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ERICSSON ANNUAL REPORT 2008
UNLIMITED COMMUNICATION
– OUR vEhICLE fOR gROwTh
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
www.ericsson.com
Printed on Maxi Offset and Mysoll matt
– chlorine free paper that meets international environmental standards
EN/LZT 108 9933 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2009
Contents
Annual publications
The Ericsson Annual Report describes
Ericsson’s financial and operational
performance during 2008. This publication
includes a Corporate Governance Report.
We issue a separate Corporate
Responsibility Report.
1
2
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5
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37
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114
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136
137
141
142
145
148
172
Annual Report 2008
This is Ericsson in 2008
Letter from the CEO
Five-Year Summary
Letter from the Chairman
Board of Directors’ Report*
Consolidated Financial Statements*
Notes to the Consolidated Financial Statements*
Parent Company Financial Statements*
Notes to the Parent Company Financial Statements*
Risk Factors*
Auditors’ Report
Information on the Company
Forward-Looking Statements
Share Information
Shareholder Information
Corporate Responsibility
Remuneration
Corporate Governance Report 2008
Glossary and Financial Terminology
* Chapters covered by the Auditors’ Report, constituting the legal annual report.
The Ericsson Vision
Our vision is to be the prime
driver in an all-communicating
world. A world in which any
person can use voice, text,
images and video to share
ideas and information
whenever and wherever
wanted. As the leading supplier
of communication networks
and services, Ericsson plays a
vital role in making such a
world a reality.
This is Ericsson in 2008
As the world’s largest supplier of network equipment and related services to telecom operators, Ericsson
has over 78,000 employees and customers in more than 175 countries. Innovation, technology leadership
and sustainable business solutions advance a vision to be the prime driver in an all-communicating world.
Long-term relationships with all major operators result in Ericsson serving well over 40 percent of all mobile
subscribers. Ericsson manages a number of operator-owned networks with, altogether, 250 million
subscribers globally. The Sony Ericsson joint venture is a major supplier of feature-rich mobile phones.
Financial results in short
Key developments
•
Sales grew by 11 percent to SEK 209 billion
•
650 million new mobile subscriptions added to reach
with global demand across the entire portfolio.
the 4 billion mark.
•
Operating margin was 11.4 (16.3) percent,
excluding restructuring charges,
due to a gross margin decrease along with insignificant
•
Emerging markets fastest growing, with India and China
now our largest markets.
Record year for GSM network shipments.
Weaker demand for replacement phones affecting
contribution from Sony Ericsson compared to 2007.
mobile phone market but usage grew.
•
Earnings per share 49 percent lower, SEK 3.52,
negatively impacted by restructuring charges and
Sony Ericsson.
•
Payment readiness improved from SEK 65 billion
•
Mobile broadband took off with tripled subscriptions
and peak data rates of 21 Mbps.
•
Joint venture to build leading position in semiconductors
and platforms for mobile devices.
•
Multimedia investments start to pay off with especially
good progress in Revenue Management and Service
to SEK 85 billion at year end,
Delivery & Provisioning.
with working capital efficiency improvements.
LTE established as first true global mobile standard.
•
•
•
•
•
Introduced new multi-standard radio base station.
Expanded presence in Silicon Valley to strengthen
our position in IP technologies.
SALES BY REGION 2008
OUR 10 LARGEST MARKETS 2008
Ericsson net sales (SEK billion)
Percent of total sales
and change (percent) year-over-year
NET SALES
(SEK billion)
153.2
132.0
208.9
23
187.8
179.8
17.9
34%
25%
2008
16%
63.3
51.6
53.1
–2%
9%
2004
2005
2006
2007
2008
Western Europe
Central & Eastern Europe,
Middle East and Africa
Asia Pacific
Latin America
North America
7% 7% 7%
5%
4% 4% 4% 4%
3% 3%
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10
ERICSSON ANN uAL REPORT 2008
THIS IS ERICSSON 1
Dear fellow shareholders,
We may be living in uncertain times, but there’s one thing that gives me a strong belief
in the future of our business: the majority of people worldwide appreciate the benefits
that our products and services bring.
Mobile subscriptions have now reached the four billion mark,
a remarkable achievement that reinforces our vision to be the
prime driver in an all-communicating world. This was also the
year that mobile broadband really took off and Ericsson was a
key contributor to both of these milestones. As you can see from
the results, our strategy and commitment to our vision are
paying off.
Financially strong
We had a solid performance this year with robust sales growth
and best-in-class margins. Ericsson’s strong financial position
Performance was solid,
with robust sales growth.”
enables us to pursue
strategic
opportunities, such
as quickly building
a market-leading
position in core
mobile phone
technologies from a joint venture with STMicroelectronics.
The turmoil within the financial markets is leading to a macro-
economic downturn that will eventually affect all parts of society.
However, the vast majority of our customers are financially
strong. Their networks are well dimensioned, but traffic is
growing rapidly which drives the need for continued spending to
maintain quality of service.
So far, our network and services businesses have hardly been
affected at all by the financial markets’ turmoil. This is not to say
we take the macro-economic situation lightly, as it would be
unreasonable to believe that we will not be affected in some way.
We are therefore accelerating our move to all-IP technology to
reduce our costs and prepare for tougher times. As the cost
reductions largely come from more efficient ways of working,
our strategy and unique capabilities should be unaffected.
Weakening demand for replacement phones is, however,
impacting Sony Ericsson, especially in Western Europe. The JV is
adjusting to the deteriorating market conditions with significant
cost reduction activities which will restore its capability for
profitable growth.
2
LETTER fRoM THE CE o
ERICSSon A nnuAL REP oRT 2008
“ This was the year that mobile
broadband really took off.”
Benefiting from long-term trends
Trusted partner
Being a trusted partner means working closely with our
customers to fully understand their strategic needs and
intentions. Customers tell us that we earn our competitive
advantage by actively listening, sharing and exploring ways to
cooperatively develop the most efficient solutions. our mobile
communications infrastructure, technology leadership, and
telecom services expertise are highly rated by our customers in
Despite the current macro-economic environment, the
independent studies. Trust in Ericsson helps us to outperform the
fundamentals of our industry are sound and the underlying
market and places Ericsson well ahead of the competition.
demand drivers remain intact. Today, mobile communication is
In closing, I am very excited about the potential of the
just as essential to any nation’s infrastructure as water,
telecommunications industry to improve the quality of life in
transportation or electricity.
societies around the world. I take great pride in Ericsson’s role in
The socio-economic contributions of mobile communications
making this happen.
are well demonstrated with the importance of broadband
increasing. The uS Senate Appropriations Committee estimates
that for every uSD 1 invested in broadband networks, uSD 10 are
returned to society. The returns could be even higher with mobile
broadband networks as they are cheaper and faster to build than
fixed networks.
Ericsson plays a vital role in bringing the benefits of mobile
broadband to the majority of people around the world. People in
Carl-Henric Svanberg
many parts of the world will soon be able to accomplish things
President and CEo
that were never possible before – share ideas and information
whenever and wherever they want, get medical advice and
e-learning, stay in touch with family and friends and much more.
In many ways, 2008 was the year of mobile broadband. Data
traffic increased dramatically in mobile broadband networks built
by Ericsson, particularly for operators using bundled tariffs or a flat
fee structure. We delivered software enhancements that tripled
peak data rates, enabling a user experience and cost similar to
fixed broadband. further enhancements are in the works.
A new radio standard, Long Term Evolution (LTE), which offers
even greater speeds, is now the first truly global mobile standard.
However, GSM and WCDMA systems will coexist for some time
and we have developed a new, more energy-efficient radio base
station that also supports multiple standards.
What’s more, our services business gained market share and
we now manage a variety of operator networks, serving some
250 million subscribers worldwide.
ERICSSon A nnuAL REP oRT 2008
LETTER fRoM THE CE o 3
five-year summary
SEK million
Income statement items
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 outstanding (in millions)
– at end of period, basic
– 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
1) for 2008, as proposed by the Board of Directors.
for definitions of the financial terms used, see financial terminology.
2008
2007
2006
2005
2004
208,930
16,252
974
11,667
285,684
99,951
182,439
34,651
9,995
140,823
1,261
187,780
30,646
83
22,135
245,117
86,327
168,456
24,312
9,304
134,112
940
179,821
35,828
165
26,436
214,940
82,926
142,447
40,728
7,881
120,113
782
153,222
33,084
251
24,460
209,336
86,184
133,332
50,645
6,966
101,622
850
131,972
26,706
–540
17,836
186,186
69,268
115,144
42,911
5,845
80,445
1,057
40,354
33,404
21,552
30,860
33,643
3.54
3.52
1.85 1)
44.21
3,185
3,183
3,202
4,133
3,108
1,287
5,006
33,584
16.1%
7.8%
8.0%
11.9%
92%
8.2%
11.3%
49.7%
1.2
5.4
3.1
84,917
40.6%
6.87
6.84
2.50
42.17
3,180
3,178
3,193
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%
8.27
8.23
2.50
37.82
3,176
3,174
3,189
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%
78,740
20,155
109,254
74,011
19,781
102,486
63,781
19,094
98,694
7.67
7.64
2.25
32.03
3,173
3,169
3,181
3,365
2,804
2,250
3,269
24,059
15.7%
21.6%
20.1%
25.4%
47%
26.7%
28.7%
49.0%
1.2
5.1
4.1
78,647
51.3%
56,055
21,178
93,879
5.54
5.54
1.25
25.40
3,167
3,166
3,179
2,452
2,434
1,950
4,452
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%
50,534
21,296
86,510
4
five-year summary
ericsson annual report 2008
letter from the chairman
Dear shareholder,
this year was marked by a series of dramatic macro-economic
events which has created a difficult time for the world economy.
however, ericsson remains well positioned and strong relative to
its peers and i can assure you that all ericsson employees are
working hard to bring value to customers – the ultimate path to
success for the company and in turn for you.
ericsson’s situation today is quite different from what it was
during the market downturn earlier this decade. the company
now has a healthy balance sheet and strong cash position. in
addition, ericsson refinanced maturing loans and secured new
loans before the financial market collapse – a decision that now
offers benefits in terms of greater liquidity, making it possible to
pursue opportunities created by the market situation.
ericsson’s strategy to leverage its leading position and
technological prowess to invest in future growth areas remains
unchanged. however, adjustments to the global macro-economic
environment will be necessary in the near term and the
company’s cost base will be reduced to maintain margins.
utmost care will be given to preserve ericsson’s longer-term
prospects and technology leadership.
the Board work in 2008 had a significant focus on strategic
matters. a major decision was taken to form a joint venture,
merging ericsson’s mobile platform activities and
stmicroelectronics’ nXp-Wireless unit, to create a world-leading
company in semiconductors and platforms for mobile
the demand for mobile communications should only increase
applications. the JV will build on the current relationship and will
with technological advancements lowering costs for affordability
have a strong combined offering and a broad customer base.
to more and more consumers. By making mobile
operator and consumer sensitivity to the macro-economy is an
communications available to everyone, ericsson is fundamentally
important factor for ericsson, closely monitored by the Board.
contributing to socio-economic development in emerging
the main impact observed so far has been a weakening demand
markets and to a better environment globally. i am particularly
for new mobile phones and the sony ericsson management is
proud of this accomplishment and encourage the company to
aggressively addressing this development, with significant cost
continue on this path.
reductions underway to restore profitability.
i sincerely appreciate your support during the year.
the debate around executive compensation has recently
intensified following the macro-economic developments.
Benchmarking with similar global companies shows that we have
a conservative, but still competitive compensation scheme that
rewards performance and aligns employee interests with the
interests of shareholders.
our principles for employee remuneration – performance,
competitiveness, fairness – mirrors ericsson’s core values of
respect, professionalism and perseverance. i am confident that
these principles are appropriate and reasonable even during
michael treschow
these uncertain times.
chairman of the Board
ericsson annual report 2008
letter from the c hairman 5
Board of directors’ report
This Board of Directors’ Report is based on Ericsson’s
consolidated financial statements, prepared in accordance with
IFRS. The application of reasonable but subjective judgments,
contents
estimates and assumptions to accounting policies and
procedures affects the reported amounts of assets and liabilities
summary .......................................................... 7
and contingent assets and liabilities at the balance sheet date as
Vision and strategy ........................................... 8
well as the reported amounts of revenues and expenses during
the reporting period. These amounts could differ materially under
different judgments, assumptions and estimates. Please see
Note C2 – “Critical Accounting Estimates and Judgments” (p. 47).
Also non-IFRS measures are used to provide meaningful
supplemental information to the IFRS results. Non-IFRS
measures are meant to facilitate analysis by indicating Ericsson’s
Business focus 2008 ........................................ 9
Goals and results ........................................... 10
Business results............................................. 11
financial results of operations ....................... 16
underlying performance, however, these measures should not be
financial position ............................................ 18
viewed in isolation or as substitutes to the IFRS measures. A
reconciliation of non-IFRS measures with the IFRS results can be
cash flow ...................................................... 20
found on page 16.
risk Management ........................................... 22
This report includes forward looking statements subject to
risks and uncertainties. Actual developments could differ
materially from those described or implied. Please see “Forward-
looking Statements” (p. 136) and “Risk Factors” (p. 114).
The external auditors review the quarterly interim reports,
perform audits of the annual report and report their findings to
the Board and its Audit Committee.
other information ............................................ 24
corporate responsibility ................................. 28
corporate Governance .................................... 30
parent company ............................................. 31
The terms “Ericsson”, “the Group”, “the Company”, and similar
post-closing events ........................................ 32
all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries.
Unless otherwise noted, numbers in parentheses refer to the
previous year (i.e. 2007).
Board assurance ............................................ 32
strong performance in
strategically important areas.
6
Board of directors’ report
ericsson annual report 2008
summary
Increased sales by 11 (4) percent despite
financial turmoil
• operating margin was 11.4 (16.3) percent excluding
• Networks’ margins have started to improve:
a more favorable balance between new networks relative to
expansions and upgrades.
• Higher proportion of software sales:
sales of software and intellectual property rights (ipr)
restructuring charges and 7.8 (16.3) percent including
continues to gain importance.
restructuring charges.
• net income attributable to shareholders of the parent
• Increased market share in Professional Services:
new managed services contracts, in particular, contributed to
company was seK 11.3 (21.8) billion, and earnings per share
the increased market share.
(diluted) were seK 3.52 (6.84).
• Maintained top tier in mobile phones:
• cash flow from operating activities was seK 24.0 (19.2) billion.
cash flow before financing activities was seK 15.4 (–8.3) billion
With challenging business conditions, sony ericsson achieved
breakeven results for the full year, excluding restructuring
including acquisitions/divestments (net) of seK 0.6 (–26.2) billion
charges.
(cash flow effect).
• Good progress in Multimedia:
• a cash conversion rate of 92 (66) percent was achieved, well
the company continues to invest for a leading market position
above the target of at least 70 percent.
in networked media and ip-based applications and services.
Strong performance in strategically
important areas
• Divestments and new joint venture:
during the year, the pBX part of the enterprise business was
divested. plans to form a joint venture for mobile platforms and
a significant number of new or expanded agreements to supply
semiconductors with stMicroelectronics were announced.
network equipment and/or related services to operators globally
were announced. the aggregate value of these agreements was
Solid financial position
the highest in five years.
• Leveraged mobile systems scale advantages:
the company increased its mobile systems market share,
especially in emerging markets.
• Strengthened position in fixed broadband access and
IP routing: the company strengthened its position within the
networks segment with a newly formed product area
headquartered in silicon Valley.
although ericsson is well positioned and remains strong among
its peers, there are several challenges to overcome in the near
future. it is difficult to predict how consumer spending will
change and the effect this may have on operator activities.
the macro-economic development is negatively impacting
sony ericsson but so far, ericsson’s infrastructure-related
business has hardly been affected. However, it is likely that in
due course this business will also be affected. cost adjustment
plans have been decided and actions are already underway in
preparation for such a development.
SaLeS aND OPeRaTING MaRGIN 2004–2008
(seK billion)
25.0%
208.9
20.0%
187.8
179.8
153.2
132.0
2004
2005
2006
2007
2008
15.0%
10.0%
5.0%
0.0%
)
n
o
i
l
l
i
b
K
E
S
(
l
s
e
a
S
250
200
150
100
50
0
)
t
n
e
c
r
e
p
(
i
n
g
r
a
m
g
n
i
t
a
r
e
p
O
Sales
Operating margin excluding restructuring charges
Net sales
SEK 208.9 billion
Growth was driven by Networks
and Professional Services sales.
Operating margin
was 11.4 percent
excluding restructuring charges.
Net cash
SEK 34.7 billion
The improvement is a result of
favorable cash flow from operations.
ericsson annual report 2008
Board of directors’ report 7
Vision and strategy
requires significantly high working capital to sales. With this in
mind along with the company’s ambition to be the prime driver
ericsson’s vision of an all-communicating world is rapidly
in an all-communicating world, operations have been divided
becoming a reality as the convergence of telecommunications,
into segments that create competitive advantage and best meet
internet and media industries gains momentum.
the needs of ericsson’s global customer base.
By helping operators to develop and improve their networks to
Networks – technology leadership, a broad product portfolio and
efficiently handle multimedia capabilities, ericsson is creating
scale enable ericsson to excel in meeting the coverage, capacity
a world in which any person can have affordable access to
and network evolution needs of fixed and mobile operators.
information, entertainment, social communities and more,
Services – expertise in network design, rollout, integration,
whenever and wherever wanted. in the course of making people’s
operation and customer support within a global structure with
lives easier and more productive ericsson is spurring socio-
robust local capabilities enable ericsson to better understand
economic development which brings the company’s vision ever
and respond to the unique challenges of each customer and
closer to reality.
capitalize on the trend to outsource a broader range of activities
our strategy is driven by the competitive dynamics of the
to network equipment suppliers.
network equipment market and ericsson’s position, the
Multimedia – innovative application platforms, service delivery
combination of which gives rise to three strategic imperatives:
• economies of scale and scope are prerequisites for
and revenue management solutions combined with leading
content developer and application provider relationships enable
sustainable value creation. industry standards govern product
ericsson to uniquely help customers create exciting new and
design and functionality, making it difficult for equipment
differentiated multimedia services.
suppliers to differentiate on product capabilities alone.
Phones – the complementary strength of sony ericsson further
• the bargaining power of equipment suppliers depends primarily
on their installed base. operators not only look for the best
enhances ericsson’s consumer perspective for superior end-to-
end offerings.
products but also for long-term business partnerships that
the synergies generated by the combined strengths of the
they can rely on to deliver end-to-end solutions for lower total
segments differentiate ericsson through a continuous focus on
cost of ownership, or the ability to minimize time-to-market, or
operational excellence to better leverage an economy of scale
the strength of professional services capabilities, or access to
in technology development as well as in product and service
world-class subject matter experts. if the incumbent supplier is
delivery and customer support.
performing well, operators are reluctant to seek alternatives.
the three strategic imperatives show ericsson’s business
• primary end-to-end suppliers with well-entrenched local
dynamics and their effects on results. With its scale advantage
presence, backed up by global resources and a proven track
secured by being the primary supplier to more operators, the
record, have a competitive advantage.
company plans to balance growth with margins, focus on
attainment of the strategic imperatives is essential to the success
leveraging expanded primary supplier relationships and return to
of ericsson but the business model creates high fixed costs and
higher profitability levels.
THe eRICSSON 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
8
Board of directors’ report
ericsson annual report 2008
Business focus 2008
Reaching more people
Expanding Ericsson’s role
ericsson helped to bring telecommunications to many consumers
ericsson is to supply, build, integrate, operate and manage
that previously could not afford service or lived outside the
broadband communications infrastructure for saudi arabia’s
coverage area. the company implemented alternative energy
high-tech flagship, King abdullah economic city. the sole-
solutions for radio base stations in remote areas. ericsson radio
supplier agreement with emaar, developer of the smart-city
technology requires fewer cell sites for high-quality coverage.
project, breaks new ground in saudi arabia as ericsson’s first
in these ways, ericsson uses technology to reduce network
Gpon-enabled iptV contract; the first contract where ericsson
operators’ total cost of ownership, which enables them to expand
provides systems integration and network rollout services for
coverage and reach more consumers in new geographic areas.
fiber optic solutions and fixed-network iMs. the contract
Increasing speed and capacity
brings together products from ericsson’s major acquisitions –
entrisphere, Marconi, redback and tandberg television – and
ericsson is at the forefront of broadband technology
the company’s telecom services portfolio.
development with solutions to meet the growing broadband
traffic demand from business and residential customers. during
Preparing for the future
the year, the company introduced a 100 Gbe (gigabit ethernet)
each year, ericsson’s consumerlab conducts more than 40,000
transport enhancement to existing WdM (Wavelength division
interviews, representing opinions and behavior of over 1 billion
Multiplexing) solutions and deployed a nationwide optical WdM
people. this valuable insight on consumer trends is incorporated
network in Germany, that enables 40 Gbps (gigabit per second)
into product development, sales and marketing, and is provided
connections. the first commercial 21 Mbps (Megabit per second)
to operators for them to better understand their customers’
mobile broadband services were launched and the company
needs. the company also works with entrepreneurial developers
demonstrated the world’s first end-to-end Hspa solution with
to bring new multimedia services to the mobile environment.
speeds of up to 42 Mbps. the world’s first commercially available
internally, the ericsson strategy function is working with
lte-capable mobile platform was introduced, with peak data
scenarios for market and technology developments with a mid-
rates of up to 100 Mbps in the downlink and up to 50 Mbps in the
term, i.e. five-year horizon, as well as a longer term, i.e. 10–15
uplink. With four times the bandwidth of existing systems, the
year view.
world’s first 10 Gbps Gigabit passive optical network (Gpon)
system for iptV was demonstrated.
SUBSCRIPTION PeNeTRaTION PeR ReGION
(percent)
140%
120%
100%
80%
60%
40%
20%
0%
%
9
% 3
9
2
Africa
%
4
2
1
%
6
1
1
%
7
0
1
%
6
9
%
6
8
%
1
8
%
4
6
%
7
4
%
9
% 7
5
6
%
4
% 4
6
3
Latin
America
Asia
Pacific
Eastern
Europe
Western
Europe
Middle
East
North
America
Penetration 2007
Penetration 2008
4 billion
The number of mobile
subscriptions at year end 2008.
21 Mbps
World’s fastest commercial 3G
service, delivered by ericsson.
250 million
The number of subscribers in
ericsson-managed networks
worldwide.
ericsson annual report 2008
Board of directors’ report 9
Goals and results
although the mobile systems market is likely to have exceeded
the expectation of slight or no growth in usd terms, ericsson’s
our ultimate goal is for the company to generate growth and
networks’ sales grew much faster, at 10 percent. ericsson’s
a competitive profit that is sustainable over the longer term.
professional services sales grew by 13 (19) percent in local
ericsson aims to be the preferred business partner to its
currencies, compared with an estimated market growth of
customers. as the market leader, the company develops
approximately 10 percent.
superior products and services that provide competitive
• deliver best-in-class operating margin, i.e. better than the
advantages. in addition, when ericsson’s network equipment and
main competitors. operating margin for the Group, excluding
associated services are combined with multimedia solutions and
sony ericsson and excluding restructuring charges, was the
mobile handsets from the sony ericsson joint venture, the scope
highest among its main competitors.
of ericsson’s operations extends to complete end-to-end
telecommunication solutions.
• Generate cash conversion of over 70 percent. the cash
conversion for 2008 was 92 (66) percent. reflecting an
the company performance is monitored according to three
increased focus on cash flow, this longer-term target (i.e. 3–5
fundamental metrics: value creation, customer satisfaction and
years) was first communicated during 2007.
employee satisfaction. We believe that highly satisfied customers
along with empowered and motivated employees help to assure
Customer and employee satisfaction
an enduring capability for competitive advantage and value
every year, a customer satisfaction survey is independently
creation. the company’s objective is to have a faster than market
conducted in which approximately 9,300 (9,000) employees of
sales growth, a best-in-class operating margin and a healthy
some 380 (380) fixed and mobile operators around the world are
cash conversion.
polled to assess their satisfaction with ericsson compared to its
Shareholder value creation
main peers. ericsson maintained a level of excellence.
every year, also an employee survey is independently
although margins remain below recent historic levels, the
conducted. in 2008, 90 percent of employees participated in the
company is strengthening its market position and continues to
survey. the results show that ericsson has maintained a level
perform better than its peers. a strong balance sheet, flexible
considered excellent by external benchmarking. the Human
operational model and strengthened industry-leading position
capital index, which measures employee contribution in adding
provide the means for handling any near-term macro-economic
value for customers and meeting business goals, was the same
pressure. in the longer term, the increased market share and
as for 2007. see graphs on next page.
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 its ambitions:
• increase sales at a rate faster than the market growth.
VALUE CREATION
SALES AND OpERATINg mARgINS 2006–2008
Growth
Grow faster than
the market
Sales up
11 percent
Margin
Best-in-class
margins
11.4* percent
*excluding
restructuring charges
Cash flow
Cash conversion
>70%
92 percent
)
n
o
i
l
l
i
b
K
E
S
(
l
s
e
a
S
80
70
60
50
40
30
20
10
0
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
)
t
n
e
c
r
e
p
(
i
n
g
r
a
m
g
n
i
t
a
r
e
p
O
Q1-06
Q2-06
Q3-06
Q4-06
Q1-07
Q2-07
Q3-07
Q4-07
Q1-08
Q2-08
Q3-08
Q4-08
Sales
Operating margin excluding restructuring charges
Operating margin excluding Sony Ericsson and restructuring charges
10
Board of directors’ report
ericsson annual report 2008
Business results
our strategy for these further cost reductions is to leverage the
synergies between different technologies, in-house and
Group sales grew 11 (4) percent, driven by higher networks and
acquired, and take advantage of the opportunities from the
professional services sales. fluctuations in foreign exchange
transformation to all-ip. the number of software platforms will be
rates had a rather significant negative effect on reported sales
reduced and the re-use of hardware increased. in addition,
during the first nine months of the year although the trend shifted
certain activities will be moved to low-cost countries. this will
in the fourth quarter, resulting in a limited effect for the full year.
result in a reduction in the number of consultants and other
gROUp SALES
SEK billion
sales
of which networks
of which professional services
of which Multimedia
2008
208.9
142.0
49.0
17.9
percent
2007 change
187.8
129.0
42.9
15.9
11%
10%
14%
13%
in an increasingly challenging macro-economic environment,
the company adjusts its cost base continuously. the cost
reduction targets launched in 2008 were exceeded. in february
2008, a cost reduction plan of seK 4 billion in annual savings was
announced, including estimated charges of the same size. all
activities with related charges were launched by the third quarter,
temporary staff, consolidation of r&d sites and layoffs. as the
savings are largely the result of more efficient ways of working,
the company’s strategy will remain intact and ericsson’s unique
capabilities should not be affected.
Networks
SEgmENT NET wORKS
SEK billion
sales
of which network rollout
operating income
operating margin
operating margin*
2008
142.0
21.5
11.1
8%
11%
percent
2007 change
129.0
18.5
17.4
13%
13%
10%
16%
–36%
–
–
and it was announced that further charges would be made in the
*excl. restructuring charges
fourth quarter. charges for the full year 2008 amounted to seK
6.7 billion in total. this has resulted in annual savings of
approximately seK 6.5 billion from year end. We will continue to
reduce costs, across all parts of the company at the same pace
as in 2008 with restructuring charges of seK 6–7 billion, targeting
annual savings of seK 10 billion from the second half of 2010,
with an equal split between cost of sales and operating
expenses.
Mobile network buildouts, especially in high-growth markets,
continue to represent the majority of sales. sales of mobile
broadband solutions increased during the year, driven by
consumer need for higher speeds and better coverage. WcdMa
deployments have intensified in general, especially in certain
regions like the americas, which has affected the business in a
favorable way. ericsson’s market share, as a percentage of
operator spending for GsM/WcdMa, remains in the mid-forties.
GsM sales were flat and WcdMa sales increased.
networks’ business continues to grow where network
buildouts and break-in contracts are predominant and price
CUSTOmER SATISfACTION
EmpLOyEE SATISfACTION
80
70
60
50
40
Excellence
Strength
Potential
Improvements
needed
80
70
60
50
40
Excellence
Strength
Potential
Improvements
needed
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
ericsson annual report 2008
Board of directors’ report 11
competition is most intense.
increased sales of fixed network products by leveraging
although margins have started to improve, the proportion of
ericsson’s strong mobile position.
buildouts of new networks in high-growth markets, including
operators are evolving from legacy circuit-switched networks
accelerating volumes in india, remains high and continues to
to ip, in both fixed and mobile networks, due to need for
pressure networks’ margins.
increased flexibility and cost savings. ericsson’s routing
While some parts of the network equipment market declined
technology and solutions from redback enable operators to
this year, the mobile broadband equipment market continues to
migrate to ip, allowing them to fully leverage investments in
show good growth.
legacy technology.
Mobile packet core, mobile softswitching and backhaul
redback is the platform for ericsson to combine and focus all
transmission also showed good growth, driven by the migration
of its ip efforts under one organization, headquartered in silicon
to all-ip.
Valley. ip technology gives operators lower cost and is reinforced
With 3G subscribers providing significantly higher average
in all mobile and fixed standardization bodies. as a result,
revenue per user (arpu) than 2G, operators will most likely
operators continue to evolve from legacy tdM and atM networks
keep their mobile broadband plans and continue to invest.
to ip, in both fixed and mobile networks. redback networks
the majority of circuit-switched core network sales are now
returned to growth, now in more diverse market segments mainly
from softswitch solutions with healthy and stable margins.
as a result of synergies with ericsson’s sales and marketing
ericsson is established as a clear technology and industry leader
organization. this indicates a growing acceptance of redback
in the global softswitch market. the company has advanced its
technology in additional market segments, which expands the
market position even further with the introduction of a new-
addressable market and creates an environment conducive to
generation softswitch, based on blade cluster technology.
revenue acceleration.
ericsson has the largest installed base of softswitches, providing
We remain optimistic regarding growth opportunities for all-ip
a solid business from telephony and multimedia communications.
networks with ip routing, iMs, broadband access and
the future growth areas in core networks will increasingly be the
transmission. the company continues to invest in these areas,
next-generation user and service Management and ip
with the ambition to be the first vendor to combine fixed and
Multimedia subsystem (iMs) based applications.
mobile networks on one platform – offering operators significant
sales of optical and microwave transmission systems to fixed
savings and new revenue opportunities.
as well as mobile operators grew in line with the market. the
company’s ambition to grow faster than the market remains.
thus ericsson is investing in sales and marketing to enable it to
sell a broader portfolio.
ericsson’s Mini-linK micro-wave radio systems,
complemented with the wireline access and optical portfolio, is
an essential part of mobile broadband rollout, thus enabling
Networks sales
SEK 142.0 billion
– out of which SEK 21.5 billion was
network rollout.
– Record year for GSM
– Mobile broadband
firmly established
11%
operating margin
excl. restructuring
charges
10%
sales growth
NETwORKS SALES
Of TOTAL
NETwORKS SALES
By REgION
(seK billion and percent)
9%
23%
2008
68%
SEK 142.0
billion
E 12.1
D 16.1
11%
9%
18%
A 25.6
2008
C 49.8
35%
27%
B 38.4
Networks
Professional Services
Multimedia
A Western Europe
B Central & Eastern Europe,
Middle East and Africa
C Asia Pacific
D Latin America
E North America
12
Board of directors’ report
ericsson annual report 2008
Professional Services
SEgmENT pROfESSIONAL SERVICES
SEK billion
sales
of which managed services
operating income
operating margin
operating margin*
*excl. restructuring charges
2008
49.0
14.3
6.3
13%
16%
percent
2007 change
42.9
12.2
6.4
15%
15%
14%
17%
–
–
–
higher proportion of managed services. this is mainly due to
successful transformation of operations undertaken to the
ericsson ways of working and continuous cost optimization with
a focus on operational excellence.
common challenges faced by operators today are business
growth, operational efficiency and network evolution towards ip.
in a converging communications world, new complexity in
business models must also be added to the challenges.
this creates services opportunities for ericsson. services
expertise and experience, in combination with technology
professional services sales were particularly encouraging,
leadership and business understanding enable partnering with
growing at 14 percent to seK 49.0 billion. Growth measured in
customers to take on a prime integrator role in complex deployment
local currencies amounted to 13 percent compared with an
and transformation projects. the company also support operators
estimated market growth of some 10 percent. Managed services
in creating an efficient environment for consumer service delivery
sales grew by 17 percent to seK 14.3 (12.2) billion, as the
through network and systems integration expertise. the largest
company continued to win contracts for network operations and
opportunity in meeting operator challenges is in managed services,
hosting services. ericsson is a clear leader in Managed services
providing efficiency gains and cost control.
and at year end 2008, ericsson-managed network operations
during the year, more than 60 percent of the professional
served approximately 250 (185) million users.
services business was recurring. as the professional services
ericsson won several breakthrough managed services deals
market develops there are many opportunities for project
during the year, including an agreement with Mobily in saudi
business, but operators are also seeking longer-term
arabia (one of the largest managed services contracts in the
partnerships to build competitive edge. combined with an
Middle east), managed operations for tdc in denmark (the
increasing managed services market, this will help sustain a
largest nordic full-scope managed services contract), and
healthy level of recurring business for ericsson.
managed operations for the shared network between 3uK and
an overall enabler of growth and efficiency is our continuous
t-Mobile (Mobile Broadband network limited, MBnl) in the uK.
work to improve processes, methods and tools. this, together
in addition, more than 1,000 systems integration projects were
with a strategically dimensioned and staffed services delivery
carried out during the year, including a prime integrator contract
organization, is what brings excellence to our operations. during
for telefonica across latin america for a revenue assurance
the year, two new global service delivery centers were opened,
solution, end-to-end iptV integration for ote, Greece, telecom
another evolutionary step in ericsson’s strategy for developing
management transformation consulting for t-Mobile, Germany,
global and local service and delivery capabilities, ensuring
and a number of iMs and softswitch integrations.
business readiness for the global market with increasing focus on
operating margin is stable in the mid-teen range despite the
emerging markets.
pROfESSIONAL SERVICES
pROfESSIONAL SERVICES
SALES Of TOTAL
SALES By REgION
(seK billion and percent)
SEK 49.0
billion
9%
23%
2008
68%
Networks
Professional Services
Multimedia
E 4.6
D 5.5
11%
C 10.5
21%
9%
A 18.5
38%
2008
20%
B 9.8
A Western Europe
B Central & Eastern Europe,
Middle East and Africa
C Asia Pacific
D Latin America
E North America
Professional
Services sales
SEK 49 billion
Managed Services,
consulting and systems
integration showed
good growth.
16% 14%
operating margin
excl. restructuring
charges
sales growth
ericsson annual report 2008
Board of directors’ report 13
Multimedia
SEgmENT mULTImEDIA
SEK billion
sales
operating income
operating margin
operating margin*
*excl. restructuring charges
2008
17.9
–0.1
–1%
1%
percent
2007 change
15.9
–0.1
–1%
–1%
13%
13%
–
–
organization (ote sa) to act as the end-to-end iptV systems
integrator, solutions provider and business consultant.
the multimedia market is quickly evolving with converging
industries (telecom, media and internet), technologies and
payment options. end-to-end revenue management solutions
must handle convergent technologies including ip-based
broadband services, a variety of business models and partner
relationships, as well as be payment-option agnostic. ericsson
acquired lHs to form a strong constellation of prepaid and
Multimedia sales increased by 16 percent for comparable units,
postpaid solutions to capture this opportunity. ericsson’s
i.e. excluding divestment of the enterprise pBX operations.
solutions for real-time charging and mediation, and billing and
revenue Management and service delivery & provisioning
customer care solutions, make it a leader in revenue management
continued to show good growth while the mobile platform
and significantly strengthen the overall multimedia offering.
business was starting to experience effects of the weakening
Within segment Multimedia, revenue Management (including
handset market. operating income includes a seK 0.8 billion gain
lHs) and service delivery & provisioning account for the majority
from the divestment of shares in symbian. the segment is
of sales and generate good growth and margins. tV solutions
operating on a breakeven level due to investments to build a
(including tandberg television) are also showing good growth
leading position in iptV, consumer & Business applications and
and have now established ericsson in the tV space. the strategy
Multimedia Brokering.
is to leverage these leading positions and invest in new areas for
this was a year of consolidation and focusing the organization
future growth, such as iptV, consumer & Business applications
in a number of prioritized areas. as part of this effort, the pBX
and Multimedia Brokering.
part of the enterprise offering was divested. the retained parts
sales opportunities for Multimedia show a positive trend and
provide solutions to operators to address the enterprise segment.
even though the segment is well established, ericsson continues
in addition, the company announced plans to form a joint venture
to invest in r&d in new business opportunities which affects
with stMicroelectronics, in order to establish a world leader in
profitability in the near term.
mobile platforms and wireless semiconductors. With these
changes, the segment is now focusing exclusively on multimedia
Phones
solutions for network operators and service providers.
see sony ericsson Mobile communications under partnerships
tV solutions made good progress with new business
and joint ventures.
development, especially with the launch of the world’s first iMs-
integrated iptV middleware – an end-to-end iptV solution that
supports ease of integration and delivers vendor choice for
operators. ericsson was selected by Hellenic telecommunications
Multimedia sales
SEK 17.9 billion
Revenue Management
and Service Delivery &
Provisioning continued
to show good growth.
1%
operating margin
excl. restructuring
charges
13%
sales growth
mULTImEDIA SALES
mULTImEDIA SALES
Of TOTAL
SEK 17.9
billion
9%
23%
2008
68%
Networks
Professional Services
Multimedia
By REgION
(seK billion and percent)
E 1.3
D 1.4
7%
8%
41%
A 7.4
17%
2008
C 3.0
27%
B 4.9
A Western Europe
B Central & Eastern Europe,
Middle East and Africa
C Asia Pacific
D Latin America
E North America
14
Board of directors’ report
ericsson annual report 2008
Regional overview
SALES pER REgION AND SEgmENT 2008
seK billion
Western europe
ceMa 1)
asia pacific
latin america
north america
total
share of total
percent change
net-
prof. Multi-
works services media
percent
Total change
25.6
38.4
49.8
16.1
12.1
142.0
68%
10%
18.6
9.8
10.5
5.5
4.6
49.0
23%
14%
7.4
4.9
3.0
1.4
1.2
51.6
53.1
63.3
23.0
17.9
17.9
208.9
9%
13%
100%
11%
–2%
9%
16%
25%
34%
11%
1) central and eastern europe, Middle east and africa.
Asia pacific became Ericsson’s largest region with a sales
increase of 16 (14) percent even though political unrest in
certain countries within the region negatively affected sales
growth. the company expanded its leading position in india
which is now ericsson’s largest and fastest growing market. the
chinese market rebounded after the olympic Games and 3G
licenses are to be awarded in the beginning of 2009 with rollouts
expected to start shortly thereafter. although chinese suppliers
have increased their domestic market share, ericsson has
maintained its strong market position in china. Japan and
indonesia also showed strong development and are now among
ericsson’s largest markets.
Latin American sales increased 25 (12) percent. Growth
western Europe sales decreased by 2 (1) percent with
was driven by a combination of GsM enhancements and 3G
increased sales of professional services and mobile broadband
buildouts. professional services also contributed strongly to the
network equipment still more than offset by lower sales of GsM.
growth. Mexico and Brazil showed especially strong
the high demand for mobile broadband and professional
development with no signs of slow-down. the strong growth
services is expected to continue as is the decline for GsM. the
reported from the region over the last couple of years is not
macro-economic development is affecting consumer spending
sustainable and will eventually moderate to more normal levels.
with a weakening demand for replacement handsets. Mobile
North American sales increased by 34 (–15) percent and
phone usage appears to be unaffected, requiring operator
have stabilized at a higher quarterly level following the reduction
spending to maintain network quality of service.
of GsM spending in 2007. the recorded slower growth in the
In Central and Eastern Europe, middle East and Africa
fourth quarter is mainly an effect of a tough year-over-year
(CEmA), sales grew by 9 (5) percent driven by continued 2G
comparison despite positive effects of the increasing usd
buildouts in many markets while a strong growth in russia was
exchange rate. the full-year effects from changes in currency
driven by ongoing 3G rollouts. Many countries within the ceMa
exchange rates were limited. Mobile broadband is now well
region have low penetration levels, similar to the rural areas of
established with good consumer take-up, which is driving
other emerging markets in latin america and asia pacific. Most
continued rollouts as well as capacity enhancements.
of central and eastern europe have GsM penetration levels on
par with Western europe. although initial deployments of 3G are
rapidly spreading throughout the region, GsM is expected to
remain the predominant technology for the foreseeable future
due to affordability of handsets.
Sales of networks grew by
approximately 15 percent in
emerging markets, which now
account for 57 (54) percent of
Networks’ sales. Networks’
business continues to shift
towards these markets.
SALES By REgION 2008
ericsson net sales (seK billion)
and change (percent) year-over-year
17.9
23.0
34%
25%
2008
16%
63.3
51.6
53.1
–2%
9%
Western Europe
Central & Eastern Europe,
Middle East and Africa
Asia Pacific
Latin America
North America
ericsson annual report 2008
Board of directors’ report 15
financial results of operations
AbbreviAted income StAtement with reconciliAtion iFrS – non- iFrS meASUre S
total SeK billion
net sales
cost of sales
Gross income
Gross margin %
operating expenses
opex as % of sales
other operating income and expenses
share in earnings of JV and associated companies
operating income
operating margin %
less share in sony ericsson
operating income excl Sony ericsson
operating margin % excl sony ericsson
iFrS restructuring
charges
2008
non-ifrs
measures
2008
208.9
–134.6
74.3
35.5%
–60.6
29%
3.0
–0.4
16.3
7.8%
–0.5
16.8
8.0%
–
2.5
2.5
4.2
–
0.9
7.6
0.9
6.7
208.9
–132.1
76.8
36.8%
–56.4
27%
3.0
0.5
23.9
11.4%
0.4
23.5
11.3%
ifrs
2007
187.8
–114.1
73.7
39.3%
–52.0
28%
1.7
7.2
30.6
16.3%
7.1
23.5
12.5%
non-ifrs measures are used in the income statement to provide meaningful supplemental information to the ifrs results. since there
were significant restructuring costs during 2008, but with relatively little benefit and consequently a significant impact on reported
results and margins, and as there were insignificant restructuring charges in 2007, non-ifrs measures excluding restructuring charges
are presented to facilitate analysis by indicating ericsson’s underlying performance. However, these measures should not be viewed in
isolation or as substitutes to the ifrs measures.
performance
with robust sales
growth and best-
in-class margins.
“We had a solid
ericsson annual report 2008”
carl-Henric svanberg, president and ceo
16
Board of directors’ report
Sales grew 11 percent to SEK 208.9
(187.8) billion
Earnings per share (EPS) diluted SEK 3.52
(6.84) down 49 percent
the sales growth was driven by strong demand across the
portfolio and across all regions, with the exception of Western
europe. fluctuations in currency exchange rates had a limited
effect on reported sales for the full year.
EARNINGS PER SHARE (EPS)
eps diluted
2008
3.52
2007
6.84*
* a reverse split was made in June 2008. comparative numbers are restated.
Gross margin decreased to 36.8 (39.3) percent,
excluding restructuring charges
eps declined substantially as eps includes restructuring
charges. Based on ericsson’s strengthened market position
the decline is due to a business mix with high proportion of
relative to its peers, the Board considers the underlying earnings
network rollout projects which often also include significant third
capacity and the financial position to be strong and proposes a
party content. a higher proportion of managed services sales with
dividend also for 2008, however reduced to seK 1.85 (2.50) per
lower than group average gross margins contributed to the decline.
share.
