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ERICSSON ANNUAL REPORT 2007
EVERY MOMENT COUNTS
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
www.ericsson.com
Printed on Amber Graphic and Holmen Ideal Volume
– chlorine free paper that meets international environmental standards
EN/LZT 108 9753 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2008
Stockholm, Sweden
Connecting with friends
Alfa Indah, Sumatra, Indonesia
Delivering an order received via mobile phone
Singapore
Keeping in touch with relatives in New York
Glossary
Annual Report 2007
Operational Review
1
25 Letter from the Chairman
26 Board of Directors' Report*
45 Consolidated Financial Statements*
49 Notes to the Consolidated Financial Statements*
105 Risk Factors*
111 Parent Company Financial Statements*
116 Notes to the Parent Company Financial Statements*
134 Auditors' Report
135 Share Information
140 Shareholder Information
141 Remuneration
145 Information on the Company
155 Forward-looking Statements
156 Corporate Governance Report 2007
176 Financial Terminology and Glossary
Annual publications
The Ericsson Annual Report describes Ericsson’s financial and operational performance during
2007. This publication includes a Corporate Governance Report.
The Ericsson Summary Annual Report is an extract of the full Annual Report. We issue a separate
Corporate Responsibility Report. Our website www.ericsson.com is updated on a regular
basis and contains information about the Company, including downloadable versions of each of
the above reports.
* Chapters covered by the Auditors' Report
2G
First digital generation of
mobile systems, includes GSM,
TDMA, PDC and cdmaOne.
3G
3rd generation mobile system,
includes WCDMA/HSPA, EDGE,
CDMA2000 and TD-SCDMA.
All-IP
A single, common IP infrastructure
that can handle all network services,
including fixed and mobile communi-
cations, for voice and data services
and also video services such as TV.
ARPU
Average Revenue Per User.
Broadband
Data speeds that are high enough
to allow transmission of multimedia
services with good quality.
Centrex solutions
Centrex is a telephony service for enter-
prises, delivered by a service provider.
Downlink
= to your device.
DSL access
Digital Subscriber Line technologies
for broadband multimedia com-
munications in fixed line telephone
networks. Examples: IP-DSL, ADSL
and VDSL.
EDGE
Third generation mobile standard,
developed as an enhancement of
GSM. Enables the transmission of
data at speeds up to 250 kbps.
Emerging market
Defined as a country that has a GNP
per capita index below the World
Bank average and a mobile subscrip-
tion pene tration below 60 percent.
IMS
(IP Multimedia Subsystem)
A standard for offering voice and
multimedia services over mobile
and fixed networks using Internet
technology (IP).
IP
(Internet Protocol) Defines how
information travels between network
elements across the Internet.
GPON
(Gigabit Passive Optical Network)
Used for fiber-optic communication to
the home (FTTH).
IPTV
(IP Television) A technology that
delivers digital television via fixed
broadband access.
GPRS
(General Packet Radio Service)
A packet-switched technology that
enables GSM networks to handle
mobile data communications at rates
up to 115 kbps, for instance Internet
connections. Generally referred to
as 2.5G.
HSPA
(High Speed Packet Access)
Enhancement of 3G/WCDMA that en-
ables mobile broadband. A subscriber
can download files to a 3G mobile
device at speeds of several Mbps.
IPX
(Internet Payment eXchange)
The global payment and messaging
delivery solution for SMS, MMS,
Web and WAP.
LTE
(Long-Term Evolution) The term for
the next evolutionary step of mobile
technology beyond today’s HSPA
networks.
Main-remote concept
A split radio base station, with radio
units at the top of the mast, near
antennas.
Managed services
Outsourcing of the management
of operator networks and/or hosting
of their services.
Packet switching
A method of switching data in a
network where individual packets
are accepted by the network and
delivered to their destinations.
The method is used by the Internet
and will replace traditional circuit
switching.
Penetration
The number of subscriptions
divided by the population in a
geographical area.
Softswitch
A software-based system for handling
call management functionality. Inte-
grates IP-telephony and the legacy
circuit-switched part of the network.
Uplink
= from your device, e.g. to the
Internet.
WCDMA
(Wideband Code Division Multiple
Access) A 3G mobile communica-
tion system that uses code division
multiple access technology over a
wide frequency band. WCDMA builds
on the same core network infrastruc-
ture as GSM.
Uncertainties in the Future
Some of the information provided in this material is or may contain forward-looking information such as statements about expectations, assumptions about future market conditions, projec-
tions or other characterizations of future events. The words “believe”, “expect”, “anticipate”, “intend”, “may”, “plan”, the negative of such terms, and similar expressions are intended to identify
these statements. 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 and actual results may differ materially. 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. We advise you that Ericsson is subject to risks both specific to our industry and specific to our company
that could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, changing conditions in the telecom-
munications industry, political economic and regulatory developments in our markets, our management’s ability to develop and execute a successful strategy, various financial risks such
as interest rate changes and exchange rate changes, erosion of our market position, structure and financial strength of our customer base, our credit ratings, product development risks,
supply constraints, and our ability to recruit and retain quality staff.
WHERE YOU CAN FIND OUT MORE
Our website: www.ericsson.com
Our share: www.ericsson.com/investors
Project Management Ericsson Investor Relations
Design and production Publicis Stockholm and Paues Media
Photography Andreas Lind, Felix Oppenheim (p.8-9), Marcel Pabst (p.19), Lars Nybom (p.23-24)
Reprographics TBK
Printing Elanders, Falköping
Kuala Lumpur, Malaysia
Checking the account balance
Portland, Oregon, USA
Broadcasting live on the Internet
Milan, Italy
Sharing a goal with friends across the world
Every moment counts
Freeze any moment in time. Anywhere
They are talking, working, keeping
in the world. No matter where you look,
in touch, exchanging ideas, buying,
you will find people taking advantage
selling, checking news, downloading
of telecommunications: at home, on city
information, watching videos. No
streets, in remote locations, at work,
matter what they are doing, it’s a new,
in transit.
natural part of their lives. In many ways,
Ericsson is at the heart of this. Our
technology and services make these
moments possible.
1.6 million
new
subscriptions
per day
The number of GSM/WCDMA
subscriptions around the world
increased by 1.6 million per
day in 2007. Source: Informa
1
every moment counts NET SALES
(SEK billion)
187.8
179.8
153.2
132.0
117.7
2003 2004 2005 2006 2007
OuR 10 LARGEST MARkETS 2007
percent of total sales
7
6
6
5
5
4
4
China
uSA
India
Italy
Spain
Sweden
uk
Indonesia 3
Japan
Brazil
3
3
The Ericsson advantage
Ericsson provides communication
investments by creating, securing, protecting and
networks, professional services
and multimedia solutions to the
world's largest and most demanding
operators and service providers.
licensing our portfolio of patents in support of our
business goals.
Operational Excellence
Simple, efficient and effective processes that consis-
tently yield high-quality products and services with low
We are also engaged in bringing tele-
cost of ownership provide competitive advantage.
communication to benefit people in
In this way we help our customers become as suc-
developing areas of the world.
cessful as they possibly can. Operational excellence,
combined with our core values of professionalism,
Long-term dedication to our customers
respect and perseverance, is instrumental to our
The essence of the telecommunication business
ways of working.
A
52.7
-1 %
54.6
+14%
C
48.7
+5%
B
is long-term and trusted relationships between
vendors and operators. With records of service
exceeding a century in almost every market in the
world, Ericsson has some of the strongest operator
relationships in the industry. Simply put, operators
know what they get when they choose to work with
Ericsson – a trusted partner committed to making
them as successful as they can possibly be.
Technical superiority
ThE ErICSSOn VISIOn
Our vision is to be the prime driver in an all-
communicating world. A world in which all
E
13.4
-15%
18.4
+12%
D
For more than 130 years, Ericsson’s commitment
people can use voice, text, images and video
to research and development has been at the heart
to share ideas and information whenever and
of the Company’s vision to provide the means for
wherever they want. As the leading supplier
people everywhere to communicate. In addition to
of communication networks and services,
substantial contributions to standardization organi-
Ericsson plays a vital role in making such a
zations, Ericsson has one of the industry’s strongest
world a reality.
patent portfolios with approximately 23,000 granted
worldwide. Furthermore, we capitalize on our
SALES BY REGION 2007
Ericsson net sales (SEK billion)
and change (%) year-over-year
A
Western Europe
B
Central & Eastern Europe,
Middle East and Africa
C
Asia Pacific
D
Latin America
E
North America
2
the ericsson advantage Five-year summary
SEK million
Net sales
Operating income
Financial net
Net income
Year-end position
Total assets
Working capital
Capital employed
Net cash
Property, plant and equipment
Stockholders’ equity
Minority interests
Interest-bearing liabilities and
post-employment benefits
other information
Earnings, per share, basic, SEK
Earnings, per share, diluted, SEK
Cash dividends per share, SEK
Stockholders' equity per share, SEK
Number of shares (in millions)
– outstanding, basic, at end of period
– average, basic
– average, diluted
Additions to property, plant and equipment
Depreciation of property, plant and equipment
Acquisitions/capitalization of intangible assets
Amortization of intangible assets
Research and development expenses
– as percentage of net sales
ratios
Operating margin
Operating margin excluding Sony Ericsson
EBITDA margin
Cash conversion
Return on equity
Return on capital employed
Equity ratio
Capital turnover
Inventory turnover
Trade receivables turnover
Payment readiness, SEK million
– as percentage of net sales
statistical data, Year-end
Number of employees
– of which in Sweden
Export sales from Sweden, SEK million
2007
2006
2005
2004
2003 2)
187,780
30,646
83
22,135
179,821
35,828
165
26,436
153,222
33,084
251
24,460
131,972
26,706
–540
17,836
117,738
–11,239
–864
–10,844
245,117
86,327
168,456
24,312
9,304
134,112
940
214,940
82,926
142,447
40,728
7,881
120,113
782
209,336
86,184
133,332
50,645
6,966
101,622
850
186,186
69,268
115,144
42,911
5,845
80,445
1,057
182,372
58,873
108,989
26,998
6,505
60,481
2,299
33,404
21,552
30,860
33,643
46,209
1.37
1.37
0.50 1)
8.44
1.65
1.65
0.50
7.56
15,900
15,891
15,964
4,319
3,121
29,838
5,433
28,842
15.4%
16.3%
12.5%
20.8%
66%
17.2%
20.9%
55.1%
1.2
5.2
3.4
64,678
34.4%
15,881
15,871
15,943
3,827
3,007
18,319
4,237
27,533
15.3%
19.9%
16.7%
24.1%
57%
23.7%
27.4%
56.2%
1.3
5.2
3.9
67,454
37.5%
1.53
1.53
0.45
6.41
15,864
15,843
15,907
3,365
2,804
2,250
3,269
24,059
15.7%
21.8%
20.3%
25.6%
47%
26.7%
28.7%
49.0%
1.2
5.1
4.1
78,647
51.3%
1.11
1.11
0.25
5.08
15,832
15,829
15,895
2,452
2,434
1,950
2,306
23,421
17.7%
20.2%
18.6%
25.5%
80%
24.2%
26.4%
43.8%
1.2
5.7
4.1
81,447
61.7%
–0.69
–0.69
0
3.82
15,826
15,823
15,841
3,493
3,753
2,460
2,579
28,553
24.3%
–9.5%
–9.0%
11.1%
–19%
–16.2%
–5.9%
34.4%
1.0
6.1
3.4
75,309
64.0%
74,011
19,781
102,486
63,781
19,094
98,694
56,055
21,178
93,879
50,534
21,296
86,510
51,583
24,408
72,966
1) For 2007, as proposed by the
Board of Directors.
2) 2003 is in accordance with
Swedish GAAP. Major
differences compared to IFRS
are retrospective capitalization of
development costs, goodwill is
no longer amortized but instead
subject to impairment testing,
and the effective pension costs
for future salary increases are
estimated and recognized during
the time of service.
For definitions of the financial terms
used, see Financial Terminology.
3
five-year summary
Dear fellow shareholders,
This year’s theme “Every Moment Counts”, is at the
Market growth has continued to slow down, espe-
very core of Ericsson’s vision of an all-communicat-
cially in mature markets, and we find it prudent to
ing world. We are helping to create a world in which
plan for a flattish mobile infrastructure market for
all people can have access to information, entertain-
2008. Consequently, we will adjust our cost basis
ment, social networks and more, whenever and
to be in line with the anticipated market develop-
wherever they want. It is exciting to talk about prod-
ment while continuing our R&D investments and
ucts and services that enrich the everyday lives of
thereby further strengthen an already strong com-
billions of people around the world.
petitive position.
Given such industry dynamics, I think it is important
A thorough review of our strategy, the business
to put this year's developments into a longer-term
environment and our ways of working show that our
perspective. When I joined Ericsson five years ago,
strategy has been effective and should not be changed.
the Company was emerging from one of the deepest
We are determined to continue to improve our
crisises in its history. Our focus then was and still is
position even in an increasingly challenging market.
to "generate sustainable growth and provide com-
Our longer-term outlook remains positive and we are
petitive returns to our investors, regardless of
aiming to do for broadband communications what
day-to-day market fluctuations.” By basing our
we have already done for telephony – make it mobile
strategy on technology leadership, economies of
and available to everyone, everywhere. In addition,
scale, operational excellence, a focus on the con-
we intend to lead the industry in migrating fixed and
sumer and lower cost of ownership for our
mobile networks into a converged IP-based network
customers, we have consistently outperformed the
which is able to efficiently handle all forms of tele-
competition.
communication, applications and services.
We continued to make progress during 2007,
Ericsson already has a good starting position for
but, during the autumn, we experienced significant
taking the lead in this migration, and with the acquisi-
unexpected margin compression in our networks
tions of Marconi, Redback and Entrisphere we:
business as a consequence of a changing business
-
Provide broadband services to homes and offices
mix. Although 2007 was one of the most profitable
over optical fiber, radio or copper with our fixed
years in the Company's history, our operating margin
broadband access portfolio.
fell well below expectations at the end of the third
-
Provide broadband services to mobile devices
quarter, which made us issue a profit warning in
with our mobile broadband technology.
mid-October.
-
Interconnect fixed and mobile access with our
‘‘
2007 was one of
the most profitable
years in the
Company's history.
’’
4
message from the ceo optical and radio transmission systems, softswitches
nications by also making mobile broadband available
and IP-routers.
and affordable for the majority of the world’s population.
-
Manage service delivery and revenues with an
A year ago, we established segment Multimedia to
IMS-based service network.
better address and develop the potentially huge
-
Support operators in planning, implementing and
market for access and distribution of content, adver-
operating their networks with our Professional
tising and multimedia communications via broadband
services.
IP-based networks. We made several strategic
Whether you are at home, at work or anywhere else,
acquisitions to improve our capabilities in these
we will be there, ensuring that your multimedia
areas in addition to our own ongoing activities.
services work seamlessly, regardless of what device
Over the coming years, we will see new services,
you are using or how you are connected. This puts
new devices and new ways of communicating but,
Ericsson in an even stronger position.
more importantly, many more people connected.
Consumers are quickly becoming accustomed to
Think about what this means in terms of making a
having affordable mobile broadband services avail-
person’s life better by making every moment count
able with the same performance on the go as on
even more. I take great pride in the part Ericsson
their PC at work or at home. It has only been a few
plays in making that happen.
years since the introduction of Web 2.0 applications
like YouTube or Facebook, and yet people already
Yours truly,
expect to be in control of how they use the Internet
– to instantly share content they create themselves as
well as access content created by others.
We all have a basic need and desire to communi-
cate and with the rapid deployment of mobile
networks in emerging markets, we have come far in
our ambition of making communications for all a
reality. But now it’s time to further expand the social,
economic and environmental benefits of telecommu-
‘‘ We are aiming
communications
to do for broadband
what we have
already done for
telephony – make
it mobile.’’
Carl-Henric Svanberg
President & CEO
5
message from the ceo Our business focus 2007
- building on last year's progress.
1 Reaching
more people
2 Increasing
speed and capacity
We provided access for many new sub-
HSPA takes off: 81 commercial 3G/HSPA
scribers that previously could not afford
mobile broadband networks out of a total of
service or lived outside coverage areas.
166 around the world were powered by
We implemented solar panels to power
Ericsson at year-end.
radio base stations in remote areas.
Fiber access technology enables delivery
Acquisitions
We made a number of acquisi-
We extended our leadership in telecom
services – supporting over 1 billion subscrib-
ers – 24 hours/day – seven days a week.
tions to enhance our position.
More than 650 million people can now pay
for multimedia services with their mobile
phones using Ericsson's IPX payment and
delivery solution.
of HD-TV services over IP networks. We
acquired Entrisphere to complement our fixed
access portfolio with fiber.
We delivered a variety of optical and radio
transmission solutions to operators to
accommodate the increasing data traffic as
people generate and share more of their own
content.
One million
We deployed our millionth
radio base station.
40%
Ericsson systems handle about
40 percent of all mobile traffic.
More
achievements
Networks: p.10-11
Professional services: p.14-15
Multimedia: p.18-19
6
3 Preparing
for the future
4 Expanding
our role
Through Ericsson ConsumerLab, we conducted
Our market share increased, with numerous
more than 40,000 interviews, to gain valuable
new and expanded agreements to supply
insight on consumer behavior and trends.
network equipment and/or services during the
We supported operators preparing for an
all-IP network environment by deploying
year. The new buildouts pave the way for future
upgrades and expansions.
softswitch, IMS and transport solutions.
We continued our progress as prime inte-
We also supported customers merging their
mobile and fixed networks into one full-service
broadband network.
grator and managed services partner by
- managing large technology shift projects.
- integrating multi-vendor equipment in
customer networks.
Ericsson invested in fixed broadband and
Over 28,000 service professionals in more
multimedia, acquiring Tandberg Television,
than 140 countries provide local competence
Redback Networks, Entrisphere, Drutt,
and global expertise.
Mobeon and LHS.
our business focus 2007 Our strategy
The prime driver
in an all-communicating world
Make people's lives easier and richer
Provide affordable communication for all
Enable new ways for companies to do business
ExcEl
in Network
Infrastructure
ExPAND
in
Services
ESTAblISH
position in
Multimedia
Solutions
Operational Excellence in everything we do
The notion of an all-communicating
world is rapidly gaining momentum
Services – expertise in network design, rollout,
integration, operation and customer support within a
and drives the convergence of the tele-
global structure with robust local capabilities enables
communications, Internet and media
industries.
Ericsson to better understand and respond to the
unique challenges of each customer and capitalize
on the trend to outsource a broader range of activi-
By helping operators to evolve and improve their
ties to network equipment suppliers.
networks to efficiently handle multimedia capabil-
ities, we are creating a world in which all people
can have affordable access to information, enter-
tainment, social communities and more, whenever
and wherever they want. In the course of mak-
ing people’s lives easier and more productive we
are spurring socio-economic development which
Multimedia – innovative application platforms,
service delivery and revenue management solutions
combined with leading content developer and
application provider relationships enables Ericsson
to uniquely help customers create exciting new and
differentiated multimedia services.
brings our vision closer to reality.
Phones -The complementary strength of Sony
With the ambition of being the prime driver in
Ericsson Mobile Communications, our joint venture
an all-communicating world, we have divided our
with SONY, further enhances our consumer per-
operations into segments that create competitive
spective for superior end-to-end offerings.
advantage and best meet the needs of our global
customer base.
The synergies generated by the combined strengths
of the segments differentiate the Company through
Networks – technology leadership, a broad product
a continuous focus on operational excellence to
portfolio and scale enables Ericsson to excel in
better leverage our economy of scale in technology
meeting the coverage, capacity and network evolu-
development as well as in product and service
tion needs of fixed and mobile operators.
delivery and customer support.
49%
Worldwide mobile subscription
penetration is now 49 percent.
3.3 billion
The number of mobile sub-
scriptions reached 3.3 billion.
7
Our strategy
“ A mobile phone means
fewer trips to my suppliers –
a big time-saver.”
When Chahaya Suharto restocked his store for the first time using a
mobile phone, he not only made his boss happy but started a new era for
the village. As the manager of a small general store in the village Alfa Indah,
located deep in the jungle of Sumatra, Indonesia, Chahaya is a well-
known character among the local inhabitants.
Brimming with cakes, coconuts, and staple goods, his store is a
central gathering point and lifeline for the village to the world beyond the
surrounding palm plantations. When Chahaya takes time to talk to us,
he’s about to call his supplier to check the availability of palm oil and rice.
The store is bustling with local villagers who stand around chatting, joking
and nibbling on small home-made cakes – a popular item.
‘‘Before we had mobile phones, I had to close the store and
drive my moped to meet my supplier, about 30 kilometers from here.
When I got there, I could never be sure they had the right supplies I needed.
People depend on me, so that was not good.”
The change came when the local operator installed solar-
powered radio base stations in the region. Like many other rural villages,
Chahaya's village is located outside the main power grid and they depend
on diesel-powered generators for electricity. However, with the solar-
powered radio base stations, a crucial step was taken in providing reliable
coverage at an affordable price to this region.
Chahaya Suharto will never forget the moment he made his first
call. “It was so easy and natural – just the press of a button,” he recalls.
“Mobile communication might seem like an everyday thing to most of the
world, but it’s a giant leap forward for us,” he says with a smile. “Now I can
even call my relatives in Java to see how they are doing.”
8
networks
Chahaya Suharto is one of 85 million subscribers among Indonesia's growing population of 230 million people.
This project was driven by Ericsson and the solution is a part of the Ericsson Communications Expander portfolio.
Thanks to the main-remote concept, the solution uses 60 percent less energy than a standard radio base station and
can run on solar power. It's light weight, easy to maintain and has a low total cost of ownership.
9
networks N E T WO R KS
13% operating margin.
1% sales growth
year-over-year.
Ericsson’s largest business is network
infrastructure, and scale is critical for our
continued market leadership. We have
worked hard to secure our scale advantage in
mobile networks and to strengthen our fixed broad-
band and core network portfolios.
This puts us in an even better position
for long-term profitable growth.
Networks strategy
band services and drive the demand for more mobile
There are three core elements to our strategy for
broadband capacity.
maintaining our leadership in mobile networks and
The road, of course, doesn’t stop there. Ericsson is
further strengthen our position in fixed and converg-
very active in establishing Long-Term Evolution (LTE) –
ing networks:
1. Technology leadership: Ensuring our customers
are first to market with the best networks and end-
the step beyond 3G that will address operator needs
for user demands for an even more powerful and
convenient mobile broadband experience.
to-end solutions with the lowest total cost of
A comprehensive fixed broadband portfolio
ownership.
2. Economies of scale: Through lower develop-
ment and production cost per unit delivered.
We improved our fixed broadband networks portfolio
by continuing our acquisition strategy that began in
2005 with Marconi, which strengthened our trans-
mission offering.
3. Operational excellence: Benefiting from effi-
Our January purchase of Redback Networks
ciency – from R&D, supply and all the way through
instantly gave us a strong position for helping opera-
rollout and operational support.
tors deliver Internet, telephony, TV and mobile
In short, a company that can deliver the best solu-
tions most efficiently at larger volumes is difficult to
beat. Let’s look at the progress we’ve made in key
parts of our networks business during the past year.
services over IP-based broadband network infra-
structures.
In February, we announced our acquisition of
Entrisphere, which provides gigabit passive optical
networking (GPON) technology for networks that
Extended lead in mobility
deliver content-rich services to homes and enter-
On the mobile side, we continued to build on our
prises, e.g. to PCs and high-definition TV.
strength in GSM. As we eagerly look toward the
The key to delivering multimedia services with
future, it is easy to overlook that 2007 was yet
telecom-grade quality is the core network, where the
another record year for GSM shipments, as global
evolution to Internet Protocol (IP) begins. Ericsson
mobile penetration reached almost 50 percent.
and other industry leaders are expanding the IP
We have also expanded our position in 3G/
Multimedia Subsystem (IMS) foundation for many
WCDMA/HSPA, with which operators can introduce
exciting multimedia applications that people can
mobile broadband with such multimedia services as
enjoy on any device wherever they are. Here, our
TV, video, music and high-speed Internet access.
technology and scale advantages mean that our
Additionally, we have invested in HSPA modules
customers will be able to launch and also generate
for laptop computers and fixed modems, which will
revenues from these services as they benefit from
give consumers another way to enjoy mobile broad-
a lower total cost of ownership.
The designed cutting-edge
Ericsson Tower Tube
houses radio base station and
antennas.
The radio base station is
located at the top of the tower,
increasing coverage and
capacity.
Using innovative design and
building materials, it can be
built in a variety of shapes and
sizes for rural and urban sites.
The Ericsson Tower Tube
reduces:
- power consumption
- need for cooling
- footprint
- construction time
10
networks
Site City is an exhibition area where our customers can experience
radio base stations for different environments and requirements.
Milestones during 2007
width service delivery, including IP-based video
We had a number of significant achievements in 2007:
services to homes throughout the US.
• In May, mobile operator MTN Nigeria took
delivery of Ericsson’s millionth GSM radio
• German operator Deutsche Telekom rolled out
Ericsson's VDSL2 broadband access solution
base station. Since its introduction in 1991, GSM
across Germany's largest cities.
has connected more than 2.6 billion users. Today,
Ericsson has deployed GSM networks in more
than 100 countries.
A shift in our business mix
Our business model in Networks is based on a three-
8%
23%
part sales mix of build-outs, expansions and upgrades,
69%
• We signed a GSM expansion framework agreement,
valued at about USD 1 billion, with China Mobile.
where we are normally able to offset lower margin
network build-out sales by higher margin sales into the
• Vodafone chose Ericsson to be sole supplier of
IMS (IP Multimedia Subsystem) in a number of
important markets.
installed base.
As 2007 progressed, Networks' business mix had a
high proportion of new network buildouts and break-in
contracts, where price competition is most intense. The
NETWORKS
SALES OF TOTAL
Networks
Professional Services
Multimedia
• We announced Ericsson Tower Tube, a 5m-
dia meter, 40m-high flexible concrete radio base
ongoing shift to new switching technology also grew
significantly and affected the business mix. Late in the
station site concept that is better for the environ-
third quarter, the sales in certain markets unexpectedly
ment, cost-efficient to build and run, and visually
declined sharply. All of this led to significantly lower
more attractive.
gross margin and put pressure on cash conversion.
• We won multi-billion USD contracts to supply
GSM and WCDMA/HSPA equipment and related
telecom services to Bharat Sanchar Nigam Ltd
(BSNL), and Bharti, the largest telecom operators
in India.
• Mobile TeleSystems OJSV (MTS), Russia's
leading mobile operator, selected Ericsson to
GOING FORWARD
The new network buildouts and break-in
contracts will continue to affect the segment’s
margins, at least for the near term, but our
significant market share gains enlarge our
footprint for follow-on sales of more networks
supply and deploy a 3G/HSPA network.
as well as multimedia and services over the
• AT&T chose Ericsson to provide equipment for
the planned deployment of GPON for high-band-
longer term.
E
D
A
C
B
NETWORKS SALES
BY REGION
A
B
Western Europe 22%
Central & Eastern Europe,
Middle East and Africa 28%
C
Asia Pacific 33%
D
Latin America 10%
E
North America 7%
11
networks 12
professional services “ With the Internet
in my pocket, I can book
tickets in seconds
– on the fly.”
Life just got easier for Indian entrepreneur Varun Ahuja. Standing in the afternoon heat
of a bustling street in New Delhi, he is booking flights to Mumbai for two employees via
his mobile phone. While punching departure times into a web-based portal, he artfully
side-steps a hoard of cars, mopeds, buses – even a stray dog. “Isn’t this fantastic,”
exclaims Varun above the street noise. “No more waiting for travel agents. Booking
takes only a minute.”
Varun Ahuja is the entrepreneur personified. Starting from scratch just ten
years ago, he today runs a chain of retail outlets selling leading computer and software
brands as well as services to small and home offices. His fleet of service vehicles is
constantly on the go, navigating the chaotic traffic, delivering orders and trouble-
shooting for clients. Varun Ahuja leads a hectic life staying on top of his business and
juggling family life.
“I’m on my phone all the time, either with business associates or with mem-
bers of my family. We use our phones a lot in India,” he says with a smile.
Varun recounts how he decided two years ago to equip all his 35 sales and
service people with mobile phones with always-on access to the Internet and other
services – a decision that has significantly changed their way of working. “Suddenly,
I could access the Internet to book airline, railway and bus tickets – from the palm of
my hand. We could even reserve hotel rooms. It was like having a personal travel
agent,” he says.
Varun Ahuja and his team are among some 250 million Indians who own a
mobile subscription – a number that’s growing by six million a month. While most
subscribers are still content to use their phones primarily for voice calls, Varun is keen
to learn more about new mobile services such as banking online and the ability to pay bills.
“Many people pack into internet cafés to check the news, weather and mail,”
he says. ‘‘Soon they can do this anywhere, even without a PC. The mobile phone will
be like your wallet, your ticket broker and your concierge.”
The premium service experienced by Varun is enabled by Bharti Airtel, one of India’s leading private mobile operators,
with more than 53 million customers. By letting Ericsson build, operate ge the network, the operator can concentrate
on building relationships with customers and differentiating themselves through better service, higher quality and seamless fast-paced
roll-outs. India is the world's fastest growing mobile market. Ericsson installs a new radio base station in India every 15 minutes.
13
professional services
PRO FE S S I O N A l
S E RV I c E S
Ericsson’s services business helps operators generate more revenues,
run their businesses more efficiently, and evolve their networks to meet
customer demands. Once again, every moment counts – the more time
operators can dedicate to adding value to their offering, the more satisfied their
customers will be.
Our strategy for services growth
Support Ericsson's mobile, fixed and multime-
Our services portfolio is based on six primary
dia solutions. Networks' and Multimedia's global
offerings:
customer base is also the foundation of our services
business. Through existing partnerships, we are in a
position to provide services that ensure our custom-
ers get all the benefits they can from Ericsson’s
solutions. Through our daily work, we get first-hand
insight into each of our customers’ technologies,
1. Managed Services ranging from designing, build-
ing, operating and managing day-to-day operations
of a customer's network. This also includes hosting
of services, applications and enablers as well as
providing network coverage and capacity.
organizations and businesses.
2. customer Support for more than 800 networks
Expand our services business. In addition to the
opportunities that arise naturally from our installed
base of products and solutions, Ericsson also
pursues services business through consulting,
securing more than 1 billion subscribers around
the world. We minimize risks to our customers by
making sure networks and services work the way
they should.
systems integration and managed services.
3. Systems Integration, to support customers in
Our services portfolio
integrating new technologies and applications as
well as equipment from multiple suppliers, includ-
Our dedicated Professional Services staff – a com-
ing taking on the broad responsibility of “prime
bination of global competence and local capabilities
integrator”.
– gives our customers the freedom to focus more on
their customers.
Our competitive strength in professional services
comes from our skills and our scale. By applying
4. business consulting to help customers to
identify and address market opportunities, chal-
lenges and technology shifts.
efficient tools, methods and processes based on our
5. Network and Technology consulting to help
technology leadership, global customer base and
operators plan, design, optimize and evolve their
local presence, we have further developed and
networks.
grown our product-based services business as well
as managed services and systems integration.
6. Educational Services to ensure that our
customers’ employees have the skills and compe-
tence necessary for working with today’s complex
technologies.
In addition, we have Network Deployment and
Integration which includes rolling out, expanding,
restructuring, upgrading and migrating networks.
(Note: This offering is part of and reported under
the Networks segment.)
15% operating margin.
16% sales growth
year-over-year.
1000
1000 systems integration
projects during the year.
185 million
185 million subscribers
in managed networks.
One billion
Over one billion subscribers
supported by Ericsson.
14
professional services Milestones during 2007
During 2007, we continued to outpace the market,
• We won a six-year managed services deal
with 16 percent growth. An important trend devel-
for operation and maintenance of Deutsche
oped: Tier-one operators have become more
Telekom's microwave network in Germany.
interested in managed services, as they see the
The agreement reflects the maturation of the man-
results that the early adopters get from outsourcing.
aged services market, as it was the first managed
Secondly, more operators asked us to serve as the
services contract for an incumbent operator in its
prime integrator when introducing new multimedia
home market.
services and when facing challenging technology
shifts. Here are some noteworthy achievements
during the past year:
• We were selected to design, plan, deploy,
optimize and manage bharti Airtel's GSM
network and its prepaid platform across large
• We entered a managed services agreement
with France Telecom covering operations, rollout
parts of India.
and field maintenance of the operator’s mobile
network in Belgium and in the Netherlands.
• Vodafone selected us to manage the supply
GOING FORWARD
Ericsson’s early foray into services has
and distribution of multi-vendor spare parts for
created considerable advantages in skills
its mobile networks across several of its major
and in scale, even though consolidation
European operating companies including those in
among other vendors has increased compe-
Germany, Spain and Portugal.
tition. We will continue to build on our early
23%
• KPN signed a five-year managed services con-
tract with us for access network field maintenance
in the Netherlands.
• We acquired the Spanish company Hyc,
successes by working to grow in such areas
as managed services, systems integration
and consulting. We will achieve our targets
mainly through organic growth, but we may
make smaller acquisitions in strategic areas
focusing on consultancy and systems integration
or add resources to support growth.
of IPTV solutions.
Ericsson Network Operation Center where we run the network and hosted
applications, content and enablers for customers such as Bharti in India.
8%
69%
PROFESSIONAL SERVICES
SALES OF TOTAL
Networks
Professional Services
Multimedia
E
D
C
B
A
PROFESSIONAL SERVICES
SALES BY REGION
A
B
Western Europe 41%
Central & Eastern Europe,
Middle East and Africa 19%
C
Asia Pacific 21%
D
Latin America 10%
E
North America 9%
15
professional services “ I’m broadcasting all
over the country. All I need
is my mobile.”
Irene Englebertink will never forget the moment she first saw the aban-
doned cats in the animal clinic. She captured them with her mobile
phone, broadcasting the news live throughout the Netherlands. Although
the sight was disturbing, her newscast made it possible to find homes
for many of the forty-two cats.
“It felt good when I realized I had done something to help
these animals from being put to sleep,” Irene says. “Local items like this
are often missed by the mainstream press, but people are certainly
interested in them.”
A part-time elementary school teacher, Irene is one of hundred
citizen reporters who regularly file reports for the TV program and online
service Ik op TV (Me-On-TV).
Sometimes the Ik op TV news desk calls Irene to suggest
stories, sometimes she comes up with ideas of her own. She’s equipped
with a mobile phone that stores up to thirty minutes of video. Once she
is on site for a story, she calls in and is directly linked to editors who
check her video and sound quality before she is broadcasted.
“It’s amazing how easy it is. I just press the record button on
my mobile phone and I’m broadcasting to people across the
Netherlands. I do it all by myself, I don’t need to bring a big crew with
cameras.”
“News is everywhere and it can always be filmed. With new
technology, anyone can shoot a video and upload the content to a
media or entertainment provider. I think we’re witnessing a media
revolution. The power is shifting away from big media conglomerates to
ordinary people like me.”
16
multimedia
Irene’s moment was enabled by
high-speed broadband,
connecting everything to every-
one. Together with Ericsson, TV
production company Endemol
provides the opportunity for
ordinary people to create and
distribute pictures and video
clips in seconds, providing
popular mobile multimedia
content to everyone.
17
multimedia M U lTI M E D I A
-1% operating margin.
14% sales growth
year-over-year.
Ericsson established its Multimedia segment to bet-
ter address operator needs for applications, solutions
and devices to encourage subscribers to increase
their usage. This was a year of direction setting, of organizing
our areas of existing strengths and of supplementing those
areas with strategic acquisitions. Along
the way, we have taken important steps
in assuring Ericsson’s future growth.
Multimedia strategy
A broader portfolio
To remain competitive, telecom operators have to
Our ambition for growth required that we move
deliver value beyond voice services. This means they
swiftly into new territories with key acquisitions, to
must extend beyond the traditional confines of
both complement existing areas of strengths and
telecom and into the Internet and media industries.
extend into new ones.
This injects a new level of complexity and different
In March, we acquired Mobeon, a supplier of IP-
business model possibilities for operators. Ericsson's
based voice and video mail – key elements of our
intent is to be the enabler of new revenue-generating
multimedia strategy. The acquisition of Mobeon
services and applications.
allows us to develop our new messaging architec-
In this new environment, Ericsson develops the
ture more quickly, allowing easier integration of new
multimedia solutions and acts as a facilitator to
applications with established messaging methods,
Media
Web
Telecom
match operators and service providers with the right
such as SMS, voicemail and MMS.
tools to distribute media and Internet content to their
Next, we improved our position in the IPTV and
customers. Our expertise in managing complex
networked video solutions market by acquiring
networks capable of delivering IPTV, mobile TV,
Tandberg Television in April. A world leader in
music solutions, messaging and user-generated
video encoding and compression technology as well
content helps them give consumers the multimedia
as on-demand and interactive video, the company
experience they want – flexibly and profitably.
brought a wide customer base with cable, satellite
On the media side, content providers benefit from
and telecom customers in more than 100 countries.
our global presence and our relationships with
Integration has been successful, and we now have
operators around the world.
a complete IPTV offering available around the world.
Our revenue management offerings help operators
With the addition of Drutt corporation in June,
navigate different billing models, from the subscription
we extended our Service Delivery Platform (SDP)
basis of the telecom world to the content-specific
leadership with products and features that make it
basis of the media industry. To ensure multimedia
possible to acquire, launch, deliver and charge for
services that deliver the experience people expect,
content to mobile devices.
Ericsson also develops and licenses mobile technol-
We also acquired postpaid billing and customer
ogy platforms for mobile devices.
care leader lHS to complement our proficiency in
Ericsson’s multimedia strategy applies to the enter-
prepaid and real-time charging. The combination
prise market as well, with unified communications
will allow operators to manage all users and ser-
(i.e. across PCs, phones and mobile devices), IP-
vices – prepaid or postpaid, mobile or fixed – in the
based private branch exchanges and centrex
same way.
solutions for operators serving the enterprise market.
Me-On-TV
Consumers increasingly upload
and share video content.
50 million
More than 50 million of the
world's 3G/WCDMA handsets are
based on Ericsson technology.
18
multimedia
Milestones during 2007
Here is an overview of Multimedia's performance
in 2007:
• Ericsson and Turner broadcasting announced
a collaboration to develop Internet, broadcast
news and entertainment content – including CNN
International and Cartoon Network – for mobile
multimedia environments.
• Telefónica España selected our mobile TV
solution to provide consumers with rich mobile
TV content and services.
• Together with TV production company
Endemol, we developed 'Me-On-TV' to enable
consumers to upload, publish and share live or
recorded video content via any mobile device, from
anywhere to any screen around the world.
• Vodafone Iceland selected our end-to-end
IPTV solution to provide an integrated solution
• We introduced the first WcDMA mobile plat-
form with HSPA capability, to enable mass-
market HSPA multimedia devices capable of
handling new services – including interactive
mobile TV and video calling – that require both
fast uplink and downlink data speeds.
GOING FORWARD
Multimedia is a huge market with the potential
for strong growth and new customers from
media and Internet companies. Although it is
a fragmented market, Ericsson has a strong
position in several multimedia areas – mobile
platforms, service delivery platforms, and
in the evolution toward converged multimedia
charging are all showing strong growth with
8%
23%
consumer services, based on Ericsson IMS.
healthy margins. IPTV, IMS and messaging are
69%
• Etisalat implemented our real-time convergent
charging and billing solution, which enables
them to offer the same services to all subscribers
regardless of pre-paid or post-paid payment
options.
areas in which we are making significant
investments. Furthermore, our relationship
with Sony Ericsson provides a foundation for
a strong business going forward.
MULTIMEDIA
SALES OF TOTAL
Networks
Professional Services
Multimedia
E
D
C
B
A
MULTIMEDIA SALES
BY REGION
A
B
Western Europe 46%
Central & Eastern Europe,
Middle East and Africa 25%
C
Asia Pacific 15%
D
Latin America 7%
E
North America 7%
19
multimedia “ Suddenly my friends were
treating me like a famous DJ.”
It’s 3 pm in Stockholm and Tea Dahlgren is sitting in her favorite café. Tea laughs and tells about the moment
she impressed her best friend Alexandra by knowing the name of a tune they had never heard before.
“Suddenly, this song comes on the radio and Alexandra is madly trying to guess what track it is.
So I say, ‘Hey check this out.’ Then I hold my phone up to the speaker and – presto – it tells us exactly what
song we're listening to, the artist, the album and even the year it came out. Alexandra totally freaked out.”
Tea is one of millions of music lovers who are delighted by TrackID™ from Sony Ericsson. By
recording a few seconds of a song, they get the track, artist and album information sent to their phone in
an instant. “I didn't believe it at first, but it really works,” says Tea, who has 318 songs in her phone.
“This phone is not just a Walkman. It’s my secret weapon against music know-it-alls.”
Tea Dahlgren has just experienced what her Walkman W800, equipped with TrackID™,
Stereo Streaming and 2.0 megapixel camera can do. With all the latest features, she
can download, stream, store and play music in her mobile.
PH O N E S
– S O N y E R I c S S O N
Sony Ericsson – with a broad portfolio and a strong
momentum, and with the ambition to become one of the
top three mobile phone suppliers.
12% operating margin.
18% sales growth
year-over-year.
The slim slider W910i
Walkman® phone is the playful
companion to the world of
mobile entertainment.
20
Sony Ericsson Mobile Communications is a 50/50
especially in the area of music and imaging through
joint venture between Ericsson and Sony Corporation,
the use of Sony sub-brands Cyber-shotTM and
founded in 2001.
Walkman®. At the same time, the company increased
In 2007, Sony Ericsson sold over 100 million hand-
the number of lower priced models in the portfolio,
sets, 18 percent more than the previous year, and
bringing compelling product propositions to the
captured market share by increasing sales of lower
lowest priced handsets in the line-up. The Walkman®
priced handsets in emerging market such as Latin
brand was extended with low and mid-end models
America and Eastern Europe.
such as the W200 and W300, and imaging models
Although average selling price declined during 2007,
were extended with the K310 and K550.
the company maintained double-digit margins by
In 2007, Sony Ericsson also announced its inten-
controlling cost and focusing on internal efficiencies.
tion to expand its PlayNowTM content distribution
Sony Ericsson continued to set the standard in
application into a full-service proposition offering ring
sophisticated and fashionable feature-rich phones,
tones, full-track downloads, games, wallpapers and
phones – sony ericsson
themes. The extended service, rebranded PlayNowTM
Arena, will be fully integrated with the TrackIDTM music
discovery service enabling consumers to discover,
try and obtain new music direct to their mobile
phones. Sony Ericsson is committed to helping
operators drive traffic while giving consumers access
to new music and content that bring the features of
their mobile phone to life.
Sony Ericsson continued to broaden its accessory
portfolio. From Bluetooth headsets, car kits, music
speakers and Bluetooth watches that discretely tell
the owner who is calling, Sony Ericsson finds attrac-
tive ways to extend the features and user benefits
of its phones.
GOING FORWARD
Sony Ericsson continues to develop a
broader range of products with a further
Number of
units shipped (million)
103.4
74.8
51.2
42.3
27.2
expansion into the low- to mid-range device
2003 2004
2005
2006
2007
market while maintaining margins and
profitability. Its higher-end models continue
to build brand awareness. In 2008,
PlayNow™ Arena will deliver a wider range
of content, including games, themes, and
Sales (million Euro)
12,916
10,959
7,268
6,525
4,673
millions of music tracks and thousands of
2003 2004
2005
2006
2007
mastertones from major and independent
labels. With an expanded multimedia
experience, Sony Ericsson is in position to
build on its strong performance in 2007.
Income before
taxes (million Euro)
1,574
1,298
486
512
-130
2003 2004
2005
2006
2007
21
phones – sony ericsson Our people and culture
- key to Ericsson's success.
corporate Responsibility
We pursue a number of
activities to maximize positive
social, ethical and
environmental effects and to
control risks.
Risks are controlled through
several Company initiatives
and policies, including the
Code of Business Ethics, the
Environmental Management
System and the Code of
Conduct. Benefits of our
technology are promoted via
the development of an energy-
lean product portfolio and by
highlighting the positive socio-
economic contributions that
communications bring to
markets.
For more, please see
Ericsson’s Corporate
Responsibility Report:
Our core values
Ericsson's code of business Ethics
Ericsson’s position as a world-class company starts
Our Code of Business Ethics summarizes the poli-
with our people.
cies and directives that govern the relationships
Respect, professionalism and perseverance are the
among our internal and external stakeholders. The
values at the foundation of our culture. For decades,
Code has been translated into more than 20 lan-
they have served as guidance in our daily work – how
guages to ensure all employees understand our
we relate to people and how we do business.
policies, our directives and the importance of con-
Among the most important components of an
ducting all business activities in an ethical manner.
organization is a committed base of employees, and
All employees must regularly review the Code and
Ericsson today has a global workforce of 74,000
agree to its principles.
employees. During 2007, our annual measurement of
For more details, please see Ericsson’s Corporate
employee satisfaction (measured as Human Capital
Governance Report 2007.
Index) reached 70 percent, which puts us among
elite companies – 60 percent satisfaction is regarded
as an area of strength.
During the past year, we have worked hard to
ensure a smooth integration of the companies we
have acquired. To be successful, systems and
processes must be aligned. Most importantly,
however, the people must know they are part of the
Ericsson culture.
Furthermore, continuous personal competence
development is essential for us to supply and sup-
port our customers in a demanding and changing
marketplace. To ensure they have the right tools,
Diversity at Ericsson
Ericsson’s workplace is characterized by respect for
individuals and their contributions to innovation,
customer success and performance at all levels.
Ours is an environment in which people of different
backgrounds with a multitude of perspectives, values
and beliefs are assets to the organization and the
teams in which they interact.
Diversity is integrated and communicated throughout
Ericsson. It is at the heart of our core value of “Respect,”
in which we emphasize equal opportunities.
www.ericsson.com/corporate_
methods and skills necessary to succeed in their
responsibility
roles, all employees have their own individual compe-
tence plans and update them each year.
22
our people and culture A
Björn Olsson
Executive Vice President
and deputy head of
Business Unit Networks
Born: 1956
Shares held:
60,196 Class B
b
hans Vestberg
Executive Vice President,
Chief Financial Officer
and head of Business
Unit Global Services
c
Marita hellberg
Senior Vice President and
head of Group Function
Human Resources
& Organization
D
Joakim Westh
Senior Vice President and
head of Group Function
Strategy & Operational
Excellence
Born: 1965
Shares held:
45,999 Class B
Born: 1955
Shares held:
68,446 Class B
Born: 1961
Shares held:
135,744 Class B
E
Carl-henric Svanberg
President and CEO
and member of the Board
of Directors
Born: 1952
Shares held:
15,781,966 Class B
F
Carl Olof Blomqvist
Senior Vice President,
General Counsel and
head of Group Function
Legal Affairs
Born: 1951
Shares held:
6,080 Class A
70,424 Class B
A
c
D
b
F
E
G
H
I
J
K
G
henry Sténson
Senior Vice President and
head of Group Function
Communications
H
Kurt Jofs
Executive Vice President
and head of Business
Unit Networks
I
Jan Wäreby
Senior Vice President
and head of Business
Unit Multimedia
Born: 1955
Shares held:
59,128 Class B
Born: 1958
Shares held:
260,106 Class B
Born: 1956
Shares held:
167,746 Class B
J
håkan Eriksson
Senior Vice President,
Chief Technology Officer
and head of Group
Function Technology
K
Bert Nordberg
Executive Vice President
and head of
Group Function
Sales & Marketing
Born: 1961
Shares held:
43,679 Class B
Born: 1956
Shares held:
57,841 Class B
The number of shares held includes
holdings by related natural or legal
persons.
Up to October 24, Karl-Henrik Sundström, former
Executive Vice President and Chief Financial Officer and
head of Group Function Finance, was a member of the
Group Management Team.
From January 1, 2008, Jan Frykhammar was appointed
Senior Vice President and Head of Business Unit Global
Services, and is also a member of the Group Manage-
ment Team.
23
ThE GROUP MANAGEMENT TEAMthe group management team According to our Articles of Association, the Board of
Directors shall consist of a minimum of five and a maxi-
mum of twelve directors, with no more than six deputies.
The directors shall be elected each year at the Annual
General Meeting for the period up to and including the
following Annual General Meeting. Under Swedish law,
unions have the right to appoint three additional direc-
tors and their deputies to the Board. Our Directors
(as of December 31, 2007) are as follows:
A
Karin Åberg
Deputy employee
representative
Born: 1959
b
Torbjörn Nyman
Employee representative
c
Monica Bergström
Employee representative
Member of the
Finance Committee
Member of the
Remuneration Committee
First appointed: 2007
Born: 1961
Born: 1961
Shares held:
4,877 Class B
First appointed: 2004
First appointed: 1998
Shares held:
15,061 Class B
Shares held:
4,757 Class B
D
Sir Peter L. Bonfield
Member of the
Audit Committee
Born: 1944
First elected: 2002
Shares held:
22,000 Class B
E
Nancy McKinstry
Member of the
Remuneration Committee
F
Börje Ekholm
Member of the
Remuneration Committee
Born: 1959
First elected: 2004
Shares held: None
Born: 1963
First elected: 2006
Shares held:
108,803 Class B
G
Sverker Martin-Löf
Deputy Chairman of the
Board of Directors
Member of the
Audit Committee
Born: 1943
First elected: 1993
Shares held:
52,000 Class B
H
Michael Treschow
Chairman of the
Board of Directors
Chairman of the
Remuneration Committee
Member of the
Finance Committee
Born: 1943
First elected: 2002
Shares held:
820,043 Class B
I
Marcus Wallenberg
Deputy Chairman of the
Board of Directors
Chairman of the
Finance Committee
Born: 1956
First elected: 1996
Shares held:
710,000 Class B
J
Anders Nyrén
Member of the
Finance Committee
Born: 1954
First elected: 2006
Shares held:
33,428 Class B
A
b
c
D
E
F
G
H
I
J
K
l
M
N
O
P
K
Ulf J. Johansson
Chairman of the
Audit Committee
l
Carl-henric
Svanberg
President and CEO
Born: 1945
First elected: 2005
Shares held:
32,176 Class B
Born: 1952
First elected: 2003
Shares held:
15,781,966 Class B
M
Katherine M.
hudson
Born: 1947
First elected: 2006
Shares held:
102,000 Class B
N
Jan hedlund
Employee representative
Member of the
Audit Committee
Born: 1946
First appointed: 1994
Shares held:
2,040 Class B
O
Anna Guldstrand
Deputy employee
representative
P
Kristina Davidsson
Deputy employee
representative
Born: 1964
Born: 1955
First appointed: 2004
First appointed: 2006
Shares held:
4,723 Class B
Options held: 900
Shares held:
3,401 Class B
The number of shares held
includes holdings by related natu-
ral or legal persons.
Carl-Henric Svanberg is the only
Director who holds an opera-
tional management position at
Ericsson.
No Director has been elected
pursuant to an arrangement or
understanding with any major
shareholder, customer, supplier
or other person.
For more information on the
Board of Directors, see our
website; www.ericsson.com.
(Information on our website does
not form part of this document.)
24
ThE BOARD OF DIRECTORSthe board of directors letter from the chairman
of the Board
Dear shareholder,
company today and for the future.
While this year was a dynamic and eventful one for ericsson, it
it is therefore essential that
was a disappointing time for you as an investor. Just as you
executive remuneration policies
suffered from the significant share price decline, so did many
and practices are competitive and
ericsson employees and Board members. at least some part of
in line with industry norms. a
this development reflects the general sentiment affecting most
thorough assessment of the
listed companies.
current remuneration system by
no doubt, ericsson’s third quarter result was a negative
external experts shows that the
surprise to all of us, but the company is stronger than ever,
company’s remuneration plan is
remains financially healthy and will pay a dividend the same as
appropriate and reasonable.
last year’s. i am confident about ericsson’s longer-term pro-
During 2007, in particular, i was
spects and believe the current strategy is effective and should
able to visit many ericsson
not be changed.
facilities around the world. it was
When considering a more challenging market, ericsson has a
my pleasure to meet so many
good geographic distribution and a diverse customer base,
highly motivated and well-qualified employees who are totally
where no single country or customer represents more than 10
dedicated to their roles in the company’s continued vitality.
percent of sales. in addition, ericsson has the operational
i am honored to work for you as the chairman of ericsson – a
flexibility and resources to adjust to the short-term challenges of
vibrant company that plays an important role in changing the
a weaker network equipment market or increased competition,
world for the better.
while at the same time is well positioned to continue to grow
thank you for your continued support.
within services and multimedia.
the company’s position of strength is confirmed by indepen-
sincerely,
dent perception studies, in which existing and potential custom-
ers consistently rank ericsson well ahead of the competition. the
same can be said of the internal perception, with the employee
opinion survey showing that the company has now achieved a
level of excellence.
the success of any company depends on the leadership of its
management and the quality of its workforce, which means that
Michael treschow
we must engage and retain the best talent at all levels of the
chairman of the Board
ericsson annual report 2007
25
letter from the chariman of the board Board of Directors’ report
This Board of Directors’ Report includes a discussion and analysis of Ericsson’s consolidated financial statements and operational results for
2007 as well as other information. It includes forward-looking statements regarding a variety of matters, including future market conditions,
strategies and anticipated results. Such statements are based on judgments, assumptions and estimates, which are subject to risks and
uncertainties. Actual results could differ materially from those described or implied by such forward-looking statements. For further
discussion, please see ”Forward-looking Statements” and “Risk Factors.”
The discussion and analysis of the results are based on Ericsson’s consolidated financial statements, which have been prepared in
accordance with IFRS. The preparation of these financial statements requires management to apply accounting methods and policies that
involve difficult, complex or subjective judgments and estimates based on past experiences and assumptions determined to be reasonable.
The application of these judgments, estimates and assumptions affects the reported amounts of assets and liabilities and contingent assets
and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Under different
judgments, assumptions or estimates, these amounts could differ materially.
Please see Notes to the Consolidated Financial Statements – Note C2, “Critical Accounting Estimates and Judgments,” for more
information about the accounting policies we believe to have the most significant effect on Ericsson’s reported results and financial position.
The external auditors review the quarterly interim reports, perform audits of the annual report and report their findings to the Board’s Audit
Committee.
The terms “Ericsson”, “the Group”, “the Company”, and similar all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries. Unless
otherwise noted, numbers in parentheses refer to the previous year (i.e. 2006).
Summary
ericsson increased sales by 4 (17) percent to seK 187.8 (179.8)
billion in 2007. organic growth (i.e. excluding acquisitions) was 8
percent in constant currencies. in an environment with a
• increasing market share in professional services through new
managed services contracts, especially in Western europe.
• refinancing maturing borrowings and increasing committed
credit facilities for greater financial flexibility and improved
significantly weaker us dollar affecting reported sales and
credit ratings.
income negatively, ericsson still produced one of the highest
• attaining the position as the fourth largest mobile phone
incomes of its 130-year history. net income attributable to
supplier through the sony ericsson joint venture.
stockholders of the parent company was seK 21.8 (26.3) billion.
earnings per share attributable to stockholders of the parent
During the year, the company announced a significant number of
company was seK 1.37 (1.65). cash flow from operating
new or expanded agreements to supply network equipment and/
activities was seK 19.2 (18.5) billion. cash flow before financing
or related services to operators around the world. the aggregate
activities was seK –8.3 (+ 3.6) billion, after investments for
value from these agreements was the highest in five years.
acquisitions of seK 26.3 (18.1) billion.
the company’s good progress has been somewhat tempered
ericsson made good progress in strategically important areas
by a change in business mix within the networks segment. the
such as:
• securing scale advantages by significantly increasing mobile
systems market share, especially in emerging markets such as
business mix now has a higher proportion of break-in contracts
and contracts with large content of network rollout services and
third party products which negatively affects gross margins.
china, india, russia and africa.
adding to this effect is the ongoing shift to new switching
• strengthening the company’s position within the networks
technologies, where the company is building a new footprint
segment in fixed broadband access and transmission as well
which has similar competitive characteristics, e.g. open bidding
as ip routing.
process, as new network buildouts.
• Making complementing acquisitions to strengthen ericsson’s
competence and product portfolio in ip technology, iptV and
multimedia.
in the third quarter, there was an unexpected shift in the
business mix, with a relatively higher proportion of new network
sales and a lower proportion of expansions and upgrades sales,
26
ericsson annual report 2007
Board of directors’ report sales development 2005 –2007 (seK billion)
Market Environment and Trends
200
150
100
50
0
179.8
187.8
153.2
2005
2006
2007
this was another record year for mobile communications with
some 586 (500) million new subscriptions and over 1100 (980)
million mobile phones shipped. as expected, overall growth of
the network equipment market during the first half of the year
was similar to 2006 but then unexpectedly slowed during the
third quarter. using mobile operator capital expenditures
spending estimates as a proxy for the mobile network equipment
market, we believe the mobile systems market grew slightly
below the company’s expectation of mid-single digits.
at the end of 2007, the 3.3 (2.7) billion mobile subscriptions
worldwide represented a global subscription penetration of 49
(41) percent. (note: the number of actual individual mobile
resulting in significantly lower margins. this triggered the profit
subscribers is significantly lower, perhaps some 15–20 percent
warning which caused the share price to decline significantly.
but possibly more, because of inactive subscriptions and people
although the degree and speed of margin compression within
having multiple subscriptions.)
networks was unexpected, some degree of volatility and
the company expects the number of mobile subscriptions to
deviations from forecasts is likely to occur in any network
grow to more than 4 billion during 2009, thus creating further
equipment vendor’s quarterly results.
need for new and expanded mobile networks and corresponding
professional services sales, especially managed services,
professional services.
showed strong growth. the scale for continued profitable growth
is now well established – particularly in Western europe.
Strong growth in emerging markets
the new Multimedia segment made good progress in estab-
the historical price/performance trend in both mobile phones
lishing their operations and quickly expanding the portfolio with
and network infrastructure has expanded the addressable
several acquisitions. the company continues to invest for a
market significantly, making mobile communications affordable
leading market position in networked media and ip-based
also in emerging markets. capital spending on mobile networks
applications and services.
in emerging markets grew an estimated 17 percent and now
sony ericsson Mobile communications continued its strong
represents almost half of the total market. Developed markets
performance, profitably gaining market share and ending the year
declined an estimated 8 percent.
as the fourth largest mobile device supplier. the joint venture has
More mobile subscribers and growing average Mou (minutes
strong momentum toward its ambition of achieving a top three
of use) should sustain demand for network construction and
position. sony ericsson also contributed significantly to erics-
expansion in emerging markets. these projects are increasingly
son’s operating income and cash flow.
provided on a turnkey basis which, by its very nature, dilutes
During the year, the company acquired redback networks,
short-term margins and cash conversion because of substantial
tandberg television and lHs as well as several smaller compa-
installation, systems integration and third-party content. While
nies. these aquisitions have already helped ericsson win several
turnkey projects are likely to continue to represent a large
significant contracts. the expanded product line along with the
proportion of networks sales, these effects should decrease as
addition of specialist resources should help the company benefit
the initial phase gives way to expansions and upgrades.
in a number of growth areas related to ip, such as routing,
multimedia applications and services.
CDMA operators switching to the GSM/WCDMA track
While we believe the company is well positioned for the longer
cDMa operators around the world continue to switch to the
term and remains the most profitable among its peers, there are
GsM/WcDMa track. During 2007, cDMa operators in Brazil and
several challenges in the shorter term. these include macro-
israel made the switch and operators in india, Vietnam and new
economic and geo-political risks, exposure to the us dollar,
Zealand have decided to change. even in the us, a major cDMa
greater competition with intensified price pressure, a slower
operator has announced plans to deploy next-generation mobile
growth environment and the margin effects of an unfavorable
broadband networks using the long-term evolution (lte) of the
networks business mix. However, the company has strategies
GsM/WcDMa track.
and action plans to address these challenges.
ericsson annual report 2007
27
board of directors’ report 3G/WCDMA to soon overtake GSM
agree with the company’s assertion that lte will most likely be
although GsM continues to represent the majority of the mobile
the predominant technology for next-generation mobile broad-
systems market, its growth is slowing as 3G/WcDMa is starting
band networks.
to accelerate. Demand for new GsM networks is mainly in
emerging markets, especially asia and africa. GsM should
Bundling and flat-rate tariffs
remain the predominant technology for emerging markets in the
operator investments in fixed networks have been driven by the
near to mid-term, but the company expects 3G deployments to
need to replace lost revenues from voice that may have been
soon start in earnest in such populous countries as Brazil, china,
captured by mobile or Voip (Voice over ip) as well as from
india and russia. this along with the projected 3G network
increased competition amongst operators. a well established
expansions and upgrades in more mature markets indicate that
strategy for customer retention has been the so called triple-play
sales of 3G/WcDMa will soon overtake GsM globally.
(i.e. bundling of voice, internet and television), sometimes in
at year-end, there were nearly 180 million subscriptions on 197
conjunction with flat-rate pricing. this has accelerated the
(146) commercial 3G/WcDMa networks, of which ericsson is a
conversion to all-ip broadband networks with increased
supplier to 129 (91). the High speed packet access (Hspa)
deployments of broadband access, routing and transmission
version of 3G/WcDMa is now deployed within 166 (96) commer-
along with next-generation service delivery and revenue
cial networks in 75 (51) countries. ericsson is a supplier of 81 (46)
management systems.
of these networks, which represent the vast majority of Hspa
similarly, mobile operators are also turning to bundling and
users. Despite this growth, the number of potential subscribers
flat-rate pricing, especially when combining mobile voice with
covered by commercial 3G/WcDMa networks is less than a third
mobile broadband. this trend is expected to accelerate with the
of those covered by 2G/GsM services. this provides a significant
introduction of mobile tV. in developing markets, voice and text
opportunity for equipment suppliers to upgrade 2G networks to
messaging remain the primary services. since there are limited
3G.
fixed networks available in such markets, mobile broadband will
become increasingly important as the demand for internet
LTE becoming main choice for next-generation mobile
access grows.
broadband
in such a converged world with more and more ip related
as consumer demand for higher speed mobile data services,
services, the demand for systems integration services is
accelerates, especially for video, operators must find ways to
expected to continue to grow strongly.
reduce costs and improve service performance to meet this
demand. unlike WiMax or ultra Mobile Broadband (uMB), two
Operator consolidation
alternative radio technologies, lte has the advantage of
operator consolidation continues in several regions. in the
providing an evolutionary path that leverages existing GsM/
americas, consolidation has reduced the number of operators by
WcDMa as well as cDMa networks. the company believes that
more than half. in europe, mergers continue as well as other
an lte-based network offers more compelling life-cycle
types of combinations, such as network sharing and outsourcing
economics to an operator than alternative technologies. this is
of network operations. in other regions, operator consolidation
the main reason ericsson has chosen not to invest in WiMax or
has led to the emergence of rapidly growing pan-regional
uMB.
operators, particularly in the ceMa markets (central and eastern
the company’s commitment to, and substantial r&D invest-
europe, Middle east and africa).
ment in, lte has received strong support from the largest
although operator consolidation does not impact the underly-
operators in the industry. Verizon and Vodafone, joint owners of
ing growth of the mobile market, it often disrupts market
u.s. based Verizon Wireless, announced plans to deploy
development by creating delays in procurement, reducing total
next-generation mobile broadband networks using lte. they
capital expenditures, while increasing pricing pressure on
have a coordinated trial plan for lte that begins in 2008 with
vendors as the combined entities have stronger negotiating
ericsson as one of the suppliers. More recently, ntt DocoMo
power.
announced that they had selected ericsson to supply lte-based
network infrastructure in Japan. in addition, china Mobile and
Network sharing
at&t Wireless recently announced that they would follow the
the overall impact of network sharing will ultimately be neutral for
lte-path. ericsson is currently a major supplier to both of these
mobile equipment vendors. to a certain extent, short-term
operators. We are encouraged by this strong momentum and
disruption of capital expenditure plans or re-negotiation of
28
ericsson annual report 2007
Board of directors’ report contracts with the network sharing companies may be somewhat
term. this trend is most pronounced for highly penetrated GsM
compensated by increased sales of professional services,
networks, in which demand for upgrades and expansions has
especially network integration and managed operations. over the
rapidly diminished as operators spend more to expand and
longer term, the majority of savings will come from shared plant
enhance their 3G networks.
and property as the equipment has to be dimensioned for the
peak traffic demand of the combined networks.
