financial results that may affect our share price include but are
not limited to:

¥ market expectations of the performance and capital spending

plans of network operators;

¥ the level of business activity or perceived growth in the
market for telecommunications services in general;

¥ investor perception of, as well as the actual performance of,
other telecommunications and technology companies;
¥ a downgrade or rumored downgrade of our credit ratings;
¥ announcements by our key customers or announcements

concerning financial difficulties for customers for whom we
have provided financing or with whom we have entered into
material contracts;

¥ announcements by our key competitors concerning the award
of large supply agreements or contracts for network roll-out;

¥ potential litigation involving ourselves or the industries in

which we operate;

¥ announcements concerning the bankruptcy or other similar
reorganization proceedings involving, or any investigations
into the accounting practices of, other telecommunications
companies;

¥ technical problems, in particular those relating to the

introduction and viability of 3G;

¥ a change in end-user sentiment or their adverse view of newly

introduced technology or services;

¥ announcements concerning the relative success of or

timetables for 3G mobile networks, systems and services; and

¥ general market volatility.

E R I C S S O N —

A N N U A L R E P O R T 2 0 0 2 83

S H A R E I N F O R M A T I O N

Share Information

Stock exchange trading
Ericsson(cid:213)s Series A and Series B shares are traded on Stockholm
Stock Exchange (OM Stockholmsb(cid:154)rsen), and the Series B
shares are also traded on the exchanges in D(cid:159)sseldorf,
Frankfurt, Hamburg and London.

On October 18, 2002, the Ericsson Board authorized the
President and CEO to apply for and execute de-listing of the
Ericsson B-share from Euronext (Paris), the German Stock
Exchanges (D(cid:159)sseldorf, Frankfurt and Hamburg) and the
(cid:210)Swiss Exchange(cid:211). On December 20, 2002, we de-listed from
the (cid:210)Swiss Exchange(cid:211), and on February 17, 2003, we de-listed
from Euronext. De-listing also started in Germany.

In the United States, the B shares are traded on Nasdaq in
the form of American Depositary Shares (ADS) evidenced by
American Depositary Receipts (ADR). On October 18, 2002,
the Board of Directors authorized a 1:10 change in the ratio of
its American Depositary Shares (ADS) as they relate to its Series
B-shares. This means that each ADR represents 10 Series B
shares. The change was made in order to comply with the
listing requirements of the Nasdaq National Market and it
became effective on October 23, 2002.

More than 54 billion shares were traded in 2002, of which
about 70 (59) percent were traded on OM Stockholmsb(cid:154)rsen,
9 (14) percent on Nasdaq, and 21 (27) percent on the London
Stock Exchange. As last year, trading on other exchanges
amounted to about 1 percent of the total.

Share price trend
The total market value of our shares decreased by about 79
percent in 2002 to approximately SEK to 98 billion. The
Stockholmsb(cid:154)rsen OMX index decreased by 42 percent, the
NASDAQ telecom index decreased by 54 percent and the
NASDAQ composite index decreased by 32 percent in 2002.
The Ericsson share decreased almost 88 percent on Nasdaq.

Share capital
As of December 31, 2002, Ericsson(cid:213)s share capital consisted of
SEK 15,974,258,678 (8,065,504,007) represented by
15,974,258,678 shares. The par value of each share is SEK 1.00.
As of December 31, 2002 the shares were divided into
656,218,640 Series A shares, each carrying one vote, and
15,318,040,038 Series B shares, each carrying one-thousandth of
a vote. During the year 2002, 7,908,754,111 new Series B shares
were issued. During the period January 1 to January 23, 2003
no additional conversions related to the convertible debentures
from 1997 were made.

Share trend, Stockholmsb(cid:154)rsen

200(cid:13)

150(cid:13)

100(cid:13)

50(cid:13)

1998(cid:13)

1999(cid:13)

2000(cid:13)

2001(cid:13)

2002(cid:13)

OMX index

B share (SEK)(cid:13)

84 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

(cid:13)
(cid:13)
(cid:13)
(cid:13)
S H A R E I N F O R M A T I O N

S H A R E I N F O R M A T I O N

Share data

Earnings per share, diluted (SEK)2) 3)
P/E ratio, B shares
Dividend (SEK)1)

Share prices on Stockholmsb(cid:154)rsen (SEK)
A at last day of trading
B at last day of trading
B high for year
B low for year

1) For 2002 as proposed by the Board of Directors

2) 1998—1999 adjusted for 4-for-1 stock split

3) 1998—2001 adjusted for stock dividend element of stock issue

Changes in capital stock 1998—2002

January 1
Stock dividend

1998
1998
1998 Conversions
1999 Conversions
Stock dividend
2000
2000
Split
2000 Conversions
2001 Conversions
2001 New issue
2002 Conversions
2002
Stock issue
2002 December 31