Excluding restructuring charges, operating
income declined by 22 percent to SEK 23.9
(30.6) billion with an operating margin of 11.4
(16.3) percent
the main reasons are the decline in gross income, and a negative
contribution from sony ericsson of seK –0.5 billion, compared
with seK 7.1 billion in 2007.
excluding also the result in sony ericsson, operating margin
decreased less, to 11.3 (12.5) percent, reflecting the significant
difference in the sony ericsson contribution compared to 2007.
.
ericsson annual report 2008
Board of directors’ report 17
financial position
conS olidAted bAl Ance Sheet (AbbreviAted)
december 31, SeK billion
ASSetS
non-current assets, total
current assets, total
– of which trade receivables
– of which inventory
total assets
eQUitY And liAbilitieS
equity
non-current liabilities, total
current liabilities, total
– of which trade payables
total equity and liabilities 1)
2008
2007
87.2
198.5
75.9
27.8
285.7
142.1
39.5
104.1
23.5
285.7
87.0
158.1
60.5
22.5
245.1
135.0
32.4
77.7
17.4
245.1
1) of which interest-bearing liabilities and post-employment benefits were seK 40.4 billion (seK 33.4 billion in 2007).
Net cash SEK 34.7 (24.3) billion
Days Sales Outstanding (DSO) 106 (102) days
the improved net cash position is largely a result of the favorable
High sales in the second half of the year as well as payment
cash flow from operations reflecting working capital efficiency
terms in network buildout contracts with retention of payments
improvements. payment readiness was considerably strengthened
until provisional and final acceptance have led to an increase in
from seK 65 billion at the end of 2007 to seK 85 billion at year end.
dso. the company has initiated a number of actions to improve
such terms. However, adjusted for currency effects, dso showed
Working Capital SEK 100 (86) billion
a slight decrease compared to 2007.
results of ongoing efforts to improve working capital efficiencies
relating to receivables, inventories and payables have been partly
Payable days 55 (57) days
offset by strong movements in currency translation effects. the
the slight deterioration is mainly a reflection of the vendor mix,
improvement of cash contributed to the increase in working
with shorter payment cycles related to subcontracted service
capital.
providers for network rollout services, in combination with a
higher proportion of such contracts.
dAYS SAleS oUtStAndinG (dSo)
inventorY tUrnover (ito)
PAYAble dAYS
106
102
110
90
85
81
70
75
50
2004
2005
2006
2007
2008
5.8
5.6
5.4
5.2
5.0
4.8
4.6
5.7
5.4
5.2
5.2
5.0
2004
2005
2006
2007
2008
58
57
56
55
54
53
52
51
50
49
48
57
55
54
52
51
2004
2005
2006
2007
2008
target is less than 90 days
target is more than 5.5
target is more than 60
18
Board of directors’ report
ericsson annual report 2008
Inventory Turnover (ITO) 5.4 (5.2) times
Credit Ratings
overall inventory turnover was improved slightly, with faster
the company’s credit rating was maintained at “solid investment
turnover in both product supply and customer order work in
grade” by both Moody’s and standard & poor’s.
process, partly offset by the higher proportion of work in
progress inventory.
Off balance sheet arrangements
there are currently no material off-balance sheet arrangements
Return on Equity (ROE) 8.2 (17.2) percent
that have or would be reasonably likely to have a current or
the return on equity, including restructuring charges, developed
anticipated effect on the company’s financial condition, revenues
unfavorably. this development is a major reason for the
or expenses, results of operations, liquidity, capital expenditures
continued efforts to improve profitability through continued focus
or capital resources.
on a more competitive product portfolio, harvesting of market
share gains and of acquisitions made as well as continued cost
reductions.
Return on Capital Employed (ROCE), excluding
restructuring charges, 16 (21) percent
the decline is mainly a result of an increase in capital employed
in combination with the reduced gross margin and the lower
sony ericsson result which have reduced the operating income.
roce improvements are being addressed in the company’s
restructuring and capital efficiency activities.
Debt maturity profile
ericsson´s cash position of seK 75 billion is currently deemed to
be sufficient to cover any short- and medium-term cash needs
including debt repayment of usd 483 million and eur 471 million
maturing in 2009 and 2010 respectively. during the year,
maturing debt was refinanced with the european investment
Bank (eiB) with a seK 4 billion loan maturing in 2015, to support
r&d activities. in addition to cash in the balance sheet, there is
an undrawn committed credit facility of usd 2 billion (maturing
2014) in place as a liquidity reserve.
debt mAtUritY ProFile
n
o
i
l
l
i
b
K
E
S
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Notes and Bonds
Other financial liabilities
Loan from the European Investment Bank
ericsson annual report 2008
Board of directors’ report 19
cash flow
cASh Flow (AbbreviAted)
jAnUArY–december
SEK billion
net 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 from financing activities
cash conversion 1)
2008
26.0
–2.0
24.0
–8.5
15.5
–7.2
92%
2007
29.3
–10.1
19.2
–27.5
–8.3
6.3
66%
1) cash flow from operating activities divided by net income reconciled to cash.
Cash flow from operations
SEK 24.0 (19.2) billion
Cash flow from financing activities
SEK –7.2 (6.3) billion
the improvement from last year is largely attributable to a more
the negative cash flow is largely attributable to the dividend paid
favorable development of net operating assets which grew
to shareholders. Maturing borrowings were largely refinanced
substantially less than net sales, as a result of increased focus
through a new loan with the european investment Bank (eiB) to
on working capital management. in 2008 ericsson received seK
support r&d activities.
3.6 (3.9) billion in dividends from sony ericsson.
Cash flow from investing activities
SEK –8.5 (–27.5) billion
Cash conversion 92 (66) percent
the cash conversion rate relates income adjusted for non-cash
items to operating cash flow. the cash conversion rate was
during 2008, the company divested/acquired operations with
favorably impacted by non-cash items related to provisions in
less than seK 1 (–26) billion net cash received. this is partly
combination with a high cash flow from operations and a
offset by short-term investments of seK –7.2 (3.5) billion related
dividend payment from sony ericsson related to 2007.
to cash management.
Restricted cash
in certain countries, there are legal or economic restrictions on
the ability of subsidiaries to transfer funds to the parent company
in the form of cash dividends, loans or advances. such restricted
cash amounted to seK 8.2 (5.8) billion.
20
Board of directors’ report
ericsson annual report 2008
Capital expenditures (capex)
We continuously monitor the company’s capital expenditures
and evaluate whether adjustments are necessary in light of
market conditions and other economic factors. capital
expenditures are typically investments in test equipment used to
develop, manufacture and deploy network equipment. However,
capital expenditures in 2008 came mainly from investments
needed to support the growing services business and establish
stronger presence in certain markets.
the table summarizes annual capital expenditures during the
five years ending december 31, 2008.
cAPitAl eXPenditUreS 2004 –2008
seK billion
capital expenditures
of which in sweden
as percent of net sales
2008
4.1
1.6
2.0%
2007
4.3
1.3
2.3%
2006
3.8
1.0
2.2%
2005
3.4
1.0
2.2%
2004
2.5
1.1
1.9%
We do not expect capital expenditures in relation to sales to
differ significantly in 2009, remaining at roughly 2 percent.
in addition to normal capital expenditures, there is a
commitment to invest usd 1.1 billion to establish a new joint
venture with stMicroelectronics.
We believe the facilities that the company now occupies are
suitable for its present needs in most locations. as of december
31, 2008, no material land, buildings, machinery or equipment
were pledged as collateral for outstanding indebtedness.
payment readiness
by more than seK
20 billion.
“We increased our
”
Hans Vestberg, cfo
ericsson annual report 2008
Board of directors’ report 21
risk Management
• to ensure competence in key technology areas and systems
integration.
the Board is actively engaged in risk management in conjunction
with the annual strategy process, where risks related to set long-
term objectives are discussed and strategies formally approved
by the Board. risks related to annual targets for the company are
• to safeguard continued technology leadership.
• to improve margins by various actions.
• to improve capital efficiency and ensure satisfactory cash flow.
risks are categorized as operational risks or financial risks. the
also reviewed by the Board as the targets are presented for
company also manages risks related to financial reporting and to
approval and then monitored continuously during the year.
compliance with applicable laws and regulations. the approach to
certain transactional risks require specific Board approval, e.g.
risk management reflects the scale and diversity of the
borrowing or customer finance in excess of pre-defined limits.
company’s business activities and balances central coordination
the general economic downturn during 2008 and the
and support with delegated risk management responsibilities.
consequences for the business were assessed in both strategy
for more information on risks related to our business, see also
and target setting. due to the increased difficulties of forecasting
risk factors on page 114.
customer demand, a continued focus on cost management and a
strong liquidity were emphasized.
Operational risk management
for ericsson’s long-term performance, the following industry
risk management is integrated within the ericsson Group
fundamentals were analyzed and risks and opportunities evaluated:
• a rapid technological development.
• trends in subscriber and traffic growth, introduction and
Management system and is based on the following principles:
• risks are dealt with on three levels to ensure operational
effectiveness, efficiency and business continuity – in the
adoption of new types of services and devices, and effects of
strategy process, in annual target setting, within ongoing
changes in tariffs and subscription plans.
operations by transaction (e.g. customer bids/contracts,
• a changing competitive landscape, with consolidation among
customers and vendors and new suppliers becoming stronger.
• convergence of the telecom, datacom and media industries,
resulting in new types of competition and customers.
• regulatory impact regarding e.g. radio frequencies, licenses,
and roaming charges.
activities that were in focus this year include:
• to capitalize on the acquisitions made and the broader product
portfolio created.
• in partnership with leading customers move forward in network
acquisitions, investments, r&d projects).
• risks are subject to various process controls, such as decision
tollgates and approvals.
• in the strategy and target setting processes, a balanced
scorecard approach is used to ensure a comprehensive
assessment of risks and opportunities across several
perspectives: financial, customer/market, product/innovation,
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
convergence and full service broadband.
achieve these objectives. to ensure that actions are taken to
realize the strategies, focus areas are identified to be included
STRATEGY, TARGET SETTING AND RISK MANAGEMENT CYCLE
Board Target Approval
Review of one-year risks
Target Setting
(12 month horizon) Related risk
identification and mitigation
Market Unit &
Account Planning
Board Strategy Approval
Review of long-term risks
Q4
Dec
Jan
Q1
Nov
Feb
Oct
Sep
NEW BUSINESS
DEVELOPMENT
Mar
Apr
Aug
May
Q3
Jul
Jun
Q2
Group Management Strategy directives
Quantitative and qualitative situation analysis
Group Strategy Development
(five year perspective)
Business Unit & Group
Function Strategy planning
Strategic risk identification and mitigation
Quarterly risk monitoring
Global Management Conference on Strategy
22
Board of directors’ report
ericsson annual report 2008
in the near-term target setting and planning for the coming year.
• each risk is owned and managed by an operational unit that is
held accountable and monitored through unit steering groups
• Market risks in securities included in pension plan assets.
• liquidity and financing risks, where the company’s treasury
function manages the company’s liquidity through monitoring
and Group Management.
of its payment readiness and refinancing needs and sources.
• approval limits are clearly established with escalation according
to defined delegations of authority. certain types of risk, such
during 2008, there have not been any defaults in the payment of
principal or interest, or any other material default relating to the
as information security/it, corporate responsibility, physical
indebtedness of ericsson. for further information on financial risk
security, business continuity and insurable risks are centrally
management, see notes to the consolidated financial
coordinated. a crisis management council is established to deal
statements – note c14, “trade receivables and customer
with ad hoc events of a serious nature, as necessary.
finance”, note c19, “interest-Bearing liabilities” and note c20,
“financial risk Management and financial instruments”.
Financial risk management
the company has an established policy governing its financial
Financial reporting risks
risk management. this is carried out by the treasury function
to ensure accurate and timely reporting that is compliant with
within the parent company and by a customer finance function.
financial reporting standards and stock market regulations, the
these are both supervised by the finance committee of the
company has adopted accounting policies and implemented
Board of directors. the policy governs identified financial risk
financial reporting and disclosure processes and controls. the
exposures regarding:
• 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
company must also comply with the sarbanes-oxley act.
Compliance risks
the company has implemented a number of Group policies and
towards the usd and related currencies, with approximately
directives to ensure compliance with applicable laws and
43 percent of sales and approximately 32 percent of spending
regulations, including a code of Business ethics, covering among
exposure in 2008. a variety of hedging activities are used to
other areas: labor laws, trade embargoes, environmental
manage foreign exchange risks.
regulations, corruption, fraud and insider trading. regular training
• interest rate risks, as the values of cash and bank deposits,
borrowings and post-employment liabilities as well as related
is conducted in this area in the form of seminars as well as
e-learning on internal training web sites, where employees take
interest income and expenses are exposed to changes in
courses and tests and get certificates for passed courses.
interest rates.
• credit risks in trade and customer finance receivables,
internal audits are routinely conducted regarding compliance
with policies, directives and processes as well as in the areas of
including credit risk exposures in identified high-risk countries,
trade compliance, fraud, it, security, health and safety,
as well as credit risks regarding counterparties in financial
environment and supply chain management.
transactions.
ericsson annual report 2008
Board of directors’ report 23
other information
Employees
planned for 2009, including the transfer of ericsson’s mobile
platforms operations into the new joint venture with
stMicroelectronics.
employee headcount at year end was 78,750 (74,011). Most of the
RESEARCH AND DEVELOPMENT PROGRAM
additions were due to outsourcing agreements with operators as
a result of the growing managed services business. during the
year, 3,415 (6,657) employees left the company while 8,144
(16,887) joined the company. please see notes to the
consolidated financial statements – note c29, “information
regarding employees, Members of the Board of directors and
Management”.
Credit ratings
Both Moody’s and standard & poor’s (s&p) credit rating agencies
maintained ericsson’s credit rating during 2008. at year end, ratings
of ericsson’s creditworthiness were Baa1 for Moody’s and BBB+
for s&p, both of which are considered to be “investment Grade.”
expenses (seK billion) 1)
as percent of sales
employees within r&d
at december 31 2)
patents 2)
2008
2007
2006
30.9
14.8%
28.8
15.4%
27.5
15.3%
19,800 19,300
17,000
24,000 23,000 22,000
1) excluding restructuring charges.
2) the number of employees and patents are approximate.
during 2009, r&d expenses, including the amortization of
intangible assets from acquisitions but excluding ericsson’s
mobile platform activities and restructuring charges, are expected
to be approximately seK 27–28 billion. currency translation
effects could affect the actual level of reported spending.
ERICSSON CREDIT RATINGS YEAR END 2006 –2008
Partnerships and joint ventures
Moody’s
2008
Baa1
2007
Baa1
2006
Baa2
standard & poor’s
BBB+
BBB+
BBB–
Research and development
Sony Ericsson suffered from weakening demand for mid to
high-end phones in markets where it has a higher than average
market share, especially in Western europe. units shipped and
asp (average sales price) decreased which caused sales to
decline. Weaker exchange rates for certain currencies (e.g. seK,
GBp, Brl) relative to the eur also contributed to the lower sales.
a robust r&d program is essential to ericsson’s competitiveness
the sony ericsson gross margin declined significantly
and future success. With most r&d invested in mobile
reflecting lower volumes and lower prices. also the operating
communications network infrastructure, ericsson’s program is
margin was impacted by this. despite the breakeven results and
one of the largest in the industry. the efficiency of the r&d
necessary restructuring charges, sony ericsson has a healthy
activities has been improved, enabling a faster time to market for
balance sheet with a strong net cash position of eur 1,072 million.
products and increased investment in new areas such as
income before taxes was eur 92 (1,574) million, excluding
multimedia solutions while decreasing r&d as a percentage of
restructuring charges. a eur 480 million operating expense
sales. a further reduction of approximately seK 3–4 billion is
reduction program has been initiated with full effect expected by
SONY ERICSSON
million
2
.
1
5
3
.
2
4
4
.
3
0
1
6
.
6
9
8
.
4
7
million Euro
8
6
2
,
7
5
2
5
,
6
6
1
9
,
2
1
4
4
2
,
1
1
9
5
9
,
0
1
million Euro
4
7
5
,
1
8
9
2
,
1
6
8
4
2
1
5
3
3
8
8
–
–
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
2004
2005
2006
2007
2008
NuMBER Of uNITS SHIPPED
SALES
INCOME BEfORE TAXES
24
Board of directors’ report
ericsson annual report 2008
the end of 2009. restructuring charges are estimated to eur
the joint venture will acquire relevant assets from the owner
300 million of which eur 175 million were taken during 2008.
companies. after these acquisitions, the joint venture will have a
ericsson’s share in sony ericsson’s income before tax was seK
cash position of about usd 0.4 billion. ericsson contributes usd
–0.5 (7.1) billion. seK 3.6 billion was contributed to ericsson’s
1.1 billion net to the joint venture, out of which usd 0.7 billion is
cash flow in the form of dividend payments related to 2007.
paid to st. the joint venture is expected to become operational
the joint venture results are accounted for in accordance with
during the first quarter of 2009.
the equity method.
SONY ERICSSON RESuLTS 2006 –2008
units sold (millions)
sales (eur m.)
percent
2008 change
2007
2006
96.6
11,244
–7%
–13%
103.4
12,916
74.8
10,959
income before tax (eur m.)
net income (eur m.)
ericsson’s share of income
before tax (seK billion)
–83
–73
–0.5
–
–
–
1,574
1,114
1,298
997
7.1
5.9
for more information on transactions with sony ericsson, please see also notes to
the consolidated financial statements – note c30, “related party transactions”.
Acquisitions and divestments
in total, the company has spent seK 40.7 billion net in
acquisitions/divestments during the last three years (2006–2008).
acquisitions were insignificant in 2008, seK 26.3 billion in 2007
and seK 18.1 billion in 2006. divestments were made for seK 0.6
billion in 2008, seK 0.1 billion in 2007 and seK 3.1 billion in 2006.
for more information, please see notes to the consolidated
financial statements – note c26 “Business combinations”.
Material contracts and contractual obligations
Material contractual obligations are outlined in the following table.
operating leases are mainly related to offices and production
New joint venture. stMicroelectronics and ericsson agreed to
facilities. purchase obligations are related mainly to outsourced
establish a joint venture which will have one of the industry’s
manufacturing, r&d and it operations and to components for
strongest product offering in semiconductors and platforms for
our own manufacturing. except for those transactions previously
mobile devices. the businesses being combined are already
described in this report, ericsson has not been a party to any
major suppliers to four of the industry’s top five handset
material contracts over the past three years other than those
manufacturers, who together represent almost 80 percent of
entered into during the ordinary course of business.
handset shipments. the joint venture will have 8,000 employees
with pro forma 2008 sales of usd 3.6 billion.
the 50/50 joint venture, to be called st ericsson, will be
headquartered in Geneva, switzerland. of the almost 8,000
employees, some 5,000 will be from st-nXp Wireless and
approximately 3,000 will be from ericsson’s mobile platforms
operations.
ericsson annual report 2008
Board of directors’ report 25
CONTRACTuAL OBLIGATIONS 2008
Legal and tax proceedings
(seK billion)
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
27.4
2.2
13.9
<1
year
4.4
0.2
3.4
1.6
–
13.1
23.5
13.1
23.5
3.8
3.8
payment due by period
1–3
years
5.5
3–5
years
>5
years
3.7
13.8
0.4
4.9
0.1
–
–
–
0.3
2.7
–
–
–
–
6.7
1.3
2.9
1.5
–
–
–
in the fall of 2007, ericsson was named as a defendant in three
putative class action suits filed in the united states district court
for the southern district of new York. the complaints allege
violations of the united states securities laws principally in
connection with ericsson’s october 2007 profit warning. in
february 2008, the court consolidated the three putative class
actions into one. in June 2008, ericsson filed a motion to dismiss
the complaint. in december, the court granted the defendant’s
motion and dismissed the case in its entirety. in early January 2009,
the plaintiffs appealed the court’s decision to dismiss the case.
following issuance of the 2007 third-quarter profit warning,
the nasdaQ oMX stockholm brought an inquiry to determine
Total
85.5
48.4
10.9
19.5
whether the company appropriately issued the profit warning
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
receivables and customer financing”.
ericsson is party to certain agreements which include provisions
that may take effect, be altered or cease to be valid due to a change
in control of the company, as a result of a public takeover offer.
such provisions are not unusual for certain types of agreements
such as joint-venture agreements, financing agreements and
certain license agreements. However, none of the agreements
that ericsson currently has in effect would entail any material
consequences due to a change in control of the company.
With a net cash position at year end of seK 34.7 (24.3) billion, we
expect the company to be able to cover all capital expenditure
plans and other financing commitments for 2009 by using funds
generated from operations with no additional borrowing required.
and made appropriate disclosure at the november 20, 2007,
management briefing. the financial services authority (fsa) in
england initiated a similar inquiry. ericsson has cooperated fully
with the inquiries. in March 2008, the disciplinary committee of
nasdaQ oMX stockholm announced that ericsson’s statements
at the november 20, 2007, analyst meeting did not violate the
exchange’s listing regulations. fsa has, in January 2009,
informed ericsson that they do not intend to take formal action in
relation to the matters.
in october 2005, ericsson filed a complaint with the european
commission requesting that it investigate and stop us-based
Qualcomm’s anti-competitive conduct in the licensing of
essential patents for 3G mobile technology, claiming Qualcomm
was violating eu competition law and failing to meet the
commitments Qualcomm made to international standardization
bodies that it would license its technology on fair, reasonable and
non-discriminatory terms. at the same time, Broadcom, nec,
nokia, panasonic Mobile communications and texas
instruments each filed similar complaints. the european
26
Board of directors’ report
ericsson annual report 2008
commission opened a first-phase investigation in december of
not appealed and thus has become final and binding.
2005 and in august 2007, it decided to conduct an in-depth
for income tax purposes, swedish fiscal authorities have
investigation of the case as a matter of priority.
disallowed deductions for sales commission payments via
together with most of the mobile communications industry,
external service companies to sales agents in certain countries.
ericsson has been named as a defendant in two class action
Most of these taxes have already been paid. the decision
lawsuits in the united states where plaintiffs allege that adverse
covering the fiscal year 1999 was appealed. in december 2006,
health effects could be associated with the use of mobile
the county administrative court in stockholm rendered a
phones. the cases are currently pending in the federal court in
judgment in favor of the fiscal authorities. also this judgment
pennsylvania and the superior court of the district of columbia.
has been appealed.
in september 2008, the federal court in pennsylvania dismissed
plaintiffs’ claims as preempted by federal law. plaintiffs are
appealing this decision to the third circuit court of appeals.
the district of columbia case is stayed pending the outcome of
the appeal.
in January 2009, ericsson settled a patent infringement lawsuit
brought by freedom Wireless inc. against ericsson and its us-
based customers of prepaid wireless products and services
alleging that ericsson’s pre-paid service and charging system
products infringed the three patents-in-suit. the settlement was
reflected in the accounts of december 31, 2008.
in april 2007, an australian company, QpsX developments pty
ltd., filed a patent infringement lawsuit against ericsson inc. and
other defendants in the united states district court for the
eastern district of texas alleging that ericsson infringed a patent
related to asynchronous transfer mode (atM) technology. QpsX
accused a number of ericsson products of infringement,
including its WcdMa radio network controllers. a trial is
scheduled for november 2010.
in July 2008, the svea court of appeal upheld the december
2006 judgment of the stockholm city court to acquit all current
or former employees of the parent company who had been
indicted by the swedish national economics crimes Bureau for
evasion of tax control. the svea court of appeal’s judgment was
ericsson annual report 2008
Board of directors’ report 27
corporate responsibility
Supply chain
all suppliers must comply with the code of conduct to ensure
The Company’s strong social, environmental and ethical
the quality and integrity of the supply chain. the company
standards helps to manage risks, create value and deliver a
performs regular audits and works with suppliers to instil
competitive advantage. Moreover, the commitment generates
changes when incidents of non-compliance arise, and is
positive business impacts that benefit society.
committed to measurable and continuous improvements.
ericsson’s approach to corporate responsibility (cr) and
sustainability is integrated into its core business operations and
in relationships with stakeholders. engagement starts at the top.
the Board of directors considers these aspects in governance
decision-making, and Group level policies and directives ensure
consistency across global operations.
ericsson publishes a separate corporate responsibility report
which provides additional information about its approach,
priorities and performance.
the following priority areas have been identified as being the most
relevant to the business strategy and sustainability performance.
CR priority areas
Responsible business practices
an incident in Bangladesh highlighted the complexities of
meeting code of conduct standards in a global supply chain with
tens of thousands of suppliers. in May 2008, substandard labor
and environmental practices were revealed at a local radio tower
supplier used by ericsson in Bangladesh. code of conduct
auditors were immediately sent to investigate. since then, the two
main suppliers in Bangladesh have shown good progress in
meeting our standards. another supplier was put on hold until
sufficient improvements were made.
during 2008, ericsson significantly increased the number of
audits and assessments globally, trained more auditors, and
strengthened the focus on local sourcing activities.
Climate change and the environment
ericsson’s most material environmental impact is energy
ericsson supports the un Global compact and endorses its ten
consumption by its products in operation. the company
principles regarding human and labor rights, anti-corruption and
develops energy-efficient products and services, and green site
environmental protection. through the un Global compact, the
solutions, which run on a variety of renewable power sources. in
company is publicly committed to supporting universal values for
2008, a radio base station power-saving feature was deployed,
conducting business.
which can put parts of the network in “sleep mode” during low
the ericsson Group Management system (eGMs) includes
traffic periods. the ericsson tower tube, an energy-efficient site
policies and directives in this area: the code of Business ethics,
concept, was the winner in the technology design category of
the code of conduct, anti-corruption measures and the Group-
the 2008 Wall Street Journal technology innovation awards.
wide certified environmental Management system.
in 2008, ericsson set a new group-level target to reduce its
the eGMs is reinforced by training, workshops and monitoring.
life-cycle carbon footprint by 40 percent over the next five years,
this includes a global assessment program run by an external
starting with a 10 percent reduction in 2009. the footprint will
assurance provider. assessments include cr-specific areas.
include total co2 emission from:
ERICSSON LIfE-CYCLE CARBON fOOTPRINT 2008
~24
~4
~0.8
~4
~ –0.3
Supply chain
Ericsson
activities
Operator
activities
Products
operation
End-of-life
treatment
Estimated emissions from operations, 2008
Estimated emissions from future life-time operations
~ = approximately
n
o
t
M
e
2
O
C
25
20
15
10
5
0
–5
28
Board of directors’ report
ericsson annual report 2008
• ericsson in-house activities, such as production, transports,
performance can be further developed. during 2008, ericsson
sites and business travel by air.
established a group-level program for improved reporting on
• the lifetime use of the products sold by ericsson during the
health and safety issues and performance. employees periodically
year (portfolio energy-efficiency improvement).
acknowledge that they understand the code of Business ethics.
ericsson ranked second on the carbon disclosure project
(cdp) swedish index.
Radio waves and health
We believe that the company is in compliance with all material
ericsson provides public information on radio waves and health
environmental, health and safety laws and regulations which
and supports independent research to further increase
pertain to its operations and business activities. for electronic
knowledge in this area. ericsson currently co-sponsors about 40
waste, ericsson has set even more ambitious targets on a global
different ongoing research projects related to electromagnetic
level than required by the eu directive on Waste electrical and
fields, radio waves and health; it has supported over 90 studies
electronic equipment (Weee).
since 1996. independent expert groups and public health
ericsson is also in compliance with the eu directive on
authorities, including the World Health organization (WHo), have
restriction of Hazardous substances (roHs) and the eu
reviewed the total amount of research and consistently
regulation registration, evaluation, authorization and limitation of
concluded that the balance of evidence does not demonstrate
chemicals (reacH).
any health effects associated with radio wave exposure from
Meeting the Millennium Development Goals
connectivity fuels economic growth, which is particularly vital for
Ericsson Response
either mobile phones or radio base stations.
the billions of people living at the base of the economic pyramid
ericsson response is a global employee volunteer initiative to
– the markets of the future. to further this end, ericsson is
rapidly roll-out communication solutions and provide
committed to helping achieve the un Millennium development
telecommunications experts to assist disaster relief operations.
Goals (MdGs), eight goals to eliminate extreme poverty by 2015.
efforts are coordinated through the un office for the
as an example, ericsson is engaged in a public-private
coordination of Humanitarian affairs, un World food programme
partnership with pan-african mobile operators Mtn and Zain and
and the international federation of red cross and red crescent
columbia university’s earth institute to deliver voice and internet
societies (ifrc).
communications to more than 500,000 people in 10 countries in
in 2008, ericsson response provided support to save the
rural sub-saharan africa as part of the Millennium Villages project.
children in southern sudan. after heavy flooding in panama,
Employees
communication support was provided to relief workers through
ifrc and the panamanian red cross. ericsson response
in 2008, 90 percent of employees took part in the annual
continued to support the un in establishing operations in the
employee opinion survey. By understanding how employees
central african republic.
perceive their work environment, the workforce satisfaction and
SAM’S CORPORATE
SuSTAINABILITY
ASSESSMENT
Ericsson is actively involved with a number of organizations that
share the sustainability goals which gives the Company a deepened
understanding of our markets. These include:
• The Business Leaders’ Initiative on Human Rights (BLIHR) which seeks
to find practical applications of the Universal Declaration of Human Rights
within a business context.
• The uN Global Compact. A signatory since its inception, Ericsson also
supports its Caring for Climate Initiative.
• The Global e-Sustainability Initiative (GeSI), a multi-stakeholder ICT
industry initiative to find ways to apply technologies to more
sustainable development.
• The Prince of Wales’s Corporate Leaders’ Group on Climate Change,
working toward an international framework to tackle climate change.
• Ericsson is also actively engaged in related standardization activities.
ericsson annual report 2008
Board of directors’ report 29
corporate Governance
Board remuneration
Members of the Board who are not employees of the company
in accordance with the swedish code of corporate Governance,
have not received any compensation other than the fees paid for
a separate corporate Governance report including an internal
Board duties as outlined in notes to the consolidated financial
control section has been prepared. there have been no
statements – note c29, ”information regarding employees,
amendments or waivers to ericsson’s code of Business ethics
Members of the Board of directors and Management”.
for any director, member of management or any other employee.
the 2008 aGM resolved that Board members may choose to
the corporate bodies involved in the governance of ericsson
receive part of their fees, exclusive of committee work, in the
are: the shareholders, the Board of directors, the president and
form of synthetic shares, as further described in note c29.
ceo, the Group Management and the external auditors.
Members and deputy Members of the Board who are employees
the Board of directors works according to a work procedure
(i.e. the ceo and the employee representatives) have not
that outlines rules regarding the distribution of tasks between
received any remuneration or benefits other than their normal
the Board and its committees and between the Board, its
employee entitlements, with the exception of a small fee paid to
committees and the president and ceo. the external auditors
the employee representatives for each Board meeting attended.
examine the financial reports and certain aspects of the internal
controls over financial reporting.
Executive remuneration
ericsson’s operations are governed by the ericsson Group
principles for remuneration and other employment terms for top
Management system, consisting of:
• Management and control elements, i.e. objective setting and
strategy formulation, Group policies and other steering
documents.
executives were approved by the 2008 aGM. the proposed
remuneration policy for Group Management for 2009 remains
materially the same as for 2008. see note c29, “information
regarding employees, Members of the Board of directors
• Group-wide standard business processes, including
and Management”.
operational processes and it tools.
• organization and corporate culture.
as of december 31, 2008, there were no loans outstanding
from, and no guarantees issued to or assumed by ericsson for
the benefit of any member of the Board of directors or senior
Changes to the Board membership
management.
the Board of directors is elected each year at the annual General
Meeting (aGM) for the period until the next aGM. three employee
Long-Term Variable Compensation program
representatives are appointed by the trade unions for the same
the Board of directors’ proposal for implementation of a long-
period of time. at the aGM on april 9, 2008, all board members
term Variable compensation (ltV) program for 2008 and transfer
were re-elected except for Katherine M. Hudson who had declined
of shares in connection therewith was approved by the aGM.
re-election. roxanne s. austin was elected as new member of the
Board of directors.
the Board is committed to high
standards of corporate governance.
30
Board of directors’ report
ericsson annual report 2008
parent company
reverse split of the company’s shares in which five shares of the
company’s a and B shares, respectively, were consolidated into
the parent company business consists mainly of corporate
one share of class a and one share of class B, respectively. in
management, holding company functions and internal banking
the third quarter, as decided at the annual General Meeting, a
activities. the parent company business also includes customer
stock issue and a subsequent stock repurchase was carried out.
credit management, performed on a commission basis by
19.9 million of ericsson class c shares were issued and later
ericsson credit aB.
repurchased as treasury stock. these shares have been
the parent company is the owner of the majority of ericsson’s
converted into ericsson class B shares.
intellectual property rights. it manages the patent portfolio,
as per december 31, 2008, ericsson had 3,246,351,735
including patent applications, licensing and cross-licensing of
shares. the shares were divided into 261,755,983 class a
patents and defending of patents in litigations.
shares, each carrying one vote, and 2,984,595,752 class B
the parent company has 7 (7) branch offices. in total, the
shares, each carrying one-tenth of one vote. the two largest
Group has 62 (55) branch and representative offices.
shareholders at year end were investor and industrivärden
net sales for the year amounted to seK 5.1 (3.2) billion and
holding 19.42 percent and 13.28 percent respectively of the
income after financial items was seK 19.4 (14.7) billion. during
voting rights in the company.
the fourth quarter, shares in symbian ltd. were sold.
in accordance with the conditions of the stock purchase plans
exports accounted for 70 (59) percent of net sales. no
and option plans for ericsson employees, 5,232,211 shares from
consolidated companies were customers of the parent
treasury stock were sold or distributed to employees during the
company’s sales in 2008 or 2007, while 46 (46) percent of the
year. the quotient value of these shares was seK 26.2 million,
parent company’s total purchases of goods and services were
representing less than 1 percent of capital stock, and
from such companies. Major changes in the parent company’s
compensation received amounted to seK 83.4 million. the
financial position for the year include decreased investments in
holding of treasury stock at december 31, 2008, was 61,066,097
subsidiaries of seK 6.8 billion, mostly attributable to write-downs
class B shares. the quotient value of these shares is seK 305.3
of investments caused by payment of dividends of approximately
million, representing 2 percent of capital stock and related
the same amount; decreased current and non-current
acquisition cost amounts to seK 589.8 million.
receivables from subsidiaries of seK 3.1 billion; increased other
current receivables of seK 1.5 billion; increased cash and bank
Proposed disposition of earnings
and short-term investments of seK 13.6 billion. current and
the Board of directors proposes that a dividend of seK 1.85
non-current liabilities to subsidiaries decreased by seK 9.2 billion
(2.50 in 2007, adjusted for the reverse split) per share be paid to
and other current liabilities increased by seK 5.6 billion. at year
shareholders duly registered on the record date april 27, 2009,
end, cash and bank and short-term investments amounted to
and that the parent company shall retain the remaining part of
seK 59.2 (45.6) billion.
non-restricted equity. the class B treasury shares held by the
ericsson’s annual General Meeting 2008 resolved on a 1:5
parent company are not entitled to receive a dividend.
ericsson annual report 2008
Board of directors’ report 31
assuming that no treasury shares remain within the parent
company on the record date, the Board of directors proposes
post-closing events
that earnings be distributed as follows:
Ericsson and STMicroelectronics completed the JV deal
on february 3, 2009, ericsson and stMicroelectronics
amount to be paid to the shareholders
seK 6,005,750,710
announced the closing of their agreement merging ericsson’s
amount to be retained
by the parent company
total non-restricted equity
of the parent company
seK 35,948,343,168
Wireless unit into a 50/50 joint venture, to be called st ericsson.
mobile platform operations and stMicroelectronics’ unit st-nXp
the deal was completed on the terms originally announced on
seK 41,954,093,878
august 20, 2008.
as a basis for its proposal for a dividend, the Board of directors
has made an assessment in accordance with chapter 18,
Board assurance
section 4 of the swedish companies act of the parent
the Board of directors and the president declare that the
company’s and the Group’s need for financial resources as well
consolidated financial statements have been prepared in
as the parent company’s and the Group’s liquidity, financial
accordance with ifrs, as adopted by the eu, and give a fair view
position in other respects and long-term ability to meet their
of the Group’s financial position and results of operations. the
commitments. the Group reports an equity ratio of 50 (55)
financial statements of the parent company have been prepared
percent and a net cash amount of seK 34.7 (24.3) billion.
in accordance with generally accepted accounting principles in
the Board of directors has also considered the parent
sweden and give a fair view of the parent company’s financial
company’s result and financial position and the Group’s position
position and results of operations.
in general. in this respect, the Board of directors has taken into
the Board of directors’ report for the ericsson Group and the
account known commitments that may have an impact on the
parent company provides a fair view of the development of the
financial positions of the parent company and its subsidiaries.
Group’s and the parent company’s operations, financial position
the proposed dividend does not limit the Group’s ability to
and results of operations and describes material risks and
make investments or raise funds, and it is our assessment that
uncertainties facing the parent company and the companies
the proposed dividend is well-balanced considering the nature,
included in the Group.
scope and risks of the business activities as well as the capital
requirements for the parent company and the Group.
Sverker Martin-Löf
Deputy Chairman
Nancy McKinstry
Member of the Board
Börje Ekholm
Member of the Board
stockholm february 20, 2009
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
Marcus Wallenberg
Deputy Chairman
Anders Nyrén
Member of the Board
Roxanne S. Austin
Member of the Board
Monica Bergström
Carl-Henric Svanberg
Jan Hedlund
Member of the Board
President, CEO and member of the Board
Member of the Board
Anna Guldstrand
Member of the Board
32
Board of directors’ report
ericsson annual report 2008
consolidated income statement
Years ended December 31, SEK million
net sales
cost of sales
Gross income
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
operating margin %
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
2008
2007
2006 1)
208,930
–134,661
187,780
–114,059
179,821
–104,875
74,269
35.5%
73,721
39.3%
74,946
41.7%
–33,584
–26,974
–28,842
–23,199
–27,533
–21,422
–60,558
–52,041
–48,955
2,977
–436
16,252
7.8%
3,458
–2,484
17,226
–5,559
11,667
1,734
7,232
30,646
16.3%
1,778
–1,695
30,729
–8,594
22,135
3,903
5,934
35,828
19.9%
1,954
–1,789
35,993
–9,557
26,436
11,273
394
21,836
299
26,251
185
c6
c12
c7
c7
c8
Other information
average number of shares, basic (million) 2)
earnings per share attributable to stockholders of the parent company, basic (seK) 2)
earnings per share attributable to stockholders of the parent company, diluted (seK) 2)
1) 2006 year figures have been restated for comparability.
2) a reverse split 1:5 was made in June 2008. comparative figures are restated accordingly.
c9
c9
c9
3,183
3.54
3.52
3,178
6.87
6.84
3,174
8.27
8.23
ericsson annual report 2008
consolidated financial statements 33
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
2008
2007
C10
2,782
24,877
20,587
3,661
22,826
23,958
property, plant and equipment
C11, C26, C27
9,995
9,304
financial assets
equity in joint ventures and associated companies
other investments in shares and participations
Customer finance, non-current
other financial assets, non-current
deferred tax assets
Current assets
inventories
trade receivables
Customer finance, 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
C12
C12
C12
C12
C8
C13
C14
C15
C20
C20
C16
C16
C17
C18
C8
C19, C20
C18
C19, C20
C22
C21
7,988
309
846
4,917
14,858
87,159
10,903
738
1,012
2,918
11,690
87,010
27,836
22,475
75,891
1,975
17,818
37,192
37,813
198,525
60,492
2,362
15,062
29,406
28,310
158,107
285,684
245,117
140,823
1,261
142,084
9,873
311
2,738
24,939
1,622
39,483
14,039
5,542
23,504
61,032
104,117
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
Total equity and liabilities 1)
285,684
245,117
1) of which interest-bearing liabilities and post-employment benefits seK 40,354 million (seK 33,404 million in 2007).
34
Consolidated finanCial statements
eriCsson annual report 2008
consolidated statement
of cash flows
January–December, SEK million
notes
2008
2007
2006
Operating activities
net income
adjustments to reconcile net income to cash
changes in operating net assets
inventories
customer finance, current and non-current
trade receivables
provisions and post-employment benefits
other operating assets and liabilities, net
11,667
22,135
26,436 1)
c25
14,318
25,985
7,172
6,060 1)
29,307
32,496
–3,927
549
–11,434
3,830
8,997
–445
365
–7,467
–4,401
1,851
–2,553
1,186
–10,563
–3,729
1,652
–1,985
–10,097
–14,007
Cash flow from operating activities
24,000
19,210
18,489
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
c25, c26
c10
–4,133
1,373
–74
1,910
–1,409
944
–7,155
–4,319
152
–26,292
84
–1,053
396
3,499
–3,827
185
–18,078
3,086
–1,353
–1,070
6,180
Cash flow from investing activities
–8,544
–27,533
–14,877
Cash flow before financing activities
15,456
–8,323
3,612
Financing activities
proceeds from issuance of borrowings
repayment of borrowings
sale of own stock and options exercised
dividends paid
5,245
–4,216
3
–8,240
15,587
–1,291
94
–8,132
1,290
–9,510
124
–7,343
Cash flow from financing activities
–7,208
6,258
–15,439
effect of exchange rate changes on cash
1,255
406
58
Net change in cash
9,503
–1,659
–11,769
Cash and cash equivalents, beginning of period
28,310
29,969
41,738
Cash and cash equivalents, end of period
c20
37,813
28,310
29,969
1) net income includes net income attributable to minority interest. prior to 2007, net income attributable to minority interest was reported within adjustments to reconcile net
income to cash. 2006 comparatives have been restated to reflect this change.
ericsson annual report 2008
consolidated financial statements 35
Consolidated statement of
recognized income and expense
Years ended December 31, SEK million
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
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
2008
2007
2006
–4,015
1,208
440
–7
2
–1
–5,080
1,192
–
8,528
2,330
584
–1,390
–
–797
–73
4,100
–1,990
99
–3,119
–769
Total transactions reported directly in equity
2,948
–466
–1,240
net income
11,667
22,135
26,436
Total income and expense recognized for the period
14,615
21,669
25,196
attributable to:
stockholders of the parent Company
minority interest
13,988
627
21,371
298
25,101
95
36
Consolidated finanCial statements
eriCsson annual report 2008
notes to the consolidated
Financial statements
contents
c1 significant accounting policies ............................................................................................................................................................................................................................38
c2 critical accounting estimates and Judgments ........................................................................................................................................................................................... 47
c3 segment information .................................................................................................................................................................................................................................................. 49
c4 net sales ........................................................................................................................................................................................................................................................................... 53
c5 expenses by nature.................................................................................................................................................................................................................................................... 53
c6 other operating income and expenses .........................................................................................................................................................................................................53
c7
Financial income and expenses .......................................................................................................................................................................................................................... 54
c8
taxes .................................................................................................................................................................................................................................................................................... 54
c9 earnings per share ...................................................................................................................................................................................................................................................... 56
c10
intangible assets .......................................................................................................................................................................................................................................................... 56
c11 property, plant and equipment ............................................................................................................................................................................................................................ 58
c12 Financial assets, non-current ............................................................................................................................................................................................................................. 60
c13
inventories......................................................................................................................................................................................................................................................................... 61
c14 trade receivables and customer Finance ................................................................................................................................................................................................... 62
c15 other current receivables ..................................................................................................................................................................................................................................... 64
c16 equity ................................................................................................................................................................................................................................................................................... 64
c17 post-employment Benefits ..................................................................................................................................................................................................................................... 68
c18 provisions .......................................................................................................................................................................................................................................................................... 74
c19
interest-bearing liabilities ....................................................................................................................................................................................................................................... 75
c20 Financial risk Management and Financial instruments ........................................................................................................................................................................ 76
c21 other current liabilities ............................................................................................................................................................................................................................................ 80
c22 trade payables............................................................................................................................................................................................................................................................... 80
c23 assets pledged as collateral ................................................................................................................................................................................................................................. 80
c24 contingent liabilities .................................................................................................................................................................................................................................................. 80
c25 statement of cash Flows ........................................................................................................................................................................................................................................ 80
c26 Business combinations ............................................................................................................................................................................................................................................ 81
c27 leasing ............................................................................................................................................................................................................................................................................... 83
c28 tax assessment Values in sweden ...................................................................................................................................................................................................................83
c29
information regarding employees, Members of the Board of Directors and Management ...........................................................................................84
c30 related party transactions .................................................................................................................................................................................................................................... 91
c31 Fees to auditors ............................................................................................................................................................................................................................................................ 92
c32 events after the Balance sheet Date ................................................................................................................................................................................................................ 92
ericsson annual report 2008
37
notes to the consolidated financial statements note c 1
c1 significant accounting
policies
the consolidated financial statements comprise telefonaktiebolaget
lM ericsson, the parent company, and its subsidiaries (“the
company”) and the company’s interests in associated companies
and joint ventures. the parent company is domiciled in sweden at
torshamnsgatan 23, se-164 83 stockholm.
the consolidated financial statements for the year ended
December 31, 2008, have been prepared in accordance with
international Financial reporting standards (iFrs) as endorsed by
the eu and rFr 1.1 “additional rules for Group accounting”, related
interpretations issued by the swedish Financial reporting Board
(rådet för Finansiell rapportering), and the swedish annual
accounts act. there is no effect on ericsson’s financial reporting
2008 due to differences between iFrs as issued by the iasB and
iFrs as endorsed by the eu, nor is rFr 1.1 or the swedish annual
accounts act in conflict with iFrs.
the financial statements were approved by the Board of Directors
on February 20, 2009. the balance sheets and income statements
are subject to approval by the annual meeting of shareholders.
new standards, amendments of standards and interpretations,
effective as from January 1, 2008:
• “reclassification of Financial assets (amendments to ias 39
Financial instruments:
recognition and Measurement and iFrs 7 Financial instruments:
Disclosures)” (effective from July 1, 2008). an amendment to the
standard, issued in october 2008, permits an entity to reclassify
non-derivative financial assets (other than those designated at fair
value through profit or loss by the entity upon initial recognition)
out of the fair value through profit or loss category in particular
circumstances. the amendment also permits an entity to transfer
from the available-for-sale category to the loans and receivables
category a financial asset that would have met the definition of
loans and receivables (if the financial asset had not been
designated as available for sale), if the entity has the intention and
ability to hold that financial asset for the foreseeable future. a
company shall disclose the amount reclassified into and out of
each category and the reason for that reclassification. this
amendment has had no impact on the company’s financial result
or financial position as the company has not adopted this non-
mandatory amendment.