Price/performance developments create opportunities as well
as challenges
Good growth opportunities for managed services and
a continously improving price/performance ratio driven by
systems integration
technological development enlarges the mobile communications
compared with network deployment services, which tend to
market by making the cost of services affordable to more and
grow more or less in line with the equipment market, demand for
more of the world’s population. But it can also hurt vendors that
managed services (i.e. network operation and hosting services)
do not stay ahead of the technology cost curve. scale is
as well as systems integration is growing more rapidly. the
essential to ericsson’s ability to sustain the large r&D program
potential market for network operation services is larger than the
needed for technological leadership. Moore’s law implies that
potential market for network equipment and related deployment
the processing speed, capacity and capabilities of digital
services. a mature operator is estimated to typically spend some
electronics will improve exponentially at an ever lower cost and
5–6 percent of annual sales on equipment to build a network, but
size. this affects communications technology as it does other
spends approximately 10–12 percent of sales to operate that
areas of digital technology. normal price erosion and continous
network. More than 75 percent of network operation expenses
improvements in spectrum utilization have historically been offset
today are believed to be handled in-house by operators but they
by unit volume increases.
are increasingly being outsourced as operators realize the
competitive advantages and potential cost savings. consequent-
Technology shift affecting product mix
ly, the market for such managed services is expected to show
since operators can build and operate softswitch-based
good growth prospects going forward.
networks much more economically compared to a monolithic
circuit switch, operators are motivated to replace the circuit
Network development increasingly driven by non-voice traffic
switch with softswitching rather than to continue spending on
rather than enhancing their legacy voice-centric installed base,
older technology. this trend is accelerating, and softswitches
the company expects operators to increasingly target spending
now represent the vast majority of shipped capacity but only
on next-generation communications equipment that will raise
account for slightly more than half of ericsson’s switch sales. this
revenues by enabling new services and/or reduce operating
growth is masked by the decline in legacy circuit switching sales.
costs. therefore, ericsson believes the following key technolo-
Furthermore, since these are initial deployments, the margin
gies will drive industry growth for the next several years: mobile
profile is that of new business but is creating an installed base for
broadband; ip and multi-service switching; fixed broadband
future sales. this shift, like all others, will eventually reach a
access and iptV; Voip and ip multimedia subsystems (iMs); and
steady state and the underlying growth will become visible.
metro optical and radio transmission. Finally, ericsson expects
operators to accelerate the transition from legacy technologies
Evolving competitive landscape
such as tDM (circuit) switching and atM (packet) in favor of
the need for scale in r&D, production and support has led to
ip- (ethernet) based technologies for both switching and
consolidation among our competitors. this could have chal-
transmission; all areas which the company continues to invest
lenged ericsson’s scale advantage within mobile networks. the
heavily in.
company chose to defend its competitive position through
notwithstanding the positive trends in mobile broadband, with
organic growth rather than with disruptive and high risk mega-
rapidly increasing data traffic, market conditions for mobile
mergers. the rapid market share gains indicate the success of
network equipment are expected to remain challenging in
this strategy but it has come at a certain cost, as price levels for
developed markets. ongoing operator consolidation, especially
some contracts have been very competitive. With a scale
in Western europe, where the technology shift for more efficient
advantage reestablished, the company will now focus more on
networks, as well as changing regulations, such as price caps for
capitalizing on these gains and its leading position to derive more
roaming and lower call termination fees, is affecting operator
follow-on sales of expansions and upgrades from the enlarged
willingness and need to increase network investments in the near
installed base.
ericsson annual report 2007
29
board of directors’ report price competition for mobile networks – for winning new
trade growth, we are doubtful if these emerging economies are
contracts and strategically increasing market share for a scale
resilient enough to be unaffected in the event of a material
advantage – was intense again this year, especially against
slowdown in the us and major Western european markets.
chinese competitors. although these competitors have in-
We do not want to postulate a view on how the global
creased their market share, especially in china, ericsson has
economy will develop, but we believe that if an economic
also increased its market share, including in china.
recession should occur it would have a less pronounced impact
New radio spectrum being allocated
on mobile networks demand than in the recession of 2001–2003.
operator balance sheets are much healthier now and there is
Much needed radio spectrum is being allocated to mobile
significantly greater geographic diversification where emerging
communications as frequency bands previously used for analog
markets now account for a much larger and faster growing
tV broadcasting are made available. late in the year, sweden
portion of network investments. in addition, mobile operator
was one of the first markets to make the change. in the us,
capital expenditure spending is not at unsustainably high levels
auctions are scheduled for the first half of 2008. other markets
and networks are well utilized unlike during the last market
are expected to follow during the coming years. in addition, a
downturn.
number of mobile operators have started to refarm their existing
spectrum in the 850/900 MHz bands for 3G/WcDMa buildouts,
Goals and Results
where allowed by regulators. Due to superior radio propagation
our ultimate goal is for the company to generate growth and a
characteristics at lower frequencies, an operator can potentially
competitive profit that is sustainable over the longer term.
build a network with significantly fewer cell sites for a much lower
ericsson aims to be the preferred business partner to its
total cost of ownership compared with 1900/2100 MHz spectrum.
customers; especially to the world’s leading network operators
Global economic development
by being the market and technology leader for the supply and
operation of network infrastructure. as the market leader, the
although the company expects the market conditions of 2007 to
company uses economies of scale to develop superior products
continue during 2008, the most recent economic outlook from
and services that provide competitive advantages. in addition,
the organization for economic cooperation and Development
when ericsson’s network equipment and associated services are
(oecD) forecasts a slowdown in real GDp within the 30-nation
combined with its multimedia solutions and mobile handsets
oecD area but a continued ”brisk growth” in such emerging
from the sony ericsson joint venture, the scope of ericsson’s
economies as Brazil, china, india, and russia. However, while
operations extends to complete end-to-end telecommunication
we agree that emerging markets contribute significantly to world
solutions.
ericsson customer satisfaction
ericsson employee satisfaction
90
80
70
60
50
World class
Excellence
Acceptable
Ericsson Group
Peer Group Average
2004
2005
2006
2007
80
70
60
50
40
Excellence
Strength
Potential
Improvements
needed
2001
2003
2005
2007
30
ericsson annual report 2007
Board of directors’ report sales & operating margins 2004 –2007
Value creation
60
50
40
30
20
10
0
SEK billion
Percent
Q1 Q2 Q3 Q4
2004
Q1 Q2 Q3 Q4
2005
Q1 Q2 Q3 Q4
2006
Q1 Q2 Q3 Q4
2007
60
50
40
30
20
10
0
Operating margin including Sony Ericsson
Operating margin excluding Sony Ericsson
although margins fell below the levels of the last several years,
the company strengthened its market position and continues to
perform better than its peers. a strong balance sheet, flexible
operational model and a strengthened industry-leading position
provide the means for handling any near-term pressure on
margins. in the longer term, the increased market share and
footprint enlarges the opportunity for future sales of expansions
and upgrades.
Management has several metrics by which they measure the
company’s progress relative to their ambitions:
• increase sales at a rate faster than the market growth.
as previously mentioned, we believe the mobile systems
market grew slightly below the company’s expectation of
mid-single digits in usD terms. ericsson’s mobile systems
sales increased by 9 (15) percent in constant currencies, the
professional services market showed good growth and
We monitor the company’s performance according to three
ericsson’s professional services sales grew by 19 percent in
fundamental metrics: customer satisfaction, employee satisfac-
constant currencies, compared with an estimated market
tion and value creation. We believe that highly satisfied custom-
growth of approximately 12–14 percent;
ers along with empowered and motivated employees help to
• Deliver best-in-class operating margin, i.e. better than the main
assure an enduring capability for competitive advantage and
competitors.
value creation. the company’s objective is to have a leading
With an operating margin of 13 (17) percent for the Group
market share, a faster than market sales growth, a best-in-class
excluding sony ericsson, ericsson’s operating margin
operating margin and a healthy cash conversion.
continued to be the highest among its main competitors;
Customer satisfaction
• Generate cash conversion of over 70 percent.
the cash conversion for the full year was 66 (57) percent.
every year, a customer satisfaction survey is independently
reflecting an increased focus on cash flow, a longer-term cash
conducted by the cFi Group, in which approximately 9,000
conversion target of over 70 percent was introduced and
employees of some 380 fixed and mobile operators around the
communicated during 2007. the company also communicated
world are polled to assess their satisfaction with ericsson
that this target was unlikely to be achieved shorter term, mainly
compared to its main peers. this year’s results show a continued
due to continued expansion of large turn-key projects in
upward trend and ericsson was ranked as excellent while the
emerging markets and demand from customers for more favor-
company’s peers were ranked on average as acceptable.
able payment terms. During 2007, the company also launched
Employee satisfaction
a strategic Focus area addressing cash flow to secure
continous improvements in our sourcing, supply and sales
every year, an employee survey is independently conducted by
processes.
research international. in 2007, 90 (90) percent of ericsson
the cash conversion is expected to gradually improve as a
employees participated in this survey. the results show a
result of this program and as the growth in turn-key projects
continued upward trend, especially in the Human capital index,
slows down to be more in line with the Group’s overall growth.
which measures employee contribution in adding value for
customers and meeting business goals. ericsson has now
reached a level considered excellent by external benchmarking.
ericsson annual report 2007
31
board of directors’ report Sales
number of years. However, the economics of the newer technol-
Group sales grew 4 (17) percent, driven by higher professional
ogy is such that operators are increasingly replacing their legacy
services sales. acquisitions contributed an estimated 1.5
switch nodes rather than continuing to invest in them. Bidding for
percentage points. With the average usD exchange rate some 9
the replacement opens the installed base to competition, but the
percent lower, fluctuations in foreign exchange rates had a rather
company is building an even larger installed base by capturing
significant negative effect on reported sales as approximately 50
an increased market share. However, the growing sales of
percent of sales were usD related.
softswitches are currently insufficient to offset the more rapid
sales decline of legacy circuit switching expansions and
sales per region and segment 2007
upgrades.
SEK billion
Western europe
ceMa 1)
asia pacific
latin america
north america
total
share of total
percent change
profes-
sional Multi-
works services media
net-
percent
Total change
28,085
36,435
43,101
12,972
8,392
128,985
69%
1%
17,287
8,305
9,061
4,274
3,965
7,313 52,685
3,921 48,661
2,467 54,629
1,137 18,383
1,065 13,422
42,892 15,903 187,780
100%
4%
23%
16%
8%
14%
–1%
5%
14%
12%
–15%
4%
1) central and eastern europe, Middle east and africa
Segment Networks
sales
of which network rollout
operating income
operating margin
eBitDa margin
2007
percent
2006 change
128,985 127,518
16,410
18,507
21,722
17,398
17%
13%
22%
19%
1%
13%
–20%
price competition remains intense and has also affected
margins, but network’s gross margin development has been
more affected by the business mix shift. the company’s success
in replacing competitors’ installed base with certain operators to
more rapidly gain market share has also been a significant part of
this development. the company has in some cases offered to
share in the cost of the change-out with the operator for the
opportunity to enlarge the installed base.
sales of optical and microwave transmission systems to fixed
as well as mobile operators showed good growth. overall sales
of fixed networks, however, grew in line with the market. the
company’s ambition is to grow faster than the market. in support
of this, the company has significantly strengthened its offering by
combining ericsson’s own products with those acquired with
redback networks and entrisphere.
Furthermore, ericsson is using redback as the platform to
combine and focus all of its ip efforts under one organization and
leadership headquartered in silicon Valley. We believe this
concentration of resources will be sufficient for redback to
Mobile network buildouts, especially in emerging markets,
seriously challenge the market leaders.
represented the majority of sales. sales of related network rollout
the alignment of ericsson’s and redback’s sales channels is
services grew 13 percent to seK 18.5 billion during 2007,
progressing according to plan, but with some dampening effects
reflecting increased demand for turnkey projects and a larger
on redback’s sales growth during the transition. lower sales of
market share in mobile systems. the company reported mobile
domestic legacy products in the us have been offset by
systems sales growth of 3 percent; however, using constant
increased sales of new products internationally. in combination
currencies, management estimates that such sales grew by
with ericsson, redback finished the year with 87 new customers
approximately 9 percent.
in 68 countries and now counts 15 of the top 20 fixed network
networks’ business continues to grow where network
operators and three of the top mobile operators amongst its
buildouts and break-in contracts are predominant and price
customer base of more than 300 operators. We remain optimistic
competition is most intense. such lower gross margin sales have
regarding growth opportunities for all-ip networks with ip routing,
been historically balanced by sales of products with a typically
iMs, broadband access and transmission. the company
higher gross margin. ericsson’s market share gains, including
continues to invest in these areas, with the ambition to be the
many large turnkey projects, combined with relatively lower sales
first vendor to be able to converge fixed and mobile networks on
of upgrades and expansions has unfavorably altered the
one platform – offering operators significant savings and new
business mix resulting in lower margins.
revenue opportunities.
the ongoing technology shift from circuit-switched core
networks to softswitch solutions has also negatively affected
networks sales and margins. With an economic life of 10–12
years, this transition would reasonably be expected to take a
32
ericsson annual report 2007
Board of directors’ report
Segment Professional Services
level as investments to build a leading position in networked
sales
of which managed services
operating income
operating margin
eBitDa margin
2007
42,892
12,172
6,394
15%
16%
percent
2006 change
media and messaging continues. the ambition is to be the key
enabler for new services and applications based on iptV, iMs
16%
28%
20%
36,813
9,491
5,309
14%
15%
and content aware billing solutions.
this was a year of direction setting, organizing existing
strengths and supplementing these areas with acquisitions. With
the exception of enterprise solutions, sales opportunities for
Multimedia show a positive trend, and the integration of the
professional services sales were particularly encouraging,
acquisitions are well on track. Multimedia solutions made good
growing at 16 percent to seK 42.9 billion. Growth measured in
progress with new business development, especially for mobile
local currencies amounted to 19 percent compared with an
platforms and revenue and service management systems.
estimated market growth of some 12–14 percent. Managed
ericsson is now a mobile platform supplier to nineteen handset
services sales grew by 28 percent to seK 12.2 (9.5) billion, as the
manufacturers, including 4 of the top 10. However, sony
company continued to win contracts for network operations and
ericsson continues to account for the majority of the volumes.
hosting services. at year end 2007, ericsson-managed network
this year was a transition year for tandberg television, as the
operations served approximately 185 (100) million users.
long process to complete the acquisition disrupted their
operating margin is stable in the mid-teens despite the higher
momentum early in the year. However, since completion of the
proportion of managed services. this is mainly due to successful
acquisition, tandberg has shown progressive sales growth and
transformation of operations undertaken to the ericsson ways of
has now regained their momentum as market leader. entering
working and continuous cost optimization of the managed
2008, the company believes tandberg is well positioned in terms
services businesses. a large managed services agreement in the
of operational efficiency, new product pipeline and sales
uK has been adjusted and the scope has been somewhat
momentum. tandberg is a key element of ericsson’s iptV
reduced to accommodate network sharing. this will affect
ambitions.
managed services sales but the company does not expect
a number of key deals and partnerships were closed in
margins to be affected.
Multimedia. ericsson partnered with turner Broadcasting to
ericsson won several breakthrough managed services deals
develop turner’s content for internet, broadcast news and
during the year, including a pan-european multi-vendor spare
entertainment, including cnn international and the cartoon
parts management agreement with Vodafone, managed
network for mobile multimedia environments. a global partner-
operations for parts of t-Mobile’s network in the uK, and
ship agreement was signed with endemol international B.V. to
managed operations for Deutsche telekom’s transmission
develop interactive tV and user-generated content via ericsson’s
network in Germany. in addition, more than 1,000 systems
Me-on-tV solution.
integration contracts were signed during the year, including a
the multimedia market is quickly evolving and converging:
multivendor network management solution for Wataniya algeria,
industries, (telecom, media and internet), technologies and
it development and maintenance of business support solutions
payment options. end-to-end revenue management solutions
with telecom italia, and a slovakia border control solution as part
must be able to handle convergent technologies including
of the schengen boundary expansion.
ip-based broadband services, a variety of business models and
Segment Multimedia
sales
operating income
operating margin
eBitDa margin
partner relationships, as well as be payment-option agnostic.
ericsson acquired lHs to form a strong constellation of prepaid
2007
percent
2006 change
and postpaid solutions ready to immediately capture this
opportunity. ericsson’s leadership in real-time charging and
15,903
–135
–1%
4%
13,877
714
5%
6%
14%
mediation, together with the leading billing and customer care
solutions of lHs, make the combined companies a leading player
in revenue management and significantly strengthen ericsson’s
overall multimedia offering.
sales growth for the newly formed segment amounted to 14
entering 2008, the Multimedia segment is now established
percent, driven mainly by acquisitions. organic growth was 2
and focus will continue on supporting service providers to be
percent and reflects a challenging comparison to prior year’s
able to offer a superior user experience to their customers.
results. the segment is operating on a more or less break-even
ericsson annual report 2007
33
board of directors’ report
Segment Phones
services. Multimedia showed mixed results over the year and in
see sony ericsson Mobile communications under partnerships
general is performing at a break-even level despite the large r&D
and Joint Ventures.
Regional Overview
investments in iptV and iMs. sony ericsson contributed 3.8 (3.2)
percentage points to the operating margin.
operating margin was lower as a result of networks’ gross
ericsson’s sales distribution between developed and developing
margin facing unexpected pressure during the second half of the
(emerging) markets within the networks business continues to
year. operating expenses as a percentage of net sales increased
shift toward emerging markets, which now accounting for 52 (46)
slightly. some of the acquired companies had a higher propor-
percent of sales which indicates a growth of some 14 percent in
tion of operating expenses relative to sales. the company also
these markets. considering that most sales in emerging markets
increased sales and marketing expenses to support the
are in some way linked to the usD, underlying growth in constant
integration and personnel training of ericsson’s sales and
currencies was even more significant.
marketing staff to support the broader product portfolio.
sales in market areas asia pacific, ceMa and Western europe
With a slower market growth and increased pressure on
are of similar volumes, but the business mix differs significantly.
margins, the company will need to make larger than normal cost
asia pacific is mainly driven by new networks and expansion of
reductions. therefore, an acceleration of operational excellence
network coverage to accomodate strong subscriber growth,
(i.e. process efficiency) activities will be undertaken. cost
whereas sales growth in Western europe is driven by managed
savings of seK 4 billion will be made with full effect in 2009. all
services and higher demand for mobile broadband and broad-
parts of the business will be affected. the main focus areas are
band transmission. Despite continued buildout of 3G along with
sG&a, sourcing, supply and service delivery. the one-time
Hspa upgrades, overall sales of mobile systems in Western
charges are estimated to be seK 4 billion, which will be taken as
europe declined as operators invested less in GsM. the ceMa
each activity is decided.
region is more like asia pacific, although central and eastern
europe are maturing rapidly in terms of GsM subscriber
Other income statement items
penetration. the americas are gradually returning to growth,
ericsson’s 50 percent share of sony ericsson Mobile communi-
which is driven mainly by 3G deployments and professional
cations’ pre-tax income increased from seK 5.9 billion in 2006 to
services. asia pacific became the largest region in terms of sales,
seK 7.1 billion in 2007.
with turnkey network construction projects as the main growth
other operating income declined to seK 1.7 billion from seK
contributor. GsM remains the predominant technology in the
3.9 billion in 2006, when ericsson made a capital gain upon the
region, but 3G deployments have begun in several countries with
divestment of the Defense business.
additional licenses expected to be issued in additional countries
the financial net decreased slightly from seK 0.2 billion in
during 2008. similarly, 3G deployments are underway or about to
2006 to seK 0.01 billion in 2007 due to reduced cash and
begin in emerging markets such as russia, Brazil and india. We
increased borrowings.
continue to await china’s decision on 3G deployments, but
income after financial items was seK 30.7 (36.0) billion.
demand for GsM continues in the meantime. although domestic
net income attributable to stockholders of the parent
suppliers have become more competitive and increased their
company decreased to seK 21.8 (26.3) billion. Diluted earnings
share, ericsson has maintained its market position in china. the
per share were seK 1.37 (1.65).
company expanded its leading position in rapidly growing india,
while political unrest in certain markets negatively affected sales
Balance Sheet
particularly during the second half of the year.
total assets amounted to seK 245.1 (214.9) billion at year-end.
Margins and operating expenses
the main items contributing to the 14 percent increase were
assets related to acquisitions and higher trade receivables,
the company’s ambition is to generate a competitive return on
reflecting high seasonal business activity in the last quarter of the
sales. With best-in-class operating margins of 16 (20) percent
year due to a higher completion rate of large projects, especially
and 13 (17) percent excluding sony ericsson, the company
in markets with longer payment terms.
continued to perform well, albeit at lower than recent year’s
Deferred tax assets decreased by seK 1.9 billion net to seK
levels due to the development within networks previously
11.7 billion. utilization of tax loss carryforwards was seK 2.5
described. professional services’ operating margins were stable
billion while acquisitions added seK 2.0 billion during the year.
at 15 (14) percent even with the strong sales growth of managed
net cash decreased from seK 40.7 billion to seK 24.3 billion,
34
ericsson annual report 2007
Board of directors’ report mainly as a result of acquisition and build up of working capital
for turnkey projects.
Maturing borrowings were refinanced. long-term committed
credit facilities were increased from usD 1 billion to usD 2 billion
to improve flexibility to manage volatility if necessary. payment
readiness was 64.7 (67.5) billion.
equity increased to seK 135 (120.9) billion and the equity ratio
decreased to 55.1 (56.2) percent.
return on capital employed (roce) was 20.9 percent
compared to 27.4 percent in 2006.
cash flow
SEK billion
income reconciled to cash
changes in operating net assets
cash flow from operating activities
cash flow from investing activities
cash flow before financing activities
cash flow before financing activities
adjusted for acquisitions/divestments
and short-term investments
cash flow from financing activities
cash conversion 2)
2007
2006
2005 1)
29.3
–10.1
19.2
–27.5
–8.3
32.5
–14.0
18.5
–14.9
3.6
35.1
–10.0
25.1
1.0
26.1
14.4
6.3
66%
12.4
–15.4
57%
19.6
–6.1
72%
return on capital employed 2005 –2007
1) excluding pension trust fund (sweden).
2) cash flow from operating activities divided by net income reconciled to cash.
2005
2006
2007
Off balance sheet arrangements
percent
28.7
27.4
20.9
cash flow from investing activities was seK –27.5 (–14.9) billion,
of which seK –26.3 (–18.1) billion were used for acquisitions, seK
–4.7 (3.0) billion for capital expenditures and other investment
activities and seK 3.5 (6.2) billion in short-term investments.
cash flow before financing activities adjusted for the major acqui-
there are currently no material off-balance sheet arrangements
sitions/divestments as well as the short-term investments
that have or would be reasonably likely to have a current or
amounted to 14.4 (12.4) billion. cash flow from financing activities
anticipated effect on the company’s financial condition, revenues
was seK 6.3 (–15.4) billion and mainly consisted of a bond issue
or expenses, results of operations, liquidity, capital expenditures
in the second quarter of seK 11.1 billion less shareholder
or capital resources that is material to investors.
dividends of seK 7.9 billion. in certain countries, there are legal
Cash flow
or economic restrictions on the ability of subsidiaries to transfer
funds to the parent company in the form of cash dividends,
cash flow from operating activities was seK 19.2 (18.5) billion, of
loans or advances. such restricted cash amounted to seK 5.8
which seK 12 (11) billion was generated in the fourth quarter. the
(5.8) billion.
strong ending of 2007 is mainly due to the decrease in working
inventory turnover (ito) and Days payable were improved
capital as a result of a high completion rate for turnkey projects.
somewhat compared to 2006. However, Days sales outstanding
the cash conversion improved from 57 percent in 2006 to 66
(Dso) increased due to growth in turnkey projects and in markets
percent in 2007. net operating assets increased by seK 10.1
with longer payment terms. efforts to further improve capital
billion, reflecting continued working capital build-up in turnkey
efficiency and cash conversion will continue.
projects and particulary in trade receivables (which increased by
seK 9.4 billion).
the scope of a managed services agreement was renegotiated
to allow for network sharing. this resulted in advance payments
of seK 3.2 billion, of which half affected the operational cash flow
and the other half affected financing activities.
worK ing capital efficiency measures
2007
target
2006 2005
Days sales outstanding (Dso)
inventory turnover (ito)
payable Days
<90
>5.5
>60
102
5.2
57
85
5.2
54
81
5.0
52
ericsson’s share of sony ericsson’s operating income before
tax for 2007 was seK 7.1 billion and seK 3.9 billion was received
Capital expenditures
as dividend during the year.
We continuously monitor the company’s capital expenditures
and evaluate whether adjustments are necessary in light of
market conditions and other economic factors. capital expendi-
tures are typically investments in test equipment used to develop,
manufacture and deploy network equipment. However, the
increase in capital expenditures from 2006 to 2007 came mainly
from investments needed to support the rapidly growing services
business and establish stronger presence in certain markets.
ericsson annual report 2007
35
board of directors’ report
the following table summarizes annual capital expenditures
r&d program
during the five years ended December 31, 2007:
capital eXpenditures 2003 –2007
seK billion
2007
2006
2005
2004
2003
capital expenditures
of which sweden
as percent of net sales
4.3
1.3
2.3%
3.8
1.0
2.2%
3.4
1.0
2.2%
2.5
1.1
1.9%
1.8
1.1
1.5%
expenses (seK billion)
as percent of sales
employees within r&D
at December 31 1)
patents 1)
2007
2006
2005
28.8
15.4%
27.5
15.3%
24.1
15.7%
19,300
17,000 16,500
23,000 22,000 20,000
1) the number of employees and patents are approximate.
excluding acquisitions, we do not expect capital expenditures in
During 2008, r&D expenses, including the amortization of
relation to sales to differ significantly in 2008, remaining at
intangible assets from acquisitions, are expected to remain
roughly 2 percent of sales. in addition to normal capital expendi-
roughly the same in absolute terms as for the annualized run rate
tures, there are commitments to repay seK 3.1 billion of debt.
during the second half of 2007, i.e. ~seK 30–31 billion. currency
With a net cash position at year-end of seK 24.3 (40.7) billion, we
translation effects could affect the actual level of reported
expect the company to be able to cover all capital expenditure
spending.
plans and customer financing commitments for 2008 by using
funds generated from operations with no additional borrowing
Partnerships and joint ventures
required.
During 2007, sony ericsson Mobile communications reported
We believe the properties that the company now occupies are
strong unit volume and sales increases, which caused their
suitable for its present needs in most locations. as of December
income before tax to improve significantly from last year. the
31, 2007, no material land, buildings, machinery or equipment
improved performance is mainly the result of focusing on
were pledged as collateral for outstanding indebtedness.
imaging, music and enterprise phones, while at the same time
Credit ratings
increasing the number of lower priced models. sony ericsson’s
ambition is to achieve continued profitable growth through the
Both Moody’s and standard & poor’s (s&p) credit rating
combination of technologies and expertise from their parent
agencies raised ericsson’s credit rating during 2007, although
companies to better leverage their own capabilities.
s&p lowered their outlook from stable to negative on november
each parent company was paid a dividend of eur 424 million.
27, 2007. at year-end, ratings of ericsson’s creditworthiness
the joint venture results are accounted for in accordance with the
were Baa1 for Moody’s and BBB+ for s&p, both of which are
equity method. For more information, see also notes to the
considered to be “investment Grade.”
consolidated Financial statements – note c1, “significant
accounting policies”.
ericsson credit ratings year end 2005 –2007
Moody’s
standard & poor’s
Research and development
2007
2006
2005
Baa1
BBB+
Baa2
BBB–
Baa3
BBB–
sony ericsson results 2005 –2007
percent
2007 change
2006
2005
units sold (millions)
sales (eur m.)
103.4
12,916
38%
18%
74.8
10,959
51.2
7,268
a robust r&D program is essential to ericsson’s competitiveness
and future success. With most r&D invested in mobile communi-
cations network infrastructure, ericsson’s program is one of the
largest in the industry. the efficiency of the r&D activities has
income before tax (eur m.)
net income (eur m.)
ericsson’s share of income
before tax (seK billion)
1,574
1,114
21%
12%
1,298
997
512
350
7.1
21%
5.9
2.3
been improved, enabling a faster time to market for products and
For more information on transactions with sony ericsson, please
increased investment in new areas such as multimedia solutions
see also notes to the consolidated Financial statements – note
while decreasing r&D as a percentage of sales. the company
c30, “related party transactions”.
reduced r&D lead time more than 25 percent this year and have
reached their target of a 50 percent reduction in time to market
one year ahead of plan.
36
ericsson annual report 2007
Board of directors’ report
Acquisitions and divestments
acquisitions were made for seK 26.3 billion in 2007, seK 18.1
acquisitions or divestments completed during 2005, 2006 or
billion in 2006 and seK 1.2 billion in 2005. Divestments were
2007 are described in the tables ”acquisitions 2005–2007” and
made for seK 0.1 billion in 2007, seK 3.1 billion in 2006 and seK
“Divestments 2005–2007”.
0.03 billion in 2005. For more information, please see notes to
in total, the company has spent seK 42.4 billion net in
the consolidated Financial statements, note c26 “Business
acquisitions/divestments during the last three years (2005–2007).
combinations”.
acquisitions 2005 –2007
Company
Description
Hyc
lHs
Drutt
spanish company with around 110 employees that specialize in design and systems integration of
iptV networks.
German provider of post-paid billing and customer care systems for wireless, wireline, and ip
telecom markets. purchase price seK 2.7 billion.
swedish company, with around 85 employees, that develops Mobile service Delivery platform
which enables mobile operators to mobilize and charge for any content to any device, over any
delivery channel.
Date
Dec 30, 2007
oct 1, 2007
June 28, 2007
tandberg television
norwegian global supplier of products for digital tV solutions, including iptV, HDtV, video on
demand, advertising on demand and interactive tV applications. purchase price seK 9.8 billion.
May 1, 2007
Mobeon
entrisphere
swedish company, with around 130 employees that develop ip messaging software technology.
Mar 15, 2007
us-based company, with around 140 employees, that develops gigabit passive optical network
(Gpon) technology for fixed broadband access, i.e. Fttx.
redback networks
us supplier of multi-service routing platform for broadband services such as Voip, iptV and
Video on-Demand. purchase price seK 14.8 billion.
Distocraft oy
netwise
Marconi assets
tusc
axxessit
teleca oss
assets of Finnish company specialized in software development and with around 40 employees
that develop mobile network performance management systems.
swedish-based supplier of software for presence management, team collaboration, integration of
mobile phones, ip telephony and multimedia for enterprise.
certain assets related to broadband access, optical and radio transmission, data networks and
service layer were acquired from uK-based Marconi. purchase price seK 19.4 billion.
australian company, with around 80 employees, specializes in systems integration for telecom-
munications, utilities and enterprises.
norway-based technology company that supplies multi-service next-generation sDH metro
transmission equipment.
swedish company with around 40 employees, supplier of service assurance, network manage-
ment and operator charging solutions as well as other tools to improve the quality of operator
services toward consumers.
Feb 12, 2007
Jan 23, 2007
aug 31, 2006
aug 11, 2006
Jan 23, 2006
nov 24, 2005
sept 13, 2005
July 4, 2005
netspira networks
spanish company with around 20 employees, that provides software for content aware and event
based charging.
June 3, 2005
ericsson s.p.a.
in the first quarter 2005, a residual public offer was launched for the remaining shares in
ericsson s.p.a. in italy and subsequently ericsson s.p.a. was delisted from the Milan stock
exchange. purchase price seK 0.6 billion.
1Q 2005
divestments 2005-2007
Company
Description
ericsson Microwave
systems (eMW)
swedish provider of radar, command and control systems for defense applications.
cash flow effect seK 3.1 billion.
shares in anoto
swedish company that licenses a digital pen and paper technology.
Date
sept 1, 2006
May 30, 2005
ericsson annual report 2007
37
board of directors’ report Material contracts and contractual obligations
Corporate Governance
ericsson is party to certain agreements which include provisions
in accordance with the swedish code of corporate Governance,
that may take effect, be altered or cease to be valid due to a
a separate corporate Governance report including an internal
change in control of the company, as a result of a public takeover
control section has been prepared. there have been no
offer. such provisions are not unusual for certain types of
amendments or waivers to ericsson’s code of Business ethics
agreements such as joint-venture agreements, financing
for any Director or member of management.
agreements and certain license agreements. However, none of
a separate corporate responsibility report is also published,
the agreements that ericsson currently has in effect would entail
addressing ericsson’s activities regarding social responsibility,
any material consequences due to a change in control of the
environmental and human resource issues.
company.
Material contractual obligations are outlined in the following
table. operating leases are mainly related to offices and
the corporate bodies involved in the governance of ericsson are:
• the shareholders through voting in annual general meetings or
extraordinary general meetings and their appointed nomina-
production facilities. purchase obligations are related mainly to
tion committee for nomination of members of the Board and
outsourced manufacturing, r&D and it operations and to
auditors
components for our own manufacturing. except for those
transactions previously described in this report, ericsson has not
been a party to any material contracts over the past three years
other than those entered into during the ordinary course of
business.
contractual obligations 2007
• the Board of Directors and its Finance, remuneration and
audit committees
• the president and ceo
• the management
• the external auditors
<1
year
total
payment due by period
>5
years
3–5
years
1–3
years
23,659 3,625 7,968 3,630 8,436
1,875
11,895
171
210 1,210
3,147 3,708 2,308 2,732
284
the Board of Directors works according to Work procedures that
outlines rules regarding the distribution of tasks between the
Board and its committees as well as between the Board, its
committees and the president and ceo. the external auditors
examine the financial reports and assess the management by the
Board of Directors and the president and ceo.
1,714
102
132
147 1,333
ericsson’s operations are governed by its ericsson Group
9,376 9,376
17,427 17,427
–
–
–
–
–
–
4,185 4,185
–
70,131 38,033 12,092 6,295 13,711
–
–
1) including interest payments.
2) see also notes to the consolidated Financial statements – note c20, “Financial
risk Management and Financial instruments”.
3) see also notes to the consolidated Financial statements – note c27, “leasing”.
4) the amounts of purchase obligations are gross, before deduction of any related
provisions.
5) see also notes to the consolidated Financial statements – note c14, “trade receiv-
ables and customer Financing”.
Management system, consisting of:
• ericsson’s organization, with its segregation of duties
distribution of work and delegation of authority.
• Group policies and directives, including a code of Business
ethics.
• Group-wide standard business processes, including process-
es for strategy and target setting as well as operational
processes and processes for accounting, financial reporting
and disclosure.
For more information regarding the Board of Directors and its
committees, please see the corporate Governance report.
(seK million)
long-term debt 1) 2)
capital lease
obligations 3)
operating leases 3)
other non-current
liabilities
purchase
obligations 4)
trade payables
commitments
for customer
financing 5)
Total
38
ericsson annual report 2007
Board of directors’ report
Changes to the Board membership
Operational risk management
the Board of Directors is elected each year at the annual General
risk management has been integrated within the ericsson Group
Meeting for the period until the next annual General Meeting. at
Management system and each business process. the opera-
the annual General Meeting on april 11, 2007, the following
tional risk management framework applies universally across all
board members were re-elected: Michael treschow as chairman
of the Board, Marcus Wallenberg and sverker Martin-löf as
Deputy chairmen, sir peter l. Bonfield, ulf J. Johansson, nancy
business activities and is based on the following principles:
• risks are dealt with on three levels to ensure operational
effectiveness, efficiency and business continuity: in the
McKinstry, Börje ekholm, Katherine Hudson, anders nyrén and
strategy process, in annual target setting and within ongoing
carl-Henric svanberg.
Board remuneration
operations by transaction (e.g. customer bids/contracts,
acquisitions, investments, product development projects) and
by process.
Members of the Board who are not employees of the company
have not received any compensation other than the fees paid for
• in the strategy and target setting processes, a balanced
scorecard approach is used to ensure a comprehensive
Board duties as outlined in notes to the consolidated Financial
assessment of risks and opportunities across several
statements – note c29, information regarding employees,
perspectives: financial, customer/market, product/innovation,
Members of the Board of Directors and Management. Members
and Deputy Members of the Board who are employees (i.e. the
ceo and the employee representatives) have not received any
operational efficiency and employee empowerment.
• in the strategy process, objectives are set for the next five
years. risks are then assessed and strategies developed to
remuneration or benefits other than their normal employee
achieve these objectives. to ensure that actions are taken to
entitlements, with the exception of a small fee paid to the
realize the strategies, focus areas are identified to be included
employee representatives for each Board meeting attended.
in the near-term planning and target setting for the upcoming
Risk Management
year. the five-year strategy and one-year targets are approved
annually by the Board of Directors.
risk taking is an inherent part of doing business. risks and
opportunities are managed in our strategy and target setting
• each risk is owned and managed by an operational unit that is
held accountable and monitored through unit steering groups
processes and in all operational processes. risks are identified,
and Group Management.
probability of occurrence assessed and potential consequences
• approval limits are clearly established with escalation
estimated. actions are then taken to reduce or mitigate the risk
according to defined delegations of authority. certain risks,
exposures and limit potential unfavorable consequences.
such as information security/it risks, corporate responsibility
controls and monitoring activities are in place to ensure effective
risks, physical security risks and insurable risks are centrally
risk management.
coordinated. a crisis management council is established to
We broadly categorize risks into operational risks and financial
deal with ad hoc events of a serious nature, as necessary.
risks. We also manage risks related to financial reporting and
compliance with applicable laws and regulations. our approach
Financial risk management
to risk management reflects the scale and diversity of our
We have an established policy governing the Group’s financial
business activities and balances central coordination and
risk management. this is carried out by the treasury function
support with delegated risk management responsibilities within
within the parent company and by a customer Finance function.
each operational unit.
these are both supervised by the Finance committee of the
For more information on risks related to our business, see also
Board of Directors.
risk Factors on page 105.
the policy governs identified financial risk exposures regard-
ing:
• Foreign exchange risks, as the company has significant
transaction volumes and assets and liabilities in currencies
other than seK. the largest foreign exchange exposure was
towards the usD and related currencies, which represented
ericsson annual report 2007
39
board of directors’ report approximately 50 percent of sales in 2007. spending exposure
Corporate Responsibility
towards usD was approximately 35 percent. a variety of
corporate responsibility (cr) is about integrating the environ-
hedging activities are used to manage parts of the foreign
mental, social and ethical imperatives into the way the company
exchange risks.
works and throughout its value chain. the company ensures that
• interest rate risks, as the values of cash and bank deposits,
borrowings and post-employment liabilities as well as related
it has the controls in place to minimize risks and also strives to
generate positive business impacts by connecting the core
interest income and expenses are exposed to changes in
business to the betterment of society. ericsson believes this
interest rates.
leads to an enduring capability for value creation as well as a
• credit risks in trade and customer finance receivables,
competitive advantage.
including credit risk exposures in identified high-risk countries,
ericsson supports the un Global compact and its ten guiding
as well as credit risks regarding counterparties in financial
principles. the company sees these principles not only as
transactions,
guiding principles, but also as a prerequisite for sound, long-term
• liquidity and financing risks, where the company’s treasury
function manages the company’s liquidity through monitoring
business. as such, ericsson is committed to responsible
business practices for sustainable economic growth from which
of its payment readiness and refinancing needs and sources.
all the company’s stakeholders benefit. this commitment to
employees, customers, shareholders and the broader global
During 2007, there have not been any defaults in the payment of
community is underscored by external recognition of the
principal or interest, or any other material default relating to the
company’s efforts. During 2007, ericsson was again included in
indebtedness of ericsson.
the Ftse 4Good and was the only company in its sector to be
For further information on objectives, policies and strategies for
noted on the carbon Disclosure project’s (cDp) global leader-
financial risk management, see notes to the consolidated
ship index, and ranked 3rd overall on the cDp’s nordic index.
Financial statements – note c14, trade receivables and
ericsson publishes a separate corporate responsibility
customer Financing, note c19, interest-Bearing liabilities and
report annually, which provides comprehensive information
note c20, Financial risk Management and Financial instruments.
about the company’s corporate responsibility and related
Financial Reporting Risks
to ensure accurate and timely reporting that is compliant with
Human Rights
activities.
financial reporting standards and stock market regulations, we
ericsson believes that publicly available and affordable telecom-
have adopted accounting policies and implemented financial
munications is a fundamental prerequisite for social and
reporting and disclosure processes and controls. please refer to
economic development. as one of the world’s largest providers
the report on internal control over financial reporting, included in
of communications equipment and services, the company plays
our corporate Governance report.
a vital role in achieving this objective, especially in emerging
Compliance Risks
markets. ericsson joined the Business leaders’ initiative on
Human rights (BliHr) in 2006. BliHr aims to find practical
the company have implemented a number of policies to ensure
applications of the universal Declaration of Human rights within
compliance with applicable laws and regulations, including a
a business context and to inspire other businesses to do likewise.
code of Business ethics, covering among other areas: labor laws,
ericsson’s participation in BliHr reinforces a longstanding
trade embargoes, environmental regulations, corruption, fraud
commitment to human rights and corporate responsibility
and insider trading. regular training is conducted in this area in
activities.
the form of seminars as well as e-learning on internal training
ericsson has undertaken a number of measures to demon-
web sites where employees take courses and tests and get
strate that it is a force for good in emerging markets. For example,
certificates for passed courses.
during 2007 ericsson commissioned McGrigors rights, an
internal audits are routinely conducted in the areas of trade
independent third party, to perform a Human rights impact
compliance, fraud, security, health and safety, the environment
assessment on ericsson’s operations in sudan. overall it was
and supply chain management. During 2007, the company also
concluded that ericsson can demonstrate non-complicity in
included audits of the internal implementation of the code of
human rights abuses and convincing “substantial actions” for
conduct.
investors and concerned stakeholders regarding its business
operations in sudan. the full results are presented in ericsson’s
40
ericsson annual report 2007
Board of directors’ report 2007 corporate responsibility report. it should be noted that
the company continues to work actively in developing energy
ericsson is not included on the sudan Divestment task Force’s
efficient products and green site solutions, including solar, wind,
list of divestment targets.
fuel cell and biofuel technologies. ericsson introduced a number
Community Involvement
of innovative hardware and software solutions during the year,
including the radio base station power saving feature, and the
the company is committed to being a responsible member of
ericsson tower tube – a completely new, environmentally
the global society and of the local communities in which it
designed, site concept.
operates. During 2007, a cr sponsorship Directive was
During 2007, ericsson was awarded both the elektra european
established to ensure that all cr sponsorships are connected to
electronic industry clean Design award for its energy efficient
the use of telecommunications to support social and/or environ-
power modules and the energy-efficiency innovation award by
mental causes.
the china center for information industry Development (cciD).
ericsson believes that telecommunication, by its very nature,
We believe that the company is in compliance with all material
has a constructive role to play in the proactive engagement in
environmental, health and safety laws and regulations required
local economic, environmental and social challenges. ericsson is
by its operations and business activities. ericsson provides
encouraging economic growth in emerging markets through its
public information on radio waves and health and supports
communication for all program.
independent research to further increase knowledge in this area.
ericsson response is a global initiative to rapidly provide it,
ericsson currently co-sponsors more than 45 different ongoing
communication solutions and telecom experts anywhere in the
research projects related to electromagnetic fields (eMF), radio
world in response to human suffering caused by disasters.
waves and health. since 1996 the company has supported more
ericsson response assists the disaster relief operations of the
than 90 studies. public health authorities and independent
un office for the coordination of Humanitarian affairs (ocHa),
expert groups have reviewed the total amount of research. they
un World Food programme (WFp) and the international
have consistently concluded that the balance of evidence does
Federation of red cross and red crescent societies (iFrc).
not demonstrate any health effects associated with radio wave
During 2007, after an earthquake in peru, ericsson response
exposure from either mobile phones or radio base stations.
provided support to the relief operation in cooperation with iFrc.
From august 13, 2005, ericsson has complied with the eu
in cooperation with the swedish rescue services agency
Directive on Waste electrical and electronic equipment (Weee).
(srsa), ericsson response supported the un in the establish-
ericsson’s global end-of-life treatment program is called the
ment of operational offices in the central african republic. in
ecology Management provision, and was initiated three years
addition, ericsson was the winner of the 2007 pMi (project
before the Weee requirements became law in the eu. this
Management institute) community advancement through
proactive approach gives ericsson an effective tool to meet
project Management award.
waste-management challenges in all markets around the world.
employees are encouraged and empowered to make positive
From July 1, 2006, ericsson is in compliance with the eu
individual contributions to the world around them. their contribu-
Directive on reduction of Hazardous substances (roHs).
tions take many forms, determined by the employees according
ericsson is assessing the effects of the June 1, 2007, european
to local needs. For example, they may be in the fields of health
community’s reacH (registration, evaluation, authorization and
care, social and humanitarian aid, scholarships and other
limitation of chemicals) regulation to ensure timely compliance
educational support, art and culture, the environment or
with its requirements.
children’s welfare as well as many other activities.
Employees
Energy and Environment
every year, an employee opinion survey is conducted with a high
ericsson’s most significant environmental impact relates to the
level of employee participation. the continued high participation
energy consumed by the operation of its products during their
rate of 90 percent reflects employee recognition that manage-
active life time. the company has set ambitious targets in this
ment actively uses the survey as a tool to further develop the
area. By the end of 2008, the company intends to improve the
workforce satisfaction and performance. Management’s main
energy efficiency of its 3G/WcDMa radio base station portfolio
ambition going forward is to sustain the current level of excel-
by up to 80 percent, from a 2001 baseline. performance on
lence and encourage an even higher level of employee participa-
annual improvement targets is included in the corporate
tion.
responsibility report.
ericsson annual report 2007
41
board of directors’ report employee headcount at year-end was 74,011 (63,781). Most of
Legal and tax proceedings
the additions were due to acquisitions of redback, tandberg and
in the fall of 2007, ericsson was named as a defendant in three
lHs as well as part of outsourcing agreements with operators to
putative class action suits filed in the united states District court
support the growing managed services business. During the year,
for the southern District of new York. the complaints allege
6,657 (6,432) employees departed while 16,887 (14,158) joined
violations of the united states securities laws principally in
the company. please see notes to the consolidated Financial
connection with ericsson’s october 2007 profit warning. at the
statements – note c29, information regarding employees,
conclusion of various pending procedural motions and after
Members of the Board of Directors and Management.
plaintiffs file a consolidated amended class action complaint,
Executive Remuneration
ericsson intends to seek the dismissal of the lawsuits.
Following issuance of the third-quarter profit warning, the oMX
the Board, through its remuneration committee continues to be
nordic exchange stockholm brought an inquiry to determine
mindful of the debates around the world on executive salaries
whether the company appropriately issued the profit warning
and benefits. We remain confident that current policies and
and made appropriate disclosure at the november 20 manage-
practices concerning authorization, compliance and control of
ment briefing. the company believes it has complied fully with all
senior executive remuneration within ericsson are appropriate
stock market and other obligations, and is cooperating fully with
and reasonable. principles for remuneration and other employ-
the inquiry. the Financial services authority in england has
ment terms for top executives were approved by the annual
initiated a similar inquiry.
General Meeting 2007 and are further described in notes to the
ericsson, sony ericsson Mobile communications and the
consolidated Financial statements –note c29, information
Korean handset manufacturer samsung have settled the
regarding employees, Members of the Board of Directors and
companies’ multiple patent litigations in the us, uK, Germany
Management.
and the netherlands, including the proceedings in the us
the proposed remuneration policy for Group Management for
international trade commission (itc) under section 337 of the
2008 remains materially the same as the policy resolved by
tariff act of 1930.
shareholders for 2007, which is described in note 29.
in october 2005, ericsson filed a complaint with the european
the Board of Directors’ proposal for implementation of a long
commission requesting that it investigate and stop us-based
term Variable compensation plan for 2007 and transfer of shares
Qualcomm’s anti-competitive conduct in the licensing of
in connection therewith was not approved by shareholders at the
essential patents for 3G mobile technology. at the same time,
annual General Meeting on april 11, 2007. at a subsequent
Broadcom, nec, nokia, panasonic Mobile communications and
extraordinary General Meeting on June 28, 2007, ericsson
texas instruments each filed similar complaints claiming
shareholders agreed and approved a slightly modified long term
Qualcomm is violating eu competition law and failing to meet the
Variable compensation program 2007 for all employees. as of
commitments Qualcomm made to international standardization
December 31, 2007, there were no loans outstanding from, and
bodies around the world that it would license its technology on
no guarantees issued to or assumed by ericsson for the benefit
fair, reasonable and non-discriminatory terms. the commission
of any member of the Board of Directors or senior management.
opened a first-phase investigation in December of 2005. in
please see notes to the consolidated Financial statements –
august 2007, it decided to conduct an in-depth investigation of
note c29, information regarding employees, Members of the
the case as a matter of priority.
Board of Directors and Management.
together with most of the mobile communications industry,
ericsson has been named as a defendant in six class action
lawsuits in the united states where plaintiffs alleged that adverse
health effects could be associated with the use of mobile phones.
in 2006, plaintiffs voluntarily dismissed four of those lawsuits. the
two remaining cases are currently pending in the federal court in
pennsylvania and the superior court of the District of columbia.
in another suit filed in the us, Freedom Wireless inc., a technol-
ogy company, sued cingular Wireless llc and ericsson claiming
the two defendants built their prepaid wireless telephone service
on Freedom Wireless’ patents that allow mobile telephone
customers to purchase increments of airtime for any mobile phone.
42
ericsson annual report 2007
Board of directors’ report ericsson is engaged in litigation with an australian company,
through the bond issue program; and increased current and
QpsX, in the Federal court of australia. QpsX’s claim relates to an
non-current liabilities to subsidiaries increased by seK 4.7 billion.
alleged breach by ericsson of a patent license agreement. ericsson
at year-end, cash and bank and short-term investments amounted
has contested the claim. in april 2007, QpsX filed a patent
to seK 45.6 (54.0) billion.
infringement lawsuit against ericsson et al. in the eastern District of
as per December 31, 2007, ericsson had 16,132,258,678
texas alleging ericsson infringed a QpsX patent related to
shares. the shares were divided into 1,308,779,918 class a
asynchronous transfer mode (“atM”) technology.
shares, each carrying one vote, and 14,823,478,760 class B
in December 2006, the stockholm city court acquitted all
shares, each carrying one-tenth of one vote. the two largest
current or former employees of the parent company who had been
shareholders at year-end were investor and industrivärden
indicted by the swedish national economics crimes Bureau for
holding 19.49 percent and 13.36 percent respectively of the
evasion of tax control. this judgment has in part been appealed by
voting rights in the company.
the prosecutor. the svea court of appeals will hold its main
in accordance with the conditions of the stock purchase plans
hearing in the first half of 2008.
and option plans for ericsson employees, 19,022,349 shares
For income tax purposes, swedish fiscal authorities have
from treasury stock were sold or distributed to employees during
disallowed deductions for sales commission payments via external
the year. the quota value of these shares is seK 19.0 million,
service companies to sales agents in certain countries. Most of
representing less than 1 percent of capital stock, and compensa-
these taxes have already been paid. the decision covering the
tion received amounted to seK 103.7 million. the holding of
fiscal year 1999 was appealed. in December 2006, the county
treasury stock at December 31, 2007, was 231,991,543 class B
administrative court in stockholm rendered a judgment in favor of
shares. the quota value of these shares is seK 232.0 million,
the fiscal authorities. also this judgment has been appealed.
representing 1 percent of capital stock and related acquisition
cost amounts to seK 516.2 million.
Parent Company
the parent company business consists mainly of corporate
Proposed disposition of earnings
management, holding company functions and internal banking
the Board of Directors proposes that a dividend of seK 0.50
activities. the parent company business also includes customer
(0.50) per share be paid to shareholders duly registered on the
credit management, performed on a commission basis by
record date of april 14, 2008, and that the company shall retain
ericsson credit aB.
the remaining part of non-restricted equity. the class B treasury
the parent company is the owner of the majority of ericsson’s
shares held by the parent company are not entitled to receive a
intellectual property rights. it manages the patent portfolio,
dividend.
including patent applications, licensing and cross-licensing of
assuming that no treasury shares remain within the company
patents and defending of patents in litigations.
on the record date, the Board of Directors proposes that
the parent company has 7 (7) branch offices. in total, the
earnings be distributed as follows:
Group has 55 (51) branch and representative offices.
net sales for the year were seK 3.2 (2.6) billion and income after
amount to be paid to the shareholders
seK 8,066,129,339
financial items was seK 14.7 (13.6) billion. patent license fees are
amount to be retained
included in net sales from 2007, instead of in other operating
by the parent company
seK 27,158,601,830
income and expenses. prior years have been restated accordingly.
exports accounted for 59 percent of net sales in 2007 (63 percent
total non-restricted equity
of adjusted net sales in 2006). no consolidated companies were
of the parent company
seK 35,224,731,169
customers of the parent company’s sales in 2007 or 2006, while
46 percent (29 percent in 2006) of the company’s total purchases
as a basis for its proposal for a dividend, the Board of Directors
of goods and services were from such companies. Major changes
has made an assessment in accordance with chapter 18,
in the parent company’s financial position for the year include
section 4 of the swedish companies act of the parent com-
increased investments in subsidiaries of seK 30.3 billion, mostly
pany’s and the Group’s need for financial resources as well as
attributable to the tandberg, redback, entrisphere and lHs
the parent company’s and the Group’s liquidity, financial position
acquisitions; decreased other current receivables of seK 2.2
in other respects and long-term ability to meet their commit-
billion; decreased cash and bank and short-term investments of
ments. the Group reports an equity ratio of 55.1 (56.2) percent
seK 8.4 billion; increased notes and bond loans of seK 11.1 billion
and net cash amounts to seK 24.3 (40.7) billion.
ericsson annual report 2007
43
board of directors’ report
the Board of Directors has also considered the parent
2007 amounted to approximately seK 3 billion. the purchase
company’s result and financial position and the Group’s position
price is seK 650 million excluding net of assets and liabilities. a
in general. in this respect, the Board of Directors has taken into
capital gain of approximately seK 200 million is expected.
account known commitments that may have an impact on the
financial positions of the parent company and its subsidiaries.
Board assurance
the proposed dividend does not limit the Group’s ability to
the Board of Directors and the president declare that the
make investments or raise funds, and it is our assessment that
consolidated financial statements have been prepared in
the proposed dividend is well-balanced considering the nature,
accordance with iFrs, as adopted by the eu, and give a fair view
scope and risks of the business activities as well as the capital
of the Group’s financial position and results of operations. the
requirements for the parent company and the Group.
financial statements of the parent company have been prepared
Post-closing events
Divestment of enterprise PBX solutions
in accordance with generally accepted accounting principles in
sweden and give a fair view of the parent company’s financial
position and results of operations.
on February 18,2008, ericsson announced the divestment of its
the Board of Directors’ report for the ericsson Group and the
enterprise pBX solutions business to the canadian company
parent company provides a fair review of the development of the
aastra technologies. the agreement involves transfer of
Group’s and the parent company’s operations, financial position
approximately 630 employees of which some 360 are based in
and results of operations and describes material risks and
sweden. the transaction is expected to close in april 2008.
uncertainties facing the parent company and the companies
ericsson’s enterprise pBX solutions business includes ip pBX,
included in the Group.
converged pBX systems and branch office solutions. sales in
sverker Martin-löf
Deputy chairman
nancy McKinstry
Member of the Board
Börje ekholm
Member of the Board
torbjörn nyman
Member of the Board
stockholm February 22, 2008
telefonaktiebolaget lM ericsson (publ)
org. no. 556016-0680
Michael treschow
Chairman
sir peter l. Bonfield
Member of the Board
ulf J. Johansson
Member of the Board
Monica Bergström
Member of the Board
carl-Henric svanberg
President and CEO
Marcus Wallenberg
Deputy chairman
anders nyrén
Member of the Board
Katherine Hudson
Member of the Board
Jan Hedlund
Member of the Board
44
ericsson annual report 2007
Board of directors’ report
Consolidated Income Statement
Years ended December 31, SEK million
Net sales
Cost of sales
Gross margin
Research and development expenses
Selling and administrative expenses
Operating expenses
Other operating income and expenses
Share in earnings of joint ventures and associated companies
Operating income
Financial income
Financial expenses
Income after financial items
Taxes
Net income
Net income attributable to:
Stockholders of the Parent Company
Minority interest
Notes
C3, C4
C6
C12
C7
C7
C8
2007
187,780
-114,059
73,721
-28,842
-23,199
-52,041
1,734
7,232
30,646
1,778
-1,695
30,729
-8,594
22,135
2006 1)
2005 1)
179,821
-104,875
74,946
-27,533
-21,422
-48,955
3,903
5,934
35,828
1,954
-1,789
35,993
-9,557
26,436
153,222
-82,764
70,458
-24,059
-16,800
-40,859
1,090
2,395
33,084
2,653
-2,402
33,335
-8,875
24,460
21,836
299
26,251
185
24,315
145
Other information
Average number of shares, basic (million)
Earnings per share attributable to stockholders of the Parent Company, basic (SEK)
Earnings per share attributable to stockholders of the Parent Company, diluted (SEK)
C9
C9
C9
15,891
1.37
1.37
15,871
1.65
1.65
15,843
1.53
1.53
1) Revenues for intellectual property rights (IPR) related to products are included in Net sales instead of Other operating income. In 2006, SEK 2,038 million (SEK 1,400 million in
2005) of Other operating income were reclassified. Accordingly, the related cost previously reported as part of Research and development expenses is reported as Cost of sales
or Selling and administrative expenses, depending on the nature of the cost. In 2006, SEK 388 million (SEK 395 million in 2005) of the costs were reclassified.
ERICSSON ANNUAL REPORT 2007
CONSOLIDATED FINANCIAL STATEMENTS
45
Consolidated Balance Sheet
December 31, SEK million
ASSETS
Non-current assets
Intangible assets
Capitalized development expenses
Goodwill
Intellectual property rights, brands and other intangible assets
Notes
2007
2006
C10
3,661
22,826
23,958
4,995
6,824
15,649
Property, plant and equipment
C11, C26, C27
9,304
7,881
Financial assets
Equity in joint ventures and associated companies
Other investments in shares and participations
Customer financing, non-current
Other financial assets, non-current
Deferred tax assets
Current assets
Inventories
Trade receivables
Customer financing, current
Other current receivables
Short-term investments
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity
Stockholders’ equity
Minority interest in equity of subsidiaries
Non-current liabilities
Post-employment benefits
Provisions, non-current
Deferred tax liabilities
Borrowings, non-current
Other non-current liabilities
Current liabilities
Provisions, current
Borrowings, current
Trade payables
Other current liabilities
Total equity and liabilities 1)
C12
C12
C12
C12
C8
10,903
738
1,012
2,918
11,690
87,010
9,409
721
1,921
2,409
13,564
63,373
C13
22,475
21,470
C14
C15
C20
C20
C16
C16
C17
C18
C8
C19, C20
C18
C19, C20
C22
C21
60,492
2,362
15,062
29,406
28,310
158,107
245,117
134,112
940
135,052
6,188
368
2,799
21,320
1,714
32,389
9,358
5,896
17,427
44,995
77,676
245,117
51,070
1,735
15,012
32,311
29,969
151,567
214,940
120,113
782
120,895
6,968
602
382
12,904
2,868
23,724
13,280
1,680
18,183
37,178
70,321
214,940
1) Of which interest-bearing liabilities and post-employment benefits SEK 33,404 million (SEK 21,552 million in 2006).
46
CONSOLIDATED FINANCIAL STATEMENTS
ERICSSON ANNUAL REPORT 2007
Consolidated Statement
of Cash Flows
Years ended December 31, SEK million
Operating activities
Net income
Adjustments to reconcile net income to cash
Changes in operating net assets
Inventories
Customer financing, current and non-current
Trade receivables
Provisions and post-employment benefits
Other operating assets and liabilities, net
Notes
2007
2006
2005
22,135
26,436 1)
24,460 1)
C25
7,172
29,307
6,060 1)
32,496
10,700 1)
35,160
-445
365
-7,467
-4,401
1,851
-10,097
-2,553
1,186
-10,563
-3,729
1,652
-14,007
-3,668
-641
-5,874
-15,574
7,266
-18,491
Cash flow from operating activities
19,210
18,489
16,669
Investing activities
Investments in property, plant and equipment
Sales of property, plant and equipment
Acquisitions of subsidiaries and other operations
Divestments of subsidiaries and other operations
Product development
Other investing activities
Short-term Investments
C11
C26
C26
C10
-4,319
152
-26,292
84
-1,053
396
3,499
-3,827
185
-18,078
3,086
-1,353
-1,070
6,180
-3,365
362
-1,210
30
-1,174
13
6,375
Cash flow from investing activities
-27,533
-14,877
1,031
Cash flow before financing activities
-8,323
3,612
17,700
Financing activities
Proceeds from issuance of borrowings
Repayment of borrowings
Sale of own stock and options exercised
Dividends paid
15,587
-1,291
94
-8,132
1,290
-9,510
124
-7,343
657
-2,784
174
-4,133
Cash flow from financing activities
6,258
-15,439
-6,086
Effect of exchange rate changes on cash
406
58
-288
Net change in cash
-1,659
-11,769
11,326
Cash and cash equivalents, beginning of period
29,969
41,738
30,412
Cash and cash equivalents, end of period
C20
28,310
29,969
41,738
1) Minority interest is reported as Net income instead of Adjustments to reconcile net income to cash.
In 2006, SEK 185 million (2005 SEK 145 million) have been reclassified.
ERICSSON ANNUAL REPORT 2007
CONSOLIDATED FINANCIAL STATEMENTS
47
Consolidated Statement of
Recognized Income and Expense
Years ended December 31, SEK million
2007
2006
2005 1)
Income and expense recognized directly in equity:
Actuarial gains and losses related to pensions
Revaluation of other investments in shares and participations
Fair value remeasurement reported in equity
Transferred to income statement at sale
Cash Flow hedges:
Fair value remeasurement of derivatives reported in equity
Transferred to income statement for the period
Transferred to balance sheet for the period
Changes in cumulative translation adjustments
Tax on items reported directly in/or transferred from equity
Total transactions reported in equity
1,208
440
-3,221
2
-
584
-1,390
-
-797
-73
-466
-1
-
4,100
-1,990
99
-3,119
-769
-3
-147
-3,961
1,404
-
4,265
1,523
-1,240
-140
Net income
22,135
26,436
24,460
Total income and expense recognized for the period
21,669
25,196
24,320
Attributable to:
Stockholders of the Parent Company
Minority interest
21,371
298
25,101
95
24,028
292
1) As from January 1, 2006, Ericsson has adopted the new option in IAS 19 to charge actuarial gains/losses to equity. Earlier periods have been restated accordingly.
48
CONSOLIDATED FINANCIAL STATEMENTS
ERICSSON ANNUAL REPORT 2007
notes to the consolidated
Financial statements
contents
c1 significant accounting policies ............................................................................................................................................................................................................................ 50
c2 critical accounting estimates and Judgments ........................................................................................................................................................................................... 59
c3 segment information .................................................................................................................................................................................................................................................. 61
c4 net sales ........................................................................................................................................................................................................................................................................... 65
c5 expenses by nature .................................................................................................................................................................................................................................................... 65
c6 other operating income and expenses.......................................................................................................................................................................................................... 65
c7
Financial income and expenses .......................................................................................................................................................................................................................... 65
c8
taxes .................................................................................................................................................................................................................................................................................... 66
c9 earnings per share ...................................................................................................................................................................................................................................................... 67
c10
intangible assets ........................................................................................................................................................................................................................................................... 68
c11 property, plant and equipment ............................................................................................................................................................................................................................ 70
c12 Financial assets ............................................................................................................................................................................................................................................................. 71
c13
inventories......................................................................................................................................................................................................................................................................... 73
c14 trade receivables and customer Financing ................................................................................................................................................................................................ 74
c15 other current receivables ..................................................................................................................................................................................................................................... 75
c16 equity ................................................................................................................................................................................................................................................................................... 75
c17 post-employment Benefits ..................................................................................................................................................................................................................................... 79
c18 provisions .......................................................................................................................................................................................................................................................................... 85
c19
interest-bearing liabilities ....................................................................................................................................................................................................................................... 86
c20 Financial risk Management and Financial instruments ......................................................................................................................................................................... 87
c21 other current liabilities ............................................................................................................................................................................................................................................ 92
c22 trade payables ............................................................................................................................................................................................................................................................... 92
c23 assets pledged as collateral ................................................................................................................................................................................................................................. 92
c24 contingent liabilities .................................................................................................................................................................................................................................................. 92
c25 statement of cash Flows ......................................................................................................................................................................................................................................... 92
c26 Business combinations ............................................................................................................................................................................................................................................ 93
c27 leasing ............................................................................................................................................................................................................................................................................... 95
c28 tax assessment Values in sweden ...................................................................................................................................................................................................................96
c29
information regarding employees, Members of the Board of Directors and Management.............................................................................................96
c30 related party transactions .................................................................................................................................................................................................................................. 103
c31 Fees to auditors ......................................................................................................................................................................................................................................................... 104
c32 events after the Balance sheet Date.............................................................................................................................................................................................................. 104
ericsson annual report 2007
49
notes to the consolidated financial statements c1 significant accounting
policies
the consolidated financial statements comprise telefonaktiebolaget
lM ericsson, the parent company, and its subsidiaries (“the com-
pany”) and the company’s interest in associated companies and joint
ventures. the parent company is domiciled in sweden at tor-
shamnsgatan 23, 164 83 stockholm.
the consolidated financial statements for the year ended Decem-
ber 31, 2007, have been prepared in accordance with international
Financial reporting standards (iFrs) as endorsed by the eu, rr
30:06 additional rules for Group accounting, related interpretations
issued by the swedish Financial reporting Board (rådet för Finan-
siell rapportering), and the swedish annual accounts act. there is
no effect on ericcsson’s financial reporting due to differences be-
tween iFrs as issued by the iasB and iFrs as endorsed by the eu,
nor is rr 30:06 or the swedish annual accounts act in conflict with
iFrs.
in light of the sec’s rule release “acceptance from Foreign private
issuers of Financial statements prepared in accordance with interna-
tional Financial reporting standards without reconciliation to us
Gaap”, which becomes effective on March 4, 2008, reconciliation of
equity and net income is not made to accounting principles generally
accepted in the united states (us Gaap), neither in this annual
report nor in the company’s annual rapport on form 20F.
the financial statements were approved by the Board of Directors
on February 22, 2008. the balance sheets and income statements
are subject to approval by the annual general meeting of sharehold-
ers.