2002

—1.51
—
0

8.60
6.10
44.78
2.96

2001

—1.49
—
0

42.25
41.53
88.11
23.18

2000

1.91
40
0.36

88.17
78.00
166.83
72.94

1999

1.11
89
0.36

104.00
98.94
103.28
31.78

1998

1.20
29
0.36

37.56
34.67
48.39
21.67

1:1

4:1

Number of shares

Capital stock

974,496,059
975,097,150
1,759,181
5,786,131
—
5,883,316,821
69,880,270
168,395
155,000,000
560
7,908,754,111
15,974,258,678

2,436,240,148
2,437,742,875
4,397,952
14,465,328
2,941,658,410
—
75,830,899
168,395
155,000,000
560
7,908,754,111
15,974,258,678

E R I C S S O N — A N N U A L R E P O R T 2 0 0 2 85

S H A R E I N F O R M A T I O N

Shareholders
As of Jan 31, 2003 we had 975,654 number of shareholders
registered at VPC (the Swedish Securities Register Center).
According to information provided by Citibank, there were
151,811,927 ADSs outstanding as of January 31, 2003 and 4,894
registered holders of such ADSs. A significant number of the
ADSs are held of record by broker nominees. The majority of
ADRs are held at the beneficial shareholder level (i.e. banks,
brokers and/or nominee accounts). As of January 31, 2003, this
level is represented by over 377,000 accounts.

According to information known to us, approximately 78
(85) percent of our A and B shares at year-end 2002, were owned
by Swedish and international institutions.

Sweden
United States
United Kingdom
Luxembourg
Switzerland
Belgium
Germany
Other countries

Year end, 2002

Year end, 2001

52%
23.8%
3.3%
3.3%
2.0%
1.3%
1.1%
13.2%

52%
25.4%
4.7%
4.5%
3.3%
1.6%
3.0%
7.1%

The following table sets forth as of December 31, 2002, share
information with respect to our largest shareholders registered
at VPC the Swedish Securities Register Center, known by us,
ranked by percentage of voting rights:

Largest shareholders by voting rights, December 31, 2002

Identity of
person or group1)

Investor AB
AB Industriv(cid:138)rden
Svenska Handelsbankens Pensionsstiftelse
Livf(cid:154)rs(cid:138)krings AB Skandia
Pensionskassan SHB F(cid:154)rs(cid:138)kringsf(cid:154)rening
Gamla Livf(cid:154)rs(cid:138)kringsaktiebolaget SEB-Trygg
Stiftelsen Oktogonen
Svenska Handelsbankens Personalstiftelse
EB-stiftelsen Skandinaviska Enskilda Banken
Fj(cid:138)rde AP-fonden
F(cid:154)rsta AP-fonden
Tredje AP-fonden
Svenska Handelsbanken
SEB fonder
Astoria i Link(cid:154)ping AB
Foreign ownership2)
Others

Number of
A-shares

256,660,096
186,000,000
35,500,000
32,962,932
31,680,000
12,979,720
12,903,000
10,000,000
7,779,200
2,191,000
2,191,000
1,876,900
1,462,000
551,274
720,000
6,482,117
54,279,401

Percentage
of total
A-shares

39.11
28.34
5.41
5.02
4.83
1.98
1.97
1.52
1.19
0.33
0.33
0.29
0.22
0.08
0.11
0.99
8.27

Number of
B-shares

595,587,036
213,539,276
35,500,000
253,476,027
31,680,000
134,742,280
12,903,000
10,000,000
8,679,200
248,824,000
213,113,286
207,501,471
9,451,920
245,061,196
3,286,612
6,142,074,502
6,952,620,232

Percentage
of total
B-shares

Voting
rights, Percentage
of capital

percent

3.89
1.39
0.23
1.65
0.21
0.88
0.08
0.07
0.06
1.62
1.39
1.35
0.06
1.60
0.02
40.10
45.39

38.31
27.73
5.29
4.95
4.72
1.95
1.92
1.49
1.16
0.36
0.36
0.31
0.22
0.12
0.11
1.88
9.12

5.34
2.50
0.44
1.79
0.40
0.92
0.16
0.13
0.10
1.57
1.35
1.31
0.07
1.54
0.03
38.49
43.86

Total

656,218,640

100.00

15,318,040,038

100.00

1) According to SIS Ägarservice AB, on December 30, 2002

2) Of which Nats Cumco as Nominee

(Total amount of ADR’s listed on NASDAQ. 1 ADR = 10 B shares.)

1,500,987,451

86 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

S H A R E I N F O R M A T I O N

The following table indicates the significant changes in the
voting rights for class A and B shares, respectively, held by
major shareholders as of December 31, 2000, 2001 and 2002.