• “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 is mandatory for the company’s 2008 financial
statements, with retrospective application required. it has not had
any impact on the consolidated financial statements.
• “iFric 12 service concession arrangements” provides guidance
on certain recognition and measurement issues that arise in
accounting for public-to-private service concession arrangements.
this interpretation is still subject to endorsement by the eu. at
present, iFric 12 is not applicable for the company.
• “iFric 14/ias 19 – the limit on a Defined Benefit asset, Minimum
Funding requirements and their interaction” clarifies when refunds
from or reductions in future contributions to defined benefit plans
should be regarded as available or firmly decided and provides
guidance on the impact of minimum funding requirements (MFr)
on such plans. iFric 14 also addresses when a MFr might give
rise to a liability. iFric 14 is mandatory for iFrs users for 2008
financial statements with retrospective application required. it has
had no material impact on the consolidated financial statements.
Reverse split
the annual General Meeting on april 9, 2008, decided on a reverse
split 1:5 of the company’s shares. the reverse split had the effect
that five shares of class a and five shares of class B, respectively,
were consolidated into one share of class a and one share of class
B, respectively. numbers of shares and earnings per share for
comparison periods have been restated accordingly.
Changes in financial reporting structure
operations related to product area internet payment exchange (ipX)
have been transferred from segment professional services to
segment Multimedia, and are reported within Multimedia as from
January 1, 2008. no restatement is made for year 2007, as the
amounts are not material.
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, plan assets related to
defined benefit pension plans, and share-based payments with
related accruals for social security costs. non-current assets (or
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 the power to govern the financial and operating policies
generally associated with ownership of more than one half of the
voting rights or in which ericsson by agreement has control. the
financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the
date that 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
eliminated in the same way as unrealized gains, but only to the extent
that there is no evidence of impairment.
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ericsson annual report 2008
notes to the consolidated financial statements Business combinations
at the acquisition of a business, the cost of the acquisition, being the
purchase price, is measured as the fair value of the assets given, and
liabilities incurred or assumed at the date of exchange, plus costs
directly attributable to the acquisition. the acquisition cost is
allocated to acquired assets, liabilities and contingent liabilities
based upon appraisals made, including assets that were not
recognized on the acquired entity’s balance sheet, for example
intangible assets such as customer relations, brands and patents.
Goodwill arises when the purchase price exceeds the fair value of
recognizable acquired net assets.
Associated companies and joint ventures
investments in associated companies, i.e. 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 obtained through agreement, are accounted for in
accordance with the equity method. under the equity method, the
investment in an associate is initially recognized at cost and the
carrying amount is increased or decreased to recognize 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 these interests are
held for operating rather than investing or financial purposes.
ericsson’s share of income taxes related to associated companies
and joint ventures is reported under the line item taxes in the income
statement. unrealized gains on transactions between the company
and its associated companies and joint ventures are eliminated to the
extent of the company’s interest in these entities. unrealized losses
are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred.
undistributed shares in earnings of associated companies and
joint ventures included in consolidated equity are reported as
retained earnings.
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
presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at period-
end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in the income statement, unless
deferred in equity under the hedge accounting practices as
described below.
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
note c 1
security. translation differences related to changes in the amortized
cost are recognized in profit or loss, and other changes in the
carrying 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
translated 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.
on consolidation, exchange differences arising from the translation
of the net investment in foreign operations, and of borrowings and
other currency instruments designated as hedges of such
investments, are accounted for in stockholders’ equity. When a
foreign operation is partially disposed of or sold, exchange
differences that were recorded 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.
there is no significant impact due to a currency of a
hyperinflationary economy.
Statement of cash flows
the cash flow statement is prepared in accordance with the indirect
method. cash flows in foreign subsidiaries are translated at the
average exchange rate during the period. payments for subsidiaries
acquired or divested are reported as cash flow from investing
activities, net of cash and cash equivalents acquired or disposed of,
respectively.
cash and cash equivalents consist of cash, bank, and short-term
investments that are highly liquid monetary financial instruments with
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
professional 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.
• licence agreements 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 sold 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
customer.
ericsson annual report 2008
39
notes to the consolidated financial statements note c 1
sales are recorded net of value added taxes, goods returned,
Earnings per share
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
companies, 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 18
“revenue” or ias 11 “construction contracts”, 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:
• 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
software as well as services such as network rollout.
revenue is recognized when risks and rewards have been
transferred to the customer, normally stipulated in the 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, the company defers the
recognition of revenue until all elements essential to the
functionality have been delivered.
• contracts for various types of services include services such as:
training, consulting, engineering, installation, multi-year managed
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.
• contracts generating licensing fees for the use of the company’s
technology or intellectual property rights, i.e. not being a part of a
sold product. these are mainly fees related 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 sold by
the customer/licensee.
the contract type that falls under ias 11 is:
• construction-type contracts. in general, a construction type
contract is a contract where the company supplies to a customer,
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,
generally using the milestone output method.
Basic earnings per share are calculated by dividing net income
attributable to stockholders of the parent company by the weighted
average number 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, when
appropriate adjusted by the sum of the weighted average number of
ordinary shares outstanding and dilutive potential ordinary shares.
potential ordinary shares are treated as dilutive when, and only when,
their conversion to ordinary shares would decrease earnings per
share.
stock options and rights to matching shares are considered
dilutive when the actual fulfillment of any performance conditions as
of the reporting date would give a right to ordinary shares.
Furthermore, stock options are considered dilutive only when the
exercise price is lower than the period’s average share price.
Financial assets
Financial assets are recognized when the company becomes a party
to the contractual provisions of the instrument. regular purchases
and sales of financial assets are recognized on the settlement date.
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 company classifies its financial assets in the following
categories: 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.
Financial assets 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.
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
acquired principally for the purpose of selling or repurchasing in the
near term.
Derivatives are classified as held for trading, unless they are
designated as hedges. assets in this category are classified as
current assets.
Gains or losses arising from changes in the fair values of the
“financial assets at fair value through profit or loss”-category (excl
derivatives) are presented in the income statement within Financial
income in the period in which they arise. Derivatives are presented in
the income statement either as cost of sales, financial income or
financial expense, depending on the intent with the transaction.
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ericsson annual report 2008
notes to the consolidated financial statements note c 1
Loans and receivables
receivables are subsequently measured at amortized cost using the
effective interest rate method, 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.
recoveries of amounts previously written off are credited against
selling expenses in the income statement.
Financial Liabilities
Financial liabilities are recognized when the Group becomes a party
to the contractual provisions of the instrument.
Financial liabilities are derecognized when they are extinguished,
i.e. when the obligation specified in the contract is discharged,
cancelled or expires.
Available-for-sale financial assets
Borrowings
available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other
categories. 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
company’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
monetary 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
recognized 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 impaired. 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. impairment losses recognized in the income statement
on equity instruments 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
receivable. 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 estimated 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 receivable is finally established as uncollectible, it is written
off against the allowance account for trade receivables. subsequent
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
statement either as cost of sales, financial income or financial
expense depending on the intent of the transaction.
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
designated 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, “Financial risk Management
and Financial instruments”. Movements in the hedging reserve in
stockholders’ equity are shown in note c16, “equity”.
the fair value of a hedging derivative is classified as a non-current
ericsson annual report 2008
41
notes to the consolidated financial statements note c 1
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 derivatives are classified as current assets or liabilities.
a) Fair value hedges
changes in the fair value of derivatives that are designated and
qualify as fair value hedges are recorded in the income statement,
together with any changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk. the company only
applies fair value hedge accounting for hedging fixed interest risk on
borrowings. Both gains and 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 carrying amount of a hedged item for which the
effective interest method is used is amortized to profit or loss over
the period to maturity.
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
expense.
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,
inventory or fixed assets), the gains and losses previously deferred in
equity are transferred from equity and included in the initial
measurement 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 recognized in the income statement. When a
forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in equity is immediately transferred to
the income statement within financial income or expense.
c) Net investment hedges
Hedges of net investments in foreign operations are accounted for
similarly to cash flow hedges. any gain or loss on the hedging
instrument 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
expense. Gains and losses deferred in equity are included in the
income 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
measured at the higher of
• the amount determined as the best estimate of the net expenditure
required to settle the obligation according to the guarantee
contract, 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.
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.
Intangible assets
a) Intangible assets other than goodwill
intangible assets other than goodwill comprise 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 acquired intangible assets
are stated at initially recognized amounts less accumulated
amortization and impairment. amortization and any impairment
losses are included in research and development expenses, mainly
for capitalized development expenses and patents, in selling and
administrative expenses, mainly for customer relations and brands,
and in 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
established until the product is available for sale or use. these
capitalized expenses are mainly generated internally and include
direct labor and directly attributable overhead. amortization of
capitalized development expenses begins when the product is
available for general release. amortization 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 development expenses are charged to
income as incurred.
amortization of acquired intangible assets, such as patents,
customer relations, brands and software, is made according to the
straight-line method over their estimated useful lives, normally not
exceeding ten years.
the company has not recognized any intangible assets with
indefinite 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 the
value in use and the 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. application of after tax amounts in calculation, both in
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ericsson annual report 2008
notes to the consolidated financial statements relation to cash flows and discount rate is applied due to that
available models for calculating discount rate include a tax
component. 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 and if the
recoverable amount is higher than the carrying value. an impairment
loss is reversed only to the extent that the asset’s carrying amount
after reversal does not exceed the carrying amount, net of
amortization, which would have been reported if no impairment loss
had been recognized.
b) Goodwill
as from the acquisition date, goodwill acquired in a business
combination is allocated to each cash-generating unit (cGu) of the
company expected to benefit from the synergies of the combination.
three of ericsson’s four operating segments have been identified as
cGus. no goodwill is assigned to segment phones.
an annual impairment test for the cGus to which goodwill has
been allocated is performed in the fourth quarter, or when there is an
indication of impairment. impairment testing as well as recognition of
impairment of goodwill is performed in the same manner as for
intangible assets other than goodwill, see description under
“intangible assets other than goodwill” above. an impairment loss in
respect of goodwill is not reversed.
certain specific disclosures are required in relation to goodwill
impairment testing. these disclosures are given in note c2, ”critical
accounting estimates and Judgments” below and in note c10,
“intangible assets”.
Property, plant and equipment
property, plant and equipment are stated at cost less accumulated
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, 3–10 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
of 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
recognized within other operating income and expenses in the
income statement.
note c 1
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
minimum 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 must not
exceed 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
received 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
investment 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 carry forwards. a deferred tax asset is recognized
only to the extent that it is probable that future taxable profits will be
available against which the deductible temporary differences and tax
loss carry forwards can be utilized. Deferred tax is not recognized for
the following temporary differences: goodwill not deductible for tax
purposes, for the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit, and for 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.
ericsson annual report 2008
43
notes to the consolidated financial statements note c 1
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
utilization of unused tax losses in different tax jurisdictions. all
deferred tax assets are subject to annual review of probable
utilization. the largest amounts of tax loss carry forwards relate to
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. When the effect of the time value of money
is material, discounting is made of estimated outflows. However, the
actual outflows as a result of the obligations may differ from such
estimates.
the provisions are mainly related to warranty commitments,
restructuring, projects and other obligations, 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 finance guarantees.
product warranty commitments consider probabilities of all
material 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 the reporting date.
a restructuring obligation is considered to have arisen when the
company has a detailed formal plan for the restructuring (approved
by management), which has been communicated in such a way that
a valid expectation has been raised among those affected.
project related provisions include estimated losses on onerous
contracts, contractual penalties and undertakings. For losses on
customer contracts, a provision equal to the total estimated loss is
recorded when a loss from a contract is anticipated and possible to
estimate reliably. these contract loss estimates include any probable
penalties to a customer under a loss contract.
other provisions include provisions for income taxes, value added
tax issues, litigations, supplier claims, customer finance and other
provisions. the company provides for estimated future settlements
related to patent infringements based on the probable outcome of
each infringement. 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 with the counterpart.
certain present obligations are not recognized as provisions as it
is not probable that an economic outflow will be required to settle the
obligation or the amount of the obligation cannot be measured with
sufficient reliability. such obligations are reported as contingent
liabilities. For further detailed information we refer to c24 contingent
liabilities.
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 expenses 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 employees. 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
Method. 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, considering the medium term
trend of such bonds. 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 possible 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 employee
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
commitments 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 contributions 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.
in the ordinary course of business, the company is subject to
payroll taxes related to actuarial gains and losses are reported in
equity together with the recognition of actuarial gains and losses.
proceedings, lawsuits and other unresolved claims, including
proceedings 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 possible losses. provisions are recognized when it is
probable that an obligation has arisen and the amount can be
reasonably estimated based on a detailed analysis of each individual
issue.
44
ericsson annual report 2008
notes to the consolidated financial statements Share-based compensation to employees and the Board of
Directors
share-based compensation is related to remuneration to employees,
including key management personnel and the Board of Directors.
under iFrs, a company shall recognize compensation costs for
share-based compensation programs to employees based on a
measure of the value to the company of services received from the
employees under the plans.
a) Compensation to employees
Stock option plans
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 is applied to the equity settled employee option program
granted after november 7, 2002 (i.e. on program where the vesting
period ended 2005). ericsson recognizes 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 is calculated
using an option-pricing model. the total costs are recognized during
the vesting period, 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 difference between the
market price of the share and the strike price. such social security
charges are accrued during the vesting period.
Stock purchase plans
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 the fact 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. When
calculating the compensation costs for shares under performance-
based matching programs, the company at each reporting date
assesses the probability of meeting the performance targets.
compensation expenses are based on estimates of the number of
shares that will match at the end of the vesting period. When shares
are matched, social security charges are to be paid in certain
countries on the value of the employee benefit. the employee benefit
is generally based on the market value of the shares at the matching
date. During the vesting period, estimated amounts for such social
security charges are accrued.
b) Compensation to the Board of Directors
During 2008, the company introduced a share-based compensation
program as a part of the remuneration to the Board of Directors. the
program gives non-employed Directors elected by the General
Meeting of shareholders a right to receive part of their remuneration
as a future payment of an amount which corresponds to the market
value of a share of class B in the company at the time of payment, as
further disclosed in note c29, “information regarding employees,
Members of the Board of Directors and Management”. the cost for
note c 1
cash settlements is measured based on the estimated costs for the
program on a pro rata basis during the service period, being one year.
the estimated costs are remeasured during and at the end of the
service period.
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:
• Differences in products and services regarding: technology and
standardization, research and development, production and
service.
• For which market and to what type of customers the segment’s
products and/or services are aimed.
• through which distribution channels products and services are
sold.
Secondary segments
secondary, geographical segments are defined based on differences
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.
Non-current assets (or disposal group) held for
sale
to be classified as an asset (or disposal group) held for sale, the
asset (or disposal group) 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 (or disposal groups) held for sale are measured
at the lower of carrying amount and fair value less costs to sell.
Government grants
Government grants are recognized when there is a reasonable
assurance of compliance with conditions attached to the grants and
that the grants will be received.
For the company, government grants are linked to performance of
research or development work or to capital expenditures that are
subsidized as governmental stimulus to employment or investments
in a certain country or region. Government grants linked to research
and development are normally deducted in reporting the related
expense, whereas grants related to assets are accounted for
deducting the grant when establishing the acquisition cost of the
asset.
ericsson annual report 2008
45
notes to the consolidated financial statements note c 1
New standards and interpretations not yet
adopted
a number of issued new standards, amendments to standards and
interpretations are not yet effective for the year ended December 31,
2008, and have not been applied in preparing these consolidated
financial statements:
• iFrs 8 “operating segments”. this standard prescribes
measurement 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 will apply this new standard as from January 1, 2009.
the new standard will not result in any changes of the reportable
segments. However, the new 50/50 joint venture, st ericsson,
established February 1, 2009, will be reported as a separate
segment.
• ias 1 (revised), ‘presentation of financial statements’ (effective
from January 1, 2009). the revised standard will prohibit the
presentation of items of income and expenses (that is, ‘non-owner
changes in equity’) in the statement of changes in equity, requiring
‘non-owner changes in equity’ to be presented separately from
owner changes in equity. all non-owner changes in equity will be
required to be shown in a performance statement, but entities can
choose whether to present one performance statement (the
statement of comprehensive income) or two statements (the
income statement and statement of comprehensive income).
Where entities restate or reclassify comparative information, they
will be required to present a restated balance sheet as at the
beginning comparative period in addition to the current
requirement to present balance sheets at the end of the current
period and comparative period. the company will apply this
revised standard as from January 1, 2009.
• revised ias 23 “Borrowing costs” removes the option to expense
borrowing costs as incurred and requires that a company
capitalizes borrowing costs directly attributable to the acquisition,
construction or production 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. in accordance with the
transitional provisions, the company will apply the revised ias 23
prospectively to design or construction of qualifying assets from
the effective date January 1, 2009. the revised standard is not
expected to have a significant impact on the financial statements
of the company.
• ias 27 (amendment) “consolidated and separate Financial
statements” (effective from July 1, 2009). the amendment to the
standard is still subject to endorsement by the eu. 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 remaining interest
should be revalued to fair value. the change in the standard will
influence the accounting of future transactions. at present, the
company plans to apply the standard from January 1, 2010.
• ias 32 and ias 1 (amendments) “puttable Financial instruments”
and “obligations arising on liquidation” (effective from January 1,
2009). the amended standards require entities to classify puttable
financial instruments and instruments, or components of
instruments, that impose an obligation on the entity to deliver to
another party a pro rata share of the net assets of the entity only
on liquidation, as equity, provided the financial instruments have
particular features and meet specific conditions. the amendments
are not expected to have any impact on the company’s financial
statements.
• ias 39 (amendment) “Financial instruments: recognition and
Measurement – eligible hedged items” (effective from July 1, 2009).
the amendment to the standard is still subject to endoresement by
the eu. the amendment clarifies how the existing principles
underlying hedge accounting should be applied in two particular
situations. it clarifies the designation of:
a) a one-sided risk in a hedged item (hedging with options), and
b) inflation in a financial hedged item.
it is not expected to have a material impact on the company’s
financial statements.
• iFrs 1 and ias 27 (amendments) “cost of an investment in a
subsidiary, Jointly controlled entity or associate” (effective from
January 1, 2009). the amended standard allows first-time
adopters to use a deemed cost of either fair value or the carrying
amount under previous accounting practice to measure the initial
cost of investments in subsidiaries, jointly controlled entities and
associates in the separate financial statements. these
amendments are not applicable, as the company is not a first-time
adopter.
• iFrs 2 (amendment), “share-based payment“ (effective from
January 1, 2009). the amended standard deals with vesting
conditions and cancellations. it clarifies that vesting conditions are
service conditions and performance conditions only. other
features of a share-based payment are not vesting conditions. as
such these features would need to be included in the grant date
fair value for transactions with employees and others providing
similar services, that is, these features would not impact the
number of awards expected to vest or valuation thereof
subsequent to grant date. all cancellations, whether by the entity
or by other parties, should receive the same accounting treatment.
the company will apply iFrs 2 (amendment) from January 1,
2009, but is not expected to have a material impact on the
consolidated financial statements. the company will 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
endorsement by the eu. the amendment will have an effect on
how future business combinations are accounted for, i.e. the
accounting of transaction costs, possible contingent
considerations, and business combinations achieved in stages. at
present, the company plans to apply the standard from January 1,
2010.
• iFric 13 “customer loyalty programmes” addresses the
accounting by companies that operate, or otherwise participate in,
customer loyalty programmes for their customers. 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 15 “agreements for construction of real estate” (effective
from January 1, 2009). the interpretation clarifies whether ias 18,
‘revenue’, or ias 11,’construction contracts’ should be applied to
particular transactions. it is likely to result in ias 18 being applied
46
ericsson annual report 2008
notes to the consolidated financial statements to a wider range of transactions. iFric 15 is not expected to have
significant impact on the company’s financial result and position.
this interpretation is still subject to endorsement by the eu.
• iFric 16 “Hedges of a net investment in a Foreign operation”
(effective from october 1, 2008). iFric 16 clarifies the accounting
treatment in respect of net investment hedging. this includes the
fact that net investment hedging relates to differences in functional
currency, not presentation currency, and hedging instruments may
be held anywhere in the company. the requirements of ias 21,
‘the effects of changes in foreign exchange rates’, do apply to the
hedged item. the company will apply iFric 16 from January 1,
2009. it is not expected to have a material impact on the
company’s financial statements.
• iFric 17, ”Distributions of non-cash assets to owners” (mandatory
for accounting periods beginning on or after July 1, 2009). this
interpretation is still subject to endorsement by the eu. iFric 17
clarifies that a dividend payable should be recognized when the
dividend is appropriately authorized and is no longer at the
discretion of the entity, and that this payable should be measured
at the fair value of the net asset to be distributed. When an entity
settles the dividend payable, it should recognize the difference
between the dividend paid and the carrying amount of the net
asset distributed in profit or loss. iFric 17 also clarifies that iFrs 5
“non-current assets Held for sale and Discontinued operations”
should be applied for non-current assets classified as held for
distribution to owners. the company will apply iFric 17 to
distributions of non-cash assets, as well as pro rata distributions of
non-cash assets, prospectively from January 1, 2010.
• iFric 18 ”transfers of assets from customers” (effective for
transfers of property, plant and equipment or cash from a
customer, received on or after July 1, 2009). this interpretation is
still subject to endorsement by the eu. iFric 18 clarifies the
requirements for agreements in which an entity receives an item of
property, plant and equipment that the entity must then use either
to connect the customer to a network or to provide the customer
with ongoing access to a supply of goods or services. the
interpretation clarifies e.g. the circumstances in which the
definition of an asset is met, the recognition of the asset and the
measurement of its cost on initial recognition, and also the
recognition of revenue. the evaluation of this interpretation is not
finalized.
• improvements to iFrss, published in May 2008 and effective from
January 1, 2009. none of these improvements are expected to
have a material impact on the company’s financial statements.
note c 1–c2
c2 critical accounting estimates
and Judgments
the preparation of financial statements and application of accounting
standards often involve management’s judgment and the use of
estimates and assumptions deemed to be reasonable at the time
they are made. However, other results may be derived with different
judgments 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 and the key sources of estimation
uncertainty that the company believes could have the most
significant impact on the reported results and financial position.
the information in this note is grouped as per:
• Key sources of estimation uncertainty.
• Judgments management has made in the process of applying the
company’s accounting policies.
Revenue recognition
Key sources of estimation uncertainty.
estimates are necessary in evaluation of contractual performance
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.
Judgments made in relation to accounting policies applied.
parts of the company’s sales are generated from large and complex
customer contracts. Managerial judgment is applied regarding,
among other aspects, conformance with acceptance criteria and if
transfer of risks and rewards to the buyer has taken place to
determine if revenue and costs should be recognized in the current
period, degree of completion and the customer credit standing to
assess whether payment is likely or not to justify revenue recognition.
Trade and customer finance receivables
Key sources of estimation uncertainty.
the company monitors the financial stability of its customers and the
environment in which they operate to make estimates regarding the
likelihood that the individual receivables will be paid. total allowances
for estimated losses as of December 31, 2008, were seK 1.8 (1.6)
billion or 2.2 (2.5) percent of gross trade and customer finance
receivables.
credit risks for outstanding customer finance credits are regularly
assessed as well, and allowances are recorded for estimated losses.
ericsson annual report 2008
47
notes to the consolidated financial statements note c 2
Inventory valuation
Judgments made in relation to accounting policies applied.
Key sources of estimation uncertainty.
inventories are valued at the lower of cost and net realizable value.
estimates are required in relation to forecasted sales volumes and
inventory balances. in situations where excess inventory balances
are identified, estimates of net realizable values for the excess
volumes are made. inventory allowances for estimated losses as of
December 31, 2008, amounted to seK 3.5 (2.8) billion or 11 (11)
percent of gross inventory.
Deferred taxes
Key sources of estimation uncertainty.
Deferred tax assets are recognized for temporary differences
between the carrying amounts for financial reporting purposes of
assets and liabilities and the amounts used for taxation purposes and
for tax loss carry-forwards. the largest amounts of tax loss carry-
forwards are reported in sweden, with an indefinite period of
utilization (i.e. with no expiry date). the valuation of tax loss carry-
forwards, 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. For further detailed information,
please refer to note c8, “taxes”.
at December 31, 2008, the value of deferred tax assets amounted
to seK 14.9 (11.7) billion. the deferred tax assets related to loss
carryforwards are reported as non-current assets.
Accounting for income-, value added- and
other taxes
Key sources of estimation uncertainty.
accounting for these items is based upon evaluation of income-,
value added- and other tax rules in all jurisdictions where we perform
activities. the total complexity of rules related to taxes and the
accounting for these require management’s involvement in
judgments regarding classification of transactions and in estimates of
probable outcomes of claimed deductions and/or disputes.
Capitalized development expenses
Key sources of estimation uncertainty.
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 impairment amounts are
based on estimates of future cash flows for the respective products.
at December 31, 2008, the amount of capitalized development
expenses amounted to seK 2.8 (3.7) billion. an impairment charge of
seK 0.5 billion was recognized as a part of the restructuring program.
under this program decisions where taken to phase out certain
products. the impairment charge relates to balances for these
products.
Development costs that meet iFrs’ intangible asset recognition
criteria 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
according to an established project management model.
capitalization ceases and amortization of capitalized development
costs begins when the product is available for general release.
the definition of amortization periods as well as the evaluation of
impairment indicators also requires management’s judgment.
Acquired intellectual property rights and other
intangible assets, including goodwill
Key sources of estimation uncertainty.
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. 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 impairment charges.
one source of uncertainty related to future cash flows is long-term
movements in exchange rates.
the market capitalization of the company as per year end 2008
well exceeded the value of net assets of the company.
For further discussion on goodwill, see note c1, “significant
accounting policies” and c10, “intangible assets”. estimates related
to acquired intangible assets are based on similar assumptions and
risks in assumptions as for goodwill.
at December 31, 2008, the amount of acquired intellectual
property rights and other intangible assets amounted to seK 45.5
(46.8) billion, including goodwill of seK 24.9 (22.8) billion.
Judgments made in relation to accounting policies applied.
at initial recognition and subsequent measurement, management
judgments are made, both for key assumptions and regarding
impairment indicators. in the purchase price allocation made for each
acquisition, the purchase price shall be assigned to the identifiable
assets, liabilities and contingent liabilities based on fair values for
theses net assets. any remaining excess value is reported as
goodwill. this allocation requires management judgment as well as
the definition of cash generating units for impairment testing
purposes. other judgments might result in significantly different
results and financial position in the future.
48
ericsson annual report 2008
notes to the consolidated financial statements note c 2 –c3
Provisions
Judgments made in relation to accounting policies applied.
Pension and other post-employment benefits
Key sources of estimation uncertainty.
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 as close as possible 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, 2008 defined
benefit obligations for pensions and other post-employment benefits
amounted to seK 28.0 (25.2) billion and fair value of plan assets to
seK 19.0 (20.2) billion. For more information on estimates and
assumptions, see note c17, “post-employment Benefits”.
Warranty provisions
Key sources of estimation uncertainty.
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 estimates 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
product warranties as of December 31, 2008, amounted to seK 1.9
(1.8) billion.
Provisions other than warranty provisions
Key sources of estimation uncertainty.
provisions, other than warranty provisions, mainly comprise amounts
related to contractual obligations and penalties to customers and
estimated losses on customer contracts, restructuring, risks
associated with patent and other litigations, supplier or subcontractor
claims and/or disputes, as well as provisions for unresolved income
tax and value added tax issues. the estimates related to the amounts
of provisions for penalties, claims or losses receive special attention
from the management. at December 31, 2008, provisions other than
warranty commitments amounted to seK 12.4 (7.9) billion. For further
detailed information, see note c18, “provisions”.
Judgments made in relation to accounting policies applied.
Whether a present obligation is probable or not requires judgment.
the nature and type of risks for these provisions differ and
management’s judgment is applied regarding the nature and extent
of obligations in deciding if an outflow of resources is probable or not.
Financial instruments and hedge accounting
Hedge accounting and foreign exchange risks
Key sources of estimation uncertainty.
Foreign exchange risk in highly probable sales and purchases 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 and purchases estimates for future periods as well
as analyzing actual outcome to estimates on a regular basis in order
to fulfill effectiveness testing requirements for hedge accounting.
changes in estimates of sales and purchases might result in that
hedge accounting is discontinued.
For further information regarding risks in financial instruments see,
note c20, “Financial risk Management and Financial instruments”.
c3 segment information
Primary segments
ericsson has the following business segments:
Networks delivers products and solutions for mobile and fixed
broadband access, core networks and transmission as well as
related network rollout services. the offering includes:
• radio access solutions interconnect with devices such as mobile
phones, notebooks and pcs, supporting different standardized
mobile technologies, such as GsM and WcDMa on the same
platform.
• access solutions, recently expanded by acquisitions, increase the
customers’ ability to modernize fixed networks to enable new
ip-based services with higher bandwidth.
• our core network solutions include industry-leading softswitches,
ip infrastructure for eDGe- and core routing, ip Multimedia
subsystem (iMs) and media gateways.
• transmission; microwave and optical transmission solutions for
mobile and fixed networks.
• related network rollout services.
GsM and WcDMa share a common core network, preserving
investments. iMs is a platform that enables converged services to be
transparently provided indepent of the type of access used.
Professional Services delivers managed services, systems
integration, consulting, education and general customer support
services. the offering includes:
• managed services comprise network operations (the managment
of day-to-day operations of customer networks) and hosting of
service layer platforms and applications.
• systems integration; ericsson integrates equipment from multiple
suppliers and handles technology change programs as well as
design and integration of new solutions.
• consulting; experts in business and technology strategy provide
support (decision making, planning and execution) to customers in
improving and growing their business.
• education; tailored programs to ensure operator personnel have
the right skills and competence to manage their increasingly
complex systems.
• customer support services; staff world-wide provide around-the-
clock support and advice to ensure network uptime and
performance.
Multimedia delivers enablers and applications that the operators
need to deliver a rich user experience seamlessly on any device, any
time and anywhere.
the offering includes:
ericsson annual report 2008
49
notes to the consolidated financial statements note c 3
• tV solutions, end-to-end solutions for operators, service providers,
advertisers and content providers.
• customer and business applications; multimedia solutions for the
consumer and enterprise markets.
• multimedia brokering solutions which facilitate payment and
distribution of content.
• service delivering and provisioning platforms enabling operators
and service providers to create, sell and manage multimedia
offerings and multi-play offerings.
• mobile platforms; platform technology for GsM/eDGe and
WcDMa/Hspa used in mobile devices and pcs.
Phones, consisting of ericsson’s investment and share in earnings of
the sony ericsson Mobile communications joint venture. sony
ericsson delivers innovative and feature-rich mobile phones,
accessories and pc-cards.
Secondary segments
ericsson operates in five main geographical areas: (1) Western
europe, (2) central and eastern europe, Middle east and africa, (3)
asia pacific, (4) north america and (5) latin america. these areas
represent the geographical segments.
BuSiNeSS SegM eNtS (PriMary )
2008
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
professional
services
142,050
–
48,978
–
Multi-
media
17,902
–
142,050
48,978
17,902
–25
11,145
8%
92
6,346
13%
–2
–118
–1%
phones
unallo-
cated
elimi-
nations
–
–
–
–503
–503
–
–
–
–
–
–618
–
–
–
–
–
–
–
Group
208,930
–
208,930
–436
16,252
8%
3,458
–2,484
17,226
–5,559
11,667
assets 1) 2)
equity in joint ventures and associated companies
total assets
Liabilities 3) 4)
119,351
852
42,701
322
20,771
120
120,203
43,023
20,891
58,739
25,868
5,363
–
6,694
6,694
–
94,873
–
94,873
53,630
–
–
–
–
277,696
7,988
285,684
143,600
1) segment assets include property, plant and equipment, intangible assets, current and non-current customer finance, 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
restructuring expenses
Gains/losses from divestments
ge OgraPhicaL SegMeN tS (SecONdary )
2008
Western europe
– of which Sweden
central and eastern europe, Middle east and africa
asia pacific
– of which China
– of which India
north america
– of which United States
latin america
total
– of which EU
3,085
693
–2,347
–3,210
–547
6
–5,131
9
735
11
–532
–368
–
1
–1,272
–16
257
583
–228
–1,429
–19
–
–337
992
–
–
–
–
–
–
–846
–
56
–
–1
1
–
–
–20
113
–
–
–
–
–
–
–
–
4,133
1,287
–3,108
–5,006
–566
7
–7,606
1,098
net sales
51,570
8,876
53,080
63,307
15,068
15,176
17,925
14,132
23,048
208,930
57,601
additions/capitalization
of pp&e and
intangible assets
total assets
214,501
189,827
13,628
38,407
13,937
12,705
8,164
7,761
10,984
285,684
222,401
4,065
2,909
93
370
140
85
739
697
153
5,420
4,101
For employee information, see note c29, “information regarding employees, Members of the Board of Directors and Management”.
50
ericsson annual report 2008
notes to the consolidated financial statements
note c 3
Group
187,780
0
–
–44
–44
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
BuSiNeSS SegM eNtS (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
professional
services
Multi-
media 1) phones
unallo-
cated
elimi-
nations
128,985
32
42,892
10
15,903
2
129,017
42,902
15,905
61
17,398
13%
66
6,394
15%
–3
–135
–1%
–
–
–
7,108
7,108
–
–
–
–
–
–119
–
assets 2) 3)
equity in joint ventures and associated companies
107,819
850
36,974
298
18,739
206
–
9,549
70,682
–
total assets
Liabilities 4) 5)
108,669
37,272
18,945
9,549
70,682
39,819
19,101
4,915
–
46,230
1) Multimedia figures include the enterprise pBX business which was divested in 2008.
2) segment assets include property, plant and equipment, intangible assets, current and non-current customer finance, accounts receivable, inventory, prepaid expenses,
accrued revenues, derivatives and other current assets.
3) unallocated assets include mainly cash and cash equivalents, short-term investments and deferred tax assets.
4) segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.
5) 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
ge OgraPhicaL SegMeN tS (SecONdary )
2007
Western europe
– of which Sweden
central and eastern europe, Middle east and africa
asia pacific
– of which China
– of which India
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
net sales
52,685
8,395
48,661
54,629
13,598
10,517
13,422
10,529
18,383
187,780
58,978
additions/capitalization
of pp&e and
intangible assets
total assets
160,606
117,887
10,737
26,852
9,915
6,642
32,815
31,573
14,107
245,117
161,251
12,127
2,671
230
1,124
704
71
20,528
17,668
148
34,157
10,609
For employee information, see note c29, “information regarding employees, Members of the Board of Directors and Management”.
ericsson annual report 2008
51
notes to the consolidated financial statements
note c 3
BuSiNeSS SegM eNtS (PriMary )
2006 1)
net sales
inter-segment sales
total net sales
networks
professional
services
Multi-
media 2) phones
unallo-
cated
elimi-
nations
127,518
176
36,813
34
13,877
17
127,694
36,847
13,894
–
–
–
1,613
2
–
–229
Group
179,821
0
1,615
–229
179,821
share in earnings of JV and associated companies
18
21
Operating income
operating margin (%)
Financial income
Financial expenses
income after financial items
taxes
Net income
21,722
5,309
17%
14%
43
714
5%
5,852
5,852
–
–
2 231 7)
–
–
–
–
5,934
35,828
20%
1,954
–1,789
35,993
–9,557
26,436
assets 3) 4)
equity in joint ventures and associated companies
total assets
Liabilities 5) 6)
100,792
918
21,141
170
6,657
280
101,710
21,311
6,937
–
8,041
8,041
76,941
–
76,941
42,837
17,718
4,011
–
29,479
–
–
–
–
205,531
9,409
214,940
94,045
1) ericsson has reorganized its operating structure as of January 1, 2007. comparative figures for 2006 are restated accordingly. For further details see note c1, significant
accounting policies.
2) Multimedia figures include the enterprise pBX business which was divested in 2008.
3) segment assets include property, plant and equipment, intangible assets, current and non-current customer finance, accounts receivable, inventory, prepaid expenses,
accrued revenues, derivatives and other current assets.
4) unallocated assets include mainly cash and cash equivalents, short-term investments and deferred tax assets.
5) segment liabilities include accounts payable, provisions, accrued expenses and deferred revenues, advances from customers and other current liabilities.
6) unallocated liabilities include accrued interests, tax liabilities, interest-bearing liabilities and post-employment benefits.
7) 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
ge OgraPhicaL SegMeN tS (SecONdary )
2006
Western europe
– of which Sweden
central and eastern europe, Middle east and africa
asia pacific
– of which China
– of which India
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)
additions/capitalization
of pp&e and
intangible assets
total assets
53,182
7,809
46,413
47,884
11,776
7,359
15,862
13,878
16,480
179,821
58,983
158,773
125,578
8,139
24,853
9,088
5,936
10,893
10,231
12,282
214,940
160,074
20,704
17,819
147
419
206
39
798
739
78
22,146
20,763
1) revenues from intellectual property rights (ipr) related to products are as from 2007 reported in net sales with related costs reported as cost of sales. comparative figures for
2006 have been restated accordingly.
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”.
52
ericsson annual report 2008
notes to the consolidated financial statements
c4 net sales
sales of products and
network rollout services
of which:
– Delivery-type contracts
– construction-type contracts
professional services sales
license revenues
Net sales
export sales from sweden
2008
2007
2006 1)
150,846 138,011 137,758
148,358 130,890 123,206
14,552
2,488
36,813
48,978
5,250
9,106
7,121
42,892
6,877
208,930 187,780 179,821
98,694
109,254 102,486
1) revenues from intellectual property rights (ipr) related to products are as from
2007 reported in net sales with related costs reported as cost of sales.
comparative figures for 2006 have been restated accordingly.
c5 expenses by nature
2008
2007
2006
note c 4–c6
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
losses on sales of investments
and operations
capital gains/losses, net
2008
2007
2006 1)
302
78
27
–190
–104
–158
1,236
296
3,038
–138
1,210
–16
–93
254
2,814
other operating revenues
1,767
1,480
1,089
Total other operating income
and expenses
2,977
1,734
3,903
1) revenues from intellectual property rights (ipr) related to products are as from
2007 reported in net sales with related costs reported as cost of sales.
comparative figures for 2006 have been restated accordingly.
Goods and services
amortization and depreciation
impairments, net of reversals
employee remunerations
interest expenses
taxes
138,298 113,195 108,033
7,244
876
42,821
1,789
9,557
8,114
2,680
51,297
2,484
5,559
8,554
1,435
44,771
1,695
8,594
Expenses incurred
less:
inventory changes 1)
additions to capitalized development
208,432 178,244 170,320
3,761
1,409
802
1,053
3,791
1,353
Expenses charged to the
Income Statement
203,262 176,389 165,176
1) the inventory changes are based on changes of inventory values prior to
allowances (gross value).
the change in impairments, net of reversals, mainly relate to an
increase of obsolescence allowances in inventories, impairments of
capitalized development expenses and an increase in impairments of
trade receivables.
For 2008, restructuring charges amounted to seK 6.7 billion.
restructuring charges are included in the expenses presented above.