New standards and interpretations adopted
as from January 1, 2007
• iFrs 7, Financial instruments: Disclosures, and a complementary
amendment to ias 1, presentation of Financial statements – capi-
tal Disclosures (effective from January 1, 2007). iFrs 7 introduces
new disclosure requirements to improve the information about
financial instruments.
the amendment to ias 1 introduces disclosures about the level of
an entity’s capital and how it manages capital. the company
applies iFrs 7 and the amendment to ias 1 from annual periods
beginning January 1, 2007.
the new standard, iFrs 7, and the amendment to ias 1 relate to
changes in disclosure or presentation and has therefore not had
any impact on financial result or position.
the following iFrics have been applied as from January 1, 2007:
• iFric interpretation 7 applying the restatement approach under
ias 29 Financial reporting in Hyperinflationary economies.
this interpretation provides guidance on how to apply the require-
ments of ias 29 in a reporting period in which an entity identifies
the existence of hyperinflation in the economy of its functional
currency.
• iFric 8 scope of iFrs 2.
this interpretation applies to transactions when the identifiable
consideration received appears to be less than the fair value of the
equity instruments granted.
• iFric 9 reassessment of embedded Derivatives.
this interpretation determines when an entity shall reassess the
need for an embedded derivative to be separated.
• iFric 10 interim Financial reporting and impairment. an entity
shall not reverse an impairment loss recognized in a previous
interim period in respect of goodwill or an investment in either an
equity instrument or a financial asset carried at cost.
none of the new iFrics have had a significant impact on financial
result or position.
Amendment issued by the Swedish Financial Reporting Board
in March 2007, an amendment to ura 43 accounting for special
payroll tax and tax on investment returns was issued. the amend-
ment had no impact on the company’s financial result or position
due to the fact that the company had applied the principles of this
interpretation prior to the amendment.
Changes in financial reporting structure
Business segments
ericsson reorganized its operating structure as from January 1, 2007.
From the first quarter report 2007, the company’s financial reporting
has been adapted to reflect this new structure. the company also
took this opportunity to make other modifications to further enhance
transparency with additional disclosures.
ericsson reports the following business segments: networks,
professional services, Multimedia and phones, represented by the
share in earnings of sony ericsson.
the changed segment reporting is in accordance with the objec-
tives set forth in ias 14 segment reporting. the business activities
previously reported in other operations have been merged into the
new segments to better leverage the opportunities provided by
internal business combinations.
Business segment networks includes products for mobile and
fixed broadband access, core networks, transmission and next-
generation ip-networks. related network rollout services are also
included. in addition, the power modules and cables operations,
previously reported under other operations, are now included within
networks, as well as the acquired operations of redback and entri-
sphere.
Business segment professional services includes all service
operations, excluding network rollout reported under networks.
services for systems integration of ip- and core networks previously
reported as network rollout are now reclassified as professional
services. sales of managed services as a part of the total profes-
sional services will continue to be disclosed, since this represents
service revenues of a recurring nature. the acquired operation of
Hyc Group has been included in professional services.
Business segment Multimedia includes multimedia systems, previ-
ously reported under segment systems, and enterprise solutions and
mobile platforms, previously included in other operations. the ac-
quired operations of tandberg tV, Mobeon, lHs and Drutt have
been included in Multimedia.
For each of the business segments, the company has reported
50
ericsson annual report 2007
notes to the consolidated financial statementsnote c1 net sales and operating margin quarterly. in addition, the company
has continued to disclose sales of mobile systems, including relevant
parts of networks and Multimedia.
the nature of the acquisitions made during 2007, including those
acquired within Multimedia, has not resulted in any significant addi-
tion or amendment to the accounting policies of the company.
Changes in accounting policies and reporting
ing of more than one half of the voting rights. at acquisitions, consoli-
dation is performed from the date control is transferred. at divest-
ments, deconsolidation is made from the date when control ceases.
intra-group balances and any unrealized income and expense
arising from intra-group transactions are fully eliminated in preparing
the consolidated financial statements. unrealized losses are elimi-
nated in the same way as unrealized gains, but only to the extent that
there is no evidence of impairment.
Royalty revenues for intellectual property rights
Associated companies and joint ventures
Within the consolidated income statement, royalty revenues for
intellectual property rights (ipr) related to products are included as
part of net sales instead of other operating income. accordingly, the
related costs, previously reported as part of research and develop-
ment expenses, are reported as cost of sales or selling and adminis-
trative expenses, depending on the nature of the costs.
Research and development expenses
these were prior to 2007 called “research and development and
other technical expenses” but are from 2007 renamed “research and
development expenses”. this change is only related to adoption of
iFrs terminology and has not resulted in any changes of amounts.
Statement of cash flows
cash flow from operations is disclosed as before, but the subtotals
“cash flow from operating investing activities” and “cash flow before
financial investing activities” are no longer reported. note c25,
“statement of cash Flows” includes additional breakdown of adjust-
ments to reconcile net income to cash, operating net assets and
investing activities.
Basis of presentation
the financial statements are presented in millions of swedish Krona
(seK). they are prepared on a historical cost basis, except for certain
financial assets and liabilities that are stated at fair value: derivative
financial instruments, financial instruments held for trading, financial
instruments classified as available-for-sale and plan assets related to
defined benefit pension plans. non-current assets and disposal
groups held for sale are stated at the lower of carrying amount and
fair value less cost to sell.
Basis of consolidation
the consolidated financial statements are prepared in accordance
with the purchase method. accordingly, consolidated stockholders’
equity includes equity in subsidiaries, associated companies and
joint ventures earned only after their acquisition.
subsidiaries are all companies in which ericsson has an ownership
interest and directly or indirectly, including effective potential voting
rights, has a voting majority or in which ericsson by agreement has
control of or retains the majority of the residual or ownership risk of
the entity. this means that the company has the power to govern the
financial and operating policies generally accompanying a sharehold-
investments in associated companies, where voting stock interest
including effective potential voting rights is at least 20 percent but not
more than 50 percent, or where a corresponding influence is ob-
tained through agreement, are accounted for according to the equity
method. under the equity method, the investment in an associate is
initially recognised at cost and the carrying amount is increased or
decreased to recognise the investor’s share of the profit or loss of the
investee after the date of acquisition. ericsson’s share of income
before taxes is reported in item share in earnings of joint ventures
and associated companies, included in operating income. this is
due to that the majority of these interests relate to sony ericsson, an
interest that is held for non-financial purposes. ericsson’s share of
taxes is included in item taxes. unrealized internal profits in inventory,
as well as other assets in associated companies and joint ventures
purchased from subsidiary companies, are eliminated in the consoli-
dated accounts in proportion to ownership. losses in transactions
with associated companies and joint ventures are eliminated in the
same way as profits, unless there is evidence of impairment.
also when associated companies and joint ventures sell to the
company, unrealized internal profits and losses occur. eliminations
are made also of such profits and losses.
undistributed share in earnings of associated companies and joint
ventures included in consolidated equity are reported as retained
earnings, subsequent to acquisition.
Business combinations
at the acquisition of a business, an allocation is made of the cost of
the business combination in which fair values are assigned to ac-
quired assets, liabilities and contingent liabilities, for example intan-
gible assets such as customer relations, brands and patents, based
upon appraisals made. Goodwill arises when the purchase price
exceeds the fair value of recognizable acquired net assets.
as from the acquisition date, goodwill acquired in a business
combination is allocated to each of the cash-generating units, or
groups of cash-generating units, that are expected to benefit from
the synergies of the combination. corporate assets are allocated to
cash-generating units in proportion to each unit’s proportion of net
sales. an annual impairment test for the cash-generating units to
which goodwill has been allocated is performed in the fourth quarter,
or when there is an indication of impairment. an impairment loss is
recognized if the carrying amount of the cash-generating unit ex-
ceeds its recoverable amount. impairment losses are recognized in
the income statement. impairment losses recognized in respect of
cash-generating units are allocated first to reduce the carrying
amount of the goodwill allocated to the unit and then to reduce the
ericsson annual report 2007
51
notes to the consolidated financial statementsnote c1 carrying amounts of the other assets in the unit on a pro rata basis.
the recoverable amount of an asset or a cash-generating unit is the
greater of its value in use and its fair value less costs to sell. in as-
sessing value in use, the estimated future cash flows are discounted
to their present value. an impairment loss in respect of goodwill is not
reversed.
Foreign currency remeasurement and translation
items included in the financial statements of each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (‘the functional currency’).
the consolidated financial statements are presented in swedish
Krona (seK), which is the parent company’s functional and presenta-
tion currency.
Transactions and balances
Foreign currency transactions are translated into the functional cur-
rency using the exchange rates prevailing at the dates of the transac-
tions. Foreign exchange gains and losses resulting from the settle-
ment of such transactions and from the translation at year-end
exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the income statement, except
when deferred in equity as qualifying cash flow hedges or qualifying
net investment hedges.
changes in the fair value of monetary securities denominated in
foreign currency classified as available-for-sale are analyzed between
translation differences resulting from changes in the amortized cost
of the security and other changes in the carrying amount of the
security. translation differences related to changes in the amortized
cost are recognized in profit or loss, and other changes in the carry-
ing amount are recognized in equity.
translation differences on non-monetary financial assets and
liabilities are reported as part of the fair value gain or loss.
Group companies
the results and financial position of all the group entities that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
• assets and liabilities for each balance sheet presented are trans-
lated at the closing rate at the date of that balance sheet;
• income and expenses for each income statement are translated at
average exchange rates; and
• all resulting net exchange differences are recognized as a separate
component of equity
there is no significant impact due to a currency of a hyperinflationary
economy.
on consolidation, exchange differences arising from the transla-
tion of the net investment in foreign operations, and of borrowings
and other currency instruments designated as hedges of such invest-
ments, are taken to stockholders’ equity. When a foreign operation is
partially disposed of or sold, exchange differences that were record-
ed in equity are recognized in the income statement as part of the
gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity
and translated at the closing rate.
Statement of cash flows
the cash flow statement is prepared according to the indirect meth-
od. cash flows from foreign subsidiaries are translated at the average
exchange rate during the period. payments for subsidiaries acquired
and/or divested are reported as cash flow from investing activities,
net of cash.
cash and cash equivalents consist of cash, bank and short-term
investments and are highly liquid financial instruments that have a
remaining maturity of three months or less at the date of acquisition.
Revenue recognition
the company offers a comprehensive portfolio of telecommunication
and data communication systems, multimedia solutions and profes-
sional services, covering a range of technologies.
the contracts are of four main types:
• delivery-type
• contracts for various types of services, for example multi-year
managed services contracts
• licenses for the use of the company’s technology or intellectual
property rights, not being a part of another product.
• construction-type
the majority of the company’s products and services are delivered
under delivery-type contracts including multiple elements, such as
base stations, base station controllers, mobile switching centers,
routers, microwave transmission links, various software products and
related installation and integration services. such contract elements
generally have individual item prices in agreed price lists per cus-
tomer.
sales are recorded net of value added taxes, goods returned,
trade discounts and rebates. revenue is recognized with reference to
all significant contractual terms when the product or service has
been delivered, when the revenue amount is fixed or determinable
and when collection is reasonably assured. specific contractual
performance and acceptance criteria may impact the timing and
amounts of revenue recognized.
the profitability of individual contracts is periodically assessed,
and provisions for any estimated losses are made immediately when
losses are probable.
For sales between consolidated companies, associated compa-
nies, joint ventures and segments, the company applies arm’s length
pricing.
Definitions of contract types and related more specific
accounting revenue recognition criteria
Different revenue recognition methods, based on either ias 11 con-
struction contracts or ias 18 revenue, are applied based on the
solutions provided to customers, the nature and sophistication of the
technology involved and the contract conditions in each case.
the contract types that fall under ias 18 are:
52
ericsson annual report 2007
notes to the consolidated financial statementsnote c1 • Delivery-type contracts are contracts for delivery of a product or a
combination of products to form a whole or a part of a network as
well as delivery of stand alone products. Medium-size and large
delivery type contracts generally include multiple elements. such
elements are normally standardized types of equipment or soft-
ware as well as services such as network rollout.
revenue is recognized when risks and rewards have been trans-
ferred to the customer, normally stipulated in contractual terms of
trade. For delivery-type contracts that have multiple elements,
revenue is allocated to each element based on relative fair values.
if there are undelivered elements essential to the functionality of
the delivered elements, or, if fair values are not available for all
elements, the company defers the recognition of revenue until all
elements essential to the functionality have been delivered or fair
values exist for the undelivered elements.
• contracts for various types of services, include services such as:
training, consulting, engineering, installation and multi-year man-
aged services and hosting. revenue is generally recognized when
the services have been provided. revenue for managed service
contracts and other services contracts covering longer periods is
recognized pro rata over the contract period.
• licenses for the use of the company’s technology or intellectual
property rights, i.e. not being a part of a sold product. these
mainly relate to mobile platform technology and other license
revenues from third parties for the right to use the company’s
technology in design and production of products for sale. revenue
is recognized based on the number of mobile devices or other
products that are produced and made available for the market by
the customer.
the contract type that fall under ias 11:
• construction-type contracts. in general, a construction type con-
tract is a contract where the company supplies a customer with a
complete network which to a large extent is based upon new
technology or includes major components which are specifically
designed for the customer. revenues from construction-type
contracts are recognized according to stage of completion, gener-
ally using the milestone output method.
Earnings per share
Basic earnings per share are calculated by dividing net income attrib-
utable to stockholders of the parent company by the average num-
ber of shares outstanding (total number of shares less treasury stock)
during the year.
Diluted earnings per share are calculated by dividing net income
attributable to stockholders of the parent company by the sum of the
average number of ordinary shares outstanding and dilutive potential
ordinary shares. potential ordinary shares are treated as dilutive
when, and only when, this reduces earnings per share.
Financial assets
the company classifies its financial assets in the following catego-
ries: at fair value through profit or loss, loans and receivables, and
available for sale. the classification depends on the purpose for
which the financial assets were acquired. Management determines
the classification of its financial assets at initial recognition.
regular purchases and sales of financial assets are recognized on
the settlement date. investments are initially recognized at fair value
plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through
profit or loss are initially recognized at fair value, and transaction
costs are expensed in the income statement. available-for-sale
financial assets and financial assets at fair value through profit or loss
are subsequently carried at fair value. loans and receivables are
carried at amortized cost, using the effective interest method.
Financial assets are derecognized when the rights to receive cash
flows from the investments have expired or have been transferred
and the company has transferred substantially all risks and rewards
of ownership. separate assets or liabilities are recognized if any
rights and obligations are created or retained in the transfer.
the fair values of quoted financial investments and derivatives are
based on quoted market prices or rates. if official rates or market
prices are not available, fair values are calculated by discounting the
expected future cash flows at prevailing interest rates. Valuations of
FX options and interest rate Guarantees (irG) are made by using a
Black-scholes formula. inputs to the valuations are market prices for
implied volatility, foreign exchange and interest rates.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets
held for trading. a financial asset is classified in this category if ac-
quired principally for the purpose of selling or repurchasing in the
near term.
Derivatives are classified as held for trading, unless they are desig-
nated as hedges. assets in this category are classified as current
assets.
Gains or losses arising from changes in the fair values of the “fi-
nancial assets at fair value through profit or loss”-category are pre-
sented in the income statement within Financial income in the period
in which they arise.
Loans and receivables
receivables are initially recognized at fair value and subsequently
measured at amortized cost, less allowances for impairment charges.
trade receivables include amounts due from customers. the balance
represents amounts billed to customer and amounts where risk and
rewards have been transferred to the customer but the invoice has
not yet been issued.
collectibility of the receivables is assessed for purposes of initial
revenue recognition.
Available-for-sale financial assets
available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other cate-
gories. they are included in non-current assets unless management
intends to dispose of the investment within 12 months of the balance
sheet date.
Dividends on available-for-sale equity instruments are recognized
in the income statement as part of financial income when the com-
ericsson annual report 2007
53
notes to the consolidated financial statementsnote c1 pany’s right to receive payments is established.
changes in the fair value of monetary securities denominated in a
foreign currency and classified as available-for-sale are analyzed
between translation differences resulting from changes in amortized
cost of the security and other changes in the carrying amount of the
security. the translation differences on monetary securities are
recognized in profit or loss; translation differences on non-monetary
securities are recognized in equity. changes in the fair value of mone-
tary and non-monetary securities classified as available-for-sale are
recognized in equity. When securities classified as available-for-sale
are sold or impaired, the accumulated fair value adjustments recog-
nized in equity are included in the income statement.
Impairment
at each balance sheet date, the company assesses whether there is
objective evidence that a financial asset or a group of financial assets
is impaired. in the case of equity securities classified as available-for-
sale, a significant or prolonged decline in the fair value of the security
below its cost is considered as an indicator that the security is im-
paired. if any such evidence exists for available-for-sale financial
assets, the cumulative loss – measured as the difference between
the acquisition cost and the current fair value, less any impairment
loss on that financial asset previously recognized in profit or loss – is
removed from equity and recognized in the income statement. im-
pairment losses recognized in the income statement on equity instru-
ments are not reversed through the income statement.
an assessment of impairment of receivables is performed when
there is objective evidence that the company will not be able to
collect all amounts due according to the original terms of the receiv-
able. significant financial difficulties of the debtor, probability that the
debtor will enter bankruptcy or financial reorganization, and default or
delinquency in payments are considered indicators that the trade
receivable is impaired. the amount of the allowance is the difference
between the asset’s carrying amount and the present value of esti-
mated future cash flows, discounted at the original effective interest
rate. the carrying amount of the asset is reduced through the use of
an allowance account, and the amount of the loss is recognized in
the income statement within selling expenses. When a trade receiv-
able is finally established as uncollectible, it is written off against the
allowance account for trade receivables. subsequent recoveries of
amounts previously written off are credited against selling expenses
in the income statement.
Financial Liabilities
Borrowings
Borrowings are initially recognized at fair value, net of transaction
costs incurred. Borrowings are subsequently stated at amortized
cost; any difference between the proceeds (net of transaction costs)
and the redemption value is recognized in the income statement over
the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group
has an unconditional right to defer settlement of the liability for at
least 12 months after the balance sheet date.
Trade payables
trade payables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method.
Derivatives at fair value through profit or loss
certain derivative instruments do not qualify for hedge accounting
and are accounted for at fair value through profit or loss. changes in
the fair value of these derivative instruments that do not qualify for
hedge accounting are recognized immediately in the income state-
ment within Financial expenses.
Financial liabilities are derecognized when they are extinguished,
i.e. when the obligation specified in the contract is discharged, can-
celled or expires.
Derivative financial instruments and hedging activities
Derivatives are initially recognized at fair value at trade date and
subsequently re-measured at fair value. the method of recognizing
the resulting gain or loss depends on whether the derivative is desig-
nated as a hedging instrument, and if so, the nature of the item being
hedged. the company designates certain derivatives as either:
a) a hedge of the fair value of recognized liabilities (fair value hedge);
b) a hedge of a particular risk associated with a highly probable
forecast transaction (cash flow hedge); or
c) a hedge of a net investment in a foreign operation (net investment
hedge).
at the inception of the transaction, the company documents the
relationship between hedging instruments and hedged items, as well
as its risk management objectives and strategy for undertaking
various hedging transactions. the company also documents its
assessment, both at hedge inception and on an ongoing basis, of
whether the derivatives that are used in hedging transactions are
highly effective in offsetting changes in fair values or cash flows of
hedged items.
the fair values of various derivative instruments used for hedging
purposes are disclosed in note c20. Movements in the hedging
reserve in stockholders’ equity are shown in note c16. the full fair
value of a hedging derivative is classified as a non-current asset or
liability when the remaining maturity of the hedged item is more than
12 months, and as a current asset or liability when the remaining
maturity of the hedged item is less than 12 months. trading deriva-
tives are classified as current assets or liabilities.
a) Fair value hedges
changes in the fair value of derivatives that are designated and quali-
fy as fair value hedges are recorded in the income statement, togeth-
er with any changes in the fair value of the hedged asset or liability
that are attributable to the hedged risk. the Group only applies fair
value hedge accounting for hedging fixed interest risk on borrowings.
Both gains or losses relating to the interest rate swaps hedging fixed
rate borrowings and the changes in the fair value of the hedged fixed
rate borrowings attributable to interest rate risk are recognized in the
income statement within Financial expenses. if the hedge no longer
meets the criteria for hedge accounting, the adjustment to the carry-
54
ericsson annual report 2007
notes to the consolidated financial statementsnote c1 ing amount of a hedged item for which the effective interest method
is used is amortized to profit or loss over the period to maturity.
risks of obsolescence have been measured by estimating market
value based on future customer demand and changes in technology
and customer acceptance of new products.
b) Cash flow hedges
the effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognized in
equity. the gain or loss relating to an ineffective portion is recognized
immediately in the income statement within financial income or ex-
pense.
amounts deferred in equity are recycled in the income statement in
the periods when the hedged item affects profit or loss (for example,
when the forecast sale that is hedged takes place), either in net
sales or cost of sales. When the forecast transaction that is hedged
results in the recognition of a non-financial asset (for example, inven-
tory or fixed assets), the gains and losses previously deferred in
equity are transferred from equity and included in the initial measure-
ment of the cost of the asset. the deferred amounts are ultimately
recognized in cost of sales in case of inventory, or in Depreciation in
case of fixed assets. When a hedging instrument expires or is sold, or
when a hedge no longer meets the criteria for hedge accounting, any
cumulative gain or loss which at that time remains in equity is recog-
nized in the income statement. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was re-
ported in equity is immediately transferred to the income statement
within financial income or expense.
c) Net investment hedge
Hedges of net investments in foreign operations are accounted for
similarly to cash flow hedges. any gain or loss on the hedging instru-
ment relating to the effective portion of the hedge is recognized in
equity. a gain or loss relating to an ineffective portion is recognized
immediately in the income statement within financial income or ex-
pense. Gains and losses deferred in equity are included in the in-
come statement when the foreign operation is partially disposed of or
sold.
Financial guarantees
Financial guarantee contracts are initially recognized at fair value (i.e.
usually the fee received). subsequently, these contracts are mea-
sured at the higher of
• the amount determined as the best estimate of the net expenditure
required to settle the obligation according to the guarantee con-
tract, and
• the recognized contractual fee less cumulative amortization when
amortized over the guarantee period, using the straight-line
method.
the best estimate of the net expenditure comprises future fees and
cash flows from subrogation rights.
Inventories
inventories are measured at the lower of cost or net realizable value
on a first-in, first-out (FiFo) basis.
Intangible assets other than goodwill
these assets consist of capitalized development expenses and
acquired intangible assets, such as patents, customer relations,
brands and software. at initial recognition, capitalized development
expenses are stated at cost while acquired intangible assets related
to business combinations are stated at fair value. subsequent to
initial recognition, both capitalized development expenses and ac-
quired intangible assets are stated at initially recognized amount less
accumulated amortization/impairment. amortization and any impair-
ment losses are included in research and development, mainly for
capitalized development expenses and patents, selling and adminis-
trative expenses, mainly for customer relations and brands, and cost
of sales.
costs incurred for development of products to be sold, leased or
otherwise marketed or intended for internal use are capitalized as
from when technological and economical feasibility has been estab-
lished until the product is available for sale or use. these capitalized
expenses are mainly generated internally and include direct labor and
related overhead. amortization of capitalized development expenses
begins when the product is available for general release. amortiza-
tion is made on a product or platform basis according to the straight-
line method over periods not exceeding five years. research and
development expenses directly related to orders from customers are
accounted for as a part of cost of sales. other research and develop-
ment expenses are charged to expense as incurred.
amortization of acquired intangible assets, such as patents, cus-
tomer relations, brands and software, is made according to the
straight-line method over their estimated useful life, normally not
exceeding ten years.
the company has not recognized any intangible assets with indefi-
nite useful life other than goodwill.
impairment tests are performed whenever there is an indication of
possible impairment. However, intangible assets not yet available for
use are tested annually. an impairment loss is recognized if the
carrying amount of an asset or its cash-generating unit exceeds its
recoverable amount. the recoverable amount is the higher of its
value in use and its fair value less costs to sell. in assessing value in
use, the estimated future cash flows after tax are discounted to their
present value using an after-tax discount rate that reflects current
market assessments of the time value of money and the risks specific
to the asset. corporate assets have been allocated to cash-
generating units in relation to each unit’s proportion of total net sales.
the amount related to corporate assets is not significant. impairment
losses recognized in prior periods are assessed at each reporting
date for any indications that the loss has decreased or no longer
exists. an impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amounts. an impair-
ment loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount, net of amortization,
that would have been determined if no impairment loss had been
recognized.
ericsson annual report 2007
55
notes to the consolidated financial statementsnote c1 Property, plant and equipment
items of property, plant and equipment are stated at cost less accu-
mulated depreciation and impairment losses.
Depreciation is charged to income, generally on a straight-line
basis, over the estimated useful life of each component of an item of
property, plant and equipment, including buildings. estimated useful
lives are, in general, 25 - 50 years for buildings, 20 years for land
improvements, 3 to 10 years for machinery and equipment, and up to
5 years for rental equipment. Depreciation and any impairment
charges are included in cost of sales, research and development or
selling and administrative expenses.
the company recognizes in the carrying amount of an item of
property, plant and equipment the cost of replacing a component
and derecognizes the residual value of the replaced component.
impairment testing as well as recognition or reversal of impairment
for property, plant and equipment is performed in the same manner
as for intangible assets other than goodwill, see description under
“intangible assets other than goodwill” above.
Gains and losses on disposals are determined by comparing the
proceeds less costs to sell with the carrying amount and are recog-
nized within other operating income and expenses in the income
statement.
Leasing
Leasing when the Company is the lessee
leases on terms in which the company assumes substantially all the
risks and rewards of ownership are classified as finance leases.
upon initial recognition, the leased asset is measured at an amount
equal to the lower of its fair value and the present value of the mini-
mum lease payments. subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable to
that type of asset, although the depreciation period would not ex-
ceed the lease term.
other leases are operating leases, and the leased assets under
such contracts are not recognized on the balance sheet. costs under
operating leases are recognized in the income statement on a
straight-line basis over the term of the lease. lease incentives re-
ceived are recognized as an integral part of the total lease expense,
over the term of the lease.
Leasing when the Company is the lessor
leasing contracts with the company as lessor are classified as
finance leases when the majority of risks and rewards are transferred
to the lessee, and otherwise as operating leases. under a finance
lease, a receivable is recognized at an amount equal to the net in-
vestment in the lease and revenue is recognized in accordance with
the revenue recognition principles.
under operating leases, a balance sheet item of property, plant
and equipment is reported and revenue as well as depreciation is
recognized on a straight-line basis over the lease term.
Income taxes
income taxes in the consolidated financial statements include both
current and deferred taxes. income taxes are reported in the income
statement unless the underlying item is reported directly in equity.
For those items, the related income tax is also reported directly in
equity. a current tax liability or asset is recognized for the estimated
taxes payable or refundable for the current year or prior years.
Deferred tax is recognized for temporary differences between the
book values of assets and liabilities and their tax values and for
unutilized tax loss carryforwards. a deferred tax asset is recognized
to the extent that it is probable that future taxable profits will be
available against which the deductible temporary differences and tax
loss carryforwards can be utilized. Deferred tax is not recognized for
the following temporary differences: goodwill not deductible for tax
purposes, the initial recognition of assets or liabilities that affect
neither accounting nor taxable profits, and differences related to
investments in subsidiaries to the extent that they will probably not
reverse in the foreseeable future.
Deferred tax is measured at the tax rate that is expected to be
applied to the temporary differences when they reverse, based on
the tax laws that have been enacted or substantively enacted by the
reporting date. an adjustment of deferred tax asset/liability balances
due to a change in the tax rate is recognized in the income statement,
unless it relates to a temporary difference earlier recognized directly
in equity, in which case the adjustment is also recognized in equity.
the measurement of deferred tax assets involves judgment
regarding the deductibility of costs not yet subject to taxation and
estimates regarding sufficient future taxable income to enable utiliza-
tion of unused tax losses in different tax jurisdictions. all deferred tax
assets are subject to annual review of probable utilization. the larg-
est amounts of tax loss carryforwards are originated in sweden, with
indefinite period of utilization.
Provisions
provisions are made when there are legal or constructive obligations
as a result of past events and when it is probable that an outflow of
resources will be required to settle the obligations and the amounts
can be reliably estimated. However, the actual outflow as a result of
an obligation may differ from such estimate.
in the ordinary course of business, the company is subject to
proceedings, lawsuits and other unresolved claims, including pro-
ceedings under laws and government regulations and other matters.
these matters are often resolved over a long period of time. the
company regularly assesses the likelihood of any adverse judgments
in or outcomes of these matters, as well as potential ranges of pos-
sible losses. provisions are recognized when it is probable that a
liability has been incurred and the amount can be reasonably esti-
mated based on a detailed analysis of each individual issue.
the provisions mainly relate to product warranty commitments,
customer contract loss provisions, restructuring and other obliga-
tions, such as unresolved income tax and value added tax issues,
claims or obligations as a result of patent infringement and other
litigations, supplier claims and customer financing guarantees.
product warranty commitments consider probabilities of all mate-
rial quality issues based on historical performance for established
products and expected performance for new products, estimates of
repair cost per unit, and volumes sold still under warranty up to
reporting date.
56
ericsson annual report 2007
notes to the consolidated financial statementsnote c1 For losses on customer contracts, provisions equal to the total
estimated loss are recorded when a loss from a contract is antici-
pated and possible to estimate reliably. these contract estimates
include any probable penalties to a customer under a loss contract.
a restructuring obligation has arisen when the company has a
detailed formal plan for the restructuring (approved by management),
communicated in such a way that a valid expectation has been raised
among those affected.
the company provides for estimated future settlements related to
patent infringements based on the probable outcome of each infringe-
ment. the ultimate outcome or actual cost of settling an individual
infringement may vary from the company’s estimate. the company
estimates the outcome of any potential patent infringement made
known to the company through assertion and through the company’s
own monitoring of patent-related cases in the relevant legal systems. to
the extent that the company makes the judgment that an identified
potential infringement will more likely than not result in an outflow of
resources, the company records a provision based on the company’s
best estimate of the expenditure required to settle infringement pro-
ceedings.
at various intervals, the company gives some of its suppliers and/
or subcontractors forecasts of expected purchases and also some-
times commits to minimum purchase levels during a certain period.
the agreements often include compensation clauses for the event
that material deviations from original plans regarding production
volumes or product mix should occur. as a result of actual deviations
from committed purchase levels or of received actual claims from
these suppliers and/or subcontractors, the company makes provi-
sions for estimated compensation. additionally, provisions are made
for estimated charges as a result of known changes in design specifi-
cations that are provided to production subcontractors. amounts for
provisions and subsequent net amounts at settlements are charged
to the corresponding item in the income statement, i.e. costs related
to component suppliers, production subcontractors and installation
subcontractors are included in cost of sales. costs regarding devel-
opment subcontractors are included in research & development,
and costs related to it-providers and other services are included in
operating expenses or cost of sales, depending on the nature of the
service. such provisions are monitored closely on a regular basis,
with any additions/reversals charged or credited to the same account
as the initial provision.
od. the discount rate for each country is determined by reference to
market yields on high-quality corporate bonds that have maturity
dates approximating the terms of the company’s obligations. in
countries where there is no deep market in such bonds, the market
yields on government bonds are used. the calculations are based
upon actuarial assumptions, assessed on a quarterly basis, and are
as a minimum prepared annually. actuarial assumptions are the
company’s best estimate of the variables that determine the cost of
providing the benefits. When using actuarial assumptions, it is pos-
sible that the actual result will differ from the estimated result or that
the actuarial assumptions will change from one period to another.
these differences are reported as actuarial gains and losses. they
are for example caused by unexpectedly high or low rates of employ-
ee turnover, changed life expectancy, salary changes, changes in the
discount rate and differences between actual and expected return on
plan assets. actuarial gains and losses are recognized in equity in the
period in which they occur. the company’s net liability for each
defined benefit plan consists of the present value of pension commit-
ments less the fair value of plan assets and is recognized net on the
balance sheet. When the result is a net benefit to the company, the
recognized asset is limited to the total of any cumulative past service
cost and the present value of any future refunds from the plan or
reductions in future contribution to the plan.
the net of return on plan assets and interest on pension liabilities is
reported as financial income or expense, while the current service
cost and any other items in the annual pension cost are reported as
operating income or expense.
pension cost calculated according to ias 19 differs from pension
cost calculated according to swedish Gaap. payroll tax related to
actuarial gains and losses are reported in equity together with the
recognition of actuarial gains and losses.
Share-based employee compensation
share-based compensation only relates to remuneration to employ-
ees, including key management personnel. under iFrs, a company
shall recognize compensation costs for share-based compensation
programs to employees, being a measure of the value to the com-
pany of services received from the employees under the plans.
Stock option plans
Post-employment benefits
pensions and other post-employment benefits are classified as either
defined contribution plans or defined benefit plans. under a defined
contribution plan, the company’s only obligation is to pay a fixed
amount to a separate entity (a pension trust fund) with no obligation
to pay further contributions if the fund does not hold sufficient assets
to pay all employee benefits. the related actuarial and investment
risks fall on the employee. the expenditures for defined contribution
plans are recognized as costs during the period when the employee
provides service. under a defined benefit plan, it is the company’s
obligation to provide agreed benefits to current and former employ-
ees. the related actuarial and investment risks fall on the company.
the present value of the defined benefit obligations for current and
former employees is calculated using the projected unit credit Meth-
in accordance with iFrs 1 and iFrs 2, ericsson has chosen not to
apply iFrs 2 to equity instruments granted before november 7, 2002.
iFrs 2 was applied for one equity settled employee option pro-
gram granted after november 7, 2002. the vesting period for this
program ended during 2005, and ericsson recognized compensation
costs representing the fair value at grant date of the outstanding
employee options. in the balance sheet, the corresponding amounts
are accounted for as equity. the fair value of the options was calcu-
lated using an option-pricing model. the total costs were recognized
during the vesting period (3 years), i.e. the period during which the
employees had to fulfill vesting requirements. When the options are
exercised, social security charges are to be paid in certain countries
on the value of the employee benefit; generally based on the differ-
ence between the market price of the share and the strike price.
such social security charges are accrued during the vesting period.
ericsson annual report 2007
57
notes to the consolidated financial statementsnote c1 Stock purchase plans
Non-current assets held for sale
For stock purchase plans, compensation costs are recognized during
the vesting period, based on the fair value of the ericsson share at
the employee’s investment date. the fair value is based upon the
share price at investment date, adjusted for that no dividends will be
received on matching shares prior to matching. the employees pay a
price equal to the share price at investment date for the investment
shares. the investment date is considered as the grant date. in the
balance sheet, the corresponding amounts are accounted for as
equity. Vesting conditions are non-market based and affect the
number of shares that ericsson will match. For shares under perfor-
mance-based matching programs, the company assesses the
probability of meeting the performance targets when calculating the
compensation costs. compensation expenses are based on esti-
mates of the number of shares that will match at the end of the vest-
ing 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 generally based on the market value of the shares
at the matching date. During the vesting period, estimated such
social security charges are accrued.
Segment reporting
Financial information is provided to the Board of Directors for both
primary and secondary segments. these segments are subject to
risks and returns that are different from those of other segments.
Primary segments
a primary segment is a business segment consisting of a group of
assets and operations engaged in providing products or services that
are subject to risks and returns that are different from those of the
other business segments. Mainly the following factors have been
considered when identifying the differences:
• commonality in products and services regarding technology,
research and development.
• For which market and to what type of customers the segment’s
products and/or services are aimed
• through what distribution channels they are sold
Secondary segments
secondary, geographical segments are defined based on similarities
in economic and market conditions, risks and returns for particular
geographical environments.
Borrowing costs
the company does not capitalize any borrowing costs. such costs
are expensed as incurred.
to be classified as an asset held for sale, the asset must be available
for immediate sale in its present condition and its sale must be highly
probable, requiring that the appropriate level of management has
authorized the plan to sell and that there is an active plan to complete
the sale.
non-current assets held for sale are measured at the lower of
carrying amount and fair value less cost to sell.
Government grants
Government grants are recognized when there is a reasonable assur-
ance of compliance with conditions attached to the grants and that
the grants will be received.
For ericsson, government grants are linked to performance of
research or development work or to subsidized capital expenditures
as governmental stimulus to employment or investments in a certain
country or region. Government grants linked to research and
develop ment are normally deducted in reporting the related expense,
whereas grants related to assets are accounted for deducting the
grant in arriving at the acquisition cost of the asset.
New standards and interpretations not yet adopted
a number of new standards, amendments to standards and interpre-
tations are not yet effective for the year ended December 31, 2007,
and have not been applied in preparing these consolidated financial
statements:
• iFrs 8 operating segments. this standard prescribes measure-
ment and presentation of segments and replaces ias 14 segment
reporting. the new standard requires a ”management approach”,
under which segment information is presented on the same basis
as that used for internal reporting to the Board of Directors an
entity shall apply this iFrs in its annual financial statements for
periods beginning on or after January 1, 2009. the company plans
to apply this new standard as from January 1, 2009.
• ias 1 presentation of Financial statements has been revised and
the revised standard shall be applied for financial periods begin-
ning on or after January 1, 2009. the amendment to the standard
is still subject to endorsement by the european union. the chang-
es apply particularly to the presentation and names of the financial
statements and the presentation of owner changes in equity and of
comprehensive income. thus, the standard requires a company to
present, in a statement of changes in equity, all owner changes in
equity. all non-owner changes in equity (i.e. comprehensive in-
come) are required to be presented in one statement of compre-
hensive income. the company plans to apply this revised standard
as from January 1, 2009.
• revised ias 23 Borrowing costs removes the option to expense
borrowing costs and requires that a company capitalize borrowing
costs directly attributable to the acquisition, construction or pro-
duction of a qualifying asset as part of the cost of that asset. the
revised ias 23 will become mandatory for the company’s 2009
financial statements and will constitute a change in accounting
policy for the Group. the amendment to the standard is still sub-
ject to endorsement by the european union. in accordance with
the transitional provisions, the Group will apply the revised ias 23
58
ericsson annual report 2007
notes to the consolidated financial statementsnote c1 to qualifying assets from the effective date. the revised standard is
not expected to have a significant impact on the financial state-
ments of the company. the company plans to apply this revised
standard as from January 1, 2009.
• ias 27 (amendment) consolidated and separate Financial state-
ments (effective from July 1, 2009). the amendment to the stan-
dard is still subject to endorsement by the european union. the
change implies, among other things, that minority interest shall
always be recognized even if the minority interest is negative,
transactions with minority interests shall always be recorded in
equity, and, in those cases when a partial disposal of a subsidiary
results in that the entity loses control of the subsidiary, any remain-
ing interest should be revaluated to fair value. the change in the
standard will influence the accounting of future transactions.
• iFrs 2 share-Based payment (amendment) Vesting conditions
and cancellations (effective from January 1, 2009). the amend-
ment to the standard is still subject to endorsement by the euro-
pean union. the amendment affects the definition of vesting
conditions and introduces a new concept of non-vesting condi-
tions. the standard states that non-vesting conditions should be
taken into account in the estimate of the fair value of the equity
instrument. Goods or services that are received by a counterparty
that satisfies all other vesting conditions shall be accounted for
irrespective of whether the non-vesting conditions are satisfied. a
liability included in a share-based arrangement shall be remea-
sured based on fair value at the date of cancellation or settlement.
the amendment is not expected to have a significant impact on the
financial statements of the Group. the company plans to apply
this new standard as from January 1, 2009.
• iFrs 3 (amendment) Business combinations (effective from July 1,
2009). the amendment to the standard is still subject to endorse-
ment by the european union. the amendment will have an effect
on how future business combinations are accounted for, i.e. the
accounting of transaction costs, possible contingent consider-
ations, and business combinations achieved in stages. at present,
the company plans to apply the standard from January 1, 2010.
• iFric 11 iFrs 2 – Group and treasury share transactions requires
a share-based payment arrangement in which a company receives
goods or services as consideration for its own equity instruments
to be accounted for as an equity-settled share-based payment
transaction, regardless of how the equity instruments are obtained.
iFric 11 will become mandatory for the company’s 2008 financial
statements, with retrospective application required. it is not ex-
pected to have any significant impact on the consolidated financial
statements.
• iFric 12 service concession arrangements provides guidance on
certain recognition and measurement issues that arise in account-
ing for public-to-private service concession arrangements. this
interpretation is still subject to endorsement by the european
union. iFric 12, which becomes mandatory for the company’s
2008 financial statements, is not expected to have any significant
effect on the consolidated financial statements.
• iFric 13 customer loyalty programmes addresses the accounting
by companies that operate, or otherwise participate in, customer
loyalty programmes for their customers. this interpretation is still
subject to endorsement by the european union. iFric 13 relates
to customer loyalty programmes under which the customer can
redeem credits for awards such as free or discounted goods or
services. iFric 13, which becomes mandatory for the company’s
2009 financial statements, is not expected to have any significant
impact on the consolidated financial statements.
• iFric 14 ias 19 – the limit on a Defined Benefit asset, Minimum
Funding requirements and their interaction clarifies when refunds
or reductions in future contributions in relation to defined benefit
assets should be regarded as available and provides guidance on
the impact of minimum funding requirements (MFr) on such as-
sets. this interpretation is still subject to endorsement by the
european union. iFric 14 also addresses when a MFr might give
rise to a liability. iFric 14 will become mandatory for the com-
pany’s 2008 financial statements, with retrospective application
required. the Group has not yet determined the potential effect of
the interpretation.
c2 critical accounting estimates
and Judgments
the preparation of financial statements and application of accounting
standards often involve management’s judgment or the use of esti-
mates and assumptions deemed to be reasonable at the time they
are made. However, other results may be derived with different judg-
ments or using different assumptions or estimates, and events may
occur that could require a material adjustment to the carrying amount
of the asset or liability affected. Following are the accounting policies
subject to such judgments, estimates or assumptions that the com-
pany believes could have the most significant impact on the reported
results and financial position.
Revenue recognition
parts of the company’s sales are generated from large and complex
customer contracts. Managerial judgment is applied regarding,
among other aspects, degree of completion and conformance with
acceptance criteria and if transfer of risks and returns to the buyer
has taken place to determine if revenue and cost should be recog-
nized in the current period, and the customer credit standing to
assess whether payment is likely or not to justify revenue recognition.
estimates are necessary e.g. in evaluation of contractual perfor-
mance and estimated total contract costs for assessing whether any
loss provisions are to be made or if customers will reach conditional
purchase volumes triggering contractual discounts to be given.
Trade and customer financing receivables
the company monitors the financial stability of its customers and the
environment in which they operate to make judgments regarding the
likelihood that the individual receivables will be paid. total allowances
for estimated losses as of December 31, 2007, were seK 1.4 (1.4)
billion or 2.2 (2.7) percent of our gross trade receivables. credit risk
for outstanding customer financing credits is regularly assessed and
based on these judgments allowances are recorded for estimated
losses.
ericsson annual report 2007
59
notes to the consolidated financial statementsnote C1–C2 Inventory valuation
inventories are valued at the lower of cost or net realizable value.
estimates are required in relation to forecasted sales volumes and
inventory balances. in situations where excess inventory balances
are judged to exist, estimates of net realizable values for the excess
volumes are made. inventory allowances for estimated losses as of
December 31, 2007, amounted to seK 2.8 (2.6) billion or 12 (12)
percent of gross inventory.
Deferred taxes
Deferred tax assets are recognized for temporary differences be-
tween the carrying amounts for reporting purposes of assets and
liabilities and the amounts used for taxation purposes and for unuti-
lized tax loss carryforwards. the largest amounts of tax loss carry-
forwards are in sweden, with an indefinite period of utilization (i.e.
with no expiry date). the valuation of tax loss carryforwards, deferred
tax assets and the company’s ability to utilize tax losses is based
upon management’s estimates of future taxable income in different
tax jurisdictions and involves management’s judgment regarding the
deductibility of costs not yet subject to taxation. in note c8 income
taxes, more information is provided.
at December 31, 2007, the value of deferred tax assets amounted
to seK 11.7 (13.6) billion. the deferred tax assets related to loss
carryforwards are reported as non-current assets.
Accounting for income-, value added- and other taxes
accounting for these items is based upon evaluation of income-,
value added- and other taxe rules in all jurisdictions where we per-
form activities. the total complexity of rules related to taxes and the
accounting for these require management’s involvement in judg-
ments regarding classification of transactions and in estimates of
probable outcomes of claimed deductions and/or disputes.
Capitalized development expenses
Development costs that meet iFrs’ intangible asset recognition crite-
ria for products that will be sold, leased or otherwise marketed as
well as those intended for internal use are capitalized. the starting
point for capitalization is based upon management’s judgment that
technological and economical feasibility is confirmed, usually when a
product development project has reached a defined milestone ac-
cording to an established project management model. capitalization
ceases and amortization of capitalized development costs begins
when the product is available for general release. impairment testing
is performed after initial recognition whenever there is an indication
of impairment. intangible assets not yet available for use are tested
annually. the definition of amortization periods as well as the evalua-
tion of impairment indicators require management’s judgment. the
impairment amounts are based on estimates of future cash flows for
the respective products.
at December 31, 2007, the amount of capitalized development
expenses amounted to seK 3.7 (5.0) billion.
Acquired intellectual property rights and other
intangible assets, including goodwill
at initial recognition, future cash flows are calculated, ensuring that
the initial carrying values do not exceed the discounted cash flows
for the items of this type of assets. impairment testing is performed
after initial recognition whenever there is an indication of impairment,
except for goodwill for which impairment testing is performed at least
once per year. at initial recognition and subsequent measurement,
management judgments are made, both for assumptions and regard-
ing impairment indicators. negative deviations in actual cash flows
compared to estimated cash flows as well as new estimates that
indicate lower future cash flows might result in recognition of impair-
ment charges. For further discussion on goodwill, see note c10
intangible assets. estimates related to acquired intangible assets are
based on similar assumptions and risks in assumptions as for good-
will.
at December 31, 2007, the amount of acquired intellectual prop-
erty rights and other intangible assets amounted to seK 46.8 (22.5)
billion, including goodwill of seK 22.8 (6.8) billion.
Provisions
Pension and other post-employment benefits
accounting for the costs of defined benefit pension plans and other
applicable post-employment benefits is based on actuarial valuations,
relying on key estimates for discount rates, expected return on plan
assets, future salary increases, turnover rates and mortality tables.
the discount rate assumptions are based on rates for high-quality
fixed-income investments with durations similar to the company’s
pension plans. expected returns on plan assets consider long-term
historical returns, allocation of assets and estimates of future long-
term investment returns. at December 31, 2007, provisions for pen-
sions and other post-employment benefits amounted to net seK 4.9
(6.1) billion. For a sensitivity analysis and more information of esti-
mates and assumptions, see note c17 post-employment Benefits.
Warranty commitments
provisions for product warranties are based on current volumes of
products sold still under warranty and on historic quality rates for
mature products as well as judgments and assumptions on future
quality rates for new products and estimates of costs to remedy the
various qualitative issues that might occur. total provisions for prod-
uct warranties as of December 31, 2007, amounted to seK 1.8 (3.0)
billion.
Provisions other than warranty commitments
other provisions mainly comprise amounts related to contractual
obligations and penalties to customers and estimated losses on
customer contracts, risks associated with patent and other litiga-
tions, supplier or subcontractor claims and/or disputes, as well as
provisions for income tax and value added tax unresolved issues.
the nature and type of risks for these provisions differ and manage-
ment’s judgment is applied regarding the nature and extent of obliga-
60
ericsson annual report 2007
notes to the consolidated financial statementsnote c2 tions. the estimates related to the amounts of provisions for penal-
ties, claims or losses receive special attention from the management.
at December 31, 2007, provisions other than warranty commitments
amounted to seK 7.9 (10.9) billion. in note c18 provisions, more
information is provided.
Risks in financial instruments and hedge accounting
Hedge accounting and foreign exchange risks
Foreign exchange risk in highly probable sales in future periods are
hedged using foreign exchange derivative instruments designated as
cash-flow hedges.
establishing highly probable sales volumes involves gathering and
evaluating sales estimates for future periods as well as analyzing
actual outcome on a regular basis in order to fulfill effectiveness
testing requirements for hedge accounting. Deviations in outcome of
sales might result in that, according to management’s judgment, the
requirements for hedge accounting are not fulfilled.
For further information regarding risks in financial instruments and
related judgment and estimates, please see c14 trade receivables
and c20 Financial risk Management and Financial instruments.
Other areas that require certain judgments
other areas that require judgment by management are:
• whether or not consolidation shall be made of entities where the
company does not have formal voting rights exceeding 50 percent,
but where the company might have control due to other circum-
stances,
• whether to classify a counterpart as a related party or not for
disclosure purposes, and
• classification of leasing contracts as operating or financing leases,
both when the company is a lessee and when it is a lessor.
c3 segment information
When determining the business segments, the company has looked
at which market and to what type of customers the company’s prod-
ucts are aimed, and through what distribution channels they are sold,
as well as to commonality regarding technology, research and devel-
opment.
ericsson har reorganized its operating structure as from January 1,
2007. For further details see note c1 significant accounting policies.
Primary segments
ericsson has the following business segments:
• networks, that includes products for mobile and fixed broadband
access, core networks, transmission and next-generation ip-net-
works. related network rollout services are also included. in addi-
tion, power modules and cables operations are included within
networks, as well as the acquired operations of redback and
entrisphere.
• professional services, that includes all service operations, exclud-
ing network rollout reported under networks. services related to
systems integration of ip- and core networks are classified as
professional services.
• Multimedia, that includes multimedia systems, enterprise solutions
and mobile platforms. the operations of the acquired operations of
tandberg tV, lHs, Drutt and Mobeon are also included in Multi-
media.
• phones, consisting of ericsson’s investment and share in earnings
of the sony ericsson joint venture.
Secondary segments
ericsson operates in five main geographical areas: (1) Western eu-
rope, (2) central and eastern europe, Middle east and africa, (3) asia
pacific, (4) north america and (5) latin america. these areas repre-
sent the geographical segments.
ericsson annual report 2007
61
notes to the consolidated financial statementsnote c2–c3 Business segments (primary )
2007
net sales
inter-segment sales
Total net sales
share in earnings of JV and associated companies
Operating income
operating margin (%)
Financial income
Financial expenses
Income after financial items
taxes
Net income
networks
128,985
32
129,017
61
17,398
13%
professional
services
42,892
10
42,902
66
6,394
15%
Multi-
media
15,903
2
15,905
–3
–135
–1%
phones
–
–
–
7,108
7,108
–
unallo-
cated
–
–
–
–
–119
–
elimina-
tions
–
–44
–44
–
–
–
assets 1) 2)
equity in joint ventures and associated companies
Total assets
Liabilities 3) 4)
107,819
850
108,669
39,819
36,974
298
37,272
19,101
18,739
206
18,945
4,915
–
9,549
9,549
–
70,682
–
70,682
46,230
–
–
–
–
Group
187,780
0
187,780
7,232
30,646
16%
1,778
–1,695
30,729
–8,594
22,135
234,214
10,903
245,117
110,065
1) segment assets include property, plant and equipment, intangible assets, current and non-current customer financing, accounts receivable, inventory, prepaid expenses,
accrued revenues, derivatives and other current assets.
2) unallocated assets include mainly cash and cash equivalents, short-term investments and deferred tax assets.
3) segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.
4) unallocated liabilities include accrued interests, tax liabilities, interest-bearing liabilities and post-employment benefits.
Other segment items
property, plant and equipment and intangible assets
additions to property plant and equipment
acquisitions/capitalization of intangible assets
Depreciation
amortization
impairment losses
reversals of impairment losses
Gains/losses from divestments
geographical segments (secondary )
2007
Western europe
– of which Sweden
central and eastern europe, Middle east and africa
asia pacific
– of which China
north america
– of which United States
latin america
Total
– of which EU
3,264
15,401
–2,601
–4,630
–105
297
–
806
2,973
–367
–237
–1
–
–
249
11,464
–152
–566
–
–
–
–
–
–
–
–
–
–
–
–
–1
–
–
–
280
–
–
–
–
–
–
–
4,319
29,838
–3,121
–5,433
–106
297
280
additions/
capitalization of
pp&e and
intangible assets
12,127
2,671
230
1,124
704
20,528
17,668
148
34,157
10,609
total assets
160,606
117,887
10,737
26,852
9,915
32,815
31,573
14,107
245,117
161,251
net sales
52,685
8,395
48,661
54,629
13,598
13,422
10,529
18,383
187,780
58,978
For employee information, see note c29, “information regarding employees, Members of the Board of Directors and Management”.
62
ericsson annual report 2007
notes to the consolidated financial statementsnote c3 Business segments (primary )
2006
net sales
inter-segment sales
Total net sales
share in earnings of JV and associated companies
Operating income
operating margin (%)
Financial income
Financial expenses
Income after financial items
taxes
Net income
networks
127,518
176
127,694
18
21,722
17%
professional
services
36,813
34
36,847
21
5,309
14%
Multi-
media
13,877
17
13,894
43
714
5%
phones
–
–
–
5,852
5,852
–
unallo-
cated
1,613
2
1,615
–
2 231 5)
–
elimina-
tions
–
–229
–229
–
–
–
assets 1) 2)
equity in joint ventures and associated companies
Total assets
Liabilities 3) 4)
100,792
918
101,710
42,837
21,141
170
21,311
17,718
6,657
280
6,937
4,011
–
8,041
8,041
–
76,941
–
76,941
29,479
–
–
–
–
Group
179,821
0
179,821
5,934
35,828
20%
1,954
–1,789
35,993
–9,557
26,436
205,531
9,409
214,940
94,045
1) segment assets include property, plant and equipment, intangible assets, current and non-current customer financing, accounts receivable, inventory, prepaid expenses,
accrued revenues, derivatives and other current assets.
2) unallocated assets include mainly cash and cash equivalents, short-term investments and deferred tax assets.
3) segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.
4) unallocated liabilities include accrued interests, tax liabilities, interest-bearing liabilities and post-employment benefits.
5) unallocated operating income include the effect of the divesture of the Defense business by seK 2,963 million.
Other segment items
property, plant and equipment and intangible assets
additions to property, plant and equipment
acquisitions/capitalization of intangible assets
Depreciation
amortization
impairment losses
reversals of impairment losses
restructuring expenses
Gains/losses from divestments
geographical segments (secondary )
2006
Western europe
– of which Sweden
central and eastern europe, Middle east and africa
asia pacific
– of which China
north america
– of which United States
latin america
Total
– of which EU 2)
3,462
16,403
–2,689
–4,015
–303
31
–2,400
–
291
1,512
–271
–116
–
–
–402
–
74
404
–47
–68
–
–
–106
–
–
–
–
–
–
–
–
–
–
–
–
–38
–
–
–
2,945
–
–
–
–
–
–
–
–
3,827
18,319
–3,007
–4,237
–303
31
–2,908
2,945
net sales 1)
53,182
7,809
46,413
47,884
11,776
15,862
13,878
16,480
179,821
58,983
total assets
158,773
125,578
8,139
24,853
9,088
10,893
10,231
12,282
214,940
160,074
additions/
capitalization of
pp&e and
intangible assets
20,704
17,819
147
419
206
798
739
78
22,146
20,763
1) revenues for intellectual property rights (ipr) related to products are included in net sales instead of other operating income.
2) restated for Bulgaria and romania which entered into the european union as from 2007.
For employee information, see note c29, “information regarding employees, Members of the Board of Directors and Management”.
ericsson annual report 2007
63
notes to the consolidated financial statementsnote c3 Business segments (primary )
2005
net sales
inter-segment sales
Total net sales
share in earnings of JV and associated companies
Operating income
operating margin (%)
Financial income
Financial expenses
Income after financial items
taxes
Net income
networks
114,134
750
114,884
92
26,583
23%
professional
services
26,324
178
26,502
57
4,355
16%
Multi-
media
10,496
5
10,501
–11
229
2%
phones
–
–
–
2,257
2,257
–
unallo-
cated
2,268
155
2,423 5)
–
–340
–
elimina-
tions
–
–1,088
–1,088
–
–
–
assets 1) 2)
equity in joint ventures and associated companies
Total assets
Liabilities 3) 4)
79,703
879
80,582
58,938
12,905
140
13,045
6,938
3,891
256
4,147
1,255
–
5,038
5,038
–
106,524
–
106,524
39,733
–
–
–
–
Group
153,222
0
153,222
2,395
33,084
22%
2,653
–2,402
33,335
–8,875
24,460
203,023
6,313
209,336
106,864
1) segment assets include property, plant and equipment, intangible assets, current and non-current customer financing, accounts receivable, inventory, prepaid expenses,
accrued revenues, derivatives and other current assets.
2) unallocated assets include mainly cash and cash equivalents, short-term investments and deferred tax assets.
3) segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.
4) unallocated liabilities include accrued interests, tax liabilities, interest-bearing liabilities and post-employment benefits.
5) net sales includes Defense business.
Other segment items
property, plant and equipment and intangible assets
additions to property, plant and equipment
acquisitions/capitalization of intangible assets
Depreciation
amortization
impairment losses
reversals of impairment losses
Gains/losses from divestments
geographical segments (secondary )
2005
Western europe
– of which Sweden
central and eastern europe, Middle east and africa 1)
asia pacific
– of which China
north america
– of which United States
latin america
Total
– of which EU 2)
2,769
2,250
–2,468
–3,282
–109
380
–
491
–
–258
–63
–
–
–
105
–
–77
–8
–
–
–
–
–
–
–
–
–
–
–
–
–1
84
–
–
56
net sales 1)
42,554
6,724
39,948
32,212
11,544
19,432
17,904
19,076
153,222
47,342
total assets
154,159
133,448
7,891
20,290
8,964
13,754
12,988
13,242
209,336
154,075
–
–
–
–
–
–
–
3,365
2,250
–2,804
–3,269
–109
380
56
additions/
capitalization
of pp&e and
intangible assets
4,576
3,502
113
285
123
552
453
89
5,615
4,639
1) revenues for intellectual property rights (ipr) related to products are included in net sales instead of other operating income.
2) restated for Bulgaria and romania which entered into the european union as from 2007.
For employee information, see note c29, “information regarding employees, Members of the Board of Directors and Management”.
64
ericsson annual report 2007
notes to the consolidated financial statementsnote c3 c4 net sales
an increased part of ericsson’s products and services are sold as
parts of delivery type contracts including multiple elements. the
nature of the products and services being sold, and the contractual
terms taken as a whole, determine the appropriate revenue recogni-
tion method. the contracts are of four main types:
sales of equipment and
network rollout
of which:
– Delivery-type contracts
– construction-type contracts
professional services sales 1)
licenses 2)
2007
2006
2005
138,011 137,758 123,010
130,890 123,206 104,998
18,012
26,324
3,888
7,121
42,892
6,877
14,552
36,813
5,250
Net sales
export sales from sweden
187,780 179,821 153,222
102,486 98,694 93,879
1) 2006 and 2005 are restated to reflect new organization.
2) revenues for intellectual property rights (ipr) related to products are included in
net sales instead of other operating income. in 2006 seK 2,038 million (2005 seK
1,400 million) of other operating income were reclassified.
in note c1, “significant accounting policies”, the definitions of the
different contract types are disclosed.
c5 expenses by nature
2007
2006
2005
Goods and services
amortization and depreciation
impairments, net of reversals
employee remunerations
interest expenses
taxes
7,244
876
113,195 108,033 86,630
6,073
508
42,821 34,458
2,402
8,875
8,554
1,435
44,771
1,695
8,594
1,789
9,557
Expenses incurred
less:
inventory changes 1)
additions to capitalized development
178,244 170,320 138,946
802
1,053
3,791
1,353
2,872
1,174
Expenses charged to the
Income Statement
176,389 165,176 134,900
1) the inventory changes are based on changes of inventory values prior to
allowances (gross value).
the impairments, net of reversals, mainly relate to an increase of
obsolescence allowances.
c6 other operating income
and expenses
Gains on sales of intangible
assets and pp&e
losses on sales of intangible
assets and pp&e
Gains on sales of investments
and operations 1)
losses on sales of investments
and operations
2007
2006
2005
78
27
29
–104
–158
–120
296
3,038
205
–16
–93
–149
capital gains/losses, net
254
2,814
–35
other operating revenues 2)
1,480
1,089
1,125
Total other operating income
and expenses
1,734
3,903
1,090
1) the gains on sales of investments and operations for 2006 mainly relate to the sale
of the Defense business in the third quarter.
2) revenues for intellectual property rights (ipr) related to products are included in net
sales instead of other operating income. in 2006, seK 2,038 million (2005, seK 1,400
million) of other operating income were reclassified.
c7 Financial income
and expenses
2007
2006
Financial Financial Financial Financial
income expenses
income expenses
contractual interest from
financial assets
Of which from financial
assets at fair value
through profit or loss
contractual interest from
financial liabilities
Of which from financial
liabilities at fair value
through profit or loss
net gain/loss on:
2,293
1,952
1,094
1,190
–1,543
–1,416
–
–
instruments at fair value
through profit or loss 1)
Of which included in fair
value hedge relationships
available for sale
loans and receivables
liabilities at amortized cost
other financial income
and expenses
–181
–60
–60
–366
–
–342
–
–7
–
–
11
–414
–
–160
383
–
–
–
8
–103
62
–230
Total
1,778
–1,695
1,954
–1,789
1) excluding net gain from operating assets and liabilities which was seK 762 (1,748)
million reported as cost of sales.
iFrs 7 was implemented January 1, 2007. the breakdown of the
comparison figures for 2005 as above are not available. Financial
income and expense for 2005 was seK 2,653 million and seK –2,402
million respectively.
ericsson annual report 2007
65
notes to the consolidated financial statementsnote c4–c7
c8 taxes
in summary, the Group tax expense for the year was seK 8,594
(9,557) million or 28,0 percent (26,6) of the income after financial
items.
Income taxes recognized in the income statement
the following items are included in taxes:
current income taxes for the year
current income taxes related
to prior years
Deferred tax income/expense (–)
share of taxes in joint ventures and
associated companies
taxes
2007
2006
2005
–4,115
–4,565
–3,635
–294
–2,227
–169
–3,582
138
–4,753
–1,958
–1,241
–625
–8,594
–9,557
–8,875
reconciliation of actual income ta x rate to the
swedish income ta x rate:
2007
2006
2005
tax rate in sweden
effect of foreign tax rates
current income taxes related to
prior years
recognition/remeasurement of
tax losses related to prior years
recognition/remeasurement of
deductible temporary differences
related to prior years
tax effect of non-
deductible expenses
tax effect of non-taxable income
tax effect of changes in tax rates
–28.0% –28.0% –28.0%
–1.5%
–0.4%
0.2%
–1.0%
–0.5%
0.4%
–0.7%
1.2%
–
1.5%
0.2%
1.1%
–2.6%
2.8%
–0.2%
–3.7%
4.5%
0.1%
–1.5%
2.8%
0.0%
Actual tax rate
– 28.0% –26.6% –26.7%
Deferred tax balances
tax effects of temporary differences and unutilized tax loss carryfor-
wards are attributable as shown in the table below:
change in deferred ta xes:
Opening balance, net
recognized in income statement
recognized in equity
acquisitions/disposals of subsidiaries
translation differences
Closing balance, net
2007
2006
13,182
–2,227
–73
–2,120
129
18,128
–3,582
–769
–124
–471
8,891
13,182
tax effects reported directly to equity amount to seK –73 million, of
which hedge accounting seK 255 million and actuarial gains/losses
on pensions seK –328 million.
Deferred tax asset are amounts recognized in countries where we
expect to be able to generate corresponding taxable income in the
future to benefit from tax reductions.
the significant tax loss carryforwards are related to countries with
long or indefinite periods of utilization, mainly sweden and the us. of
the total deferred tax assets for tax loss carryforwards, seK 5,219
million, seK 2,911 million relate to sweden with indefinite time of
utilization. With our strong current financial position and profitability
during 2007, we have been able to utilize part of our tax loss carryfor-
wards during the year, and we are convinced that ericsson will be
able to generate sufficient income in the coming years to utilize also
remaining parts.
Benefit from a previously unrecognized tax credit of a prior period
that is used to reduce deferred tax expense amounted to seK 465
million.