Person or group
(percent of voting rights)

2002

2001

2000

A shares

B shares

A shares

B shares

A shares

B shares

Investor AB
AB Industriv(cid:138)rden
Wallenberg-stiftelser
Svenska Handelsbankens Pensionsstiftelse
Livf(cid:154)rs(cid:138)krings AB Skandia
Pensionskassan SHB F(cid:154)rs(cid:138)kringsf(cid:154)rening
Gamla Livf(cid:154)rs(cid:138)kringsaktiebolaget SEB-Trygg
Oktogonen, Stiftelsen
Svenska Handelsbankens Personalstiftelse
SEB-stiftelsen Skandinaviska Enskilda Banken
Fj(cid:138)rde AP-fonden
F(cid:154)rsta AP-fonden
Tredje AP-fonden
Svenska Handelsbanken
Astoria i Link(cid:154)ping AB
SEB fonder
SHB Fonder
Wallanders och Hedelius’ stiftelse
Andra AP-fonden
Foreign ownership
Others

39.11
28.34
—
5.41
5.02
4.83
1.98
1.97
1.52
1.19
0.33
0.33
0.29
0.22
0.11
0.08
—
—
—
0.99
8.27

3.93
1.41
—
0.23
1.67
0.21
0.89
0.09
0.07
0.06
1.64
1.41
1.37
0.06
0.02
1.62
—
—
—
40.51
44.83

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

1.74
0.04
—
0.00
1.20
0.00
0.75
0.00
0.00
0.00
1.39
1.07
0.84
—
—
—
1.10
0.00
1.10
53.29
37.48

22.48
28.34
16.64
5.49
5.02
4.83
1.84
1.91
1.52
1.71
1.34
—
—
—
—
—
0.62
0.49
—
1.28
6.49

1.74
0.00
0.00
0.08
0.61
0.00
0.72
0.00
0.00
0.00
4.04
—
—
—
—
—
0.65
0.00
—
59.07
33.09

Total

100.00

Source: SIS Ägarservice AB.
We do not know of any arrangements that might result in a change of the control of the Company. As of December 31, 2002, the
total number of voting securities of the Company owned by officers and directors as a group was:

Officers and directors
as a group (25 persons)

6,080

2,372,125

Insignificant

Number of A shares

Number of B shares

Voting rights, percent

E R I C S S O N —

A N N U A L R E P O R T 2 0 0 2 87

Financial information from Ericsson
¥ Interim report January — March 2003:

¥ Interim report January — June 2003:

¥ Interim report January — September 2003:

¥ Full year report January — December 2003:

April 29, 2003

July 18, 2003

October 30, 2003

January, 2004

March, 2004

¥ Annual report and form 20-F for US Market 2003:

Annual reports and financial reports can be downloaded
or ordered on our web site: www.ericsson.com/investors
or ordered via e-mail or post.

For printed publications, contact:

Pressdata AB, P.O. Box 3263, SE-103 65 Stockholm, Sweden.
Phone +46 8 799 6328, email: annual.report@pressdata.se.
In the US, printed copies are available from Citibank

Shareholder Services, phone toll-free 1 877 881 5969,
e-mail: ericsson@em.fcnbd.com

Contact information:
Investor Relations for Europe, Middle East, Africa
and AsiaPacific:
Telefonaktiebolaget LM Ericsson
SE-126 25 Stockholm
Sweden
Telefon: +46 8 719 0000
E-mail: investor.relations@lme.ericsson.se

Investor Relations for the Americas:
Ericsson Inc.
100 Park Avenue, 27th floor
New York, NY 10017
USA
Telephone: +1 212 685 4030
E-mail: investor.relations@ericsson.com

S H A R E H O L D E R I N F O R M A T I O N

Shareholder Information

The Annual General Meeting will be held at the Globe Arena,
Globentorget, Stockholm, at 4.00 p.m. on Tuesday, April 8,
2003.

Shareholders intending to participate in the Annual General

Meeting must be entered as shareholders in the share register
maintained by VPC AB (Swedish Securities Register Center)
not later than March 28, 2003.

A shareholder whose shares are registered in the name
of a trustee must be temporarily entered in the share register
not later than March 28, 2003, 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
P.O. Box 47021
SE-100 74 Stockholm
Sweden

Telephone:
+46 8 775 4455 between 10 a.m. and 4 p.m.,
fax +46 8 775 8018,
or via the company(cid:213)s web site www.ericsson.com/investors
no later than 4.00 p.m. Wednesday, April 2, 2003.

Proxy
In order to attend and vote as proxy on behalf of a shareholder
at the Meeting, a power of attorney must be presented to the
Company, preferably at the above address not later than April 7,
2003.

Dividend
The Board of Directors and the President have decided
to propose to the Annual General Meeting that no dividend
is paid for year 2002.

88 E R I C S S O N — A N N U A L R E P O R T 2 0 0 2

Project management: Ericsson Corporate Financial Reporting and Analysis
Design and production: Paues Media, Stockholm
Production coordinator: Aralia, Stockholm
Reprographics: Scarena, Stockholm
Printing: Christer Persson Tryckeri AB, K(cid:154)ping, Sweden

EN/LZT 108 6489 R1A ' Telefonaktiebolaget LM Ericsson 2003

ISSN 1100 - 8962

Telefonaktiebolaget LM Ericsson
SE-126 25 Stockholm

Printed on paper that meets international environmental standards; Munken
Lynx, especially produced for Ericsson, is TCF, Totally Chlorine Free.