Restructuring charges by function
2008
2007
cost of sales
r&D expenses
selling and administrative expenses
Total restructuring charges
2,540
2,648
1,572
6,760
–
–
–
–
2006
1,566
595
747
2,908
ericsson annual report 2008
53
notes to the consolidated financial statements
note c 7–c8
c7 Financial income and expenses
2008
2007
2006
Financial
income
Financial
expenses
Financial
income
Financial
expenses
Financial
income
Financial
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:
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
2,938
2,282
–
322
–
–
191
–
7
-2,023
280
–32
–
–
–656
–85
2,293
1,094
1,952
1,190
–1,543
–
–1,416
–
–181
–60
–60
–366
–
–
–342
–
8
–7
–
–
11
–103
–
–
–
–
62
–414
–
–160
383
–230
total
3,458
–2,484
1,778
–1,695
1,954
–1,789
1) excluding net loss from operating assets and liabilities which was seK 4,234 (762) million reported as cost of sales.
c8 taxes
on December 10, 2008 the swedish parliament decided to reduce
the company tax rate from 28 percent to 26,3 percent. this new tax
rate will become applicable from the income year of 2009, and has
affected the assessment of deferred tax assets and deferred tax
debts. in summary, the Group tax expense for the year was seK
5,559 (8,594) million or 32.3 (28.0) percent 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
2008
2007
2006
–5,574
–4,115
–4,565
167
–297
–294
–2,227
–169
–3,582
145
–1,958
–1,241
–5,559
–8,594
–9,557
Reconciliation of actual income ta x Rate to the
SwediSh income ta x Rate:
2008
2007
2006
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%
–0.4%
0.2%
0.1%
1.0%
–1.0%
–0.5%
–1.0%
–0.7%
1.2%
0.4%
1.5%
0.2%
–5.7%
1.8%
–0.9%
–2.6%
2.8%
–0.2%
–3.7%
4.5%
0.1%
actual tax rate
–32.3% –28.0% –26.6%
54
ericsson annual report 2008
notes to the consolidated financial statements
note c 8
Deferred tax balances
tax effects of temporary differences and unutilized tax loss
carryforwards are attributable as shown in the table below:
ta x effectS of tempoRaRy diffeRenceS and unutilized ta x loSS caRRyfoR waRdS
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
deferred tax
assets
2008
deferred tax
liabilities net balance
Deferred tax
assets
2007
Deferred tax
liabilities
net balance
313
2,056
1,054
2,473
2,941
3,743
4,736
17,316
–2,458
14,858
4,081
80
138
–
–
897 1)
–
5,196
–2,458
2,738
12,120
438
1,878
1,121
1,693
708
3,647
5,219
14,704
–3,014
11,690
4,044
14
100
5
97
1,553
–
5,813
–3,014
2,799
8,891
Tax loss carryforwards
Deferred tax assets regarding 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, 2008, these unutilized tax loss carryforwards
amounted to seK 16,327 (17,734) 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
2009
2010
2011
2012
2013
2014 or later
total
345
199
223
173
408
14,979
16,327
tax
effect
83
33
36
32
81
4,471
4,736
1) refer mainly to r&D credits and intellectual property rights
change in defeRRed ta xeS:
opening balance, net
recognized in income statement
recognized in equity
acquisitions/disposals of subsidiaries
translation differences
closing balance, net
2008
2007
8,891
–296
2,330
861
334
13,182
–2,227
–73
–2,120
129
12,120
8,891
tax effects reported directly in equity amount to seK 2,330 million, of
which hedge accounting seK 1,399 million, and actuarial gains/
losses on pensions seK 931 million.
Deferred tax assets are only recognized in countries where the
company expects 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 4,736
million, seK 2,436 million relate to sweden with indefinite time of
utilization. With our strong current financial position and profitability
during 2008, we have been able to utilize part of our tax loss
carryforwards 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.
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
uncertainty as to which deductions can be realized in the future, no
additional deferred tax assets are reported.
ericsson annual report 2008
55
notes to the consolidated financial statements
note c 9 –c10
c9 earnings per share
2008
2007 1) 2006 1)
Basic, earnings per share
net income attributable to stockholders
of the parent company (seK million)
average number of shares
outstanding, basic (millions)
Earnings per share, basic (SEK)
Diluted, earnings per share
net income attributable to stockholders
of the parent company (seK million)
average number of shares
outstanding, basic (millions)
Dilutive effect for stock option plans
Dilutive effect for stock purchase plans
average number of shares
outstanding, diluted (millions)
Earnings per share, diluted (SEK)
11,273
21,836 26,251
3,183
3.54
3,178
6.87
3,174
8.27
11,273
21,836 26,251
3,183
1
18
3,178
2
13
3,174
4
11
3,202
3.52
3,193
6.84
3,189
8.23
1) a reverse split 1:5 was made in June 2008. comparative figures are restated
accordingly.
c10 intangible assets
Capitalized development expenses
Goodwill marks and other intangible assets
Intellectual property rights (IPR), trade-
For internal use
to be
marketed
acquired
costs
internal
costs
Total
ipr,
trademarks
and similar
rights
patents
and
acquired
r&D
12,478
1,107
–
–8,067
–
–
1,640
181
1,096
121
15,214
1,409
22,826
–
10,372
20
19,758
–
–
–
–
–
–
–
–
–
–
–8,067
–
–
30
–60
–912
2,993
–172
–1,212 1)
–209
630
–
–31
–
723
Total
30,130
20
–172
–1,243
–209
1,353
2008
Accumulated acquisition costs
opening balance
acquisitions/capitalization
Balances regarding divested/
acquired businesses
sales/disposals
reclassification 2)
translation difference
Closing balance
5,518
1,821
1,217
8,556
24,877
9,429
20,450
29,879
Accumulated amortization
opening balance
amortization
sales/disposals
translation difference
–7,911
–1,726
8,067
–
–1,562
–
–
–
–1,042
–
–
–
–10,515
–1,726
8,067
–
Closing balance
–1,570
–1,562
–1,042
–4,174
Accumulated impairment losses
opening balance
impairment losses
Closing balance
Net carrying value
–974
–534 3)
–1,508
2,440
–38
–17
–55
204
–26
–11
–37
138
–1,038
–562
–1,600
–
–
–
–
–
–
–
–
–2,072
–674
496
–175
–2,425
–
–
–
–4,086
–2,606
8
–169
–6,853
–14
–
–14
–6,158
–3,280
504
–344
–9,278
–14
–
–14
2,782
24,877
7,004
13,583
20,587
1) Divestment of data centers in the uK.
2) reclassification of deferred tax assets, goodwill and intangible assets due to finalized purchase price allocation. For more information, see note c26, “Business combinations”.
3) part of the restructuring program.
56
ericsson annual report 2008
notes to the consolidated financial statements
note c 10
the goodwill is allocated to the business segments networks (seK
15.3 billion), professional services (seK 2.8 billion) and Multimedia
(seK 6.8 billion).
the recoverable amounts for cash-generating units are established
as the present value of expected future cash flows. estimation of
future cash flows includes assumptions mainly for the following key
financial parameters:
• sales growth,
• development of operating income (based on operating margin or
cost of goods sold and operating expenses relative to sales),
• development of working capital and capital expenditure
requirements.
the assumptions, approved by group management and each
business segment’s management, regarding revenue growth are
based on industry sources and projections made within the company
for the development 2008-2013 for key industry parameters:
• the number of global mobile subscriptions is estimated to grow
from 3.9 billion by the end of 2008 to approximately 6.5 billion.
• fixed and mobile broadband subscriptions from 0.6 billion to
approximately 3 billion.
• mobile traffic volume as well as fixed internet traffic and fixed iptV
traffic is estimated to increase approximately 10 times.
the demand for professional services is also driven by an
increasing business and technology complexity. therefore, operators
review their business models and look for vendor partners that can
take on a broader responsibility, including outsourcing of network
operations.
the assumptions are also based upon information gathered in the
company’s long-term strategy process, including assessments of
new technology, the company’s competitive position and new types
of business and customers, driven by the continued integration of
telecom, data and media industries.
the impairment testing is 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 percent per year thereafter. the impairment
test for goodwill did not result in any impairment.
a number of sensitivity tests have been made, for example
applying lower levels of revenue and operating income. also when
applying these estimates no goodwill impairment is indicated.
as per year end 2008, the market capitalization of the company
well exceeded the value of net assets of the company.
an after-tax discount rate of 12 percent has been applied for the
discounting of projected after-tax cash flows.
the application of one rate is made due to that differences in risks
between the cash generating units have been considered in the
estimated cash flows.
the demand for multimedia solutions is driven by the opportunities
for new types of service offerings enabled by ip technology and
high-speed broadband.
in note c1, “significant accounting policies” and note c2, “critical
accounting estimates and Judgments”, further disclosures are given
regarding goodwill impairment testing.
Capitalized development expenses
Goodwill marks and other intangible assets
Intellectual property rights (IPR), trade-
2007
Accumulated acquisition costs
opening balance
acquisitions/capitalization
Balances regarding divested/
acquired businesses
sales/disposals
translation difference
For internal use
to be
marketed
acquired
costs
internal
costs
Total
ipr,
trademarks
and similar
rights
patents
and
acquired
r&D
12,388
989
1,602
38
1,070
26
15,060
1,053
–
–899
–
–
–
–
–
–
–
–
–899
–
6,824
–
16,917
–1
–914
5,317
178
5,132 1)
–57
–198
13,479
63
6,495 1)
–1
–278
Closing balance
12,478
1,640
1,096
15,214
22,826
10,372
19,758
Accumulated amortization
opening balance
amortization
sales/disposals
translation difference
–6,439
–2,371
899
–
–1,562
–
–
–
–1,042
–
–
–
–9,043
–2,371
899
–
Closing balance
–7,911
–1,562
–1,042
–10,515
Accumulated impairment losses
opening balance
impairment losses
Closing balance
Net carrying value
–958
–16
–974
3,593
–38
–
–38
40
–26
–
–26
28
–1,022
–16
–1,038
–
–
–
–
–
–
–
–
–1,180
–913
41
–20
–1,953
–2,149
–
16
–2,072
–4,086
–
–
–
–14
–
–14
3,661
22,826
8,300
15,658
23,958
1) During 2007, ericsson acquired redback, tandberg and lHs. the acquisitions consist of ipr, seK 6.4 billion, trademarks and customer relationships, seK 4.8 billion and
goodwill, seK 16 billion. the amortization period related to the intellectual property rights, trademarks and other intangible assets from redback, tandberg and lHs is
between five and ten years.
ericsson annual report 2008
57
Total
18,796
241
11,627
–58
–476
30,130
–3,133
–3,062
41
–4
–6,158
–14
–
–14
notes to the consolidated financial statements
NOTE C11
C11 Property, Plant and Equipment
2008
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
Real estate
Machinery and
other technical
assets
Other
equipment,
tools and
installations
Construction in
process and
advance
payments
4,611
210
–
–1,208
21
420
4,054
–1,470
–241
–
308
–1
–141
–1,545
–117
–
–
78
–8
–47
2,462
5,697
805
–5
–775
–50
459
6,131
–4,013
–865
5
875
55
–268
–4,211
–118
–4
–
–
–3
–125
1,795
16,672
1,729
–21
–2,835
1,284
1,229
18,058
–12,485
–2,002
18
2,407
–54
–851
–12,967
–148
–
7
–
–7
–148
4,943
675
1,389
–
–33
–1,255
19
795
–
–
–
–
–
–
–
–
–
–
–
–
–
795
Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2008, amounted to SEK 229 (176) million.
The reversal of impairment losses have been reported under Cost of sales.
Total
27,655
4,133
–26
–4,851
–
2,127
29,038
–17,968
–3,108
23
3,590
–
–1,260
–18,723
–383
–4
7
78
–18
–320
9,995
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ERICSSON ANNUAL REPORT 2008
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
Real estate
Machinery and
other technical
assets
Other
equipment,
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
–4,013
–154
–
9
27
–
–118
15,135
2,111
104
–1,795
864
253
16,672
–11,738
–2,302
17
1,759
8
–229
–12,485
–178
–6
25
10
1
–148
457
1,120
–
–77
–813
–12
675
–
–
–
–
–
–
–
–
–
–
–
–
–
1,566
4,039
675
NOTE C11
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
ERICSSON ANNUAL REPORT 2008
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 59
note c 12
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
2008
2007
9,549
–503
151
1,084
36
4
–3,627
–
–
–
–
8,041
7,108
–1,957
304
4
–2
–3,949
–
–
–
–
associated
companies
2008
1,354
67
–6
130
–
–
–236
46
–
–1
–60
2007
1,368
124
–1
55
–
–
–273
103
–19
–
–3
total
2008
10,903
–436
145
1,214
36 4
4
–3,863
46
–
–1 –
–60
2007
9,409
7,232
–1,958
359
–2
–4,222
103
–19
–3
closing balance
6,694
9,549
1,294 1)
1,354 1)
7,988
10,903
1) Goodwill, net, amounts to seK 16 million (seK 19 million in 2007).
ericsson’s share of assets, liabilities and income in
joint venture sony ericsson mobile communications
ericsson’s share of assets, liabilities and income in
associated company ericsson nikol a tesl a 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
2008
2007
3,228
21,190
157
17,593
2,701
22,714
121
15,745
non-current assets
current assets
non-current liabilities
current liabilities
6,668
9,549
net assets
54,377
–400
151
59,700
7,276
–1,957
net sales
income after financial items
income taxes
–249
5,319
net income
net income attributable to:
stockholders of the parent company
Minority interest
assets pledged as collateral
contingent liabilities
–353
104
–
20
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.
2008
2007
394
695
6
253
830
1,182
139
–5
134
134
–
5
172
363
728
1
263
827
1,100
124
–1
123
123
–
5
64
60
ericsson annual report 2008
notes to the consolidated financial statements
other financial assets, non – current
other investments
in shares and
participations
2007
2008
customer
finance,
non-current
2007
2008
Derivatives,
non-current
2008
2007
other
financial assets,
non-current
2007
2008
note c12– c13
accumulated acquisition costs
opening balance
additions
Business combinations
Disposals/repayments/deductions
change in value in funded pension plans 1)
reclassifications
revaluation
translation difference
2,019
3
–
–469
–
–
–
37
1,999
–
–
–
–
–
–
20
1,221
623
–
–761
–
–
–
–1
2,270
892
–
–1,940
–
–
–
–1
closing balance
1,590
2,019
1,082
1,221
accumulated impairment losses/allowances
opening balance
impairment losses/allowance
Business combinations
Disposals/repayments/deductions
reclassifications
translation difference
closing balance
net carrying value
–1,281
–
–
–
–
–
–1,278
2
–
–
–
–5
–
–1,281
–209
–48
–
21
–
–
–236
–349
41
–
98
–
1
–209
96
–
–
–
–
–
2,718
–
2,814
–
–
–
–
–
–
–
116
–
–
–
–
–
–20
–
96
–
–
–
–
–
–
–
4,092
292
–
–713
–307
–
–
193
3,447
175
166
–245
447
–
–
102
3,557
4,092
–1,270
–14
–
–
–
–170
–1,154
–58
–
–
–
–58
–1,454
–1,270
309 2)
738
846
1,012
2,814
96
2,103
2,822
1) For further information, see note c17, “post–employment benefits”.
2) Fair value per December 31, 2008, for listed shares was seK 0 (11) million with a net carrying value of seK 0 (11) million.
c13 inventories
2008
2007
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)
2008
2007
2,156
9,599
971
204
406
2,007
733
1,643
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 were not finalized as per December 31, 2008, and
include all costs incurred since the start of these projects, including
any costs incurred prior to January 1, 2008. net sales for
construction-type contracts for 2008 amount to seK 2,488 (7,121)
million, see note c4, “net sales”.
raw materials, components, consumables
and manufacturing work in progress
Finished products and goods for resale
contract work in progress
less advances from customers 1)
inventories, net
7,413
7,616
12,807
–
7,476
5,338
10,338
–677
27,836
22,475
1) effective from this annual report, advances from customers are presented under
note c21, “other current liabilities”.
contract work in progress includes amounts related to delivery-type
contracts, service contracts and construction-type contracts with
ongoing work in progress.
reported amounts are net of obsolescence allowances of seK
3,493 (2,752) million.
movements in obsolescence allowances
opening balance
additions, net
utilization
translation difference
Balances regarding acquired/divested
businesses
closing balance
2008
2007
2,752
1,553
–1,039
250
2,578
1,276
–1,114
17
2006
2,519
857
–693
–81
–23
–5
–24
3,493
2,752
2,578
the amount of inventories recognized as an expense and included in
cost of sales was seK 58,155 (52,864) million.
ericsson annual report 2008
61
notes to the consolidated financial statements
note c 14
c14 trade receivables and
customer Finance
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
allowances for impairment
Customer finance, net
Of which short term
2008
2007
76,827 60,669
–1,351
–1,471
75,356
59,318
535
1,174
75,891 60,492
3,147
–326
2,821
1,975
3,649
–275
3,374
2,362
credit commitments for customer finance
3,811
4,185
Days sales outstanding were 106 (102) in December, 2008.
MOVEMENTS IN ALLOWANCES FOR IMPAIRMENT
opening balance
additions
utilization
reversal of excess amounts
reclassification
translation difference
Balances regarding acquired/divested business
Closing balance
AgINg ANALySIS AS PER dECEMbER 31, 2008
trade receivables excluding associated companies
and joint ventures
allowances for impairment of receivables
customer finance
allowances for impairment of customer finance
AgINg ANALySIS AS PER dECEMbER 31, 2007
2008
1,351
651
–492
–81
–69
115
–4
1,471
trade receivables
2007
2006
customer finance
2007
2008
1,372
564
–554
–137
56
50
–
1,351
1,382
686
–139
–527
56
–86
–
1,372
275
90
–3
–74
–
38
–
326
418
49
–43
–141
–
–8
–
275
2006
1,755
79
–284
–1,082
–5
–45
–
418
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
76,827
–1,471
3,147
–326
67,482
–
2,530
–
157
–121
347
–97
4,003
–
5
–
2,711
–
27
–
844
–362
47
–38
1,630
–988
191
–191
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
allowances for impairment of customer finance
60,669
–1,351
3,649
–275
52,560
–
2,476
–
–
–
305
–110
3,723
–
410
–
1,577
–
293
–
773
–422
1
–1
2,036
–929
164
–164
62
ericsson annual report 2008
notes to the consolidated financial statements
note c 14
risk provisions related to customer finance risk exposures are only
made upon events occuring after the financing arrangement has
become effective, which are expected to have a significant 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 deteriorating
creditworthiness.
as of December 31, 2008, ericsson’s total outstanding exposure
related to customer finance was seK 3,147 (3,649) million. as of that
date, ericsson also had unutilized customer finance commitments of
seK 3,811 (4,185) million. customer finance is arranged for
infrastructure projects in different geographic markets and to a large
number of customers. as of December 31, 2008, there were a total of
69 (75) customer finance arrangements originated by or guaranteed
by ericsson. the five largest facilities represented 44 (48) percent of
the total credit exposure.
of ericsson’s total outstanding customer finance exposure as of
December 31, 2008, 58 (47) percent were related to central and
eastern europe, Middle east & africa, 20 (23) percent to latin
america, 18 (14) percent to Western europe, 2 (14) percent to asia
pacific and 2 (2) percent to north america.
the effect of risk provisions and reversals for customer finance
affecting the income statement amounted to a net negative impact of
seK 16 million in 2008 compared to a positive impact of seK 92
million in 2007. credit losses incurred were seK 3 (43) million.
security arrangements for customer finance facilities 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. if available, third-party risk
coverage may also be arranged. “third-party risk coverage” means
that a financial payment guarantee covering the credit risk has been
issued by a bank, an export credit agency or other financial
institution. 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. During 2008, ericsson has not taken possession
of any collateral it holds as security or called on any other credit
enhancements.
the table below summarizes ericsson’s outstanding customer
finance as of December 31, 2008 and 2007.
OUTSTANd INg CUSTOMER FINANCE
total customer finance
accrued interest
less third-party risk coverage
ericsson’s risk exposure
2008
3,147
81
–162
2007
3,649
63
–511
3,066
3,201
Credit risk
credit risk is divided into three categories: credit risk in trade
receivables, 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 legal entities in ericsson. the purpose of the policy is to:
• avoid credit losses through establishing internal standard credit
approval routines in 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.
• Define 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 past due receivables are higher than permitted levels.
release of credit block requires authorization.
letters of credits are used as a method for securing payments
from customers operating in emerging markets, in particular in
markets with unstable political and/or economic environment. By
having banks confirming the letters of credit, the political and
commercial credit risk exposures to ericsson are mitigated.
trade receivables amounted to seK 76,827 (60,669) million as of
December 31, 2008. provisions for expected losses are regularly
assessed and amounted to seK 1,471 (1,351) million as of December
31, 2008. ericsson’s nominal credit losses have, however, historically
been low. the amounts of trade receivables follow closely the
distribution of ericsson’s sales and do not include any major
concentrations of credit risk by customer or by geography. the top 5
largest customers represent 27 percent of the total trade receivables.
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 facilities reported as customer finance,
an internal credit risk assessment is conducted in order to assess the
credit rating (for political and commerical risk) of each transaction.
the credit risk analysis is made by using an assessement tool, where
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, is reviewed using information from export credit
agencies and prevailing pricing in the bank loan market for structured
financed deals. the objective is that the internally set risk margin shall
reflect the assessed risk and that the pricing is as close as possible
to the current market pricing. a reassessment of the credit rating for
each customer finance facility is made on a regular basis.
ericsson annual report 2008
63
notes to the consolidated financial statements
note c15– c16
c15 other current receivables
Dividend proposal
prepaid expenses
accrued revenues
advance payments to suppliers
Derivatives with a positive value
taxes
other
Total
c16 equity
Capital stock 2008
2008
3,134
1,885
1,278
2,796
4,130
4,595
2007
2,527
1,661
679
1,530
4,610
4,055
17,818 15,062
the Board of Directors will propose to the annual General Meeting
2009 a dividend of seK 1.85 per share.
Additional paid in capital
relates to payments made by owners and includes share premiums
paid.
Revaluation of other investments in shares and
participations
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.
capital stock at December 31, 2008, consisted of the following:
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
instruments related to hedged transactions that have not yet
occurred.
Cumulative translation adjustments
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
currency as well as from the translation of liabilities that hedge the
company’s net investment in foreign subsidiaries.
Retained earnings
retained earnings, including net income for the year, comprise the
earned profits of the parent company and its share of net income in
subsidiaries, joint ventures and associated companies.
parent company
class a shares
class B shares
Total
number
of shares
261,755,983
2,984,595,752
3,246,351,735
capital
stock
1,309
14,923
16,232
the capital stock of the company is divided into two classes: class a
shares (quota value seK 5.00) and class B shares (quota value seK
5.00). 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.
at December 31, 2008, the total number of treasury shares was
61,066,097 (46,398,3091) in 2007 and 50,202,7781) in 2006) class B
shares. there were 19,900,000 shares repurchased by ericsson in
2008, 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 Jan 1, 2008
number of shares Dec 31, 2008
3,226,452,736 1)
3,246,351,735
number
of shares
capital
stock
16,132
16,232
1) the annual Meeting on april 9, 2008, decided on a reverse split 1:5 of the
company’s shares. the reverse split has the effect that five shares of class a and
five shares of class B, respectively, are consolidated into one share of class a
and one share of class B, respectively. numbers of shares and earnings per
share for comparison periods have been restated accordingly.
64
ericsson annual report 2008
notes to the consolidated financial statements
revalua-
tion of
other
invest-
ments in
shares
and
partici-
addi-
tional
capital paid in
cumula-
tive
transla-
tion
cash
flow
stock capital pations hedges ments
adjust- retained holders’ Minority
interests
earnings
equity
stock-
note c 16
Total
equity
307
-6,345
99,282
134,112
940
135,052
2008
January 1, 2008
actuarial gains and losses related to pensions
Group
Joint ventures and associates
Revaluation of other investments in shares
and participations
Fair value measurement reported in equity
Group
Joint ventures and associates
cash flow hedges
Fair value remeasurement of derivatives
reported in equity
Group
Joint ventures and associates
transferred to income statement for the
period
changes in cumulative translation adjustments
Group
Joint ventures and associates
tax on items reported directly in/or transferred
from equity
Total transactions reported directly in equity
net income
Group
Joint ventures and associates
Total income and expenses recognized
for the period
stock issue
sale of own shares
repurchase of own shares
stock purchase and stock option plans
Group
Joint ventures and associates
Dividends paid
Business combinations
December 31, 2008
16,132 24,731
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
–
–6
–1
–
–
–
–
–
–
–
–
–
–5,116
36
1,192 1)
–
–
–
–
–
–
–
–
–
7,081 2)
1,214
–4,019
4
–4,019
4
–
–
–
–
–
–
–
–6
–1
–5,116
36
1,192
7,081
1,214
2,330
2,715
1
1,225
174 3)
930
–6 –2,663
8,469
–3,085
–
–
–
–
–
–
11,564
–291
11,564
–291
–
–
–
–
–
–
233
–
–
233
394
–
–4,019
4
–6
–1
–5,116
36
1,192
7,314
1,214
2,330
2,948
11,958
–291
–6 –2,663
8,469
8,188
13,988
627
14,615
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88
–100
589
–
–7,954
–
100
88
–100
589
–
–7,954
–
–
–
–
–
– –
–286
–20
100
88
–100
589
–8,240
–20
16,232 24,731
–1 –2,356
2,124
100,093
140,823
1,261
142,084
1) seK 416 million is recognized in net sales and seK 776 million is recognized in cost of sales.
2) changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of seK 2,993 million (seK –914 million in 2007, seK –701
million in 2006), gain/loss from hedging activities of foreign entities, seK –660 million (seK –52 in 2007, seK 123 million in 2006) and seK 13 million (seK –70 million in 2007,
seK –1 million in 2006) of realized gain/losses net from sold/liquidated companies.
3) Deferred tax on gains/losses on hedges on investments in foreign entities.
ericsson annual report 2008
65
notes to the consolidated financial statements
cumula-
tive
transla-
tion
cash
flow
stock capital pations hedges ments
adjust- retained holders’ Minority
interests
earnings
equity
Total
equity
877
–5,569
83,939
120,113
782
120,895
stock-
note c 16
2007
January 1, 2007
actuarial gains and losses related to pensions
Group
Joint ventures and 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
Joint ventures and associates
transferred to income statement for the
period
changes in cumulative translation adjustments
Group
Joint ventures and associates
tax on items reported directly in/or transferred
from equity
Total transactions reported directly in equity
net income
Group
Joint ventures and associates
Total income and expenses recognized for
the period
sale of own shares
stock purchase and stock option plans
Group
Joint ventures and associates
Dividends paid
Business combinations
December 31, 2007
revalua-
tion of
other
invest-
ments in
shares
and
partici-
addi-
tional
capital paid in
16,132 24,731
–
–
3
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,132 24,731
–
–
–
–
580
4
–
–1,390
–
–
–
–
–
1,210
–2
1,210
–2
2
–
–
–
–
–
580
4
–1,390
–1,155
359
–
–
–1,155
359
236
20
–570
–776
–329
879
–73
–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
21,371
298
21,669
–
–
–
–
–
–
–
–
–
–
62
62
–
62
528
–19
–7,943
–
528
–19
–7,943
–
–
–
–189
49
528
–19
–8,132
49
307
–6,345
99,282
134,112
940
135,052
–
–
–
2
–
–
2
–
–
–
–
–
5
66
ericsson annual report 2008
notes to the consolidated financial statements
revalua-
tion of
other
invest-
ments in
shares
and
partici-
addi-
tional
capital paid in
cumula-
tive
transla-
tion
cash
flow
stock capital pations hedges ments
adjust- retained holders’ Minority
interests
earnings
equity
16,132 24,731
5
–704
–2,493
63,951
101,622
850
102,472
stock-
note c 16
Total
equity
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–2
–
–
–
–
–
–
–
–
–
–
4,133
–33
–1,990
99
–
–
–
–
–
–
–
–
–
–2,597
–431
–628
–48
–2
1,581
–3,076
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
–93
347
–769
–1,150
–
–769
–90
–1,240
–
–
–
–
–
–
20,317
5,934
20,317
5,934
185
20,502
5,934
–2
1,581
–3,076
26,598
25,101
95
25,196
–
–
–
–
–
3
–
–
–
–
–
–
–
–
–
–
58
473
–7,141
–
–
58
473
–7,141
–
–
–
–
–202
70
–31
58
473
–7,343
70
–31
877
–5,569
83,939
120,113
782
120,895
2006
January 1, 2006
actuarial gains and losses related to pensions
Group
Joint ventures and 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
Joint ventures and associates
transferred to income statement for the
period
transferred to balance sheet for the period
changes in cumulative translation adjustments
Group
Joint ventures and associates
tax on items reported directly in/or transferred
from equity
Total transactions reported directly in equity
net income
Group
Joint ventures and 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
16,132 24,731
ericsson annual report 2008
67
notes to the consolidated financial statements
note c 17
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 2008 was characterized by the economic turmoil
affecting the return on plan assets and the fluctuation of discount
rates.
this note is divided into the following sections:
1. amount recognized in the consolidated Balance sheet
2. total pension expenses 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
2008
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)
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)
sweden
uK
euro zone
us
other
total
14,866
8,181
6,685
–
6,685
–
6,685
12,512
9,463
3,049
–
3,049
–
3,049
4,867
4,407
460
–
460
35
495
5,606
4,854
752
–
752
39
791
3,557
2,330
1,227
1
1,228
304
1,532
3,079
2,104
975
–
975
426
1,401
2,789
2,289
1,931
1,830
500
–
500
171
671
2,238
1,779
459
–
459
99
558
101
–75
26
464
490
1,791
2,036
–245
–83
–328
717
389
28,010
19,037
8,973
–74
8,899
974
9,873
25,226
20,236
4,990
–83
4,907
1,281
6,188
1) For details on DBo, please refer to section three of this note.
2) For details on plan assets, please refer to section four 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.
68
ericsson annual report 2008
notes to the consolidated financial statements
note c 17
Section Two: Total Pension Expenses Recognized in the Income Statement
the expenses 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
2008
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
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
1) see cost details in table below.
1,607
625
2,232
1,166
471
1,637
1,350
347
1,697
40
156
196
265
279
544
–
249
249
345
179
524
370
128
498
195
300
495
114
35
149
105
42
147
93
49
142
72
33
105
148
100
248
82
44
126
2,178
1,028
3,206
8.3%
2,054
1,020
3,074
9.0%
1,720
989
2,709
8.4%
CosT deTails for defined BenefiT Pl ans reCognized in The inCome sTaTemenT
sweden
uK
euro zone
us
other
total
2008
current service cost
interest cost
expected return on plan assets
past service cost
curtailments and settlements
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
539
549
–431
–
–32
625
473
435
–412
–
–25
471
431
406
–352
–
–138
347
186
299
–310
–
–19
156
257
307
–285
–
–
279
228
177
–169
31
–18
249
141
160
–143
11
10
179
186
135
–125
–
–68
128
279
133
–103
–
–9
300
29
142
–137
–
1
35
33
139
–135
3
2
42
47
146
–140
5
–9
49
122
133
–201
8
–29
33
140
109
–163
8
6
100
92
104
–145
13
–20
44
1,017
1,283
–1,222
19
–69
1,028
1,089
1,125
–1,120
11
–85
1,020
1,077
966
–909
49
–194
989
ericsson annual report 2008
69
notes to the consolidated financial statements
note c 17
Sections three to six focus on the defined benefit plans
Section Three: Change in the Defined Benefit Obligation, DBO
the DBo is the gross pension liability.
2008
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
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
sweden
uK
euro zone
us
other
total
12,512
539
549
–
–74
1,372
–
–32
–
–
–
14,866
–
11,772
473
435
–
–72
–71
–
–25
–
–
–
5,606
186
299
43
–87
–436
–
–19
–
–7
–718
4,867
–
5,713
257
307
59
–119
–777
–
–
440
–8
–266
12,512
5,606
–
–
3,079
141
160
4
–133
–185
–
10
–14
7
488
3,557
–
3,241
186
135
4
–89
–482
–
–68
20
–9
141
3,079
–
2,238
29
142
–
–144
38
–
1
–
19
466
2,789
639
2,399
33
139
–
–195
–12
–2
2
–
22
–148
2,238
533
1,791
122
133
12
–86
25
–16
–13
–
–7
–30
1,931
–
1,487
140
109
15
–68
83
–40
6
–6
–42
107
1,791
–
25,226
1,017
1,283
59
–524
814
–16
–53
–14
12
206
28,010
639
24,612
1,089
1,125
78
–543
–1,259
–42
–85
454
–37
–166
25,226
533
1) Business combinations in 2008 are related to the divestiture of the enterprise Business. Business combinations in 2007 are related to the acquisition of tandberg television
asa.
Funded Status
the funded ratio, defined as total plan assets in relation to the total
defined benefit obligation (DBo), was 68.0 percent in 2008,
compared to 80.2 percent in 2007.
the following table summarizes the value of the DBo per
geographical area in relation to whether or not there are plan assets
wholly or partially funding each pension plan.
2008
DBo, closing balance
Of which partially or fully funded
Of which unfunded
2007
DBo, closing balance
Of which partially or fully funded
Of which unfunded
sweden
uK
euro zone
us
other
total
14,866
14,375
491
12,512
12,043
469
4,867
4,867
–
5,606
5,606
–
3,557
2,355
1,202
3,079
1,945
1,134
2,789
2,118
671
2,238
1,680
558
1,931
1,522
409
1,791
1,440
351
28,010
25,237
2,773
25,226
22,714
2,512
70
ericsson annual report 2008
notes to the consolidated financial statements
Section Four: Change in the Plan Assets
a majority of pension plans have assets managed by local pension
trust funds, whose sole purpose is to secure the future pension
payments to the employees.
2008
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
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
note c 17
sweden
uK
euro zone
us
other
total
9,463
431
–1,713
–
–
–
–
–
–
–
8,181
9,141
412
–89
–1
–
–
–
–
–
–
9,463
4,854
310
–595
527
43
–95
–
–
–
–637
4,407
3,897
285
–
622
59
–127
–
349
–
–231
4,854
2,104
143
–343
132
4
–30
–
–2
–
322
1,779
137
19
61
–
–88
–
–
–
381
2,330
2,289
1,959
125
–173
128
4
–19
–
–
–10
90
2,104
1,818
135
73
13
–
–142
–2
–
–
–116
1,779
2,036
201
–320
85
12
–73
–16
–
–5
–90
1,830
1,580
163
130
83
15
–55
–41
3
–18
176
20,236
1,222
–2,952
805
59
–286
–16
–2
–5
–24
19,037
18,395
1,120
–59
845
78
–343
–43
352
–28
–81
2,036
20,236
1) Business combinations in 2008 are related to the divestiture of the enterprise Business. Business combinations in 2007 are related to the acquisition of tandberg television
asa.
refunds from or reductions in future contributions to plan assets are
recognized if they are available and firmly decided.
aCTual reTurn on Pl an asseTs
2008
2007
asseT alloCaTion
2008
equities
interest-bearing securities
other
Total
Of which Ericsson securities
2007
equities
interest-bearing securities
other
Total
Of which Ericsson securities
sweden
uK
euro zone
–1,283
323
–284
285
–200
–48
us
156
208
other
–119
293
total
–1,730
1,061
sweden
uK
euro zone
us
other
total
2,577
5,604
–
8,181
–
2,943
6,520
–
9,463
–
1,674
2,161
572
4,407
–
1,874
2,387
593
4,854
–
900
1,291
139
2,330
–
1,159
847
98
2,104
–
831
1,256
202
2,289
–
1,442
316
21
1,779
–
306
1,258
266
1,830
–
479
1,381
176
6,288
11,570
1,179
19,037
–
7,897
11,451
888
2,036
20,236
–
–
equity instruments amount to 33 percent of the total assets, interest
bearing instruments amount to 60.8 percent of the total assets, and
other instruments amount to 6.2 percent of the total assets.
the expected contributions to the defined benefit plans during
2009 will be slightly higher than in 2008.
ericsson annual report 2008
71
notes to the consolidated financial statements
note c 17
Section Five: Actuarial Gains and Losses Reported Directly in Equity
2008
2007
mulTi-year summary
2008
2007
2006
2005
2004
plan assets
DBo
19,037 20,236 18,395
24,612
28,010 25,226
16,784
22,314
5,764
16,820
Deficit/surplus (–/+) –8,973
actuarial gains and
losses (–/+)
experience-based
adjustments of
pension obligations
experience-based
adjustments
of plan assets
2,952
57
–4,990
–6,217
–5,530 –11,056
–76
232
–415
–56
59
–358
–706
–146
sweden
uK euro zone 1)
us
other 1)
4.00%
4.55%
3.25%
2.00%
n/a
21
24
4.40%
4.55%
3.25%
2.00%
n/a
21
24
5.50%
6.40%
4.30%
3.00%
n/a
21
24
5.60%
6.75%
4.60%
3.30%
n/a
21
24
5.86%
6.51%
3.00%
2.25%
n/a
22
25
5.42%
6.14%
3.08%
2.17%
n/a
22
25
6.25%
7.50%
4.50%
2.50%
9.00%
18
20
6.25%
7.50%
4.50%
2.50%
9.50%
18
20
8.53%
10.05%
6.81%
4.23%
n/a
18
22
8.84%
9.75%
6.76%
4.10%
n/a
18
22
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:
1 percent 1 percent
increase decrease
net periodic post-employment medical cost
accumulated post-employment benefit obligation
for medical costs
3
–3
57
–50
cumulative gain/loss (–/+) at
beginning of year
recognized gain/loss (–/+) during
the year
other 1)
translation difference
cumulative gain/loss (–/+) at end of year
1,806
3,065
3,765
–7
–162
–1,200
–4
–55
5,402
1,806
1) the gain in 2008 is related to terminated pension plans. the gain in 2007 is
related to the acquisition of tandberg television asa.
since January 1, 2006, ericsson applies immediate recognition of
actuarial gains and losses directly in equity, as disclosed in the
statement 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
2008
Discount rate
expected return on plan assets for the year
Future salary increases
inflation
Health care cost inflation, current year
life expectancy after age 65 in years, males
life expectancy after age 65 in years, females
2007
Discount rate
expected return on plan assets for the year
Future salary increases
inflation
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
• 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 country’s risk free rate with the addition of a risk
premium.
• salary increases are partially affected by fluctuations in inflation
rate.
• 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, where the objective is to
spread the cost of each employee’s benefits over the period that
the employee works for the company.
72
ericsson annual report 2008
notes to the consolidated financial statements
note c 17
Section Seven: Summary Information on
Pension Plans per Geographical Zone
applicable to all countries: in 2008, the global economic turmoil has
led to an overall lower than expected performance of plan assets,
resulting in a significant actuarial loss and a decrease in the total
value of the plan assets. the actuarial loss on plan assets is the
difference between the expected return on plan assets and the actual
return on plan assets. the expected return for 2008 was a positive
seK 1,222 million, and the actual return was a negative seK 1,730
million. consequently the actuarial loss was a seK 2,952 million.
changes in discount rate have also resulted in an overall actuarial
loss, and an increase in the defined benefit obligation. all
geographical regions were affected by the actuarial loss on plan
assets. Mostly affected by the actuarial loss on both plan assets and
defined benefit obligation was sweden.
Sweden:
in 2008, the swedish discount rate decreased, resulting in an
increase in the defined benefit obligation and an actuarial loss.
sweden was also negatively affected by the performance of the plan
assets, which has resulted in a decrease in the value of the assets
and an actuarial loss. the voluntary redundancy plans reduced the
defined benefit obligation by seK 32 million.
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
accounting, and therefore, it has been accounted for as a defined
contribution plan. at the end of 2008, alecta reported a surplus of 12
procent (52 percent in 2007). 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.
UK:
the decrease in the future salary increases’ percentage resulted in an
actuarial gain, while the decrease in discount rate resulted in an
actuarial loss. these two changes together resulted in an overall
decrease in the defined benefit obligation, and consequently an
actuarial gain.
Euro zone:
Germany, italy and ireland are the countries with the most significant
defined benefit pension plans within the euro zone.
the discount rate for the euro zone increased, resulting in a
decrease in the defined benefit obligation and an actuarial gain. the
divestment of the enterprise business decreased the defined benefit
obligation by seK 14 million.
US:
the discount rate is unchanged compared to 2007. the actuarial loss
was purely due to experience-based adjustments of pension
obligations and plan assets.
Other:
Brazil is the country included in other with the most significant
defined benefit pension plan.
ericsson annual report 2008
73
notes to the consolidated financial statements note c 18
c18 provisions
Warranty
commit-
ments
restruc-
turing
2008
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
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
Provisions
1,814
1,568
–392
–1,150
–30
1
120
1,931
2,961
1,472
–861
–1,755
22
–24
–1
1,814
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 2008 was seK 6.0 billion compared with the
estimated seK 6 billion.
For 2008, new or additional provisions amounting to seK 12.0
billion were made, and seK 1.8 billion were reversed. of the total
provisions, seK 311 (368) million are classified as non-current. in
certain circumstances, provisions are no longer required due to more
favo rable outcomes than anticipated, which affect the provisions
balance as a reversal. in other cases the outcome can be negative,
and if so, a charge is recorded in the income statement. the
expected utilization in 2009 is approximately seK 9 billion.
For more information, see note c1, “significant accounting
policies” and note c2, “critical accounting estimates and
Judgments”.
Warranty commitments
Warranty provisions are based on historic quality rates for established
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 2008 was seK 1.2 billion and in line with the
expected seK 1 billion. provisions amounting to seK 1.6 billion were
made and due to more favorable outcomes in certain cases reversals
of seK 0.4 billion were made. the expected utilization of warranty
provisions during year 2009 is approximately seK 1 billion.
project
related
2,619
3,960
–799
–2,164
–51
45
184
3,794
3,272
1,795
–1,080
–1,383
–
–5
20
2,619
other
Total
4,242
2,105
–493
–970
–15
–173
99
4,795
5,372
1,216
–1,409
–1,490
–11
510
54
4,242
9,726
11,961
–1,815
10,146
–6,040
–98
–56
672
14,350
13,882
5,159
–3,750
1,409
–6,308
11
604
128
9,726
1,051
4,328
–131
–1,756
–2
71
269
3,830
2,277
676
–400
–1,680
–
123
55
1,051
Restructuring
in the first quarter 2008, a cost reduction plan of seK 4 billion in
annual savings was announced, including estimated charges of the
same size. in the third quarter it was announced that further charges
would be taken in the fourth quarter. as part of this cost reduction
plan seK 4.3 billion in provisions were made. the actual utilization
was seK 1.8 billion, where seK 0.6 billion was related to restructuring
programs before 2008. the expected utilization for 2009 is estimated
to approximately seK 3 billion.
Project related
project related provisions include estimated losses on onerous
contracts, contractual penalties and undertakings. the utilization of
project related provisions were seK 2.2 billion and in line with the
estimated seK 2 billion. provisions amounting to seK 4.0 billion were
made and seK 0.8 billion were reversed due to a more favorable
outcome than expected. the expected utilization for 2009 is
estimated to be approximately seK 3 billion.
Other
other provisions include provisions for income taxes, value added tax
issues, litigations, supplier claims, off balance-customer finance and
other provisions. the utilization was seK 1.0 billion in 2008 compared
to the estimate of seK 2 billion. During 2008 new provisions
amounting to seK 2.1 billion were made and seK 0.5 billion were
reversed during the year due to a more favorable outcome. For 2009,
the expected utilization is approximately seK 2 billion.
74
ericsson annual report 2008
notes to the consolidated financial statements
note c 19
c19 interest-Bearing liabilities
ericsson’s outstanding interest-bearing liabilities were seK 30.5 (27.2)
billion as of December 31, 2008.
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
2008
2007
3,903
1,639
3,065
2,831
5,542
5,896
18,879
6,060
19,380
1,940
24,939
21,320
Total interest-bearing liabilities
30,481
27,216
1) including notes and bond loans of seK 3,794 (2,898) million.
all outstanding notes and bond loans are issued by the parent
company 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
6.46 percent at December 31, 2008. these bonds are revalued based
on changes in benchmark interest rates according to the fair value
hedge methodology stipulated in ias 39.
on June 5, 2008, the GBp bond issued in 2001 of 226 million
matured and was repaid. With this GBp bond repaid, ericsson does
not have any interest rate payments on bonds linked to credit rating.
on July 2, 2008, ericsson signed a seven year loan of seK 4.0
billion with the european investment Bank. the loan supports
ericsson’s r&D activities to develop the next generation of mobile
broadband technology at sites in Kista, Gothenburg and linköping in
sweden.
NOTES AND BOND LOANS
Issued–maturing
1999–2009
2003–2010
2004–2012
2007–2012
2007–2012
2007–2017
2007–2014
Total
nominal
amount
483
471 1)
450
1,000
2,000
500
375
coupon
currency
Book value
(seK m.)
Maturity date
(yy-mm-dd)
unrealized hedge
gain/loss (incl. in
book value)
6.500%
6.750%
3.340%
5.100%
2.728%
5.380%
3.319%
usD
eur
seK
seK
seK
eur
eur
3,794 2)
5,256 2)
450
1,079 2)
2,000
5,987 2)
4,107
22,673
09-05-20
10-11-28
12-12-07 3)
12-06-29
12-06-29 4)
17-06-27
14-06-27 5)
–62
–189
–80
–547
–878
1) 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.