Investments in subsidiaries
Due to losses in certain subsidiary companies, the book value of
certain investments in those subsidiaries are less than the tax value
of these investments. since deferred tax assets have been reported
with respect also to losses in these companies, and due to the un-
certainty as to which deductions can be realized in the future, no
additional deferred tax assets are reported.
ta x effects of temporary differences and unutilized ta x loss carryforwards
Deferred tax
assets
Deferred tax
liabilities Net balance
Deferred tax
assets
Deferred tax
liabilities
net balance
2007
2006
intangible assets and property,
plant and equipment
current assets
post-employment benefits
provisions
equity
other
loss carryforwards
Deferred tax assets/liabilities
netting of assets/liabilities
Net deferred tax balances
1) refer mainly to r&D credits and intellectual property rights.
438
1,878
1,121
1,693
708
3,647 1)
5,219
14,704
–3,014
11,690
4,044
14
100
5
97
1,553
–
5,813
–3,014
2,799
312
2,146
1,229
2,277
1,036
2,197
6,756
15,953
–2,389
13,564
8,891
855
5
96
40
352
1,423
–
2,771
–2,389
382
13,182
66
ericsson annual report 2007
notes to the consolidated financial statementsnote c8
Tax loss carryforwards
Deferred tax assets regarding unutilized tax loss carryforwards are
reported to the extent that realization of the related tax benefit
through future taxable profits is probable also when considering the
period during which these can be utilized, as described below.
at December 31, 2007, these unutilized tax loss carryforwards
amounted to seK 17,734 (23,137) million. the tax effect of these tax
loss carryforwards are reported as an asset. the final years in which
these loss carryforwards can be utilized are shown in the following
table:
Year of expiration
tax loss
carryforwards
2008
2009
2010
2011
2012
2013 or later
Total
29
32
8
287
152
17,226
17,734
tax
effect
8
9
1
79
33
5,089
5,219
c9 earnings per share
Basic earnings per share are calculated by dividing net income attrib-
utable to stockholders of the parent company by the average num-
ber of shares outstanding (total number of shares less treasury stock)
during the year.
Basic, earnings per share
2007
2006
2005
net income attributable to stockholders
of the parent company (seK million)
average number of shares
outstanding, basic (millions)
Earnings per share, basic (SEK)
21,836
15,891
1.37
26,251
24,315
15,871 15,843
1.53
1.65
Diluted earnings per share are calculated by dividing net income
attributable to stockholders of the parent company by the sum of the
average number of ordinary shares outstanding and dilutive potential
ordinary shares. potential ordinary shares are treated as dilutive
when, and only when, this reduces earnings per share.
diluted, e arnings per share
2007
2006
2005
net income attributable to stockholders
of the parent company (seK million)
average number of shares
outstanding, basic (millions)
Dilutive effect for stock option plans 1)
Dilutive effect for stock purchase plans
average number of shares
outstanding, diluted (millions)
21,836
15,891
10
63
26,251
24,315
15,871 15,843
25
39
17
55
15,964 15,943
15,907
Earnings per share, diluted (SEK)
1.37
1.65
1.53
1) During 2007, ericsson had outstanding stock option plans for which the exercise
price exceeded the average market price. therefore these stock option plans have
not had a dilutive effect and have not been included in the dilution calculation. if in
the future the average market price should increase to a level above the exercise
price these outstanding stock option plans will be included in the dilution
calculation.
ericsson annual report 2007
67
notes to the consolidated financial statementsnote c8–c9
c10 intangible assets
Capitalized development expenses
Goodwill
Intellectual property rights, brands
and other intangible assets
2007
Accumulated acquisition costs
opening balance
acquisitions/capitalization
Balances regarding divested/
acquired businesses
sales/disposals
translation difference
Closing balance
Accumulated amortization
opening balance
amortization
sales/disposals
translation difference
Closing balance
Accumulated impairment losses
opening balance
impairment losses
Closing balance
Net carrying value
to be
marketed
acquired
costs for
internal use
internal
costs, for
internal use
12,388
989
–
–899
–
12,478
–6,439
–2,371
899
–
–7,911
–958
–16
–974
3,593
1,602
38
–
–
–
1,640
–1,562
–
–
–
–1,562
–38
–
–38
40
1,070
26
–
–
–
1,096
–1,042
–
–
–
–1,042
–26
–
–26
28
Total
15,060
1,053
–
–899
–
15,214
–9,043
–2,371
899
–
–10,515
–1,022
–16
–1,038
3,661
licenses
trademarks
and similar
rights
5,317
178
5,132 1)
–57
–198
10,372
–1,180
–913
41
–20
–2,072
–
–
–
8,300
6,824
–
16,917
–1
–914
22,826
–
–
–
–
–
–
–
–
22,826
patents
and
acquired
research
and
develop-
ment
13,479
63
6,495 1)
–1
–278
19,758
–1,953
–2,149
–
16
–4,086
–14
–
–14
15,658
Total
18,796
241
11,627
–58
–476
30,130
–3,133
–3,062
41
–4
–6,158
–14
–
–14
23,958
1) During 2007 ericsson acquired redback, tandberg and lHs. the acquisitions consist of ipr, seK 6.4 billion, brands and customer relationships, seK 4.8 billion and goodwill,
seK 16 billion. the amortization period related to the intellectual property rights, brands and other intangible assets from redback, tandberg and lHs is between five and ten
years.
the goodwill is allocated to the business segments networks (seK
14.3 billion), professional services (seK 2.3 billion) and Multimedia
(seK 6.2 billion). to a great extent, these three segments serve our
customers with one combined offering, resulting in similar risks for all
segments. according to iFrs, a cash generating unit (cGu) defined
for the purpose of goodwill impairment testing, may not be larger
than a business segment. the three business segments have
been defined as cGu:s for the purpose of goodwill impairment test-
ing.
the estimates used for measuring the recoverable amounts for
goodwill per cash-generating unit include assumptions mainly for the
following key parameters:
• sales growth,
• development of operating income,
• development of cash flow, including working capital and capital
expenditure requirements.
the company’s main assumptions, approved by group management
and each business segments’ management, are based on assump-
tions which reasonably well correspond to available industry sources
providing estimates of the number of mobile subscribers, internet
users, broadband connections and tV/video devices and, as a con-
sequence the network traffic development. the demand for multime-
dia solutions is as well driven by the opportunities for new types of
service offerings enabled by ip technology and high-speed broad-
band.
the demand for professional services is also driven by an increas-
ing business and technology complexity, paired with higher consum-
er demands on operators. therefore, operators review their business
models and look for vendor partners that can take on a broader
responsibility.
the number of global mobile subscriptions is estimated to grow
from 3.2 billion to more than 5 billion within five years, and mobile
traffic volume to grow during the same period from 700 to 4,500
petabytes yearly. impairment testing is based on the premise that
changes for the company’s main assumptions are in line with the
estimated industry development for these assumptions, based on
specific estimates for the first five years and with a reduction of
nominal annual growth rate to an average GDp growth of 3 to 4
percent per year thereafter. the impairment test for goodwill has not
resulted in any impairment.
a number of sensitivity tests have been made, for example the
effect of lower annual growth rates. the effect of applying levels of
profitability as estimated by leading analysts in the fourth quarter of
2007, based on an extension for the future of their 2-year forecasts,
has also been applied for sensitivity analysis purposes. also when
applying these more conservative estimates, no goodwill impairment
is indicated.
68
ericsson annual report 2007
notes to the consolidated financial statementsnote c10 the market capitalization of the company as per year end
2007,well exceeded the value of net assets of the company.
between the cGu:s have been considered in the estimated cash
flows.
an after-tax discount rate of 13 percent has been applied for the
in note c1 – “significant accounting policies”, the accounting
discounting of projected after-tax cash flows.
policies for goodwill impairment testing are further disclosed.
the application of one rate is made due to that differences in risks
Capitalized development expenses
Goodwill
Intellectual property rights, brands
and other intangible assets
patents
and
acquired
research
and
develop-
ment
licenses
trademarks
and similar
rights
to be
marketed
acquired
costs for
internal use
internal
costs, for
internal use
Total
2,438
1,155
Total
1,373
363
1,638
–
1,094
–
1,065
792
7,362
163
11,983
1,353
14,715
1,353
–
–36
–
1,602
–
–948
–
12,388
2006
Accumulated acquisition costs
opening balance
acquisitions/capitalization
Balances regarding divested/
acquired businesses
sales/disposals
translation difference
Closing balance
Accumulated amortization
opening balance
amortization
sales/disposals
translation difference
Closing balance
Accumulated impairment losses
opening balance
impairment losses
Closing balance
Net carrying value
1) as per January 1, 2006, ericsson acquired assets of Marconi telecommunications operations. the acquisition consists of ipr, seK 11.7 billion, and brands and customer
–5,192
–2,195
948
–
–6,439
–7,774
–2,277
1,008
–
–9,043
–603
–1,508
155
3
–1,953
–1,549
–49
36
–
–1,562
–1,033
–33
24
–
–1,042
11,937 1)
–188
–6
13,479
–882
–452
110
44
–1,180
3,711 1)
–173
–78
5,317
–
–1,008
–
15,060
–780
–242
–1,022
4,995
–14
–
–14
11,512
–716
–242
–958
4,991
–
–
–701
6,824
–
–
–
6,824
–
–24
–
1,070
–
–
–
4,137
–38
–
–38
2
–26
–
–26
2
–
–
–
–
–
15,648
–361
–84
18,796
–1,485
–1,960
265
47
–3,133
–14
–
–14
15,649
relationships, seK 3.6 billion. the remaining amortization period related to the intellectual property rights acquired from Marconi is nine years.
ericsson annual report 2007
69
notes to the consolidated financial statementsnote c10 c11 property, plant and equipment
Machinery and
other technical
assets
Other equipment,
tools and
installations
Construction in
process and
advance
payments
Total
25,148
4,319
284
–2,383
–
287
27,655
Real estate
457
1,120
4,551
471
5,005
617
15,135
2,111
–
–77
–813
–12
675
10
–200
–186
–35
4,611
170
–311
135
81
5,697
104
–1,795
864
253
16,672
2007
Accumulated acquisition costs
opening balance
additions
Balances regarding divested/acquired
businesses
sales/disposals
reclassifications
translation difference
Closing balance
Accumulated depreciation
opening balance
Depreciation
Balances regarding divested businesses
sales/disposals
reclassifications
translation difference
Closing balance
Accumulated impairment losses, net
opening balance
impairment losses
reversals of impairment losses
sales/disposals
translation difference
Closing balance
Net carrying value
contractual commitments for the acquisition of property, plant and equipment as per December 31, 2007, amounted to seK 176 (190) million.
the reversal of impairment losses have been reported under cost of sales.
–11,738
–2,302
17
1,759
8
–229
–12,485
–3,679
–573
7
294
–8
–54
–4,013
–1,212
–246
4
14
–
–30
–1,470
–178
–6
25
10
1
–148
4,039
–306
–84
263
1
9
–117
3,024
–154
–
9
27
–
–118
1,566
–
–
–
–
–
–
675
–
–
–
–
–
–
–
–16,629
–3,121
28
2,067
–
–313
–17,968
–638
–90
297
38
10
–383
9,304
70
ericsson annual report 2007
notes to the consolidated financial statementsnote c11
Balances regarding divested/acquired
2007
Accumulated acquisition costs
opening balance
additions
businesses
sales/disposals
reclassifications
translation difference
Closing balance
Accumulated depreciation
opening balance
Depreciation
sales/disposals
reclassifications
translation difference
Closing balance
Balances regarding divested businesses
Accumulated impairment losses, net
opening balance
impairment losses
reversals of impairment losses
sales/disposals
translation difference
Closing balance
Net carrying value
Real estate
Machinery and
Other equipment,
other technical
assets
tools and
installations
Construction in
process and
advance
payments
4,551
471
10
–200
–186
–35
4,611
–1,212
–246
4
14
–
–30
–1,470
–306
–84
263
1
9
–117
3,024
5,005
617
170
–311
135
81
5,697
–3,679
–573
7
294
–8
–54
–154
–
9
–
27
–118
1,566
15,135
2,111
104
–1,795
864
253
16,672
–11,738
–2,302
17
1,759
8
–229
–178
–6
25
10
1
–148
4,039
–4,013
–12,485
Total
25,148
4,319
284
–2,383
–
287
27,655
–16,629
–3,121
28
2,067
–
–313
–17,968
–638
–90
297
38
10
–383
9,304
457
1,120
–
–77
–813
–12
675
–
–
–
–
–
–
–
–
–
–
–
–
–
675
contractual commitments for the acquisition of property, plant and equipment as per December 31, 2007, amounted to seK 176 (190) million.
the reversal of impairment losses have been reported under cost of sales.
2006
Accumulated acquisition costs
opening balance
additions
Balances regarding divested/acquired
businesses
sales/disposals
reclassifications
translation difference
Closing balance
Accumulated depreciation
opening balance
Depreciation
Balances regarding divested businesses
sales/disposals
reclassifications
translation difference
Closing balance
Accumulated impairment losses, net
opening balance
impairment losses
reversals of impairment losses
translation difference
Closing balance
Net carrying value
Real estate
Machinery and
other technical
assets
Other equipment,
tools and
installations
Construction in
process and
advance
payments
3,512
772
624
–47
21
–331
4,551
–1,119
–206
–
40
28
45
–1,212
–359
–
–
53
–306
3,033
5,200
931
8
–1,036
59
–157
5,005
–4,285
–706
156
1,043
2
111
–3,679
–145
–11
–
2
–154
1,172
17,146
1,264
–337
–2,448
552
–1,042
15,135
–13,106
–2,095
542
2,178
–30
773
–11,738
–165
–50
31
6
–178
3,219
287
860
11
–45
–632
–24
457
–
–
–
–
–
–
–
–
–
–
–
–
457
Total
26,145
3,827
306
–3,576
–
–1,554
25,148
–18,510
–3,007
698
3,261
–
929
–16,629
–669
–61
31
61
–638
7,881
c12 Financial assets, non-current
equit y in joint ventures and associated companies
opening balance
share in earnings
taxes
translation difference
change in hedge reserve
pensions
Dividends
capital contribution
stock purchase and stock option plans
reclassification
Disposals
Joint ventures
2007
2006
8,041
7,108
–1,957
304
4
–2
–3,949
–
–
–
–
5,038
5,852
–1,237
–422
–33
3
–1,160
–
–
–
–
Associated
companies
2007
1,368
124
–1
55
–
–
–273
103
–19
–
–3
2006
1,275
82
–4
–9
–
–
–102
201
–
–8
–67
Total
2007
2006
9,409
7,232
–1,958
359
4
–2 3
–4,222
103
–19 –
–
–3
6,313
5,934
–1,241
–431
–33
–1,262
201
–8
–67
Closing balance
9,549
8,041
1,354 1)
1,368
10,903
9,409
1) Goodwill, net, amounts to seK 19 million (seK 18 million in 2006).
ericsson annual report 2007
71
notes to the consolidated financial statementsnote c11–c12
ericsson’s share of assets, liaBilities and income in
ericsson’s share of assets, liaBilities and income in
joint venture sony ericsson mo Bile communications
non-current assets
current assets
non-current liabilities
current liabilities
2,701
22,714
121
15,745
associated company ericsson nikola tesla d.d. 1)
non-current assets
current assets
non-current liabilities
current liabilities
Net assets
Net sales
income after financial items
income taxes
Net income
net income attributable to:
stockholders of the parent company
Minority interest
assets pledged as collateral
contingent liabilities
9,549
Net assets
59,700
7,276
–1,957
Net sales
income after financial items
income taxes
5,319
Net income
5,151
168
–
12
net income attributable to:
stockholders of the parent company
Minority interest
assets pledged as collateral
contingent liabilities
1) ericsson’s share is 49.07 percent.
Both these companies apply iFrs in the reporting to ericsson.
363
728
1
263
827
1,100
124
–1
123
123
–
5
64
other financial assets, non – current
other investments
in shares and
participations
2006
2007
customer
financing,
non-current
2006
2007
Derivatives hedging
non-current liabilities
with a positive value
2006
2007
other
financial assets,
non-current
2007 2006
Accumulated acquisition costs
opening balance
additions
Business combinations
Disposals/repayments/deductions
reclassifications
revaluation
translation difference
1,999 2,336
82
–
–286
–
–
–133
–
–
–
–
–
20
2,270
892
–
–1,940
–
–
–1
2,372
1,760
–
–1,755
–35
–
–72
Closing balance
2,019 1,999
1,221
2,270
Accumulated impairment losses/allowances
opening balance
impairment losses/allowance
Business combinations
Disposals/repayments/deductions
reclassifications
translation difference
–1,278 –1,531
–8
–
155
–
106
2
–
–
–
–5
–349
41
–
98
–
1
–1,050
–84
–
727
31
27
116
–
–
–
–
–20
–
96
–
–
–
–
–
–
–
716
–
–
–
–
–600
–
116
–
–
–
–
–
–
–
622 2)
166
3,447 3,199
617
–84
–245 –149
–
–
102 –136
–
–
4,092 3,447
–1,154 –1,119
–81
–
–
–
46
–58
–
–
–
–58
–1,270 –1,154
Closing balance
Net carrying value
–1,281 –1,278
–209
–349
738 1)
721
1,012
1,921
96
116
2,822 2,293
1) Fair value per December 31, 2007, for listed shares was seK 11 (6) million with a net carrying value of seK 11 (6) million.
2) additions include funded pension plans with net assets of seK 447 (381) million. For further information, see note c17, “post–employment benefits”.
72
ericsson annual report 2007
notes to the consolidated financial statementsnote c12
construction-t ype contracts in progress
For construction-type contracts in progress:
aggregate amounts of costs incurred
aggregate amount of recognized profits
(less recognized losses)
Gross amount due from customers 1)
Gross amount due to customers 2)
2007
2006
9,599
12,255
2,007
733
1,643
1,735
1,537
785
1) For all contracts in progress for which costs incurred plus recognized profits (less
recognized losses) exceeds progress billings.
2) For all contracts in progress for which progress billings exceed costs incurred plus
recognized profits (less recognized losses).
the aggregate amounts of costs incurred relate to all construction-
type contracts that where not finalized as per December 31, 2007,
and include all costs incurred since the start of these projects, includ-
ing any costs incurred prior to January 1, 2007. net sales for con-
struction-type contracts for 2007 amounts to seK 7,121 million, see
note c4, “net sales”.
c13 inventories
2007
2006
raw materials, components and consumables
Manufacturing work in progress
Finished products and goods for resale
contract work in progress
less advances from customers
7,161
315
5,338
10,338
–677
6,902
213
3,781
11,171
–597
Inventories, net
22,475
21,470
contract work in progress includes amounts related to construction-
type contracts as well as other contracts with ongoing work in prog-
ress.
reported amounts are net of obsolescence allowances of seK 2,752
(2,578) million.
movements in oB solescence allowances
2007
2006
opening balance
additions
utilized
translation difference
Balances regarding acquired/divested businesses
2,578
1,276
–1,114
17
–5
2,519
857
–693
–81
–24
Closing balance
2,752
2,578
the cost of inventories recognized as an expense and included in
cost of sales was seK 52,864 (52,615) million.
ericsson annual report 2007
73
notes to the consolidated financial statementsnote c13
movements in allowances for impairment
trade
receivables
2006
2007
customer
finance credits
2006
2007
opening balance
additions
utilized
reversal of excess amounts
reclassification
translation difference
1,372
564
–554
–137
56
50
1,382
686
–139
–527
56
–86
Closing balance
1,351
1,372
418
49
–43
–141
–
–8
275
1,755
79
–284
–1,082
–5
–45
418
c14 trade receivables and
customer Financing
trade receivables excluding
associated companies and joint ventures
allowances for impairment
trade receivables, net
trade receivables related to associated
companies and joint ventures
Trade receivables, total
customer finance credits
allowances for impairment
Customer finance credits, net
Of which short term
2007
2006
60,669
–1,351
51,846
–1,372
59,318
50,474
1,174
596
60,492
51,070
3,649
–275
3,374
2,362
4,074
–418
3,656
1,735
credit commitments for customer financing
4,185
6,795
Days sales outstanding were 102 (85) in December, 2007.
ageing analysis as per decemBer 31, 2007
of which
neither
impaired
nor
amount past due
of which
impaired,
not
past
due
of which
past due in the
following time intervals
90 days
less than
or more
90 days
of which
past due and impaired in
the following time intervals
90 days
or more
less than
90 days
trade receivables excluding associated companies
and joint ventures
allowances for impairment of receivables
customer finance credits
allowances for impairment of customer finance credits
60,669
–1,351
3,649
–275
52,560
–
3,723
1,577
2,476
305
–110
410
293
773
–422
1
–1
2,036
–929
164
–164
ageing analysis as per decemBer 31, 2006
of which
neither
impaired
nor
amount past due
of which
impaired,
not
past
due
of which
past due in the
following time intervals
90 days
less than
or more
90 days
of which
past due and impaired in
the following time intervals
90 days
or more
less than
90 days
trade receivables excluding associated companies
and joint ventures
allowances for impairment of receivables
customer finance credits
allowances for impairment of customer finance credits
51,846
–1,372
4,074
–418
45,085
–
2,714
1,222
3,342
473
–166
–
7
400
–397
32
–32
2,425
–975
220
–220
Credit risk
credit risk is divided into three categories: credit risk in trade receiv-
ables, customer finance risk and financial credit risk (see c20).
Credit risk in trade receivables
credit risk in trade receivables is governed by a policy applicable for
all ericsson legal entities. the purpose of the policy is to:
• avoid credit losses through establishing internal standard credit
routines at all ericsson legal entities.
• ensure monitoring and risk mitigation of defaulting accounts, i.e.
events of non-payment and/or delayed payments from customers.
• ensure efficient credit management within the Group and thereby
improve Days sales outstanding and cash Flow.
• ensure payment terms are commercially justifiable.
• clarify escalation path and approval process for payment terms
and customer credit limits.
the credit worthiness of all customers is regularly assessed and a
credit limit is set. through credit management system functionality,
credit checks are performed every time a sales order or an invoice is
generated in the source system based upon the credit risk set on the
customer. credit blocks appear if credit limit set on customer is
exceeded or if over due receivables are higher than permitted levels.
release of block requires authorization.
74
ericsson annual report 2007
notes to the consolidated financial statementsnote c14
trade receivables amounted to seK 60,669 (51,846) million as of
outstanding customer finance credits
December 31, 2007. provisions for expected losses are regularly
assessed and amounted to seK 1,351 (1,372) million as of December
31, 2007. ericsson’s nominal credit losses have, however, historically
been low. the amounts of trade receivables follow closely the distri-
bution of ericsson’s sales and do not include any major concentra-
tions of credit risk by customer or by geography.
Customer finance credit risk
all major customer finance commitments are subject to approval by
the Finance committee of the Board of Directors according to a
credit approval policy.
prior to the approval of new customer Finance deals, an internal
credit risk assessment is conducted in order to assess the credit
rating (for political and commerical risk) of each transaction respec-
tively. the credit risk analysis is made by using an assessement tool,
whereby the political risk rating is identical to the rating used by all
export credit agencies within the oecD. the commercial risk is
assessed by analyzing a large number of parameters, which may
affect the level of the future commercial risk exposure. the output
from the assessement tool for the credit rating is also a pricing of the
risk, expressed as a risk margin per annum over funding cost. the
reference pricing for political risk and commercial risk, on which the
tool is based, are reviewed using information from export credit
agencies and prevailing pricing in the bank loan market for structured
financed deals. the objective is the internally set risk margin shall
reflect the assessed risk and that the pricing is as close as possible
to the current market pricing.
risk provisions related to customer Finance risk exposures are
only made upon events occuring after the financing arrangement has
become effective, which in a significant way are expected to have an
adverse impact on the borrower’s ability and/or willingness to service
the outstanding debt. these events can be political (normally outside
the control of the borrower) or commercial e.g. a borrower´s deterio-
rating creditworthiness.
as of December 31, 2007, ericsson’s total outstanding exposure
related to customer finance credits was seK 3,679 (4,109) million. as
of that date, ericsson also had unutilized credit commitments of seK
4,185 (6,795) million. 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,
2007, there were a total of 75 (66) customer loans originated by or
guaranteed by ericsson. the five largest customer finance arrange-
ments represented 48 (60) percent of the total credit exposure.
security arrangements for customer credits normally include
pledges of equipment, pledges of certain of the borrower’s assets
and pledges of shares in the operating company. restructuring
efforts for cases of troubled debt may lead to temporary holdings of
equity interests.
the table below summarizes ericsson’s outstanding customer
finance credits as of December 31, 2007 and 2006.
on-balance sheet credits
off-balance sheet credits
total credits
accrued interest
less third-party risk coverage 1)
ericsson’s risk exposure
on-balance sheet credits, net carrying value
reclassifications 2)
on-balance sheet credits, net carrying value
of which current
credit commitments for customer financing
2007
2006
3,649
30
4,074
35
3,679
4,109
63
–511
89
–50
3,231
4,148
3,374
–
3,374
2,362
4,185
3,778
–122
3,656
1,735
6,795
1) By “third-party risk cover” means that a financial payment guarantee has been
issued by a bank, an export credit agency or other financial institution covering the
credit risk. it may also be a credit risk transfer under a so called “sub participation
arrangement” with a bank whereby the credit risk and the funding is taken care of
by the bank for the part covered by the bank. a credit risk cover from a third party
may also be issued by an insurance company.
2) reclassification due to consolidation in accordance with sic 12.
of ericsson’s total outstanding customer finance credit exposure as
of December 31, 2007, 47 (52) percent related to central and eastern
europe, Middle east & africa, 23 (36) percent to latin america, 14 (7)
percent to Western europe, 14 (4) percent to asia pacific and 2 (1)
percent to north america.
the effect of risk provisions and reversals for customer financing
affecting the income statement amounted to a net positive impact of
seK 92 million in 2007, compared to seK 1,003 million in 2006. in
2007 and 2006, ericsson incurred credit losses of seK 43 million and
seK 284 million respectively.
c15 other current receivables
prepaid expenses
accrued revenues
advance payments to suppliers
Derivatives with a positive value
taxes
other
2007
2006
2,527
1,661
679
1,530
4,610
4,055
2,212
1,124
666
3,802
2,596
4,612
Total
15,062
15,012
c16 equity
Capital stock 2007
capital stock at December 31, 2007, consisted of the following:
Parent Company
class a shares
class B shares
Total
number
of shares
1,308,779,918
14,823,478,760
16,132,258,678
capital
stock
1,309
14,823
16,132
ericsson annual report 2007
75
notes to the consolidated financial statementsnote c14–c16
the capital stock of the company is divided into two classes: class a
shares (quota value seK 1.00) and class B shares (quota 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
tenth of one vote per share.
the total number of treasury shares at December 31, 2007, was
231,991,543 (251,013,892 in 2006, 268,065,241 in 2005) class B
shares. the number of treasury shares decreased during 2007 due to
delivery and sale of shares in relation to the stock purchase plans
and the stock option plans.
reconciliation of numBer of shares
number
of shares
number of shares, Jan 1, 2007
number of shares, Dec 31, 2007
16,132,258,678
16,132,258,678
capital
stock
16,132
16,132
Dividend proposal
the Board of Directors will propose to the annual General Meeting
2008 a dividend of seK 0.50 per share.
revalua-
tion of
other
invest-
ments in
shares
and
partici-
pations
3
cumula-
tive
transla-
tion
adjust-
ments
–5,569
cash
flow
hedges
877
addi-
tional
paid in
capital
24,731
capital
stock
16,132
retained
earnings
83,939
Stock-
holders’
equity
120,113
Minority
interests
782
Total
equity
120,895
2007
January 1, 2007
actuarial gains and losses related to pensions
Group
associates
Revaluation of other investments in shares
and participations
Fair value measurement reported in equity
Cash flow hedges
Fair value remeasurement of derivatives
reported in equity
Group
associates
transferred to income statement for the
period
changes in cumulative translation adjustments
Group
associates
tax on items reported directly in/or transferred
from equity
Total transactions reported directly in
equity
Net income
Group
associates
Total income and expenses recognized for
the period
sale of own shares
stock purchase and stock option plans
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Group
associates
Dividends paid
Business combinations
December 31, 2007
–
–
–
–
16,132
–
–
–
–
24,731
–
2
–
–
–
–
–
–
–
2
2
–
–
–
–
–
5
–
–
580
4
–1,390
–
–
–
–
–
–
–
–
–
–1,155 1)
359
1,210
–2
1,210
–2
2
580
4
–1,390
–
–1,155
359
–
–
–
–
–
–
236
20 2)
–329
–73
–570
–776
879
–465
–
–
–
–
–
–
–1
–
–
–1
1,210
–2
2
580
4
–1,390
–
–1,156
359
–73
–466
16,562
5,274
16,562
5,274
299
16,861
5,274
–570
–
–776
–
22,715
62
21,371
62
298
–
21,669
62
–
–
–
–
307
–
–
–
–
–6,345
528
–19
–7,943
–
99,282
528
–19
–7,943
–
134,112
–
–
–189
49
940
528
–19
–8,132
49
135,052
1) changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of seK –914 million (seK –701 million in 2006, seK 1,084
million in 2005), net gain/loss from hedging activities of foreign entities, seK –52 million (seK 123 million in 2006, seK –142 million in 2005) and seK –70 million (seK –1 million in
2006, seK 127 million in 2005) of realized gain/losses net from sold/liquidated companies.
2) Deferred tax on gains on hedges on net investments in foreign entities, seK –72 million pre tax.
76
ericsson annual report 2007
notes to the consolidated financial statementsnote c16
Additional paid in capital
Cumulative translation adjustments
relates to payments made by owners and includes share premiums
paid.
Revaluation of other investments in shares and participations
the translation reserve comprises all foreign currency differences
arising from the translation of the financial statements of foreign
operations, changes regarding revaluation of goodwill in local cur-
rency as well as from the translation of liabilities that hedge the
company’s net investment in foreign subsidiaries.
the fair value reserve comprises the cumulative net change in the fair
value of available-for-sale financial assets until the investments are
derecognized or impaired.
Retained earnings
Cash flow hedges
the cash flow hedging reserve comprises the effective portion of the
cumulative net change in the fair value of cash-flow-hedging instru-
ments related to hedged transactions that have not yet occurred.
retained earnings,including net income for the year, comprise the
earned profits of parent company and its share of net income in
subsidiaries, joint ventures and associated companies.
revalua-
tion of
other
invest-
ments in
shares
and
partici-
pations
5
cumula-
tive
transla-
tion
adjust-
ments
–2,493
cash
flow
hedges
–704
addi-
tional
paid in
capital
24,731
capital
stock
16,132
retained
earnings
63,951
Stock-
holders’
equity
101,622
Minority
interests
850
Total
equity
102,472
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,132
–
–
–
–
–
–
24,731
–
–
–2
–
–
–
–
–
–
–
–
–
–
4,133
–33
–1,990
99
–
–
–
–
–
–
–
–
–
–2,597
–431
437
3
–
–
–
–
–
–
–
437
3
–2
4,133
–33
–1,990
99
–2,597
–431
–
–
1
–
–
–
–
437
3
–1
4,133
–33
–1,990
99
–91
–
–2,688
–431
–628
–48
–93
–769
–
–769
–2
1,581
–3,076
347
–1,150
–90
–1,240
–
–
–2
–
–
–
–
–
3
–
–
1,581
–
–
–
–
–
877
–
–
20,317
5,934
20,317
5,934
–3,076
–
–
–
–
–
–5,569
26,598
58
473
–7,141
–
–
83,939
25,101
58
473
–7,141
–
–
120,113
185
95
–
–
–202
70
–31
782
20,502
5,934
25,196
58
473
–7,343
70
–31
120,895
2006
January 1, 2006
actuarial gains and losses related to pensions
Group
associates
Revaluation of other investments in shares
and participations
Fair value measurement reported in equity
Cash flow hedges
Fair value remeasurement of derivatives
reported in equity
Group
associates
transferred to income statement for the
period
transferred to balance sheet for the period
changes in cumulative translation adjustments
Group
associates
tax on items reported directly in/or transferred
from equity
Total transactions reported directly in
equity
Net income
Group
associates
Total income and expenses recognized for
the period
sale of own shares
stock purchase and stock option plans
Dividends paid
stock issue, net
Business combinations
December 31, 2006
ericsson annual report 2007
77
notes to the consolidated financial statementsnote c16 revalua-
tion of
other
invest-
ments in
shares
and
partici-
pations
–
155
155
–
cumula-
tive
transla-
tion
adjust-
ments
–6,530
–6,530
–
cash
flow
hedges
–
1,155
1,155
–
addi-
tional
paid in
capital
24,731
–
24,731
–
capital
stock
16,132
–
16,132
–
2005
January 1, 2005
changes in accounting policy
Adjusted opening balance
actuarial gains and losses related to pensions
Revaluation of other investments in shares
and participations
Fair value measurement reported in equity
transferred to income statement at sale
Cash flow hedges
Fair value remeasurement of derivatives
reported in equity
Group
associates
transferred to income statement for the
period
changes in cumulative translation adjustments
Group
associates
tax on items reported directly in/or transferred
from equity
Total transactions reported directly in
equity
Net income
Group
associates
Total income and expenses recognized for
the period
sale of own shares
stock purchase and stock option plans
Dividends paid
stock issue, net
Business combinations
December 31, 2005
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,132
–
–
–
–
–
–
24,731
retained
earnings
45,372
179
45,551
–3,221
Stock-
holders’
equity
79,705
1,489
81,194
–3,221
Minority
interests
1,057
–
1,057
–
Total
equity
80,762
1,489
82,251
–3,221
–
–
–
–
–
–
–
–3
–147
–3,968
7
1,404
3,740
378
–
–
–
–
–
147
–
–3
–147
–3,968
7
1,404
3,887
378
–
–
–
–
–
–3
–147
–
–
–3,968
7
1,404
–
–
–
–
–
–
–
3,740
378
698
–81
906
1,523
–
1,523
–150
–1,859
4,037
–2,315
–287
147
–140
–
–
–150
–
–
–
–
–
5
–
–
–
–
21,920
2,395
21,920
2,395
145
–
22,065
2,395
–1,859
–
–
–
–
–
–704
4,037
–
–
–
–
–
–2,493
22,000
117
242
–3,959
–
–
63,951
24,028
117
242
–3,959
–
–
101,622
292
–
–
–174
17
–342
850
24,320
117
242
–4,133
17
–342
102,472
78
ericsson annual report 2007
notes to the consolidated financial statementsnote c16 c17 post-employment benefits
ericsson sponsors a number of post-employment benefit plans
throughout the Group, which are in line with market practice in each
country. the year 2007 was characterized by an increase in discount
rates throughout the world and an increase in the life expectancy
assumption in sweden.
this note is divided into the following sections:
1. amount recognized in the consolidated Balance sheet
2. total pension cost recognized in the income statement
3. change in the Defined Benefit obligation, DBo
4. change in the plan assets
5. actuarial Gains and losses reported Directly in equity (sorie)
6. actuarial assumptions
7. summary information on pension plans per Geographical Zone
Section One: Amount Recognized in the Consolidated Balance Sheet
sweden
uK
euro zone
us
other
total
2007
Defined Benefit obligation (DBo) 1)
Fair value of plan assets 2)
Deficit/surplus (+/–)
unrecognized past service costs
closing balance
plans with net surplus 3)
Provision for post-employment benefits 4)
2006
Defined Benefit obligation (DBo) 1)
Fair value of plan assets 2)
Deficit/surplus (+/–)
unrecognized past service costs
closing balance
plans with net surplus 3)
12,512
9,463
3,049
–
3,049
–
3,049
11,772
9,141
2,631
–
2,631
–
5,606
4,854
752
–
752
39
791
5,713
3,897
1,816
–
1,816
–
3,079
2,104
975
–
975
426
1,401
3,241
1,959
1,282
–
1,282
310
Provision for post-employment benefits 4)
2,631
1,816
1,592
2,238
1,779
459
–
459
99
558
1,791
2,036
–245
–83
–328
717
389
25,226
20,236
4,990
–83
4,907
1,281
6,188
2,399
1,818
1,487
1,580
24,612
18,395
581
–6
575
41
616
–93
–77
–170
483
313
6,217
–83
6,134
834
6,968
1) For details on DBo, please refer to section 3 of this note.
2) For details on plan assets, please refer to section 4 of this note.
3) plans with a net surplus, i.e. where plan assets exceed DBo, are reported as other financial assets, non-current (please see note c12 “Financial assets”). none of the
company’s plans with net surplus are affected by restrictions on asset recognition.
4) plans with net liabilities are reported in the Balance sheet as post-employment benefits, non-current.
Section Two: Total Pension Cost Recognized in the Income Statement
costs for post-employment benefits within ericsson are distributed between defined contribution plans and defined benefit plans, with a trend
toward defined contribution plans.
sweden
uK
euro zone
us
other
total
2007
pension cost for defined contribution plans
pension cost for defined benefit plans 1)
Total
total pension cost expressed as a percentage of wages and salaries
2006
pension cost for defined contribution plans
pension cost for defined benefit plans 1)
Total
total pension cost expressed as a percentage of wages and salaries
2005
pension cost for defined contribution plans
pension cost for defined benefit plans 1)
Total
total pension cost expressed as a percentage of wages and salaries
1) see cost details in table below.
1,166
471
1,637
1,350
347
1,697
929
417
1,346
265
279
544
–
249
249
–
71
71
370
128
498
195
300
495
198
200
398
105
42
147
93
49
142
83
101
184
148
100
248
82
44
126
59
107
166
2,054
1,020
3,074
9.0%
1,720
989
2,709
8.4%
1,269
896
2,165
8.5%
ericsson annual report 2007
79
notes to the consolidated financial statementsnote c17
cost details for defined Benefit plans recognized in the income statement
sweden
uK
euro zone
us
other
total
2007
current service cost
interest cost
expected return on plan assets
past service cost
curtailments and settlements
Total
2006
current service cost
interest cost
expected return on plan assets
past service cost
curtailments and settlements
Total
2005
current service cost
interest cost
expected return on plan assets
past service cost
curtailments and settlements
Total
473
435
–412
–
–25
471
431
406
–352
–
–138
347
275
407
–267
2
–
417
257
307
–285
–
–
279
228
177
–169
31
–18
249
62
169
–160
–
–
71
186
135
–125
–
–68
128
279
133
–103
–
–9
300
200
93
–93
–
–
200
33
139
–135
3
2
42
47
146
–140
5
–9
49
78
148
–128
3
–
101
140
109
–163
8
6
100
92
104
–145
13
–20
44
81
61
–63
14
14
107
1,089
1,125
–1,120
11
–85
1,020
1,077
966
–909
49
–194
989
696
878
–711
19
14
896
Sections three to six focus on the Defined Benefit plans.
Section Three: Change in the Defined Benefit Obligation, DBO
sweden
uK
euro zone
us
other
total
2007
Opening balance
current service cost
interest cost
employee contributions
pension payments
actuarial gain/loss (–/+)
settlements
curtailments
Business combinations 1)
other
translation difference
Closing balance
of which medical benefit schemes
11,772
473
435
–
–72
–71
–
–25
–
–
–
5,713
257
307
59
–119
–777
–
–
440
–8
–266
12,512
5,606
–
–
3,241
186
135
4
–89
–482
–
–68
20
–9
141
3,079
–
2,399
33
139
–
–195
–12
–2
2
–
22
–148
2,238
533
1,487
140
109
15
–68
83
–40
6
–6
–42
107
24,612
1,089
1,125
78
–543
–1,259
–42
–85
454
–37
–166
1,791
25,226
–
533
80
ericsson annual report 2007
notes to the consolidated financial statementsnote c17
2006
Opening balance
current service cost
interest cost
employee contributions
pension payments
actuarial gain/loss (–/+)
settlements
curtailments
Business combinations 1)
other
translation difference
Closing balance
of which medical benefit schemes
sweden
uK
euro zone
us
other
total
11,632
431
406
–
–69
–208
–209
–211
–
–
–
11,772
–
3,795
228
177
54
–150
767
–18
–
909
29
–78
5,713
–
2,475
279
133
4
–60
–244
–
–9
781
–
–118
3,241
–
2,863
47
146
–
–189
–159
–
–9
45
37
–382
2,399
579
1,549
92
104
13
–69
–28
–48
–19
20
1
–128
22,314
1,077
966
71
–537
128
–275
–248
1,755
67
–706
1,487
24,612
–
579
1) Business combinations in 2007 are related to the acquisition of tandberg television asa. Business combinations in 2006 are related to the acquisition of Marconi.
Funded Status
the funded ratio, defined as total plan assets in relation to the total defined benefit obligation (DBo), was 80.2 percent in 2007, compared to 74.7
percent in 2006.
the following table summarizes the value of the DBo per geographical area in relation to whether there are, or not, plan assets wholly or par-
tially funding each pension plan.
2007
DBo, closing balance
of which partially or fully funded
of which unfunded
2006
DBo, closing balance
of which partially or fully funded
of which unfunded
Section Four: Change in the Plan Assets
2007
Opening balance
expected return on plan assets
actuarial gain/loss (+/–)
employer contributions
employee contributions
pension payments
settlements
Business combinations 1)
other
translation difference
Closing balance
sweden
uK
euro zone
us
other
total
12,512
12,043
469
11,772
11,284
488
5,606
5,606
–
5,713
5,713
–
3,079
1,945
1,134
3,241
1,995
1,246
2,238
1,680
558
2,399
1,794
605
1,791
1,440
351
1,487
1,269
218
25,226
22,714
2,512
24,612
22,055
2,557
sweden
uK
euro zone
us
other
total
9,141
412
–89
–1
–
–
–
–
–
–
9,463
3,897
285
–
622
59
–127
–
349
–
–231
4,854
1,959
125
–173
128
4
–19
–
–
–10
90
2,104
1,818
135
73
13
–
–142
–2
–
–
–116
1,779
1,580
163
130
83
15
–55
–41
3
–18
176
18,395
1,120
–59
845
78
–343
–43
352
–28
–81
2,036
20,236
ericsson annual report 2007
81
notes to the consolidated financial statementsnote c17
2006
Opening balance
expected return on plan assets
actuarial gain/loss (+/–)
employer contributions
employee contributions
pension payments
settlements
Business combinations 1)
other
translation difference
Closing balance
sweden
uK
euro zone
us
other
total
8,809
352
261
–
–
–
–281
–
–
–
2,754
169
26
191
54
–151
–
909
–
–55
9,141
3,897
1,821
103
38
99
4
–17
–
–
–11
–78
1,959
1,880
140
–24
211
–
–136
–
17
–
–270
1,818
1,520
145
56
61
13
–62
–48
13
–1
–117
16,784
909
357
562
71
–366
–329
939
–12
–520
1,580
18,395
1) Business combinations in 2007 are related to the acquisition of tandberg television asa. Business combinations in 2006 are related to the acquisition of Marconi.
actual return on plan assets
2007
2006
asset allocation
2007
equities
interest-bearing securities
other
Total
Of which Ericsson’s securities
2006
equities
interest-bearing securities
other
Total
Of which Ericsson’s securities
sweden
uK
euro zone
323
613
285
195
–48
141
us
208
116
other
293
201
total
1,061
1,266
sweden
uK
euro zone
us
other
total
2,943
6,520
–
9,463
–
2,377
6,764
–
9,141
–
1,874
2,387
593
4,854
–
1,802
1,914
181
3,897
–
1,159
847
98
2,104
–
1,142
714
103
1,959
–
1,442
316
21
1,779
–
1,058
696
64
1,818
–
479
1,381
176
2,036
–
353
1,087
140
1,580
–
7,897
11,451
888
20,236
–
6,732
11,175
488
18,395
–
the expected contributions to the defined benefit plans during 2008 will be slightly higher than in 2007.
82
ericsson annual report 2007
notes to the consolidated financial statementsnote c17
Section Five: Actuarial Gains and Losses
Reported Directly in Equity
cumulative gain/loss (–/+) at
beginning of year
recognized gain/loss (–/+) during
the year
translation difference
effects related to business combinations 1)
2007
2006
3,065
3,483
–1,200
–230
–55 8
–4
–196
cumulative gain/loss (–/+) at end of year 2)
1,806
3,065
1) related to the acquisition of tandberg television asa during 2007, and the
divestiture of Defense Business during 2006.
2) no cumulative gain/loss is related to terminated pension plans.
since January 1, 2006, ericsson applies immediate recognition of
actuarial gains and losses directly in equity, as disclosed in the state-
ment of recognized income and expense (sorie). actuarial gains
and losses may arise from either a change in actuarial assumptions
or in deviations between estimated and actual outcome.
Section Six: Actuarial Assumptions
2007
Discount rate
expected return on plan assets for the year
Future salary increases
Health care cost inflation, current year
life expectancy after age 65 in years, males
life expectancy after age 65 in years, females
2006
Discount rate
expected return on plan assets for the year
Future salary increases
Health care cost inflation, current year
life expectancy after age 65 in years, males
life expectancy after age 65 in years, females
1) Weighted average
multi-year summary
plan assets
DBo
2007
2006
2005
2004
20,236 18,395
24,612
25,226
5,764
16,784
22,314 16,820
–4,990
–6,217
–5,530 –11,056
Deficit/surplus (–/+)
actuarial gains and losses (–/+)
experience-based adjustments
of pension obligations
experience-based adjustments
of plan assets
–76
232
–415
–56
59
–358
–706
–146
sweden
uK euro zone 1)
us
other 1)
4.4%
4.55%
3.25%
n/a
21
24
3.7%
4.0%
3.0%
n/a
18
22
5.6%
6.75%
4.6%
n/a
21
24
5.0%
6.2%
4.5%
n/a
21
24
5.42%
6.14%
3.08%
n/a
22
25
4.5%
5.75%
3.0%
n/a
20
24
6.25%
7.5%
4.5%
9.5%
18
20
6.0%
8.0%
4.5%
10.0%
18
20
8.84%
9.75%
6.76%
n/a
18
22
8.25%
9.5%
6.0%
n/a
17
20
• actuarial assumptions are assessed on a quarterly basis.
• the discount rate for each country is determined by reference to market yields on high-quality corporate bonds. in countries where there is no
deep market in such bonds, the market yields on government bonds are used.
• the overall expected long-term return on plan assets is a weighted average of each asset category’s expected rate of return. the expected
return on interest-bearing investments is set in line with each country’s market yield. expected return on equities is derived from each coun-
try’s risk free rate with the addition of a risk premium.
• salary increases are partially affected by fluctuation in inflation.
• the net periodic pension cost and the present value of the DBo for current and former employees are calculated using the projected unit
credit (puc) actuarial cost method, which objective is to spread the cost of each employee’s benefits over the period that the employee works
for the company.
ericsson annual report 2007
83
notes to the consolidated financial statementsnote c17
Sensitivity Analysis for Medical Benefit Schemes
the effect (in seK million) of a one percentage point change in the
assumed trend rate of medical cost would have the following effect:
UK:
in 2007, the acquisition of tandberg television asa increased the
DBo by seK 440 million, and the plan assets by seK 349 million.
1 percent 1 percent
increase decrease
net periodic post-employment medical cost
accumulated post-employment benefit obligation
for medical costs
4
–3
48
–42
Section Seven: Summary Information on Pension
Plans per Geographical Zone
applicable to all countries: in 2007, discount rates have increased
resulting in a decrease in the DBo, and consequently an actuarial
gain.
Euro zone:
Germany, italy and ireland are the countries with the most significant
defined benefit pension plans for the Group.
the acquisition of the German company lHs aG did not have any
effect on the DBo since the company only has defined contribution
plans.
in italy, the parliament approved the reform of the “statutory sever-
ance indemnity – tFr” to be effective per January 1 2007. this
reform changes the nature of the pension plans from defined benefit
to defined contribution. the defined benefit plans are closed per
December 31 2006.
overall, there is a trend towards increased usage of defined contri-
in ireland, the life expectancy increased by two years for both
bution plans. some defined benefit plans have been closed for new
entrance and will gradually be replaced by defined contribution plans.
males and females.
Specific information per geographical area:
US & Other:
no issues except for the increase in discount rate.
Sweden:
in 2007, the swedish Financial supervisory authority issued new
mortality tables which have been adopted in the calculation of the
DBo at December 31, 2007. the life expectancy for males increased
by three years and females one year, resulting in an increase in the
DBo and consequently an actuarial loss.
the trend towards defined contribution pension solutions is also
applicable in sweden, since the collectively agreed itp plan, which
historically has been a defined benefit plan, has been renegotiated
and, as from July 1, 2007, the parties have agreed to launch a new
itp plan. the new plan is a defined contribution plan which will be
open for new participants in the itp system, whereas earlier partici-
pants will continue in the old plan.
as before, ericsson has secured the disability- and survivors’
pension part of the itp plan through an insurance solution with the
insurance company alecta. although this part of the plan is classified
as a multi-employer defined benefit plan, it has not been possible for
ericsson to get sufficient information to apply defined benefit ac-
counting, and therefore, it has been accounted for as a defined
contribution plan. at the end of 2007, alecta reported a surplus of 52
procent (43 procent in 2006). such surplus reflects the fair value of
alecta’s plan assets as a percentage of plan commitments, then
measured in accordance with alecta’s actuarial assumptions, which
are different from those in ias 19. alecta’s surplus may be distributed
to the members of the plan and/or plan participants.
84
ericsson annual report 2007
notes to the consolidated financial statementsnote c17
c18 provisions
2007
Opening balance
additions
reversal of excess amounts
Negative effect on Income Statement
utilization/cash out
Balances regarding divested/acquired businesses
reclassification
translation differences
Closing balance
2006
Opening balance
additions
reversal of excess amounts
Negative effect on Income Statement
utilization/cash out
Balances regarding divested/acquired businesses
reclassification
translation differences
Closing balance
Warranty
commit-
ments
restructur-
ing
project
related
other 1)
Total 2)
2,961
1,472
–861
–1,755
22
–24
–1
1,814
4,821
2,561
–1,100
–3,471
224
15
–89
2,961
2,277
676
–400
–1,680
–
123
55
1,051
2,314
2,765
–416
–2,308
20
19
–117
2,277
3,272
1,795
–1,080
–1,383
–
–5
20
2,619
5,007
2,544
–872
–3,352
76
25
–156
3,272
5,372
1,216
–1,409
–1,490
–11
510
54
4,242
6,526
2,876
–2,359
–1,209
–100
–146
–216
5,372
13,882
5,159
–3,750
1,409
–6,308
11
604
128
9,726
18,668
10,746
–4,747
5,999
–10,340
220
–87
–578
13,882
1) off-balance customer financing is included in other provisions.
2) of which non-current seK 368 (602) million.
other has been split into two different categories, project related and other. 2006 figures have been restated accordingly.
Provisions
Restructuring
risk assessment in the ongoing business is performed monthly to
identify the need for new additions and reversals. Management uses
its best judgment to estimate provisions based on this assessment.
the actual utilization for 2007 was seK 6.3 billion compared to the
estimated seK 8.3 billion. in certain circumstances, provisions are no
longer required due to more favo rable outcomes than anticipated,
and that will affect the provisions as a reversal. in other cases the
outcome can be negative, and in that case a cost will be booked
directly in the income statement. For 2007, new or additional provi-
sions amounting to seK 5.2 billion were made, and seK 3.8 billion
were reversed. the expected utilization in 2008 is approximately seK
6 billion.
For more information, see note c1, “significant accounting poli-
cies” and note c2 “critical accounting estimates and Judgments”.
Warranty commitments
Warranty provisions are based on historic quality rates for estab-
lished products as well as estimates regarding quality rates for new
products and costs to remedy the various types of faults predicted.
the actual utilization for 2007 was seK 1.8 billion, compared to the
expected seK 2.2 billion. provisions amounting to seK 1.5 billion
were made and due to more favorable outcomes in certain cases
reversals of seK 0.9 billion were made. the expected utilization of
warranty provisions during year 2008 is approximately seK 1 billion.
there have not been any major new restructuring provisions made
during 2007. restructuring provisions amounting to seK 1.7 billion
were utilized during 2007, in line with the expected seK 1.6 billion.
the major part of the provisions utilized during 2007 refers to provi-
sions made in 2006 related to the Marconi integration and the career
change offer in sweden. the expected utilization of restructuring
provisions during 2008 is approximately seK 1 billion.
Project related
project related provisions include onerous (estimated losses) con-
tracts, contractual penalties and undertakings. the utilization of
project related provisions were seK 1.4 billion compared to the
estimated seK 1.7 billion. provisions amounting to seK 1.8 billion
were made and seK 1.1 billion were reversed due to a more favorable
outcome than expected. the expected utilization for 2008 is esti-
mated to be approximately seK 2 billion.
Other
other provisions include provisions for income taxes, value added
tax issues, litigations, supplier claims, customer financing and other
provisions. the utilization was seK 1.5 billion in 2007 compared to
the estimate of seK 2.8 billion. new provisions amounting to seK 1.2
billion were made and seK 1.4 billion were reversed during the year
due to a more favorable outcome. For 2008 the expected utilization is
approximately seK 2 billion.
ericsson annual report 2007
85
notes to the consolidated financial statementsnote c18 c19 interest-Bearing liabilities
ericsson’s outstanding interest-bearing liabilities were seK 27.2 (14.6)
billion as of December 31, 2007.
interest-Bearing liaBilities
Borrowings, current
current part of non-current borrowings 1)
other current borrowings
total current borrowings
Borrowings, non-current
notes and bond loans
other borrowings, non-current
total non-current interest-
bearing liabilities
total interest-bearing liabilities
1) including notes and bond loans of seK 2,898 (0) million.
notes and B ond loans
2007
2006
3,065
2,831
88
1,592
5,896
1,680
19,380
1,940
11,204
1,700
21,320
12,904
27,216
14,584
all outstanding notes and bond loans are issued by the parent com-
pany under its euro Medium term note program. Bonds issued at a
fixed interest rate are swapped to a floating interest rate using interest
rate swaps, resulting in a weighted average interest rate of 5.48
percent at December 31, 2007. these bonds are revalued based on
changes in benchmark interest rates according to the fair value
hedge methodology stipulated in ias 39.
in June 2007 ericsson successfully placed a bond issuance. the
transaction comprised a eur 875 million dual-tranche eurobond,
consisting of a eur 375 million seven-year floating rate note and a
eur 500 million ten-year fixed rate note, as well as a seK 3 billion
five-year note. the bond issues will materially lengthen ericsson’s
average debt maturity profile. ericsson last accessed the eurobond
market in 2004.
Issued-maturing
1999-2009
2001-2008
2003-2010
2004-2012
2007-2012
2007-2012
2007-2017
2007-2014
Total
nominal
amount
483
226 1)
471 2)
450
1,000
2,000
500
375
coupon
6.500%
7.375%
6.750%
3.935%
5.100%
3.710%
5.380%
4.459%
currency
usD
GBp
eur
seK
seK
seK
eur
eur
Book value
(seK m.)
3,166 3)
2,898 3)
4,462 3)
450
1,002 3)
2,000
4,757 3)
3,543
22,278
Maturity date
(yy-mm-dd)
09-05-20
08-06-05
10-11-28
12-12-07 4)
12-06-29
12-06-29 5)
17-06-27
14-06-27 6)
unrealized hedge
gain/loss (incl. in
book value)
–61
8
–14
–4
–65
–136
1) the GBp 226 million bond has interest rates linked to the company’s credit rating. the interest will increase/decrease 0.25 percent per annum for each rating notch change per
rating agency (Moody’s and standard & poor’s). the interest rate applicable to this bond cannot be less than the initial interest rates in the loan agreements.
2) the eur 471 million bond is callable after 2007; the fair value of the embedded derivative is included in the book value of the bond.
3) interest rate swaps are designated as fair value hedges.
4) contractual repricing date 2008-06-09.
5) contractual repricing date 2008-03-29.
6) contractual repricing date 2008-03-27.
86
ericsson annual report 2007
notes to the consolidated financial statementsnote c19
c20 Financial risk Management
and Financial instruments
ericsson’s financial risk management is governed by a policy ap-
proved by the Board of Directors. the Finance committee of the
Board of Directors is responsible for overseeing the capital structure
and financial management of the company and approving certain
matters such as acquisitions, investments, customer financing com-
mitments, guarantees and borrowing and is continuously monitoring
the exposure to financial risks.
ericsson defines its managed capital as the total Group equity. For
ericsson, a robust financial position with a strong equity ratio, invest-
ment grade rating, low leverage and ample liquidity is necessary. this
provides us with the financial flexibility and independence to operate
and manage variations in working capital needs as well as capitalize
on business opportunities.
the company’s overall capital structure should support the finan-
cial targets: to grow faster than the market, deliver best in class mar-
gins and generate a healthy cash flow. the capital structure is man-
aged by balancing equity, debt financing and liquidity in such a way
that we secure funding of our operations at a reasonable cost of
capital. regular borrowings are complemented with committed credit
facilities to give additional flexibility to manage unforeseen funding
needs. We strive to finance our growth, normal capital expenditures
and dividends to shareholders by generating sufficient positive cash
flows from operating activities.
our capital objectives are:
• an equity ratio above 40 percent
• a cash conversion rate above 70 percent
• maintain a positive net cash position
• maintain a solid investment grade rating from Moody’s and stan-
dard &poor’s
capital (seK billion)
Capital objective
equity ratio (percent)
cash conversion rate (percent)
positive net cash (seK billion)
Credit rating
Moody’s
standard & poor’s
2007
2006
135
121
55
66
24.3
56
57
40.7
Baa1
BBB+
Baa2
BBB–
ericsson has a treasury function with the principal role to ensure that
appropriate financing is in place through loans and committed credit
facilities, to actively manage the Group’s liquidity as well as financial
assets and liabilities, and to manage and control financial risk expo-
sures in a manner consistent with underlying business risks and
financial policies. Hedging activities, cash management and insur-
ance management are largely centralized to the treasury function in
stockholm.
ericsson also has a customer finance function with the main objec-
tive to find suitable third-party financing solutions for customers and
to minimize recourse to ericsson. to the extent customer loans are
not provided directly by banks, the parent company provides or guar-
antees vendor credits. the customer finance function monitors the
exposure from outstanding vendor credits and credit commitments.
ericsson classifies financial risks as:
• foreign exchange risk
• interest rate risk
• credit risk
• liquidity and refinancing risk
• market price risk in own and other listed equity instruments.
the Board of Directors has established risk limits for defined expo-
sures to foreign exchange and interest rate risks as well as to political
risks.
For further information about accounting policys please see note
c1 – “significant accounting policies”.
Foreign exchange risk
ericsson is a global company with sales mainly outside sweden.
revenues and costs are to a large extent in currencies other than
seK and therefore the financial results of the Group may be impacted
through currency fluctuations.
ericsson has a structural mismatch between revenues and costs in
different currencies and is therefore exposed to various currency
combinations. these currency combinations and exposures will vary
over time.
ericsson reports the financial accounts in seK and movements in
exchange rates between currencies will affect:
• specific line items such as net sales and operating income
• the comparability of our results between periods; and,
• the carrying value of assets and liabilities.
the results of operations and financial position of non-swedish sub-
sidiaries are reported in other currencies than seK, and thus trans-
lated into seK upon consolidation.
Overall Exposure
Currency net sales purchases
Transaction Exposure
in SEK entities
internal sales 2) purchases 3)
usD 1)
eur
GBp
seK
JpY
auD
inr
cnY
other
41%
27%
4%
3%
3%
3%
2%
7%
10%
32%
25%
5%
20%
1%
2%
2%
5%
8%
44%
33%
2%
2%
5%
3%
0%
0%
11%
38%
21%
1%
38%
1%
0%
0%
0%
1%
1) including usD related currencies except cnY
2) eliminated upon consolidation. However, net impact on cost of sales as the internal
purchases normally is in functional currency of the buying company.
3) 39 percent of overall purchases, offsetting internal sales
net sales and operating income are affected by changes in foreign
exchange rates from two different kinds of exposures;
ericsson annual report 2007
87
notes to the consolidated financial statementsnote c20
outstanding derivatives
Currency derivatives
Maturity up to one year
Total maturity up to one year
Maturity one to three years
Total maturity one to three years
Maturity three to five years
Total maturity three to five years
Total currency derivatives
(of which is included in cash flow hedge relations)
currency
nominal
currency
2007
asset
seK
2006
liability
seK
nominal
currency
asset
seK
liability
seK
usD
eur
other
usD
eur
other
3,786
2,546
575
1,026
eur
–
6,764
2,062
109
1,043
471
783
20
42
845
131
13
1
145
–
990
416
558
531
–78 1)
1,011
15
78
–10 1)
83
–
1,094
13
726
70
–40 1)
756
29
0
–17 1)
12
0
0
768
158
2,281
370
456
3,107
63
90
58
211
17
17
3,335
1,239
2006
1) negative amounts relate to effects from one exposure of a derivative that is positive/negative while the total effect of the derivative is the opposite.
Interest derivatives
Maturity up to one year
Total maturity up to one year
Maturity one to three years
Total maturity one to three years
Maturity three to five years
Total maturity three to five years
Maturity more than five years
Total maturity more than five years
Total interest derivatives
(of which is included in Fair Value hedgerelations)
currency
nominal
currency
2007
asset
seK
eur
noK
seK
usD
GBp
other
seK
GBp
noK
eur
usD
other
eur
usD
seK
seK
eur
1,500
10,120
24,157
–
276
30,823
–
9
1,112
483
107
–
2,000
1,305
526
16
42
21
1
114
–
194
24
–
26
13
163
–
226
5
–
27
32
5
179
184
636 1)
478
liability
seK
nominal
currency
asset
seK
liability
seK
15
7
30
1
1
–
54
21
–
18
14
–
3
56
4
–
–1 2)
3
3
–
3
116
–
260
24,289
42,820
–
–
226
25,275
–
483
434
50
–
1,428
–
–
–
12
119
–
–
–
131
115
43
–
180
5
343
94
6
–
100
9
–
9
583 1)
385
2
23
63
–
–
4
92
–
–2 2)
8
6
12
–
–
–
–
11
–
11
115
–
1) of which 96 million is reported as non-current assets for 2007 and 116 million for 2006
2) negative amounts relate to effects from one exposure of a derivative that is positive/negative while the total effect of the derivative is the opposite.
Transaction exposure
• sales and cost of sales in non-reporting currencies in individual
group companies. to a large extent the exposure is concentrated
to the swedish subsidiary ericsson aB
• these exposures are addressed by hedging
the current policy for hedging transaction exposures and due to the
fact that translation exposure can’t be hedged, results in that only
around a fifth of the Group’s foreign exchange exposure in net sales
is hedged. the hedge effect on operating margin is larger, as it is a
net of sales and cost of sales.
Translation exposure
• sales and cost of sales in foreign entities are translated into seK
• these exposures cannot be addressed by hedging
Transaction exposure
Foreign exchange risk is as far as possible concentrated to swedish
group companies, primarily ericsson aB. sales to foreign subsidiaries
88
ericsson annual report 2007
notes to the consolidated financial statementsnote c20
are normally invoiced in the functional currency of the receiving entity,
and export sales from sweden to external customers are normally
denominated in usD or other foreign currency. in order to limit the
exposure toward exchange rate fluctuations on future revenue or
expenditure, committed and forecasted future sales and purchases in
major currencies are hedged, for the coming 6–12 months. During
2007, the only entity performing hedge accounting on forecasted
transactions was ericsson aB.
according to policy the transaction exposure in the subsidiaries’
balance sheets (i.e. trade receivables and payables and customer
financing receivables) should be fully hedged. Group treasury has a
mandate to leave selected transaction exposures in local companies’
balance sheets un-hedged up to an aggregate risk of Var seK 20
million, given a confidence level of 99 percent and a 1 day horizon.
external forward contracts are designated as cash flow hedges of
the net exposure for the main currencies and companies of the
Group.
other foreign exchange exposures in balance sheet items are
hedged through offsetting balances or derivatives.
as of December 31, 2007, outstanding foreign exchange deriva-
tives hedging transaction exposures had a positive net market value
of seK 0.1 (2.3) billion. the market value is partly deferred in the
hedge reserve in equity to offset the gains/losses on hedged future
sales in foreign currency. the remaining positive balance corre-
sponds to depreciation of trade receivable balances being remea-
sured at lower rates compared to the exchange rates prevailing when
originated.
Cash flow hedges
the purpose of hedging future cash flows is to protect operating
margin and reduce volatility in the income statement. Hedging is
done by selling or buying foreign currencies against the functional
currency of the hedging entity using FX forwards.
Hedging is done based on a rolling 12-month exposure forecast.
ericsson uses a layered hedging approach where the closest quar-
ters are hedged to a higher degree than coming quarters. each
consecutive quarter is hereby hedged on several occasions and is
covered by an aggregate of hedging contracts initiated at various
points in time which supports the objective of reducing volatility in the
income statement from changes in foreign exchange rates.
Translation exposure in net assets
ericsson has many subsidiaries operating outside sweden with other
functional currencies than seK. the net results in such companies
and the value of such foreign equity investments are exposed to
exchange rate fluctuations, which affect the consolidated income
statement and balance sheet when translated to seK.
translation exposure in foreign subsidiaries is hedged according to
the following policy established by the Board of Directors:
translation risk related to equity in foreign subsidiaries is hedged
up to 20 percent in selected companies. the translation differences
reported in equity during 2007 were negative, seK 0.8 billion, includ-
ing hedging gains of seK 0.1 billion. translation risk related to fore-
casted results from foreign operations is not hedged.
Net Investment hedges
the purpose of net investment hedges is to protect the value in seK
of net investments in foreign entities from changes in the relevant
foreign exchange rates. Hedging is done selling the relevant foreign
currency against seK using FX forwards.
Interest Rate Risk
ericsson is exposed to interest rate risk through market value fluctua-
tions in certain balance sheet items and through changes in interest
expenses and revenues. the net cash position was seK 24.3 (40.7)
billion at the end of 2007, consisting of cash, cash equivalents and
short-term cash investments of seK 57.7 (62.3) billion and interest-
bearing liabilities and post-employment benefits of seK 33.4 (21.6)
billion.
ericsson manages the interest rate risk by (i) matching fixed and
floating interest rates in interest-bearing balance sheet items and (ii)
avoiding significant fixed interest rate exposure in ericsson’s net cash
position. the policy is that interest-bearing assets shall have an
average interest duration between 6 and 18 months and interest-
bearing liabilities an average interest duration shorter than 6 months,
taking derivative instruments into consideration. treasury has a
mandate to deviate from the asset management benchmark given by
the Board and take FX positions up to an aggregate risk of Var seK
30 m. given a confidence level of 99 percent and a 1 day horizon.
as of December 31, 2007, 92 (100) percent of ericsson’s interest-
bearing liabilities and 100 (99) percent of ericsson’s interest-bearing
assets had floating interest rates, i.e. interest periods of less than 12
months.
When managing the interest rate exposure, ericsson uses deriva-
tive instruments, such as interest rate swaps. Derivative instruments
used for converting fixed rate debt into floating rate debt are desig-
nated as Fair value hedges.
Fair value hedges
the purpose of fair value hedges is to hedge the variability in the fair
value of fixed-rate debt (issued bonds) from changes in the relevant
benchmark yield curve for its entire term by converting fixed interest
payments to a floating rate (e.g. stiBor or liBor) by using interest
rate swaps (irs). the credit risk/spread is not hedged.
the fixed leg of the irs is matched against the cash flows of the
hedged bond. Hereby the fixed-rate bond/debt is converted into a
floating-rate debt, in accordance with the policy.
Sensitivity analysis
ericsson uses the Value at risk (Var) methodology to measure for-
eign exchange and interest rate risk in portfolios managed by trea-
sury. this statistical method expresses the maximum potential loss
that can arise with a certain degree of probability during a certain
period of time. For the Var measurement, ericsson has chosen a
probability level of 99 percent and a 1-day time horizon. the daily Var
measurement uses market volatilities and correlations based on
historical daily data (one year).
the average Var calculated for 2007 was for the interest rate
mandate seK 16.1 (12.3) million and for the transaction exposure
mandate seK 13.5 million (new mandate from January 1, 2007). no
Var-limits were exceeded during 2007.
ericsson annual report 2007
89
notes to the consolidated financial statementsnote c20 Financial Credit Risk
Financial instruments carry an element of risk in that counterparts
may be unable to fulfill their payment obligations. this exposure
arises in the investments in cash, cash equivalents, short term invest-
ments and from derivative positions with positive unrealized result
against banks and other counterparties.
ericsson mitigates these risks by investing cash primarily in well-
rated commercial papers, treasury bills and floating rate notes with
short-term ratings of at least a-2/p-2 and long-term ratings of at least
a-/a3 and in liquidity funds with a rating of at least a. separate credit
limits are assigned to each counterpart in order to minimize risk
concentration. We have had no sub-prime exposure in our invest-
ments. all derivative transactions are covered by isDa netting agree-
ments to reduce the credit risk. no credit losses were incurred during
2007, neither on external investments nor on derivative positions.
at December 31, 2007, the credit risk in financial cash instruments
was equal to the instruments’ carrying value. credit exposure in
derivative instruments was seK 1.6 (3.9) billion.
Liquidity Risk
liquidity risk is that ericsson is unable to meet its short-term payment
obligations due to insufficient or illiquid cash reserves.
ericsson maintains sufficient liquidity through centralized cash
management, investments in highly liquid interest-bearing securities,
and by having sufficient committed credit lines in place to meet
potential funding needs. For information about contractual obliga-
tions please see Board of Directors’ report. the current cash posi-
tion is deemed to satisfy all short-term liquidity requirements.
During 2007, cash and bank and short-term cash investments
decreased by seK 4.6 billion to seK 57.7 billion despite issuance of
non-current debt. the decrease was mainly due to investments in
new business acquisitions and dividend. the decrease was partly
offset by a positive operating cash flow.
cash and short-term cash investments
(SEK billion)
2007
2006
remaining time to maturity
< 3
months
29.8
33.0
< 1
year
18.0
9.0
1–5
years
8.9
20.3
>5
years
1.0
–
Total
2007
57.7
62.3
the instruments are either classified as held for trading or assets
available for sale with maturity less than one year and therefore short-
term investments.
Refinancing risk
refinancing risk is the risk that ericsson is unable to refinance out-
standing debt at reasonable terms and conditions, or at all, at a given
point in time.
repayment schedule of long-term Borrowings 1)
liabilities
to financial
institutions
current
maturities
of long-
term debt
notes
and bonds
(non-current)
Nominal
amount
(SEK billion)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
2.9
–
–
–
–
–
–
–
–
–
2.9
(non-current) Total
–
–
0.1
–
–
0.1
0.1
–
–
0.2
2.9
3.1
4.6
–
3.5
0.1
3.6
–
–
4.9
–
3.1
4.5
–
3.5
–
3.5
–
–
4.7
19.3
0.5
22.7
1) excluding finance leases reported in note c27, “leasing”.
Debt financing is mainly carried out through borrowing in the swedish
and international debt capital markets.
Bank financing is used for certain subsidiary funding and to obtain
committed credit facilities.
funding programs
euro Medium-term note program
(usD m.)
euro commercial paper program
(usD m.)
swedish commercial paper program
(seK m.)
long-term committed credit facility
(usD m.)
indian commercial paper program
(inr m)
short-term committed
credit facilities (seK m.)
amount utilized unutilized
5,000
3,051
1,949
1,500
5,000
2,000
3,000
273
–
–
–
–
–
1,500
5,000
2,000
3,000
273
on July 16th, 2007, ericsson entered into a usD 2.0 billion long-term
committed credit facility agreement. the usD 2.0 billion facility re-
places the previous usD 1.0 billion facility. the new facility does not
have interest rates linked to credit rating or financial covenants.
Both Moody’s credit rating agency and standard & poor’s (s&p)
raised ericsson’s credit rating during 2007. at year-end, their ratings
of ericsson’s creditworthiness were Baa1 (Baa2) for Moody’s and
BBB+ (BBB–) for s&p, both considered to be “solid investment
Grade”.
90
ericsson annual report 2007
notes to the consolidated financial statementsnote c20
financial instruments carrying amount
receiv-
ables
trade short- cash and
term
invest-
c14 ments
equiva-
lents
cash Borrow-
trade
ings payables
c22
c19
customer
financing
SEK billion
assets at fair value
through profit or loss
loans and receivables
available for sale assets
Financial liabilities at
amortized cost
3.4
60.5
29.0
0.3
9.8
1.6
0.1
–27.2
other
financial
assets
c12
other
current
receivables
c15
other
current
liabilities
c21
1.5
–1.2
2.3
0.7
2007
2006
39.1
67.8
1.1
46.5
57.8
0.7
Total
3.4
60.5
29.3
11.5
–27.2
–17.4
–17.4
3.0
1.5
–1.2
63.4
72.2
–44.6
–32.8
Financial Instruments Carried at other than Fair Value
Market Price Risk in Own Shares and Other Listed
Equity Investments
Risk related to our own 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
ericsson class B shares as treasury stock and warrants for issuance
of new ericsson class B shares. an increase in the share price will
result in social security charges, which represents a risk to both
income and cash flow. the cash flow exposure is fully hedged
through the holding of ericsson class B shares as treasury stock to
be sold to generate funds to cover also social security payments, and
through the purchase of call options on ericsson class B shares.
in the following tables, carrying amounts and fair values of financial
instruments that are carried in the financial statements at other than
fair values are presented. assets valued at fair value through profit or
loss showed a net gain of seK 987 million. For further information
about valuation principles, please see note c1, “significant account-
ing policies”.
financial instruments carried at other than fair
value
(SEK billion)
current maturities of
non-current borrowings
notes and bonds
Total
carrying amount
2006
2007
Fair value
2006
2007
2.9
19.4
22.3
0.1
11.2
11.3
3.1
19.4
22.5
0.1
11.7
11.8
Financial instruments excluded from the tables, such as trade receiv-
ables and payables, are carried at amortized cost which is deemed to
be equal to fair value. When a market price is not readily available and
there is insignificant interest rate exposure affecting the value, the
carrying value is considered to represent a reasonable estimate of a
fair value.
ericsson annual report 2007
91
notes to the consolidated financial statementsnote c20
c21 other current liabilities
c25 statement of cash Flows
income tax liabilities
advances from customers
liabilities to associated companies
accrued interest
accrued expenses, of which
employee related
other
Deferred revenues
Derivatives with a negative value
other
Total
c22 trade payables
payables to associated
companies and joint ventures
other
Total
2007
2006
1,126
1,969
3,419
1,441
49
31
466
365
21,369
19,040
8,042
9,443
11,926 10,998
4,583
5,961
883
1,210
8,866
11,395
44,995
37,178
2007
2006
90
17,337
730
17,453
17,427
18,183
c23 assets pledged as collateral
assets pledged as collateral
chattel mortgages
Bank deposits
Total
c24 contingent liabilities
contingent liabilities
Total
2007
2006
1,639
130
230
1,999
–
114
171
285
2007
2006
1,182
1,392
1,182
1,392
contingent liabilities assumed by ericsson include guarantees of
loans to other companies of seK 73 (95) million. ericsson has seK
492 (496) million issued to guarantee the performance of a third party.
interest paid in 2007 was seK 1,513 million (seK 1,353 million in
2006, seK 2,577 million in 2005) and interest received was seK
1,864 million (seK 1,539 million in 2006, seK 2,142 million in 2005).
taxes paid, including withholding tax, were seK 5,116 million (seK
3,649 million in 2006, seK 2,010 million in 2005).
For more information regarding the disposition of cash and cash
equivalents and unutilized credit commitments, see note c20 – “Fi-
nancial risk Management and Financial instruments”.
cash restricted due to currency restrictions or other legal restric-
tions in certain countries amounted to seK 5,797 million (seK 5,794
million in 2006, seK 3,773 million in 2005).
adjustments to reconcile net income to cash
Property, plant and equipment
Depreciation
impairment losses/reversals
of impairments
Total
Intangible assets
amortization
capitalized development expenses
intellectual property rights, brands
2007
2006
2005
3,121
3,007
2,804
–207
30
–366
2,914
3,037
2,438
2,371
2,277
3,009
and other intangible assets
3,062
1,960
260
total amortization
impairments
5,433
4,237
3,269
capitalized development expenses
intellectual property rights, brands
and other intangible assets
total impairment losses
16
242
–
16
–
242
95
–
95
Total
5,449
4,479
3,364
Total depreciation, amortization
and impairment losses on property,
plant and equipment and
intangible assets
taxes
Dividends from joint ventures/
associated companies
undistributed earnings in joint
ventures/associated
companies
impairment losses on other investments
in shares and participations and capital
gains (–)/losses on sale of fixed assets,
excluding customer financing, net
other non-cash items
8,363
7,516
5,802
1,119
4,282
5,518
4,223
1,262
31
–5,636
–4,233
–2,154
–254
–643
–2,815
48
35
1,468
Total adjustments to reconcile net
income to cash
7,172
6,060
10,700
92
ericsson annual report 2007
notes to the consolidated financial statementsnote c21–c25
c26 Business combinations
Acquisitions and divestments
Acquisitions
intangible assets
property, plant and equipment
Goodwill
other assets
provisions, including
post-employment benefits
other liabilities
purchase of minority holdings
cash and cash equivalents
Total purchase price
less:
cash and cash equivalents
consideration payable
2007
2006
2005
11,627 15,648
1,257
163
4,422
325
16,917
4,266
–127
–6,227
45
2,387
–812
–2,689
89
1,781
404
15
512
124
–135
–55
345
16
29,213
19,859
1,226
2,387
534
1,781
–
16
–
• Redback: as per January 23, ericsson purchased all shares in
redback inc., based in santa clara, usa, with the purpose to
strengthen the network offering for multiple services over the ip
network. redback’s products, multi-service routers, provide the
intelligence needed to adapt the quality of a service to the screen
and the resolution that the user can reach with their access at any
particular time. redback has over 500 carrier customers in more
than 80 countries and employs about 800 people. net sales for
redback amounted to approximately seK 1,600 million for the
period January 23 – December 31, 2007. Had the acquisition been
made as per January 1, 2007, additional net sales of seK 57 million
would have been recognized and the operating income would have
been reduced by seK 141 million. the main reasons for that part of
the acquisition costs are recognized as goodwill, representing 53
percent of total assets acquired, are that strong future synergies
are estimated and also the value of the acquired assembled work
force. transaction costs for the acquisition amounted to seK 82
million.
Cash flow effect
26,292
18,078
1,210
redB ack Business
in 2007, ericsson made acquisitions with a cash flow effect amount-
ing to seK 26,292 million (seK 18,078 million in 2006), primarily:
Net assets acquired
Intangible assets
intellectual property rights
Brands
customer relationships
Goodwill
Other assets and liabilities
inventory
property, plant and equipment
other assets
other liabilities
Total purchase price
less:
cash and cash equivalents
consideration payable
Cash flow effect
Fair value
Book
value adjustments
Fair
value
–
–
–
–
96
153
2,625
–768
952
–
3,272
609
1,575
9,354
3,272
609
1,575
9,354
–
–
–
96
153
2,625
–2,122 –2,890
14,794
–
275
952
275
13,567
the determination of purchase consideration allocation and fair values of assets
acquired and liabilities assumed is based on preliminary appraisal; therefore, these
values may be subject to minor adjustments.
ericsson annual report 2007
93
notes to the consolidated financial statementsnote c26
• Tandberg: as per May 1, ericsson purchased all shares in tand-
berg television asa in norway. the aim was to further strengthen
ericsson’s position as an end-to-end supplier within iptV, which is
judged to be the central point in the future digital home. tandberg’s
strength is coding and compression of tV signals to gain maximum
benefit from the bandwidth available while retaining the highest
possible picture quality. tandberg employs approximately 870
people with headquarters in southampton, uK, and atlanta, usa.
net sales for tandberg amounted to approximately seK 1,400
million for the period May 1 – December 31, 2007. Had the acquisi-
tion been made as per January 1, 2007, additional net sales of seK
586 million would have been recognized and the operating income
would have been reduced by seK 389 million.
the main reasons for that part of the acquisition costs are recog-
nized as goodwill, representing 45 percent of total assets acquired,
are that strong future synergies are estimated and also the value of
the acquired assembled work force. transaction costs for the
acquisition amounted to seK 69 million.
tandB erg Business
Net assets acquired
Intangible assets
intellectual property rights
Brands
customer relationships
Goodwill
Other assets and liabilities
inventory
property, plant and equipment
other assets
post-employment benefits
other liabilities
Total purchase price
less:
cash and cash equivalents
Cash flow effect
Book
Fair value
value adjustments
Fair
value
–
–
–
–
227
124
1,938
–62
–924
2,712
276
1,486
5,442
2,712
276
1,486
5,442
–
–
–
–
227
124
1,938
–62
–1,432 –2,356
742
–
742
9,045
the determination of purchase consideration allocation and fair values of assets
acquired and liabilities assumed is based on preliminary appraisal; therefore, these
values may be subject to minor adjustments.
• LHS: as per october 1, ericsson purchased 87.47 percent of the
shares in lHs aG in Germany. the company provides telecom
billing and customer care systems for the post-paid wireless,
wireline and ip telecom markets. lHs employs approximately 550
people with headquarter in Frankfurt. net sales for lHs amounted
to approximately seK 250 million and the operating income
amounted to seK 40 million for the period october 1 – December
31, 2007. Had the acquisition been made as per January 1, 2007,
additional net sales of seK 657 million would have been recog-
nized and the operating income would have been reduced by seK
17 million.
the main reasons for that part of the acquisition costs are recog-
nized as goodwill, representing 38 percent of total assets acquired,
are that strong future synergies are estimated and also the value of
the acquired assembled work force. transaction costs for the
acquisition amounted to seK 26 million.
lhs Business
Net assets acquired
Intangible assets
intellectual property rights
Brands
customer relationships
Goodwill
Other assets and liabilities
property, plant and equipment
other assets
Minority interest
other liabilities
Total purchase price
less:
cash and cash equivalents
Book
Fair value
value adjustments
Fair
value
–
–
–
–
32
866
–82
–252
367
43
777
1,293
–
–
–380
367
43
777
1,293
32
866
–82
–632
2,664
249
–
249
2,415
the determination of purchase consideration allocation and fair values of assets
acquired and liabilities assumed is based on preliminary appraisal; therefore, these
values may be subject to minor adjustments.
• Entrisphere: as per February 12, ericsson acquired entrisphere
inc., a company providing fiber access technology, based in santa
clara, usa. the acquisition strengthens ericsson’s fixed broad-
band access portfolio and its position in converged networks.
Fiber technology is essential for next generation access networks
and for High Definition iptV and other ip-based services with high
demand for bandwidth and cost efficiency. entrisphere employs
about 140 persons.
• Mobeon: as per March 15, ericsson announced the acquisition of
the swedish company Mobeon aB, the world leader in ip messag-
ing components for mobile and fixed networks. ericsson already
owned 21 percent of the shares, and Mobeon has been ericsson’s
partner for messaging equipment, such as voicemail, video mail
and unified messaging, both for mobile and fixed networks. With
this acquisition, ericsson will be more competitive in the messag-
ing market and can accelerate the development of new messaging
architecture. Mobeon employs approximately 130 persons.
9,787
Cash flow effect
94
ericsson annual report 2007
notes to the consolidated financial statementsnote c26
• Drutt: as per June 28, ericsson acquired Drutt corporation. Drutt
is the world leading provider of service Delivery platform solutions
that enables mobile operators to mobilize and charge for any
content to any device, over any delivery channel. Drutt employs
approximately 85 persons.
• HyC: as per December 20, ericsson acquired Hyc Group, a lead-
ing spanish company in tV consultancy and systems integration.
the acquisition further strengthens ericsson’s position in the
services and multimedia domains as a system integrator of iptV
solutions. Hyc employs approximately 110 persons.
other
Net assets acquired
Intangible assets
intellectual property rights, brands
and other intangible assets
Goodwill
Other assets and liabilities
inventory
property, plant and equipment
other assets
provisions, including
post-employment benefits
purchase of minority holdings
other liabilities
Total purchase price
less:
cash and cash equivalents
consideration payable
Cash flow effect
Divestments
Book
Fair value
value adjustments
Fair
value
–
34
16
868
–65
45
–121
444
–
510
828
–
–
–
–
–
–147
–
259
510
828
34
16
868
–65
45
–268
1,968
444
259
1,265
c27 leasing
Leasing with the Company as lessee
assets under finance leases, recorded as property, plant and equip-
ment, consist of:
finance leases
Acquisition costs
real estate
Machinery
other equipment
Accumulated depreciation
real estate
Machinery
other equipment
Accumulated impairment losses
real estate
Net carrying value
2007
2006
1,743
4
–
1,767
–
5
1,747
1,772
–589
–2
–
–544
–
–1
–591
–545
–80
–349
1,076
878
as of December 31, 2007, future minimum lease payment obligations
for leases were distributed as follows:
2008
2009
2010
2011
2012
2013 and later
Total
Future finance charges 1)
Finance operating
leases
leases
171
146
138
118
92
1,210
3147
2,026
1,682
1,293
1,015
2,732
1,875
11,895
–748
n/a
Net assets disposed of
2007
2006
2005
1) average effective interest rate on lease payables is 5,80 percent.
present value of finance lease liabilities
1,127
11,895
property, plant and equipment
other assets
provisions, including post-
employment benefits
other liabilities
Gains from divestments
less:
cash and cash equivalents
cash flow effect
13
498
253
2,946
–19
–234
–89
–2,079
258
280
1,031
2,945
3
76
–8
–30
41
16
454
890
84
3,086 1)
27
30
1) the amount mainly relates to the sale of the Defense business.
expenses in 2007 for leasing of assets were seK 2,878 (2,873) mil-
lion, of which variable expenses were seK 8 (11) million. the leasing
contracts vary in length from 1 to 21 years.
the company’s lease agreements normally do not include any
contingent rents. in the few cases they occur it relates to charges for
heating, linked to the oil price index. Most of the leases of real estate
contain terms of renewal, giving the right to prolong the agreement in
question for a predefined period of time. all of the finance leases of
facilities contain purchase options. only a very limited number of the
company’s lease agreements contain restrictions on stockholders’
equity or other means of finance. the major agreement contains a
restriction stating that the parent company must maintain a stock-
holders’ equity of at least seK 25 billion.
Leases with the Company as lessor
leasing income mainly relates to income from sublease of real estate.
these leasing contracts vary in length from 1 to 13 years.
ericsson annual report 2007
95
notes to the consolidated financial statementsnote c26–c27
at December 31, 2007, future minimum payment receivables were
distributed as follows:
numBer of employees at year-end
Employees by region
2008
2009
2010
2011
2012
2013 and later
Total
unearned financial income
uncollectible lease payments
Net investments in financial leases
Finance
leases
operating
leases
–
–
–
–
–
–
–
–
–
–
147
107
77
45
12
67
455
n/a
n/a
n/a
leasing income in 2007 was seK 160 (149) million.
c28 tax assessment Values
in sweden
land and land improvements
Buildings
Total
2007
2006
58
265
323
60
235
295
c29 information regarding
employees, Members of the
Board of Directors and
Management
Number of employees
average numBer of employees
Western
europe 1)
central and
eastern europe,
Middle east
and africa
north america
latin america
asia pacific
32,118
8,961 41,079 31,212 8,697 39,909
5,483
4,329
4,779
10,952
1,128 5,191
7,079 4,063
1,596
998 4,250
1,225 5,554 3,252
1,058 5,837 3,324
740 4,064
2,844 13,796 8,298 2,774 11,072
Total 2)
57,661 15,684 73,345 50,149 14,337 64,486
1) Of which
Sweden
2) Of which EU
14,128
33,563
4,618 18,746 14,517 4,792 19,309
9,351 42,914 32,133 8,989 41,122
Western europe 1)
central and eastern europe,
Middle east and africa
north america
latin america
asia pacific
Total 2)
1) Of which Sweden
2) Of which EU
Employees per segment
networks
professional services
Multimedia
Total
2007
2006
41,517 38,432
7,329
5,498
6,547
13,120
6,063
4,138
4,498
10,650
74,011
63,781
19,781
42,387
19,094
39,991
2007
2006
44,661
19,790
9,560
40,761
15,697
7,323
74,011
63,781
employees By gender and age at year end 2007
under 25 years old
26–35 years old
36–45 years old
46–55 years old
over 55 years old
Percent of total
Female
percent
of total
Male
667
5,850
6,360
2,374
711
2,275
20,275
22,763
9,733
3,003
4%
35%
39%
17%
5%
22%
78%
100%
numBer of employees related to cost of sales
and operating expenses
cost of sales
operating expenses
Total
2007
2006
2005
33,904
27,682
40,107 36,099
22,477
33,578
74,011
63,781 56,055
Head count at year-end
Departed employees
employees joining the company
temporary employees
Remuneration
2007
2006
74,011
6,657
16,887
1,415
63,781
6,432
14,158
1,219
wages and salaries and social securit y expenses
Wages and salaries
social security expenses
Of which pension costs
2007
2006
34,111
10,660
3,074
32,219
10,602
2,709
amounts related to the president and ceo and the Group Manage-
ment team are included.
Men Women
2007
Total Men Women
2006
total
employee movements
96
ericsson annual report 2007
notes to the consolidated financial statementsnote c27–c29
wages and salaries per geographical area
Western europe 1)
central and eastern europe,
Middle east and africa
north america 3)
latin america
asia pacific
Total 2)
1) Of which Sweden
2) Of which EU
3) Of which United States
2007
2006
22,278 22,296
2,520
4,168
1,431
3,714
1,914
3,503
1,333
3,173
34,111
32,219
11,025
22,603
2,904
11,467
22,531
2,244
remuneration in foreign currency has been translated to seK at average exchange
rates for the year.
remuneration to Board memBers and presidents
in suBsidiaries
salary and other remuneration
Of which annual variable remuneration
pension costs
2007
2006
266
43
28
222
38
20
Board memBers, presidents and group management
By gender
if the competitive position of the total package should remain un-
changed.
the annual report 2007 sets out details on the total remuneration
and benefits awarded to the top executives during 2007 including
previously decided long-term variable compensation that has not yet
become due for payment.
Relative importance of and variable components of the
remuneration of Top Executives and the linkage between
performance and remuneration
ericsson takes account of global remuneration practice together with
the practice of the home country of each top executive.
Fixed salary is set to be competitive. its absolute level is deter-
mined by the size and complexity of the job and year to year perfor-
mance of the individual jobholder.
performance is specifically reflected in the variable components –
both in an annual variable salary and in a long-term variable portion.
although this may vary over time to take account of pay trends, cur-
rently the target level of the annual component for top executives is
30–40 percent of the fixed salary. the long-term component is set to
achieve a target of around 30 percent of the fixed salary. in both
cases the variable pay is measured against the achievement of spe-
cific business objectives, reflecting the judgment of the Board of
Directors as to the right balance between fixed and variable pay and
the market practice for compensation of executives.
As per December 31
2007
2006
the company’s cost for the short-term variable and the long-term
Females Males Females Males
Parent Company
Board members and president 38%
10%
Group Management
Subsidiaries
Board members and presidents 11%
62%
90%
31%
8%
69%
92%
89%
10%
90%
Remuneration policy and remuneration to the Board
of Directors and to the Group Management
Remuneration Policy for Group Management
the following principles for remuneration and other employment
terms for Group Management were approved by the annual General
Meeting 2007.
variable components for the top executive group can amount to
0–125 percent of the fixed salary cost, at constant share price.
The principal terms of variable schemes
the annual variable salary is a cash program based on specific busi-
ness targets derived from the annual business plan approved by the
Board of Directors. the exact nature of the targets will vary depend-
ing on the specific job but may include financial targets at either
corporate level or at a specific business unit level, operational tar-
gets, employee motivation targets and customer satisfaction targets.
share based long-term variable plans are submitted each year for
approval by the shareholders at the annual General Meeting. the
payout is determined by three specific variables, the individuals’ own
investment in shares, a long-term financial target at corporate level,
and the share price development.
2007 Remuneration Policy for Group Management
this policy covers the remuneration and other terms of employment
for the Group Management team, including the president and ceo,
in the following referred to as the “top executives”.
remuneration of top executives in ericsson is based on the prin-
ciples of performance, competitiveness and fairness. Different remu-
neration elements are suited to various degrees to reflect these prin-
ciples. therefore a mix of several remuneration elements is applied in
order to reflect the remuneration principles in a balanced way.
the top executives’ total remuneration consists of fixed salary,
variable components in the form of annual variable salary and
long-term variable compensation, pension and other benefits.
together these elements constitute an integral remuneration pack-
age. if the size of any of the elements should be increased or de-
creased, at least one other element has to be decreased or increased
Pension
pension benefits shall follow the competitive level in the home coun-
try. For top executives in sweden, the company applies a defined
contribution scheme for old age pension in addition to the basic
pension plans on the swedish labor market.
the retirement age is normally 60 years but can be different in
individual cases.
Other benefits
the basic principle is that other benefits, such as company car and
medical schemes, shall be competitive in the local market.
Additional remuneration arrangements
By way of exception, additional arrangements can be made when
deemed required in order to attract or retain key competences or
ericsson annual report 2007
97
notes to the consolidated financial statementsnote c29
skills, or to make individuals move to new locations or positions. such
additional arrangement shall be limited in time and shall not exceed a
period of 36 months and two times the compensation the individual
concerned would have received had no additional arrangement been
made.
Notice of termination and severance pay
For top executives in sweden the mutual notice period is six months.
upon termination of employment by the company, severance pay
amounting to a maximum of 18 months fixed salary is paid. 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.
• Members of the Board, who are not employees of the company,
have not received any remuneration other than the fees paid for
Board duties.
• Members and Deputy Members of the Board who are ericsson
employees received no remuneration or benefits other than their
entitlements as employees. However, from the annual General
Meeting 2007 a fee of seK 1,500 per attended Board meeting was
paid to each employee representative on the Board. For Board
meetings and Board committee meetings up to the annual Meeting
2007, the previous fees of seK 1,000 and seK 100 respectively for
each attended meeting were paid.
Remuneration to the Group Management
remuneration paid to the president and ceo and other
Remuneration to the Board of Directors
remuneration to memBers of the Board
of directors during 2007
Board
emp-
loyee re-
member commit- presen-
tative
tee fee
fee
total
3,750,000 250,000
750,000 125,000
750,000 250,000
750,000 250,000
750,000 125,000
–
750,000
750,000 350,000
750,000 125,000
750,000 125,000
– 4,000,000
875,000
–
– 1,000,000
– 1,000,000
875,000
–
–
750,000
– 1,100,000
875,000
–
875,000
–
–
–
–
–
–
–
–
–
–
–
400 16,500
19,500
100
19,500
200
– 16,500
– 18,000
– 18,000
2,000
–
–
16,900
19,600
19,700
16,500
18,000
18,000
2,000
SEK
Board member
Michael treschow
Marcus Wallenberg
sverker Martin-löf
peter l. Bonfield
Börje ekholm
Katherine M. Hudson
ulf J. Johansson
nancy McKinstry
anders nyrén
carl-Henric
svanberg
Jan Hedlund
Monica Bergström
torbjörn nyman
Karin Åberg
anna Guldstrand
Kristina Davidsson
per lindh
Total
9,750,000 1,600,700 110,000 11,460,700
social security fees
Total
3,715,559
15,176,259
Comments to the table
• the chairman of the Board received a Board fee of seK 3,750,000.
the chairman also received seK 125,000 for each Board commit-
tee on which he served.
• the other Directors appointed by the annual General Meeting
received a fee of seK 750,000 each. in addition, each Director
serving on a Board committee received a fee of seK 125,000 for
each committee. However, the chairman of the audit committee
received a fee of seK 350,000 and the other two members of the
audit committee received a fee of seK 250,000 each.
memBers of group management during 2007
other
Members
of Group
president Management
SEK
the
Total
salary
annual variable
remuneration earned
2006 and paid 2007
long-term variable
remuneration
other benefits
15,472,998
45,141,977 60,614,975
8,940,002
17,958,448 26,898,450
1,399,040
52,946
3,131,011
659,612
4,530,051
712,558
Total
25,864,986
66,891,048 92,756,034
Comments to the table
• the annual fixed salary for the president and ceo was adjusted
from seK 14,900,000 to seK 15,200,000 from January 1, 2007.
the salary amount stated in the table includes vacation salary.
• the Board of Directors has appointed five executive Vice presi-
dents of whom one has resigned during the year. no one of these
executives has during the year acted as deputy to the president
and ceo. all executive Vice presidents are included in the group
“other members of Group Management”.
• the group “other members of Group Management” comprises the
following persons: Hans Vestberg, Kurt Jofs, Bert nordberg, Björn
olsson, carl olof Blomqvist, Håkan eriksson, Marita Hellberg,
Henry sténson, Joakim Westh, Jan Wäreby and Karl-Henrik sund-
ström. Karl-Henrik sundström left the Group Management team
on october 25, 2007, but is included for the entire year as he is
fulfilling his notice period of 6 months.
• “long-term variable remuneration” refers the value of matching
shares received during 2007 under the stock purchase plan 2003
and under the performance share plan 2004 (the first of four quar-
terly matchings). the above value of matching shares for the presi-
dent and ceo corresponds to 74,220 ericsson B shares and for
other members of Group Management to 164,269 ericsson B
shares. the value of matching shares is based on the share price
at matching.
98
ericsson annual report 2007
notes to the consolidated financial statementsnote c29
• social security fees include payroll tax on pension premiums.
• For previous presidents, the company has made provisions for
defined benefit pension plans in connection with their active ser-
vice periods within the company.
Total
outstanding stock options and matching rights
As per December 31, 2007
Number of B shares
stock option plan 2001
– May Grant
stock option plan 2002
stock purchase plan 2003 (two-year),
2005 and 2006, 2007 and
performance share plans 2004,
2005, 2006 and 2007
other Members
of Group
Management
the
president
–
–
595,000
520,000
1,153,937
2,207,712
Comments to the tables
• For the definition of matching rights, see description under “long-
term variable remuneration”.
• the number of options presumes full exercise under applicable
plans.
• For strike prices for option plans, see “long-term variable remu-
neration”.
• the number of matching rights presumes maximum performance
matching under performance share plans 2004, 2005, 2006 and
2007.
Long-term variable remuneration
The Stock Purchase Plan
the stock purchase plan is designed to offer an incentive for all
employees to participate, where practicable, in the company, which
is consistent with industry practice and with our ways of working.
under the plans, employees can save up to 7.5 percent (ceo 9 per-
cent) of gross fixed salary, for purchase of class B shares at market
price on the oMX nordic exchange stockholm or aDrs at nasDaQ
(contribution shares) during a twelve-month period (contribution
period). if the contribution shares are retained by the employee for
three years after the investment and the employment with the erics-
son Group continues during that time, the employee’s shares will be
matched with a corresponding number of class B shares or aDrs
free of consideration. employees in 88 countries participate in the
plan.
the below table shows the contribution periods and participation
details for ongoing plans.
remuneration costs incurred during 2007
for the president and ceo and other memBers
of group management
Total
costs, SEK
salary
provisions for annual
variable remuneration
earned 2007 to be
paid 2008
long-term variable
remuneration
other benefits
pension premiums
other Members
of Group
president Management
the
15,472,998
45,141,977
60,614,975
1,216,000
8,781,785
9,997,785
7,281,922
52,946
8,494,555
14,325,283
659,612
26,940,453
21,607,205
712,558
35,435,008
social security fees
9,027,952
27,284,569
36,312,521
Total
41,546,373
123,133,679 164,680,051
Comments to the table
• the provisions for the annual variable remuneration 2007 corre-
spond to 8 percent of the fixed salary for the president and ceo
and to 20.3 percent for other members of the Group Management
• “long-term variable remuneration” includes the compensation
cost during 2007 for share based programs, which represent
Group Management’s part of total compensation costs as dis-
closed under “shares for all plans”.
under iFrs, a company shall recognize costs for share-based
compensation plans to employees, being a measure of the value to
the company of services received from the employees under the
plans.
• For the president and ceo and other members of Group Manage-
ment a defined contribution plan is applied. they were also entitled
to pension in accordance with the occupational pension plan for
salaried staff on the swedish labor market (itp) from 60 years.
these pension plans are not conditional upon future employment
at ericsson.
in the defined contribution plan, the company pays for old age
pension a contribution between 25 and 35 percent per year on
salary portions in excess of 20 base amounts (during 2007, one
base amount was seK 45,900) of the executive’s pensionable
salary. For the president and ceo, the annual pension contribution
is 35 percent of the pensionable salary above 20 base amounts.
During 2007, this contribution was seK 7,250,833 and the fee in
the itp plan seK 1,243,722. included in the pension premiums are
also changes of commitments made to the president and ceo and
the other members of Group Management for benefit based tem-
porary disability and survival’s pensions until retirement age.
the pensionable salary consists of the annual fixed salary and the
target value of the annual variable remuneration.
• ericsson’s commitments for benefit-based pensions per December
31, 2007, under ias 19 amounted to seK 940,700 for the president
and ceo which refers to the itp plan. For other members of Group
Management the company’s commitments amounted to seK
30,012,100, of which seK 19,278,500 refers to the itp plan and
the remaining seK 10,733,600 to temporary disability and sur-
vival’s pensions until retirement age.
ericsson annual report 2007
99
notes to the consolidated financial statementsnote c29
number of
contribution participants
take-up
rate – % of
at launch all employees
Plan
stock purchase
plan 2003 2nd year
stock purchase
plan 2005
stock purchase
plan 2006
stock purchase
plan 2007
period
august 2004 –
July 2005
august 2005 –
July 2006
august 2006 –
July 2007
august 2007 –
July 2008
15,000
16,000
17,000
19,000
30%
29%
29%
26%
it should be noted that participants save each month, beginning with
august payroll, towards quarterly investments. these investments (in
november, February, May and august) are matched on the third
anniversary of each such investment, subject to continuous employ-
ment, and hence the matching spans over two financial years and
two tax years.
The Key Contributor Retention Plan
the Key contributor retention plan is designed to give recognition
for performance and potential as well as encourage retention of key
employees. under the program, up to 10 percent of employees
(2004: up to 4,500, 2005: up to 5,000, 2006: up to 6,040 and 2007:
up to 6,300) are selected through a nominations process that identi-
fies individuals according to performance, critical skills and potential.
participants obtain one extra matching share in addition to the ordi-
nary one matching share for each contribution share purchased
under the stock purchase plan during a twelve-month program
period. the program was introduced in 2004 and has been repeated
2005, 2006, and 2007.
The Executive Performance Stock Plan
the executive performance stock plan was introduced in 2004 and
has been repeated 2005, 2006 and 2007. the plan is designed to
focus the management on driving earnings and provide competitive
remuneration. senior executives, including Group Management, are
selected to obtain up to four or six extra shares (performance match-
ing shares) in addition to the ordinary one matching share for each
contribution share purchased under the stock purchase plan. For the
2006 and 2007 programs, the ceo is allowed to invest up to 9 per-
cent of fixed salary in contribution shares and may obtain up to eight
performance matching shares in addition to the stock purchase plan
matching share for each contribution share.the performance match-
ing is subject to the fulfillment of a performance target.
the past and continued use of average annual earnings per share
(eps) growth relative to challenging and stretching targets as a per-
formance measure reflects the company’s ongoing strategy of add-
ing shareholder value through the long-term improvement of profit-
ability. Furthermore, the use of a constant and key financial
performance measure alongside the inherent share price focus of the
co-investment principle ensures close alignment with the long-term
interests of shareholders whilst providing clear, transparent and
continuous line-of-sight for participants. the remuneration commit-
tee has been satisfied that the present approach remains preferable
to other measures, including those that reflect relative performance,
but alternative measures are considered on an ongoing basis.
Plan
performance share plan 20045)
performance share plan 2005
performance share plan 2006
performance share plan 2007
Base year
eps1)
0.69
1.34
1.53
1.77
target average
annual eps
growth range2)
5% to 25% or
0.76 to 1.10
3% to 15% or
1.42 to 1.78
3% to 15% or
1.62 to 2.04
5% to 15% or
1.95 to 2.36
Matching share
vesting range3)
Maximum
opportunity
as percentage
of fixed salary4)
0 to 4
0 to 6
0 to 4
0 to 6
0 to 4
0 to 6
0 to 8
0.67 to 4
1 to 6
1.33 to 8
30%
45%
30%
45%
30%
45%
72%
30%
45%
72%
1) sum of four quarters up to June 30 of plan year.
2) eps range found from three-year average eps of the twelve quarters to the end of the performance period and corresponding growth targets.
3) corresponding to eps range (no performance share plan matching below this range). Matching shares per contribution share invested in addition to stock purchase plan
matching according to program of up to 4, 6 or 8 matching shares.
4) at full investment, full vesting and constant share price. excludes stock purchase plan matching.
5) Fully vested in 2007, being matched in full over the quarterly three-year investment anniversaries in november 2007, February 2008, May 2008 and august 2008.
it is the Board of Directors’ intention to repeat the stock purchase plan, the Key contributor retention plan and the executive performance stock
plan for next year.
100
ericsson annual report 2007
notes to the consolidated financial statementsnote c29
stock option plans
ongoing plans
Dec 2007
stock option plan 2001
– May Grant
stock option plan 2001
– november Grant 2)
Grant/expiry date
14 May 01/14 May 08
exercise
price1)
(seK)
30.50
19 nov 01/19 nov 08
25.70
stock option plan 2002 2)
11 nov 02/11 nov 09
7.80
number of
participants
at grant
number of
participants
end 2007
15,000
7,423
900
493
12,800
5,933
Vesting period
from Grant date
1/3 after 1 year,
1/3 after 2 years,
1/3 after 3 years
1/3 after 1 year,
1/3 after 2 years,
1/3 after 3 years
1/3 after 1 year,
1/3 after 2 years,
1/3 after 3 years
1) Market price at grant date – re-pricing is only permitted under limited circumstances principally relating to changes in the capital structure of ericsson.
2) For stock options exercised during 2007, the weighted average share price was seK 24.74.
Shares for all plans
all plans are funded with treasury stock. sale of shares is recognized
directly in equity. treasury stock for all plans has been issued in a
directed cash issue of class c shares at a nominal amount of seK 1,
and purchased under a public offering at seK 1 per share plus a
premium corresponding to the subscribers’ financing costs, and then
converted to class B shares.
For all plans, additional shares have been allocated for financing of
social security expenses. treasury stock is sold on the oMX nordic
exchange stockholm to cover the social security payments when
arising due to exercise of options or matching of shares. During 2007,
2,786,761 shares were sold at an average price of seK 21.76.
if all options outstanding as of December 31, 2007, were exercised,
all shares allocated for future matching under the stock purchase
plan were transferred, and shares designated to cover social security
payments were disposed of as a result of the exercise and the match-
ing, approximately 283 million class B shares would be transferred,
corresponding to 1.8 percent of the total number of shares outstand-
ing, 15,900 million. as per December 31, 2007, 231 million class B
shares were held as treasury stock.
the below table shows the number of shares (representing options
and matching rights but excluding shares for social security costs)
allocated for each ongoing plan and changes during 2007. it also
shows compensation costs charged for each plan. the total compen-
sation costs charged for the long term Variable compensation plans
during 2007 amount to seK 496 million.
For a description of compensation costs, including accounting
treatment, see note c1 – “significant accounting policies, share-
based employee compensation”.
ericsson annual report 2007
101
notes to the consolidated financial statementsnote c29
out-
exer-
cised/
originally beginning
of 2007
designated 1)
standing Granted matched Forfeited
during
2007
during
2007
during
2007
compen-
sation
costs
expired standing options charged
end of exercis- during
number
of
out-
during
2007
2007 2)
able
2007
Plan (million shares)
1999 stock option plan
Millennium stock option plan
2001 stock option plan –
May Grant
2001 stock option plan –
nov Grant
2002 stock option plan
2003 stock purchase plan
(2–year plan) and 2004 Key
contributor and performance
Matching programs
2005 stock purchase plan,
Key contributor and performance
Matching programs
2006 stock purchase plan,
Key contributor and performance
Matching programs
2007 stock purchase plan,
Key contributor and performance
Matching programs
1.4
71.6
0.7
28.4
44.9
23.6
2.6
53.9
1.3
24.7
151.7
27.0
31.5
23.6
–
–
–
–
–
–
–
–
–
–
0.1
3.9
–
–
1.3
0.1
0.1
11.3
1.2
0.6
0.9
31.8
5.8
19.6
0.4
0.7
35.0
–
9.9
–
–
–
–
–
–
–
–
–
0.7
28.4
–
–
–
–
22.3
22.3
1.1
1.1
20.7
20.7
–
–
–
–
–
14.5 3)
–
182 4)
22.1 3)
–
178 4)
24.3 3)
–
131 4)
9.9 3)
– 5 4)
1) adjusted for split, bonus issue and rights offering when applicable.
2) all oustanding options in the 1999- and the Millennium stock option plan expired during 2007.
3) presuming maximum performance matching under the performance Matching program.
4) Fair value is calculated as the share price on the investment date reduced by the net present value of the dividend expectations during the three-year vesting period. net present
value calculations are based on data from external party. For shares under the performance matching programs, the company assesses the probability of meeting the
performance targets when calculating the compensation costs. Fair value of the class B share at each investment date during 2007 was: February 15 seK 24.27, May 15 seK
24.05, august 15 seK 23.00 and november 15 seK 16.96.
102
ericsson annual report 2007
notes to the consolidated financial statementsnote c29
c30 related party transactions
During 2007, various transactions were executed pursuant to con-
tracts based on terms customary in the industry and negotiated on
an arm’s length basis.
Sony Ericsson Mobile Communications AB (SEMC)
in october 2001, seMc was organized as a joint venture between
sony corporation and ericsson, and a substantial portion of erics-
son’s handset operations was sold to seMc. as part of the formation
of the joint venture, contracts were entered into between ericsson
and seMc.
Ericsson Nikola Tesla d.d.
ericsson nikola tesla d.d. is a joint stock company for manufacturing
of telecommunications systems and equipment and an associated
member of the ericsson Group. ericsson holds 49.07 percent of the
shares.
Major transactions are as follows:
• Sales. ericsson nikola tesla d.d. purchases telecommunication
equipment from ericsson.
• Royalty. ericsson receives royalties for ericsson nikola tesla d.d.’s
usage of trademarks and intellectual property rights.
• Purchases. ericsson purchases development resources from
ericsson nikola tesla d.d.
• Dividends. ericsson receives dividends from ericsson nikola tesla
Major transactions are as follows:
d.d.
• Sales. ericsson reports sales regarding mobile phone platform
design to seMc.
• Royalty. Both owners of seMc, sony corporation and ericsson,
receive royalties for seMc’s usage of trademarks and intellectual
property rights.
• Purchases. ericsson purchases mobile phones from seMc to
support contracts with a number of customers for mobile systems
which also include limited quantities of phones.
• Dividends. Both owners of seMc, sony corporation and erics-
son, receive dividends.
Related party transactions
sales
royalty
purchases
ericsson’s share of Dividends
Related party balances
receivables
liabilities
2007
2006
3,906
1,837
333
3,949
2,486
1,478
173
1,160
932
204
479
108
ericsson does not have any contingent liabilities, assets pledged as
collateral or guarantees toward sony-ericsson Mobile communica-
tions aB.
Related party transactions
sales
royalty
purchases
Dividends
Related party balances
receivables
liabilities
2007
2006
1,010
9
506
267
103
55
867
7
465
98
86
82
ericsson does not have any contingent liabilities, assets pledged as
collateral or guarantees toward ericsson nikola tesla d.d.
Other related parties
ericsson continued the cooperation with ericsson’s owners investor
aB and aB industrivärden in the venture capital vehicle ericsson
Venture partners.
For information regarding the remuneration of the Group Manage-
ment, see note c29, information regarding employees, members of
the Board of Directors and Management.
ericsson annual report 2007
103
notes to the consolidated financial statementsnote c30
c31 Fees to auditors
c32 events after the Balance
price-
waterhouse-
sheet Date
coopers others
Total
Divestment of enterprise PBX solutions
on February 18, 2008, ericsson announced the divestment of its
enterprise pBX solutions business to the canadian company aastra
technologies. the agreement involves transfer of approximately 630
employees of which some 360 are based in sweden. the transaction
is expected to close in april 2008.
ericsson’s enterprise pBX solutions business includes ip pBX,
converged pBX systems and branch office solutions. sales in 2007
amounted to approximately seK 3 billion. the purchase price is seK
650 million excluding net of assets and liabilities. a capital gain of
approximately seK 200 million is expected.
2007
audit fees
audit related fees
tax services fees
other fees
Total
2006
audit fees
audit related fees
tax services fees
other fees
Total
2005
audit fees
audit related fees
tax services fees
other fees
Total
102
4
13
–
119
98
14
19
1
132
58
24
43
–
7
–
12
6
25
11
–
3
3
17
9
–
2
1
109
4
25
6
144
109
14
22
4
149
67
24
45
1
125
12
137
During the period 2005–2007, in addition to audit services, pricewa-
terhousecoopers provided certain audit related services and tax
services to the company. the audit related services include consul-
tation on financial accounting, consultation in connection with con-
version to international Financial reporting standards (iFrs), ser-
vices related to acquisitions and assessments of internal control. the
tax services include general expatriate services, Vat refund services
and corporate tax compliance work.
audit fees to other auditors consist of local statutory audits for
minor companies.
KpMG are no longer auditors of the parent company (effective
from the annual General Meeting (aGM) 2007). Fees to KpMG during
the period 2005-2006 are included in others.
104
ericsson annual report 2007
notes to the consolidated financial statementsnote c31–c32
risk Factors
You should carefully consider all the information in this
annual report and in particular the risks and uncertainties
outlined below. Any of the factors described below, or any
We are subject to the market conditions affecting the capital
and operating expenditures of our customers, making
demand for our products and services highly unpredictable.
other factors discussed elsewhere in this report, could have
adverse economic conditions could cause network operators to
a material negative effect on our business, operational and
postpone investments or initiate other cost-cutting initiatives to
after-tax results, financial position, cash flows, liquidity,
improve their financial position, which could result in significantly
credit rating, reputation and/or our share price.
reduced capital expenditures for network infrastructure. if operator
Furthermore, our operational results may have a greater
spending for network equipment and associated rollout services
variability than in the past and we may have difficulties in
declines substantially, our business and operating results would
accurately predicting future developments. See also
suffer. We have established flexibility to cost effectively accommo-
“Forward-looking statements”.
date fluctuations in demand. However, if demand were to fall in the
Risk associated with the industry and market
conditions
We are subject to political, economic and regulatory risks in
the various countries in which we operate.
future, we may experience material adverse effects on our revenues
and may even incur operating losses. if demand is significantly
weaker than expected, this may have a material adverse impact on
the trading price of our shares.
Industry convergence between telecom, data and media
We conduct business throughout the world and are subject to the
represents opportunities but also risks
effects of general global economic conditions as well as conditions
We are affected by market conditions within the telecommunica-
unique to a specific country or region. We conduct business in more
tions industry. We are also affected by the convergence of the
than 140 countries, with a significant proportion of our sales to
telecom-, data-, and media industries, which is largely driven by
emerging markets in asia pacific, latin america, eastern europe, the
technological development related to ip-based communications.
Middle east and africa. We expect that sales to such emerging
this change impacts our addressable market, competition, and
markets will be an increasing portion of total sales, as developing
our objective setting and strategies, as well as the need to
nations and regions around the world increase their investments in
consider risks to achieve our set objectives. should we not
telecommunications. We already have extensive operations in many
succeed to understand the market development or acquire the
of these countries, which involve certain risks, including volatility in
necessary competence or develop and market products and
gross domestic product, civil disturbances, economic and political
solutions that are competitive in this changing market, our future
instability, nationalization of private assets and the imposition of
results will suffer.
exchange controls.
changes in regulatory requirements, tariffs and other trade
Our business essentially depends upon the continued growth
barriers, price or exchange controls or other governmental
of mobile communications and the success of new types of
policies in the countries in which we conduct business could limit
services offered in broadband netrworks.
our operations and make the repatriation of profits difficult. in
Most of our business depends on continued growth in mobile
addition, the uncertainty of the legal environment in some regions
communications in terms of both number of subscriptions and usage
could limit our ability to enforce our rights. We also must comply
per subscriber, which in turn requires the continued deployment of
with the export control regulations of the countries in which we
our network systems by customers. in particular, we are dependent
operate and trade embargoes in force at the time of sale.
on operators in highly penetrated markets to successfully introduce
although we seek to comply with all such regulations, even
services that cause a substantial increase in usage for both voice and
unintentional violations could have material adverse effects on
data. in emerging markets, we are, to a certain extent, dependent on
our business, operational results and reputation.
the availability of lower-cost handsets in addition to affordable tariffs
ericsson annual report 2007
105
risk factors by operators to support a continued increase of mobile subscribers.
reliance on key customers and, due to the increased size of
if operators are not successful in their attempts to increase the
these companies, may negatively impact our bargaining position
number of subscribers and/or stimulate increased usage, our
and profit margins. Moreover, if the combined companies
business and operational results could be materially adversely
operate in the same geographic market, networks may be shared
affected.
and less network equipment and associated services may be
Fixed and mobile networks converge and new technologies, such as
required. another possible consequence of customer consolida-
ip and broadband, enable operators to deliver a range of new types
tion is that it could cause a delay in their network investments
of services in both fixed and mobile networks. We are dependent
while they negotiate merger/acquisition agreements, secure
upon the market acceptance of such services, e.g. iptV, and on the
necessary approvals, or are constrained by efforts to integrate
outcome of regulatory and standardization activities in this field, such
the businesses. a recent development is also that network
as spectrum allocation. if delays in standardization or market
operators, without legal consolidation but through cooperation
acceptance occur, this could adversely affect our business and
agreements, share parts of their network infrastructure, which
operational results.
may adversely affect demand for network equipment.
Changes in the regulatory environment for
Consolidation among equipment and services suppliers may
telecommunications systems and services could negatively
lead to increased competition and a different competitive
impact our business.
landscape.
telecommunications is a regulated industry and regulatory changes
industry consolidation among equipment suppliers could potentially
affect both our customers’ and our operations. For example,
result in stronger competitors that are competing as end-to-end
changes in regulations that impose more stringent, time-consuming
suppliers as well as competitors more specialized in particular areas.
or costly planning, zoning requirements or building approvals
consolidation may also result in competitors with greater resources,
regarding the construction of radio base stations and other network
including technical and engineering resources, than we have or
infrastructure could adversely affect the timing and costs of new
reduce existing scale advantages for us. this could have a material
network construction or expansion and the commercial launch and
adverse effect on our business, operating results, and financial
ultimate commercial success of these networks. similarly, tariff
condition.
regulations that affect the pricing of services offered by operators
could also affect their ability to invest in network infrastructure, which
We operate in a highly competitive industry, which is subject
in turn could affect the sales of our systems and services. radio
to competitive pricing and rapid technological change.
frequency spectrum allocation between different types of usage may
the markets for our products are highly competitive in terms of
affect operator spending adversely or force us to develop new
pricing, functionality and service quality, the timing of develop-
products to be able to compete in such market.
ment and introduction of new products and services and terms
license fees, environmental, health and safety, privacy and
of financing. We face intense competition from significant
other regulatory changes may increase costs and restrict
competitors, and chinese companies in particular, have become
operations of network operators and service providers. the
relatively stronger in recent years. our competitors may imple-
indirect impact of such changes could affect our business
ment new technologies before we do, allowing them to offer
adversely even though the specific regulations may not directly
more attractively priced or enhanced products, services or
apply to our products or us.
solutions, or may offer other incentives that we do not provide.
some of our competitors may have greater resources in certain
Consolidation among network operators may increase our
business segments or geographic markets than we do. We may
dependence on a limited number of key customers.
also encounter increased competition from new market entrants,
the market for mobile network equipment is highly concentrated,
alternative technologies or evolving industry standards. the rapid
with the 10 largest operators representing more than 40 percent of
technological change also results in shorter life-cycles for
the total market. network operators have undergone significant
products, increasing the risk in all product investments. our
consolidation, resulting also in a significant number of operators with
operating results significantly depend on our ability to compete in
activities in several countries. this trend is expected to continue,
this market environment, in particular on our ability to introduce
while also intra-country consolidation is likely to accelerate as a result
new products to the market and to continuously enhance the
of competitive pressure.
functionality while reducing the cost of new and existing
a market with fewer and larger operators will increase our
products, in order to cope with the continuous price erosion that
106
ericsson annual report 2007
risk factors is a result of the rapid technological change.
Strategic and operational risks
Our current and historical operations are subject to a wide
range of environmental, health and safety regulations.
Short-term volatility in business mix may have impact on
sales and gross margins
We are subject to certain environmental, health and safety laws and
our sales to network operators are a mix of equipment, software and
regulations that affect our operations, facilities and products in each
services, which normally generate different gross margins.
of the jurisdictions in which we operate. We believe that we are in
compliance with all material environmental, health and safety laws
and regulations related to our products, operations and business
telecom network solutions are delivered in three different ways:
• as initial network buildouts, including equipment, software and
network rollout services, and often also significant amounts of
activities. However, there is a risk that we may have to incur
civil works and/or third-party products with lower gross
expenditures to cover environmental and health liabilities to maintain
margins than own products;
compliance with current or future environmental, health and safety
laws and regulations or to undertake any necessary remediation. it is
• as subsequent network expansions (added geographical
coverage or increased capacity) and upgrades to higher
difficult to reasonably estimate the future impact of environmental
functionality, where the deliverables include higher shares of
matters, including potential liabilities due to a number of factors
software and less rollout services and therefore normally have
especially the lengthy time intervals often involved in resolving them.
higher margins; and
Liability claims related to and public perception of the
potential health risks associated with electromagnetic fields
could negatively affect our business.
• as professional services, which have lower gross margins than
equipment and software.
as a consequence, reported gross margin in a specific period will be
the mobile telecommunications industry is subject to claims that
affected by the overall mix of equipment, software and services as
mobile handsets and other telecommunications devices that
well as the relative content of third party products..
generate electromagnetic fields expose users to health risks. at
network expansions and upgrades have much shorter leadtimes for
present, a substantial number of scientific studies conducted by
delivery than initial network buildouts. such orders are normally
various independent research bodies have indicated that electro-
placed with short notice by customers, i.e. less than a month, and
magnetic fields, at levels within the limits prescribed by public health
consequently, variations in demand are difficult to forecast. as a
authority safety standards and recommendations, cause no adverse
result, changes in our product and service mix may affect our ability
effects to human health. However, any perceived risk or new
to forecast and may also impact our ability to detect in advance
scientific findings of adverse health effects of mobile communication
whether actual results will deviate from those forecasted.
devices and equipment could adversely affect us through a reduction
in sales. although ericsson’s products are designed to comply with
Most of our business is derived from a limited number of
all current safety standards and recommendations regarding
customers.
electromagnetic fields, we cannot assure you that we or the jointly
We derive most of our business from large, multi-year network
owned sony ericsson Mobile communications will not become the
build-out agreements with a limited number of significant customers.
subject of product liability claims or be held liable for such claims or
although no single customer currently represents more than 10
be required to comply with future regulatory changes that may have
percent of sales, the loss of, or a reduced role with, a key customer
an adverse effect on our business. see also “legal and tax
for any reason could have a significant adverse impact on sales,
proceedings” in the Board of Directors’ report.
profit and market share for an extended period.
Some long-term frame agreements expose us to risks related
to agreed future price reductions or penalties.
long-term agreements are typically awarded on a competitive
bidding basis. in some cases, such agreements also include
commitments to future price reductions. in order to maintain the
gross margin even with such lower prices, we continuously strive to
reduce the costs of our products. We reduce costs through design
improvements and other changes to benefit from new technical
development, resulting in for example reduced component prices
ericsson annual report 2007
107
risk factors and productivity in production. However, there can be no assurance
other companies and successfully integrate such technologies
that our actions to reduce costs will be sufficient or timely to maintain
with our products. it may be necessary in the future to seek or
our gross margin in such contracts.
renew licenses relating to various aspects of these products.
Frame agreements often also provide for penalties and
there can be no assurance that the necessary licenses would be
termination rights in the event of our failure to deliver ordered
available on acceptable terms, or at all. Moreover, the inclusion in
products on time or if our products do not perform as promised,
our products of software or other intellectual property licensed
which may affect our results negatively.
from third parties on a non-exclusive basis could limit our ability
to protect our proprietary rights in our products.
We expend significant resources on product and technology
R&D which may not be successful in the market.
Our products incorporate intellectual property rights (IPR)
Developing new products or updating existing products and
developed by us that may be difficult to protect or may be
solutions requires significant levels of financial and other commit-
found to infringe on the rights of others.
ments to research and development, which may not always result in
While we have been issued a large number of patents and other
success. We are also actively engaged in the development of
patent applications are currently pending, there can be no assurance
technology standards that we are incorporating into our products
that any of these patents will not be challenged, invalidated, or
and solutions. in order to be successful, those standards must be
circumvented, or that any rights granted under these patents will in
accepted by relevant standardization bodies and by the industry as a
fact provide competitive advantages to us.
whole. our sales and earnings may suffer if we invest in development
the european union recently considered placing restrictions
of technologies and technology standards that do not function as
on the patentability of software. although the european union
expected, are not adopted in the industry or are not accepted in the
ultimately rejected this proposal, we cannot guarantee that they
marketplace within the timeframe we expect, or at all.
will not revisit this issue in the future. We rely on many software
please also see section “research and Development” in the
patents, and any limitations on the patentability of software may
Board of Directors’ report and in information on the company.
materially affect our business.
We utilize a combination of trade secrets, confidentiality
We make strategic acquisitions to get access to technology,
policies, non-disclosure and other contractual arrangements in
competence or new markets
addition to relying on patent, copyright and trademark laws to
in our industry, which requires huge investments in technology
protect our intellectual property rights. However, these measures
and at the same time is exposed to rapid technological and
may not be adequate to prevent or deter infringement or other
market changes, we make strategic investments in order to
misappropriation. Moreover, we may not be able to detect
obtain various benefits, e.g. to reduce time to market, to gain
unauthorized use or take appropriate and timely steps to
access to technology and/or competence, to increase our scale
establish and enforce our proprietary rights. in fact, existing laws
or to broaden our product portfolio or expand our customer base.
of some countries in which we conduct business offer only
there are no guarantees that such acquisitions are successful or
limited protection of our intellectual property rights, if at all.
that we succeed in integrating the acquired entities to gain the
Many key aspects of telecommunications and data network
expected benefits at all or in the timeframe we expect.
technology are governed by industry-wide standards, which are
We enter into joint ventures, strategic alliances and third
party agreements to offer complementary products and
services.
usable by all market participants. as the number of market
entrants as well as the complexity of the technology increases,
the possibility of functional overlap and inadvertent infringement
of intellectual property rights also increases. third parties have
if our partnering arrangements fail to perform as expected, whether
asserted, and may assert in the future, claims against us alleging
as a result of having incorrectly assessed our needs or the capabili-
that we infringe their intellectual property rights. Defending such
ties of our strategic partners, our ability to work with these partners
claims may be expensive, time consuming and divert the efforts
or otherwise, our ability to develop new products and solutions may
of our management and/or technical personnel. as a result of
be constrained and this may harm our competitive position in the
litigation, we could be required to pay damages and other
market. additionally, our share of any losses from, or commitments to
compensation, develop non-infringing products/technology or
contribute additional capital to, joint ventures may adversely affect
enter into royalty or licensing agreements. However, we cannot
our financial position or results of operations.
be certain that any such licenses, if available at all, will be
our solutions may also require us to license technologies from
available to us on commercially reasonable terms.
108
ericsson annual report 2007
risk factors Adverse resolution of litigation may harm our operating
We are dependent on access to short-term and long-term
results or financial condition.
capital.
We are a party to lawsuits in the normal course of our business.
if we do not generate sufficient amounts of capital to support our
litigation can be expensive, lengthy and disruptive to normal
operations, service our debt, continue our research and development
business operations. Moreover, the results of complex legal
and customer financing programs or we cannot raise sufficient
proceedings are difficult to predict. an unfavorable resolution of a
amounts of capital at the times and on the terms required by us, our
particular lawsuit could have a material adverse effect on our
business will likely be adversely affected. access to short-term
business, reputation, operating results, or financial condition.
funding may decrease or become more expensive as a result of our
as a publicly listed company, ericsson is exposed to class-
operational and financial condition and market conditions or due to
action lawsuits, in which plaintiffs allege that the company or its
deterioration in our credit rating. We cannot assure you that
officers have failed to comply with securities laws, stock market
additional sources of funds will be available or available on reason-
regulation or any other laws, regulations or requirements.
able terms.
Whether or not there is merit to such claims, the time and costs
incurred to defend the company and its officers and the potential
As a Swedish company operating globally, we have
settlement or compensation to the plaintiffs may have significant
substantial foreign exchange exposures.
impact on our reported results and reputation. For additional
With the majority of our cost base being swedish krona (seK)
information regarding certain of the lawsuits in which we are
denominated and a very large share of sales in currencies other than
involved, see “legal and tax proceedings” in the Board of
seK, and many subsidiaries outside sweden, our foreign exchange
Directors’ report.