2) interest rate swaps are designated as fair value hedges.
3) contractual repricing date 2009-06-08.
4) contractual repricing date 2009-03-29.
5) contractual repricing date 2009-03-27.
ericsson annual report 2008
75
notes to the consolidated financial statements
ericsson classifies financial risks as:
• foreign exchange risk.
• interest rate risk.
• credit risk.
• liquidity and refinancing risk.
• market price risk in own and other equity instruments.
the Board of Directors has established risk limits for defined
exposures to foreign exchange and interest rate risks as well as to
political risks in certain countries.
For further information about accounting policies, 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 are impacted by
currency fluctuations.
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.
• the carrying value of assets and liabilities.
• reported cash flows.
the results of operations and financial position of non-swedish
subsidiaries are reported in other currencies than seK, and
translated into seK upon consolidation.
CurrenCy exposure
overall exposure
Currency net sales purchases
32%
usD 1)
25%
eur
3%
GBp
19%
seK
2%
JpY
1%
auD
3%
inr
cnY
5%
other 10% 9%
43%
25%
3%
4%
3%
2%
4%
7%
transaction exposure
in seK entities
internal sales 2) purchases 3)
52%
27%
2%
1%
7%
2%
0%
0%
9%
38%
23%
0%
37%
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) 41 percent of overall purchases, offsetting internal sales.
note c 20
c20 Financial risk Management
and Financial instruments
ericsson’s financial risk management is governed by a policy
approved 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 finance
commitments, 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,
investment grade rating, low leverage and ample liquidity is deemed
important. this provides the financial flexibility and independence to
operate and manage variations in working capital needs as well as to
capitalize on business opportunities.
the company’s overall capital structure should support the
financial targets: to grow faster than the market, deliver best-in-class
margins and generate a healthy cash flow. the capital structure is
managed 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.
• to maintain a positive net cash position.
• to maintain a solid investment grade rating by Moody’s and
standard & poor’s.
Capital objeCtives rel ated information
capital (seK billion)
equity ratio (percent)
cash conversion rate (percent)
positive net cash (seK billion)
Credit rating
Moody’s
standard & poor’s
2008
2007
142
50
92
34.7
135
55
66
24.3
baa1
bbb+
Baa1
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
exposures in a manner consistent with underlying business risks and
financial policies. Hedging activities, cash management and
insurance management are largely centralized to the treasury function
in stockholm.
ericsson also has a customer finance function with the main
objective 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
guarantees vendor credits. the customer finance function monitors
the exposure from outstanding vendor credits and credit
commitments.
76
ericsson annual report 2008
notes to the consolidated financial statements
outstandinG derivatives
Fair value
Currency derivatives
Maturity within 3 months
Maturity between 3
and 12 months
Maturity 1 to 3 years
Maturity 3 to 5 years
Maturity more than 5 years
total currency derivatives
of which designated in cash
flow hedge relations
of which designated in net
investment hedge relations
interest rate derivatives
Maturity within 3 months
Maturity between 3
and 12 months
Maturity 1 to 3 years
Maturity 3 to 5 years
Maturity more than 5 years
total interest rate derivatives
of which designated in fair
value hedge relations
2008
asset liability
2007
asset liability
2,671
2,489
432
537
1,639
40
–
–
4,022
589
–
–
413
145
–
–
474
83
–
–
4,350 2) 7,100
990
1,094
–
8
–
3,503
416
179
–69 1)
–
–
315
129
105
711
1,260 2)
121
25
–
53
199
194
226
32
184
636 2)
116
1,152
–
478
–
13
10
1
53
56
3
3
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.
2) of which 2,814 million is reported as non-current assets for 2008 and 96 million
for 2007.
net sales and operating income are affected by changes in foreign
exchange rates from two different kinds of exposures:
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.
Translation exposure
• sales and cost of sales in foreign entities are translated into seK.
• these exposures cannot be addressed by hedging.
the current policy for hedging transaction exposures and the fact
that translation exposure related to forecasted results cannot 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 net sales, cost of sales and
operating expenses.
Transaction exposure
Foreign exchange risk is as far as possible concentrated to swedish
group companies, primarily ericsson aB. sales to foreign subsidiaries
are normally denominated 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
revenues or expenditures, committed and forecasted future sales
and purchases in major currencies are hedged, for the coming 6–12
months.
according to company policy, transaction exposure in
note c 20
subsidiaries’ balance sheets (i.e. trade receivables and payables and
customer finance receivables) should be fully hedged, except for
unhedgable currencies. Group treasury has a mandate to leave
selected transaction exposures in local companies’ balance sheets
un-hedged up to an aggregate Value at risk (Var) of 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, 2008, outstanding foreign exchange
derivatives hedging transaction exposures had a negative net market
value of seK 2.9 (positive 0.1) 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 negative
balance corresponds to the change in value of trade receivable
balances being remeasured at higher 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
quarters are hedged to a higher degree than later 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 results and net assets of such
companies are exposed to exchange rate fluctuations, which affect
the consolidated income statement and balance sheet when
translated to seK. translation risk related to forecasted results from
foreign operations cannot be hedged, but net assets can be
addressed by hedging.
translation exposure in foreign subsidiaries is hedged according to
the following policy established by the Board of Directors:
translation risk related to net assets in foreign subsidiaries is
hedged up to 20 percent in selected companies. the translation
differences reported in equity during 2008 were positive, seK 8.5
billion, including hedging loss of seK 0.7 billion.
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
fluctuations in certain balance sheet items and through changes in
interest revenues and expenses. the net cash position was seK 34.7
(24.3) billion at the end of 2008, consisting of cash, cash equivalents
and short-term investments of seK 75.0 (57.7) billion and interest-
ericsson annual report 2008
77
notes to the consolidated financial statements
note c 20
bearing liabilities and post-employment benefits of seK 40.4 (33.4)
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 10 and 14 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, 2008, 87 (92) percent of ericsson’s interest-
bearing liabilities and 100 (100) 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
derivative instruments, such as interest rate swaps. Derivative
instruments used for converting fixed rate debt into floating rate debt
are designated 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 Var methodology to measure foreign exchange
and interest rate risks in portfolios managed by treasury. 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 2008 was for the interest rate
mandate seK 20.5 (16.1) million and for the transaction exposure
mandate seK 14.4 (13.5) million. no Var-limits were exceeded during
2008.
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
investments and from derivative positions with positive unrealized
results against banks and other counterparties.
at December 31, 2008, the credit risk in financial cash instruments
was equal to the instruments’ carrying value. credit exposure in
derivative instruments was seK 5.6 (1.6) 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
obligations, please see the Board of Directors’ report. the current
cash position is deemed to satisfy all short-term liquidity
requirements.
During 2008, cash and bank and short-term investments increased
by seK 17.3 billion to seK 75.0 billion. the increase was mainly due to
positive operating cash flow and issuance of non-current debt.
CasH and sHort-term investments
(seK billion)
2008
2007
remaining time to maturity
< 3
months
43.5
29.8
< 1
year
23.7
18.0
1–5
years
>5
years
5.9
8.9
1.9
1.0
total
75.0
57.7
the instruments are either classified as held for trading or as 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
outstanding debt at reasonable terms and conditions, or at all, at a
given point in time.
repayment sCHedule of lonG -term borrowinGs 1)
nominal
amount
(seK billion)
current
maturities
of long-
term debt
notes
and bonds
(non-current)
liabilities
to financial
institutions
(non-current) total
2009
2010
2011
2012
2013
2014
2015
2016
2017
total
3.7
–
–
–
–
–
–
–
–
3.7
–
5.1
–
3.5
–
4.1
–
–
5.5
0.1
0.2
0.1
0.1
0.1
–
4.0
–
–
3.8
5.3
0.1
3.6
0.1
4.1
4.0
–
5.5
18.2
4.6
26.5
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.
ericsson mitigates these risks by investing cash primarily in well-
Bank financing is used for certain subsidiary funding and to obtain
rated securities such as treasury bills, commercial papers, and
mortgage covered bonds with short-term ratings of at least a-1/p-1
and long-term ratings of aaa. separate credit limits are assigned to
each counterpart in order to minimize risk concentration. We have
had no sub-prime exposure in our investments. all derivative
transactions are covered by isDa netting agreements to reduce the
credit risk. no credit losses were incurred during 2008, neither on
external investments nor on derivative positions.
committed credit facilities.
78
ericsson annual report 2008
notes to the consolidated financial statements
fundinG proG rams
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.)
european investment Bank
(seK m.)
indian commercial paper program
(inr m.)
amount utilized unutilized
5,000
2,730
2,270
1,500
5,000
2,000
–
–
–
1,500
5,000
2,000
4,000
4,000
–
5,000
200
4,800
at year-end, ericsson’s creditratings remained at Baa1 (Baa1) by
Moody’s and BBB+ (BBB+) by standard & poor’s, both considered to
be “solid 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 or
loss showed a net loss of seK 0,3 billion. For further information
about valuation principles, please see note c1, “significant
accounting policies”.
finanCial instruments, CarryinG amounts
note c 20
other
financial
assets
c12
other
current
receivables
c15
other
current
liabilities
c21
2.8
–7.3
4.5
0.3
2008
2007
41.6
87.4
0.3
39.1
67.8
1.1
customer
finance
c14
receiv-
ables
trade short- cash and
term
invest-
c14 ments
equiva-
lents
cash Borrow-
trade
ings payables
c22
c19
seK billion
assets at fair value
through profit or loss
loans and receivables
available for sale assets
Financial liabilities at
amortized cost
2.8
75.9
37.2
8.9
4.2
–30.5
total
2.8
75.9
37.2
13.1
–30.5
–23.5
–23.5
4.8
2.8
–7.3
75.3
63.4
–54.0
–44.6
finanCial instruments Carried at otHer tHan fair value1)
Fair value
carrying amount
Market price risk in own shares and other listed
equity investments
seK billion
2008
2007
2008
2007
Risk related to our own share price
current maturities of
non-current borrowings
notes and bonds
other borrowings non-current
total
3.9
18.9
4.6
27.4
2.9
19.4
–
22.3
4.0
15.9
3.7
23.6
3.1
19.4
–
22.5
1) excluding finance leases reported in note c27, “leasing”.
Financial instruments excluded from the tables, such as trade
receivables 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 fair value.
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.
ericsson annual report 2008
79
notes to the consolidated financial statements
NOTE C21–C25
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 1)
Deferred revenues
Derivatives with a negative value
Other 2)
Total
2008
2007
2,213
4,412
93
421
24,289
10,369
13,920
9,204
7,299
13,101
1,126
3,419
49
466
21,369
9,443
11,926
5,961
1,210
11,395
61,032 44,995
1) Major balance relates to accrued expenses for customer projects.
2) Includes items such as VAT and withholding tax payables, social security
payables and other payroll deductions and liabilities for delivered goods where
invoice is not yet received.
C22 Trade Payables
Payables to associated
companies and joint ventures
Other
Total
2008
2007
83
23,421
90
17,337
23,504
17,427
C23 Assets Pledged as Collateral
Interest paid in 2008 was SEK 1,689 million (SEK 1,513 million in
2007, SEK 1,353 million in 2006) and interest received was SEK 2,375
million (SEK 1,864 million in 2007, SEK 1,539 million in 2006). Taxes
paid, including withholding tax, were SEK 4,274 million (SEK 5,116
million in 2007, SEK 3,649 million in 2006).
For more information regarding the disposition of cash and cash
equivalents and unutilized credit commitments, see Note C20,
“Financial Risk Management and Financial Instruments”.
Cash restricted due to currency restrictions or other legal
restrictions in certain countries amounted to SEK 8,197 million (SEK
5,797 million in 2007, SEK 5,794 million in 2006).
In 2008 the divestment of shares in Symbian, with a cash flow
effect of SEK 1,256 million, is included in divestments in subsidiaries
and other operations.
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
2008
2007
2006
3,108
3,121
3,007
–3
–207
30
3,105
2,914
3,037
1,726
2,371
2,277
Assets pledged as collateral
Chattel mortgages
Bank deposits
Total
2008
–
149
267
416
2007
1,639
130
230
1,999
and other intangible assets
3,280
3,062
1,960
Total amortization
Impairments
5,006
5,433
4,237
Capitalized development expenses
562
16
242
Total
5,568
5,449
4,479
C24 Contingent Liabilities
Contingent liabilities
Total
2008
1,080
2007
1,182
1,080
1,182
Contingent liabilities assumed by Ericsson include guarantees of
loans to other companies of SEK 72 (73) million. Ericsson has SEK
568 (492) million issued to guarantee the performance of a third party.
All ongoing legal and tax proceedings have been evaluated, their
potential economic outflows and probability estimated and necessary
provisions made.
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
Gains/losses on sales of investments
and operations, intangible assets and
PP&E, net
Other non-cash items 1)
Total adjustments to reconcile
net income to cash
8,673
8,363
7,516
1,032
1,119
4,282
3,863
4,223
1,262
291
–5,636
–4,233
–1,210
1,669
–254
–643
–2,815
48
14,318
7,172
6,060
1) Refers mainly to unrealized foreign exchange on financial instruments.
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ERICSSON ANNUAL REPORT 2008
note c 26
TandbERg businE ss (2007)
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
Fair value
Book
value adjustments
Fair
value
–
–
–
–
227
124
1,938
–62
–924
742
2,712
276
1,486
5,442
2,712
276
1,486
5,442
–
–
–
–
227
124
1,938
–62
–1,432 –2,356
9,787
–
742
9,045
the determination of purchase price 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 businEss (2007)
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
Cash flow effect
Book
Fair value
value adjustments
Fair
value
–
–
–
–
32
866
–82
–252
249
367
43
777
1,293
–
–
–
–380
367
43
777
1,293
32
866
–82
–632
2,664
–
249
2,415
the determination of purchase price allocation and fair values of assets acquired
and liabilities assumed is based on preliminary appraisal; therefore, these values
may be subject to minor adjustments.
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
Cash flow effect
2008
–209
–
–882
887
2007
2006
11,627 15,648
1,257
163
4,422
325
16,917
4,266
–
278
–
–
–127
–6,227
45
2,387
–812
–2,689
89
1,781
74
29,213 19,859
–
–
2,387
534
1,781
–
74 26,292
18,078
in 2008, ericsson made acquisitions with a cash flow effect
amounting to seK 74 million (seK 26,292 million in 2007).
the preliminary purchase price allocations made in 2007 related to
acquired businesses were finalized in 2008 with the following effects:
• Redback: an increase in deferred tax assets of seK 593 million,
goodwill decreased correspondingly.
• Tandberg: Decreased intangible assets by seK 209 million,
increased goodwill by seK 71 million and increased deferred tax
assets by seK 138 million.
• Entrisphere (included in Other): an increase in deferred tax
assets of seK 130 million, goodwill decreased correspondingly.
in addition goodwill decreased by seK 260 million, regarding
entrisphere, since the additional consideration never was
materialized.
REdbaCk businEss (2007)
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
Book
Fair value
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 price 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 2008
81
notes to the consolidated financial statements
note c 26
Divestments
net assets disposed of
property, plant and equipment
other assets
provisions, including post-
employment benefits
other liabilities
Gains from divestments
less:
cash and cash equivalents
Cash flow effect
2007
2006
EnTERpRisE businEss
2008
3
1,005
–
–456
552
296
13
498
253
2,946
–19
–89
–234 –2,079
258
280
1,031
2,945
194
654
454
890
84
3,086 1)
net assets disposed of
property, plant and equipment
other assets
other liabilities
Gains from divestments
less:
cash and cash equivalents
Cash flow effect
2008
3
783
–300
486
151
–
637
1) the amount mainly relates to the sale of the Defense business.
in 2008, ericsson made divestments with a cash flow effect
amounting to seK 654 million (seK 84 million in 2007), primarily:
• Enterprise: as per May 1, 2008, the pBX solutions business was
sold to aastra technologies. sales in 2007 amounted to
approximately seK 3.0 billion.
aCquisiTiOns 2006 –2008
company
Mobeon
Hyc
lHs
Drutt
Description
swedish company. acquisition of shares.
spanish company with around 110 employees that specializes 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
Mar 31, 2008
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 business, with around 130 employees that develops 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
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.
diVEsTMEn Ts 2006 –2008
company
enterprise
Description
pBX solutions business. cash flow effect seK 0.6 billion.
ericsson Microwave
systems
swedish provider of radar, command and control systems for defense applications.
cash flow effect seK 3.1 billion.
Feb 12, 2007
Jan 23, 2007
aug 31, 2006
aug 11, 2006
Jan 23, 2006
Date
May 1, 2008
sept 1, 2006
82
ericsson annual report 2008
notes to the consolidated financial statements
note c 27–c28
c27 leasing
Leases with the Company as lessor
Leasing with the Company as lessee
assets under finance leases, recorded as property, plant and
equipment, consist of:
leasing income mainly relates to subleasing of real estate. these
leasing contracts vary in length from 1 to 10 years.
at December 31, 2008, future minimum payment receivables were
distributed as follows:
Finance leases
acquisition costs
real estate
Machinery
accumulated depreciation
real estate
Machinery
accumulated impairment losses
real estate
2008
2007
2,059
4
2,063
–763
–4
–767
1,743
4
1,747
–589
–2
–591
–10
–80
2009
2010
2011
2012
2013
2014 and later
Total
unearned financial income
uncollectible lease payments
net investments in financial leases
Finance
leases
operating
leases
–
–
–
–
–
–
–
–
–
–
122
72
25
1
1
3
224
n/a
n/a
n/a
net carrying value
1,286
1,076
leasing income in 2008 was seK 205 (160) million.
as of December 31, 2008, future minimum lease payment obligations
for leases were distributed as follows:
c28 tax assessment Values
Finance operating
leases
leases
in sweden
land and land improvements
Buildings
Total
2008
2007
58
265
323
58
265
323
2009
2010
2011
2012
2013
2014 and later
Total
Future finance charges 1)
present value of finance lease liabilities
208
199
156
144
144
1,381
3,429
2,757
2,153
1,673
984
2,951
2,232
13,947
–804
n/a
1,428
13,947
1) average effective interest rate on lease payables is 5.78 percent.
expenses in 2008 for leasing of assets were seK 4,708 (2,878)
million, of which variable expenses were seK 1 (8) million. the leasing
contracts vary in length from 1 to 20 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
stockholders’ equity of at least seK 25 billion.
ericsson annual report 2008
83
notes to the consolidated financial statements
note c 29
c29 information regarding
employees, Members of the
Board of Directors and
Management
Number of employees
AverAge number of employees
men Women
2008
Total Men Women
2007
total
32,289
9,167 41,456 32,118 8,961 41,079
7,028
12,111
6,151
4,556
8,751 5,483 1,596 7,079
1,723
3,343 15,454 10,952 2,844 13,796
7,486 4,779 1,058 5,837
1,335
1,286 5,842 4,329 1,225 5,554
Western
europe 1)
central and
eastern europe,
Middle east
and africa
asia pacific
latin america
north america
Total 2)
62,135 16,854 78,989 57,661 15,684 73,345
number of employees rel ATed To cosT of sAles
And operATing expenses
cost of sales
operating expenses
Total
employee movemenTs
2008
2007
2006
35,717 33,904
43,023
27,682
40,107 36,099
78,740
74,011
63,781
Head count at year-end
employees who have left the company
employees who have joined the company
temporary employees
2008
2007
78,740
3,415
8,144
1,124
74,011
6,657
16,887
1,415
Remuneration
WAges And sAl Aries And sociAl securiT y expenses
Wages and salaries
social security expenses
Of which pension costs
2008
2007
38,607
12,690
3,206
34,111
10,660
3,074
1) Of which
Sweden
2) Of which EU
14,685
34,100
4,990 19,675 14,128 4,618 18,746
9,633 43,733 33,563 9,351 42,914
amounts related to the president and ceo and the Group
Management team are included.
number of employees AT yeAr end
WAges And sAl Aries per region
employees by region
Western europe 1)
central and eastern europe,
Middle east and africa
asia pacific
latin america
north america
Total 2)
1) Of which Sweden
2) Of which EU
employees per segment
networks
professional services
Multimedia
Total
2008
2007
41,618
41,517
7,976
15,165
8,247
5,734
7,329
13,120
6,547
5,498
78,740
74,011
20,155
43,093
19,781
42,387
2008
2007
45,823 44,661
19,790
23,244
9,560
9,673
78,740
74,011
employees by gender And Age AT yeAr end 2008
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
790
6,099
6,730
2,530
799
2,502
21,757
23,754
10,562
3,237
4%
35%
39%
17%
5%
21%
79%
100%
Western europe 1)
central and eastern europe,
Middle east and africa
asia pacific
latin america
north america 2)
Total 3)
1) Of which Sweden
2) Of which United States
3) Of which EU
2008
2007
24,138
22,278
3,354
4,594
1,879
4,642
2,520
3,714
1,431
4,168
38,607
34,111
11,825
3,296
11,025
2,904
24,699 22,603
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
2008
2007
316
41
36
266
43
28
boArd members, presidenTs And group mAnAgemenT
by gender AT ye Ar end
2008
2007
Females
Males Females Males
parent company
Board members and president 38%
Group Management
9%
subsidiaries
Board members and presidents 12%
62%
91%
38%
10%
62%
90%
88%
11%
89%
84
ericsson annual report 2008
notes to the consolidated financial statements
note c 29
The principal terms of variable remuneration
the annual variable remuneration is through a cash based program
with specific business targets derived from the annual business plan
approved by the Board of Directors. the exact nature of the targets
will vary depending on the specific job but may include financial
targets at either corporate level or at a specific business unit level,
operational targets, employee motivation targets and customer
satisfaction targets.
Pension
pension benefits shall follow the competitive level in the home
country. For Group Management 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.
Additional remuneration arrangements
By way of exception, additional arrangements can be made when
deemed required in order to attract or retain key competences or
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 Group Management 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.
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 2008.
2008 Remuneration Policy for Group Management
remuneration of Group Management in ericsson is based on the
principles of performance, competitiveness and fairness. Different
remuneration elements are designed to reflect these principles.
therefore a mix of several remuneration elements is applied in order
to reflect the remuneration principles in a balanced way.
the Group Management’s total remuneration consists of fixed
salary, variable components in the form of annual short-term variable
remuneration and long-term variable remuneration, pension and
other benefits.
together these elements constitute an integral remuneration
package. if the size of any of the elements should be increased or
decreased, at least one other element has to be decreased or
increased if the competitive position of the total package should
remain unchanged.
the annual report 2008 sets out details on the total remuneration
and benefits awarded to the Group Management during 2008
including previously decided long-term variable compensation that
has not yet become due for payment.
Relative importance of fixed and variable components of
the remuneration of Group Management and the linkage
between performance and remuneration
ericsson takes account of global remuneration practice together with
the practice of the home country of each member of the Group
Management.
Fixed salary is set to be competitive. its absolute level is
determined by the size and complexity of the job and the year to year
performance of the individual jobholder.
performance is specifically reflected in the variable components,
both in an annual variable component and in a long-term variable
part. although this may vary over time to take account of pay trends,
currently the target level of the short-term variable remuneration for
Group Management is 30–40 percent of the fixed salary. the long-
term variable remuneration 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 specific 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. all variable remuneration plans have
maximum award and vesting limits.
With the current composition of Group Management, the
company’s cost during 2008 for the short-term variable and the
long-term variable remuneration of Group Management can, at
constant share price, amount to between 0 and 125 percent of the
aggregate fixed salary cost, all excluding social security costs.
ericsson annual report 2008
85
notes to the consolidated financial statements note c 29
Remuneration to the Board of Directors
remunerATion To members of The boArd of direcTors during 2008
seK
board member
Michael treschow
Marcus Wallenberg
sverker Martin-löf
roxanne s. austin
peter l. Bonfield
Börje ekholm
ulf J. Johansson
nancy McKinstry
anders nyrén
carl-Henric svanberg
Jan Hedlund
Monica Bergström
Karin Åberg
anna Guldstrand
Kristina Davidsson
pehr claesson
torbjörn nyman
amount of
Board fee
3,750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
–
–
–
–
–
–
–
–
employee
number
commit- represen- total fees synthetic of synthetic
shares
paid out
tative fee
tee fee
shares
portion
of Board
fee in
effect of accounted
debt for
changed
synthetic
market
shares 2)
price 1)
Total costs
recognized
250,000
125,000
250,000
–
250,000
125,000
350,000
125,000
125,000
–
–
–
–
–
–
–
–
– 1,187,500
–
687,500
– 1,000,000
187,500
–
812,500
–
312,500
–
537,500
–
312,500
–
875,000
–
–
–
–
16,500
–
15,000
–
16,500
–
15,000
–
15,000
–
12,000
–
4,500
75% 38,323.80
2,554.80
25%
–
0%
7,664.60
75%
2,554.80
25%
7,664.60
75%
7,664.60
75%
7,664.60
75%
–
0%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 567,145
– 37,817
–
– 113,438
– 37,817
– 113,438
– 113,438
– 113,438
–
–
–
–
–
–
–
–
–
2,245,355
149,683
–
449,062
149,683
449,062
449,062
449,062
–
–
–
–
–
–
–
–
–
3,432,855
837,183
1,000,000
636,562
962,183
761,562
986,562
761,562
875,000
–
16,500
15,000
16,500
15,000
15,000
12,000
4,500
Total
9,750,000 1,600,000
94,500 6,007,000
74,091.80 – 1,096,531
4,340,969
10,347,969
social security fees
Total
1,706,764
7,713,764
1) Difference of the B share value on December 31, 2008 and at grant date.
2) Based on the B share value on December 31, 2008.
1,232,388
2,939,152
5,573,357
13,287,121
Comments to the table
• the chairman of the Board was entitled to a Board fee of seK
3,750,000. the chairman also received seK 125,000 for each
Board committee on which he served.
• the other Directors appointed by the annual General Meeting were
entitled to 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 the Board, who are not employees of the company,
have not received any remuneration other than the fees and
synthetic shares as above.
• Members and Deputy Members of the Board who are ericsson
employees received no remuneration or benefits other than their
entitlements as employees. However, a fee of seK 1,500 per
attended Board meeting was paid to each employee representative
on the Board.
•the annual General Meeting 2008 resolved that non-employed
Directors can choose to receive the fee in respect of the Board
assignment (exclusive of committee work) as follows: i) 25 percent
of the fee in cash and a number of synthetic shares, the value of
which at the time of allocation corresponds to 75 percent of the
fee, ii) 50 percent of the fee in cash and 50 percent in the form of
synthetic shares, or iii) 75 percent in cash and 25 percent in the
form of synthetic shares. Directors may also choose not to
participate in the synthetic share program.
the number of synthetic shares is based on a volume weighed
average of the market price of ericsson class B shares on the
nasDaQ oMX stockholm exchange during the five trading days
immediately following the publication of the company’s interim
report for the first quarter of 2008 (april 28 – May 5): seK 14.6775
(after the reversed split seK 73.3875). Following the reverse split of
shares 1:5, the number of synthetic shares was recalculated by an
independent accounting firm appointed by the stockholm
chamber of commerce in accordance with the terms and
conditions for the synthetic shares resolved by the annual General
Meeting 2008.
the Directors’ right to receive payment with regard to the allocated
synthetic shares occurs after the publication of the company’s
year-end financial statement during the fifth year following the
annual General Meeting which resolved on the allocation of the
synthetic shares, i.e. in 2013.
the amount payable shall be determined based on the volume
weighed average price for shares of class B during the five trading
days immediately following the publication of the year-end financial
statement.
the total accounted debt for the synthetic share program per
December 31, 2008, is seK 5,573,357.
86
ericsson annual report 2008
notes to the consolidated financial statements
Remuneration to the Group Management
remunerATion pAid To The presidenT And ceo And oTher
members of group mAnAgemenT during 2008
seK
salary
annual variable
remuneration earned
2007 and paid 2008
long-term variable
remuneration
other benefits
other
Members
of Group
president Management
the
Total
15,886,500
59,759,989 75,646,489
1,216,000
8,652,714
9,868,714
3,264,551
56,340
7,901,861 11,166,412
2,294,217
2,350,557
Total
20,423,391
78,608,781 99,032,172
Comments to the table
• the annual fixed salary for the president and ceo was adjusted
from seK 15,200,000 to seK 15,750,000 from January 1, 2008.
the salary amount stated in the table includes vacation salary.
• the Board of Directors has appointed four executive Vice
presidents, of whom two have 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, Jan Frykhammar,
Marita Hellberg, torbjörn possne (from February 1, 2008), Henry
sténson, Joakim Westh (until December 31, 2008), Johan Wibergh
(from July 1, 2008) and Jan Wäreby. Kurt Jofs and Björn olsson
both left the Group Management team as of July 1, 2008, and are
included during their notice periods up to December 31, 2008.
Karl-Henrik sundström left the Group Management team on
october 25, 2007, but is included up to april 24, 2008, as he was
fulfilling his six months notice period. Joakim Westh left the Group
Management team as of January 1, 2009, but is fulfilling his 6
months notice period up to June 30, 2009.
• “long-term variable remuneration” refers for the president and
ceo to the value of matching shares received during 2008 (45,003
class B shares) under the stock purchase plans 2003 and 2005
and under the executive performance stock plan 2004 (three of
four quarterly matchings). For other members of Group
Management “long-term variable remuneration” refers to the value
of exercised stock options during 2008 ( 22,000 options) under the
stock option plan 2002 and to the value of matching shares
received during 2008 (100,948 class B shares) under the stock
purchase plans 2003 and 2005 and under the executive
performance stock plan 2004.
the values are based on the share price at matching respectively
at exercise.
note c 29
remunerATion cosTs incurred during 2008
for The presidenT And ceo And oTher members
of group mAnAgemenT
seK
salary
provisions for annual
variable remuneration
earned 2008 to be
paid 2009
long-term variable
remuneration provision
other benefits
pension costs
the
president
other Members
of Group
Management
Total
15,886,500
59,759,989 75,646,489
630,000
16,287,601 16,917,601
7,458,319
56,340
8,815,150
12,905,987 20,364,306
2,350,557
33,831,233 42,646,383
2,294,217
social security fees
9,004,627
35,581,309 44,585,936
Total
41,850,936
160,660,336 202,511,272
Comments to the table
• the provisions for the annual variable remuneration 2008
correspond to 4 percent of the fixed salary for the president and
ceo and to 34 percent for other members of the Group
Management
• “long-term variable remuneration provision” includes the
compensation cost during 2008 for share based programs, which
represent Group Management’s part of total compensation costs
as disclosed 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
Management 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 a contribution
of between 25 and 35 percent per year of the executive’s
pensionable salary in excess of 20 base amounts (during 2008,
one base amount was seK 48,000). For the president and ceo,
the annual pension contribution is 35 percent of the pensionable
salary above 20 base amounts. During 2008, this contribution was
seK 7,510,125 and the fee in the itp plan seK 1,305,025. 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 temporary disability and survivor’s
pensions until retirement age.
the pensionable salary consists of the annual fixed salary including
vacation and the target value of the annual variable remuneration.
• ericsson’s commitments for benefit based pensions per December
31, 2008, under ias 19 amounted to seK 1,984,193 for the
president and ceo which refers to the itp plan. For other
members of Group Management the company’s commitments
amounted to seK 44,093,845, of which seK 34,575,648 refers to
the itp plan and the remaining seK 9,518,197 to temporary
disability and survivor’s pensions until retirement age.
• 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
service periods within the company.
ericsson annual report 2008
87
notes to the consolidated financial statements
note c 29
ouTsTAnding sTocK opTions And mATching righTs
The Key Contributor Retention Plan
the Key contributor retention plan was introduced in 2004. the plan
is part of ericsson talent management strategy and is designed to
give recognition for performance, critical skills and potential as well
as encourage retention of key employees. under the program, up to
10 percent of employees (2008: 6,717 employees) are selected
through a nominations process that identifies individuals according to
performance, critical skills and potential. participants selected obtain
one extra matching share in addition to the ordinary one matching
share for each contribution share purchased under the stock
purchase plan during a twelve-month program period.
The Executive Performance Stock Plan
the executive performance stock plan was introduced in 2004. 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 matching shares) in addition to the ordinary one
matching share for each contribution share purchased under the
stock purchase plan. up to 0.5 percent of employees (2008: 223
executives) are offered to participate in the plan. as from the 2006
program, the ceo has been allowed to invest up to 9 percent 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 matching is
subject to the fulfillment of a performance target of average annual
earnings per share (eps) growth.
As per december 31, 2008
number of class b shares
stock option plan 2002
stock purchase plans 2005, 2006,
2007 and 2008
executive performance stock plans
2006, 2007 and 2008
the
president
other Members
of Group
Management
–
88,000
320,321
574,552
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 the applicable
plan.
• For strike price for the option plan, see “long-term variable
remuneration”.
• the number of matching rights presumes maximum performance
matching under executive performance stock plans 2006, 2007
and 2008.
Long-term variable remuneration
Stock Purchase Plan
the first stock purchase plan was introduced in 2002. the plans are
designed to offer an incentive for all employees to participate in the
company where practicable, which is consistent with industry
practice and with our ways of working. employees can save up to 7.5
percent (ceo 9 percent) of gross fixed salary for purchase of class B
contribution shares at market price on the nasDaQ oMX stockholm
or aDss 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 ericsson Group continues during that time, the
employee’s shares will be matched with a corresponding number of
class B shares or aDss free of consideration. employees in 94
countries participate in the plans.
the below table shows the contribution periods and participation
details for ongoing plans.
number of
contribution participants
take-up
rate – % of
at launch all employees
plan
stock purchase
plan 2005
stock purchase
plan 2006
stock purchase
plan 2007
stock purchase
plan 2008
period
august 2005 –
July 2006
august 2006 –
July 2007
august 2007 –
July 2008
august 2008 –
July 2009
16,000
17,000
19,000
19,000
29%
29%
26%
25%
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 continued employment, and hence the
matching spans over two financial years and two tax years.
88
ericsson annual report 2008
notes to the consolidated financial statements
execuTive performAnce sTocK pl Ans
plan
Base year
eps 1)
target average
annual eps
growth range 2)
Matching share
vesting range 3)
Maximum
opportunity
as percentage
of fixed salary 4)
performance stock plan 2004 5)
3.45
5% to 25%
performance stock plan 2005 6)
6.68
3% to 15%
performance stock plan 2006
7.58
3% to 15%
performance stock plan 2007
8.83
5% to 15%
performance stock plan 2008
4.43
5% to 15%
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
0.67 to 4
1 to 6
1.33 to 8
30%
45%
30%
45%
30%
45%
72%
30%
45%
72%
30%
45%
72%
note c 29
percen-
tage
vesting
100%
100%
0%
0%
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.
6) no vesting and therefore no performance share plan matching for 2005 plan.
sTocK opTion pl Ans
ongoing plans 2008
Grant/expiry date
14 May 01/14 May 08
exercise
price 1)
(seK)
152.50
stock option plan 2001
– May Grant
stock option plan 2001
– november Grant
19 nov 01/19 nov 08
128.50
stock option plan 2002 2)
11 nov 02/11 nov 09
39.00
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
number of
participants
at grant
15,000
900
number of
participants
end of 2008
–
–
12,800
1,324
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 2008, the weighted average share price was seK 67.23.
Shares for all plans
all plans are funded with treasury stock. treasury stock for all plans
has been issued in a directed cash issue of class c shares at the
quotient value and purchased under a public offering at the
subscription price 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 nasDaQ oMX
stockholm to cover the social security payments when arising due to
exercise of options or matching of shares. During 2008, 676,630
shares were sold at an average price of seK 70.03. sale of shares is
recognized directly in equity.
if all options outstanding as of December 31, 2008, 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 matching, approximately 44 million class B shares would be
transferred, corresponding to 1.4 percent of the total number of
shares outstanding, 3,185 million. as per December 31, 2008, 61
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 2008. it also
shows compensation cost charged for each plan. the total
compensation cost charged for the long term Variable
compensation plans during 2008 amount to seK 572 million.
For a description of compensation cost, including accounting
treatment, see note c1, “significant accounting policies, share-
based employee compensation”.
ericsson annual report 2008
89
notes to the consolidated financial statements
note c 29
shAres for All pl Ans
plan (million shares)
2001 stock option plan –
May Grant
2001 stock option plan –
november Grant
2002 stock option plan
2003 stock purchase plan
(2–year plan) and 2004 Key
contributor and executive
performance stock plans
2005 stock purchase plan,
Key contributor and executive
performance stock plans
2006 stock purchase plan,
Key contributor and executive
performance stock plans
2007 stock purchase plan,
Key contributor and executive
performance stock plans
2008 stock purchase plan,
Key contributor and executive
performance stock plans
out-
exer-
cised/
originally beginning
of 2008
designated 1)
standing Granted matched Forfeited
during
2008
during
2008
during
2008
compen-
sation
costs
expired standing options charged
end of exercis- during
2008 2)
number
of
during
2008
out-
able
2008
9.0
0.5
10.8
4.5
0.2
4.1
30.3
2.9
6.3
4.4
6.4
4.9
–
–
–
–
–
–
–
–
0.3
–
–
–
4.5
0,2
–
–
–
3.8
–
–
3.8
–
–
–
2.8
0.1
1.0
0.2
0.2
0.1
–
–
–
–
–
–
–
50 4)
3.2 3)
–
129 4)
4.6 3)
–
190 4)
9.4 3)
–
196 4)
3.7 3)
–
7 4)
9.7
2.0
7.7
0.2
0.1
16.5
–
3.7
–
–
1) adjusted for rights offering and reverse split when applicable.
2) all outstanding options in the 2001 stock option plans expired during 2008.
3) presuming maximum performance matching under the executive performance stock plans.
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 executive performance stock plans, the company assesses the probability of meeting
the performance targets when calculating the compensation cost. Fair value of the class B share at each investment date during 2008 was: February 15 seK 62.50, May 15
seK 73.45, august 15 seK 62.01, and november 17 seK 45.82.
90
ericsson annual report 2008
notes to the consolidated financial statements
note c 30
c30 related party transactions
Ericsson Nikola Tesla d.d.
During 2008, various related party transactions were executed
pursuant to contracts 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
ericsson’s handset operations was sold to seMc. as part of the
formation of the joint venture, contracts were entered into between
ericsson and seMc.
Major transactions are as follows:
• License revenues. ericsson receives license revenues regarding
mobile phone platform design from seMc. Both owners of seMc,
sony corporation and ericsson, receive license revenues 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
ericsson, receive dividends.
Related party transactions
license revenues
purchases
ericsson’s share of dividends
Related party balances
receivables
liabilities
2008
2007
5,856
261
3,627
5,743
333
3,949
1,002
176
932
204
ericsson does not have any contingent liabilities, assets pledged as
collateral or guarantees toward sony ericsson Mobile
communications aB.
ericsson nikola tesla d.d. is a joint stock company for design, sales
and service of telecommunication 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.
• License revenues. ericsson receives license revenues for
ericsson nikola tesla d.d.’s usage of trademarks.
• Purchases. ericsson purchases development resources from
ericsson nikola tesla d.d.
• Dividends. ericsson receives dividends from ericsson nikola tesla
d.d.
Related party transactions
sales
license revenues
purchases
Dividends
Related party balances
receivables
liabilities
2008
2007
1,020
9
547
227
1,010
9
506
267
85
58
103
55
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
Management, see note c29, “information regarding employees,
members of the Board of Directors and Management”.
ericsson annual report 2008
91
notes to the consolidated financial statements
note c 31–c32
c31 Fees to auditors
c32 events after the Balance
sheet Date
Ericsson and STMicroelectronics completed
the JV deal
on February 3, 2009, ericsson and stMicroelectronics announced
the closing of their agreement merging ericsson mobile platforms and
st-nXp Wireless unit into a 50/50 joint venture, to be called st
ericsson. the deal was completed on the terms originally announced
on august 20, 2008.
st ericsson will acquire relevant assets from the owner
companies. after these acquisitions, the joint venture will have a cash
position of about usD 0.4 billion. ericsson contributed usD 1.1 billion
net to the joint venture, out of which usD 0.7 billion was paid to st.
st ericsson is expected to become operational during the first
quarter of 2009.
2008
audit fees
audit related fees
tax services fees
other fees
Total
2007
audit fees
audit related fees
tax services fees
other fees
Total
2006
audit fees
audit related fees
tax services fees
other fees
Total
price-
waterhouse-
coopers others
Total
97
7
14
1
119
102
4
13
–
119
98
14
19
1
132
4
–
2
5
11
7
–
12
6
25
11
–
3
3
17
101
7
16
6
130
109
4
25
6
144
109
14
22
4
149
During the period 2006–2008, in addition to audit services,
pricewaterhousecoopers provided certain audit related services and
tax services to the company. the audit related services include
consultation on financial accounting, services related to acquisitions
and assessments of internal control. the tax services include general
expatriate services and corporate tax compliance work.
audit fees to other auditors largely consist of local statutory audits
for minor companies.
92
ericsson annual report 2008
notes to the consolidated financial statements
parent company income statement
Years ended December 31, SEK million
net sales 1)
cost of sales
Gross income
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
2008
5,086
–669
4,417
–1,113
–1,271
–2,384
3,065
5,098
24,131
–9,791
19,438
–251
–227
–478
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
–206
–1,072
–1,278
2,339
3,377
12,811
–2,549
13,639
–631
543
–88
–1,733
17,227
–1,315
13,145
–1,189
12,362
1) license revenues are from 2007 included in net sales, instead of in other operation income and expenses, and 2006 has been restated accordingly.
2) selling expenses include the net effect of risk provisions for customer finance of seK 39 million in 2008 (seK 133 million in 2007 and seK 1,262 million in 2006).
ericsson annual report 2008
parent c ompany Financial statements 93
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 finance, non-current
Deferred tax assets
other financial assets, non-current
Current assets
inventories
receivables
trade receivables
Customer finance, current
receivables from subsidiaries
Current income taxes
other current receivables
Short-term investments
Cash and bank
notes
2008
2007
P6
P7, P26
P8, P9
P8, P9
P8
P8,P12
P8, P11
P5
P8
P10
P11
P11
P12
P13
P19
P19
2,604
695
2,989
443
74,571
4,466
11
15,781
910
68
3,030
81,406
4,466
475
18,433
751
589
358
102,136
109,910
80
84
576
835
24,676
351
4,686
44,770
14,444
90,418
42
263
25,130
278
3,160
38,891
6,717
74,565
ToTAl ASSETS
192,554
184,475
94
Parent ComPany FinanCial StatementS
eriCSSon annual rePort 2008
December 31, SEK million
SToCKholDErS’ EquiTy, proviSionS AnD liAbiliTiES
Stockholders’ equity
notes
P14
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 credit institutions
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
P15
P16
P17
P18
P18
P12
P18
P21
P12
P20
P22
P23
2008
2007
16,232
20
31,472
47,724
24,727
17,227
41,954
89,678
16,132
20
31,472
47,624
22,080
13,145
35,225
82,849
1,817
1,339
403
656
1,059
18,941
4,000 –
27,866
187
50,994
3,732
605
35,266
9,403
49,006
192,554
414
13,029
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
eriCSSon annual rePort 2008
Parent ComPany FinanCial StatementS 95
Parent Company Statement
of Cash Flows
Years ended December 31, SEK million
notes
2008
2007
2006
OpEratiOnS
net income
adjustments to reconcile net income to cash
Changes in operating net assets
inventories
Customer finance, 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
17,227
13,145
12,362
P24
5,146
–891
22,373
12,254
4
–478
–464
–49
2,268
7
1,041
–155
–442
944
–285
12,077
–31
446
358
–401
261
23,654
13,649
12,710
–388
8
–
–305
2,122
1,541
31
–262
6
–579
–35,918
6,189
3,839
–19
3,009
–26,744
–132
57
–3,092
–541
5,654
20,657
59
22,662
Cash flow before financing activities
26,663
–13,095
35,372
Financing activities
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
effect from remeasurement in cash
net change in cash and cash investments
–470
4,000
–3,119
89
–7,954
–7,582
–7
2,417
11,050
–
64
–7,943
–3,324
–
–36,519
–
–9,511
63
–7,141
–1,296
–
–15,043
2,264
–54,404
1,986
13,606
2,453
–8,378
–1,944
–20,976
Cash and short-term investments, beginning of period
45,608
53,986
74,962
Cash and short-term investments, end of period
P19 59,214 45,608
53,986
From 2008 the effect from remeasurement in cash and other adjustments to reconcile net income to cash have been included, and 2007 and 2006 have been restated
accordingly.