We rely on a limited number of suppliers for the majority of
our components and electronic manufacturing services.
exposure is significant. currency exchange rate fluctuations affect
our consolidated balance sheet, cash flows and income statement
when foreign currencies are exchanged or translated to seK. our
attempts to reduce the effect of exchange rate fluctuations through a
our ability to deliver according to market demands depends in large
variety of hedging activities may not be sufficient or successful,
part on obtaining timely and adequate supply of materials, compo-
resulting in an adverse impact on our results.
nents and production capacity on competitive terms. Failure by any
a stronger seK exchange rate would generally have a negative
of our suppliers could interrupt our product supply and could
effect on our competitiveness compared to competitors with
significantly limit our sales or increase our costs. if we fail to
costs denominated in other currencies.
anticipate customer demand properly, an over/undersupply of
components and production capacity could occur. in many cases,
some of our competitors also utilize the same contract manufactur-
ers, and we could be blocked from acquiring the needed compo-
A significant interruption or other failure of our information
technology (IT) operations or communications networks
could have a material adverse affect on our operations and
nents or from increasing capacity if they have purchased capacity
results.
ahead of us. this factor could limit our ability to supply our customers
our business operations rely on complex it operations and
or could increase our costs. at the same time, we commit to certain
communications networks which are vulnerable to damage or
capacity levels or component quantities, which, if unused, will result
disturbance from a variety of sources. Having outsourced a
in charges for unused capacity or scrapping costs.
significant portion of our it operations, we depend partly on security
and reliability measures of external companies. regardless of
We are dependent upon hiring and retaining highly qualified
protection measures, essentially all it systems and communications
employees.
networks are susceptible to disruption from equipment failure,
We believe that our future success depends in large part on our
vandalism, computer viruses, security breaches, natural disasters,
continued ability to hire, develop, motivate and retain engineers and
power outages and other events. although we have assessed these
other qualified personnel needed to develop successful new
risks and implemented controls and selected reputable companies
products, support our existing product range and provide services to
for outsourced services, we cannot be sure that interruptions with
our customers. competition for skilled personnel and highly qualified
material adverse effects will not occur.
managers in the telecommunications industry remains intense. We
are continuously developing our remuneration and benefit policies as
well as other measures. However, we may not be as successful at
attracting and retaining such highly skilled personnel in the future.
ericsson annual report 2007
109
risk factors Risks associated with owning Ericsson 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 for telecommunications and
technology companies in particular, and in part due to the develop-
ment in our market and our reported financial results, as well as
statements and market speculation regarding our future prospects.
Variations between our actual financial results and expectations of
financial analysts and investors, as well as the timing or content of
any profit warning announcements by us, may have significant
impact on our share price.
Factors other than our financial results that may affect our share
price include, but are not limited to, a weakening of our brand name
or any circumstances causing adverse effects on our reputation,
announcements by our customers, competitors or ourselves
regarding capital spending plans of network operators, financial
difficulties for network operators for whom we have provided
financing or with whom we have entered into material contracts,
awards of large supply agreements or contracts for network roll-out.
additional factors include but are not limited to: speculation in the
press or investment community about the level of business activity or
perceived growth in the market for mobile communications services
and equipment; technical problems, in particular those relating to the
introduction and viability of new network systems like 3G or iptV;
actual or expected results of ongoing or potential litigation involving
ourselves or the markets in which we operate. even though we may
not be directly involved, announcements concerning bankruptcy or
other similar reorganization proceedings involving, or any investiga-
tions into the accounting practices of, other telecommunications
companies may materially adversely affect our share price.
our ability to forecast and communicate our future results in a
manner consistent with investor expectations may affect the market
value of our shares.
Currency fluctuations may adversely affect the trading prices
of our Class B shares and ADSs and the value of any
distributions we make thereon.
Because our shares are quoted in swedish kronor (seK) on the oMX
nordic exchange stockholm (our primary stock exchange), but on
nasDaQ (aDss) and the london stock exchange (class B shares) in
local currencies, i.e. usD and GBp, fluctuations in exchange rates
between seK and these currencies may affect the value of your
investment. in addition, because we pay cash dividends in seK,
fluctuations in exchange rates may affect the value of distributions if
arrangements with your bank, broker or depositary, in the case of
aDss, call for distributions to you in currencies other than seK.
110
ericsson annual report 2007
risk factors parent company
income statement
Years ended December 31, SEK million
net sales 1)
cost of sales
Gross margin
selling expenses 2)
administrative expenses
operating expenses
other operating income and expenses 1)
operating income
Financial income
Financial expenses
income after financial items
transfers to (-)/from untaxed reserves
changes in depreciation in excess of plan
changes in other untaxed reserves
taxes
Net income
notes
p2
p3
p4
p4
p15
p15
p5
2007
3,236
–368
2,868
–632
–719
–1,351
2,723
4,240
13,747
–3,262
14,725
–448
183
–265
2006 1)
2,601
–285
2,316
2005 1)
2,497
–621
1,876
–206
–1,072
–1,278
2,339
3,377
12,811
–2,549
13,639
–631
543
–88
148
–796
–648
1,964
3,192
13,535
–2,700
14,027
10
–57
–47
–1,315
13,145
–1,189
12,362
–581
13,399
1) patent license fees are included in net sales from 2007, instead of in other operating income and expenses, and 2006 and 2005 have been restated accordingly.
2) selling expenses include the net effect of risk provisions for customer financing of seK 133 million in 2007 (seK 1,262 million in 2006 and seK 782 million in 2005).
ericsson annual report 2007
111
parent company financial statements parent company Balance sheet
December 31, SEK million
Assets
Fixed assets
intangible assets
tangible assets
Financial assets
investments
subsidiaries
Joint ventures and associated companies
other investments
receivables from subsidiaries
customer financing, non-current
Deferred tax assets
other financial assets, non-current
Current assets
inventories
receivables
trade receivables
customer financing, current
receivables from subsidiaries
current income taxes
other current receivables
short-term investments
cash and bank
Total assets
notes
2007
2006
p6
p7, p26
2,989
443
2,800
300
p8, p9
p8, p9
p8
p12
p8, p11
p5
p8
p10
p11
p11
p12
p13
p19
p19
81,406
4,466
475
18,433
751
589
358
109,910
51,124
4,469
19
16,978
1,562
403
401
78,056
84
91
42
263
25,130
278
3,160
38,891
6,717
74,565
184,475
68
366
27,099
19
5,399
43,372
10,614
87,028
165,084
112
ericsson annual report 2007
parent company financial statements
December 31, SEK million
Stockholders’ equity, provisions and liabilities
Stockholders’ equity
capital stock
revaluation reserve
statutory reserve
restricted equity
retained earnings
net income
non-restricted equity
Untaxed reserves
Provisions
pensions
other provisions
Non-current liabilities
notes and bond loans
liabilities to subsidiaries
other non-current liabilities
Current liabilities
current maturities of long-term borrowings
trade payables
liabilities to subsidiaries
other current liabilities
Total stockholders’ equity, provisions and liabilities
assets pledged as collateral
contingent liabilities
notes
2007
2006
p14
p15
p16
p17
p18
p12
p18
p21
p12
p20
p22
p23
16,132
20
31,472
47,624
22,080
13,145
35,225
82,849
1,339
402
655
1,057
19,372
30,921
164
50,457
2,906
626
41,413
3,828
48,773
184,475
359
9,650
16,132
20
31,472
47,624
20,625
12,362
32,987
80,611
1,074
419
1,195
1,614
11,204
32,369
145
43,718
–
509
35,261
2,297
38,067
165,084
277
7,670
ericsson annual report 2007
113
parent company financial statements
parent company statement
of cash Flows
Years ended December 31, SEK million
Operations
net income
notes
2007
2006
2005
13,145
12,362
13,399
Adjustments to reconcile net income to cash
p24
Changes in operating net assets
inventories
customer financing, current and non-current
trade receivables
provisions and pensions
other operating assets and liabilities, net
Cash flow from operating activities
Investing activities
investments in tangible assets
sales of tangible assets
investments in intangible assets
investments in shares and other investments
Divestments of shares and other investments
lending, net
other investing activities
Cash flow from investing activities
p24
p24
433
13,578
7
1,041
–155
–442
4,182
18,211
–262
6
–579
–35,918
6,189
3,053
–19
–27,530
–1,574
10,788
–31
446
358
–401
–4,827
6,333
–132
57
–3,092
–541
5,654
22,836
59
24,841
–5,966
7,433
–20
757
27
–1,250
7,276
14,223
–76
–
–
–6,972
9,470
–4,127
124
–1,581
Cash flow before financing activities
–9,319
31,174
12,642
Financing activities
changes in current liabilities to financial institutions, net
changes in current liabilities to subsidiaries
proceeds from new borrowings
repayment of borrowings
sale of own shares and options exercised
Dividends paid
settled contributions from/to (-)subsidiaries
other
Cash flow from financing activities
Net change in cash and cash investments
–
1,094
11,050
–
64
–7,943
–3,324
–
941
–8,378
–
–34,265
–
–9,511
63
–7,141
–1,296
–
–52,150
–20,976
–322
–2,207
–
–699
119
–3,959
–2,299
–9
–9,376
3,266
Cash and short-term investments, beginning of period
53,986
74,962
71,696
Cash and short-term investments, end of period
p19
45,608
53,986
74,962
114
ericsson annual report 2007
parent company financial statements
parent company statement of
changes in stockholders’ equity
December 31, SEK million
Opening balance
adjustment for ias 39, net
Adjusted opening balance
sale of own shares
stock purchase and stock option plans
contributions from/to (-) subsidiaries
tax on contributions
Dividends paid
Revaluation of other investments in shares
Fair value measurement reported in equity
Cash Flow hedges
transferred to balance sheet for the period
net income
Closing balance
For further information, please see “notes to the parent company financial statements, note p14, stockholders’ equity”.
notes
p14
2007
80,611
–
80,611
62
41
–4,263
1,194
–7,943
2
–
2006
76,593
–17
76,576
58
67
–1,955
548
–7,141
–3
99
13,145
82,849
12,362
80,611
ericsson annual report 2007
115
parent company financial statements notes to the parent company
Financial statements
contents
p1
significant accounting policies ......................................................................................................................................................................................................................... 117
p2
segment information ............................................................................................................................................................................................................................................... 117
p3 other operating income and expenses ......................................................................................................................................................................................................118
p4
Financial income and expenses .......................................................................................................................................................................................................................118
p5
taxes.................................................................................................................................................................................................................................................................................118
p6
intangible assets .......................................................................................................................................................................................................................................................119
p7
tangible assets ..........................................................................................................................................................................................................................................................119
p8
Financial assets ........................................................................................................................................................................................................................................................ 120
p9
investments................................................................................................................................................................................................................................................................... 121
p10
inventories .................................................................................................................................................................................................................................................................... 122
p11 trade receivables and customer Financing ............................................................................................................................................................................................. 123
p12 receivables and liabilities – subsidiary companies ........................................................................................................................................................................... 124
p13 other current receivables ................................................................................................................................................................................................................................. 124
p14 stockholders’ equity .............................................................................................................................................................................................................................................. 124
p15 untaxed reserves ................................................................................................................................................................................................................................................... 126
p16 pensions ........................................................................................................................................................................................................................................................................ 126
p17 other provisions .........................................................................................................................................................................................................................................................127
p18
interest-bearing liabilities ................................................................................................................................................................................................................................... 128
p19 Financial risk Management and Financial instruments .................................................................................................................................................................... 129
p20 other current liabilities .........................................................................................................................................................................................................................................131
p21 trade payables ........................................................................................................................................................................................................................................................... 131
p22 assets pledged as collateral ..............................................................................................................................................................................................................................131
p23 contingent liabilities ............................................................................................................................................................................................................................................... 131
p24 statement of cash Flows ......................................................................................................................................................................................................................................131
p25 leasing ........................................................................................................................................................................................................................................................................... 132
p26 tax assessment Values in sweden ............................................................................................................................................................................................................... 132
p27
information regarding employees ................................................................................................................................................................................................................. 132
p28 related party transactions ................................................................................................................................................................................................................................ 133
p29 Fees to auditors ........................................................................................................................................................................................................................................................ 133
116
ericsson annual report 2007
notes to the parent company financial statements p1 significant accounting policies
the parent company, telefonaktiebolaget lM ericsson, adopted
rr32 “reporting in separate financial statements” from January 1,
2005. the adoption of rr32 has not had any effect on reported profit
or loss for 2005. the amended rr32:06 (from 2007) requires the
parent company to use the same accounting principles as for the
Group, i.e. iFrs to the extent allowed by rr32:06.
the main deviations between accounting policies adopted for the
Group and accounting policies for the parent company are:
Subsidiaries, associated companies and joint ventures
the investments are accounted for according to the acquisition cost
method. investments are carried at cost and only dividends are
accounted for in the income statement. an impairment test is per-
formed annually and write-downs are made when permanent decline
in value is established.
contributions to/from subsidiaries and shareholders’ contributions
are accounted for according to ura7 issued by the swedish Finan-
cial reporting Board. contributions to/from swedish subsidiaries are
reported directly in equity, net of taxes, as these transactions are
aimed at reducing the swedish taxes. shareholders’ contributions
increase the parent company’s investments.
Classification and measurement of financial
instruments
ias 39 Financial instruments: recognition and Measurement was
adopted from January 1, 2006, except regarding financial guarantees
where the exception allowed in rr32:06 was chosen.
the comparison figures for 2005 are accounted for according to
the annual accounts act. the main deviations are:
• short-term investments, interest and foreign exchange derivatives
are carried at lowest of amortized cost and fair value.
• Foreign exchange derivatives are recognized in the balance sheet
at fair value to offset value changes in the hedged item. effects
from foreign exchange derivatives hedging future transactions are
deferred to offset the hedged transaction. interest rate derivatives
hedging loans or investments are valued in the same way as the
underlying transaction.
• Bonds issued by the parent company are carried at amortized
cost.
there were no material effects on the opening balances January 1,
2006, as the derivatives had a negative fair value in the closing bal-
ance December 31, 2005. restatement of opening balances has
been performed. remeasured opening balances include other cur-
rent receivables and liabilities, current maturities of long-term bor-
rowings and notes and bond loans, other investments in shares and
stockholders’ equity. all remeasured balances, except for other
investments in shares, are derivatives.
Leasing
the parent company has one rental agreement which is accounted
for as a finance lease in the consolidated statements and as an
operating lease in the parent company financial statements.
Deferred taxes
the accounting of untaxed reserves in the balance sheet results in
different accounting of deferred taxes as compared to the principles
applied in the consolidated statements. 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 addition to, or withdrawal from, untaxed
reserves in the income statement.
Pensions
pensions are accounted for in accordance with the recommendation
Far 4 “accounting for pension liability and pension cost” from the
swedish institute of authorized public accountants. according to rr
32:06, ias 19 shall be adopted regarding supplementary disclosures
when applicable.
Statement of cash flows
cash and short-term investments include financial instruments with
maturity up to 12 months from the balance sheet date.
Critical accounting estimates and judgments
please see notes to the consolidated Financial statements, note c2
– “critical accounting estimates and Judgments”. Major critical ac-
counting estimates and judgments applicable to the parent company
include trade and customer financing receivables and acquired
intellectual property rights and other intangible assets, excluding
goodwill.
p2 segment information
Net SaleS
Western europe 1) 2)
central and eastern europe,
Middle east & africa
asia pacific
north america
latin america
Total
1) of which sweden
2) of which eu
2007
2006
2005
1,478
1,093
654
33
1,383
304
38
543 1,047
760
915
28
31
8
19
3,236
2,601 2,497
1,336
1,478
964
1,093
430
654
parent company net sales in sweden are mainly related to business
segment Multimedia, and the remaining part of net sales are mainly
related to business segment networks.
ericsson annual report 2007
117
notes to the parent company financial statementsnote P1–P2
p3 other operating income
p5 taxes
and expenses
royalties, license fees
and other operating revenues
subsidiary companies
other
net losses (–) on sales of
tangible assets
Total
2007
2006
2005
the following items are included in taxes:
Income taxes recognized in income statement
2,058
667
2,018
323
1,728
240
–2
–2
–4
2,723
2,339
1,964
current income tax on
contributions, net
other current income taxes
current income taxes related
to prior years
Deferred tax income/expense (–)
Taxes
2007
2006
2005
–1,194
–259
–548
–291
1,254
–511
–49
187
124
–474
326
–1,650
–1,315
–1,189
–581
p4 Financial income
and expenses
Financial Income
result from participations
in subsidiary companies
Dividends
net gains on sales
result from participations in JV
and associated companies
Dividends
net gains on sales
result from other securities and
receivables accounted for as fixed assets
Dividends
other interest income and
similar profit/loss items
subsidiary companies
other
2007
2006
2005
4,308
2,345
4,830
3,673
3,804
6,774
4,216
20
1,258
–
25
–
–
–
6
reconciliation of actual income tax rate to the swedish income tax
rate:
2007
2006
2005
–28.0% –28.0% –28.0%
tax rate in sweden
current income taxes related
to prior years
tax effect of non-deductible
expenses
tax effect of non-taxable
income
tax effect related to write-downs
of investments in subsidiary companies –2.0%
22.0%
–0.8%
–0.3%
0.9%
2.3%
–0.9%
–0.3%
20.4%
22.0%
–1.2%
–0.2%
Taxes
–9.1%
–8.8%
–4.2%
Deferred tax balances
Total
13,747
12,811 13,535
1,641
1,217
1,611
1,439
1,267
1,659
tax effects of temporary differences have resulted in deferred tax
assets as follows:
Deferred tax assets
2007
2006
589
403
Financial Expenses
losses on sales of participations
in subsidiary companies
Write-down of investments
in subsidiary companies
losses on sale of participations
in other companies
Write-down of participations
in other companies
interest expenses and
similar profit/loss items
subsidiary companies
other
other financial expenses
Total
Financial net
–213
–222
–14
Deferred tax assets refer mainly to pensions, customer financing and
intellectual property rights.
–1,061
–556
–106
–
–
–
–3
–7
–
–995
–918
–75
–1,067
–652
–49
–1,115
–1,445
–13
–3,262
–2,549
–2,700
10,485 10,262 10,835
interest expenses on pension liabilities are included in the interest expenses shown
above.
118
ericsson annual report 2007
notes to the parent company financial statementsnote P3–P5
p6 intangible assets
PateNtS, liceNSeS, trademarkS aN d Similar rightS
Accumulated acquisition costs
opening balance
acquisitions
Closing balance
Accumulated amortization
opening balance
amortization
Closing balance
Net carrying value
2007
2006
3,314
579
222
3,092
3,893
3,314
–514
–390
–904
–204
–310
–514
2,989
2,800
acquisitions for the year relate mainly to redback trademarks and
2006 relate mainly to Marconi trademarks. the useful life and amorti-
zation period for the trademarks has been set to 10 years.
p7 tangible assets
2007
Accumulated acquisition costs
opening balance
additions
sales/disposals
reclassifications
Closing balance
Accumulated depreciation
opening balance
Depreciation
sales/disposals
Closing balance
Net carrying value
2006
Accumulated acquisition costs
opening balance
additions
sales/disposals
reclassifications
Closing balance
Accumulated depreciation
opening balance
Depreciation
sales/disposals
reclassifications
Closing balance
Net carrying value
land and
buildings
other
equipment
and installations
construction
in process and
advance payments
23
–
–10
–
13
–2
–
2
–
13
23
–
–
–
23
–2
–
–
–
–2
21
576
45
–1
91
711
–344
–111
1
–454
257
580
29
–128
95
576
–322
–92
70
–
–344
232
47
217
–
–91
173
–
–
–
–
173
39
103
–
–95
47
–
–
–
–
–
47
Total
646
262
–11
–
897
–346
–111
3
–454
443
642
132
–128
–
646
–324
–92
70
–
–346
300
ericsson annual report 2007
119
notes to the parent company financial statementsnote P6–P7
p8 Financial assets
iN veStme NtS iN SubSidiary comPaNieS, joiN t veNtureS aNd aSSociated comPaNieS
opening balance
acquisitions and stock issues
shareholders’ contribution
Write-downs
reclassifications
Disposals
Closing balance
other fiNaN cial aSSetS
Accumulated acquisition costs
opening balance
effect of changed accounting principle, ias 39
additions
Disposals/repayments/deductions
reclassifications
translation difference
Closing balance
Accumulated write-downs/allowances
opening balance
Write-downs/allowances
Disposals/repayments/deductions
reclassifications
translation difference
Closing balance
Net carrying value
subsidiary companies
2006
2007
Joint ventures
2006
2007
associated companies
2006
2007
51,124
35,463
–3,439
–1,061
–
–681
53,066
538
–1,435
–556
3
–492
81,406
51,124
4,136
–
–
–
–
–
4,136
4,136
–
–
–
–
–
4,136
333
–
–
–
–
–3
330
338
–
–
–
–3
–2
333
other investments in shares
and participations
2006
2007
customer financing,
non-current1)
2006
2007
other financial
assets, non-current
2006
2007
28
3
453
–
–
–
484
–9
–
–
–
–
–9
475
24
3
1
–
–
–
28
–6
–3
–
–
–
–9
19
1,765
–
646
–1,593
–
–18
2,175
–
1,185
–1,502
–35
–58
800
1,765
–203
–8
160
–
2
–49
751
–944
–32
718
31
24
–203
1,562
357
114
–70
401
401
– –
–
–43
– –
– –
358
– –
– –
– –
– –
– –
– –
358
401
1) From time to time, customer financing amounts may include equity instruments or equity-related instruments in our customers due to reconstruction activities of troubled
receivables. We sometimes receive such instruments as security for our receivable and our policy is to sell them as soon as feasible.
120
ericsson annual report 2007
notes to the parent company financial statementsnote P8
p9 investments
the following listing shows certain shareholdings owned directly and
indirectly by the parent company as of December 31, 2007. a com-
plete listing of shareholdings, prepared in accordance with the swed-
ish annual accounts act and filed with the swedish companies
registration office (Bolagsverket), may be obtained upon request to:
telefonaktiebolaget lM ericsson, external & Management informa-
tion, se-164 83 stockholm, sweden.
ShareS owNed directly by the PareNt comPaNy
i
i
i
ii
i
i
ii
i
ii
i
ii
i
i
ii
type company
Subsidiary companies
ericsson aB
i
ericsson shared services aB
i
ericsson enterprise aB
i
ericsson sverige aB
i
netwise aB
i
aB aulis
ii
ericsson credit aB
iii
other (sweden)
ericsson austria GmbH
ericsson Danmark a/s
oy lM ericsson ab
ericsson participations France sas
ericsson GmbH
ericsson Hungary ltd.
lM ericsson Holdings ltd.
ericsson telecomunicazioni s.p.a.
ericsson Holding international B.V.
ericsson a/s
tanDBerG television asa
ericsson corporatia ao
ericsson aG
ericsson Holding ltd.
other (europe, excluding sweden)
ericsson Holding ii inc.
cía ericsson s.a.c.i.
ericsson telecom s.a. de c.V.
other (united states, latin america)
teleric pty ltd.
ericsson ltd.
ericsson (china) company ltd.
ericsson india private ltd.
ericsson (Malaysia) sdn. Bhd.
ericsson telecommunications pte. ltd.
ericsson taiwan ltd.
ericsson (thailand) ltd.
other countries (the rest of the world)
ii
i
i
i
i
i
i
i
ii
i
i
reg. no.
Domicile
556056-6258
556251-3266
556090-3212
556329-5657
556404-4286
556030-9899
556326-0552
sweden
sweden
sweden
sweden
sweden
sweden
sweden
austria
Denmark
Finland
France
Germany
Hungary
ireland
italy
the netherlands
norway
norway
russia
switzerland
united Kingdom
united states
argentina
Mexico
australia
china
china
india
Malaysia
singapore
taiwan
thailand
Total
Joint ventures and associated companies
i
i
sony ericsson Mobile communications aB
ericsson nikola tesla d.d.
556615-6658
sweden
croatia
Total
percentage
of ownership
par value
in local
currency,
million
carrying
value,
seK m.
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
53 1)
100
100
100
100
100
100
–
100
12 2)
100
–
100
100
100
100
70
100
80
49 3)
–
50
49
50
361
360
100
2
14
5
–
4
90
13
26
20
1,301
2
23
222
156
161
5
–
328
–
2,817
13
n/a
–
20
2
65
725
2
2
240
90
–
20,645
2,216
335
102
306
6
5
983
665
216
196
524
3,884
120
15
3,151
3,200
237
8,787
5
–
4,094
217
28,881
10
1,550
61
100
2
475
147
4
1
20
17
229
–
81,406
50
65
–
4,136
330
4,466
ericsson annual report 2007
121
notes to the parent company financial statementsnote P9
ShareS owNed by Sub Sidiary comPaNieS
company
type
Subsidiary companies
i
ii
i
i
i
i
ii
i
i
i
i
i
i
i
i
i
ii
i
i
i
i
i
i
i
i
i
ericsson network technologies aB
ericsson cables Holding aB
ericsson France sas
lHs telekommunikation GmbH & co. KG
lM ericsson ltd.
Marconi s.p.a.
ericsson nederland B.V.
ericsson telecommunicatie B.V.
ericsson españa s.a.
soluciones De Video Y comunicationes Hache s.l.
ericsson telekomunikasyon a.s.
ericsson ltd.
ericsson canada inc.
ericsson inc.
ericsson ip infrastructure inc.
ericsson amplified technologies inc.
Drutt corporation inc.
entrisphere inc.
redback networks inc.
ericsson servicos de telecomunicações ltda.
ericsson telecommunicações s.a.
ericsson australia pty. ltd.
ericsson (china) communications co. ltd.
nanjing ericsson panda communication co. ltd.
nippon ericsson K.K.
ericsson communication solutions pte ltd.
reg. no.
Domicile
percentage
of ownership
556000-0365
556044-9489
sweden
sweden
France
Germany
ireland
italy
the netherlands
the netherlands
spain
spain
turkey
united Kingdom
canada
united states
united states
united states
united states
united states
united states
Brazil
Brazil
australia
china
china
Japan
singapore
100
100
100
87.5
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
Key to type of company
i Manufacturing, distribution and development companies
ii Holding companies
iii Finance companies
1) through subsidiary holdings, total holdings amount to 100% of ericsson telecomunicazioni s.p.a.
2) through subsidiary holdings, total holdings amount to 100% of cia ericsson s.a.c.i.
3) through subsidiary holdings, total holdings amount to 100% of ericsson (thailand) ltd.
p10 inventories
Finished products and goods for resale
Inventories
2007
2006
84
84
91
91
122
ericsson annual report 2007
notes to the parent company financial statementsnote P9–P10
moveme NtS iN allowaNceS for imPairmeNt
trade receivables
2006
2007
12
–
–
–
–
12
13
–
–
–1
–
12
customer
financing
2006
2007
221
19
–74
–100
–2
1,495
13
–12
–1,243
–32
64
221
opening balance
additions
utilized
reversal of excess amounts
translation difference
Closing balance
p11 trade receivables and
customer Financing
credit risk management is governed on a Group level.
For further information, please see note c14 and c20.
trade receivables excluding associated
companies and joint ventures
allowances for impairment
trade receivables, net
trade receivables related to associated
companies and joint ventures
Trade receivables, total
customer finance credits
allowances for impairment
customer finance credits, net
age aNalySiS aS Per december 31, 2007
2007
2006
54
–12
42
–
42
52
–12
40
28
68
1,078
–64
2,149
–221
1,014
1,928
of which
neither
impaired
nor past
due
amount
of which
impaired
not past
due
of which
past due in the
following time intervals
less than
90 days
90 days
or more
of which past due and
impaired in the following
time intervals
less than
90 days
90 days
or more
trade receivables excluding associated companies
and joint ventures
allowances for impairment of receivables
customer finance credits
allowances for impairment of customer finance credits
54
–12
1,078
–64
34
796
263
–46
6
1
2
–
–
1
–1
12
–12
17
–17
age aNalySiS aS Per december 31, 2006
of which
neither
impaired
nor past
due
amount
of which
impaired
not past
due
of which
past due in the
following time intervals
less than
90 days
90 days
or more
of which past due and
impaired in the following
time intervals
less than
90 days
90 days
or more
trade receivables excluding associated companies
and joint ventures
allowances for impairment of receivables
customer finance credits
allowances for impairment of customer finance credits
52
–12
2,149
–221
17
1,431
646
–158
11
1
12
8
–
31
–31
12
–12
32
–32
ericsson annual report 2007
123
notes to the parent company financial statementsnote P11
outSta NdiN g cuStomer fiN aNce creditS
on-balance sheet credits
off-balance sheet credits
Total credits
accrued interest
less third-party risk coverage
Parent Company’s risk exposure
on-balance sheet credits, net carrying value
of which short term
2007
2006
1,078
185
2,149
211
1,263
2,360
6
–163
28
–275
1,106
2,113
1,014
263
1,928
366
credit commitments for customer financing
988
1,075
p12 receivables and liabilities
– subsidiary companies
p13 other current receivables
receivables from associated
companies and joint ventures
prepaid expenses
accrued revenues
Derivatives with a positive value
other
Total
2007
2006
874
703
418
850
315
65
575
416
3,789
554
3,160
5,399
p14 stockholders’ equity
Capital stock 2007
capital stock at December 31, 2007, consisted of the following:
payment due by period
>5
years
1–5
years
< 1
year
2007
total
total
2006
class a shares 1)
class B shares 1)
Total
number
of shares
1,308,779,918
14,823,478,760
16,132,258,678
capital
stock
1,309
14,823
16,132
1) class a shares (quota value seK 1.00) and class B shares (quota value seK 1.00).
18,433
6,703 11,730 16,978
908
908
24,222 24,222
25,130 25,130
614
26,485
27,099
30,921
30,921 32,369
678
678
40,735 40,735
41,413 41,413
236
35,025
35,261
Non-current
receivables 1)
Financial receivables
Current receivables
trade receivables
Financial receivables
Total
Non-current
liabilities 1)
Financial liabilities
Current liabilities
trade payables
Financial liabilities
Total
1) including non interest-bearing receivables and liabilities, net, amounting to
seK –20,959 million (seK –33,457 million in 2006). interest-free transactions
involving current receivables and liabilities may also arise at times.
124
ericsson annual report 2007
notes to the parent company financial statementsnote P12–P13
chaNge S iN StockholderS ’ equit y
revalua-
capital
stock
tion statutory restricted
equity
reserve
reserve
Total Disposi-
tion
reserve
Fair
value
other
Non-
retained restricted
equity
reserves earnings
Total
2007
January 1, 2007
Revaluation of other investments in shares
Fair value measurement reported in equity
tax on items reported directly in equity
sale of own shares
stock purchase and stock option plans
contributions from/to (–) subsidiary
companies
tax on contribution
Dividends paid
net income 2007
December 31, 2007
2006
January 1, 2006
effect of changed
accounting principle, ias 39, net 1)
Adjusted opening balance
sale of own shares
stock purchase and stock option plans
contributions from/to (–) subsidiary
companies
tax on contributions
Dividends paid
Revaluation of other investments
in shares
Fair value measurement
reported in equity
Cash Flow hedges
transferred to balance sheet
for the period
net income 2006
December 31, 2006
16,132
20
31,472
47,624
100
2
32,885
32,987 80,611
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,132
20
31,472
47,624
100
3
–1
–
–
–
–
–
–
4
–
–
62
41
3
–1
62
41
3
–1
62
41
–4,263
1,194
–7,943
–4,263 –4,263
1,194
–7,943 –7,943
1,194
13,145
13,145 13,145
35,121
35,225 82,849
16,132
20
31,472
47,624
100
–
28,869
28,969 76,593
–
16,132
–
–
–
20
–
–
–
–
31,472
–
–
47,624
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–94
–94
–
–
77
–17
–17
28,946
58
67
28,952 76,576
58
67
58
67
–
–
–
–1,955
548
–7,141
–1,955 –1,955
548
–7,141
548
–7,141
–
–3
–
–
99
–
2
–
–
–3
–3
99
99
12,362
12,362 12,362
32,885
32,987 80,611
16,132
20
31,472
47,624
100
1) the total net of seK –17 million includes cash flow reserve related to the Marconi trademarks acquisition seK –15 million, fair value of bond loans of seK –7 million and
revaluation of other investments in shares of seK 5 million.
ericsson annual report 2007
125
notes to the parent company financial statementsnote P14
p15 untaxed reserves
2007
Accumulated depreciation in excess of plan
intangible assets
tangible assets
Total accumulated depreciation in excess of plan
Other untaxed reserves
reserve for doubtful receivables
Total other untaxed reserves
Total untaxed reserves
Jan. 1
634
–1
633
441
441
1,074
additions/
withdrawals (–)
Dec. 31
434
14
448
–183
–183
265
1,068
13
1,081
258
258
1,339
change in depreciation in excess of plan of intangible assets relates mainly to Marconi and redback trademarks.
changes in other untaxed reserves related to withdrawal from reserve for doubtful receivables, seK 543 million in 2006. Deferred tax liability on
untaxed reserves, not accounted for in deferred taxes, amounts to seK 375 million (seK 301 million in 2006).
p16 pensions
the parent company has two types of pension plans:
• Defined contribution plans: post-employment benefit plans where
the parent company pays fixed contributions into separate entities
and has no legal or constructive obligation to pay further contribu-
tions if the entities do not hold sufficient assets to pay all employee
benefits relating to employee service. the expenses for defined
contribution plans are recognized during the period when the
employee provides service.
• Defined benefit plans: post-employment benefit plans where the
parent company’s undertaking is to provide predetermined ben-
efits that the employee will receive on or after retirement. the FpG/
pri plan for the parent company is partly funded. pension obliga-
tions are calculated annually, on the balance sheet date, based on
actuarial principles.
PeNSioN obligatioN – defiNed beNefit PlaNS
Opening balance
current service cost
interest cost
pensions payments
closing balance pension obligation 1)
of which funded
Total
2007
2006
896
35
36
–55
912
–510
402
864
52
34
–54
896
–477
419
chaN ge iN PlaN aSSetS
Opening balance plan assets
return on plan assets
Closing balance plan assets
reclassification
return on plan assets not
accounted for
Closing balance reported
in provision for pension
2007
2006
592
21
613
553
39
592
–103
–104
–
–11
510
477
in 2005, seK 524 million was transferred into the swedish pension
trust, of which seK 103 (104) million is accounted for as prepaid
expense. only an immaterial part of plan assets is invested in the
Group’s equity securities or in interest-bearing securities issued by
the Group. the parent company utilizes no assets held by the pen-
sion trust. return on plan assets for 2007 is 3.5 (7.1) percent. 69 (74)
percent of plan assets are invested in interest-bearing securities and
31(26) percent in shares.
amouNt recogNized iN the balaNce Sheet
1) including FpG/pri obligation of seK 515 million (seK 479 million) which is covered
by the swedish law on safeguarding of pension commitments.
the FpG/pri obligation is calculated based on a discount rate of 3.64
percent and the remaining obligation is increased by 4.0 percent.
Weighted average life expectancy after the age of 65 is 24 years for
women and 21 years for men.
closing balance pension obligation
less fair value of plan assets
excess from plan assets not accounted for
excess from plan assets reclassified
Closing balance provision for pensions
2007
2006
912
–613
–
103
402
896
–592
11
104
419
126
ericsson annual report 2007
notes to the parent company financial statementsnote P15–P16
total PeNSioN coSt recogNized iN the iNcome
StatemeNt
Defined benefit plans
costs excluding interest
interest cost
return on plan assets
Total cost defined benefit plans
Defined contribution plans
pension insurance premium
Total cost defined contribution plans
Yield tax
payroll tax
credit insurance premium
Total pension cost
p17 other provisions
2007
2006
35
36
–32
39
98
98
–
26
–24
139
52
34
–28
58
95
95
–
35
–1
187
2007
opening balance
additions
costs incurred
reversal of excess amounts
Closing balance
2006
opening balance
additions
costs incurred
reversal of excess amount
Closing balance
Warranty
commitments
restruc-
turing
customer
financing
other
total other
provisions 1)
1
–
–
–
1
1
–
–
–
1
228
20
–61
–73
114
763
44
–433
–146
228
188
–
–
–11
177
310
–
–
–122
188
778
21
–62
–374
363
317
639
–3
–175
778
1,195
41
–123
–458
655
1,391
683
–436
–443
1,195
1) of which seK 208 million (seK 161 million in 2006) are expected to be utilized within one year.
ericsson annual report 2007
127
notes to the parent company financial statementsnote P16–P17
p18 interest-Bearing liabilities
the parent company’s outstanding interest-bearing liabilities, ex-
cluding liabilities to subsidiaries, were seK 22.3 billion as per Decem-
ber 31, 2007.
iNtereSt-beariN g liabilitieS
Borrowings, current
current maturities of long-term borrowings
Total current borrowings
Borrowings, non-current
notes and bond loans
other borrowings, non-current
Total non-current interest-
bearing liabilities
2007
2006
2,906
2,906
– 1)
–
19,372 11,204 1)
–
–
19,372 11,204
Total interest-bearing liabilities
22,278 11,204
1) including effect of changed accounting principle, ias 39, as per January 1, 2006.
current maturities of long-term borrowings seK 79 million and notes and bond
loans seK 468 million.
NoteS aNd boNd loaNS
Issued-maturing
1999–2009
2001–2008
2003–2010
2004–2012
2007–2012
2007–2012
2007–2017
2007–2014
Total
nominal
amount
483
226 1)
471 2)
450
1,000
2,000
500
375
coupon
6.500%
7.375%
6.750%
3.935%
5.100%
3.710%
5.380%
4.459%
currency
usD
GBp
eur
seK
seK
seK
eur
eur
Book value
(seK m.)
3,166 3)
2,898 3)
4,462 3)
450
1,002 3)
2,000
4,757 3)
3,543
22,278
Maturity date
(yy-mm-dd)
09-05-20
08-06-05
10-11-28
12-12-07 4)
12-06-29
12-06-29 5)
17-06-27
14-06-27 6)
unrealized hedge
gain/loss (incl. in
book value)
–61
8
–14
–4
–65
–136
1) the GBp 226 million bond has interest rates linked to the company’s credit rating. the interest will increase/decrease 0.25 percent per annum for each rating notch change per
rating agency (Moody’s and standard & poor’s). the interest rate applicable to this bond can not be less than the initial interest rates in the loan agreements.
2) the eur 471 million bond is callable after 2007; the fair value of the embedded derivative is included in the book value of the bond.
3) interest rate swaps are designated as fair value hedges.
4) contractual reprising date 2008-06-09.
5) contractual reprising date 2008-03-29.
6) contractual reprising date 2008-03-27.
all outstanding notes and bond loans are issued under the euro
Medium term note program. Bonds issued at a fixed interest rate are
swapped to a floating interest rate using interest rate swaps, resulting
in a weighted average interest rate of 5.48 percent at December 31,
2007. these bonds are revalued based on changes in benchmark
interest rates according to the fair value hedge methodology stipu-
lated in ias 39.
in June 2007, ericsson successfully placed a bond issuance. the
transaction comprised a eur 875 million dual-tranche eurobond,
consisting of a eur 375 million seven-year floating rate note and a
eur 500 million ten-year fixed rate note, as well as a seK 3 billion
five-year note. the bond issues will materially lengthen ericsson’s
average debt maturity profile. ericsson last accessed the eurobond
market in 2004.
128
ericsson annual report 2007
notes to the parent company financial statementsnote P18
p19 Financial risk Management
and Financial instruments
Financial risk management
ericsson’s financial risk management is governed on a Group level.
For further information please see note c20.
outStaN diNg derivativeS
Currency derivatives
Maturity up to one year
Total maturity up to one year
Maturity one to three years
Total maturity one to three years
Maturity three to five years
Total maturity three to five years
Total currency derivatives
Interest Derivatives
Maturity up to one year
Total maturity up to one year
Maturity one to three years
Total maturity one to three years
Maturity three to five years
Total maturity three to five years
Maturity more than five years
Total maturity more than five years
Total interest rate derivatives
(of which included in Fair value hedge relations)
Total outstanding derivatives
(of which internal counterparts)
currency
nominal
currency
usD
eur
other
usD
eur
other
1,129
381
1,047
1,027
eur
–
eur
noK
seK
usD
GBp
other
seK
GBp
noK
eur
usD
other
eur
usD
seK
seK
eur
1,500
10,120
24,157
–
276
30,823
–
9
1,112
483
107
–
2,000
1,305
526
2007
asset
seK
805
35
127
967
131
13
1
145
–
–
1,112
16
42
21
1
114
–
194
24
–
26
13
163
226
5
–
27
32
5
179
184
636 1)
478
1,748
801
liability
seK
nominal
currency
5,229
2,060
453
1,043
471
260
24,289
42,820
226
25,275
483
434
50
–
1,428
1,337
422
149
1,908
11
78
–10 2)
79
–
–
1,987
15
7
30
1
1
–
54
21
–
18
14
–
3
56
4
–
–1 2)
3
3
–
3
116
2,103
953
2006
asset
seK
2,269
371
469
3,109
63
91
58
212
17
17
3,338
–
12
119
–
–
–
131
115
43
180
5
343
94
6
–
100
9
liability
seK
2,402
286
291
2,979
29
–
9
38
–
–
3,017
2
23
63
–
–
4
92
–
–2 2)
8
6
12
–
–
–
–
11
9
583 1)
385
3,921
16
11
115
3,132
2,258
1) of which 96 million is reported as non-current assets for 2007 and 116 million for 2006
2) negative amounts relate to effect from one exposure of a derivative that is positive/negative while the total effect of the derivative is the opposite.
ericsson annual report 2007
129
notes to the parent company financial statementsnote P19
caSh, caSh equivaleN tS aNd Short-term
iNveStmeNt S
fuNdiN g ProgramS
amount utilized unutilized
SEK billion
Bank deposits
type of issuer/
counterpart
Governments
Banks
corporations
Mortgage institutes
liquidity funds
remaining time to maturity
> 5
< 3
months
1–5
< 1
year years years 2007 2006
6.7
–
–
–
6.7 10.6
–
11.3
0.1
0.2
–
7.8
6.5
1.7
1.4
–
4.0
2.7
2.1
0.1
–
1.0 12.8
6.2
0 20.5 27.7
6.2
3.9
–
2.2
1.7
–
1.1
–
–
Total
18.3
17.4
8.9
1.0 45.6 54.0
the instruments are classified as held for trading and are therefore
short-term investments.
During 2007, cash and bank and short-term investments de-
creased by seK 8.4 billion to seK 45.6 billion mainly due to invest-
ments in companies.
re PaymeNt Schedule of loNg-term borrowi Ng S
nominal amount
SEK billion
2008
2009
2010
2011
2012
2013 and later
Total
current
maturities of long-
term debt
notes
and bonds
(non-current)
2.9
–
3.1
4.5
–
3.5
8.2
Total
2.9
3.1
4.5
–
3.5
8.2
2.9
19.3
22.2
Debt financing is mainly carried out through borrowing in the swedish
and international debt capital markets.
fiNaN cial iNStrumeNtS carryiNg amouNt
euro Medium term note program
(usD m.)
euro commercial paper program
(usD m.)
swedish commercial paper program
(seK m.)
long-term committed credit facility
(usD m.)
short-term committed
credit facilities (seK m.)
5,000
3,051
1,949
1,500
5,000
2,000
273
–
–
–
–
1,500
5,000
2,000
273
on July 16, 2007, ericsson entered into a usD 2.0 billion long-term
committed credit facility agreement. the usD 2.0 billion facility re-
places the previous usD 1.0 billion facility. the new facility does not
have interest rates linked to credit rating or financial covenants.
Both Moody’s credit rating agency and standard & poor’s (s&p)
raised ericsson’s credit rating during 2007. at year-end, their ratings
of ericsson’s creditworthiness were Baa1 (Baa2) for Moody’s and
BBB+ (BBB–) for s&p, both considered to be “investment Grade”.
Financial Instruments Carried
at other than Fair Value
in the following tables, carrying amounts and fair values of financial
instruments that are carried in the financial statements at other than
fair values are presented. assets valued at fair value through profit
and loss had a net gain of seK 164 million. For further information
about valuation principles, please see note c1, “significant account-
ing policies”.
receiv-
ables
trade short-
term
invest-
p11 ments
cash
and
cash
equiva-
lents
receiva-
ables and
liabilities
subsidia-
ries p12
29.0
9.8
1.1
–0.1
42.7
Borrow-
ings
p18
trade
payables
p21
Financial
assets
p8
other
current
receiva-
bles
p13
other
current
liabilities
p20
0.1
0.5
0.8
0.8
–1.1
2007
2006
44.2
29.1
38.5
44.6
0.5 –
SEK billion
assets at fair value
through profit or loss
loans and receivables
available for sale assets
Financial liabilities at
amortized cost
Total
1.1
29.0
9.8
–28.8
–22.3
–71.4
–22.3
–0.6
–0.6
0.6
1.6
–1.1
–10.7
28.8
–94.3
–44.5
130
ericsson annual report 2007
notes to the parent company financial statementsnote P19
fiNaN cial iNStrumeNtS carried at other
thaN fair value
SEK billion
current maturities of
long-term borrowings
notes and bonds
carrying amount
2006
2007
Fair value
2006
2007
2.9
19.4
22,3
–
11.2
11.2
3.1
19.4
22.5
–
11.7
11.7
Financial instruments excluded from the tables, such as trade receiv-
ables and payables, are carried at amortized cost which is deemed to
be equal to fair value. When a market price is not readily available and
there is insignificant interest rate exposure affecting the value, the
carrying value is considered to represent a reasonable estimate of a
fair value.
p20 other current liabilities
2007
2006
7
445
7
306
237
296
818
1,007
1,151
163
202
201
874
411
3,828
2,297
liabilities to associated
companies and joint ventures
accrued interest
accrued expenses, of which
employee related
supplier invoices
not received
Deferred revenues
Derivatives with a negative value
other current liabilities
Total
p21 trade payables
trade payables excluding associated
companies and joint ventures
Total
all trade payables fall due within 90 days.
p22 assets pledged
as collateral
Bank deposits
Total
2007
2006
359
359
277
277
the major item in bank deposits is the internal bank’s clearing and
settlement commitments of seK 229 million (seK 162 million in 2006).
p23 contingent liabilities
Total contingent liabilities
2007
2006
9,650
7,670
contingent liabilities include pension commitments of seK 8,199
million (seK 6,909 million in 2006), and subsidiary companies’ bor-
rowing from financial institutions of seK 18 million (seK 51 million in
2006).
in accordance with standard industry practice, ericsson enters into
commercial contract guarantees related to contracts for the supply of
telecommunication equipment and services. total amount for 2007
was seK 16,312 million (seK 16,027 million in 2006). potential pay-
ments due under these bonds are related to ericsson’s performance
under applicable contracts.
p24 statement of cash Flows
interest paid in 2007 was seK 1,977 million (seK 1,887 million in 2006
and seK 3,215 million in 2005) and interest received was seK 3,066
million (seK 3,123 million in 2006 and seK 3,151 million in 2005).
income taxes paid were seK 559 million (seK 364 million in 2006 and
seK 65 million in 2005).
2007
2006
Major non-cash items in investments are: investments in shares
and other investments of seK 3,214 million in 2005.
626
626
509
509
ericsson annual report 2007
131
notes to the parent company financial statementsnote P20–P24
adjuStmeNtS to recoNcile Net iNcome to caSh
2007
2006
2005
Tangible assets
Depreciation
Total
Intangible assets
amortization
Total
Total depreciation and amortization
on tangible and intangible assets
taxes
Write-downs and capital gains (–)/
losses on sale of fixed assets,
excluding customer financing, net
additions to/withdrawals from (–)
untaxed reserves
unsettled dividends
111
111
389
389
500
756
92
92
310
310
402
825
97
97
22
22
119
516
–1,088
–2,889
–6,643
265
–
88
–
47
–5
Total adjustments to reconcile net
income to cash
433
–1,574
–5,966
p25 leasing
Leasing with the Parent Company as lessee
at December 31, 2007, future payment obligations for leases were
distributed as follows:
2008
2009
2010
2011
2012
2013
2014 and later
operating
leases
1,192
935
817
619
476
946
–
4,985
Leasing with the Parent Company as lessor
at December 31, 2007, future minimum payment receivables were
distributed as follows:
2008
2009
2010
2011
2012
2013 and later
operating
leases
34
9
8
8
–
–
59
the operating lease income is mainly income from sublease of prop-
erty.
p26 tax assessment Values
in sweden
land and land improvements
Total
2007
2006
8
8
11
11
p27 information regarding
employees
average Number of emPloyeeS
Western europe 1) 2)
central and
eastern europe,
Middle east and
africa
Total
2007
2006
Men Women total Men Women total
294
173
313
165
140
129
104
277
9
113
520
17
537
149 426
685
146
831
1) of which sweden 173
2) of which eu
173
140
140
313
313
165
165
129
129
294
294
abSeNce due to illNeSS
percent of working hours
absence due to illness for men
absence due to illness for women
employees 30–49 years old
employees 50 years or older
2007
2006
0%
2%
1%
1%
0%
2%
1%
1%
long-term absence due to illness total 1)
0.5%
0.4%
1) Defined as absence during a consecutive period of time of 60 days or more.
Remuneration
wageS aN d SalarieS aN d Social Securit y exP eNSeS
Wages and salaries
social security expenses
of which pension costs
2007
2006
431
253
139
570
264
187
wageS aN d SalarieS Per geograP hical area
Western europe 1) 2)
central and
eastern europe, Middle
east and africa 2)
Total
2007
2006
315
350
113
428
220
570
1) of which sweden
2) of which eu
remuneration in foreign currency has been translated to seK at average exchange
rates for the year.
315
315
350
350
132
ericsson annual report 2007
notes to the parent company financial statementsnote P24–P27
Compensation policies and remuneration to the Board
of Directors and the President and CEO
see notes to the consolidated Financial statements, note c28 – “in-
formation regarding employees, Members of the Board of Directors
and Management”.
Other related parties
For information regarding the remuneration of management, see note
c29 to the consolidated financial statements, “information regarding
employees, members of the Board of Directors and Management”.
p29 Fees to auditors
Long term incentive plans
The Stock Purchase Plan
compensation costs for all employees of the parent company
amounted to seK 14.5 million in 2007 (seK 17.1 million in 2006).
p28 related party transactions
During 2007, various transactions were executed pursuant to con-
tracts based on terms customary in the industry and negotiated on
an arm’s length basis.
Sony Ericsson Mobile Communications AB (SEMC)
in october 2001, seMc was organized as a joint venture between
sony corporation and ericsson. a substantial portion of ericsson’s
handset operations was sold to seMc. as part of the formation of the
joint venture, contracts were entered into between the parent com-
pany and seMc.
For the parent company, the transactions are royalty and license
fees for seMc’s usage of trademarks and patents and received
dividends.
2007
audit fees
audit related fees
tax services fees
Total
2006
audit fees
audit related fees
tax services fees
other fees
Total
2005
audit fees
audit related fees
tax services fees
Total
price-
waterhouse-
coopers others
Total
37
3
–
40
41
8
1
1
51
21
18
1
40
–
–
–
–
2
–
–
–
2
2
–
–
2
37
3
–
40
43
8
1
1
53
23
18
1
42
Related party transactions
sales
royalty
Dividends
Related party balances
receivables
liabilities
Ericsson Nikola Tesla d.d.
2007
2006
1,202
1,837
3,949
959
519
1,160
871
–
70
1
During the period 2005–2007, in addition to audit services, pricewa-
terhousecoopers provided certain audit related services and tax
services to the parent company. the audit related services include
consultation on financial accounting and services related to acquisi-
tions. the tax services include general tax advice.
KpMG are no longer auditors of the parent company (effective
from the annual General Meeting (aGM) 2007). Fees to KpMG during
the period 2005–2006 are included in others.
ericsson nikola tesla d.d. is a joint stock company for manufacturing
and sales of telecommunications systems and equipment and an
associated member of the ericsson Group. the parent company
holds 49.07 percent of the shares.
For the parent company the transactions are royalty for ericsson
nikola tesla d.d.’s usage of trademarks and received dividends.
Related party transactions
royalty
Dividends
2007
2006
9
267
7
98
ericsson annual report 2007
133
notes to the parent company financial statementsnote P28–P29
auditors’ report
To the Annual General Meeting of the shareholders
annual accounts and the consolidated accounts. as a basis for
of Telefonaktiebolaget LM Ericsson (publ), Corporate
our opinion concerning discharge from liability, we examined
identity number 556016-0680
significant decisions, actions taken and circumstances of the
company in order to be able to determine the liability, if any, to
We have audited the annual accounts, the consolidated
the company of any Board Member or the president and ceo.
accounts, the accounting records and the administration of the
We also examined whether any Board Member or the president
Board of Directors and the president and ceo of telefonaktiebo-
and ceo has, in any other way, acted in contravention of the
laget lM ericsson (publ) for the year 2007. (the company’s
companies act, the annual accounts act or the articles of
annual accounts are included in the printed version on pages
association. We believe that our audit provides a reasonable
26–133). the Board of Directors and the president and ceo are
basis for our opinion set out below.
responsible for these accounts and the administration of the
the annual accounts have been prepared in accordance with
company as well as for the application of the annual accounts
the annual accounts act and give a true and fair view of the
act when preparing the annual accounts and the application of
company’s financial position and results of operations in
international financial reporting standards iFrss as adopted by
accordance with generally accepted accounting principles in
the eu and the annual accounts act when preparing the
sweden. the consolidated accounts have been prepared in
consolidated accounts. our responsibility is to express an
accordance with international financial reporting standards,
opinion on the annual accounts, the consolidated accounts and
iFrss, as adopted by the eu and the annual accounts act and
the administration based on our audit.
give a true and fair view of the group’s financial position and
We conducted our audit in accordance with generally
results of operations. the Board of Directors’ report is consistent
accepted auditing standards in sweden. those standards
with the other parts of the annual accounts and the consolidated
require that we plan and perform the audit to obtain reasonable
accounts.
assurance that the annual accounts and the consolidated
We recommend to the annual general meeting of share holders
accounts are free of material misstatement. an audit includes
that the income statements and balance sheets of the parent
examining, on a test basis, evidence supporting the amounts and
company and the Group be adopted, that the profit of the parent
disclosures in the accounts. an audit also includes assessing the
company be dealt with in accordance with the proposal in the
accounting principles used and their application by the Board of
Board of Directors’ report and that the members of the Board of
Directors and the president and ceo and significant estimates
Directors and the president and ceo be discharged from liability
made by the Board of Directors and the president and ceo when
for the financial year.
preparing the annual accounts and consolidated accounts as
well as evaluating the overall presentation of information in the
stockholm, February 22, 2008
Bo Hjalmarsson
Authorized Public Accountant
PricewaterhouseCoopers AB
Lead Partner
peter clemedtson
Authorized Public Accountant
PricewaterhouseCoopers AB
134
ericsson annual report 2007
auditors’ report
share information
Stock exchange trading
Share price trend
ericsson’s class a and class B shares are traded on oMX
in 2007, ericsson’s total market value decreased by about 45
nordic exchange stockholm and the class B shares are also
percent to approximately seK 245 billion (seK 446 billion in
traded on the london stock exchange.
2006). the oMX sp index on oMX nordic exchange stockholm
in the united states, the class B shares are traded on
decreased by 6 percent, the nasDaQ telecom index increased
nasDaQ in the form of american Depositary shares (aDs)
by approximately 9 percent and the nasDaQ composite index
evidenced by american Depositary receipts (aDr) under the
increased by approximately 10 percent in 2007.
symbol eric. each aDs represents 10 class B shares.
approximately 44 (40) billion shares were traded in 2007, of
which about 83 (88) percent on oMX nordic exchange stock-
holm, about 16 (12) percent on nasDaQ, and less than 1 (1)
percent on the london stock exchange. trading volume in
ericsson shares increased by approximately 3 percent on oMX
nordic exchange stockholm and increased by approximately 51
percent on nasDaQ as compared to 2006.
Share data
earnings per share, diluted (seK) 1)
operating income per share (seK) 1)
cash flow from operating activities per share (seK) 1)
stockholders´ equity per share (seK) 1)
p/e ratio (%), class B shares 1)
Dividend per share (seK) 2)
1)For 2004 restated in accordance with iFrs.
2)For 2007 as proposed by the Board of Directors.
2007
2006
2005
2004
1.37
1.90
1.19
8.44
11
0.50
1.65
2.22
1.15
7.56
17
0.50
1.53
2.05
1.03
6.41
18
0.45
1.11
1.66
1.39
5.08
19
0.25
2003
–0.69
–0.70
1.42
3.82
–
0
Share trend, omx nordic exchange Stockholm,
Share turnover 2007 (million ShareS)
2005 –2007 (Sek)
40
35
30
25
20
15
10
2005
2006
2007
source: Findata Direkt
B share, SEK
OMX SP Index
8,000
6,000
4,000
2,000
0
nasDaQ
oMX nordic exchange stockholm
Jan Feb Mar apr May Jun
Jul aug sep oct nov Dec
ericsson annual report 2007
135
share information
Share priceS on omx nordic exchange Stockholm
(SEK)
class a at last day of trading
class a high for year (Jan 17, 2007)
class a low for year (november 21, 2007)
class B at last day of trading
class B high for year (Jan 17, 2007)
class B low for year (november 21, 2007)
2007
15.36
29.70
14.60
15.18
29.90
14.53
2006
27.60
30.90
20.90
27.65
31.00
20.90
2005
27.50
28.70
19.80
27.30
29.00
19.40
2004
21.70
26.10
14.00
21.20
24.50
12.70
2003
13.90
16.80
5.55
12.90
14.60
4.11
Offer and listing details on OMX Nordic Exchange
Stockholm and NASDAQ
foreign markets, and foreign buyers and sellers purchasing
shares from or selling shares to swedish institutions.
Principal trading market – OMX Nordic Exchange
oMX nordic exchange stockholm publishes a daily official
Stockholm share prices
price list of shares which includes the volume of recorded
transactions in each listed stock, together with the prices of the
the tables above and below state the high and low sales prices
highest and lowest recorded trades of the day. the official price
for our class a and class B shares as reported by oMX nordic
list of shares reflects price and volume information for trades
exchange stockholm for the last five years. the equity securities
completed by the members.
listed on the oMX nordic exchange stockholm official price list
of shares currently comprise the shares of 274 companies.
Host market NASDAQ ADS Prices
trading on the exchange generally continues until 5:30 p.m.
the table below states the high and low sales prices quoted for
(cet) each business day. in addition to official trading on the
our aDss on nasDaQ for the last five years. the nasDaQ
exchange, there is also trading off the exchange during official
quotations represent prices between dealers, not including retail
trading hours and also after 5:30 p.m. (cet). trading on the
mark-ups, markdowns or commissions, and do not necessarily
exchange tends to involve a higher percentage of retail clients,
represent actual transactions.
while trading off the exchange often involves larger swedish
the annual high and low market prices on these markets are
institutions, banks arbitraging between the swedish market and
shown in the table “annual high and low market prices” below.
annual high and low market price S
period
2003
2004
2005
2006
2007
1)one aDs = 10 class B shares.
oMX nordic exchange stockholm
seK per class a share
low
High
seK per class B share
low
High
16.80
26.10
28.70
30.90
29.70
5.55
14.00
19.80
20.90
14.60
14.60
24.50
29.00
31.00
29.90
4.11
12.70
19.40
20.90
14.53
nasDaQ
usD per aDs 1)
low
5.20
17.93
27.78
28.88
22.23
High
18.85
34.57
37.19
41.14
43.41
136
ericsson annual report 2007
share information
the table below states the high and low sales prices for each quarter of 2006 and 2007.
Quarterly high and low market priceS
period
2006
First Quarter
second Quarter
third Quarter
Fourth Quarter
2007
First Quarter
second Quarter
third Quarter
Fourth Quarter
1)one aDs = 10 class B shares
oMX nordic exchange stockholm
seK per class a share
low
High
seK per class B share
low
High
nasDaQ
usD per aDs 1)
low
High
30.90
29.90
25.70
28.45
29.70
27.86
28.40
26.80
25.80
20.90
21.00
24.80
23.95
24.85
23.54
14.60
31.00
30.00
25.80
28.60
29.90
28.06
28.74
27.04
25.60
20.90
20.90
24.85
23.80
25.00
23.64
14.53
39.37
39.28
35.35
41.14
42.13
40.52
43.41
41.96
33.63
28.88
29.13
33.95
33.94
36.10
33.66
22.23
the table below states the high and low sales prices for each of the last six months (august 2007 to January 2008).
monthly high and low market priceS
period
august 2007
september 2007
october 2007
november 2007
December 2007
January 2008
1)one aDs = 10 class B shares
Share capital
oMX nordic exchange stockholm
seK per class a share
low
High
seK per class B share
low
High
26.10
26.84
26.80
19.46
16.68
15.90
23.54
24.20
18.30
14.60
14.95
13.60
26.26
27.00
27.04
19.48
16.56
15.78
23.64
24.38
18.20
14.53
14.77
13.40
nasDaQ
usD per aDs 1)
low
33.66
35.94
28.22
23.00
22.23
20.37
High
38.92
40.79
41.96
30.55
25.75
24.56
vote, and 14,823,478,760 (14,823,478,760) class B shares, each
as of December 31, 2007, ericsson’s share capital was seK
carrying one-tenth of one vote. as of December 31, 2007,
16,132,258,678 (16,132,258,678) represented by 16,132,258,678
ericsson held 231,991,543 class B shares as treasury shares.
(16,132,258,678) shares. the par value of each share is seK 1.00.
there have been no share repurchases by ericsson during
as of December 31, 2007, the shares were divided into
2007.
1,308,779,918 (1,308,779,918) class a shares, each carrying one
changeS in number of ShareS and capital Stock 2003 –2007
2003 new issue (class c shares, later converted to class B)
2003 December 31
2004 December 31 (no changes)
2005 December 31 (no changes)
2006 December 31 (no changes)
number of shares
capital stock
158,000,000
16,132,258,678
16,132,258,678
16,132,258,678
16,132,258,678
158,000,000
16,132,258,678
16,132,258,678
16,132,258,678
16,132,258,678
2007 December 31 (no changes)
16,132,258,678
16,132,258,678
ericsson annual report 2007
137
share information
Shareholders
ten largeSt countrieS of ownerShip
as of December 31, 2007, we had 760,949 shareholders
registered at Vpc aB (the swedish securities register center), of
which 1,517 holders with a us address. according to information
provided by citibank, there were 144,025,238 aDss outstanding
as of December 31, 2007, and 5,461 registered holders of such
aDss. a significant number of the aDss are held of record by
banks, brokers and/or nominees for the accounts of their
customers. as of December 31, 2007, banks, brokers and/or
nominees held aDss on behalf of 300,568 accounts.
according to information known at year-end 2007, approxi-
mately 80 percent of our class a and class B shares were
percent of capital
sweden
united states
united Kingdom
luxembourg
switzerland
France
netherlands
Denmark
norway
Belgium
other countries
owned by institutions, swedish and international.
source: sis Ägarservice aB
the following table sets forth share information, as of December
31, 2007, with respect to our largest shareholders registered at
Vpc aB and known by us, ranked by percentage of voting rights:
largeSt ShareholderS by voting rightS december 31, 2007
as of December 31,
2006
2007
46.1%
32.3%
6.7%
3.9%
1.9%
1.3%
1.1%
1.0%
0.7% –
0.5%
4.5%
50.0%
27.1%
6.8%
3.9%
1.9%
1.4%
1.1%
0.9%
1.3%
5.6%
Identity of person or group 1)
investor
aB industrivärden
sHB pensionsstiftelse
livförs,aB skandia
pensionskassan sHB Förs.fören,
swedbank robur fonder
sHB/spp fonder
seB trygg Försäkring
alecta
aMF pension
tredje ap-fonden
seB fonder
sHB personalstiftelse
Första ap-fonden
nordea fonder
Fjärde ap-fonden
oktogonen
andra ap-fonden
number of
class a shares
513,320,192
372,000,000
83,903,000
71,440,966
63,360,000
7,435,973
12,045
23,224,095
19,509,672
4,763,682
12,345,095
2,673,549
20,000,000
7,472,938
1,498,674
2,519,655
12,903,000
percentage
of total
class a shares
39.22
28.42
6.41
5.46
4.84
0.57
0.01
1.77
1.49
0.36
0.94
0.20
1.53
0.57
0.11
0.19
0.99
number of
class B shares
307,073,324
10,000,000
percentage
of total
class B shares
2.07
0.07
54,499,272
391,698,721
302,112,446
57,165,000
63,228,420
201,000,000
112,984,743
192,175,139
120,898,211
140,903,485
124,115,522
124,137,880
0.37
2.64
2.04
0.39
0.43
1.36
0.76
1.30
0.82
0.95
0.84
0.84
Voting rights
percent
19.49
13.36
3.01
2.75
2.27
1.67
1.08
1.04
0.93
0.89
0.85
0.78
0.72
0.70
0.56
0.53
0.46
0.44
percentage
of capital
5.09
2.37
0.52
0.78
0.39
2.47
1.87
0.50
0.51
1.28
0.78
1.21
0.12
0.80
0.88
0.78
0.08
0.77
Foreign owners 2)
14,939,320
1.14
8,676,142,384
58.53
31.62
53.87
of which:
Brandes investment partners, l.l.c.
oppenheimer Funds inc.
Baillie Gifford & co. ltd.
Barclays
Fidelity
481,616,029
439,521,640
191,885,219
188,349,187
136,740,145
others
Total
1) sources: sis Ägarservice aB and Vpc aB, December 31, 2007 and capital precision, December 2007.
2) including nats cumco as nominee: 1 403 970 581 class B shares.
3,945,344,213
100% 14,823,478,760
75,458,062
1,308,779,918
5.78
3.25
2.97
1.29
1.27
0.92
26.59
100%
1.73
1.57
0.69
0.67
0.49
16.85
100%
2.99
2.72
1.19
1.17
0.85
24.93
100%
138
ericsson annual report 2007
share information
the following table indicates changes in holdings of the class a
and class B shares, respectively, held by major shareholders and
percent of voting rights, as of December 31, 2005, 2006 and
2007.
Person or group (percent)
investor aB
aB industrivärden
svenska Handelsbankens pensionsstiftelse
livförsäkrings aB skandia
pensionskassan sHB Försäkringsförening
swedbank robur Fonder
sHB/spp Fonder
seB trygg Försäkring
alecta
aMF pension
tredje ap-fonden
seB fonder
svenska Handelsbankens personalstiftelse
Första ap-fonden
nordea Fonder
Fjärde ap-fonden
oktogonen
andra ap-fonden
Foreign owners
of which:
Brandes investment partners, l.l.c.
oppenheimer Funds inc.
Baillie Gifford & co. ltd.
Barclays
Fidelity
class a
shares
39.22
28.42
6.41
5.46
4.84
0.57
0.01
1.77
1.49
0.36
0.94
0.20
1.53
0.57
0.11
0.19
0.99
–
2007
class B
shares
2.07
0.07
–
0.37
–
2.64
2.04
0.39
0.43
1.36
0.76
1.30
–
0.82
0.95
0.84
–
0.84
Voting
rights
19.49
13.36
3.01
2.75
2.27
1.67
1.08
1.04
0.93
0.89
0.85
0.78
0.72
0.70
0.56
0.53
0.46
0.44
class a
shares
39.22
28.42
6.41
4.87
4.84
0.57
0.07
1.76
1.53
0.36
0.94
0.24
1.52
0.57
0.15
0.21
1.00
–
2006
class B
shares
2.00
0.03
–
0.47
–
2.72
1.87
0.35
1.62
1.70
0.81
1.26
–
1.07
1.29
0.88
–
1.01
Voting
rights
19.46
13.35
3.01
2.54
2.27
1.71
0.99
1.01
1.58
1.07
0.87
0.77
0.72
0.83
0.75
0.57
0.46
0.53
class a
shares
39.22
28.42
6.41
4.51
4.84
0.57
0.05
2.13
1.05
0.36
0.91
0.27
1.53
0.57
0.20
0.22
–
0.10
2005
class B
shares
2.00
0.03
–
0.55
–
2.54
2.13
0.39
2.50
1.81
1.02
1.28
–
1.13
1.67
1.41
–
1.17
Voting
rights
19.46
13.35
3.01
2.40
2.27
1.62
1.15
1.21
1.82
1.13
0.97
0.81
0.72
0.87
0.98
0.85
–
0.67
1.14
58.53
31.62
1.44
54.34
29.53
1.24
49.86
27.06
–
–
–
–
–
3.25
2.97
1.29
1.27
0.92
1.73
1.57
0.69
0.67
0.49
–
–
–
0.02
–
–
5.88
100
–
2.25
–
2.00
1.72
–
28.58
100
–
1.20
–
1.05
0.91
–
17.98
100
–
–
–
–
–
–
7.40
100
–
–
–
–
2.29
–
29.56
100
–
–
–
–
1.22
–
19.17
100
others
Total
source: sis Ägarservice aB and Vpc aB, December 31, 2007, and capital precision, December 2007.
26.59
100
16.85
100
5.78
100
our major shareholders do not have different voting rights than
as of December 31, 2007, the total number of voting securities of
other shareholders holding the same classes of shares.
the company owned by top executives and directors as a group
as far as we know, the company is not directly or indirectly
was:
owned or controlled by another corporation, by any foreign
government or by any other natural or legal person(s) severally or
Voting
number of number of
class B
rights,
shares percent
class a
shares
jointly.
top executives and directors
as a group (26 persons)
6,080 18,666,584
0.07
For individual holdings, see “corporate Governance report”.
ericsson annual report 2007
139
share information
shareholder information
the annual General Meeting of sharehold-
the shareholder into the share register as
annual reports and other financial reports
ers will take place at the annex to the
of thursday, april 3, 2008, to be entitled
can be downloaded or ordered on our
Globe arena, Globentorget, stockholm, at
to participate at the annual General
web site: www.ericsson.com/investors or
3.00 p.m. on Wednesday, april 9, 2008.
Meeting of shareholders. the shareholder
ordered via e-mail or mail.
Entitled to attend and notice
of attendance
is requested to inform the nominee well
before that day.
shareholders, who wish to attend the
Proxy
For printed publications, contact:
strömberg Distribution i Huddinge aB
se – 120 88 stockholm, sweden
annual General Meeting of shareholders,
shareholders represented by proxy shall
phone: +46 8 449 89 57
must
• have been entered into the share
issue a power of attorney for the repre-
e-mail: ericsson@strd.se
sentative. to a power of attorney issued
register kept by Vpc aB (the swedish
by a legal entity, a copy of the certificate
in the united states, ericsson’s transfer
securities register centre) as of
of registration (or, if no such certificate
agent citibank:
thursday, april 3, 2008; and
• give notice of attendance to the
exists, a corresponding document of
citibank shareholder services
authority) of the legal entity shall be
registered holders: +1 877 881 5969
company at the latest on thursday,
attached. the documents must not be
interested investors: +1 800 808 8010
april 3, 2008, at the company’s web
older than one year. in order to facilitate
e-mail: ericsson@shareholders-online.
site
the registration at the annual General
com
www.ericsson.com,
Meeting, the power of attorney in its
www.citibank.com/adr
at telephone no.: +46 8 775 01 99
original, certificates of registration and
weekdays
other documents of authority should be
ordering a hard copy of the annual
between 10 a.m. and 4 p.m. or
sent to the company at the address
report:
at fax no.: +46 8 775 80 18.
above so as to be available by tuesday,
http://www.sccorp.com/annualreport/
notice of attendance may also be given by
mail to:
april 8, 2008.
Dividend
ericsson.htm
phone toll free: +1 866 216 0460
telefonaktiebolaget lM ericsson,
the Board of Directors has decided to
Contact information:
Group Function legal affairs,
propose the annual General Meeting of
investor relations for europe, Middle
Box 47021, 100 74 stockholm, sweden
shareholders to resolve on a dividend of
east, africa and asiapacific:
seK 0.50 per share for the year 2007 and
telefonaktiebolaget lM ericsson
When giving notice of attendance, please
Monday, april 14, 2008 as record day for
se-164 83 stockholm, sweden
state name, date of birth, address,
dividend.
telephone no. and number of assistants.
the personal data that ericsson receives
with the notice of attendance will be
computer processed for the purpose of
Financial information from Ericsson
• interim reports 2008:
april 25, 2008 (Q1)
the annual General Meeting of sharehold-
July 22, 2008 (Q2)
ers 2008 only.
Shares registered in the name
of a nominee
october 24, 2008 (Q3)
January 29 , 2009 (Q4)
• annual report 2008: March, 2009
• Form 20-F for the us market 2008:
telephone: +46 8 719 00 00
e-mail: investor.relations.se@ericsson.
com
investor relations for the americas:
ericsson
the Grace Building
1114 ave of the americas, suite #3410
new York, nY 10036, usa
telephone: +1 212 685 4030
shareholders, whose shares are regis-
During Q2, 2009
e-mail: investor.relations@ericsson.com
tered in the name of a nominee, must
request the nominee to enter temporarily
140
ericsson annual report 2007
shareholder information
remuneration
this chapter outlines how we implement our remuneration policy
and its other members are nancy McKinstry, Börje ekholm and
in line with corporate governance best practice throughout
Monica Bergström, all of whom are non-executive directors and
ericsson, with specific references to senior management. Details
independent as required by the swedish code of corporate
of senior management remuneration and Board Directors’ fees
Governance. the chairman continues to ensure that the
can be found in the notes to the consolidated Financial state-
company maintains contact, as necessary, with its principal
ments, note c29: “information regarding employees, Members
shareholders on the subject of remuneration.
of the Board of Directors and Management”. the company is
the company’s General counsel acts as secretary to the
required to submit the formal remuneration policy for senior
committee and the ceo, the senior Vice president Human
management for shareholder approval at the annual General
resources & organization and the Vice president compensation
Meeting and the appropriate resolution for 2008, which remains
& Benefits attend the remuneration committee meetings by
materially the same as the 2007 policy, together with resolutions
invitation and assist the committee in its considerations, except
relating to the company’s long-term variable remuneration plans
when issues relating to their own remuneration are being
are set out in the notice of annual General Meeting on ericsson’s
discussed or decided.
website (www.ericsson.com). the auditors’ opinion on how we
the remuneration committee has appointed an independent
have followed our policy during 2007 is also posted on the
expert advisor, Gerrit aronson, to assist and advice the commit-
website.
Clear controls
tee. Gerrit aronson provided no other services to the company
during 2007. the remuneration committee is also provided with
national and international pay data collected from external survey
remuneration processes by the nature of their sensitivity require
providers and can call on other independent expertise should it
clear controls. Within ericsson these controls are based on three
so require.
pillars: Board of Directors and remuneration committee
authorization, audit controls and our internal system that requires
Remuneration Policy
two levels of managers to approve any remuneration decision. in
remuneration at ericsson is based on the principles of perfor-
addition, the annual General Meeting approves the terms of our
mance, competitiveness and fairness. Different remuneration ele-
long-term variable remuneration plans and the remuneration
ments are designed to reflect these principles. therefore a mix of
policy for the senior management comprising the Group
several remuneration elements is applied in order to reflect the
Management team, including the ceo, hereafter referred to as
remuneration principles in a balanced way.
“Group Management.”
The Remuneration Committee
the remuneration policy and the remuneration committee’s
terms of reference for subsequent years will be reviewed annually
in light of matters such as changes to corporate governance best
the remuneration committee advises the Board of Directors on
practice or changes to accounting, legislation, political opinion or
an ongoing basis on the remuneration of Group Management,
business practices among peers. this will help to ensure that the
including fixed salaries, pensions, other benefits and short-term
policy continues to provide ericsson with a competitive remu-
and long-term variable remuneration. the remuneration
neration strategy and, in accordance with swedish law, the policy
committee also approves variable remuneration outcomes,
will be brought to shareholders annually for approval.
prepares remuneration related proposals for Board and share-
holder approval and develops and monitors the remuneration
Fixed Salary
policy, strategies and general guidelines for employee remunera-
Fixed salaries are set to be competitive, taking account of global
tion. the committee is sensitive to pay and employment
remuneration practices together with an individual’s home
conditions throughout the company when dealing with Group
market. the absolute levels are determined by the size and
Management remuneration. the purpose and function of the
complexity of the job and the year-to-year performance of the
committee will continue going forward and its terms of reference
individual jobholder. Group Management salaries are, together
can be found on our website.
with other elements of remuneration, subject to an annual review
the remuneration committee is chaired by Michael treschow
by the remuneration committee, which considers external pay
ericsson annual report 2007
141
remuneration data to ensure that levels of pay remain competitive and
overall remuneration of the individual. in 2006 ericsson enjoyed
appropriate in light of the company’s remuneration policy. When
one of several years of outstanding performance with short-term
setting fixed salaries the remuneration committee considers the
variable remuneration paying out at or near the maximum
impact on total remuneration, including pension contributions
opportunity for Group Management. During 2007, our profitability
and associated costs.
did not develop to expectations and, as a result, payments will
Variable Remuneration and Performance
generally be significantly lower.
at ericsson we strongly believe that, where possible, we should
Long-Term Variable Remuneration
encourage variable remuneration throughout the company as we
share based long-term variable remuneration plans are submit-
believe it reinforces performance, enables businesses to have
ted each year for approval by shareholders at the annual General
more flexible pay-roll costs and supports employee alignment to
Meeting. For Group Management the payout is determined by
clear targets.
three specific variables: the individual’s own investment in
performance is specifically reflected in the variable remunera-
shares, a long-term financial target at group level and the share
tion – both in an annual variable component and in a long-term
price development.
variable part. although this may vary over time to take account of
all long-term variable remuneration plans are designed to form
pay trends, currently the target level of the short-term variable
part of a well balanced total remuneration. ericsson has no
remuneration for Group Management is between 30 and 40
formal guidelines for equity ownership but the long-term variable
percent of the fixed salary, but outcomes can vary between zero
remuneration facilitates that Group Management and a large
and twice the target opportunity. the long-term variable
proportion of ericsson’s employees build up a significant
remuneration is set to achieve a target of around 30 percent of
personal ownership in the company’s stock over time. this is
the fixed salary. in both cases the variable pay is measured
achieved through a combination of personal investment and
against the achievement of specific business objectives,
stock-based remuneration made up of three different but linked
reflecting the judgment of the Board of Directors as to the right
plans: the stock purchase plan, the Key contributor retention
balance between fixed and variable pay and the market practice
plan and the executive performance share plan.
for remuneration of executives. all variable remuneration plans
have maximum award and vesting limits.
The Stock Purchase Plan
Short-Term Variable Remuneration
the stock purchase plan is designed to offer, where practicable,
an incentive for all employees to participate in the company,
the annual variable remuneration is through cash-based
which is consistent with industry practice and with our ways of
programs, with specific business targets derived from the annual
working. under the plans, employees can save up to 7.5 percent
business plan approved by the Board of Directors. the exact
(ceo 9 percent) of gross fixed salary for purchase of class B
nature of the targets will vary depending on the specific job but
shares at market price on the oMX nordic exchange stockholm
for Group Management may include financial targets at either
or aDss at nasDaQ (contribution shares) during a twelve-month
corporate level or at a specific business unit level, operational
period. if the contribution shares are retained by the employee for
targets, employee motivation targets and customer satisfaction
three years after the investment and employment with the
targets.
ericsson Group continues during that time, the employee’s
We operate global short-term variable plans for management
shares will be matched with a corresponding number of class B
and for sales professionals and these plans are adopted to local
shares or aDss free of consideration. employees in 88 countries
requirements. the Board of Directors and the remuneration
participate in the plan and in november 2007 the number of
committee decide on all ericsson Group targets, which are then
participants was 19,000 or approximately 26 percent of employ-
cascaded to unit-related targets, all subject to the two level
ees.
management approval process. the remuneration committee
participants save each month, beginning with august payroll,
monitors the appropriateness of the target levels throughout the
towards quarterly investments. these investments (in november,
year and has the authority to revise them should they not remain
February, May and august) are matched on the third anniversary
relevant, stretching and/or enhance shareholder value. employ-
of each such investment and hence the matching spans over two
ees not covered by global short-term variable plans may be
financial years and two tax years.
eligible for local plans, which vary in design according to local
competitive practice. performance has a significant effect on the
142
ericsson annual report 2007
remuneration The Key Contributor Retention Plan
2007 Evaluation of Long-Term Variable Remuneration
the Key contributor retention plan is designed to give recogni-
During 2007, the remuneration committee undertook an
tion for performance and potential as well as encourage retention
evaluation of the company’s long-term variable remuneration
of key employees. under the program up to 10 percent of
plans under the leadership of its independent advisor Gerrit
employees are selected through a nominations process that
aronson. a number of third-party providers assisted the
identifies individuals according to performance, critical skills and
company in surveying and analyzing the participant populations
potential. participants obtain one extra matching share in
of the stock purchase plan, the Key contributor retention plan
addition to the one matching share for each contribution share
and the executive performance stock plan. the evaluation
purchased under the stock purchase plan during a twelve-
looked at how well the plans adhere to original principles, testing
month program period. the plan was introduced in 2004 and has
key features, auditing administration and scrutinizing outcomes
been repeated 2005, 2006 and 2007.
and costs.
the objectives of the stock purchase plan of providing an
The Executive Performance Stock Plan
investment opportunity for all of ericsson’s employees and thus
the executive performance stock plan was introduced in 2004
reinforcing a “one ericsson” aligned with shareholder interests
and has been repeated 2005, 2006 and 2007. the plan is
were shown to have been successful. over a quarter of all
designed to focus management on driving earnings and provide
employees world-wide invest in contribution shares; participation
competitive remuneration. senior executives, including Group
currently being as high as 45 percent in sweden and with north
Management, are selected to obtain up to four or six extra shares
america not far behind. in a survey of our employees, the two
(performance matching shares) in addition to the one matching
most prominent reasons for participation were attractiveness of
share for each contribution share purchased under the stock
investment and “the importance to view ericsson from a
purchase plan. For the 2006 and 2007 programs, the ceo is
shareholder perspective.” of those surveyed who participate in
allowed to invest up to 9 percent of fixed salary in contribution
the plan the majority agreed or strongly agreed that the plan
shares and may obtain up to eight performance matching shares
aligns participants’ interests with those of shareholders, as did a
in addition to the stock purchase plan matching share for each
significant proportion of non-participants.
contribution share. the performance matching is subject to the
the nomination process for the Key contributor retention plan
fulfillment of an earnings per share (eps) performance target.
was audited and found to be robust. During the period 2004 to
the past and continued use of average annual eps growth
2007, just over half of those nominated had been nominated
relative to challenging and stretching targets as a performance
once only. the objectives of the plan of retaining key contributors
measure reflects the company’s ongoing strategy of adding
by recognizing performance together with critical skills and
shareholder value through the long-term improvement of
potential were also shown to have been met. surveying individu-
profitability. Furthermore, the use of a constant and key financial
als nominated for the plan and their managers, both managers
performance measure alongside the inherent share price focus
and nominees recognized performance and future potential as
of the co-investment principle ensures close alignment with the
the two key reasons for nominations. of participating nominees,
long-term interests of shareholders whilst providing clear,
most agreed or strongly agreed that this plan has increased
transparent and continuous line-of-sight for participants. the
loyalty to ericsson.
remuneration committee has been satisfied that the present
the executive performance stock plan is well supported by
approach remains preferable to other measures, including those
participants and outcomes follow performance and share price.
that reflect relative performance, but alternative measures are
Viewed against a swedish peer group the plan is competitive,
considered on an ongoing basis.
however, against ericsson’s global competitors the plan provides
the performance targets are not capable of being retested
earnings opportunities towards the lower end of the scale.
after the end of the three-year performance period. if the
overall the cost and share usage of the programs have been
minimum required performance is not achieved, all matching
modest in comparison with most practices around the world. the
shares subject to performance will lapse. the Board may also
dilution from all three plans for 2004, 2005 and 2006 is estimated
reduce the number of performance matching shares, if deemed
to come out at less than 0.2 percent per year of award with the
appropriate, considering the company’s financial results and
cost below 3 percent of total remuneration costs.
position, conditions on the stock market and other circumstanc-
the conclusions drawn from the extensive research were that
es at the time of matching.
the current plans are very effective and achieve their objectives
with a positive impact on the business that we believe by far
ericsson annual report 2007
143
remuneration outweighs the costs. it is therefore the Board of Directors’
intention to repeat the stock purchase plan, as well as the Key
contributor retention plan and the executive performance stock
plan in 2008, subject to approval from shareholders.
2001 and 2002 Stock Option Plans
three grants of stock options were made in 2001 and 2002 that
had vested but not expired as of 31 December 2007. For further
details please see note c29: “information regarding employees,
Members of the Board of Directors and Management”.
Pensions and benefits
pension benefits follow the competitive practice in the employ-
ee’s home country and in addition to any national system for
social security, pension benefits may contain various supplemen-
tary company plans. the basic principle is that other benefits,
such as company car and medical schemes, shall also be
competitive in the local market.
144
ericsson annual report 2007
remuneration information on the company
History and development
2007
Fiber access and VDsl, along with iptV in broadband
our origins date back to 1876 when lars Magnus ericsson
networks
opened a small workshop in stockholm to repair telegraph
instruments. that same year in the united states, alexander
Long-term goals and business strategy
Graham Bell filed a patent application for the telephone. lars
our ultimate goal is for the company to generate growth and a
Magnus ericsson soon recognized the great potential of
healthy profit that is sustainable over the longer term. ericsson’s
voice-based telecommunications and realized that the technol-
strategy is to be the preferred business partner to our customers,
ogy could be improved. He started to develop and sell his own
especially to the world’s leading network operators. in order to
telephone equipment and within a few years reached an
succeed with this, we strive to be the market and technology
agreement to supply telephones and switchboards to sweden’s
leader by offering superior end-to-end solutions, mainly related to
first telecom operator. stockholm soon had the highest tele-
network infrastructure, related professional services and
phone density in the world.
multimedia.
today, ericsson is a leading provider of telecommunications
We are a major supplier to most of the world’s leading mobile
equipment and related services to operators of mobile and fixed
operators and many of the world’s leading fixed-line operators.
networks worldwide. over 1,000 networks in more than 175
We believe that our ability to offer end-to-end solutions – systems,
countries utilize our equipment and we are one of the few compa-
applications, services and core handset technology – together
nies worldwide that support end-to-end solutions for all major
with our in-depth knowledge of consumer requirements, make us
mobile communication standards.
well positioned to assist network operators with their network
We invest heavily in r&D and actively promote standardization
and open systems. as a result, we have a long history of
innovation and pioneering of future technologies for more
efficient and higher quality telecommunications.
development and operations.
• We are a market leader in GsM and WcDMa/Hspa network
equipment and in systems integration and managed services.
• We are growing in the area of wireline broadband networks, in
also reflecting our ongoing commitment to technology leader-
metro ethernet solutions and in optical transport.
ship, we have one of the industry’s most comprehensive intellec-
• We are a provider of multimedia solutions for both wireless and
tual property portfolios containing approximately 23,000 patents.
wireline operators.
Technical milestones
1878
telegraph to telephone
1923 Manual switching to automatic switching
1956
First mobile phone system
1968
electro-mechanical to computer control
our strategy is to:
• excel in network infrastructure;
• expand in services;
• establish a position in multimedia solutions
in order to make people’s lives easier and richer, provide afford-
1978
analog switching to digital switching
able communication for all and enable new ways for companies to
1981
Fixed communications to mobile communications
do business. this is performed with operational excellence in
1991
1G analog to 2G digital mobile technology
everything we do as a base.
1998
integration of voice and data in mobile networks
1999 narrowband circuit to broadband packet switching
Innovation for technology leadership
1999
introduction of fixed telephony softswitch
innovation is an important element of our corporate culture and is
2001
2G narrowband to 3G wideband mobile technology
key to our competitiveness and future success.
2003
introduction of mobile softswitch
We have a long tradition of developing innovative communica-
2004 Mass commercial launch of WcDMa (3G) networks in
tion technologies, including technologies that form the base for
Western europe
industry standards. By early involvement in creating new
2005 commercial launch of HsDpa mobile broadband
standards and technologies we are often first to market with new
networks in north america
solutions – a distinct competitive advantage.
2006
Global commercial launches of Hspa mobile broad-
ericsson has earned a reputation for innovation and technology
band networks
ericsson annual report 2007
145
information on the company
leadership by developing open standards and bringing reliable,
Intellectual property rights (IPR) and licensing
cost-effective network solutions to market. We helped pioneer the
through many years of involvement in the development of new
development of industry-wide mobile technologies such as GsM,
technologies, we have built up a considerable portfolio of
Gprs, eDGe, 3G/WcDMa/Hspa, and Bluetooth. the GsM
intellectual property rights (ipr) relating to telecommunications
family (GsM and WcDMa) now connect more than 80 percent of
technologies. as of December 31, 2007, we held approx. 23,000
the world’s mobile subscribers. ericsson holds a leading position
(22,000) patents worldwide, including patents essential to the
in standardization and trials of the next major wireless technology,
standards GsM, Gprs, eDGe, WcDMa, Hspa, MBMs,
long-term evolution (lte).
tD-scDMa, cdma2000, WiMaX and next-generation oFDM/
Within our ambitious r&D program, we have approximately
lte. We also hold essential patents for many other areas, e.g
19,300 (17,100) employees in 17 (17) countries worldwide and we
Voice-over-ip, atM, Wap, Bluetooth, sDH, sonet and WDM.
spent seK 29 billion or 15 percent of sales on research and
our intellectual property rights are valuable business assets.
development during 2007.
We license these rights to many other companies including
the vast majority of our r&D is invested in product develop-
infrastructure equipment suppliers, embedded module suppliers,
ment of which the majority in mobile communications network
handset suppliers and mobile applications developers, in return
infrastructure. We have continued to invest in strategically
for royalty payments and/or access to additional intellectual
important areas of broadband access, converged networks,
property rights. in addition, we acquire rights via licenses to
service layer, ip technology and multimedia.
utilize intellectual property rights of third parties. We also believe
World-class innovations are achieved also through cooperation
that we have access to all related patents that are material to our
with a variety of partners including customers, universities and
business in part or in whole.
research institutes. standardization bodies establish the stan-
For more information, see “risk Factors – strategic and
dards that lead the industry, and ericsson is a leading player in all
operational risks”.
major standardization organizations.
For more information regarding product and technology
Addressing key operator needs
development, please see “risk Factors – strategic and opera-
We will continue to devote significant resources to develop
tional risks” and “Board of Directors’ report – research and
end-to-end communications solutions that will stimulate
Development”.
network deployments for geographic coverage as well as traffic
General facts on the company
Legal name: telefonaktiebolaget lM ericsson (publ)
6300 legacy Drive, plano, texas 75024. telephone number
Organization number: 556016-0680
+1 972 583 0000.
Legal form of the Company: a swedish limited liability
Shares: our class a and class B shares are traded on oMX
company organized under the swedish companies act. the
nordic exchange stockholm. our class B shares are also traded
terms “ericsson”, “the company”, “the Group”, “us”, “we”, “our”
on the london stock exchange (lse).
all refer to telefonaktiebolaget lM ericsson and its subsidiaries.
in the united states, our american depository shares (aDs), each
Country of incorporation: sweden. the company was
representing 10 underlying class B shares, are traded on
incorporated on august 18, 1918, as a result of a merger between
nasDaQ.
aB lM ericsson & co. and stockholms allmänna telefon aB.
Parent Company operations: the business of the parent
Domicile: our registered address is telefonaktiebolaget lM
company, telefonaktiebolaget lM ericsson, consists mainly of
ericsson, se–164 83 stockholm, sweden. our headquarters are
corporate management, holding company functions and internal
located at torshamnsgatan 23, Kista, sweden.
banking activities. parent company operations also include
our telephone number is +46 8 719 0000.
customer credit management activities performed by ericsson
our web site is www.ericsson.com. please note that information
credit aB on a commission basis.
on our web site does not form part of this document.
Subsidiaries and associated companies: For a listing of our
Agent in the US: ericsson inc., Vice president legal affairs,
significant subsidiaries, please see notes to the parent company
146
ericsson annual report 2007
information on the company capacity and thereby drive demand for our products and
the use of wireless broadband for fixed and mobile use is
services.
growing rapidly. ericsson provides both cost effective infrastruc-
We believe that the migration of voice, messaging and video
ture solutions and laptop embedded modules for eDGe/Hspa to
services into ip-based multimedia services common to both
satisfy this growing demand.
wireless and wireline access networks is the primary technologi-
By successfully addressing three key operator needs:
cal shift facing operators today.
modernization and expansion of access networks; introduction of
Many of the world’s leading operators are beginning to
ip-based revenue generating services; and cost-efficient rollout
converge their mobile and fixed networks into one. Wireline
of high capacity broadband networks with service differentiation,
operators are moving from single-service networks toward
we continuously secure strong market positions in voice over
broadband packet-switched multi-service networks that have the
packet, soft switching and public ethernet access.
ability to simultaneously handle multiple services, such as voice,
data and images. Migration to an all-ip-based packet-switched
Expanding Professional Services
network is a necessary step in order to combine broadband
network operators are reducing operating expenses by optimiz-
internet, voice and image traffic into one broadband network.
ing the operation and maintenance of their networks. as a result,
For consumers this means a richer experience with easier access
many network operators are increasingly outsourcing for example
to a wide range of applications and content on any device. For
their network design, operations and maintenance activities.
operators it means reduced costs and shorter time to market
When outsourcing, operators can reduce cost of operations
with new services.
and gain flexibility in resources and time to market – all with an
our solution for such multi-service networks utilizes an
assured quality of service.
iMs-based multi-service environment, intelligent edge routers,
the combination of our local expertise, global technology
combined with broadband access and core network routing and
leadership, business understanding, strong delivery capabilities
transmission elements. organizing a network into layers isolates
and experience in integrating and managing networks make
the different functions, i.e., access, core network and services,
ericsson an attractive partner for operators seeking support to
and facilitates easier migration to an all-ip environment. in recent
reliably and cost-effectively evolve their networks to accommo-
years, we have strengthened our wireline portfolio in preparation
date multiple technologies in their transition into one converged
for convergence and all-ip networks.
network.
Financial statements – note p9 “investments”. in addition to our
information related to the parent company, only consolidated
joint venture with sonY corporation, we are engaged in a
numbers for the Group totals are included in our reports.
number of other minor joint ventures, cooperative arrangements
Filing in the US: annual reports and other information are filed
and venture capital initiatives. For more information regarding
with the securities and exchange commission (sec) in the
risks associated with joint ventures, strategic alliances and third
united states pursuant to the rules and regulations that apply to
party agreements please see “risk Factors – strategic and
foreign private issuers. electronic access to these documents
operational risks”.
may be obtained from the sec’s website, www.sec.gov/edgar/
Documents on display: We file annual reports and other
searchedgar/webusers.htm, where they are stored in the eDGar
information (normally in swedish only) for certain domestic legal
database. You may read and copy any of these reports at the
entities with Bolagsverket (swedish companies registration
sec’s public reference room at 100 F street, n.e., Washington,
office) pursuant to swedish rules and regulations.
D.c. 20549, or obtain them by mail upon payment of sec’s
You may order any of these reports from their web site www.
prescribed rates. For further information, you can call the sec at
bolagsverket.se. if you access these reports, please be aware
+1 800 732 0330.
that the information included may not be indicative of our
published consolidated results in all aspects. other than
ericsson annual report 2007
147
information on the company Business (primary) segments
network operators as they begin integrating their fixed and
We supply the network equipment and services that enable
mobile networks.
telecommunication; end-to-end solutions for mobile and fixed
our position in public ethernet access has been strengthened
communication.
through the acquisitions of Marconi and entrisphere. Marconi
ericsson is a telecommunications company developing and
products added ip-Dsl for fiber- and copper-based broadband
selling a variety of products aimed largely at customers in the
access. the entrisphere products in fiber technology (Gigabit
telecommunications industry. When determining our operating
passive optical networks, Gpon) are essential for High
segments, we have looked at which market and to what type of
Definition iptV and other ip based services with high demand on
customers our products and services are aimed, and through
bandwidth and cost efficiency.
what distribution channels they are sold as well as to commonal-
ity regarding technology, research and development. to best
IP core network (switching, routing and control)
reflect our business focus and to facilitate comparability with our
the evolution to ip starts in the core. our core network solutions
peers, we implemented a more customer-oriented organization
include industry-leading softswitch, ip infrastructure, ip-based
as from January 1, 2007. We now report four business segments:
• networks; communications infrastructure and related deploy-
multimedia subsystem (iMs) and media gateways. our acquisi-
tion of redback networks has further strengthened our ip
ment services.
product portfolio with broadband routers to manage broadband,
• professional services; managed services, services for network
systems integration, consulting and education and customer
support services.
• Multimedia; networked media and messaging, enterprise
telephony, tV and mobility services.
GsM and WcDMa/Hspa share a common core network,
meaning that previous investments are preserved as operators
migrate from voice-centric to multimedia networks. our switching
applications, revenue management, service delivery platforms
products have industry-leading scalability and capacity. Many of
(sDp) and mobile platforms.
our core network switching systems are built upon common
• phones; the 50/50 joint venture with sonY corporation, sony
ericsson Mobile communications, offer a range of mobile
platforms.
ip Multimedia subsystem (iMs) is the key that enables
handsets and other mobile devices, including those supporting
subscribers to access the same content and services from a
multimedia applications and other personal communication
multitude of devices. iMs is an open service layer platform that
services.
Segment Networks
hosts ip based services such as Voice over ip (Voip), “push-to-
talk” etc. since our iMs solution is common for both fixed and
mobile networks, converged services can be transparently
Business segment networks includes products for wireless and
provided independent of the type of access.
wireline access, core networks and transmission. related
network deployment services are also included.
Transmission
segment networks accounted for 69 percent of total sales in
Microwave and optical transport solutions provide cost-effective
2007.
management of voice and data traffic.
Wireless and wireline Access
most widely deployed solutions. transport networks (e.g.
We provide wireless access solutions to network operators that
Mini-linK, metro optical networks) are essential elements of our
enable reliable, efficient and cost effective mobile telephony
end-to-end solutions and are also used by operators utilizing
networks as well as wireless broadband for mobile, nomadic and
network equipment from other suppliers.
our Mini-linK micro-wave radio systems is one of the world’s
fixed users in urban and rural areas. our expertise in all 2G and
3G standards allow us to offer tailored solutions to a network
Deployment Services
operator, regardless of the existing network standard used. our
Fast deployment in large volumes involves a heavy ramp-up of
radio base stations, interconnecting the device (eg. handset, pc)
resources. ericsson has developed a service delivery concept
with the mobile network can easily be upgraded from GsM to
using a mix of local, in-house capabilities, subcontractors and
Gprs/eGDe and from WcDMa to Hspa respectively.
central resources. We can manage these capabilities in a way
the recent expansion of our wireline broadband offering has
that has proven to be successful and results in a very high degree
been an important step in reinforcing our ability to address
of customer satisfaction.
148
ericsson annual report 2007
information on the company
Segment Professional Services
such as the revenue management portfolio and our mobile
ericsson’s professional services capabilities include expertise in
platforms, whereas others should be seen as investment areas.
managed services, systems integration, consulting, education
segment Multimedia accounted for 8 percent of total sales in
and customer support services
2007.
segment professional services accounted for 23 percent of
total sales in 2007.
Managed Services
We offer some of the most comprehensive managed services
capabilities within the telecom industry. our offerings cover
• network operations; management of all aspects of day-to-day
operations of a customer’s network, high-quality operations of
fixed and mobile networks at a predictable cost.
• hosting of applications and content management; we enable
operators to launch multimedia services in a simple, fast and
cost-effective manner.
Networked media and messaging
networked media and messaging includes:
• converged tV; our end-to-end tV offerings for personal and
interactive tV was complemented through the aquisition of
tandberg television in 2007.
• Music & gaming entertainment solutions; for delivering music,
games and videos to a broad base of devices.
• creative communication; the offerings include applications for
enriched communication and instantaneous sharing of
experiences and information. Mobeon, a leading supplier of ip
based messaging components was aquired to complement
our offering.
We are the industry leader in managed services, managing
networks with more than 185 million subscribers. since managed
• Mobile media management solutions, which are tailored for
media companies and mobile network operators to provide
services often are signed in the form of multi-year agreements, a
means for them to expand into new channels and new areas.
major part of managed services sales are of a recurring nature.
the offering contains functions for gathering, adapting, and
Systems integration
operators can minimize risk by engaging ericsson to integrate
delivering information in a secure way.
• advertising is a major funding element within traditional media,
with the largest growth in new media channels such as the
equipment from multiple suppliers and handle technology change
internet.
programs, as well as to design and integrate new solutions. More
and more operators who face challenging technology transfor-
Enterprise applications
mations or introduce multimedia services are asking us to serve
ericsson makes enterprises more competitive by mobilizing their
as a prime integrator.
communications and business processes. users on the move
can access a range of business-critical communications and
Consulting and education
information applications from a variety of devices over private or
as technologies and business models become more complex in
public, fixed and mobile networks. offerings include an applica-
the evolution towards broadband and all-ip, our customers rely
tion portfolio, platforms and services. We have end-to-end
on our consultants to support them in defining strategies for
solutions for enterprises of all sizes, both for company premises
network evolution, identifying multimedia services for growth and
and/or for hosting by operators.
developing the competence of their employees.
Revenue management
Customer support
We are a leading provider of revenue management solutions. We
Having experienced professionals available around-the-clock to
help our customers capture and secure their money streams and
provide customer support is a crucial part of our service offering.
leverage the business opportunities, by providing expertise and
our staff, across all regions of the world, supports operators
solutions to manage the revenues from traditional as well as
that in total have more than 1 billion customers. Giving advice on
multimedia services.
how to maximize efficiency in day-to-day operations ensures
the acquisition of lHs in 2007 further strengthened our
network uptime and lowers total cost of ownership.
position; we can now offer a convergent charging and billing
Segment Multimedia
solution that enables operators to handle all users and services in
the same way independent on payment options or access
the Multimedia offering includes a variation of products and
technologies.
applications of which some are well established in the market,
ericsson annual report 2007
149
information on the company
Service Delivery Platforms (SDP)
segments, mitigating volatility, as a decrease in one area is often
ericsson’s service Delivery platform (sDp) covers all aspects of
offset by an increase in another. the segments have different
business-to-consumer (B2c) and business-to-business (B2B)
characteristics in terms of penetration of fixed and mobile
services. our solutions, products, systems integration and
telephony, network traffic, sophistication of services and average
business consulting capabilities are combined to create a
country GDp and other economic factors.
multimedia marketplace according to each customer’s specific
We strongly believe that affordable and generally available
need. through the acquisition of Drutt, ericsson has a core
telecommunication services are a prerequisite for social and
product offering, which supports both on- and off-portal
economic development which improves the welfare of all people
business and enables advertisement and commerce of a wide
in any given country. as one of the world’s largest providers of
range of different products facilitated by the sDp.
communications equipment and services, ericsson has imple-
Mobile Platforms
mented a strict trade compliance program throughout the group
in order to comply with foreign and domestic laws and regula-
ericsson is a leading platform technology supplier for GsM/eDGe
tions, trade embargos and sanctions in force. in no way should
and WcDMa/Hspa platforms used in devices such as mobile
our business activities be construed as supporting a particular
handsets, pc-cards, and other mobile devices. ericsson licenses
political agenda or regime.
open-standard end-to-end interoperability tested GsM/eDGe
SaleS per region and Segment 2007
and WcDMa technology platforms.
the product offerings are based on our comprehensive ipr
portfolio and include: reference designs, platform software, asic
designs and development boards, development and test tools,
and training. By licensing our technology and platforms, mobile
phone manufacturers can launch new products faster, with
limited r&D investments and lower technology risks.
seK million
Western europe
ceMa 1)
asia pacific
north america
latin america
Total
profess-
ional
Multi-
networks services media
total
28,085
36,435
43,101
8,392
12,972
7,313 52,685
3,921 48,661
54,629
2,467
13,422
1,065
1,137 18,383
128,985 42,892 15,903 187,780
17,287
8,305
9,061
3,965
4,274
Segment Phones
1) central and eastern europe, Middle east and africa
sony ericsson Mobile communications aB (sony ericsson)
delivers innovative and feature-rich mobile phones, accessories
Market environment
and pc-cards, which allow us to provide end-to-end solutions to
Long-term customer relationships and global scale
our customers. the 50/50 joint venture, formed in october 2001,
combines the mobile communications expertise of ericsson with
We have been present in most of our markets for more than 100
the consumer electronic devices and content expertise of sonY
years, building strong, long-term relationships with the world’s
corporation and forms an essential part of our end-to-end
leading operators. our scale advantage, end-to-end offerings
capability for mobile multimedia services.
and a local presence in every major market enable us to serve as
sony ericsson is responsible for product design and develop-
a true partner for cost-effective delivery of solutions and support
ment, as well as marketing, sales, distribution and customer
to a diverse base of customers. as operators are increasingly
services.
reducing the number of different suppliers they rely on, the
sales for sony ericsson are not included in our reported sales,
responsiveness of our employees and the power of our portfolio
as their operating results are reported according to the equity
of products and services are key to our future success.
method under “share in earnings of joint ventures and associated
We work closely with our customers to understand their
companies” in the income statement.
businesses and technology needs, and provide tailored solutions
please also see “notes to the consolidated Financial state-
to help them fulfill their business objectives. our expertise and
ments – note c3, segment information.”
experience in all major telecommunication standards along with
Geographical (Secondary) segments
our proven track record for quality and innovation have allowed
us to develop our business on a worldwide basis. We believe that
We group sales into five geographical segments; Western
our widespread geographical presence and the economies of
europe, ceMa (central and eastern europe, Middle east and
scale associated with market share leadership give us competi-
africa), asia pacific, north america and latin america.
tive advantages. Global presence is an important factor,
there is a good distribution of sales between geographical
particularly when working as a business partner to operators
150
ericsson annual report 2007
information on the company
working in multiple markets or globally. We are utilizing our strong
subsequent recovery during 2004. the table below illustrates the
international reach and core competence in mobile and fixed
long-term average seasonal effect on sales for the period 1993
communications to expand into growth areas such as systems
through 2007.
integration, service applications and managed services, as well
15-Year aVerage SeaSonalit Y
as to develop alliances with suppliers and manufacturers in many
countries in order to increase our combined effectiveness.
Customers
First second
Fourth
quarter quarter quarter quarter
third
sequential change
share of annual sales
-26%
21%
17%
24%
-4%
23%
32%
31%
We are supplying equipment, integrated solutions and services to
the table below illustrates the average seasonal effect on sales
almost all major network operators globally.We derive most of our
for the last three years.
sales from large, multi-year agreements with a limited number of
moSt reCent 3-Year aVerage SeaSonalit Y
significant customers. out of a customer base of more than 425
network operators, the ten largest customers account for 42 (44)
percent of our net sales, while the 20 largest customers account
for 58 (63) percent of our net sales. our largest customer
accounted for approximately 6 (7) percent of sales during 2007.
our customers have different needs in interacting with
First second
Fourth
quarter quarter quarter quarter
third
sequential change
share of annual sales
-19 %
22 %
16 %
25 %
-7 %
23 %
27 %
30 %
Competitors
ericsson as a supplier, ranging from support in identifying and
in networks, we compete mainly with large and well-established
capturing business opportunities to complex system deliveries
communication equipment suppliers. although competition
including systems integration or outsourced operation of the
varies depending on the products, services and geographical
customer’s network to simple add-on deliveries of equipment or
regions, our most significant competitors in mobile communica-
spare parts to “do-it-yourself” fulfillment. We use three different
tion include alcatel/lucent, Huawei, Zte and nokia/siemens.
sales approaches that acknowledge these different needs;
• project sales (interactive relationship selling with high
With respect to fixed communications equipment, the competi-
tion is also highly concentrated and includes, among others,
involvement of the customer to identify and capture business
alcatel/lucent, cisco, Huawei, nokia/siemens and nortel. We
opportunities, where the solution is not known at the point of
also compete with numerous local and regional manufacturers
sales),
• system sales (interactive relationship selling of solutions
and providers of communication equipment and services. We
believe the most important competitive factors in this industry
configured for specific customer needs) and
include existing customer relationships, the ability to cost-effec-
• product sales (the outcome of relationship sales and frame
agreements where customers may call–off well-defined
tively upgrade or migrate an installed base, technological
innovation, product design, compatibility of products with
products and services electronically).
industry standards, and the capability for end-to-end systems
integration.
system sales has historically been our most common sales
competition in professional services not only includes many of
approach to best meet our customers’ needs, however, as their
our traditional systems competitors mentioned above but also a
needs evolve, the two other sales approaches will grow in
number of large companies from other industry sectors, such as
importance.
is/it, for example iBM, eDs, accenture and electronics manufac-
For more information, see “risk Factors – risks associated with
turing services companies as well as a large number of smaller
the industry and Market conditions”.
but specialized companies operating on a local or regional basis.
Seasonality
as this segment grows, we expect to see additional competitors
emerge, possibly including some network operators attempting
our quarterly sales, income and cash flow from operations are
to expand into new segments.
seasonal in nature and generally lowest in the first quarter of the
in the Multimedia segment, our competitors vary widely
year and highest in the fourth quarter. this is mainly a result of
depending on the product or service being offered. We face
the seasonal purchase patterns of network operators. although
significant competition with regard to substantially all of these
demonstrating a strong seasonal pattern historically, our
products and services.
seasonal sales variances have not conformed to the longer-term
Within the segment phones, the primary competitors include
pattern during the market downturn starting in 2001 and
nokia, Motorola, samsung and a number of other companies
ericsson annual report 2007
151
information on the company
such as lG electronics, nec and sharp. We believe that our
We intend to continue to outsource module production where
mobile phone joint venture with Japan’s sonY corporation
adequate manufacturing capacity and expertise are available on
creates a distinctive competitive advantage.
favorable terms. such outsourcing of the major part of module
For more information, see “risk Factors – risks associated
manufacturing provides us greater flexibility to adapt to economic
with the industry and Market conditions”.
and market changes. However, the timing and level of outsourc-
Supply
Manufacturing and assembly
ing is a balance between short-term demand and longer-term
flexibility.
We manage our own production capacity on a global basis by
Most of our node production, i.e., assembly, integration and
allocating production to sites where capacity is available and
testing of modular subsystems into complete system nodes such
costs are competitive. at year-end 2007, our overall utilization
as radio base stations, mobile switching centers etc., is done
was close to 100 percent as we continuously adjust our produc-
in-house. about half of our module production, i.e., production of
tion capacity to meet expected demand. the table “primary
subsystems such as circuit boards, radio frequency (rF)
Manufacturing and assembly facilities” below summarizes where
modules, antennas etc., is outsourced to a group of electronics
we have our major manufacturing and assembly facilities as well
manufacturing services companies including celestica, elcoteq,
as the total square meters of floor space at year-end.
Flextronics, Jabil and solectron, of which the vast majority is in
low-cost countries. We also purchase customized and standard-
Sources and availability of materials
ized equipment, components and services from several global
We purchase raw materials, electronic components, ready-made
providers as well as from numerous local and regional suppliers.
products and services from a significant number of domestic and
a number of our suppliers design and manufacture highly
foreign suppliers. Variations in market prices for copper,
specialized and customized components for our end-to-end
aluminum, steel, precious metals, plastics and other raw
solutions as well as individual nodes. We generally attempt to
materials have a limited effect on our total cost of goods sold.
negotiate global supply agreements with our primary suppliers.
our purchases mainly consist of electronic components as well
While we are not dependent on any one supplier for the provision
as ready-made products and services. to a limited extent, we are
of standardized equipment or components and seek to avoid
involved in the production of certain components such as power
single source supply situations, a need to switch to an alternative
modules and cables, which are used in our systems products as
supplier may require us to allocate additional resources to ensure
well as sold externally to other equipment manufacturers.
that our technical standards and other requirements are met.
Based on our most recent sourcing agreements, the increase
this process could take some time to complete. accordingly, a
in oil and metal prices during 2007 had only a limited negative
need to switch to an alternative supplier could potentially have an
effect on our costs and did not affect the availability of the
adverse effect on our operations in the short term.
electronic components or ready-made products and services
For more information, see “risk Factors – strategic and
that we require. to the extent possible, we rely on alternative
operational risks”.
supply sources for the purchased elements of our products to
in sweden, the majority of the floor space within our produc-
avoid sole source situations and to secure sufficient supply at
tion facilities is used for node assembly and testing. including the
competitive prices. assuming there will only be a moderate
eMs production, approximately 35–40 (35–40) percent of
increase in market demand, we do not foresee any supply
module production and 75–80 (75–80) percent of node produc-
constraints to meet our expected production requirements during
tion is performed in sweden.
2008.
primarY manUFaCtUring and aSSemBlY FaCilitieS
sweden
china
italy
Brazil
Germany
india
other
total
2007
sites sq meters
2006
sites sq meters
2005
sites sq meters
2004
sites sq meters
8
4
2
1
1
1
1
18
244,300
33,900
20,100
25,900
300
6,400
5,000
335,900
8
3
2
1
1
1
2
18
231,500
20,860
20,100
18,400
13,900
5,364
8,100
317,560
9
3
0
1
0
1
0
14
256,615
15,200
0
15,840
0
5,364
0
293,019
10
3
0
1
0
0
0
14
277,415
15,200
0
15,840
0
0
0
308,455
152
ericsson annual report 2007
information on the company
For more information, see “risk Factors – strategic and
segments, where network deployment activities performed by
operational risks”.
Organization
Governance
business unit Global services are included in segment networks,
with the remaining service activities reported as segment
professional services.
a significant amount of authority and responsibility is assigned to
Market units
the management of our various operating units for tasks
We use our own sales organization consisting of 24 market units
pertaining to day-to-day operations. Governance of our operating
to market and sell our systems and services to customers in over
units is carried out through steering boards whose members are
175 countries via a worldwide sales and support network. each
representatives of the Group Management team, the extended
market unit represents either a single country or a group of
Management team and the management of the particular operat-
countries, depending on the extent of our business activities in
ing unit.
that region. We have significant sales in all of the largest
For more information regarding our corporate governance,
geographic markets for telecommunications, with no individual
please see the corporate Governance report or visit our web site
country accounting for more than 7 percent of sales. For the
www.ericsson.com/ericsson/corpinfo/corp_governance/index.
services business, represented in 140 countries, local knowl-
shtml.
edge is key and therefore most of the 28 000 employees in our
information on our web site does not form part of this docu-
service organization are based within the local market units.
ment.
Group Functions
the majority of our market units operate through local
subsidiaries that are present in each country. We use our local
presence to help our customers achieve greater efficiencies and
a number of Group Functions perform tasks pertaining to certain
gain access to recognized world-class support resources
group-wide matters that are not naturally referable to a specific
wherever they operate. the market units utilize the product
operational unit: communications, Finance, internal audit,
expertise of the business units in tailoring and integrating our
Human resources and organization, legal affairs, technology,
products for delivery to customers.
sales & Marketing and strategy & operational excellence.
their responsibilities include the formulation of the Group’s
Operational excellence
strategy, issuing of directives, business control and resource
We are convinced that operational excellence is a competitive
allocation. in addition, Group Functions are responsible for the
advantage. therefore we are continuously focusing on how to
consolidation and reporting of financial performance, financing
improve our internal processes, support systems and ways of
and cash management, legal issues, communication with various
working. our mission to take our customers forward in the best
stakeholders including employees, investors, press and media as
possible way requires well developed change capabilities,
well as coordination and administration of a number of group-
efficient and effective processes that consistently yield innova-
wide issues. other important group-wide matters, such as
tive, high-quality products and services with low cost of owner-
corporate responsibility, are managed by Group Functions in
ship.
conjunction with a network of experts from various parts of the
no matter how far we have come, we will always continue to
company. ericsson research conducts applied research in
drive operational excellence across the company. By continu-
various strategic areas to provide ericsson with system concepts,
ously learning from our experiences and the needs of our
technology, and methodology to help secure our long-term,
customers we will become an even better company.
strategic position
Business Units
Working at Ericsson
We believe that every employee should be treated with respect
our operational organization is built around a structure of
and dignity. We value the rich diversity and creative potential of
business units responsible for the development and delivery of
people with differing backgrounds and abilities. a culture of equal
products and services to market units that are responsible for
opportunities in which personal success depends on personal
local sales and customer support. product development units are
merit and performance is encouraged throughout our operations.
included in the business units.
every year we conduct an employee satisfaction survey to
the business units are network, Global services and Multime-
assess our Human capital index.
dia, corresponding largely to our three reportable business
We maintain an open management style that involves our
ericsson annual report 2007
153
information on the company employees in daily decisions that affect them as well as longer-
term matters. We are fully committed to keeping all employees
informed about the implications of major business changes and
other relevant matters. Key business priorities are communicated
• on February 12, ericsson announced the acquisition of
entrisphere, a company providing fiber access technology.
• on February 26, ericsson announced a voluntary public cash
offer to acquire tandberg television. on May 8, ericsson held
throughout the organization and form part of the basis for
more than 90 percent of the outstanding shares in tandberg
employee remuneration and incentive plans. Details of these
television, and initiated a compulsory acquisition of the
plans appear in notes to the consolidated Financial statements
remaining shares.
– note c29, “information regarding employees, Members of the
Board of Directors and Management”. We also have constructive
• on March 15, ericsson announced the acquisition of business
and assets of Mobeon aB, a world leader in ip-messaging
relationships with a variety of trade unions, including formal
components for mobile and fixed networks.
recognition and active dialog where appropriate.
For information on our corporate responsibility, please see
separate “corporate responsibility report”.
• on June 5, ericsson announced a voluntary public cash offer
to acquire lHs aG. lHs brings a postpaid billing offering.
• on June 7, ericsson announced the acquisition of Drutt
For information on our corporate Governance, please see
corporation; a swedish company that develops Mobile service
“corporate Governance report” in this document.
Delivery platform.
Our vision – how we see the world
• on December 20, ericsson announced the acquisition of Hyc
Group, a spanish company with competence as a systems
our vision is to be the prime Driver in an all-communicating
integrator of iptV solutions.
world.
Core values – how we act
Changes in the Group Management Team:
• as per January 2007, Kurt Jofs was appointed head of the new
professionalism, respect and perseverance are the cornerstones
business unit networks.
of the ericsson culture, guiding us in our daily work, both in how
• as per January 2007, Jan Wäreby was appointed head of
we relate to people and how we conduct our business.
business unit Multimedia and included in the Group Manage-
these values form the foundation of how we operate our
ment team.
business. our core values define how we treat each other, our
• as per January 2007, sivert Bergman left the Group Manage-
customers and our business partners and therefore they define
ment team as Marconi was fully integrated.
our culture. characteristics of our culture are exhibited by a
• as per January 2007, torbjörn nilsson left the Group Manage-
passion to win; employee diversity, honesty, trust and support for
ment team.
each other; integrity and high ethical standards; and leadership
by example at all levels. We believe the best way to further
• as per october 25, Karl-Henrik sundström, cFo and head of
Group Function Finance, left ericsson and Hans Vestberg was
develop our business is to remain accountable to ourselves and
appointed cFo
to our customers.
• as per January 2008, Jan Frykhammar was appointed senior
Vice president and Head of Business unit Global services, and
Results – how we measure our performance
included in the Group Management team.
We measure three fundamental metrics: customer satisfaction,
employee satisfaction and financial returns for our owners. We
For more information about management, please see “notes to
believe that highly satisfied customers, empowered employees
the consolidated Financial statements – note c29, information
and an enduring capability for value creation for our share-
regarding employees, Members of the Board of Directors and
holders help to assure a competitive advantage.
Management”.
Changes in organization and management
Organizational changes made during 2007:
• a new organization is effective as from January 1, consisting of
networks, Global services and Multimedia.
• as per January 24, ericsson completed the cash tender offer
for us-based redback networks, now part of segment
networks.
154
ericsson annual report 2007
information on the company Forward-looking statements
this annual report includes “forward-looking statements” in-
tection regulations, allegations of health risks from electromag-
cluding statements reflecting management’s current views relat-
netic fields, cost of radio licenses for our customers, allocation
ing to the growth of the market, future market conditions, future
of radio frequencies for different purposes and results of stan-
events and expected operational and financial performance. the
dardization activities within telecommunications;
words “believe”, “expect”, “anticipate”, “intend”, “may”, “could”,
• the effectiveness of our strategies and their execution includ-
“plan,” “estimate,” “will,” “should,” “could,” “aim,” “target,” “might”
ing partnerships, acquisitions and divestitures;
or, in each case, their negative, and similar words are intended to
help identify forward-looking statements. Forward-looking state-
• financial risks, including changes in foreign exchange rates or
interest rates, lack of liquidity or access to financing, changes
ments may be found throughout this document, but in particular
in tax liabilities, credit risks in relation to counterparties, cus-
in the sections captioned “operational review”, “Board of Direc-
tomer defaults under significant customer financing arrange-
tors’ report” and “information on the company” and include
statements regarding:
• our goals, strategies and operational or financial performance
expectations;
• the growth of the markets in which we operate;
• our liquidity, capital resources, capital expenditures and our
credit ratings;
• the expected demand for our existing as well as new products
and services;
• the expected operational or financial performance of our sony
ericsson joint venture and other strategic cooperation activi-
ties;
• technology and industry trends including competition and our
customer structure; and
• our plans for new products and services including research
ments and risks of confiscation of assets in foreign countries;
• the impact of the consolidation in the industry, and the result-
ing reduction in the number of customers, and adverse conse-
quences of a loss of, or significant decline in, our business with
a major customer;
• the impact of changes in product demand, price erosion, com-
petition from existing or new competitors or new technologies
or alliances between vendors of different types of technology
and the risk that our products and services may not sell at the
rates or levels we anticipate;
• the product mix of our sales;
• our ability to develop commercially viable products, systems
and services, to acquire licenses of necessary technology, to
protect our intellectual property rights through patents and
trademarks and to defend them against infringement, and
and development expenditures.
results of patent litigation;
although we believe that the expectations reflected in these and
• supply constraints, including component or production capac-
ity shortages, suppliers’ abilities to cost effectively deliver
other forward-looking statements are reasonable, we cannot
quality products on time and in sufficient volumes, and risks
assure you that these expectations will materialize. Because
related to concentration of proprietary or outsourced produc-
forward-looking statements are based on assumptions and
tion in a single facility or sole source situations with a single
estimates, and are subject to risks and uncertainties, actual
vendor; and
results could differ materially from those described or implied
• our ability to recruit and retain qualified management and other
herein. important factors that could affect whether and to what
key employees.
extent any of our forward-looking statements materialize include,
but are not limited to:
• our ability to respond to changes in the telecommunications
certain of these risks and uncertainties are described further in
“risk Factors.” We undertake no obligation to publicly update or
market and other general market conditions in a cost effective
revise any forward-looking statements included in this annual
and timely manner;
• developments in the political, economic or regulatory environ-
ment affecting the markets in which we operate, including
trade embargos, changes in tax rates, changes in patent pro-
report, whether as a result of new information, future events or
otherwise, except as required by applicable law or stock ex-
change regulation.
ericsson annual report 2007
155
forward-looking statements corporate Governance
report 2007
Corporate governance is a generic term that describes the
stems from its core values of professionalism, respect and per
ways in which rights and responsibilities are distributed
severance.
among the various corporate bodies according to the rules,
While these ideals and values are embedded in our ways of
processes or laws to which they are subject. In practice,
working, we know that controls and procedures are integral to
corporate governance defines the decision-making systems
maintaining our high standards and we are constantly seeking
and structure through which owners directly or indirectly
ways to make our corporate governance even more effective and
control a company.
reliable.
our commitment to corporate
Governance
this corporate Governance report describes ericsson’s
corporate governance, direction and management, including
information on how the Board of Directors ensures the quality of
the financial reports and its interaction with ericsson’s indepen
dent auditors. the auditors have not reviewed this report nor
ericsson is committed to high standards of corporate gover
does it con stitute a part of our formal annual report.
nance and strives to ensure that our strong ethos of corporate
governance permeates the entire organization and the way we
conduct business.
High standards in business ethics
We have policies and directives that guide all employees in
our code of Business ethics sets out how we work to achieve
how they should work to meet legal and regulatory requirements
and maintain our high standards. it summarizes the Group’s
and the ethical standards that we set for ourselves. the com
fundamental policies and directives governing our relationships
pany’s reputation for integrity and good corporate citizenship
to each other and to our stakeholders.
erIC sson’s Core values
ProfessIonalIsm
resPeCt
• listen – lead through
innovation
• Keep commitments
– be responsive
• seek the truth
– know your
numbers
• Build strength
through a shared vision
• Qualify everyday
– generate energy
• Diversity as a strength
– provide equal opportu
nities
PerseveranCe
• lead change
– shape the future
this document has been translated into more than 20 lan
guages to ensure that everyone who works for ericsson under
stands our policies and directives and the importance of con
ducting all business activities in an ethical manner. all employees
must regularly review the code of Business ethics and, by sign
ing a form as part of the recruitment routine and at regular inter
vals, acknowledge that they have understood its principles..
through this meticulous process, we strive to ensure that our
high ethical standards are upheld by all employees in their daily
work, and that employees make
it their individual responsibility to
ensure that business is conduct
ed in accordance with the rules
and guidelines set forth in this
document.
CODE OF BUSINESS ETHICS
• always deliver
– walk the extra mile
• trusted global partner
for more than a
century!
The Code of Business Ethics
has been translated into
more than 20 languages.
TAKING YOU FORWARD
156
ericsson annual report 2007
corporate governance report 2007 our code of Business ethics satisfies the applicable require
ments of the sarbanesoxley act of 2002 and nasDaQ. the
code can be found at:
corporate bodies in corporate
governance
www.ericsson.com/ericsson/corporate_responsibility/employ
several corporate bodies govern and control ericsson.
ees/code_businessethics.shtml
at General Meetings of shareholders, the shareholders
information on our website does not form part of this document.
exercise their voting rights with regard to, for example, the
We also arrange corporate governance training for executives
composition of the Board of Directors of ericsson and election of
so that they can reinforce the messages among ericsson’s wide
external auditors.
spread workforce. in 2007, individual corporategovernance
a nomination committee, a corporate body introduced
training included allemployee training in anticorruption and
through the code in 2005 and not required by law, represents
corporate responsibility. the results of individual training are
the shareholders and proposes candidates to serve as Board
closely monitored and reported to management.
members, the Board chairman and external auditors.
compliance with requirements
the Board is responsible for ericsson’s longterm develop
ment and strategy as well as controlling and evaluating the com
pany’s daily operations. in addition, the Board appoints the presi
as a swedish public limitedliability company, ericsson is
dent of ericsson, who is also the chief executive officer (ceo).
governed on the basis of its articles of association and the
the duties of the Board are partly exercised through its three
swedish companies act. We also apply the listing requirements
committees; the audit, Finance and remuneration committees.
of oMX nordic exchange stockholm, which includes the
the president and ceo is in charge of the daytoday man
swedish code of corporate Governance (“the code”). the code
agement of ericsson in accordance with guidelines and instruc
is based on the “comply or explain” principle, which means a
tions provided by the Board.
company may deviate from individual rules but must then explain
ericsson is audited by independent, external auditors elected
why it has done so.
by the annual General Meeting of shareholders for a period of
We also apply the listing requirements of the other stock
four years.
exchanges on which we are listed; that is, the london stock
For more information on general aspects of swedish corpo
exchange and nasDaQ. We satisfy applicable nasDaQ
rate governance, please refer to the “special Features of swed
corporate governance requirements, subject to certain exemp
ish corporate Governance” memorandum posted on the website
tions principally reflecting mandatory swedish legal require
of the swedish corporate Governance Board (www.corporat
ments. these exemptions are discussed in “nasDaQ corporate
egovernanceboard.se). information on this website does not form
Governance exemptions” below. Moreover, we comply with
part of this document.
applicable requirements of the sarbanesoxley act, including the
certification of our annual report on the sec’s (securities and
exchange commission’s) Form 20F by the chief executive
officer and chief Financial officer. the sarbanesoxley act,
commonly called soX, is a united states federal law establishing,
among other things, enhanced corporate governance standards.
soX applies to ericsson because we have securities quoted on
nasDaQ.
Application of the Swedish
Code of Corporate Governance
ericsson has applied the code since July 2005. to ensure com
pliance with the code and to seek compliance with bestpractice
provisions wherever possible, we are constantly evaluating and
adapting our policies and directives as well as our procedures
and internal processes.
ericsson has never reported any deviations from the code,
nor do we have any deviations to report in 2007.
ericsson annual report 2007
157
corporate governance report 2007 our CorPorate governan Ce struC ture
Shareholders’ Meeting
annual General Meeting/
extraordinary General Meeting
Unions
Board of Directors
10 Directors elected by the shareholders’ Meeting
3 Directors and 3 Deputies appointed by the unions
audit
committee
Finance
committee
remuneration
committe
Nomination
Committee
External
auditors
President and CEO
Management
Meetings with the shareholders
information on the shares of ericsson, please see “share infor
mation” in the annual report.
in accordance with the swedish companies act and ericsson’s
the annual General Meeting gives shareholders the opportu
articles of association, shareholders who exercise their voting
nity to raise questions regarding the company and the results of
rights at the annual General Meeting determine the composition
the year under review. the members of the Board of Directors,
of the Board of Directors and all other issues voted on at General
the Group management as well as the external auditors are
Meetings of shareholders.
normally all present to answer such questions.
the annual General Meeting is held in stockholm, generally at
shareholders and other interested parties may also corre
the end of March or beginning of april. the exact date is adver
spond in writing with the Board of Directors or executive man
tised, along with the agenda and information on how sharehold
agement at any time.
ers can give notice of attendance, on ericsson’s web site and in
the Board of Directors’ secretariat can be contacted by e
the swedish newspapers svenska Dagbladet, Dagens nyheter
mail at boardsecretariat@ericsson.com, or by post:
and post och inrikes tidningar, as well as in the euro pean edi
telefonaktiebolaget lM ericsson
tion of Financial times, as a courtesy to our shareholders abroad.
the Board of Directors’ secretariat
shareholders who cannot participate in person may be repre
se164 83 stockholm, sweden
sented by proxy (proxies are valid for a maximum of one year). to
allow nonswedish speaking shareholders to participate, the
Ericsson’s Annual General Meeting 2007
annual General Meeting is simultaneously interpreted into eng
1,409 shareholders, representing 57.2 percent of the votes,
lish. all information material is also available in english.
attended the annual General Meeting held on april 11, 2007, at
there are three kinds of votes at General Meetings of share
the annex to the Globe arena in stockholm. ericsson’s Board of
holders: Yes, no and abstain. resolutions at General Meetings
Directors, Group management and the external auditors were
of shareholders are normally passed by simple majority. How
present at the meeting. Decisions of the 2007 annual General
ever, the swedish companies act requires special quorums and
majorities in certain cases. For example, the resolution to transfer
own shares to employees participating in ericsson’s stock pur
Meeting include:
• reelection of Michael treschow as chairman of the Board of
Directors, reelection of Marcus Wallenberg and sverker
chase plan must be approved by 90 percent of the votes cast
Martinlöf as Deputy chairmen.
and by 90 percent of the shares represented at the General
• reelection of sir peter l. Bonfield, Börje ekholm, Katherine
Meeting of shareholders. each class a share carries one vote
Hudson, ulf J. Johansson, nancy McKinstry, anders nyrén and
and each class B share carries onetenth of one vote. For more
carlHenric svanberg as members of the Board of Directors.