96
Parent ComPany FinanCial StatementS
eriCSSon annual rePort 2008
parent company statement
of changes in stockholders’ equity
December 31, SEK million
Opening balance
stock issue
sale of own shares
stock purchase and stock option plans
repurchase of own shares
contributions from/to (–) subsidiaries
tax on contributions
Dividends paid
Revaluation of other investments in shares
Fair value remeasurement reported in equity, net of taxes
transferred to income statement at sale, net of taxes
Cash flow hedges
Fair value remeasurement of derivatives reported in equity, net of taxes
net income
Closing balance
For further information, see note p14 “stockholders’ equity”.
notes
p14
2007
80,611
62
41
–4,263
1,194
–7,943
2
2008
82,849
100 –
88
36
–100 –
–4,288
1,155
–7,954
–
–4 –
569 –
17,227
89,678
13,145
82,849
ericsson annual report 2008
parent c ompany Financial statements 97
notes to the parent company
Financial statements
contents
p1
significant accounting policies ...........................................................................................................................................................................................................................99
p2
segment information.................................................................................................................................................................................................................................................99
p3 other operating income and expenses ........................................................................................................................................................................................................99
p4
Financial income and expenses ..................................................................................................................................................................................................................... 100
p5
taxes................................................................................................................................................................................................................................................................................ 100
p6
intangible assets ...................................................................................................................................................................................................................................................... 100
p7
tangible assets ......................................................................................................................................................................................................................................................... 101
p8
Financial assets ........................................................................................................................................................................................................................................................ 102
p9
investments.................................................................................................................................................................................................................................................................. 103
p10
inventories .................................................................................................................................................................................................................................................................... 104
p11 trade receivables and customer Finance ............................................................................................................................................................................................... 105
p12 receivables and liabilities – subsidiary companies .......................................................................................................................................................................... 106
p13 other current receivables ................................................................................................................................................................................................................................. 106
p14 stockholders’ equity .............................................................................................................................................................................................................................................. 106
p15 untaxed reserves ................................................................................................................................................................................................................................................... 107
p16 pensions ........................................................................................................................................................................................................................................................................ 107
p17 other provisions ....................................................................................................................................................................................................................................................... 108
p18
interest-bearing liabilities ................................................................................................................................................................................................................................... 109
p19 Financial risk Management and Financial instruments .................................................................................................................................................................... 110
p20 other current liabilities......................................................................................................................................................................................................................................... 111
p21 trade payables ........................................................................................................................................................................................................................................................... 111
p22 assets pledged as collateral ............................................................................................................................................................................................................................. 111
p23 contingent liabilities ............................................................................................................................................................................................................................................... 111
p24 statement of cash Flows .................................................................................................................................................................................................................................... 112
p25 leasing ........................................................................................................................................................................................................................................................................... 112
p26 tax assessment Values in sweden ............................................................................................................................................................................................................... 112
p27
information regarding employees ................................................................................................................................................................................................................. 112
p28 related party transactions ................................................................................................................................................................................................................................ 113
p29 Fees to auditors ........................................................................................................................................................................................................................................................ 113
p30 events after the Balance sheet Date ............................................................................................................................................................................................................ 113
98
ericsson annual report 2008
notes to the parent company financial statements p1 significant accounting
Segment information
note p1–p3
policies
the financial statements of the parent company, telefonaktiebolaget
lM ericsson, have been prepared in accordance with rFr 2.1
“reporting in separate financial statements”. rFr 2.1 requires the
parent company to use the same accounting principles as for the
Group, i.e. iFrs to the extent allowed by rFr 2.1.
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
performed 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 uFr 2 issued by the swedish
Financial reporting Board. contributions to/from swedish
subsidiaries are reported directly in equity, net of taxes, as these
transactions are aimed at reducing swedish taxes. shareholders’
contributions increase the parent company’s investments.
Classification and measurement of financial
instruments
ias 39 Financial instruments: recognition and Measurement is
adopted, except regarding financial guarantees where the exception
allowed in rFr 2.1 is chosen. Financial guarantees are included in
assets pledged as collateral.
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
rFr 2.1, ias 19 shall be adopted regarding supplementary
disclosures when applicable.
segment information is reported according to requirements in the
swedish annual accounts act regarding business segments and
geographical areas.
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
see notes to the consolidated Financial statements – note c2,
“critical accounting estimates and Judgments”. Major critical
accounting estimates and judgments applicable to the parent
company include “trade and customer finance 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
2008
2007
2006
1,603
1,478
1,093
–
1,254
2,192
37
33
1,383
304
38
543
915
31
19
5,086
3,236
2,601
1,506
1,603
1,336
1,478
964
1,093
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.
p3 other operating income
and expenses
license revenues and other
operating revenues
subsidiary companies
other
net losses (–) on sales of
tangible assets
total
2008
2007
2006
2,407
659
2,058
667
2,018
323
–1
–2
–2
3,065
2,723
2,339
ericsson annual report 2008
99
notes to the parent company financial statements
note p4–p6
p4 Financial income
and expenses
ReCONCIlIatION OF aCtUal INCOM e ta X Rate tO tHe
SWeDISH INCOMe ta X Rate
2008
2007
2006
2008
2007
2006
–28.0% –28.0% –28.0%
total
24,131
13,747
12,811
Deferred tax balances
–
–213
–222
tax effects of temporary differences have resulted in deferred tax
assets as follows:
7,027
–1,061
–556
Deferred tax assets
2008
68
2007
589
–
–
–
–
–
–3
Deferred tax assets refer mainly to pensions and customer finance.
taxes reported directly to equity amount to seK -203 million and refer
to hedge accounting. Deferred tax assets have been reduced with
this amount.
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
net gains on sales
other interest income and
similar profit/loss items
subsidiary companies
other
14,465
676
4,308
2,345
4,830
3,673
3,854
–
4,216
20
1,258
–
807
–
–
1,233
3,096
1,641
1,217
1,611
1,439
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
1,068
1,655
41
–995
–918
–75
–1,067
–652
–49
9,791
–3,262
–2,549
14,340 10,485 10,262
interest expenses on pension liabilities are included in the interest expenses shown
above.
p5 taxes
Income taxes recognized in the income
statement
the following items are included in taxes:
current income tax on
contributions, net
other current income taxes
for the year
current income taxes related
to prior years
Deferred tax income/expense (–)
taxes
2008
2007
2006
–1,155
–1,194
–548
–250
–259
–291
–21
–307
–49
187
124
–474
–1,733
–1,315
–1,189
–0.1%
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 –10.3%
tax effect of change in deferred
tax rate
–0.3%
29.7%
–0.1%
–0.3%
0.9%
–0.8%
–0.9%
22.0%
20.4%
–2.0%
–1.2%
–
–
actual tax rate
–9.1%
–9.1%
–8.8%
on December 10, 2008 the swedish parliament decided to cut the
company tax rate from 28 percent to 26.3 percent, applicable from
January 1, 2009. Deferred tax assets and liabilities have been
calculated with the new tax rate.
p6
intangible assets
PateNtS, l ICeNSeS, t RaD eMaRk S aND SIMIl aR RIgH tS
accumulated acquisition costs
opening balance
acquisitions
sales/disposals
Closing balance
accumulated amortization
opening balance
amortization
sales/disposals
Closing balance
Net carrying value
2008
2007
3,893
–
–5
3,314
579
–
3,888
3,893
–904
–385
5
–514
–390
–
–1,284
–904
2,604
2,989
the balances relate mainly to Marconi and redback trademarks
acquired during 2006 and 2007. the useful life and amortization
period for these trademarks has been set to 10 years.
100
ericsson annual report 2008
notes to the parent company financial statements
p7 tangible assets
land and
buildings
other
equipment
and installations
construction
in process and
advance payments
2008
accumulated acquisition costs
opening balance
additions
sales/disposals
reclassifications
Closing balance
accumulated depreciation
opening balance
Depreciation
sales/disposals
reclassifications
Closing balance
Net carrying value
2007
accumulated acquisition costs
opening balance
additions
sales/disposals
reclassifications
Closing balance
accumulated depreciation
opening balance
Depreciation
sales/disposals
Closing balance
Net carrying value
13
–
–
–
13
–
–
–
–
–
13
23
–
–10
–
13
–2
–
2
–
13
711
77
–19
344
1,113
–454
–127
10
–
–571
542
576
45
–1
91
711
–344
–111
1
–454
257
173
311
–
–344
140
–
–
–
–
–
140
47
217
–
–91
173
–
–
–
–
173
note p7
total
897
388
–19
–
1,266
–454
–127
10
–
–571
695
646
262
–11
–
897
–346
–111
3
–454
443
ericsson annual report 2008
101
notes to the parent company financial statements
note p8
p8 Financial assets
investments in subsidiary companies, joint ventures and associated companies
opening balance
acquisitions and stock issues
shareholders’ contribution
Write-downs
Disposals
closing balance
other financial assets
subsidiary companies
2007
2008
Joint ventures
2007
2008
associated companies
2007
2008
81,406
176
141
–7,027
–125
51,124
35,463
–3,439
–1,061
–681
74,571
81,406
4,136
–
–
–
–
4,136
4,136
–
–
–
–
4,136
330
– –
– –
– –
–
330
333
–3
330
other
investments in shares
and participations
2007
2008
receivables
from subsidiaries,
non-current
2007
2008
customer finance,
other financial
non-current 1) assets, non-current
2007
2007
2008
2008
accumulated acquisition costs
opening balance
effect of changed accounting principle, ias 39
additions
Disposals/repayments/deductions
reclasifications
translation difference
closing balance
accumulated write-downs/allowances
opening balance
Write-downs/allowances
Disposals/repayments/deductions
translation difference
closing balance
net carrying value
484
–
1
–466
–
–
19
–9
–
1
–
–8
11
28
3
453
–
–
–
484
–9
–
–
–
–9
18,433
–
271
–3,243
–
320
17,211
–
1,203
–
–233
252
15,781
18,433
–
–
–
–
–
–
–
–
–
–
475
15,781
18,433
800
–
620
–502
–
56
974
–49
–34
24
–5
–64
910
1,765
–
646
–1,593
–
–18
358
– –
2,716 –
–44
– –
– –
401
–43
800
3,030
358
–203
–8
160
2
–49
751
– –
– –
– –
– –
– –
3,030
358
1) From time to time, customer finance 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.
102
ericsson annual report 2008
notes to the parent company financial statements
note p 9
p9
investments
the following listing shows certain shareholdings owned directly and
indirectly by the parent company as of December 31, 2008. a
complete listing of shareholdings, prepared in accordance with the
swedish annual accounts act and filed with the swedish companies
registration office (Bolagsverket), may be obtained upon request to:
telefonaktiebolaget lM ericsson, external reporting, se-164 83
stockholm, sweden.
shares owned directly by the parent c ompany
type company
reg. no.
Domicile
percentage
of ownership
par value
in local
currency,
carrying
value,
million seK million
i
i
i
ii
i
i
i
ii
i
ii
i
ii
i
i
ii
subsidiary companies
ericsson aB
i
ericsson shared services 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 JVD GmbH
ericsson Hungary ltd.
lM ericsson Holdings ltd.
ericsson telecomunicazioni s.p.a.
ericsson Holding international B.V.
ericsson a/s
tanDBer G 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
556056-6258
556251-3266
556329-5657
556404-4286
556030-9899
556326-0552
sweden
sweden
sweden
sweden
sweden
sweden
austria
Denmark
Finland
France
Germany
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
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
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
102
306
6
5
1,299
665
216
196
524
3,884
104
120
15
3,151
3,200
237
1,788
5
–
4,094
208
28,956
10
1,550
59
100
2
475
147
4
1
20
17
244
–
74,571
50
65
–
4,136
330
4,466
ericsson annual report 2008
103
notes to the parent company financial statements
note p 9 –p10
shares owned by subsidiary companies
type
company
reg. no.
Domicile
percentage
of ownership
556000-0365
556044-9489
subsidiary companies
i
ii
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.
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.
sweden
sweden
France
Germany
ireland
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
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
2008
2007
80
80
84
84
104
ericsson annual report 2008
notes to the parent company financial statements
note p11
p11 trade receivables and
customer Finance
credit risk management is governed on a Group level.
For further information, see notes to the consolidated Financial
statements – note c14, “trade receivables and customer Finance”
and note c20, “Financial risk Management and Financial
instruments”.
2008
2007
movements in allowances for impairment
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
allowances for impairment
customer finance, net
576
–2
574
54
–12
42
2 –
576
1,838
–93
42
1,078
–64
1,745
1,014
aging analysis as per december 31, 2008
trade receivables
2007
2008
customer
finance
2007
2008
opening balance
additions
utilization
reversal of excess amounts
translation difference
closing balance
12
–
–10
–
–
2
12
–
–
–
–
12
64
53
–3
–29
9
94
221
19
–74
–100
–2
64
trade receivables excluding associated companies
and joint ventures
allowances for impairment of receivables
trade receivables related to associated
companies and joint ventures
customer finance
allowances for impairment of customer finance
aging analysis as per december 31, 2007
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
576
–2
2
1,838
–93
535
–
2
1,577
–
–
–
–
230
–67
35
–
–
5
–
4
–
–
–
–
2
–2
–
2
–2
–
–
–
24
–24
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
34
796
263
–46
6
1
2
–
–
1
–1
12
–12
17
–17
trade receivables excluding associated companies
and joint ventures
allowances for impairment of receivables
customer finance
allowances for impairment of customer finance
outstanding customer finance
on-balance sheet customer finance
off-balance sheet customer finance
total customer finance
accrued interest
less third-party risk coverage
parent company’s risk exposure
on-balance sheet credits, net carrying value
Of which short term
credit commitments for customer finance
2008
1,838
168
2,006
24
–148
1,882
1,745
835
956
54
–12
1,078
–64
2007
1,078
185
1,263
6
–163
1,106
1,014
263
988
ericsson annual report 2008
105
notes to the parent company financial statements
note p12– p14
p12 receivables and liabilities
p13 other current receivables
– subsidiary companies
payment due by period
>5
years
1–5
years
< 1
year
total
2008
total
2007
15,781
–
3,781 12,000 18,433
1,008 1,008
23,668 23,668
24,676 24,676
–
–
–
–
908
– 24,222
– 25,130
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
541
541
34,725 34,725
35,266 35,266
–
–
–
–
678
– 40,735
– 41,413
1) including non interest-bearing receivables and liabilities, net, amounting to
seK –15,866 million (seK –20,959 million in 2007). interest-free transactions
involving current receivables and liabilities may also arise at times.
Cha Nges iN sToC kholders’ equiT y
revalua-
receivables from associated
companies and joint ventures
prepaid expenses
accrued revenues
Derivatives with a positive value
other
Total
2008
2007
669
666
535
2,498
318
874
703
418
850
315
4,686
3,160
p14 stockholders’ equity
Capital stock 2008
class a shares 1)
class B shares 1)
total
number
of shares
261,755,983
2,984,595,752
3,246,351,735
capital
stock
1,309
14,923
16,232
1) class a-shares (quota value seK 5.00) and class B-shares (quota value seK 5.00).
27,866
–
– 27,866 30,921
capital stock at December 31, 2008, consisted of the following:
capital
stock
tion statutory restricted
equity
reserve
reserve
Total Disposi-
tion
reserve
Fair
value
other
Non-
retained restricted
equity
reserves earnings
Total
2008
January 1, 2008
revaluation of other investments
in shares
transferred to income statement at sale
Cash flow hedges
Fair value remeasurement of derivatives
reported in equity
tax on items reported directly in equity
stock issue
sale of own shares
stock purchase and stock option plans
repurchase of own shares
contributions from/to (–) subsidiary
companies
tax on contributions
Dividends paid
net income 2008
december 31, 2008
16,132
20
31,472
47,624
100
4
35,121
35,225 82,849
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–6
–
–
–
–
–
–
–
–
–
–
773
–202
–
–
–
–
–
–
–
–
–
–
–
–
88
36
–100
–6
–6
773
–202
–
88
36
–100
773
–202
100
88
36
–100
–4,288
1,155
–7,954
–4,288 –4,288
1,155
–7,954 –7,954
1,155
17,227
17,227 17,227
16,232
20
31,472
47,724
100
569
41,285
41,954 89,678
106
ericsson annual report 2008
notes to the parent company financial statements
Cha Nges iN sToC kholders’ equiT y
revalua-
capital
stock
tion statutory restricted
equity
reserve
reserve
Total Disposi-
tion
reserve
note p15– p16
Fair
value
other
Non-
retained restricted
equity
reserves earnings
Total
2007
January 1, 2007
revaluation of other investments
in shares
Fair value remeasurement 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
16,132
20
31,472
47,624
100
2
32,885
32,987 80,611
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–1
–
–
–
–
–
–
–
–
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
16,132
20
31,472
47,624
100
4
35,121
35,225 82,849
p15 untaxed reserves
p16 pensions
2008
accumulated depreciation
in excess of plan
intangible assets
tangible assets
Total accumulated depre-
ciation in excess of plan
other untaxed reserves
reserve for doubtful receivables
Total other untaxed reserves
Total untaxed reserves
additions/
Jan 1 withdrawals (–) Dec 31
1,068
13
1,081
258
258
1,339
192
59
1,260
72
251
1,332
227
227
478
485
485
1,817
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 183 million in 2007. Deferred
tax liability on untaxed reserves, not accounted for in deferred taxes,
amounts to seK 478 million (seK 375 million in 2007).
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
contributions 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
benefits that the employee will receive on or after retirement. the
FpG/pri plan for the parent company is partly funded. FpG is a
swedish credit insurance company for pension obligations and pri
is a pension registration institute. pension obligations are
calculated annually, on the balance sheet date, based on actuarial
assumptions.
defiNed Be Nefi T oBligaTioN- amouNT reCogNized i N The
Bal aNCe sheeT
present value of wholly or partially
funded pension plans 1)
Fair value of plan assets
unfunded/net surplus(-) of funded pension plans
present value of unfunded pension plans
excess from plan assets reclassified
Closing balance provision for pensions
2008
2007
551
–530
21
382
–
403
515
–613
–98
397
103
402
1) this FpG/pri obligation is covered by the swedish law on safeguarding of
pension commitments.
the defined benefit obligations are calculated based on the actual
salary levels at year-end and based on a discount rate of 4.0 percent.
Weighted average life expectancy after the age of 65 is 24 years for
women and 21 years for men.
in 2005, seK 524 million was transferred into the swedish pension
trust, of which seK 0 (103) million is accounted for as prepaid
expense.
the parent company utilizes no assets held by the pension trust.
return on plan assets for 2008 is –13.8 (3.5) percent.
ericsson annual report 2008
107
notes to the parent company financial statements
note p16– p17
pl an asseTs allocaTion
equities
interest-bearing securities
Of which Ericsson securities
change in The defined BenefiT oBligaTion
opening balance
pension costs, excluding taxes, related to
defined benefit obligations accounted for
in the income statement
pension payments
return on plan assets for the year
return on plan assets not accounted
for prior years
previous excess from plan assets reclassified
closing balance provision for pensions
2008
2007
167
363
530
–
190
423
613
–
2008
2007
402
419
67
–48
85
–
–103
403
70
–55
–21
–11
–
402
ToTal pension cosT and income recognized
in The income sTaTemenT
defined benefit obligations
costs excluding interest and taxes
interest cost
credit insurance premium
total cost defined benefit plans
excluding taxes
defined contribution plans
pension insurance premium
total cost defined contribution plans
excluding taxes
return on plan assets
Total pension cost, net excluding taxes
2008
2007
24
43
–5
62
86
86
85
233
35
36
–24
47
98
98
–32
113
of the total pension cost seK 105 million (seK 109 million in 2007) is
included in operating expenses and seK 128 million (seK 4 million in
2007) in the financial net.
estimated pension payments for 2009 are seK 45 million.
p17 other provisions
2008
opening balance
additions
reversal of excess amounts
utilization/cash out
reclassification
closing balance
2007
opening balance
additions
reversal of excess amounts
utilization/cash out
closing balance
Warranty
commitments
restruc-
turing
customer
finance
other
total other
provisions 1)
1
–
–
–
–
1
1
–
–
–
1
114
47
–9
–31
–12
109
228
20
–73
–61
114
177
21
–
–36
–
162
188
–
–11
–
177
363
181
–112
–60
12
384
778
21
–374
–62
363
655
249
–121
–127
–
656
1,195
41
–458
–123
655
1) of which seK 150 million (seK 208 million in 2007) are expected to be utilized within one year.
108
ericsson annual report 2008
notes to the parent company financial statements
note p18
p18 interest-Bearing liabilities
the parent company’s outstanding interest-bearing liabilities,
excluding liabilities to subsidiaries, were seK 26.7 billion as per
December 31, 2008.
iNTeres T-BeariNg liaBiliTies
Borrowings, current
current maturities of long-term borrowings
Total current borrowings
Borrowings, non-current
notes and bond loans
liabilities to credit institutions
Total non-current interest-
bearing liabilities
2008
2007
3,732
2,906
3,732
2,906
18,941
4,000 –
19,372
22,941
19,372
Total interest-bearing liabilities
26,673 22,278
NoTes aNd BoNd loaNs
issued-maturing
1999–2009
2003–2010
2004–2012
2007–2012
2007–2012
2007–2017
2007–2014
Total
nominal
amount
483
471 1)
450
1,000
2,000
500
375
coupon
currency
Book value
(seK million)
Maturity date
(yy-mm-dd)
unrealized hedge
gain/loss (incl. in
book value)
6.500%
6.750%
3.340%
5.100%
2.728%
5.380%
3.319%
usD
eur
seK
seK
seK
eur
eur
3,794 2)
5,256 2)
450
1,079 2)
2,000
5,987 2)
4,107
22,673
09-05-20
10-11-28
12-12-07 3)
12-06-29
12-06-29 4)
17-06-27
14-06-27 5)
–62
–189
–80
–547
–878
1) 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.
2) interest rate swaps are designated as fair value hedges.
3) contractual repricing date 2009-06-08.
4) contractual repricing date 2009-03-29.
5) contractual repricing date 2009-03-27.
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 6.46 percent at December 31,
2008. these bonds are revalued based on changes in benchmark
interest rates according to the fair value hedge methodology
stipulated in ias 39.
on June 5, 2008, the GBp bond issued in 2001 of 226 million
matured and was repaid. With this GBp bond repaid, ericsson does
not have any interest rate payments on bonds linked to credit rating.
on July 2, 2008, ericsson signed a seven year loan of seK 4.0
billion with the european investment Bank. the loan supports
ericsson’s r&D activities to develop the next generation of mobile
broadband technology at sites in Kista, Gothenburg and linköping in
sweden.
ericsson annual report 2008
109
notes to the parent company financial statements
note p19
p19 Financial risk Management
and Financial instruments
Financial risk management
ericsson’s financial risk management is governed on a Group level.
For further information see notes to the consolidated Financial
statements – note c20, “Financial risk Management and Financial
instruments”.
the instruments are classified as held for trading and are therefore
short-term investments.
During 2008, cash and bank and short-term investments increased
by seK 13.6 billion to seK 59.2 billion mainly due to positive
operating cash flow and issuance of non-current debt.
Repayment schedule of long-teRm boRRowings
nominal amount
seK billion
current
maturities of long-
term debt
Borrowings
(non-current)
3.7
–
5.1
–
3.5
–
13.6
total
3.7
5.1
–
3.5
–
13.6
3.7
22.2
25.9
2009
2010
2011
2012
2013
2014 and later
total
2008
asset liability
2007
asset liability
2,562
2,742
559
993
4,887
167
–
–
4,054
700
–
–
408
145
–
–
915
79
–
–
Debt financing is mainly carried out through borrowing in the swedish
and international debt capital markets.
7,616 1) 3) 7,496 2)
1,112
1,987
funding pRog Rams
–
8
–
10
179
–
11
–
–
315
129
105
711
1,260 3)
121
25
–
53
199
194
226
32
184
636 3)
116
1,152
–
478
–
–
10
1
53
56
3
3
amount utilized
unused
euro Medium-term note program
(usD million)
euro commercial paper program
(usD million)
swedish commercial paper program
(seK million)
long-term committed credit facility
(usD million)
european investment Bank
(seK million)
5,000
2,730
2,270
1,500
5,000
2,000
–
–
–
1,500
5,000
2,000
4,000
4,000
–
at year-end ericsson’s credit rating remained at Baa1 (Baa1) by
Moody’s and BBB+ (BBB+) by standard & poor’s, both considered to
be “solid investment Grade”.
outstanding deR iVatiV es
Fair value
currency derivatives
Maturity within 3 months
Maturity between 3
and 12 months
Maturity 1 to 3 years
Maturity 3 to 5 years
Maturity more than 5 years
total currency derivatives
of which designated in
cash flow hedge relations
of which designated in net
investment hedge relations
interest rate derivatives
Maturity within 3 months
Maturity between 3
and 12 months
Maturity 1 to 3 years
Maturity 3 to 5 years
Maturity more than 5 years
total interest rate derivatives
of which designated in fair
value hedge relations
1) of which internal counterparts 3,564.
2) of which internal counterparts 427.
3) of which 2,814 million is reported as non-current assets for 2008 and 96 million
for 2007.
cash, cash equiValents and shoRt-teRm inVestments
remaining time to maturity
seK billion
Bank deposits
type of issuer/
counterpart
Governments
Banks
corporations
Mortgage institutes
total
< 3
months
< 1
year years years 2008 2007
1–5
> 5
14.5
–
–
–
14.5
6.7
6.5
4.9
0.7
–
15.3
1.3
0.9
7.0
26.6 24.5
0.6
–
–
5.5
6.1
1.5 23.9 12.8
6.2 20.5
3.9
1.6
1.7
13.0
–
–
0.5
2.0 59.2 45.6
110
ericsson annual report 2008
notes to the parent company financial statements
note p19 –p22
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 2.8 billion. For further information
about valuation principles, see notes to the consolidated Financial
statements – note c1, “significant accounting policies”.
financial instR uments caRRying amount
trade
receiva-
bles
p11
2.3
short-
term
invest-
ments
44.8
receiva-
bles and
liabilities
subsidia-
ries p12
3.1
36.9
Borrow-
ings
p18
trade
payables
p21
Financial
assets
p8
other
current
receiva-
bles
p13
2.8
2.5
0.7
other
current
liabilities
p20
–7.3
2008
2007
45.9
39,9
–
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
2.3
44.8
–62.7
–22.7
–26.7
–26.7
–0.6
–0.6
2.8
3.2
–7.3
–4.2
–10.7
–90.0
–94.3
financial instRuments caRRied at otheR than faiR Value
Fair value
carrying amount
seK billion
2008
2007
2008
2007
p22 assets pledged
as collateral
current maturities of
long-term borrowings
Borrowings non-current
3.7
23.0
26.7
2.9
19.4
22.3
3.9
19.0
22.9
3.1
19.4
22.5
Bank deposits
total
2008
2007
414
414
359
359
the major item in bank deposits is the internal bank’s clearing and
settlement commitments of seK 266 million (seK 229 million in 2007).
p23 contingent liabilities
total contingent liabilities
2008
2007
13,029
9,650
contingent liabilities include pension commitments of seK 10,783
million (seK 8,199 million in 2007) and guarantees for subsidiary
companies’ borrowing from financial institutions of seK 9 million (seK
18 million in 2007).
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 2008
was seK 20,997 million (seK 16,312 million in 2007). potential
payments due under these bonds are related to ericsson’s
performance under applicable contracts.
Financial instruments excluded from the tables, such as trade
receivables 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
liabilities to associated
companies and joint ventures
accrued interest
accrued expenses, of which
employee related
other
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.
2008
2007
–
411
7
445
266
45
1,252
7,268
161
237
818
1,007
1,151
163
9,403
3,828
2008
2007
605
605
626
626
ericsson annual report 2008
111
notes to the parent company financial statements
note p24–p27
p24 statement of cash Flows
interest paid in 2008 was seK 2,376 million (seK 1,977 million in 2007
and seK 1,887 million in 2006) and interest received was seK 3,520
million (seK 3,066 million in 2007 and seK 3,123 million in 2006).
income taxes paid were seK 370 million (seK 559 million in 2007 and
seK 364 million in 2006).
adjustments to Reconcile net income to cash
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 finance, net
additions to/withdrawals from (–)
untaxed reserves
unsettled dividends
other non-cash items
2008
2007
2006
127
127
385
385
512
1,363
111
111
389
389
500
756
92
92
310
310
402
825
5,545
–1,088
–2,889
478
–5
–2,747
265
–
–1,324
88
–
1,289
total adjustments to reconcile net
income to cash
5,146
–891
–285
p25 leasing
Leasing with the Parent Company as lessee
at December 31, 2008, future payment obligations for leases were
distributed as follows:
2009
2010
2011
2012
2013
2014 and later
operating
leases
1,133
1,004
753
565
385
1,210
5,050
at December 31, 2008, future minimum payment receivables were
distributed as follows:
2009
2010
2011
2012
2013
2014 and later
operating
leases
36
4
1
1
1
2
45
the operating lease income is mainly income from sublease of real
estate. see notes to the consolidated Financial statements – note
c27, “leasing”.
p26 tax assessment Values
in sweden
land and land improvements
total
2008
2007
8
8
8
8
p27 information regarding
employees
aVeRage numbeR of employees
2007
Men Women total Men Women total
2008
181
149 330
173
140
313
Western europe 1) 2)
central and eastern
europe, Middle east
and africa
total
3
184
1) Of which Sweden 181
2) Of which EU
181
1
4
150 334
149 330
149 330
104
277
173
173
9
113
149
426
140
140
313
313
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
2008
2007
0%
2%
1%
1%
0%
2%
1%
1%
long-term absence due to illness total 1)
0.6%
0.5%
1) Defined as absence during a consecutive period of time of 60 days or more.
Remuneration
wages and sal aRies and social secuRit y expenses
Wages and salaries
social security expenses
Of which pension costs
Western europe 1) 2)
central and
eastern europe, Middle
east and africa
total
1) Of which Sweden
2) Of which EU
2008
2007
353
404
265
431
253
139
2008
2007
351
315
2
353
351
351
113
428
315
315
remuneration in foreign currency has been translated to seK at average exchange
rates for the year.
Leasing with the Parent Company as lessor
wages and sal aRies pe R geogRaphical aRea
112
ericsson annual report 2008
notes to the parent company financial statements
note p27–p30
Remuneration policy and remuneration to the
Board of Directors and the President and CEO
p29 Fees to auditors
see notes to the consolidated Financial statements – note c29,
“information regarding employees, Members of the Board of
Directors and Management”.
Long-term incentive plans
The Stock Purchase Plan
compensation costs for all employees of the parent company
amounted to seK 5.6 million in 2008 (seK 14.5 million in 2007).
p28 related party transactions
During 2008, various transactions were executed pursuant to
contracts 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
company and seMc.
For the parent company, the major transactions are license
revenues for seMc’s usage of trademarks and patents and received
dividends.
Related party transactions
license revenues
Dividends
Related party balances
receivables
2008
2007
2,011
3,627
3,039
3,949
626
871
Ericsson Nikola Tesla d.d.
ericsson nikola tesla d.d. is a joint stock company for design, sales
and service 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 major transactions are license
revenues for ericsson nikola tesla d.d.’s usage of trademarks and
received dividends.
Related party transactions
license revenues
Dividends
Other related parties
2008
2007
9
227
9
267
For information regarding the remuneration of management, see
notes to the consolidated Financial statements – note c29,
“information regarding employees, Members of the Board of
Directors and Management”.
2008
audit fees
audit related fees
tax services fees
total
2007
audit fees
audit related fees
tax services fees
total
2006
audit fees
audit related fees
tax services fees
other fees
total
price-
waterhouse-
coopers others
total
33
2
1
36
37
3
–
40
41
8
1
1
51
–
–
–
–
–
–
–
–
2
–
–
–
2
33
2
1
36
37
3
–
40
43
8
1
1
53
During the period 2006–2008, in addition to audit services,
pricewaterhousecoopers 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
acquisitions. 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
2006 are included in others.
p30 events after the Balance
sheet Date
effective January 1, 2009, the parent company has entered into an
agreement with ericsson aB, a wholly owned subsidiary company, to
transfer the right to all license revenues from third parties related to
patent licenses. consequently, the parent company will report
insignificant net sales from 2009.
ericsson and stmicroelectronics completed
the jV deal
on February 3, 2009, ericsson and stMicroelectronics announced
the closing of their agreement merging ericsson mobile platforms and
st-nXp Wireless unit into a 50/50 joint venture, to be called st
ericsson. the deal was completed on the terms originally announced
on august 20, 2008.
st ericsson will acquire relevant assets from the owner
companies. after these acquisitions, the joint venture will have cash
position of about usD 0.4 billion. the parent company contributed
usD 1.1 billion net to the joint venture, out of which usD 0.7 billion
was paid to st. st ericsson is expected to become operational
during the first quarter of 2009.
ericsson annual report 2008
113
notes to the parent company financial statements
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 other factors discussed
elsewhere in this report, could have a material negative effect on
our business, operational and after-tax results, financial position,
cash flows, liquidity, credit rating, reputation and/or our share price.
Furthermore, our operational results may have a greater variability
than in the past and we may have difficulties in accurately predicting
future developments. See also “Forward-looking Statements”.
contents
risks associated with the industry and market
conditions ........................................................ 114
strategic and operational risks ......................... 116
risks associated with owning
ericsson shares ............................................... 119
Risk associated with the industry and market
conditions
Current turmoil in the financial markets and
macro-economic downturn may have an impact on our
business.
the extent of the current financial market turmoil and the
accompanying economic downturn may exacerbate some of the
risk factors we are exposed to, although our customers currently
have relatively strong financial results and positions. traffic
volumes are increasing and the networks well utilized compared to
the industry downturn 2001–2003. the effects of a tighter credit
market on consumer and operator spending may have several
adverse effects, such as:
• reduced demand for products and services, resulting in
increased price competition or deferment of purchases and
orders by customers;
• risk of excess and obsolete inventories and excess
manufacturing capacity and risk of financial difficulties or
failures among suppliers;
• increased demand for customer finance, difficulties in
collection of accounts receivable and increased risk of
counterparty failures;
• decline in the value of the assets in the company’s pension
plans;
• increased difficulties to forecast sales and financial results as
well as increased volatility in our reported results.
We are subject to political, economic and regulatory risks
in the various countries in which we operate.
sales, as developing nations and regions around the world
increase their investments in telecommunications. We already
have extensive operations in many of these countries, which
involve certain risks, including volatility in gross domestic
product, civil disturbances, economic and political instability,
nationalization of private assets and the imposition of exchange
controls.
changes in regulatory requirements, tariffs and other trade
barriers, price or exchange controls or other governmental
policies in the countries in which we conduct business could limit
our operations and make the repatriation of profits difficult. in
addition, the uncertainty of the legal environment in some regions
could limit our ability to enforce our rights. We also must comply
with the export control regulations of the countries in which we
operate and trade embargoes in force at the time of sale.
although we seek to comply with all such regulations, even
unintentional violations could have material adverse effects on
our business, operational results and reputation.
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.
adverse economic conditions could cause network operators to
postpone investments or initiate other cost-cutting initiatives to
improve their financial position, which could result in significantly
reduced capital expenditures for network infrastructure. if
operator spending for network equipment and associated rollout
services declines substantially, our business and operating
We conduct business throughout the world and are subject to
results would suffer. We have established flexibility to cost
the effects of general global economic conditions as well as
effectively accommodate to fluctuations in demand. However, if
conditions unique to a specific country or region. We conduct
demand were to fall in the future, we may experience material
business in more than 140 countries, with a significant proportion
adverse effects on our revenues and may even incur operating
of our sales to emerging markets in asia pacific, latin america,
losses. if demand is significantly weaker or more volatile than
eastern europe, the Middle east and africa. We expect that sales
expected, this may have a material adverse impact on the trading
to such emerging markets will be an increasing portion of total
price of our shares.
114
risk factors
ericsson annual report 2008
Industry convergence between telecom, data and media
represents opportunities but also risks.
of services offered by operators could also affect their ability to
invest in network infrastructure, which in turn could affect the
We are affected by market conditions within the
sales of our systems and services. radio frequency spectrum
telecommunications industry. We are also affected by the
allocation between different types of usage may affect operator
convergence of the telecom-, data-, and media industries, which
spending adversely or force us to develop new products to be
is largely driven by technological development related to ip-
able to compete in such market.
based communications. this change impacts our addressable
license fees, environmental, health and safety, privacy and
market, competition, and our objective setting and strategies, as
other regulatory changes may increase costs and restrict
well as the need to consider risks to achieve our set objectives.
operations of network operators and service providers. the
should we not succeed in understanding the market
indirect impact of such changes could affect our business
development or acquire the necessary competence or develop
adversely even though the specific regulations may not directly
and market products and solutions that are competitive in this
apply to our products or us.
changing market, our future results will suffer.
Consolidation among network operators may increase our
Our business essentially depends upon the continued
dependence on a limited number of key customers.
growth of mobile communications and the success of new
types of services offered in broadband networks.
the market for mobile network equipment is highly concentrated,
with the 10 largest operators representing more than 40 percent
Most of our business depends on continued growth in mobile
of the total market. network operators have undergone
communications in terms of both number of subscriptions and
significant consolidation, resulting also in a significant number of
usage per subscriber, which in turn requires the continued
operators with activities in several countries. this trend is
deployment of our network systems by customers. in particular,
expected to continue, while also intra-country consolidation is
we are dependent on operators in highly penetrated markets to
likely to accelerate as a result of competitive pressure.
successfully introduce services that cause a substantial increase
a market with fewer and larger operators will increase our
in usage for both voice and data. in emerging markets, we are, to
reliance on key customers and, due to the increased size of these
a certain extent, dependent on the availability of lower-cost
companies, may negatively impact our bargaining position and
handsets in addition to affordable tariffs by operators to support
profit margins. Moreover, if the combined companies operate in
a continued increase of mobile subscribers. if operators are not
the same geographic market, networks may be shared and less
successful in their attempts to increase the number of
network equipment and associated services may be required.
subscribers and/or stimulate increased usage, our business and
another possible consequence of customer consolidation is that
operational results could be materially adversely affected.
it could cause a delay in their network investments while they
fixed and mobile networks converge and new technologies,
negotiate merger/acquisition agreements, secure necessary
such as ip and broadband, enable operators to deliver a range of
approvals, or are constrained by efforts to integrate the
new types of services in both fixed and mobile networks. We are
businesses. a recent development is also that network
dependent upon the market acceptance of such services, e.g.
operators, without legal consolidation but through cooperation
iptV, and on the outcome of regulatory and standardization
agreements, share parts of their network infrastructure, which
activities in this field, such as spectrum allocation. if delays in
may adversely affect demand for network equipment.
standardization or market acceptance occur, this could adversely
affect our business and operational results.
Consolidation among equipment and services suppliers
may lead to increased competition and a different
Changes in the regulatory environment for
competitive landscape.
telecommunications systems and services could negatively
impact our business.
industry consolidation among equipment suppliers could
potentially result in stronger competitors that are competing as
telecommunications is a regulated industry and regulatory
end-to-end suppliers as well as competitors more specialized in
changes affect both our customers’ and our operations. for
particular areas. consolidation may also result in competitors
example, changes in regulations that impose more stringent,
with greater resources, including technical and engineering
time-consuming or costly planning, zoning requirements or
resources, than we have or reduce existing scale advantages for
building approvals regarding the construction of radio base
us. this could have a material adverse effect on our business,
stations and other network infrastructure could adversely affect
operating results, and financial condition.
the timing and costs of new network construction or expansion
and the commercial launch and ultimate commercial success of
these networks. similarly, tariff regulations that affect the pricing
ericsson annual report 2008
risk factors 115
We operate in a highly competitive industry, which is
subject to competitive pricing and rapid technological
change.
cause no adverse effects to human health. However, any
perceived risk or new scientific findings of adverse health effects
of mobile communication devices and equipment could adversely
the markets for our products are highly competitive in terms of
affect us through a reduction in sales. although ericsson’s
pricing, functionality and service quality, the timing of
products are designed to comply with all current safety
development and introduction of new products and services and
standards and recommendations regarding electromagnetic
terms of financing. We face intense competition from significant
fields, we cannot assure you that we or the jointly owned sony
competitors, and chinese companies in particular, have become
ericsson Mobile communications will not become the subject of
relatively stronger in recent years. our competitors may
product liability claims or be held liable for such claims or be
implement new technologies before we do, allowing them to offer
required to comply with future regulatory changes that may have
more attractively priced or enhanced products, services or
an adverse effect on our business. see also “legal and tax
solutions, or may offer other incentives that we do not provide.
proceedings” in the Board of Directors’ report.
some of our competitors may have greater resources in certain
business segments or geographic markets than we do. We may
Strategic and operational risks
also encounter increased competition from new market entrants,
alternative technologies or evolving industry standards. the rapid
technological change also results in shorter life-cycles for
products, increasing the risk in all product investments. our
operating results significantly depend on our ability to compete in
this market environment, in particular on our ability to introduce
new products to the market and to continuously enhance the
functionality while reducing the cost of new and existing
products, in order to cope with the continuous price erosion that
is a result of the rapid technological change.
Our current and historical operations are subject to a wide
range of environmental, health and safety regulations.
We are subject to certain environmental, health and safety laws
and regulations that affect our operations, facilities and products
in each 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
Short-term volatility in business mix may have impact on
sales and gross margins.
our sales to network operators are a mix of equipment, software
and services, which normally generate different gross margins.
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
civil works and/or third-party products with lower gross
margins than own products;
• as subsequent network expansions (added geographical
coverage or increased capacity) and upgrades to higher
functionality, where the deliverables include higher shares of
software and less rollout services and therefore normally have
higher margins; and
• as professional services, which have lower gross margins than
equipment and software.
and business activities. However, there is a risk that we may have
as a consequence, reported gross margin in a specific period will
to incur expenditures to cover environmental and health liabilities
be affected by the overall mix of equipment, software and
to maintain compliance with current or future environmental,
services as well as the relative content of third party products.
health and safety laws and regulations or to undertake any
network expansions and upgrades have much shorter leadtimes
necessary remediation. it is difficult to reasonably estimate the
for delivery than initial network buildouts. such orders are
future impact of environmental matters, including potential
normally placed with short notice by customers, i.e. less than a
liabilities due to a number of factors especially the lengthy time
month, and consequently, variations in demand are difficult to
intervals often involved in resolving them.
forecast. as a result, changes in our product and service mix may
affect our ability to forecast and may also impact our ability to
detect in advance whether actual results will deviate from those
forecasted.
Liability claims related to and public perception of the
potential health risks associated with electromagnetic
fields could negatively affect our business.
the mobile telecommunications industry is subject to claims that
mobile handsets and other telecommunications devices that
generate electromagnetic fields expose users to health risks. at
present, a substantial number of scientific studies conducted by
various independent research bodies have indicated that
electromagnetic fields, at levels within the limits prescribed by
public health authority safety standards and recommendations,
116
risk factors
ericsson annual report 2008
Most of our business is derived from a limited number of
We make strategic acquisitions to get access to
customers.
technology, competence or new markets.
We derive most of our business from large, multi-year network
in our industry, which requires huge investments in technology
build-out agreements with a limited number of significant
and at the same time is exposed to rapid technological and
customers. although no single customer currently represents
market changes, we make strategic investments in order to
more than 10 percent of sales, the loss of, or a reduced role with,
obtain various benefits, e.g. to reduce time-to-market, to gain
a key customer for any reason could have a significant adverse
access to technology and/or competence, to increase our scale
impact on sales, profit and market share for an extended period.
or to broaden our product portfolio or expand our customer
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
base. there are no guarantees that such acquisitions are
successful or that we succeed in integrating the acquired entities
to gain the expected benefits at all or in the timeframe we expect.
We enter into joint ventures, strategic alliances and third
commitments to future price reductions. in order to maintain the
party agreements to offer complementary products and
gross margin even with such lower prices, we continuously strive
services.
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 and productivity in production. However, there
can be no assurance that our actions to reduce costs will be
sufficient or timely to maintain our gross margin in such
contracts.
frame agreements often also provide for penalties and
termination rights in the event of our failure to deliver ordered
products on time or if our products do not perform as promised,
which may affect our results negatively.
We expend significant resources on product and
technology R&D which may not be successful in the
market.
Developing new products or updating existing products and
solutions requires significant levels of financial and other
commitments to research and development, which may not
always result in success. We are also actively engaged in the
development of technology standards that we are incorporating
into our products and solutions. in order to be successful, those
if our partnering arrangements fail to perform as expected,
whether as a result of having incorrectly assessed our needs or
the capabilities of our strategic partners, our ability to work with
these partners or otherwise, our ability to develop new products
and solutions may be constrained and this may harm our
competitive position in the market. additionally, our share of any
losses from, or commitments to contribute additional capital to,
joint ventures has and may continue to adversely affect our
financial position or results of operations.
our solutions may also require us to license technologies from
other companies and successfully integrate such technologies
with our products. it may be necessary in the future to seek or
renew licenses relating to various aspects of these products.
there can be no assurance that the necessary licenses would be
available on acceptable terms, or at all. Moreover, the inclusion in
our products of software or other intellectual property licensed
from third parties on a non-exclusive basis could limit our ability
to protect our proprietary rights in our products.
Our products incorporate intellectual property rights (IPR)
developed by us that may be difficult to protect or may be
standards must be accepted by relevant standardization bodies
found to infringe on the rights of others.
and by the industry as a whole. our sales and earnings may
suffer if we invest in development of technologies and technology
standards that do not function as expected, are not adopted in
the industry or are not accepted in the marketplace within the
timeframe we expect, or at all.
please also see section “research and Development” in the
Board of Directors’ report and in information on the company.
While we have been issued a large number of patents and other
patent applications are currently pending, there can be no
assurance that any of these patents will not be challenged,
invalidated, or circumvented, or that any rights granted under
these patents will in fact provide competitive advantages to us.
in 2005, the european union considered placing restrictions
on the patentability of software. although the european union
ultimately rejected this proposal, we cannot guarantee that they
will not revisit this issue in the future. We rely on many software
patents, and any limitations on the patentability of software may
materially affect our business.
We utilize a combination of trade secrets, confidentiality
policies, non-disclosure and other contractual arrangements in
addition to relying on patent, copyright and trademark laws to
ericsson annual report 2008
risk factors 117
protect our intellectual property rights. However, these measures
of components and production capacity could occur. in many
may not be adequate to prevent or deter infringement or other
cases, some of our competitors also utilize the same contract
misappropriation. Moreover, we may not be able to detect
manufacturers, and we could be blocked from acquiring the
unauthorized use or take appropriate and timely steps to
needed components or from increasing capacity if they have
establish and enforce our proprietary rights. in fact, existing laws
purchased capacity ahead of us. this factor could limit our ability
of some countries in which we conduct business offer only
to supply our customers or could increase our costs. at the same
limited protection of our intellectual property rights, if at all.
time, we commit to certain capacity levels or component
Many key aspects of telecommunications and data network
quantities, which, if unused, will result in charges for unused
technology are governed by industry-wide standards, which are
capacity or scrapping costs.
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
We are dependent upon hiring and retaining highly
qualified employees.
of intellectual property rights also increases. third parties have
We believe that our future success depends in large part on our
asserted, and may assert in the future, claims against us alleging
continued ability to hire, develop, motivate and retain engineers
that we infringe their intellectual property rights. Defending such
and other qualified personnel needed to develop successful new
claims may be expensive, time consuming and divert the efforts
products, support our existing product range and provide
of our management and/or technical personnel. as a result of
services to our customers. competition for skilled personnel and
litigation, we could be required to pay damages and other
highly qualified managers in the telecommunications industry
compensation, develop non-infringing products/technology or
remains intense. We are continuously developing our
enter into royalty or licensing agreements. However, we cannot
remuneration and benefit policies as well as other measures.
be certain that any such licenses, if available at all, will be
However, we may not be as successful at attracting and retaining
available to us on commercially reasonable terms.
such highly skilled personnel in the future.
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
business operations. Moreover, the results of complex legal
development and customer finance programs or we cannot raise
proceedings are difficult to predict. an unfavorable resolution of a
sufficient amounts of capital at the times and on the terms
particular lawsuit could have a material adverse effect on our
required by us, our business will likely be adversely affected.
business, reputation, operating results, or financial condition.
access to short-term funding may decrease or become more
as a publicly listed company, ericsson is exposed to class-
expensive as a result of our operational and financial condition
action lawsuits, in which plaintiffs allege that the company or its
and market conditions or due to deterioration in our credit rating.
officers have failed to comply with securities laws, stock market
We cannot assure you that additional sources of funds will be
regulation or any other laws, regulations or requirements.
available or available on reasonable 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
settlement or compensation to the plaintiffs may have significant
As a Swedish company operating globally, we have
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
involved, see “legal and tax proceedings” in the Board of
than sek, and many subsidiaries outside sweden, our foreign
Directors’ report.
We rely on a limited number of suppliers for the majority of
our components and electronic manufacturing services.
exchange 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
our ability to deliver according to market demands depends in
rate fluctuations through a variety of hedging activities may not
large part on obtaining timely and adequate supply of materials,
be sufficient or successful, resulting in an adverse impact on our
components and production capacity on competitive terms.
results.
failure by any of our suppliers could interrupt our product supply
a stronger sek exchange rate would generally have a negative
and could significantly limit our sales or increase our costs. if we
effect on our competitiveness compared to competitors with
fail to anticipate customer demand properly, an over/undersupply
costs denominated in other currencies.
118
risk factors
ericsson annual report 2008
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
results.
our business operations rely on complex it operations and
communications networks which are vulnerable to damage or
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.
disturbance from a variety of sources. Having outsourced a
Because our shares are quoted in swedish kronor (sek) on
significant portion of our it operations, we depend partly on
nasDaQ oMX stockholm (our primary stock exchange), but on
security and reliability measures of external companies.
nasDaQ (aDss) in usD, fluctuations in exchange rates between
regardless of protection measures, essentially all it systems and
sek and usD may affect the value of your investment. in
communications networks are susceptible to disruption from
addition, because we pay cash dividends in sek, fluctuations in
equipment failure, vandalism, computer viruses, security
exchange rates may affect the value of distributions if
breaches, natural disasters, power outages and other events.
arrangements with your bank, broker or depositary, in the case of
although we have assessed these risks and implemented
aDss, call for distributions to you in currencies other than sek.
controls and selected reputable companies for outsourced
services, we cannot be sure that interruptions with material
adverse effects will not occur.
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
development 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 investigations 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
ericsson annual report 2008
risk factors 119
auditors’ report
To the Annual General Meeting of the shareholders
well as evaluating the overall presentation of information in the
of Telefonaktiebolaget LM Ericsson (publ),
annual accounts and the consolidated accounts. as a basis for
organization number 556016-0680
our opinion concerning discharge from liability, we examined
significant decisions, actions taken and circumstances of the
We have audited the annual accounts, the consolidated
company in order to be able to determine the liability, if any, to
accounts, the accounting records and the administration of the
the company of any Board Member or the President and cEo.
Board of directors and the President and cEo of
We also examined whether any Board Member or the President
telefonaktiebolaget lM Ericsson (publ) for the year 2008. (the
and cEo has, in any other way, acted in contravention of the
company’s annual accounts are included in the printed version
companies act, the annual accounts act or the articles of
on pages 6–119). the Board of directors and the President and
association. We believe that our audit provides a reasonable
cEo are responsible for these accounts and the administration of
basis for our opinion set out below.
the company as well as for the application of the annual
the annual accounts have been prepared in accordance with
accounts act when preparing the annual accounts and the
the annual accounts act and give a true and fair view of the
application of international financial reporting standards iFrss as
company’s financial position and results of operations in
adopted by the Eu and the annual accounts act when preparing
accordance with generally accepted accounting principles in
the consolidated accounts. our responsibility is to express an
sweden. the consolidated accounts have been prepared in
opinion on the annual accounts, the consolidated accounts and
accordance with international financial reporting standards,
the administration based on our audit.
iFrss, as adopted by the Eu and the annual accounts act and
We conducted our audit in accordance with generally
give a true and fair view of the group’s financial position and
accepted auditing standards in sweden. those standards
results of operations. the Board of directors’ report is consistent
require that we plan and perform the audit to obtain reasonable
with the other parts of the annual accounts and the consolidated
assurance that the annual accounts and the consolidated
accounts.
accounts are free of material misstatement. an audit includes
We recommend to the annual general meeting of share holders
examining, on a test basis, evidence supporting the amounts and
that the income statements and balance sheets of the Parent
disclosures in the accounts. an audit also includes assessing the
company and the Group be adopted, that the profit of the Parent
accounting principles used and their application by the Board of
company be dealt with in accordance with the proposal in the
directors and the President and cEo and significant estimates
Board of directors’ report and that the members of the Board of
made by the Board of directors and the President and cEo when
directors and the President and cEo be discharged from liability
preparing the annual accounts and consolidated accounts as
for the financial year.
stockholm, February 20, 2009
Bo Hjalmarsson
authorized Public accountant
Pricewaterhousecoopers aB
lead Partner
Peter clemedtson
authorized Public accountant
Pricewaterhousecoopers aB
120
auditor’s r EPort
Ericsson annual rEPort 2008
information on the company
company history, development
and strategy
Introduction
our origins date back to 1876 when lars magnus ericsson
opened a small workshop in stockholm to repair telegraph
instruments. that same year in the united states, alexander
Graham Bell filed a patent application for the telephone. lars
magnus ericsson soon recognized the great potential of voice-
based telecommunications and realized that the technology
could be improved. he started to develop and sell his own
telephone equipment and within a few years reached an
agreement to supply telephones and switchboards to sweden’s
first telecom operator. stockholm soon had the highest telephone
density in the world.
today, ericsson is a leading provider of communications
equipment and related professional services and multimedia
solutions to operators of mobile and fixed networks worldwide.
over 1,000 networks in more than 175 countries utilize our
equipment and we are one of the few companies worldwide that
support end-to-end solutions for all the main global standards of
the Gsm/WcDma track.
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.
also reflecting our ongoing commitment to technology
leadership, we have one of the industry’s most comprehensive
intellectual property portfolios containing approximately 24,000
patents.
ericsson is a leading
provider of communications
equipment and related
professional services
and multimedia solutions.
contents
company history, development and strategy ... 121
General facts on the company ......................... 122
market trends .................................................. 124
Business overview ........................................... 130
supply ............................................................. 134
organization .................................................... 135
Technical milestones
1878 telegraph to telephone
1923 manual switching to automatic switching
1956 first mobile phone system
1968 electro-mechanical to computer control
1978 analog switching to digital switching
1981 fixed communications to mobile communications
1991 1G analog to 2G digital mobile technology
1998
integration of voice and data in mobile networks
1999 narrowband circuit to broadband packet switching
1999 fixed telephony softswitch
2001 2G narrowband to 3G wideband mobile technology
2003 mobile softswitch
2004 launch of WcDma (3G) networks in Western europe
2005 launch of hsDpa mobile broadband networks in north
america
2006 launches of hspa mobile broadband networks globally
2007 fiber access, VDsl and iptV in broadband networks
2008 multi-standard radio base stations and lte technology
Vision, goal and strategy
ericsson’s vision is to be the prime driver in an all-communicating
world – a world in which any person can use voice, text, images
and video to share ideas and information whenever and wherever
he/she wants.
our business goal is to create value for our stakeholders and
generate growth, profit and cash flow that are sustainable over
the longer term. We measure performance in three fundamental
metrics: customer satisfaction, employee satisfaction and
financial returns for our owners. We believe that highly satisfied
customers, empowered employees and an enduring capability
for value creation for our shareholders help to assure a
competitive advantage.
ericsson annual report 2008
information on the company 121
We strive to be the preferred business partner to our
subscriber base and traffic, and in mature markets for
customers and we are a major supplier to most of the world’s
managing the growing mobile broadband subscriber base and
leading mobile operators and many of the world’s leading wireline
data traffic.
operators. We believe that our ability to offer superior end-to-end
solutions – network infrastructure, professional services,
• from a technology perspective, the ongoing migration to one
all-ip-based broadband network combining broadband
multimedia solutions and core handset technology – together
internet, voice and image traffic is a primary challenge. further,
with our in-depth knowledge of consumer requirements, make us
operators desire energy-efficient multi-technology solutions,
well positioned to assist operators with their network
driven by environmental and cost improvement opportunities
development and operations.
We are a market leader in Gsm and WcDma/hspa network
equipment and related rollout services, systems integration and
as well as ability for effective forward migration.
• from an operational perspective, operators seek solutions and
support to gain flexibility, reduce operating expenses and
managed services. We are growing in the area of wireline
improve efficiency for network operation and maintenance.
broadband networks, in metro ethernet solutions and in optical
transport, and we are a provider of multimedia solutions for both
With our significant scale advantage, tailored end-to-end
wireless and wireline operators.
solutions and local presence we are able serve as a true partner
our strategy to realize our vision and business goal is to:
• excel in network infrastructure,
• expand in services, and
• establish a position in multimedia solutions
– providing fast time to market (ttm) and competitive total cost
of ownership (tco) – and help our customers to fulfill their
business objectives.
Innovation for technology leadership
to make people’s lives easier and richer, provide affordable
innovation is an important element of our corporate culture and is
communication for all and enable new ways to do business.
key to our competitiveness and future success. We have a long
successful execution of the strategy is built on (1) addressing
tradition of developing innovative communication technologies,
customer needs; (2) innovation for technology leadership and (3)
including technologies that form the base for industry standards.
operational excellence in all we do.
By early involvement in creating new standards and technologies
Addressing customer needs
we are often first to market with new solutions – a distinct
competitive advantage.
the foundation for our business is the strong and long-term
Within our ambitious r&D program, we have approximately
relationships we have with our customers, and we work closely to
19,800 (19,300) employees in 17 (17) countries worldwide and we
understand their business and technology needs. needs
invested seK 31 billion (excluding seK 3 billion restructuring
naturally vary among the customer base, however, with some
charges) or 15 percent of sales on research and development
apparent general needs:
• from a market perspective, operators need solutions and
during 2008. the vast majority is invested in product
development, of which the majority in mobile communications
support in emerging markets for managing the growing voice
network infrastructure. We have continued to invest in
General facts on the company
our telephone number is +46 10 719 0000.
our web site is www.ericsson.com.
Legal name: telefonaktiebolaget lm ericsson (publ)
Agent in the US: ericsson inc., Vice president legal affairs,
Organization number: 556016-0680
6300 legacy Drive, plano, texas 75024. telephone number:
Legal form of the Company: a swedish limited liability
+1 972 583 0000.
company organized under the swedish companies act. the
Shares: our class a and class B shares are traded on nasDaQ
terms “ericsson”, “the company”, “the Group”, “us”, “we”, “our”
omX stockholm.
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 1 underlying class B share, are traded on nasDaQ.
incorporated on august 18, 1918, as a result of a merger between
Parent Company operations: the business of the parent
aB lm ericsson & co. and stockholms allmänna telefon aB.
company, telefonaktiebolaget lm ericsson, consists mainly of
Domicile: our registered address is telefonaktiebolaget lm
corporate management, holding company functions and internal
ericsson, se–164 83 stockholm, sweden. our headquarters are
banking activities. parent company operations also include
located at torshamnsgatan 23, Kista, sweden.
customer credit management activities performed by ericsson
122
information on the company
ericsson annual report 2008
strategically important areas of broadband access, mobile
systems like lte, converged networks, service layer, ip
technology and multimedia. our ability to generate world-class
innovations is enhanced through cooperation with a variety of
partners including customers, universities and research
institutes.
Intellectual property rights (IPR) and licensing
through many years of involvement in the development of new
technologies, we have built up a considerable portfolio of
intellectual property rights (ipr) relating to telecommunications
technologies. as of December 31, 2008, we held approximately
24,000 (23,000) patents worldwide, including patents essential to
the standards Gsm, Gprs, eDGe, WcDma, hspa, mBms,
tD-scDma, cdma2000, WimaX and next-generation lte. We
also hold essential patents for many other areas, e.g ims, Voice-
over-ip, atm, messaging, Wap, Bluetooth, sDh/sonet, WDm
“
innovation is an
important element of our
corporate culture and is
key to our competitiveness
and future success.”
håkan eriksson, cto
and carrier ethernet.
Operational excellence in all we do
our intellectual property rights are valuable business assets.
We are convinced that operational excellence is a competitive
We license these rights to many other companies including
advantage. therefore we are continuously focusing on how to
infrastructure equipment suppliers, embedded module suppliers,
improve our internal processes, support systems and ways of
handset suppliers and mobile application developers, in return
working. our mission to take our customers forward in the best
for royalty payments and/or access to additional intellectual
possible way requires well developed change capabilities,
property rights. in addition, we acquire rights via licenses to
efficient and effective processes that consistently yield
utilize intellectual property rights of third parties. We believe that
innovative, high-quality products and services with low cost of
we have access to all related patents that are material to our
ownership.
business in part or in whole.
no matter how far we have come, we will always continue to
for more information please see risk factors, “strategic and
drive operational excellence across the company. By
operational risks” and Board of Directors’ report, “research
continuously learning from our experiences and the needs of our
and Development”.
customers we will become an even better company.
credit aB on a commission basis.
you may order any of these reports from their web site
Subsidiaries and associated companies: for a listing of our
www.bolagsverket.se. if you access these reports, please be
significant subsidiaries, please see notes to the parent company
aware that the information included may not be indicative of our
financial statements – note p9, “investments”. in addition to our
published consolidated results in all aspects. other than
joint venture with sony corporation, we are engaged in a
information related to the parent company, only consolidated
number of other minor joint ventures, cooperative arrangements
numbers for the Group totals are included in our reports.
and venture capital initiatives. for more information regarding
Filing in the US: annual reports and other information are filed
risks associated with joint ventures, strategic alliances and third
with the securities and exchange commission (sec) in the
party agreements please see risk factors, “strategic and
united states pursuant to the rules and regulations that apply to
operational risks”.
foreign private issuers. electronic access to these documents
Documents on display: We file annual reports and other
may be obtained from the sec’s website, www.sec.gov/edgar/
information (normally in swedish only) for certain domestic legal
searchedgar/webusers.htm, where they are stored in the eDGar
entities with Bolagsverket (swedish companies registration
database.
office) pursuant to swedish rules and regulations.
ericsson annual report 2008
information on the company 123
market trends
2008 was another growth year for mobile communications
with some 675 (586) million new subscriptions and approximately
as the global economy braces for a contraction in the near term,
1,190 (1,100) million mobile phones shipped. using mobile
we look longer term to the opportunities of broadband
operator capital expenditures (capex) estimates as a proxy for
everywhere and the operator investments required for network
the mobile network equipment market, we believe the mobile
transformation to all ip.
systems market grew somewhat better than the planning
network infrastructure is addressing operators’ capex while
assumption of almost zero growth in 2008.
professional services mainly addresses operators’ opex. mobile
at the end of 2008, the 4.0 (3.3) billion mobile subscriptions
phones are addressed via the sony ericsson JV directly to
worldwide represented a global subscription penetration of 59
consumers but most often with operators as distributors. mobile
(49) percent. (note: the number of actual individual mobile
platforms are sold to handset and pc manufacturers.
subscribers is significantly lower, perhaps some 15–20 percent
ericsson believes the following key technologies will drive
but possibly more, because of inactive subscriptions and people
operator spending for the next several years: mobile and fixed
having multiple subscriptions.) of these subscriptions, nearly
broadband access; ip and multi-service switching; ip multimedia
290 (180) million subscriptions were on 264 (197) mobile
subsystems (ims) based services like iptV and Voip; metro
broadband (3G/WcDma) networks, out of which ericsson is a
optical and radio transmission. ericsson expects operators to
supplier of 149 (129).
accelerate the transition from legacy technologies such as tDm
the high speed packet access (hspa) version of 3G/WcDma
(circuit) switching and atm (packet) in favor of ip- (ethernet)
is now deployed within 247 (166) commercial networks in 110 (75)
based technologies for both switching and transmission; all
countries. ericsson is a supplier of 115 (81) of these networks,
areas in which the company continues to invest heavily.
which represent the majority of hspa users. Despite this growth,
We expect the company to continue to benefit from the
the number of subscribers covered by commercial 3G/WcDma
underlying demand drivers for communications services,
networks is only around one third of those covered by 2G/Gsm
especially mobile broadband, that improve productivity and
services. this provides a significant opportunity for equipment
contribute to sustainable economic, societal and environmental
suppliers to upgrade 2G networks to 3G where ericsson has
development.
already secured a market-leading position.
Mobile communication
the company expects the number of mobile subscriptions to
grow to more than 4.5 billion during 2009. this will create
mobile communication has become the consumer service of
continued need for new and expanded mobile networks and
choice for the majority of the world’s population over the last few
corresponding professional services. although Gsm
years. We expect people to continue to use their mobile phones,
subscriptions continue to represent the majority of the mobile
even during economic downturns . and, with the opportunities
systems market, Gsm growth will slow as 3G/WcDma is
made available by high-speed mobile data services, we believe
accelerating.
there is still considerable growth potential for the mobile
communications industry.
MOBILE SUBSCRIPTIONS
MOBILE SUBSCRIPTIONS PENETRATION PER REGION
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
)
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0
2007
2008
2009
2010
2011
2012
2013
2014
140%
120%
100%
80%
60%
40%
20%
0%
%
9
% 3
9
2
Africa
%
4
2
1
%
6
1
1
%
7
% 1
0
6
9
%
9
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5
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4
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%
4
6
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7
4
Latin
America
Asia
Pacific
Eastern
Europe
Western
Europe
Middle
East
North
America
LTE
WCDMA/HSPA/TDSCMA
GSM/GPRS/EDGE
CDMA
Penetration 2007
Penetration 2008
124
information on the company
ericsson annual report 2008
Weakening economy affecting mobile
handset sales
Positive correlation between broadband
penetration and GDP levels
comments from operators suggest that economic pressures are
although emerging markets represent around one third of global
altering their priorities to pursue a number of cost reduction
GDp, our network sales in emerging markets grew an estimated
initiatives. handset replacement tends to go in tandem with
15 percent and now represents more than half of the networks
contract renewal. in mature markets this is operator driven via
sales. mature markets sales increased an estimated 4 percent.
subsidies in exchange for multi-year commitments. now, many
as already demonstrated by the mobile telephone, the ubiquitous
operators are pushing sim card-only plans to reduce subsidies
availability of affordable communication services has a positive
and preserve cash. this is slowing the demand for replacement
effect on a country’s economy. Broadband services are expected
phones especially in the mid-to-high end price range as
to show similar benefits. a higher GDp level obviously enables
consumers postpone upgrading their mobile phones. the drop in
more broadband adoption but studies of the relationship
replacement rates is most noticeable in Western europe.
between broadband penetration and economic development
in emerging markets, operators subsidize multi-sim card plans
indicate that broadband plays a fundamental role in accelerating
rather than handsets. this has stimulated the used phone market
the economic and social development of a country. however,
rather than curtailing subscription growth or mobile phone usage.
inadequate fixed network infrastructure and low pc penetration
With inflationary and other economic pressures rising in these
inhibits fixed broadband adoption in most emerging markets.
markets, consumers are buying more used-phones or repairing
mobile broadband networks along with suitable devices and
the ones they have. there are many small enterprises whose
appropriate applications can improve broadband penetration by
business is retailing/wholesaling refurbished phones or repairing
avoiding the relatively more expensive and time consuming
phones for consumers.
deployments of fixed network technologies.
sony ericsson is responding to the decreasing demand and
increased price competition with a eur 480 million annual cost
reduction program with full effect expected by the second half of
2009.
ericsson annual report 2008
information on the company 125
Fixed and mobile broadband main
market driver
Broadband access creates bottlenecks in other
parts of the network
We expect the number of fixed and mobile broadband
the deployment of access nodes that can connect devices at
subscriptions to increase by a factor of 7 between 2008 and
ever faster speeds quickly creates bottlenecks in other parts of
2014 to almost 3.5 billion. Broadband internet access
the network with subscriber uptake. the increased capacity of
revenues for fixed operators (including cable operators) are
the access nodes brings pressure on the backhaul part of the
expected to grow from 20 percent to 35 percent of total
transport network. the additional backhaul capacity must be
revenues in the next five years. similarly, data’s share of
provided more dynamically and more efficiently than possible
mobile operators’ revenue, which is currently some 20
with traditional backhaul solutions. support for multiple services
percent, is expected to account for a progressively more
is required to ensure continuity for existing services as well as
significant portion of global mobile revenues over the next
new services. this enables operators to maximize investments in
five years.
existing infrastructure. the dynamic nature of multi-service
these projections assume the cost for mobile data services
broadband access along with the mix of services will require
aligns with subscriber expectations, i.e. data must be priced
changes in the network technology used – ip/ethernet via optical
lower than voice when comparing the amount of bandwidth
fiber or microwave radio transmission will become the transport
consumed. operator revenues will likely become uncoupled
technology of choice. ericsson already has a market leading
from the traditionally linear returns on capacity provisioning
position in microwave radio systems and with the acquisitions of
for voice minutes of use growth. hence, operators may
marconi and redback is now well positioned with optical
implement cost-efficient solutions for delivering more
transmission systems and ip/ethernet products.
network capacity with revenues based on service value rather
than the amount of capacity. this motivates a new generation
network that offers fixed and mobile convergence and
leverages ip technology for a lower cost, higher performance
broadband service.
BROADBAND SUBSCRIPTIONS
MOBILE TRAFFIC, vOICE AND DATA
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3,500
3,000
2,500
2,000
1,500
1,000
500
0
2007
2008
2009
2010
2011
2012
2013
2014
30
25
20
15
10
5
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Mobile PC
Mobile Handheld
Mobile Voice
2008
2009
2010
2011
2012
2013
2014
Fixed
Mobile
Subscriber traffic on mobile access networks
126
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ericsson annual report 2008
The future of TV
the vision of the television industry is a simple one: to let you
Mobility is changing the Internet
today, less than 40 percent of mobile subscribers also use the
watch whatever you want, whenever you want, and wherever you
internet. however, the increasing use of high-speed applications
want, as well as to help you discover what else might be
in the fixed environment is stimulating a parallel expectation on
interesting to watch and to share your favorites as well as
the mobile side. When people become accustomed to using
comments with other people. We believe that the best way to
bandwidth-intensive applications at home or in the office, they
achieve this is to use internet technology enhanced with telecom
tend to want them everywhere they go.
grade performance.
multimedia-capable mobile internet devices and affordable
consumers are already using the internet to find new ways of
mobile broadband access are harbingers of change. users will
accessing tV with interactive on-demand capabilities a basic
be able to create and discover content of personal interest and to
expectation. Despite this trend, we do not expect operators to
instantaneously share ideas and information with friends and
become marginalized as bit pipe providers. efficient bit pipes will
colleagues. We see mobile internet devices helping to accelerate
be needed, but to differentiate their services, operators will need
consumer demand for wireless internet access.
to continue to leverage their network capabilities and this is
this will have the greatest impact on emerging markets where
where ims comes into play to provide the reliability and
household penetration of pcs is slightly more than 10 percent
combination of services required for differentiated services and
compared with 60 percent in mature markets. and there are
applications.
more than three times as many households in emerging markets
today some 850 million households have television services of
as in mature ones. the company has established a product unit
which only 20 million are currently served by iptV. this number is
to provide mobile broadband connectivity for notebook pcs and
expected to grow to above 100 million by end of 2014. in the
mobile internet devices. three of the world’s largest notebook
same time period, Dsl- based broadband access is forecasted
manufacturers are already using ericsson embedded modules. in
to grow from some 270 million to 400 million households while
addition, intel, among others, has signed an agreement to use
cable-tV-based broadband access is estimated to almost
ericsson’s mobile broadband technology.
double from 90 million to 175 million households. fttx-based
broadband access is estimated to increase from 25 million
households to some 90 million households. Building on the
acquisitions of tandberg television and entrisphere, the
company continues to invest for a leading position in iptV and
fttx broadband access.
FIXED DATA TRAFFIC – LAST MILE
1,600
1,400
1,200
1,000
800
600
400
200
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2008
2009
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2011
2012
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2014
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2007
2008
2009
2010
2011
2012
2013
2014
Fixed IPTV traffic - last mile access
Fixed Internet traffic - last mile access
ericsson annual report 2008
information on the company 127
Convergence and network
transformation in focus
ongoing operator consolidation, especially in Western europe,
where the technology shift for more efficient networks, as well as
placing greater emphasis on smarter networks and bundled
changing regulations, such as price caps for roaming and lower
service offerings, operators have accelerated the conversion to
call termination fees, is affecting operator willingness and need
all-ip broadband networks with increased deployments of
to increase network investments in the near term. this trend is
broadband access, routing and transmission along with next-
most pronounced for highly penetrated Gsm networks, in which
generation service delivery and revenue management systems to
demand for upgrades and expansions has rapidly diminished as
enable a better service to main customer segments – business,
operators spend more to expand and enhance their 3G networks.
consumer and wholesale – as each requires a different and
Despite the trend of operator consolidation across many
varying mix of fixed, mobile and converged services.
regions, the number of mobile operators within a region has
ericsson has developed a network architecture that meets
actually increased except in the americas over the past several
consumer desire as well as operator requirements for converged
years. the introduction of mobile number portability in many
services and covers the device ecosystems, fixed and mobile
markets has simplified service substitution, leading to fierce
broadband access, transport, control, applications, revenue
competition and declining market shares for the top two players
management, services and operations management. all of the
in each market. consequently, mobile operator margins are
components have been integrated for a high performance and
under pressure from the more intense competition which drives a
scalable end-to-end solution. ericsson’s full-service broadband
need for lower costs to compensate.
solution has been built from in-house development, e.g. mobile
network sharing offers potentially significant capex and opex
broadband and ims, complemented by the acquisitions of ip
savings to operators. however, the overall impact of network
routing products (redback), optical transport (marconi), deep
sharing should ultimately be neutral for mobile equipment
fiber access systems (entrisphere) and iptV (tandberg).
vendors. to a certain extent, short-term disruption of capital
furthermore, the company has developed a comprehensive
expenditure plans or re-negotiation of contracts with the network
network transformation service that leverages professional
sharing companies may be somewhat compensated by
services such as business consulting and systems integration.
increased sales of professional services, especially network
Operator consolidation and network sharing
buildout and an earlier entry into expansion phases. over the
operator consolidation continues across all regions. in the
longer term, the majority of savings will come from shared plant
americas, consolidation has substantially reduced the number of
and property rather than the equipment, as the equipment still
operators. in europe, mergers continue as well as other types of
has to be dimensioned for the peak traffic demand of the
integration and managed operations as well as faster coverage
combinations, such as network sharing and outsourcing of
combined networks.
network operations. in other regions, operator consolidation has
led to the emergence of rapidly growing pan-regional operators,
particularly in the cema markets (central and eastern europe,
middle east and africa).
ARCHITECTURE CONCEPT-NETWORK TRANSFORMATION
Service Network
Core Network
Fixed broadband
access
Mobile broadband
access
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BEFORE
NOW
Connectivity to any device
128
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ericsson annual report 2008
Opportunities for managed services
another form of consolidation is outsourcing of network
strengthened their balance sheets, growth expectations are more
realistic and network utilization is materially higher. capital
operations where an operator is able to tap into the global scale
intensity has been at historically low levels with many major
offered by a company like ericsson via managed services.
operators for several years. We expect slowing GDp to cause
ericsson is well positioned to benefit from operator consolidation
less than proportionate declines in mobile and broadband
with a suite of solutions for network sharing, a well proven
revenue. We believe this for several reasons: 1) there are better
capability for outsourcing network operations and strong
substitutes for traditional fixed telephone services (e.g. mobile,
presence with consolidating companies.
compared with network deployment services, which tend to
grow more or less in line with the equipment market, demand for
managed services (i.e., network operation and hosting services)
as well as systems integration is growing more rapidly. the
potential market for network operation services is larger than the
potential market for network equipment and related deployment
services. a mature operator is estimated to typically spend some
Voip) than previously; 2) term contracts and bundling make it
more difficult (or at least slower) for subscribers to reduce
spending; and 3) mobile communications and the internet are
much more pervasive and engrained in today’s society. While
most regional markets are resilient so far, some operators in
Western europe have shown a progressive deterioration in their
business during the year, which has negatively affected suppliers,
especially mobile phone manufacturers including sony ericsson.
5–6 percent of annual sales on network equipment, but spends
there are, however, several aspects similar to prior downturns,
approximately 10–12 percent of sales to operate its network.
such as capital preservation. operators’ need for free cash flow
more than two thirds of network operation expenses today are
was the primary cause of the declines in both fixed and mobile
believed to be handled in-house by operators but network
spending on network equipment in 2001–2003 while
operation is increasingly being outsourced as operators realize
overcapacity played a secondary role. We expect a similar
the competitive advantages and potential cost savings. the
dynamic in this economic cycle, but less dramatic.
market for such managed services is thus expected to continue
We understand that certain operator spending, for example in
to show good growth prospects.
network upgrades, is subject to deferrals if not cancellations.
Effects of the macro-economic slowdown
it is too early to say how the economic recession will affect
even capacity expansions can be suspended for a period of time
if operators choose to lower service quality levels. this was the
case also 2001–2003. however, if operators do not keep their
ericsson’s business development but operational efficiency, a
networks up to date, they run a risk of higher opex and customer
market leading position, scale and a solid balance sheet place the
churn negatively affecting revenues as well as earnings.
company in a good position to meet tougher market conditions.
the macro-economic developments are externally driven and
Despite similarities to the 2001–2003 market downturn, we do not
beyond the control or the influence of the company. But the
anticipate as major of a slowdown for the mobile telecoms
company does control the cost structure and is adjusting to a
industry. several factors leading to the last downturn in operator
challenging market environment to manage through a prolonged
capex are not in place today. operators have significantly
global recession.
OPERATOR REvENUES vS GDP AND CHANGE IN CAPEX
30%
20%
10%
0%
-10%
-20%
-30%
-40%
0
8
9
1
2
8
9
1
4
8
9
1
6
8
9
1
8
8
9
1
0
9
9
1
2
9
9
1
4
9
9
1
6
9
9
1
8
9
9
1
0
0
0
2
2
0
0
2
4
0
0
2
6
0
0
2
8
0
0
2
Nominal GDP growth
Operator total revenue growth
Capex growth
ericsson annual report 2008
information on the company 129
Business overview
Business segments (primary)
and pcs and can easily be upgraded with the latest radio
technology to support new revenue streams at the same time as
maintaining existing mobile business. these solutions support
ericsson is a telecommunications company developing and
different standardized mobile technologies on the same
selling a variety of solutions aimed largely at customers in the
platform, which simplifies for operators to manage the ever more
telecommunications industry. When determining our business
complex mobile business cost-efficiently and with less effort.
segments, we have looked at which market and to what type of
the recent expansion of our wireline broadband access
customers our products and services are aimed, and through
offering, enabled by our acquisitions of marconi and entrisphere,
what distribution channels they are sold as well as to
has been an important step in reinforcing our ability to address
commonality regarding technology, research and development.
network operators as they begin integrating their fixed and mobile
to best reflect our business focus and to facilitate comparability
networks. We provide wireline access solutions, based on both
with peers we report four business segments:
• networks.
• professional services.
• multimedia.
• phones – the joint venture sony ericsson.
Segment Networks
Business segment networks includes products and solutions for
wireless and wireline access, core networks and transmission as
well as management systems. related network rollout services
are also included.
segment networks accounted for 68 percent of total sales in
2008.
Wireless and wireline access
ericsson provides wireless access solutions to network
operators that enable reliable, efficient and cost effective mobile
telephony networks as well as wireless broadband for mobile,
nomadic and fixed users in urban and rural areas. our leadership
in Gsm, WcDma/hspa and lte technologies grants us to offer
tailored solutions to network operators, regardless of the
existing network standard used. our radio access networks are
interconnecting with devices such as mobile phones, notebooks
“
our mini-linK micro-
wave radio systems is
one of the world’s most
widely deployed mobile
backhaul solutions.”
Johan Wibergh,
head of Business unit networks
fiber and copper, which make it possible for operators to
efficiently modernize or expand their fixed access network
business and thereby enable them to offer attractive user services
such as high Definition tV, Video on Demand and other ip-based
services with high demand on bandwidth and cost-efficiency.
IP core network (switching, routing and control)
the evolution to ip starts in the core network. our core network
solutions include industry-leading softswitches, ip infrastructure
for edge and core routing, ip-based multimedia subsystem (ims)
and gateways. our acquisition of redback networks has further
strengthened our ip product portfolio with broadband routers to
manage broadband, 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
products have industry-leading scalability and capacity. many of
our core network switching systems are built upon common
platforms.
ericsson ip multimedia subsystem (ims) is a complete end-to-
end offering that enables consumers to access the same content
and services using a multitude of access technologies and
devices. ims is an open service layer and control platform that
enables standardized services and enablers such as rich
communication suite, multimedia telephony etc. since our ims
solution is common for both fixed and mobile networks,
converged services can be transparently provided independent
of the type of access.
Transmission
microwave and optical transport solutions provide cost-effective
management of voice and data traffic for both fixed and mobile
networks. our mini-linK micro-wave radio systems is one of the
world’s most widely deployed mobile backhaul solutions and,
complemented with the wireline access and optical portfolio
based on fiber and copper, we offer operators cost-efficient and
scalable transport solutions supporting the increasing mobile
broadband traffic. transport networks (e.g. mini-linK, metro
optical networks) are essential elements of our end-to-end
solutions.
130
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ericsson annual report 2008
Network rollout services
Education
fast rollout of large volumes involves a heavy ramp-up of
We provide our customers with tailored education programs to
resources. ericsson’s Global services organization uses a mix of
ensure that their employees have the skills and competence
local, in-house capabilities, subcontractors and central
necessary for managing today’s and tomorrow’s complex
resources. We manage our capabilities in a way that has proven
technologies.
to be highly successful, providing precise projects and satisfied
customers.
Customer support services
Segment Professional Services
ericsson’s professional services capabilities include expertise in
managed services, systems integration, consulting, education
and customer support services.
segment professional services accounted for 23 percent of
total sales in 2008.
Managed services
We offer the most comprehensive managed services capabilities
within the telecom industry. through outsourcing our customers
can reduce cost of operations and gain flexibility in resources
and shorten time to market – all with an assured quality of
service. our offering covers
• 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 service layer platforms and applications; we enable
operators to launch new services in a simple, fast and cost-
effective manner.
having experienced professionals available around-the-clock to
provide customer support is a crucial part of our service offering.
our staff, across the world, supports operators that in total have
over 1 billion customers. Giving advice on how to maximize
efficiency in day-to-day operations ensures network uptime and
lowers total cost of ownership.
Segment Multimedia
ericsson provides the enablers and the applications operators
and service providers require in order to deliver a richer user-
experience. We understand the new multimedia ecosystem and
with the growing demand for enriched communication and
personalized content the mass market for multimedia services
are rapidly increasing. users want services that can be delivered
seamlessly over any screen, at any time, anywhere.
segment multimedia accounted for 9 percent of total sales in
2008.
TV solutions
We enable the future of digital television through technology
We are the industry leader in managed services, managing
leadership, an open architecture, and integrated hardware and
networks with 250 million subscribers. since managed services
software solutions. our end-to-end tV solution provides the
are often signed as multi-year agreements, a major part of
technology, services and offerings necessary for successful
managed services sales is of a recurring nature.
traditional (linear), on-demand or podcast tV, making an
Systems integration
operators can minimize risk by engaging ericsson to integrate
equipment from multiple suppliers and handle technology change
programs, as well as to design and integrate new solutions. more
and more operators who introduce multimedia services or face
challenging technology transformations are asking us to serve as
a prime integrator, i.e. acting as the primary interface and
program manager, ensuring successful deployment of the total
solution.
Consulting
our consultants with expertise in business and technology
strategy support our customers in the decision-making, planning
and execution to improve and grow their business. our industry
programs package the expertise into end-to-end solutions in the
key areas of multimedia, 3G rollout, broadband, value creation
and revenue assurance.
individual tV experience possible at home or on the move, via a
mobile phone or a laptop. our end-to-end solution provides
“
through outsourcing our
customers can reduce
cost of operations and
gain flexibility – all with an
assured quality of service.”
Jan frykhammar,
head of Business unit Global services
ericsson annual report 2008
information on the company 131
opportunities for all players in the tV field – operators and service
and service providers to effectively and efficiently create, sell,
providers, advertisers as well as content providers.
and manage multimedia services and multi-play offerings, closely
ericsson is a founding member of the open iptV forum and
interacting with standard services and Bss/oss (business/
continues to drive industry-wide standardization in bodies
operations support systems) management systems.
working with tV-enabling technologies, such as ims and Dlna
thanks to our ability to combine products, solutions, systems
(Digital living network alliance).
integration and business consulting into one offering we are able
to create a multimedia marketplace according to each customer’s
Consumer and business applications
specific needs.
We provide our customers with the latest multimedia solutions for
both the consumer and the business communication market. for
Revenue management
the consumer segment we offer video and mobile tV solutions,
We are a leading provider of revenue management solutions. We
enriched messaging, community communications and location-
help our customers capture and secure their revenue streams
based services like “family finder” or finding the nearest
and leverage the business opportunities, by providing expertise
restaurant. in the business communication segment we provide
and solutions to manage the revenues from traditional services
network operators with converged, fixed-mobile, business
like voice and sms as well as multimedia services.
communication solutions to target enterprises’ needs for cost
one of the leading solutions within revenue management is
control, accessibility and staff efficiency.
convergent charging and billing that enables operators to handle
Multimedia brokering
our multimedia brokering offering, based on ipX, is serving more
than 1,000 content, services, and media companies. With live
premium services in 25 countries, our solution reaches two billion
subscribers and our messaging service covers more than 500
networks reaching more than 96 percent of all mobile phone
users worldwide.
We offer leading multimedia brokering solutions – facilitating
payment and distribution of content by seamlessly
interconnecting content and media companies, information and
search services as well as consumer brands and a variety of
enterprises with the network operators.
Service delivery and provisioning
our service delivery and provisioning platforms enable operators
“
users want services that
can be delivered seamlessly
over any screen, at any time,
anywhere – and we have the
enablers and solutions to
provide this.”