158
ericsson annual report 2007
corporate governance report 2007
• resolution to adopt the income statements and the balance
sheets of the parent company and the Group as of December
nomination committee
31, 2006.
• Discharge of liability of the members of the Board of Directors
a nomination committee was elected by the annual General
Meeting for the first time in 2001. since then, each annual Gener
and the president and ceo for the fiscal year 2006.
al Meeting has appointed a nomination committee, or resolved
• resolution that a dividend of seK 0.50 per share be paid for
the year 2006.
• resolution that the number of Board members be 10 and that
no deputies will be elected.
• resolution that Board of Directors’ fees remain unchanged
and be paid as follows: chairman seK 3,750,000; other
on the procedure for appointing the nomination committee. the
nomination committee represents the shareholders of the
company. However, for obvious reasons, all shareholders cannot
participate in the work of the nomination committee, nor is it
possible for the nomination committee to liaise with all share
holders. the annual General Meeting of shareholders 2007 has
nonemployed Board members seK 750,000 each; in addition
thus resolved that the nomination committee shall consist of the
seK 350,000 to the chairman of the audit committee and seK
chairman of the Board of Directors and representatives of the
250,000 each to the other two nonemployed members of the
four largest shareholders as per the end of the month in which
audit committee; and seK 125,000 each to the chairmen and
the annual General Meeting is held. However, as further
other nonemployed members of the Finance and remunera
described in the procedure for appointing members to the
tion committees.
• approval of the nomination committee’s proposals for the
procedure on appointing the members of the nomination
committee and the assignment of the nomination committee.
• approval of the nomination committee’s proposal to elect
pricewaterhousecoopers as auditor of the company for the
nomination committee, the nomination committee may
comprise additional members pursuant to a request by a
shareholder justified by changes in shareholder structure.
Members of the Nomination Committeee
the nomination committee, appointed on the basis of the pro
period running from the close of the annual General Meeting
cedure resolved by the annual General Meeting of shareholders
2007 until the close of the annual General Meeting 2011, and
2007, consists of four representatives appointed by the four
to pay fees to the auditor against approved account.
shareholders with the greatest voting power as of april 27, 2007:
• approval of the principles on remuneration and other employ
Jacob Wallenberg (investor aB), carlolof By (aB industrivärden,
ment terms for Group management.
chairman of the nomination committee), caroline af ugglas
(livförsäkrings aktiebolaget skandia) and Mats lagerqvist (swed
the Board of Director’s proposed implementation of a longterm
bank robur Fonder) and further, Michael treschow (chairman of
Variable compensation plan for 2007 did not obtain the majority
the Board of Directors).
requirement of 90 percent and was thus not approved by the
annual General Meeting.
Ericsson’s Extraordinary General Meeting 2007
The tasks of the Nomination Committee
the tasks of the nomination committee have evolved over the
years to comply with the requirements of the code and best
the Board of Directors called an extraordinary Meeting of share
practice provisions. since the inception of the nomination com
holders to resolve on a revised longterm Variable compensa
mittee, its main task has been to propose candidates for election
tion program 2007. at the extraordinary General Meeting held on
to the Board of Directors. the nomination committee must take
June 28, 2007, the 126 shareholders, representing 58,6 percent
into consideration all the various rules on independence of the
of the votes, resolved to implement the revised compensation
Board applicable to the company, which are further described in
program as proposed by the Board of Directors.
the end of this report.
at this extraordinary General Meeting, the company intro
the nomination committee also proposes a candidate for
duced voting through voting units, socalled televoters.
election of the chairman of General Meetings of shareholders. in
Ericsson’s Annual General Meeting 2008
addition, the nomination committee prepares proposals con
cerning the level of remuneration for Directors elected by the
ericsson’s annual General Meeting 2008 will take place on
annual General Meeting of shareholders not employed by erics
april 9, 2008, at the Globe arena in stockholm. this was
son, the auditors and members of the nomination committee for
announ ced in conjunction with the release of the thirdquarter
resolution by the annual General Meeting. to date, the nomina
financial report in 2007.
tion committee has not proposed that it should be paid any fees.
ericsson annual report 2007
159
corporate governance report 2007 Moreover, in years in which auditors are elected, the nomination
committee proposes candidates based on the preparations
Board of Directors
carried out by the audit committee of the Board.
the Board of Directors is ultimately responsible for the organiza
any shareholder may submit recommendations to the nomi
tion of the company and the management of the company’s
nation committee at any time vie email (nomination.committee@
operations. it develops guidelines and instructions for the dayto
ericsson.com) or post:
telefonaktiebolaget lM ericsson
the nomination committee
c/o General counsel’s office
se164 83 stockholm
sweden
Work of the Nomination Committee for the Annual
General Meeting 2008
day management of the company, conducted by the president
and ceo who ensures that the Board of Directors receives regu
lar reports regarding the Group’s business development – its
results, financial position and liquidity – and events of importance
to the Group.
according to the articles of association, ericsson’s Board of
Directors shall consist of a minimum of five directors and a maxi
mum of 12 directors, with no more than six deputies. Directors
are elected by the shareholders at the annual General Meeting
to make the right assessments, in terms of the competence and
for the period from the close of the annual General Meeting until
experience required by the Board, the nomination committee
the close of the following annual General Meeting, but can serve
has thoroughly familiarized itself with how the Board has
any number of consecutive terms. in addition, under swedish law,
functioned throughout the year and with the company’s strategy
unions have the right to appoint three directors and their depu
and future challenges. the nomination committee has per
ties to the ericsson Board of Directors.
formed a search process in view of identifying possible future
ericsson abides by strict rules and regulations regarding
candidates to the Board. More details on the work of the nomina
conflicts of interest. Directors and the president and ceo cannot
tion committee is envisaged to be published via the company
participate in any decision regarding agreements between them
website in connection with the notice of the annual General
selves and the company, or between the company and any third
Meeting of shareholders 2008.
party or legal entity in which the individual has an interest.
Further, the audit committee has implemented a procedure
for complying with nasDaQ’s rules on relatedparty transactions
as well as a preapproval process for nonaudit services carried
out by the external auditors, in order to ensure their indepen
dence.
Members of the Board of Directors
our Board of Directors consists of 10 Directors, including the
chairman of the Board, elected by the shareholders at the an
nual General Meeting for the period until the close of the next
annual General Meeting, and three em ployee representatives,
each with a deputy, appointed by the trade unions for the same
period of time. While the president and ceo of the company
may be elected as a director on the Board, the swedish compa
nies act prohibits the president of a public company from being
elected chairman of the Board.
Work Procedure of the Board of Directors
complementary to the provisions in the swedish companies act
and the articles of association of the company, the Board of
Directors has adopted a work procedure for its activities that
outlines rules regarding the distribution of tasks between the
Board and its committees as well as between the Board, its
committees and the president and ceo. the work procedure is
160
ericsson annual report 2007
corporate governance report 2007 reviewed, evaluated and adopted by the Board as required, at
the president and ceo’s report on general business and market
least once a year.
Independence of the Directors
developments, including the performance of the company. the
Board is regularly informed of recent developments of legal and
regulatory matters, and addresses, whenever necessary, the
in connection with its proposal to the annual General Meeting of
adoption and implementation of various corporate governance
shareholders 2007, the nomination committee elected by the
rules. Material for each Board meeting is distributed by the Board
annual General Meeting of shareholders 2006 concluded that,
of Directors’ secretariat according to a preestablished time plan.
for the purposes of the swedish code of corporate Governance,
the time plan is established with due regard for corporate gover
at least the following Directors are independent of the company
nance requirements including prompt distribution of minutes of
and its senior management, as well as of the company’s major
Board meetings.
shareholders: sir peter l. Bonfield, Katherine Hudson, ulf J.
unless exceptional circumstances prevent them from doing
Johansson, nancy McKinstry and Michael treschow.
so, all Directors participate in all Board meetings.
Work of the Board of Directors
the Board meets with ericsson’s external auditors at least
once a year to receive and consider the auditors’ observations
the work of the Board follows a yearly cycle, starting with the
regarding the annual report and internal controls. the auditors
statutory Board meeting held in connection with the annual
also prepare reports to the management annually on the ac
General Meeting. Members to each of the three committees of
counting and financial reporting practices of the company and
the Board are appointed at the statutory meeting, and the Board
the Group. Moreover, the audit committee meets with the audi
resolves on matters such as authorization to sign for the com
tors to receive and consider the auditors’ observations on the
pany. at the next ordinary meeting, the Board handles the first
interim reports. the audit committe reports its findings to the
interim report for the year along with the press release related to
Board. the auditors have been instructed to reflect in their re
the report. in June, a Board meeting generally takes place away
ports whether the company and Group are organized such that
from company headquarters, giving Directors a chance to visit
the accounts, the management of funds and the financial posi
major company operations. towards the end of July, the Board
tion of the company and Group in other respects are up to good
meets to handle the interim report for the second quarter of the
standard and can be controlled in a prudent manner. the Board
year. strategy matters are frequently addressed at any appropri
has reviewed and assessed the company’s process for financial
ate Board meeting but a twoday Board meeting in august is
reporting, as described below in “internal control over financial
entirely devoted to the overall strategy of the Group, bringing to a
reporting for year 2007”. the Board’s own review of interim and
close the strategy planning process initiated during the previous
annual reports in combination with the company’s internal con
year. the august meeting also addresses the overall risk man
trols is deemed to give reasonable assurance regarding the
agement of the Group. a third quarter interim report Board
quality of the financial reporting.
meeting is held at the end of october. towards the end of the
year, the Board thoroughly evaluates its own work. this evalua
Training of the Board of Directors
tion serves as a guide for the work of the nomination committee.
all new Directors receive comprehensive training tailored to their
the conclusions of the Board work evaluation are presented and
individual requirements. induction training includes meetings
discussed at the Board meeting in December, which also ad
with the heads of all the major businesses and functions and, if
dresses budget and financial outlook. at the first meeting of the
appropriate, training arranged by oMX nordic exchange stock
calendar year, generally in the end of January, the Board focuses
holm to enhance Directors’ knowledge regarding listing issues
on the financial result of the entire year and also handles the
and insider rules. in addition, fullday training sessions are gener
fourth quarter report. and at the Board meeting in February,
ally held twice a year for all Directors, to assist them in their work
which closes the yearly cycle of work, the Board signs the annual
for ericsson by enhancing their knowledge of Group operations
report.
and by covering specific issues, as needed.
as the Board is responsible for financial oversight, financials
Board training sessions organized by the company in 2007
are presented and evaluated at each board meeting. Further,
have included the strategy process and decision structure, prod
each Board meeting generally includes reports by the chairman
uct management and market/customer driven development to
of each of the three committees based on the minutes from the
provide the Director’s with an indepth knowledge of the com
committee meetings, which were distributed to all Directors prior
pany’s products and their life cycles.
to the Board meeting. Further, a Board meeting typically includes
ericsson annual report 2007
161
corporate governance report 2007 board of dIreCtors’ meetIngs 2007
Forecast 2008 meeting
Extra meeting
Q3 2007 meeting
Extra meeting
Q4
Dec
Jan
Q1
Annual Report meeting
Q4 2006 meeting
Nov
Feb
Oct
Sep
Board
Meetings
2007
Mar
Apr
Long-term variable
plan 2007 meeting
Statutory meeting
Q1 2007 meeting
Extra meeting
Two-day Strategy
meeting
Q2 2007 meeting
Aug
May
Q3
Jul
Jun
Q2
Long-term variable
program 2007 meeting
Meeting in San José, California
Work of the Board of Directors in 2007
nology with increased focus on content and multimedia and the
the work of the Board of Directors has become increasingly
changing competitive landscape among telephone operators,
extensive calling for fourteen Board meetings in 2007. atten
cable tV providers and other datanetwork operators.
dance at Board and committee meetings is reflected in the table
in terms of remuneration, the Board put forward a proposal
“Directors’ attendance and Board of Directors’ Fees.” two
for a longterm variable compensation program 2007 to the
meetings were held away from the company headquarters, one
annual General Meeting of shareholders 2007, and following this
in san José, california, to meet with the management of newly
compensation program not gaining approval, the Board submit
acquired companies and to understand in further depth the
ted a revised proposal for a longterm variable compensation
operations of these companies, and one Board meeting was held
program 2007 that to an extraordinary General Meeting of share
at the premises of sony ericsson in lund, with a focus on sony
holders. Moreover, the Board has during the year decided on a
ericsson’s strategies.
change in the financial reporting structure, with four reporting
apart from regular matters addressed in line with the yearly
operating segments: networks, professional services, Multime
cycle outlined above, the Board addressed, inter alia, several
dia, and phones.
strategic matters such as the acquisition of entrisphere, tand
the heads of the three Business units have been present at at
berg television as and lHs aG. the Board further addressed
least one meeting to make indepth presentations of their re
long and shortterm objectives and strategies with regard to a
spective areas of responsibility and to present major acquisitions
continued operator and vendor consolidation, increased data
projects.
traffic in telephone networks, the effects of introducing ip tech
the Board is mindful of the complexity, the dynamics and
162
ericsson annual report 2007
corporate governance report 2007 rapid development within our industry and consequently moni
organIZatIon of tHe board WorK
toring and analyzing market trends and development is in focus.
Despite this focus, the unexpected drop in sales, of in particu
lar higher margin products, at the very end of the third quarter
that resulted in the profit warning on october 16 came as a sur
prise. Following the profit warning, the management and the
Board have thoroughly analyzed the situation and have initiated
actions to address the complex market dynamics going forward.
Board work evaluation
the chairman of the Board initiates and leads a thorough evalua
tion of Board and committee work and procedures each year.
the evaluation process includes detailed questionnaires as well
as interviews and discussions. in 2007, the chairman held indi
vidual meetings with each Director, and each Director responded
to three separate written questionnaires; one that covered the
Board work in general, one that covered the chairman’s perfor
mance, and one that covered the performance of the president
Board of Directors
13 Directors
Finance
Committee
(4 Directors)
• Financing
• investing
• customer
credits
Remuneration
Committee
(4 Directors)
• remuneration
policy
• longterm
variable
remuneration
• executive
compensation
Audit
Committee
(4 Directors)
• oversight
over financial
reporting
• oversight
over internal
control
• oversight
over auditing
and ceo. the chairman and the president and ceo are neither
The Audit Committee
involved in the development, compilation or evaluation of the
the audit committee, on behalf of the Board, monitors the integ
questionnaires related to their respective performances, nor are
rity of the financial statements, compliance with legal and regula
they present when their respective performance is evaluated.
tory requirements and the effectiveness of our systems of inter
the results of the evaluation were presented to the Board in
nal control over financial reporting.
December and gave evidence that generally the Board works
the audit committee is also primarily responsible for review
well and in an effective manner.
ing annual and interim financial reports and for overseeing the
external audit process, including audit fees.
Committees of the Board of Directors
this involves:
the Board of Directors has established three committees: the
audit, Finance and remuneration committees. the Board ap
• reviewing, with management and the external auditors, the
financial statements including conformity with generally
points each of the committee members amongst the Board
accepted accounting principles;
members. the work of the committees is principally preparatory,
that is they prepare matters for final resolution by the Board.
• reviewing, with management, the reasonableness of significant
estimates and judgments made in preparing the financial
However, the Board has authorized each committee to deter
statements, as well as the quality of the disclosures in the
mine certain issues in limited areas and may also provide extend
financial statements;
ed authorization to a committee to determine specific matters.
the Board of Directors and each committee have the right to
• reviewing matters arising from reviews and audits performed.
engage external expertise, either in general or in respect to spe
the audit committee itself does not perform audit work. erics
cific matters, if deemed appropriate.
son has an internal audit function, which reports to the audit
prior to each Board meeting, each committee submits a
committee and performs independent audits.
report to the Board on the issues handled, resolved or referred to
the audit committee is also involved in the preparatory work
the Board since the previous ordinary Board meeting. the min
of proposing candidates for the election of auditors, when appli
utes of each committee meeting are attached to the minutes of
cable, and monitors their ongoing performance and indepen
the Board meeting following each committee meeting.
dence, as well as monitoring Group transactions to avoid con
flicts of interest. to achieve this, the audit committee has
implemented approval procedures for audit and other services
performed by the external auditors (see “audit committee pre
approval policies and procedures”); a preapproval process for
transactions with related parties; and a “whistleblower” proce
ericsson annual report 2007
163
corporate governance report 2007 dure for the reporting of violations in relation to accounting, inter
dIreCtors’ attendanCe and board
nal controls and auditing matters.
of dIreCtors’ fees 2007
alleged violations are investigated by ericsson’s internal audit
function in conjunction with the relevant Group Function. infor
mation regarding any incidents, including measures taken, de
tails of the responsible Group Function and the status of any
investigation are reported to the audit committee.
Members of the Audit Committee
the audit committee consists of four members appointed by the
Board from among its members. in 2007, the audit committee
comprised ulf J. Johansson (chairman of the committee since
april, 2007), sverker Martinlöf (chairman of the committee until
april, 2007), sir peter l. Bonfield, and Jan Hedlund. all members,
except the employee representative, are independent from the
company and senior management. each member is financially
literate and familiar with the accounting practices of an interna
tional company comparable to ericsson. at least one member
must be an audit committee financial expert. the Board of Direc
tors has determined that ulf J. Johansson, sverker Martinlöf
and sir peter l. Bonfield all satisfy these requirements.
the audit committee has appointed an external expert advi
sor, Mr. peter Markborn, formerly authorized public accountant,
to assist and advise the committee.
Board
Fin remun
Meetings audit ance eration
Fee
Michael treschow
sverker Martinlöf
Marcus Wallenberg
peter l. Bonfield
Börje ekholm
Katherine Hudson
ulf J. Johansson
nancy McKinstry
anders nyrén
carlHenric svanberg
Monica Bergström
Jan Hedlund
torbjörn nyman
anna Guldstrand
Kristina Davidsson
Karin Åberg 2)
per lindh 1)
Total
14
14
14
14
13
13
14
14
13
14
14
12
14
13
13
11
2
14
–
8 3)
–
8
–
–
8 4)
–
–
–
–
7
–
–
–
–
–
8
7
–
7
–
–
–
–
–
7
–
–
–
7
–
–
–
–
7
1) resigned from the Board of Directors as of april 11, 2007.
2) Joined the Board of Directors as of april 11, 2007.
3) resigned as chairman as of april 11, 2007.
4) new chairman as of april 11, 2007.
8 4,000,000
– 1,000,000
–
875,000
– 1,000,000
875,000
8
750,000
–
1,100,000
875,000
8
875,000
–
–
–
19,600
8
16,900
–
19,700
–
18,000
–
18,000
–
16,500
–
2,000
8 11,460,700
Work of the Audit Committee
The Finance Committee
the audit committee held eight meetings in 2007 – attendance is
reflected in the table “Directors’ attendance and Board of Direc
tors’ Fees 2007.” During the year, the audit committee reviewed
the Finance committee is primarily responsible for:
• handling matters regarding acquisitions and divestments;
• capital contributions to companies inside and outside the
financial reports, the scope and execution of audits performed,
ericsson Group;
and the independence of the external auditors; approved the
annual audit plan for the internal audit function; and reviewed its
reports and monitored the external audit fees. Further, together
with the external auditors, the audit committee reviewed each
• raising of loans, issuances of guarantees and similar undertak
ings and approvals of financing support to customers; and
• continually monitoring the Group’s financial risk exposure.
interim report prior to publishing. the unexpected shortfall in
the Finance committee is authorized to determine matters such
the third quarter caused the audit committee to analyze fore
as direct or indirect financing, provision of credits, granting secu
casting processes and possible new market trends. the com
rities and guarantees and certain investments, divestments and
mittee also monitors the company’s continued compliance with
financial commitments, or can delegate this power.
the sarbanesoxley act. in addition, certain services other than
audits performed by the external auditors have been approved
Members of the Finance Committee
by the audit committee under the preapproval policies and
the Finance committee consists of four members appointed by
procedures. the committee has also approved certain related
the Board from among its members. in 2007, the Finance com
party transactions in accordance with the preapproval process
mittee comprised Marcus Wallenberg (chairman of the commit
implemented by the committee.
tee), anders nyrén, torbjörn nyman and Michael treschow.
164
ericsson annual report 2007
corporate governance report 2007
Work of the Finance Committee
Work of the Remuneration Committee
the Finance committee held seven meetings in 2007 – atten
the remuneration committee held eight meetings in 2007 – at
dance is reflected in the table “Directors’ attendance and Board
tendance is reflected in the table “Directors’ attendance and
of Directors’ Fees 2007”. the work during the year mainly
Board of Directors’ Fees 2007”. the committee reviewed and
consisted of approving customer financing and credit facility
prepared for the Board a proposal for a longterm variable com
arrangements with a continued focus on capital structure, cash
pensation plan 2007, which was not approved by the annual
flow and cash generating ability. the Finance committee also
General Meeting of shareholders in april. a revised proposal for
monitored the financial risk exposure and risk limits and was
a longterm variable compensation program was therefore pre
regularly informed on a large amount of financerelated matters.
pared and presented to the Board and ultimately to the share
The Remuneration Committee
holders at an extraordinary General Meeting of shareholders in
June. the committee also prepared proposals for salaries and
the remuneration committee’s main responsibility is to advise
variable pay for 2007, including remuneration of the president
the Board of Directors regarding salary and other remuneration,
and ceo. towards the end of the year, the committee concluded
including retirement compensation of the president and ceo,
its analysis of the current longterm variable program structure
executive Vice presidents and other officers reporting directly to
and remuneration policy to be referred to the annual General
Meeting of shareholders 2008 for resolution. For further informa
tion on remuneration, fixed and variable pay, please see “notes
to the consolidated Financial statements – note c29, informa
tion regarding employees, Members of the Board of Directors
and Management” in the annual report.
the president and ceo. other responsibilities include:
• developing and monitoring strategies and general guidelines
for employee remuneration, including variable plans and
retirement compensation;
• approving variable pay under the previous year’s plan
(beginning of each year);
• preparation of the longterm variable remuneration program for
referral to the Board and subsequent resolution by the General
Meeting of shareholders, and
• preparation of the targets for variable pay for the following year
for resolution by the Board.
to achieve this, the committee holds annual strategic remunera
tion reviews with representatives of the company to determine
the direction to follow, allowing program designs and pay policies
to be aligned with the business situation. consideration is given
to trends in remuneration, legislative changes, disclosure rules
and the general global environment surrounding executive pay.
the committee reviews salary survey data to approve any base
pay increase for executives, effective from the following January.
Members of the Remuneration Committee
the remuneration committee consists of four members ap
pointed by the Board from among its members. in 2007, the
remuneration committee comprised Michael treschow (chair
man of the committee), nancy McKinstry, Monica Bergström
and Börje ekholm.
the remuneration committee has appointed an independent
expert advisor, Mr. Gerrit aronson, to assist and advise the com
mittee, in particular with regard to international trends and devel
opments.
ericsson annual report 2007
165
corporate governance report 2007 Members of the Board
of Directors
Board members elected by the Annual General
Meeting of Shareholders
Michael Treschow (first elected 2002)
Chairman of the Board of Directors
Chairman of the Remuneration Committee
Member of the Finance Committee
Born 1943, Master of engineering, lund institute of
technology. Board Chairman: unilever nV, and
unilever plc. Board member: aBB ltd and the
Knut and alice Wallenberg Foundation. Holdings in Ericsson 1):
820,043 class B shares
Principal work experience and other information: Board chair
man of the confederation of swedish enterprise 20042007, presi
dent and ceo of aB electrolux 1997–2002 and chairman of its Board
of Directors 2004–2007. earlier positions mainly include positions
within atlas copco, where he served as president and ceo
1991–1997. Member of the royal academy of engineering sciences.
Marcus Wallenberg (first elected 1996)
Deputy Chairman of the Board of Directors
Chairman of the Finance Committee
Born 1956, Bachelor of science of Foreign service,
Georgetown university, usa. Board Chairman:
skandinaviska enskilda Banken, saab aB, aB elec
trolux, and international chamber of commerce
(icc). Board member: astraZeneca plc, stora enso oy, the Knut
and alice Wallenberg Foundation and FaMFoundation asset Man
agement. Holdings in Ericsson 1): 710,000 class B shares
Principal work experience and other information: positions within
investor aB, where he served as president and ceo 1999–2005.
prior to this he was executive Vice president at investor. previous
employers include stora Feldmühle aG, citicorp, citibank and
Deutsche Bank.
Sverker Martin-Löf (first elected 1993)
Deputy Chairman of the Board of Directors
Member of the Audit Committee
Born 1943, Doctor of technology and Master of
engineering, royal institute of technology, stock
holm. Board Chairman: skanska, svenska cellu
losa aktiebolaget sca and ssaB. Deputy chairman:
industrivärden, the confederation of swedish enterprise and sven
ska Handelsbanken. Holdings in Ericsson 1): 52,000 class B shares
Principal work experience and other information: president and
ceo of svenska cellulosa aktiebolaget sca 1990–2002, where he
was employed 1977–1983 and 1986–2002. previous positions at
sunds Defibrator and Mo och Domsjö aB.
Sir Peter L. Bonfield (first elected 2002)
Member of the Audit Committee
Born 1944, Honors degree in engineering, lough
borough university, leicestershire, uK. Chairman
of the supervisory Board nXp. Deputy Chairman:
British Quality Foundation. Board member: Mentor
Graphics inc., sony corporation, and tsMc. Hold-
ings in Ericsson: 22,000 class B shares.
Principal work experience and other information: ceo and chair
man of the executive committee of British telecommunications plc
(1996–2002). chairman and ceo of icl plc (1990–1996). positions
with stc plc and texas instruments inc. Member of the international
advisory Board of citi. Member of the advisory Boards of new Ven
ture partners llp, and the longreach Group. nonexecutive Director
of actis capital llp, Ministry of Justice, and Dubai international
capital.
Börje Ekholm (first elected 2006)
Member of the Remuneration Committee
Born 1963, Master of science in electrical engineer
ing, royal institute of technology, stockholm. Mas
ter of Business administration, insead, France.
Board member: investor aB, aB chalmersinvest,
Husqvarna aB, scania and KtH Holding aB. Hold-
ings in Ericsson 1): 108,803 class B shares
Principal work experience and other information: president and
ceo of investor aB since 2005. prior to this, Börje ekholm was head
of investor Growth capital inc and new investments. previous posi
tions at novare Kapital aB and McKinsey & co inc.
Katherine M. Hudson (first elected 2006)
Born 1947, Bachelor of science in Management,
indiana university, usa. Board member (and Lead
Director): charming shoppes inc. Holdings in
Ericsson 1): 102,000 class B shares
Principal work experience and other information:
president and ceo of Brady corporation
1994–2003. Management positions with eastman Kodak company,
where she was employed for 24 years.
Ulf J. Johansson (first elected 2005)
Chairman of the Audit Committee
Born 1945, Doctor of technology and Master of
science in electrical engineering, royal institute of
technology, stockholm. Board Chairman: acando
aB, eurostep Group aB, novo a/s, novo nordisk
Foundation, and trimble navigation ltd. Board
member: Jump tap inc. Holdings in Ericsson 1): 32,176 class B
shares
Principal work experience and other information: Founder of
europolitan Vodafone aB, where he was the chairman of the Board
1990–2005. previous positions at spectraphysics aB, where he was
the president and ceo, ericsson radio systems aB. Member of the
royal academy of engineering sciences.
166
ericsson annual report 2007
corporate governance report 2007 Nancy McKinstry (first elected 2004)
Member of the Remuneration Committee
Born 1959, Master of Business administration in
Finance and Marketing, columbia university, usa.
Bachelor of arts in economics, university of rhode
island, usa. Board Chairman: ceo and chairman
of the executive Board of Wolters Kluwer n.v. Board
member: the american chamber of commerce, the netherlands,
and tiasnimbas Business school. Holdings in Ericsson: none
Principal work experience and other information: ceo and chair
man of the executive Board of Wolters Kluwer n.v. president and
ceo of ccH legal information services (1996–1999). previous posi
tions at Booz, allen & Hamilton, and new england telephone com
pany. Member of the advisory Board of the university of rhode
island, the advisory council of the amsterdam institute of Finance,
the Dutch advisory council of inseaD, and the Board of overseers
of columbia Business school.
Anders Nyrén (first elected 2006)
Member of the Finance Committee
Born 1954, Graduate of stockholm school of eco
nomics, Master of Business administration from
anderson school of Management, ucla, usa.
Board Chairman: association of exchange listed
companies and association for Generally accepted
principles in the securities Market. Deputy Chairman: sandvik aB,
svenska Handelsbanken. Board member: svenska cellulosa aktie
bolaget sca aB, industrivärden, skanska, ssaB, and ernströms
gruppen. Holdings in Ericsson 1): 33,428 class B shares
Principal work experience and other information: president and
ceo of industrivärden since 2001. cFo and eVp of skanska aB
1997–2001. nordbanken 1996–1997. cFo and eVp of securum aB
1992–1996. Managing Director of oM international aB 1987–1992.
earlier positions at stc scandinavian trading co aB and aB Wilhelm
Becker.
Carl-Henric Svanberg (first elected 2003)
Born 1952, Master of science, linköping institute of
technology. Bachelor of science in Business admin
istration, university of uppsala. Board Chairman:
sony ericsson Mobile communications aB. Deputy
Chairman: assa abloy aB. Board member: the
confederation of swedish enterprise, Melker schör
ling aB and uppsala university. Holdings in Ericsson 1): 15,781,966
class B shares
Principal work experience and other information: president and
ceo of telefonaktiebolaget lM ericsson since 2003. prior to this,
carlHenric svanberg was the president and ceo of assa abloy aB
(1994–2003). Various positions within securitas aB (1986–1994) and
aBB Group (1977–1985). carlHenric svanberg does not have mate
rial shareholdings or part ownerships in companies with which the
company has material business relationships.
Board members and deputies appointed
by the unions:
Monica Bergström (first appointed 1998)
Employee representative
Member of the Remuneration Committee
Born 1961. appointed by the siF union. Holdings in
ericsson 1): 4,757 class B shares
Jan Hedlund (first appointed 1994)
Employee representative
Member of the Audit Committee
Born 1946. appointed by the iF Metall union. Hold
ings in ericsson 1): 2,040 class B shares
Torbjörn Nyman (first appointed 2004)
Employee representative
Member of the Finance Committee
Born 1961. appointed by the swedish association
of Graduate engineers union. Holdings in ericsson 1):
15,061 class B shares
Kristina Davidsson (first appointed 2006)
Deputy employee representative
Born 1955. appointed by the iF Metall union. Hold
ings in ericsson 1): 3,401 class B shares
Anna Guldstrand (first appointed 2004)
Deputy employee representative
Born 1964. appointed by the union the swedish
association of Graduate engineers. Holdings in
ericsson 1): 4,723 class B shares, 900 options.
Karin Åberg (first appointed 2007)
Deputy employee representative
Born 1959. appointed by the siF union. Holdings in
ericsson 1): 4,877 class B shares
carlHenric svanberg is the only Director who holds an operational
management position at ericsson. no Director has been elected
pursuant to an arrangement or understanding with any major share
holder, customer, supplier or other person.
1) the number of class B shares (and class a shares and options, if applicable)
includes holdings by related natural or legal persons.
ericsson annual report 2007
167
corporate governance report 2007 company Management
The President and Chief Executive Officer
– operational management
the Board of Directors appoints the president and ceo and the
executive Vice presidents. Management of daytoday opera
tions is the responsibility of the president and ceo and the
Group Management team which, in addition to the president and
ceo, consist of the chief Financial officer, the chief technology
officer, the Heads of Group Functions and the Heads of the three
Business units: networks, Global services, and Multimedia.
the role of the Group Management team is to
• establish longterm vision, Group strategies and policies;
• maximize the Group’s business
• secure operational excellence and realize global synergies
the Group Management team meets monthly to discuss
business and decisions and to share information of common
interest to ericsson.
the extended Management team consists of the Group
Management team and selected Market unit Managers. the
extended Management team meets regularly to discuss
strategic issues and operations.
Group Functions
ericsson’s Group Functions perform tasks pertaining to
groupwide matters that logically do not fall into a specific
document or directive will
”no organization, chart,
in an organization.
the attitudes of the people
ever replace the values and
our commitment and ability
to cooperate will determine
whether we will achieve our
goals and strengthen our
leading position
Carl-Henric Svanberg
operational unit: communications, Finance, Human resources &
our financial performance is from 2007 reported in four business
organization, legal affairs, technology, sales & Marketing, and
segments: networks, professional services, Multimedia and
strategy & operational excellence.
phones; this replaces the previous structure with a large sys
the Head of a Group Function acts on behalf of the president
tems segment and other operations. segment phones, repre
& ceo within the Group Function’s area.
senting our share in earnings of our joint venture sony ericsson
the Group Functions formulate Group strategy, issue direc
Mobile communications, is unchanged.
tives, perform business control, resource allocation and risk
effective January 1, 2007, the company’s operational organi
management. they are also responsible for consolidation and
zation comprises three Business units responsible for product
reporting of financial performance, financing and cash manage
management, marketing, development, sourcing and supply of
ment, legal issues, communication with stakeholders including
their respective product portfolios: networks, Global services
employees, investors, press and media as well as coordination
and Multimedia; 24 Market units responsible for sales and cus
and administration of a number of Groupwide issues. other
tomer relations in different regions; and Group Functions for
important Groupwide matters, such as corporate responsibility,
coordination and support.
are managed by Group Functions in conjunction with a network
Management of each operating unit has significant authority
of experts from various parts of the company.
and responsibility in relation to daytoday operations, while
Operating Units
governance is carried out by steering committees that include
representatives of the Group Management team, the extended
Due to the increased focus on the new types of services made
Management team and the unit’s own management.
available in public telecommunication networks through the
technical development, including iptechnology and highspeed
broadband, and the growth in our professional services business,
168
ericsson annual report 2007
corporate governance report 2007 Risk Management
Members of the Group Management Team
the company has implemented a management system to secure
adequate risk management, operational efficiency and control.
the system consists of three parts:
• the company’s organization and mode of operations, with
welldefined roles and responsibilities, segregation of duties
and delegation of authority;
• steering documents, such as policies and directives, and a
code of business ethics; and
• several welldefined business processes, including integrated
controls supported by it applications.
risk management is integrated into each business process and
includes steps for identifying and assessing risk as well as for
approval and control. risks are managed in three time horizons:
• the annual strategy process defines objectives and assesses
risks and opportunities in several dimensions (technology,
products, markets, customers, subscriber and traffic growth,
general economic development, operational efficiency,
profitability, capital efficiency, resources, acquisitions) from a
longterm (38 year) perspective. the Board develops and
approves the strategies.
• the annual targetsetting process identifies nearterm risks
and opportunities for Business units, Market units, and Group
Functions. the process uses a balancedscorecard approach,
covering multiple dimensions: financial risks, markets/
customers, innovation/products and services, operational
efficiency and employee competence/empowerment.
• During daytoday business transactions. all parts of the
organization require the approval of transactions to operate;
that is, approval to develop new products, to offer contracts to
customers, to grant credit to customers, and to make
acquisitions and other investments. efficient operations are
driven by the implementation of standardized processes
across the entire Group and by appointed process owners,
with responsibility for process development and performance.
Carl-Henric Svanberg
President and CEO and member of the Board of
Directors (since 2003)
Born 1952, Master of science, linköping institute of
technology, Bachelor of science in Business admin
istration, university of uppsala.
carlHenric svanberg holds honorary doctorates at
luleå university of technology, sweden and linköping university of
technology, sweden. Chairman: sony ericsson Mobile communica
tions aB. Deputy chairman: assa abloy aB Board member: the
confederation of swedish enterprise, Melker schörling aB and
university of uppsala. Holdings in Ericsson 1): 15,781,966 class B
shares
Background: president and ceo of assa abloy aB (1994–2003).
Various positions within securitas aB (1986–1994) and aBB Group
(1977–1985).
Hans Vestberg
Executive Vice President and Chief Financial Officer
and head of Group Function Finance (since October
2007) and Executive Vice President and head of
Business Unit Global Services (up to December 31,
2007)
Born 1965, Bachelor in Business administration,
university of uppsala. Board member: sony ericsson Mobile com
munications aB, svenska Handbollsförbundet. Holdings in Erics-
son 1): 45,999 class B shares.
Background: prior to these positions Hans Vestberg was Vice
president and head of Market unit Mexico (2002–2003). Hans Vest
berg has held various positions in the company since 1988.
Kurt Jofs
Executive Vice President and head of Business Unit
Networks (since 2007)
Born 1958, Master of science, royal institute of
technology, stockholm. Deputy board member:
sony ericsson Mobile communications aB. Hold-
ings in Ericsson 1): 260,106 class B shares
Background: prior to assuming this position Kurt Jofs was execu
tive Vice president and head of Business unit access (since 2004).
other prior experiences include president and ceo of linjebuss and
aBB Ventilation products.
Bert Nordberg
Executive Vice President and head of Group Function
Sales & Marketing (since 2004)
Born 1956, Bachelor in electronic engineering,
Malmö, engineer in the Marines, Berga, university
courses in international Management, Marketing and
Finance, insead university, France. Chairman: litos
reprotryck i Malmö aB. Holdings in Ericsson 1):
57,841 class B shares
Background: prior to assuming this position, Bert nordberg was
head of Business unit systems and held other various positions
within ericsson.
ericsson annual report 2007
169
corporate governance report 2007 Joakim Westh
Senior Vice President and head of Group Function
Strategy and Operational Excellence (since 2007)
Born 1961, Master of science, royal institute of
technology, stockholm, Master of science within
aeronautics & astronautics, Mit, Boston, usa.
Board chairman: absolent aB. Board member:
sony ericsson Mobile communications aB, VKr Holding a/s. Hold-
ings in Ericsson 1): 135,744 class B shares
Background: prior to assuming this position, Joakim Westh was
senior Vice president and head of Group Function operational excel
lence. Member of assa abloy executive Management team. Before
this, Joakim Westh was a partner with McKinsey & co. inc.
Jan Wäreby
Senior Vice President and head of Business Unit
Multimedia (since 2007).
Born 1956, Master of science, chalmers university,
Göteborg. Board member: sony ericsson commu
nications aB. Holdings in Ericsson 1): 167,746 class
B shares.
Background: From 2002 to 2006, Jan Wäreby was
corporate executive Vice president, and head of sales and Market
ing for sony ericsson Mobile communications.
up to october 24, 2007, KarlHenrik sundström, former execu
tive Vice president and chief Financial officer and head of Group
Function Finance, was a member of the Group Management
team of the company.
1) the number of class B shares (and class a shares, if applicable) includes holdings
by related natural or legal persons. options and matching rights are reported in
notes to the consolidated Financial statements – note c29, “information
regarding employees, Members of the Board of Directors and Management” in the
annual report.
Björn Olsson
Executive Vice President and deputy head of
Business Unit Networks (since 2007)
Born 1956, Master of science in industrial engineer
ing and Management, linköping institute of technol
ogy. Holdings in Ericsson 1): 60,196 class B shares
Background: prior to assuming this position, Björn
olsson was executive Vice president and head of Business unit
systems (since 2004). since 2004 he was chief information officer.
He has held various positions within ericsson since 1981.
Marita Hellberg
Senior Vice President and head of Group Function
Human Resources & Organization (since 2003)
Born 1955, Bachelor in Human resources Manage
ment, stockholm university, advanced Management
program, cedep, France. Board member: sony
ericsson Mobile communications aB, utbildningsra
dion and teknikföretagen. Holdings in Ericsson 1):
68,446 class B shares
Background: prior to assuming this position Marita Hellberg was
senior Vice president of Human resources of ncc Group.
Carl Olof Blomqvist
Senior Vice President, General Counsel and head of
Group Function Legal Affairs (since 1999)
Born 1951, Master of law, llM, university of upp
sala, sweden. Holdings in Ericsson 1): 6,080 class
a shares and 70,424 class B shares
Background: prior to assuming this position, carl
olof Blomqvist was a partner of Mannheimer swar
tling law firm.
Henry Sténson
Senior Vice President and head of Group Function
Communications (since 2002)
Born 1955, studied law, sociology and political
science, linköping university and at the swedish
War academy, Karlberg, stockholm. Board mem-
ber: stronghold, the swedish public relations
association and the stockholm chamber of com
merce. Holdings in Ericsson 1): 59,128 class B shares.
Background: prior to assuming his position, Henry sténson was
head of sas Group communication.
Håkan Eriksson
Senior Vice President, Chief Technology Officer and
head of Group Function Technology (since 2007)
Born 1961, Master of science and Honorary ph D,
linköping institute of technology. Board member:
linköping university and anoto. Holdings in Erics-
son 1): 43,679 class B shares
Background: prior to assuming this position, Håkan eriksson was
senior Vice president and head of research & Development. He has
held various positions within ericsson since 1986.
170
ericsson annual report 2007
corporate governance report 2007 Extended Management Team
extended Management team members are not involved in any
the extended Management team consists of the members in the
business activities that compete with or in any other way
Group Management team and:
• cesare avenía, Vice president and head of Market unit south
east europe and head of Global customer account telecom
negatively affect ericsson’s business. none of the extended
Management team members have been appointed by arrange
ment or understanding with shareholders, customers, suppliers
italia
or other parties.
• Boerik Dahlström, Vice president and head of Market unit
Middle east
• Mats Granryd, Vice president and head of Market unit india &
sri lanka;
• Jan embro, Vice president and head of Market unit sub
saharan africa
• Björn Hemstad, Vice president within Group Function sales &
Marketing and chairman of the Market units central europe,
Remuneration of Group management
principles for remuneration and other employment terms for
Group Management were approved by the annual General
Meeting of shareholders 2007. For further information on
remuneration, fixed and variable pay, see notes to the consoli
dated Financial statements – note c29, “information regarding
employees, Members of the Board of Directors and Manage
eastern europe & central asia, israel & turkey, Middle east,
ment” in the annual report.
saudi arabia, sub saharan africa and northern africa
• Jaqueline Hey, Vice president and head of Market unit north
Western europe and head of Global customer account
auditors
Vodafone
• ingemar naeve, Vice president and head of Market unit iberia
ericsson’s external, independent auditors are elected by the
shareholders at the annual General Meeting for a period of four
and head of Global customer account telefónica;
years. the auditors report to the shareholders at shareholders’
• Mats olsson, Vice president and head of Market unit Greater
Meetings.
china;
• torbjörn possne, Vice president and head of Market unit
northern europe and head of Global customer account
Deutsche telekom;
• angel ruiz, Vice president and head of Market unit north
america;
• Jan signell, Vice president and head of Market unit south east
asia;
the auditors:
• update the Board of Directors regarding the planning, scope
and content of the annual audit;
• examine the yearend financial statements and report findings
to assess accuracy and completeness of the accounts and
adherence to accounting procedures and principles;
• advise the Board of Directors of additional services performed
(nonauditing), the consideration paid and other issues that are
needed to determine the auditors’ independence. For further
During 2007, the officers below were also members of the
information on the contacts between the Board and the
extended Management team of the company:
• sivert Bergman: head of integration & Governance within
auditors, please see “Work of the Board of Directors” above.
Business unit networks
all ericsson’s quarterly reports are reviewed by the auditors.
• rory Buckley: former Vice president and head of Market unit
north east asia left the company in october 2007
• ragnar Bäck: former chairman of the Market units central
Statutory auditors
pricewaterhousecoopers aB was elected at the annual General
europe, eastern europe & central asia, israel & turkey, Middle
Meeting 2007 for a period of four years until the close of the
east, saudi arabia, sub saharan africa and northern africa
annual General Meeting 2011.
retired in March 2007
pricewaterhousecoopers has appointed Bo Hjalmarsson,
• Jan campbell: former Vice president and head of Market unit
central europe. Jan campbell was appointed head of Market
authorized public accountant, to serve as auditor in charge. Bo
Hjalmarsson is also auditor in charge at other large companies
unit eastern europe & central asia in october 2007
such as oMX, sony ericsson, lundin petroleum, Vostok nafta,
• Jef Keustermans: former Vice president and head of Market
unit northern europe left the company in June 2007
• Gerhard Weise: former Vice president and head of Market unit
Mexico. Gerhard Weise retired in December 2007
Vostok Gas and Duni.
ericsson annual report 2007
171
corporate governance report 2007 Fees paid to external auditors
ericsson paid the fees (including expenses) listed in the table in
notes to the consolidated Financial statements – note c31,
Disclosure controls and
procedures
“Fees to auditors” in the annual report for auditrelated and other
ericsson has controls and procedures in place to make sure that
services.
information to be disclosed under the securities exchange act of
the audit committee reviews and preapproves any nonaudit
1934, and under ericsson’s agreements with oMX nordic
services to be performed by the external auditors to ensure the
exchange stockholm, london stock exchange and nasDaQ, is
auditors’ independence.
audit committee preapproval
policies and procedures
the audit committee makes recommendations to the Board of
done so on time, and that such information is provided to
management, including the ceo and cFo, so that timely
decisions can be made regarding required disclosure.
to assist managers in fulfilling their responsibility with regard to
disclosures made by the company to its security holders and the
investment community, a Disclosure committee was established
Directors regarding the auditors’ performance and fees. it
in 2003. one of the main tasks of the Disclosure committee is to
reviews the scope and execution of audits performed (external
monitor the integrity and effectiveness of the company’s
and internal) and analyzes the result and the cost.
disclosure controls and procedures.
the audit committee has established preapproval policies
Further, ericsson has investments in certain entities that
and procedures for services other than audits performed by the
ericsson does not control or manage. accordingly, our disclo
external auditors. such services fall into two broad headings:
sure controls and procedures with respect to such entities are
General preapproval services that can be preapproved by
necessarily substantially more limited than those we maintain
the audit committee without consideration to specific caseby
with respect to our subsidiaries.
case service. tax, transaction, risk management, corporate
During the year, management, with the participation of
finance, attestation and accounting services and general
ericsson’s president and ceo and cFo, respectively, supervised
services have received a general preapproval of the audit
and participated in an evaluation of the effectiveness of our
committee, provided that the estimated fee level for the project
disclosure controls and procedures. as a result, ericsson’s
does not exceed seK 1 million. the external auditors must advise
president and ceo and cFo concluded that the disclosure
the audit committee of services rendered under the general
controls and procedures were effective at a reasonable assur
preapproval policy.
ance level.
specific preapproval – all other auditrelated, tax and other
there were no changes to our internal control over financial
services must receive specific preapproval. the audit commit
reporting during the period covered by the annual report 2007
tee chairman has the delegated authority for specific preap
that have materially affected, or are likely to materially affect, our
proval, provided service fees do not exceed seK 2.5 million. the
internal control over financial reporting.
chairman reports any preapproval decisions to the audit
committee at its scheduled meetings. For other matters, an
auditor submits an application to the cFo. if supported by the
ericsson’s Disclosure policies
cFo, the application is presented to the audit committee for final
ericsson’s financial disclosure policies are designed to give
approval.
transparent, informative and consistent communication with the
preapproval authority may not be delegated to management.
investment community on a fair and equal basis, which will
the policies and procedures include a list of prohibited services.
reflect in a fair market value for ericsson shares. We want our
shareholders and potential investors to have a good understand
ing of how our company works, our operational performance,
what our prospects are and the risks we face that these
opportunities may not be realized.
to achieve these goals, our financial reporting and disclosure
must be:
• transparent – our disclosure should enhance understanding of
the economic drivers and operational performance of our
business, hence building trust and credibility.
172
ericsson annual report 2007
corporate governance report 2007
• consistent – we aim for consistent and comparable disclosure
within and between reporting periods.
• simple – information should be provided in as simple a manner
as possible, so readers gain the appropriate level of under
standing of our business operations and performance.
• relevant – we focus our disclosure on what is relevant to
ericsson’s stakeholders or required by regulation or listing
agreements, to avoid information overload.
• timely – we utilize wellestablished disclosure controls and
procedures to ensure that all disclosures are complete,
accurate and performed on a timely basis.
• Fair and equal – we publish all material information via press
releases to ensure everyone receives the information at the
same time.
The Swedish Code of Corporate Governance
independence requirements on the board of directors (excluding
employee representatives):
• only one person from the senior management may be a
member of the board.
• a majority of the directors elected by the shareholders’
meetings must be independent of the company and its
management.
• at least two of the directors who are independent of the
company and its management must also be independent of
the company’s major shareholders.
independence requirements on the audit committee:
• the majority of audit committee members must be indepen
dent of the company and senior management.
• a reflection of best practice – we strive to ensure that our
• at least one member of the committee must be independent of
disclosure is in line with industry norms.
the company’s major shareholders.
• a board member who is part of senior management may not
our website (www.ericsson.com/investors) includes comprehen
be a member of the audit committee.
sive information on ericsson, including an archive of our annual
and interim reports, ondemandaccess to recent news and
copies of presentations given by senior management at industry
independence requirements on the remuneration committee:
• committee members must be independent of the company
conferences. information on our website does not form part of
and the senior management.
this document.
independence requirements
the ericsson Board of Directors is subject to, and complies with,
a variety of independence requirements. However, it has sought
The NASDAQ Marketplace Rules
independence requirements on the board of directors:
• a majority of the members of the board of directors must be
independent within the meaning of the nasDaQ rules.
and received exemptions from those nasDaQ requirements that
ericsson has obtained an exemption from nasDaQ allowing
are contrary to swedish law, see “nasDaQ corporate Gover
employee representative directors to be exempt from nasDaQ’s
nance exemptions” below.
independence requirements.
Listing requirements of OMX Nordic Exchange
Stockholm
• only one person from senior management may be a member
of the board (applies also to senior management in the
company’s subsidiaries).
• the majority of the directors elected by the shareholders’
meetings (employee representatives not included) must be
Sarbanes-Oxley Act of 2002 and corresponding
NASDAQ rules
independence requirements on the audit committee:
• all members of the audit committee must be independent
within the meaning of the sarbanesoxley act of 2002.
the sarbanesoxley act of 2002 includes a specific exemption
independent of the company and its management. an overall
for nonexecutive employee representatives.
assessment should be made in each case in order to consider
whether a director is independent or not.
• at least two of the directors who are independent of the
NASDAQ Corporate Governance Exemptions
pursuant to a 2005 amendment to nasDaQ’s Marketplace rules,
company and its management must also be independent of
foreign private issuers such as ericsson may follow home coun
the company’s major shareholders. one of these directors
try practice in lieu of certain nasDaQ corporate governance
must be experienced in requirements placed on a listed
requirements.
company.
Before the amendment was adopted, nasDaQ’s Marketplace
ericsson annual report 2007
173
corporate governance report 2007
rules provided that foreign private issuers could, upon applica
reporting, outlined in soX section 404, apply. the company has
tion, be exempt from certain of its corporate governance
implemented detailed controls, documentation and testing
requirements when these requirements were contrary to the laws,
procedures in accordance with the coso framework, issued by
rules or regulations, or generally accepted business practices of
the committee of sponsoring organizations of the treadway
the issuer’s home jurisdiction.
commission, to ensure compliance with soX 404. Manage
ericsson has received (and is entitled to continue to rely
ment’s report according to soX 404 will be included in erics
thereon under the 2005 amendment) exemptions from nas
son’s annual report on Form 20F which will be filed with the
DaQ’s corporate governance requirements under the Market
sec in the united states. During 2007, the company has
place rules in order to allow:
• employee representatives to be elected to the Board of
Directors and serve on its committees (including the audit
committee), in accordance with swedish law.
• shareholders to participate in the election of Directors and the
nomination committee, in accordance with swedish law and
continued to work with the design and execution of financial
controls to improve the efficiency of the controls.
Internal control over financial reporting
ericsson has integrated risk management and internal control
into its business processes. as defined in the coso framework
common market practice respectively.
for internal control, components of internal control are: a control
• employee representatives on the Board to attend all Board and
all committee meetings (including the audit committee), in
accordance with swedish laws concerning attendance and
environment, risk assessment, control activities, information and
communication, and monitoring.
decision making processes.
Control environment
in addition, ericsson relies on the exemption provided by the
of labor between the Board of Directors and its committees and
2005 amendment to overcome contradictions between nasDaQ
the president and ceo and a management system that is based
the company’s internal control structure is based on the division
and swedish law requirements regarding quorums for its
meetings of holders of common stock.
internal control over financial
reporting for the year 2007
according to the swedish companies act and the swedish code
of corporate Governance, the Board of Directors must
• ensure that the company has satisfactory internal controls;
• inform itself of the company’s internal control system; and
• assess how well it is working.
on:
• the company’s organization and mode of operations, with
welldefined roles and responsibilities and delegations of
authority;
• steering documents, such as policies and directives, and a
code of Business ethics; and
• several welldefined processes for planning, operations and
support.
the most essential parts of the control environment relative to
financial reporting are included in steering documents for
accounting and financial reporting. these steering documents
this report has been prepared in accordance with the swedish
are updated regularly to include, among other things, changes to
code of corporate Governance, section 3.7.2, and is thereby
laws, financial reporting standards and listing requirements, such
limited to internal control over financial reporting.
as iFrs and soX.
the swedish corporate Governance Board has made a pro
nouncement to the effect that the internal control report must be
Risk assessment
included as part of the corporate Governance report. the
risks related to financial reporting are fraud and loss or embezz
Board of Directors needs not state how well the internal control
lement of assets, undue favorable treatment of counterparties at
over financial reporting has worked; nor do the auditors have to
the expense of the company, and other risks of material
examine the internal control report. in accordance with this
misstatements in the financial statements, for example, those
pronouncement, we are not making any such statement in this
related to recognition and measurement of assets, liabilities,
report for 2007, and this report has not been examined by our
revenue and cost or insufficient disclosure. ericsson is managed
auditors.
through common processes, where risk management is
Because the company is listed in the united states, the
integrated, applying various methods of risk assessment and
assessed effectiveness of internal controls over financial
control, to ensure that the risks to which the company is
174
ericsson annual report 2007
corporate governance report 2007 exposed are managed according to established policies.
management, including analysis and comments on financial
accounting and financial reporting policies and directives cover
performance and risks. the Board of Directors receives financial
areas of particular significance to support correct accounting,
reports monthly. the audit committee has established a “whistle
reporting and disclosure.
blower” procedure for reporting violations relative to accounting,
internal controls and auditing matters.
Control activities
the company’s business processes include financial controls
regarding the approval and accounting of business transactions.
Monitoring
the financial closing and reporting process has controls
the company’s financial performance is reviewed at each Board
regarding recognition, measurement and disclosure, including
meeting. the committees of the Board fulfill important monitoring
the application of critical accounting policies and estimates, in
functions regarding remuneration, borrowing, investments,
individual subsidiaries as well as in the consolidated accounts.
customer financing, cash management, financial reporting and
all legal entities, business units and market units in ericsson have
internal control. the audit committee and the Board of Directors
own dedicated controller functions which participate in planning
review all interim and annual financial reports before they are
and evaluating each unit’s performance. regular analysis of the
released to the market. the audit committee also receives
financial reports for their respective units covers the significant
regular reports from the external auditors. the audit committee
elements of assets, liabilities, revenues, costs and cash flow.
follows up on any actions taken to improve or modify controls.
together with analysis performed at the Group level, this
the company’s process for financial reporting is reviewed
important element of internal control ensures that the financial
annually by Management and forms a basis for evaluating the
reports do not contain material errors.
internal management system and internal steering documents to
For external financial reporting purposes, additional controls
ensure that they cover all significant areas related to financial
ensure that all disclosure requirements are fulfilled by a Disclo
reporting. compliance with policies and directives is monitored
sure committee established by company management.
through annual selfassessments and representation letters from
the company has implemented controls to ensure that the
heads and controllers in all subsidiaries as well as from business
financial reports are prepared in accordance with iFrs. to
units and market units. the company’s internal audit function,
ensure that ericsson’s ceo and cFo can assess the effective
which reports to the audit committee, performs independent
ness of the internal control in a way that is compliant with soX
audits.
requirements, the company also maintains detailed documenta
tion on internal controls related to accounting and financial
reporting, as well as on moni toring the execution and results of
such controls. a thorough review of materiality levels related to
the financial reports has resulted in the implementation of
detailed control documentation in several subsidiaries with
significant scale of operations. For other subsidiaries, the
company has implemented overall controls which relate to the
control environment and comply with the policies and directives
related to financial reporting.
Information and communication
the company’s information and communication channels
support completeness and correctness of financial reporting, for
example, by making internal instructions and policies regarding
accounting and financial reporting widely known and accessible
to all employees concerned, as well as through regular updates
and briefing documents regarding changes in accounting policies
and reporting and disclosure requirements.
subsidiaries and operations units make regular financial and
management reports to internal steering groups and company
ericsson annual report 2007
175
corporate governance report 2007 Financial Terminology
Capital employed
Total assets less non-interest-bearing
provisions and liabilities.
Capital turnover
Net sales divided by average Capital
employed.
Cash conversion
Measures the proportion of profits
that are converted to cash flow.
Total cash flow from operating
activities is divided by the sum of net
income and adjustments to reconcile
net income to cash – expressed in
percent.
Cash dividends per share
Dividends paid divided by average
number of shares, basic.
Compound annual growth rate
(CAGR)
The year-over-year growth rate over
a specified period of time.
Days sales outstanding (DSO)
Trade receivables balance at quarter
end divided by Net Sales in the quar-
ter and multiplied by 90 days. If the
amount of trade receivables is larger
than last quarter's sales, the excess
amount is divided by Net Sales in the
previous quarter and multiplied by
90 days, and total days outstanding
(DSO) are the 90 days of the most
current quarter plus the additional
days from the previous quarter.
Earnings per share
Basic earnings per share; profit or
loss attributable to stockholders of
the Parent Company divided by the
weighted average number of ordinary
shares outstanding during the period.
Diluted earnings per share; the
weighted average number of shares
outstanding are adjusted for the
effects of all dilutive potential ordinary
shares.
EBITDA margin
Earnings Before Interest, Taxes, De-
preciation and Amortization, divided
by Net sales.
Equity ratio
Equity, expressed as a percentage of
total assets.
Inventory turnover
Cost of Sales divided by average
Inventory.
Net cash
Cash and cash equivalents plus
short-term cash investments less
interest-bearing liabilities and post-
employment benefits.
Payable days
The average balance of Trade
payables at the beginning and at the
end of the year divided by Cost of
sales for the year, and multiplied by
360 days.
Payment readiness
Cash and cash equivalents and short-
term investments less short-term
borrowings plus long-term unused
credit commitments. Payment readi-
ness is also shown as a percentage
of Net Sales.
Return on capital employed
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).
Return on equity
Net income attributable to stock-
holders of the Parent Company as
a percentage of average Stockhold-
ers’ equity (based on the amounts at
January 1 and December 31).
Stockholders’ equity per share
Stockholders’ equity divided by the
Number of shares outstanding, basic,
at the end of the period.
Trade receivables turnover
Net sales divided by average Trade
receivables.
Value at Risk (VaR)
A statistical method that expresses
the maximum potential loss that can
arise with a certain degree of prob-
ability during a certain period of time.
Working capital
Current assets less current non-inter-
est-bearing provisions and liabilities.
176
Financial terminology and glossary
Stockholm, Sweden
Connecting with friends
Alfa Indah, Sumatra, Indonesia
Delivering an order received via mobile phone
Singapore
Keeping in touch with relatives in New York
Glossary
Annual Report 2007
Operational Review
1
25 Letter from the Chairman
26 Board of Directors' Report*
45 Consolidated Financial Statements*
49 Notes to the Consolidated Financial Statements*
105 Risk Factors*
111 Parent Company Financial Statements*
116 Notes to the Parent Company Financial Statements*
134 Auditors' Report
135 Share Information
140 Shareholder Information
141 Remuneration
145 Information on the Company
155 Forward-looking Statements
156 Corporate Governance Report 2007
176 Financial Terminology and Glossary
Annual publications
The Ericsson Annual Report describes Ericsson’s financial and operational performance during
2007. This publication includes a Corporate Governance Report.
The Ericsson Summary Annual Report is an extract of the full Annual Report. We issue a separate
Corporate Responsibility Report. Our website www.ericsson.com is updated on a regular
basis and contains information about the Company, including downloadable versions of each of
the above reports.
* Chapters covered by the Auditors' Report
2G
First digital generation of
mobile systems, includes GSM,
TDMA, PDC and cdmaOne.
3G
3rd generation mobile system,
includes WCDMA/HSPA, EDGE,
CDMA2000 and TD-SCDMA.
All-IP
A single, common IP infrastructure
that can handle all network services,
including fixed and mobile communi-
cations, for voice and data services
and also video services such as TV.
ARPU
Average Revenue Per User.
Broadband
Data speeds that are high enough
to allow transmission of multimedia
services with good quality.
Centrex solutions
Centrex is a telephony service for enter-
prises, delivered by a service provider.
Downlink
= to your device.
DSL access
Digital Subscriber Line technologies
for broadband multimedia com-
munications in fixed line telephone
networks. Examples: IP-DSL, ADSL
and VDSL.
EDGE
Third generation mobile standard,
developed as an enhancement of
GSM. Enables the transmission of
data at speeds up to 250 kbps.
Emerging market
Defined as a country that has a GNP
per capita index below the World
Bank average and a mobile subscrip-
tion pene tration below 60 percent.
IMS
(IP Multimedia Subsystem)
A standard for offering voice and
multimedia services over mobile
and fixed networks using Internet
technology (IP).
IP
(Internet Protocol) Defines how
information travels between network
elements across the Internet.
GPON
(Gigabit Passive Optical Network)
Used for fiber-optic communication to
the home (FTTH).
IPTV
(IP Television) A technology that
delivers digital television via fixed
broadband access.
GPRS
(General Packet Radio Service)
A packet-switched technology that
enables GSM networks to handle
mobile data communications at rates
up to 115 kbps, for instance Internet
connections. Generally referred to
as 2.5G.
HSPA
(High Speed Packet Access)
Enhancement of 3G/WCDMA that en-
ables mobile broadband. A subscriber
can download files to a 3G mobile
device at speeds of several Mbps.
IPX
(Internet Payment eXchange)
The global payment and messaging
delivery solution for SMS, MMS,
Web and WAP.
LTE
(Long-Term Evolution) The term for
the next evolutionary step of mobile
technology beyond today’s HSPA
networks.
Main-remote concept
A split radio base station, with radio
units at the top of the mast, near
antennas.
Managed services
Outsourcing of the management
of operator networks and/or hosting
of their services.
Packet switching
A method of switching data in a
network where individual packets
are accepted by the network and
delivered to their destinations.
The method is used by the Internet
and will replace traditional circuit
switching.
Penetration
The number of subscriptions
divided by the population in a
geographical area.
Softswitch
A software-based system for handling
call management functionality. Inte-
grates IP-telephony and the legacy
circuit-switched part of the network.
Uplink
= from your device, e.g. to the
Internet.
WCDMA
(Wideband Code Division Multiple
Access) A 3G mobile communica-
tion system that uses code division
multiple access technology over a
wide frequency band. WCDMA builds
on the same core network infrastruc-
ture as GSM.
Uncertainties in the Future
Some of the information provided in this material is or may contain forward-looking information such as statements about expectations, assumptions about future market conditions, projec-
tions or other characterizations of future events. The words “believe”, “expect”, “anticipate”, “intend”, “may”, “plan”, the negative of such terms, and similar expressions are intended to identify
these statements. 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 and actual results may differ materially. 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. We advise you that Ericsson is subject to risks both specific to our industry and specific to our company
that could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, changing conditions in the telecom-
munications industry, political economic and regulatory developments in our markets, our management’s ability to develop and execute a successful strategy, various financial risks such
as interest rate changes and exchange rate changes, erosion of our market position, structure and financial strength of our customer base, our credit ratings, product development risks,
supply constraints, and our ability to recruit and retain quality staff.
WHERE YOU CAN FIND OUT MORE
Our website: www.ericsson.com
Our share: www.ericsson.com/investors
Project Management Ericsson Investor Relations
Design and production Publicis Stockholm and Paues Media
Photography Andreas Lind, Felix Oppenheim (p.8-9), Marcel Pabst (p.19), Lars Nybom (p.23-24)
Reprographics TBK
Printing Elanders, Falköping
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ERICSSON ANNUAL REPORT 2007
EVERY MOMENT COUNTS
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
www.ericsson.com
Printed on Amber Graphic and Holmen Ideal Volume
– chlorine free paper that meets international environmental standards
EN/LZT 108 9753 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2008