Jan Wäreby, head of Business unit multimedia
all users and services in the same way, independent of payment
options or access technologies. We are gaining momentum from
our majority stake in lhs.
Mobile platforms
We are a leading supplier of platform technology for Gsm/eDGe
and WcDma/hspa used in devices such as mobile handsets,
pc-cards, and other mobile devices. ericsson licenses open-
standard, end-to-end interoperability tested Gsm/eDGe and
WcDma/hspa technology platforms.
in august 2008, ericsson and stmicroelectronics announced
plans to establish a joint venture which will have one of the
industry’s strongest product offering in semiconductors and
platforms for mobile devices.
Segment Phones
sony ericsson delivers innovative and feature-rich mobile
phones, accessories and pc-cards, which allow us to provide
end-to-end solutions to our customers. the joint venture, formed
in october 2001, combines the mobile communications expertise
of ericsson with the consumer electronic devices and content
expertise of sony corporation and forms an essential part of our
end-to-end capability for mobile multimedia services.
sony ericsson is responsible for product design and
development, as well as marketing, sales, distribution and
customer services.
sales for sony ericsson are not included in our reported sales,
as their operating results are reported according to the equity
method under “share in earnings of joint ventures and associated
companies” in the income statement.
please also see notes to the consolidated financial
statements – note c3, “segment information”.
132
information on the company
ericsson annual report 2008
Geographical segments (secondary)
scale associated with market share leadership give us
We group sales into five geographical segments; Western
competitive advantages. Global presence is an important factor,
europe, cema (central and eastern europe, middle east and
particularly when working as a business partner to operators
africa), asia pacific, north america and latin america.
working in multiple markets or globally. We are utilizing our strong
there is a good distribution of sales between geographical
international reach and core competence in mobile and fixed
segments, mitigating volatility, as a decrease in one area is often
communications to expand into growth areas such as systems
offset by an increase in another. in addition, no individual country
integration, service applications and managed services, as well
accounts for more than 8 percent of sales. the segments have
as to develop alliances with suppliers and manufacturers in many
different characteristics in terms of penetration of fixed and
countries in order to increase our combined effectiveness.
mobile telephony, network traffic, sophistication of services and
average country GDp and other economic factors.
Customers
We strongly believe that affordable and generally available
We are supplying equipment, integrated solutions and services to
telecommunication services are a prerequisite for social and
almost all major operators globally. We derive most of our sales
economic development, which improves the welfare of all people
from large, multi-year agreements with a limited number of
in any given country. as one of the world’s largest providers of
significant customers. out of a customer base of more than 425
communications equipment and services, we have implemented
network operators, the ten largest customers account for 42 (42)
a strict trade compliance program throughout the company in
percent of our net sales, while the 20 largest customers account
order to comply with foreign and domestic laws and regulations,
for 61 (58) percent of our net sales. our largest customer
trade embargoes and sanctions in force. in no way should our
accounted for approximately 6 (6) percent of sales during 2008.
business activities be construed as supporting a particular
our customers have different needs in interacting with us,
political agenda or regime.
SALES PER REGION AND SEGMENT 2008
profess-
ional
multi-
networks services media
ranging from support in identifying and capturing business
opportunities to complex system deliveries including systems
integration or outsourced operation of the customer’s network to
simple add-on deliveries of equipment or spare parts to “do-it-
total
yourself” fulfillment. We use three different sales approaches that
seK million
Western europe
cema 1)
asia pacific
latin america
north america
Total
25,642
38,364
49,843
16,096
12,105
18,537
9,843
10,507
5,522
4,569
51,570
7,391
4,873 53,080
2,957 63,307
1,430 23,048
17,925
1,251
acknowledge these different needs;
• project sales – interactive relationship selling with high
involvement of the customer to identify and capture business
opportunities, where the solution is not known at the point of
142,050 48,978
17,902 208,930
sales,
1) central and eastern europe, middle east and africa.
Market environment
• system sales – interactive relationship selling of solutions
configured for specific customer needs, and
• product sales – the outcome of relationship sales and frame
agreements, where customers may call-off well-defined
Long-term customer relationships and global scale
products and services electronically.
We have been present in most of our markets for more than 100
years, building strong, long-term relationships with the world’s
leading operators. our scale advantage, end-to-end offerings,
and a local presence in every major market enable us to serve as
a true partner for cost-effective delivery of solutions and support
to a diverse base of customers. as operators are striving to
reduce the number of different key suppliers they rely on, the
responsiveness of our employees and the power of our portfolio
of products and services are key to our future success.
We work closely with our customers to understand their
businesses and technology needs, and provide tailored solutions
to help them fulfill their business objectives. our expertise and
experience in all major telecommunication standards along with
our proven track record for quality and innovation have allowed
“
We work closely with our
customers to understand
their needs and help them
fulfill their business
objectives.”
us to develop our business on a worldwide basis. We believe that
torbjörn possne, head of sales and marketing
our widespread geographical presence and the economies of
ericsson annual report 2008
information on the company 133
system sales has historically been our most common sales
emerge, possibly including some network operators attempting
approach to best meet our customers’ needs, however, as their
to expand into new segments.
needs evolve, the two other sales approaches will grow in
in the multimedia segment, our competitors vary widely
importance.
depending on the product or service being offered, and we face
for more information, see risk factors, “risks associated with
significant competition for substantially all of these products and
the industry and market conditions”.
services. competitors include many of the traditional
Seasonality
communication equipment suppliers mentioned above as well as
companies from other industries, such as acision, amdocs,
our quarterly sales, income and cash flow from operations are
comverse, harmonic, oracle and thomson.
seasonal in nature and generally lowest in the first quarter of the
Within the segment phones, the primary competitors include
year and highest in the fourth quarter. this is mainly a result of
nokia, motorola, samsung and a number of other companies
the seasonal purchase patterns of network operators. the table
such as lG electronics, nec and sharp as well as companies
below illustrates the long-term average seasonal effect on sales
like apple, htc and rim for smartphones. We believe that our
for the period 1994 through 2008.
mobile phone joint venture with sony corporation creates a
15-YEAR AvERAGE SEASONALIT Y
first second
fourth
quarter quarter quarter quarter
third
distinctive competitive advantage.
for more information, see risk factors, “risks associated with
the industry and market conditions”.
sequential change
share of annual sales
–26%
21%
16%
24%
–4%
23%
32%
31%
supply
the table below illustrates the average seasonal effect on sales
for the last three years.
Manufacturing and assembly
MOST RECENT 3-YEAR AvERAGE SEASONALIT Y
first second
fourth
quarter quarter quarter quarter
third
sequential change
share of annual sales
–18%
22%
12%
24%
–5%
23%
31%
30%
Competitors
most of our node production, i.e., assembly, integration and
testing of modular subsystems into complete system nodes such
as radio base stations, mobile switching centers etc., is done
in-house. the major part of our module production, i.e.,
production of subsystems such as circuit boards, radio frequency
(rf) modules, antennas etc., is outsourced to a group of
electronics manufacturing services companies (ems), of which
the vast majority is in low-cost countries.
in networks, we compete mainly with large and well-established
We also purchase customized and standardized equipment,
communication equipment suppliers. although competition varies
components and services from several global providers as well
depending on the products, services and geographical regions,
as from numerous local and regional suppliers. a number of our
our most significant competitors in mobile communication include
suppliers design and manufacture highly specialized and
alcatel/lucent, huawei, nokia/siemens and Zte. With respect to
customized components for our end-to-end solutions as well as
fixed communications equipment, the competition is also highly
for individual nodes.
concentrated and includes, among others, alcatel/lucent, cisco,
We generally attempt to negotiate global supply agreements
huawei and nokia/siemens. We also compete with numerous
with our primary suppliers. While we are not dependent on any
local and regional manufacturers and providers of communication
one supplier for the provision of standardized equipment or
equipment and services. We believe the most important
components and seek to avoid single source supply situations, a
competitive factors in this industry include existing customer
need to switch to an alternative supplier may require us to
relationships, the ability to cost-effectively upgrade or migrate an
allocate additional resources to ensure that our technical
installed base, technological innovation, product design,
standards and other requirements are met. this process could
compatibility of products with industry standards, and the
take some time to complete. accordingly, a need to switch to an
capability for end-to-end systems integration.
alternative supplier could potentially have an adverse effect on
competition in professional services includes not only many of
our operations in the short term. for more information, see risk
the traditional communication equipment suppliers mentioned
factors, “strategic and operational risks”.
above, but also a number of large companies from other industry
We intend to continue to outsource module production where
sectors, such as is/it, for example accenture, hp/eDs and iBm
adequate manufacturing capacity and expertise are available on
as well as a large number of smaller but specialized companies
favorable terms. such outsourcing of the major part of volume
operating on a local or regional basis. as the professional
module manufacturing provides us greater flexibility to adapt to
services segment grows, we expect to see additional competitors
economic and market changes. the timing and level of
134
information on the company
ericsson annual report 2008
outsourcing is a balance between short-term demand and
longer-term flexibility.
organization
We manage our own production capacity on a global basis by
Company structure and organization
allocating production to sites where capacity is available and
ericsson is organized in business units, market units and group
costs are competitive. We work with shortening of lead-times and
functions. Business units are innovators, developers and
regionalization in order to reduce total distribution cost and co2
suppliers of high-quality products, services and customer
emission. at year-end 2008, our overall utilization was close to
offerings. market units are marketing & sales channels and the
100 percent as we continuously adjust our production capacity
company’s representative in the local market environment.
to meet expected demand. the table “primary manufacturing
Group functions coordinate the company’s strategies, operations
and assembly facilities” summarizes where we have our major
and resource allocation and define the necessary directives,
manufacturing and assembly facilities as well as the total square
processes and organization for the effective governance of the
meters of floor space at year-end. in sweden, the majority of the
Group.
floor space within our production facilities is used for node
for more information please see, corporate Governance
assembly and verification.
report, “company structure and organization”.
Sources and availability of materials
We purchase components, ready-made products and services
from a significant number of domestic and foreign suppliers.
Changes in the Organization:
• on may 1, 2008, ericsson divested its enterprise pBX solutions
to aastra technologies.
Variations in market prices for copper, aluminum, steel, precious
metals, plastics and other raw materials have a limited effect on
our total cost of goods sold. to a limited extent, we are involved
Changes in the Group Management Team:
• as per January 1, 2008, Jan frykhammar was appointed
senior Vice president and head of business unit Global
in the production of certain components such as power modules
services and was included in the Group management team.
and cables, which are used in our systems products as well as
• as per february 1, 2008, torbjörn possne was appointed
sold externally to other equipment manufacturers.
senior Vice president and head of group function sales and
to the extent possible, we rely on alternative supply sources
for the purchased elements of our products to avoid sole source
marketing and was included in the Group management team.
• as per July 1, 2008, Johan Wibergh was appointed senior Vice
situations and to secure sufficient supply at competitive prices.
president and head of business unit networks and was
assuming there will only be moderate increase in market
included in the Group management team.
demand, we do not foresee any supply constraints to meet our
• as per July 1, 2008, Kurt Jofs and Björn olsson left the Group
expected production requirements during 2009. for more
management team.
information, see risk factors, “strategic and operational risks”.
• as per December 31, 2008, Joakim Westh left the Group
management team.
for more information about management, please see notes to
the consolidated financial statements – note c29, “information
regarding employees, members of the Board of Directors and
management”.
PRIMARY MANUFACTURING AND ASSEMBLY FACILITIES
sweden
china
italy
Brazil
Germany
india
usa
other
Total
2008
sites sq meters
2007
sites sq meters
2006
sites sq meters
2005
sites sq meters
8
4
2
1
1
1
1
0
226,000
38,500
20,100
18,000
300
9,000
5,000
0
8
4
2
1
1
1
1
0
244,300
33,900
20,100
25,900
300
6,400
5,000
0
8
3
2
1
1
1
1
1
231,500
20,860
20,100
18,400
13,900
5,364
5,000
3,100
9
3
0
1
0
1
0
0
256,615
15,200
0
15,840
0
5,364
0
0
18
316,900
18
335,900
18
317,560
14
293,019
ericsson annual report 2008
information on the company 135
forward-looking statements
this annual report includes “forward-looking statements”,
electromagnetic fields, cost of radio licenses for our customers,
including statements reflecting management’s current views
allocation of radio frequencies for different purposes and
relating to the growth of the market, future market conditions,
results of standardization activities within telecommunications;
future events and expected operational and financial
performance. the words “believe”, “expect”, “anticipate”,
“intend”, “may”, “could”, “plan”, “estimate”, “will”, “should”,
“could”, “aim”, “target”, “might” or, in each case, their negative,
• the effectiveness of our strategies and their execution,
including partnerships, acquisitions and divestitures;
• financial risks, including changes in foreign exchange rates or
interest rates, lack of liquidity or access to financing, changes
and similar words are intended to help identify forward-looking
in tax liabilities, credit risks in relation to counterparties,
statements. forward-looking statements may be found
customer defaults under significant customer finance
throughout this document, but in particular in the sections
arrangements and risks of confiscation of assets in foreign
captioned “Board of directors’ report” and “information on the
countries;
company”, and include statements regarding:
• our goals, strategies and operational or financial performance
• the impact of the consolidation in the industry, and the
resulting (i) reduction in the number of customers, and adverse
expectations;
• development of corporate governance standards, stock market
regulations and related legislation
• the growth of the markets in which we operate;
• our liquidity, capital resources, capital expenditures and our
credit ratings and the development in the capital markets,
affecting our industry;
consequences of a loss of, or significant decline in, our
business with a major customer; (ii) increased strength of a
competitor or the establishment of new competitors;
• the impact of changes in product demand, price erosion,
competition 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
• the expected demand for our existing as well as new products
not sell at the rates or levels we anticipate;
and services;
• the expected operational or financial performance of our sony
ericsson and st ericsson joint ventures and other strategic
cooperation activities;
• technology and industry trends including regulatory and
standardization environment, competition and our customer
structure; and
• our plans for new products and services including research
• 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 license them to others and defend them
against infringement, and results of patent litigation;
• supply constraints, including component or production
capacity shortages, suppliers’ abilities to cost effectively
and development expenditures.
deliver quality products on time and in sufficient volumes, and
risks related to concentration of proprietary or outsourced
although we believe that the expectations reflected in these and
production in a single facility or sole source situations with a
other forward-looking statements are reasonable, we cannot
single vendor; and
assure you that these expectations will materialize. Because
• our ability to successfully manage operators’ networks to their
forward-looking statements are based on assumptions,
satisfaction with satisfactory margins;
judgments and estimates, and are subject to risks and
uncertainties, actual results could differ materially from those
described or implied herein. important factors that could affect
• our ability to maintan a strong brand and good reputation and
to be acknowledged for good corporate governance practices;
• our ability to recruit and retain qualified management and other
whether and to what extent any of our forward-looking
key employees.
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
market and other general market conditions in a cost effective
“risk factors”. we undertake no obligation to publicly update or
and timely manner;
• developments in the political, economic or regulatory
revise any forward-looking statements included in this annual
report, whether as a result of new information, future events or
environment affecting the markets in which we operate,
otherwise, except as required by applicable law or stock
including trade embargos, changes in tax rates, changes in
exchange regulation.
patent protection regulations, allegations of health risks from
136
forward-looking statements
ericsson annual report 2008
share information
stock exchange trading
Share data
2008
2007
2006
2005
2004
ericsson’s class a and class B shares are traded on nasDaQ
omX stockholm and in the united states, the class B shares are
traded on nasDaQ in the form of american Depositary shares
(aDs) evidenced by american Depositary receipts (aDr) under
the symbol eric. each aDs represents one class B share.
on april 15, 2008, the ericsson class B-share was de-listed from
the london stock exchange.
approximately 20 (44) billion shares were traded in 2008, of
which about 84 (83) percent on nasDaQ omX stockholm and
about 16 (16) percent on nasDaQ. trading volume in ericsson
shares decreased by approximately 54 percent on nasDaQ omX
stockholm and decreased by approximately 58 percent on
nasDaQ as compared to 2007. (note that ericsson had a
reversed split of shares 1:5, and a B-share/aDs ratio change
from 10:1 to 1:1, in 2008.)
share price trend
in 2008, ericsson’s total market value decreased by about 22 (45)
percent to approximately seK 191 billion (seK 245 billion in
2007). the omXsp index on nasDaQ omX stockholm
decreased by 42 percent, the nasDaQ telecom index (cutl)
decreased by approximately 43 percent and the nasDaQ
composite index (ccmp) decreased by approximately 41 percent
in 2008.
7.47
9.50
6.84
3.52
earnings per share,
diluted (seK) 1) 3)
operating income
per share (seK) 1) 3)
cash flow from operating
activities per share (seK) 1) 3) 7.50
stockholders’ equity
per share (seK) 1) 3)
p/e ratio, class B
11
shares 1)
total shareholder return 1) 3) –0.18 –0.44
2.50
Dividend per share (seK) 2) 3) 1.85
5.95
17
8.23
7.64
5.54
11.10 10.25
8.30
5.75
5.15
6.95
17
0.02
2.50
18
0.31
2.25
19
0.64
1.25
44.21 42.17 37.82 32.03 25.40
1) for 2004 restated in accordance with ifrs.
2) for 2008 as proposed by the Board of Directors.
3) for 2004, 2005, 2006 and 2007 restated for reverse split 1:5 in 2008.
Share priceS on naSdaQ omx Stockholm
(Sek)
2008
2007
2006
2005
2004
class a at last day
of trading 1)
class a high for year
(may 19, 2008) 1)
class a low for year
(october 10, 2008) 1)
class B at last day
of trading 1)
class B high for year
(may 19, 2008) 1)
class B low for year
(october 10, 2008) 1)
59.30 76.80 138.00 137.50 108.50
83.60 148.50 154.50 143.50 130.50
40.60 73.00 104.50 99.00 70.00
58.80 75.90 138.25 136.50 106.00
83.70 149.50 155.00 145.00 122.50
40.60 72.65 104.50 97.00 63.50
1) for 2004, 2005, 2006 and 2007 restated for reverse split 1:5 in 2008.
Share trend, naSdaQ omx Stockholm,
Share trend, naSdaQ omx Stockholm,
2005–2008 (Sek)
JanUarY–decemBer 2008 (Sek)
200
150
100
75
50
90
80
70
60
50
40
30
2005
2006
2007
2008
Jan
Feb
Mar
Apr
May
Jun
Jul Aug
Sep
Oct
Nov Dec
Class B share, SEK
OMXSP Index
Class B share, SEK
OMXSP Index
ericsson annual report 2008
share information 137
offer and listing details
NASDAQ OMX Stockholm and NASDAQ
Principal trading market – NASDAQ OMX Stockholm
share prices
period
the table to the right states the high and low sales prices for our
class a and class B shares as reported by nasDaQ omX
stockholm for the last five years. the equity securities listed on
the nasDaQ omX stockholm official price list of shares
currently comprise the shares of 263 companies. trading on the
exchange generally continues until 5:30 p.m. (cet) each
business day. in addition to official trading on the exchange,
there is also trading off the exchange during official trading hours
and also after 5:30 p.m. (cet). trading on the exchange tends to
involve a higher percentage of retail clients, while trading off the
exchange often involves larger swedish institutions, banks
arbitraging between the swedish market and foreign markets,
and foreign buyers and sellers purchasing shares from or selling
shares to swedish institutions.
nasDaQ omX stockholm publishes a daily official price list of
shares which includes the volume of recorded transactions in
each listed stock, together with the prices of the highest and
lowest recorded trades of the day. the official price list of
shares reflects price and volume information for trades
completed by the members.
Host market NASDAQ ADS Prices
the table to the right states the high and low sales prices quoted
for our aDss on nasDaQ for the last five years. the nasDaQ
quotations represent prices between dealers, not including retail
mark-ups, markdowns or commissions, and do not necessarily
represent actual transactions.
market priceS on naSdaQ omx Stockholm
and naSdaQ
nasDaQ omX stockholm
seK per
seK per
class a share class B share
low
high
high
low
annual high and low
2004 2)
2005 2)
2006 2)
2007 2)
2008
130.50 70.00 122.50 63.50
143.50 99.00 145.00
97.00
154.50 104.50 155.00 104.50
72.65
148.50 73.00 149.50
83.70 40.60
83.60 40.60
nasDaQ
usD per
aDs 1)
low
high
17.29
18.60
20.57
21.71
14.00
8.97
13.89
14.44
11.12
5.49
142.00 117.70 143.70 118.20
148.50 119.75 149.50 119.00
Quarterly high and low
2007 2)
first Quarter
21.07
second Quarter 139.30 124.25 140.30 125.00 20.26
21.71
third Quarter
fourth Quarter 134.00 73.00 135.20
72.65 20.98
2008
51.10 78.90 50.25
first Quarter
79.50
57.50
83.70
58.70
second Quarter 83.60
75.80
third Quarter
61.20
61.60 75.80
66.60 40.60 65.90 40.60
fourth Quarter
12.28
14.00
12.65
9.15
monthly high and low
august 2008
74.40 63.30
september 2008 75.80 63.00
october 2008
66.60 40.60
november 2008 60.60 46.50
December 2008 65.50 52.00 65.90
January 2009
74.50 62.90
75.80 63.00
65.10 40.60
61.10 46.40
52.10
68.10 55.50
67.90 55.40
11.71
11.60
9.15
8.03
8.16
8.49
1) one aDs = 1 class B share.
2) for 2004, 2005, 2006 and 2007 restated for reverse split 1:5 in 2008.
16.97
18.05
16.83
11.12
8.52
9.76
9.03
5.49
10.17
9.03
6.05
5.49
6.27
6.81
Share trend, naSdaQ,
JanUarY–decemBer 2008 (USd)
Share tUrnover 2008
(million ShareS)
14
12
10
8
6
4
2
0
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Jan
Feb
Mar
Apr
May
Jun
Jul Aug
Sep
Oct
Nov Dec
Jan
Feb
Mar
Apr
May
Jun
Jul Aug
Sep
Oct
Nov Dec
ADS, USD
NASDAQ composite index (CCMP)
NASDAQ OMX Stockholm
NASDAQ
1 aDs = 1 class B share.
a reverse split 1:5 was made in June 2008.
138
share information
ericsson annual report 2008
changeS in nUmBer of ShareS and capital Stock 2004 –2008
2004
2005
2006
2007
2008
2008 July 23, new issue. (class c-shares, later converted to class B)
2008
December 31 (no changes)
December 31 (no changes)
December 31 (no changes)
December 31 (no changes)
June 2, reverse split 1:5
December 31
number of shares
share capital
16,132,258,678
16,132,258,678
16,132,258,678
16,132,258,678
3,226,451,735
19,900,000
3,246,351,735
16,132,258,678
16,132,258,678
16,132,258,678
16,132,258,678
16,132,258,678
99,500,000
16,231,758,678
share capital
shareholders
on april 9, 2008 the annual General meeting decided on a
as of December 31, 2008, ericsson had 728,333 shareholders
reverse split of shares 1:5 and a B-share/aDs ratio change from
registered at euroclear sweden aB (former Vpc aB) (the swedish
10:1 to 1:1. the last day of trading in the company´s shares on
securities register center), of which 1,469 holders with a us
nasDaQ omX stockholm before the reverse split was may 30,
address. according to information provided by citibank, there
2008 and the first day of trading after the reverse split was June
were 329,803,670 aDss outstanding as of December 31, 2008,
2, 2008. at the same time the quotient value of the share was
and 5,192 registered holders of such aDss. a significant number
increased from seK 1 to seK 5. the first day of trading with
of the aDss are held of record by banks, brokers and/or
aDss on nasDaQ with ratio 1:1 to the consolidated shares was
nominees for the accounts of their customers. as of December
June 10, 2008.
31, 2008, banks, brokers and/or nominees held aDss on behalf
as of December 31, 2008, ericsson’s share capital was seK
of 361,915 accounts.
16,231,758,678 (16,132,258,678) represented by 3,246,351,735
according to information known at year-end 2008, almost 80
(16,132,258,678) shares. the quotient value of each share is seK
percent of our class a and class B shares were owned by
5,00 (seK 1.00). as of December 31, 2008, the shares were
institutions, swedish and international.
divided into 261,755,983 (1,308,779,918) class a shares, each
our major shareholders do not have different voting rights than
carrying one vote, and 2,984,595,752 (14,823,478,760) class B
other shareholders holding the same classes of shares.
shares, each carrying one-tenth of one vote. as of December 31,
as far as we know, the company is not directly or indirectly
2008, ericsson held 61,066,097 class B shares as treasury
owned or controlled by another corporation, by any foreign
shares.
government or by any other natural or legal person(s) severally or
there were 19,900,000 shares repurchased by ericsson in
jointly.
2008.
ten largeSt coUntrieS, ownerShip
top execUtiveS and directorS, ownerShip
percent of capital
sweden
united states
united Kingdom
luxembourg
switzerland
Belgium
france
Denmark
Japan
australia
other countries
source: euroclear sweden aB (former Vpc aB)
as of December 31,
2007
2008
46.0%
28.5%
11.8%
3.6%
1.3%
1.3%
1.1%
0.8%
0.8%
0.7%
4.1%
46.1%
32.3%
6.7%
3.9%
1.9%
0.5%
1.3%
1.0%
0.8%
0.3%
5.2%
number of
class a
shares
number of
class B
shares
Voting
rights,
percent
top executives and directors
as a group (27 persons)
1,216
3,788,765
0.07
for individual holdings, see “corporate Governance report”.
the table shows the total number of shares in the company
owned by top executives and directors as a group as of
December 31, 2008.
ericsson annual report 2008
share information 139
the following table sets forth share information, as of December 31, 2008, with respect to our 15 largest shareholders, ranked by voting
rights, as well as percentage of voting rights as of December 31, 2008, 2007 and 2006.
l argeSt ShareholderS, decemBer 31, 2008 and percentage of voting rightS, decemBer 31, 2008, 2007 and 2006
number
of class a
shares
percentage
of total class
a shares
number
percentage
2006
of class B of total class Voting rights Voting rights Voting rights
percent
B shares
percent
percent
shares
2008
2007
identity of person or group 1)
investor aB
aB industrivärden
shB pensionsstiftelse
skandia liv, aB
swedbank robur fonder aB
pens. kassan shB förs.fören.
Brandes investment partners lp
amf pension
oppenheimer funds inc.
seB trygg försäkring
shB fonder aB
Dodge & cox, inc.
seB asset management
allianceBernstein lp
Barclays Global inv. n.a.
others
102,664,038
74,400,000
16,780,600
14,436,459
1,492,591
12,672,000
0
800,000
0
4,656,819
92,030
0
480,909
0
0
33,280,537
61,414,664
39.22
0
28.42
0
6.41
17,617,586
5.52
121,941,859
0.57
0
4.84
116,436,174
0.00
78,794,438
0.31
73,368,079
0.00
11,493,600
1.78
56,083,016
0.04
55,174,800
0.00
50,071,310
0.18
50,296,033
0.00
0.00
49,773,521
12.71 2,303,572,336
2.06
0.00
0.00
0.59
4.09
0.00
3.90
2.64
2.46
0.39
1.88
1.85
1.68
1.68
1.67
77.18
100
19.42
13.28
3.00
2.89
2.44
2.26
2.08
1.55
1.31
1.04
1.02
0.98
0.98
0.90
0.89
45.96
100
19.49
13.36
3.01
2.75
1.67
2.27
1.73
0.89
1.57
1.04
1.08
0.00
0.78
0.00
0.67
49.69
100
19.46
13.35
3.01
2.54
1.71
2.27
0.00
1.07
1.20
1.01
0.99
0.00
0.77
0.00
1.05
51.57
100
total
261,755,983
100 2,984,595,752
1) sources: capital precision, December 2008. euroclear sweden aB (former Vpc aB), December 31, 2008, 2007 and 2006.
earningS per Share, dilUted
StockholderS’ eQUitY per Share
2004–2008 (Sek)
2004–2008 (Sek)
10
8
6
4
2
0
8.23
7.64
6.84
5.54
3.52
2004
2005
2006
2007
2008
50
40
30
20
10
0
42.17
44.21
37.82
32.03
25.40
2004
2005
2006
2007
2008
140
share information
ericsson annual report 2008
shareholder information
the annual General meeting of shareholders will take place at
the annex to the ericsson Globe, Globentorget, stockholm, at
Dividend
the Board of directors has decided to propose the annual
3.00 p.m. on Wednesday, april 22, 2009.
General meeting of shareholders to resolve on a dividend of
seK 1.85 per share for the year 2008 and monday, april 27, 2009
Entitled to attend and notice of attendance
as record day for dividend.
shareholders, who wish to attend the annual General meeting of
shareholders, must
• have been entered into the share register kept by euroclear
sweden aB (former Vpc aB) (the swedish securities registry)
Financial information from Ericsson
• interim reports 2009:
april 30, 2009 (Q1)
as of thursday, april 16, 2009; and
• give notice of attendance to the company at the latest on
thursday, april 16, 2009, at the company’s web site
July 24, 2009 (Q2)
october 22, 2009 (Q3)
January 25, 2010 (Q4)
www.ericsson.com,
at telephone no.: +46 8 402 90 54 weekdays between 10 a.m.
and 4 p.m. or at fax no.: +46 8 21 60 87.
• annual report 2009: march, 2010
• form 20-f for the us market 2009: during Q2, 2010
annual reports and other financial reports are available on our
web site: www.ericsson.com/investors.
notice of attendance may also be given by mail to:
telefonaktiebolaget lm ericsson,
General meeting of shareholders
For printed publications, contact:
strömberg distribution i huddinge aB
Box 7835, se-103 98 stockholm, sweden
se – 120 88 stockholm, sweden
When giving notice of attendance, please state name, date of
phone: +46 8 449 89 57
birth, address, telephone no. and number of assistants.
e-mail: ericsson@strd.se
the meeting will be simultaneously interpreted into english.
in the united states, ericsson’s transfer agent citibank:
citibank shareholder services
Shares registered in the name of a nominee
registered holders: +1 877 881 59 69
shareholders, whose shares are registered in the name of a
interested investors: +1 800 808 80 10
nominee, must request the nominee to enter temporarily the
e-mail: ericsson@shareholders-online.com
shareholder into the share register as of thursday april 16, 2009,
www.citibank.com/adr
to be entitled to participate at the annual General meeting of
ordering a hard copy of the annual report:
shareholders. the shareholder is requested to inform the
phone toll free: +1 866 216 046
nominee well before that day.
http://proxy.georgeson.com/annualreport/ericsson.htm
Proxy
Contact information:
shareholders represented by proxy shall issue a power of
investor relations for europe, middle east, africa and asia pacific:
attorney for the representative. to a power of attorney issued by
telefonaktiebolaget lm ericsson
a legal entity, a copy of the certificate of registration (or, if no such
se-164 83 stockholm, sweden
certificate exists, a corresponding document of authority) of the
telephone: +46 10 719 00 00
legal entity shall be attached. the documents must not be older
e-mail: investor.relations@ericsson.com
than one year. in order to facilitate the registration at the annual
investor relations for the americas:
General meeting, the power of attorney in its original, certificates
ericsson
of registration and other documents of authority should be sent
the Grace Building
to the company at the address above so as to be available by
1114 ave of the americas, suite #3410
tuesday, april 21, 2009. forms of power of attorney in swedish
new York, nY 10036, usa
and english are available at our website: www.ericsson.com/
telephone: +1 212 685 40 30
investors.
e-mail: investor.relations@ericsson.com
ericsson annual report 2008
shareholder information 141
Corporate Responsibility
Sustainability and corporate responsibility (CR) are integral
survey, close to 80 percent stated that CR had a positive
parts of our business strategy, company culture and overall
influence on how they felt about working for Ericsson.
ways of working. Proactive engagement builds trust and
creates opportunities with stakeholders.
Our focus areas
Sustainable business approach
Five priority areas are most relevant to our business strategy.
These are monitored by our primary stakeholder groups,
Ericsson’s core business boosts social and economic
including customers, investors and analysts, employees, and
development. Telecommunications enables access to basic
media. Our challenge is to manage effectively the associated
services that improve livelihoods and productivity. by replacing
risks and opportunities.
energy-intensive travel and delivering virtual products and
services, it helps to create a carbon-lean economy.
Responsible Business
Our integrated approach to CR is about maintaining the
A strong governance commitment helps ensure integrity. it starts
necessary controls to minimize risks, while at the same time
at the top, from the board of Directors and CEO, and extends to
creating positive social, economic and environmental business
every operation and employee.
impacts. This makes the Company more competitive and resilient
Our governance framework is built on the global Ericsson
in today’s uncertain economic climate.
Group Management system (EGMs). This includes corporate
Building business advantage
responsibility elements such as the Code of business Ethics, the
Code of Conduct, anti-corruption measures and our Group-wide
Energy-optimization and due diligence along the supply chain
certified Environmental Management system. EGMs is reinforced
help differentiate us in a competitive market. increasingly,
by training, workshops and monitoring, including a Global
customers evaluate us on sustainability performance and many
Assessment Program run by assurance provider Det norske
customers have introduced ambitious goals to cut C02 emissions,
and want to secure their supply chains. investors recognize good
Veritas (DnV).
in an increasingly global marketplace, actions in one region
governance as a proxy for a well-run company. several indices
have worldwide implications. Company-wide policies build trust
and ratings organizations rank Ericsson highly, including the
and help protect us from reputational risks.
FTsE4Good, the Carbon Disclosure Project and the sAM
2008 performance highlights:
Corporate sustainability Assessment.
• The Ericsson board of Directors participated in the annual
Our employees value a responsible company. in a recent
corporate responsibility training.
annual co2 emissions per subscriber per year in ericsson networks, kG
(kg)
200
First generation mobile systems
NMT, AMPS (180 kg)
150
100
50
0
Second generation
D-AMPS, GSM (90 kg)
GSM 1997
(48 kg)
GSM 2002
(33 kg)
First 3G system (55 kg)
3G 2005 (35 kg)
3G 2006 (29 kg)
3G 2008
(25 kg)
GSM 2005 (25 kg)
GSM 2006 (24 kg)
GSM 2008 (20 kg)
1985
1990
1995
2000
2005
2010
First and second generation mobile systems
Third generation mobile systems
142
CORPORATE REPOnsibiliT y
ERiCssOn A nnuAl REPORT 2008
• An anti-corruption course was rolled out to employees worldwide.
• An internal employee awareness and engagement program for
CR was launched, which included support for the Every
Human has Rights campaign by the Elders.
the target that over 90 percent of strategic sourcing personnel
should complete training.
• Joined Global e-sustainability E-TAsC program, an industry
initiative to inform customers about our own performance as a
Supply chain
Ericsson’s stakeholders expect the same high environmental and
social standards, irrespective of whether production is in our own
facilities or outsourced. Every supplier must comply with the
supplier.
• Code of Conduct implementation verified by DnV as part of
global assessment plan and CR Report assurance process.
Climate change and the environment
Ericsson Code of Conduct and the requirements are an integral
life-cycle assessment shows that our most material
part of our overall supplier evaluation process.
environmental impact is energy use. Our greatest carbon impact
During 2006–2008, we have established a more intensified
derives from our products in operation – over two-thirds of total
supplier Code of Conduct Program, to prioritize higher-risk
suppliers and encourage and monitor supplier improvement.
energy consumed occurs when our products are in use. C02
emissions from our own operations is just 2–3 percent of our total
increased supplier awareness and actions have improved
carbon footprint.
working conditions, reduced environmental impact, and lessened
Ericsson maintains a leadership position in energy efficiency.
the suppliers’ and Ericsson’s overall business risk.
For us, as for our customers, low energy consumption offers
The focus on local suppliers in 2008 was further intensified
competitive advantage. Ericsson is also creating new revenue
following media attention on working conditions with tower
streams by helping markets like China and india leapfrog to
suppliers in bangladesh. some 85–90 percent of the tower
carbon-lean technologies. We have also developed services
suppliers world-wide have been audited or assessed, and
aimed to support operator energy-consumption analysis on both
continual improvement is ensured through systematic follow-up.
new and deployed networks.
in 2009, we will monitor critical supplier operations, such as
being climate-smart strengthens our ability to handle risks.
tower manufacturing, installation of equipment at telecom sites,
Although Ericsson is less vulnerable than most companies, we
surface treatment of parts, power supply and printed circuit
need to be prepared to address changing legislative demands.
board manufacturing. local auditor training is also an ongoing
With products that have a long life-cycle, being at the forefront of
priority, as is local capacity building among suppliers.
technology is critical.
2008 performance highlights:
• Eight auditor training sessions were held, bringing the number
2008 performance highlights:
• Energy-efficiency target for GsM exceeded by 7.5 percent and
of supplier Code of Conduct auditors to over 50.
for WCDMA by 15 percent in 2008.
• Performed more than 400 on-site audits and assessments.
• On-line supplier Code of Conduct “observer” training course
completed by more than 1,300 Ericsson employees, exceeding
• new Group target was set to reduce life-cycle carbon footprint
by 40 percent by 2012.
UN Global Compact
Ericsson endorses the
united nations Global
Compact ten principles
on human rights,
fair labor practices,
the environment and
anti-corruption. These
principles guide the
continuous development
of Group policies and
practices.
100
80
60
40
20
0
2005–2008 enerGy efficiency Goals for radio base
station development (improvement in percent for
the annual product portfolio delivery)
–5%
–13%
–20%
–35%
–55%
> –60%
2005
(baseline)
2006
2007
2008
2005
(baseline)
2006
2007
2008
GSM
Goal 2006: –5%
Goal 2008: –15%
WCDMA
Goal 2006: –25%
Goal 2008: –50%
ERiCssOn A nnuAl REPORT 2008
CORPORATE REsPO nsibiliT y 143
• new sustainable innovations were developed, including Wind
Turbine Tower Tube prototype, diesel battery hybrid solution
to understand the impact mobile broadband and internet has
on lives in emerging markets. The research showed clear
for off-grid radio sites, and a green site in Cambodia, where for
benefits related to development, resource management and
the first time ever both radio and transmission equipment is
networking for businesses, institutions and people.
powered by solar energy.
• new energy optimization services were introduced.
• Joined the un Global Compact’s Caring for Climate Coalition.
• Electronic waste recovery program processed globally via
ecology management; over 90 percent of collected electronics
• Ericsson joined the business Call for Action to support the
MDGs by uK Prime Minister Gordon brown and was one of
only three companies invited to address the un General
Assembly on the MDGs in september.
were recovered; less than 10 percent directed to landfill.
Employees
Meeting the Millennium Development Goals
by ensuring a fair and safe environment, Ericsson minimizes
business risks and positively contributes to our main asset – our
Connectivity fuels economic growth. Ericsson is extending the
people. Ericsson’s core values of professionalism, respect and
benefits of telecom by providing affordable access to basic
perseverance remain constant.
services that can improve livelihoods, health care, education and
With 73 percent of the workforce located outside sweden,
other fundamental human rights. in future, the bulk of new mobile
diversity is a hallmark of Ericsson’s culture. it enhances
subscriptions are expected to come from emerging markets such
competitiveness by stimulating creativity and openness to
as Africa, China and india.
change. it also minimizes risks by equipping the Company to
Through our presence in emerging markets, we strive to be a
meet the demands of a global, dynamic and diverse marketplace.
force for good. Ericsson is committed to help achieve the eight
Currently, women represent 21 percent of the Group’s
un Millennium Development Goals (MDGs), to eliminate extreme
employees and hold 18 percent of managerial positions. Our
poverty by 2015.
2008 performance highlights:
• Together with Columbia university’s Earth institute, we are
challenge is to encourage greater female representation. in 2008,
90 percent of employees participated in our annual employee
opinion surveys. The results showed that the Company’s Human
delivering connectivity to more than half a million people living
Capital index scores highly according to external benchmarks.
in the Millennium Villages across 10 African countries.
2008 performance highlights include:
• We conducted market research on mobile content services in
india and uganda. Results showed that 96 percent of the
respondents expressed a positive intention to use mobile data
services. However, information requirements concerning user’s
livelihoods are not met today and lack of applications in local
languages are still a barrier to using the services for many.
• Market research done in indonesia, Rwanda and south Africa
• Completed individual Performance Management for 91 percent
of employees.
• Established global diversity parameters and integrated
diversity into individual Performance Management.
• implemented global on-line “Diversity i-Check” training to
increase awareness of why diversity is important.
• Health and safety Group reporting structure was established.
25,000
20,000
15,000
10,000
5,000
0
employees by aGe and Gender
X%
X%
Under 25
25–34
35–46
45–54
Over 55
Male
Female
Community engagement
Community-level contributions to society
and the environment demonstrate our
commitment. local initiatives inspire
employees and instill pride in the benefits
telecommunications can bring. Through
Ericsson Response, now in its nineth year,
our employees engage in response activities,
contributing our expertise to relief efforts. in
2008, Ericsson Response was on-site in relief
efforts in sudan, Panama and Central African
Republic. Ericsson Response activities are
coordinated through the un.
144
CORPORATE REPOnsibiliT y
ERiCssOn A nnuAl REPORT 2008
remuneration
Remuneration at Ericsson is based on the principles of
employee remuneration. the committee considers pay and
performance, competitiveness and fairness and our
employment conditions throughout the company when dealing
remuneration policy together with the mix of several
with Group management remuneration.
remuneration elements are designed to reflect these
the remuneration committee is chaired by michael treschow
remuneration principles in a balanced way by creating an
and its other members are nancy mcKinstry, Börje ekholm and
integral remuneration package. For our senior management,
monica Bergström, all of whom are non-executive directors and
total remuneration consists of fixed salary, short-term and
independent as required by the swedish code of corporate
long-term variable remuneration, pension and other
Governance. the chairman continues to ensure that the
benefits. If the size of any of these elements should be
company maintains contact, as necessary, with its principal
increased or decreased, at least one other element has to
shareholders on the subject of remuneration.
change where the competitive position should remain
the company’s General counsel acts as secretary to the
unchanged.
committee and the ceo, the senior Vice president Human
resources & organization and the Vice president compensation
& Benefits attend the remuneration committee meetings by
this chapter outlines with specific references to senior
invitation and assist the committee in its considerations, except
management how we implement our remuneration policy
when issues relating to their own remuneration are being
throughout ericsson in line with corporate governance best
discussed or decided.
practice. Details of Board Directors’ fees and remuneration of
the remuneration committee has appointed an independent
senior management comprising the Group management team,
expert advisor, Gerrit aronson, to assist and advice the
including the ceo, hereafter referred to as “Group management”
committee. Gerrit aronson provided no other services to the
can be found in notes to the consolidated Financial statements
company during 2008. the remuneration committee is also
– note c29, “information regarding employees, members of the
provided with national and international pay data collected from
Board of Directors and management”. the company is required
external survey providers and can call on other independent
to submit the formal remuneration policy for senior management
expertise should it so require.
for shareholder approval at the annual General meeting. the
the purpose and function of the remuneration committee will
proposed resolution for 2009, which remains materially the same
continue going forward and its terms of reference can be found
as the 2008 policy, together with resolutions relating to the
on our website. these terms of reference, together with the
company’s long-term variable remuneration plans are set out in
remuneration policy, are reviewed annually in light of matters
the notice of annual General meeting on ericsson’s website
such as changes to corporate governance best practice or
(www.ericsson.com). the auditors’ opinion on how we have
changes to accounting, legislation, political opinion or business
followed our policy during 2008 is also posted on the website.
practices among peers. this helps to ensure that the policy
The Remuneration Committee
continues to provide ericsson with a competitive remuneration
strategy and, in accordance with swedish law, the policy for
remuneration processes by the nature of their sensitivity require
senior management is brought to shareholders annually for
clear controls. Within ericsson these controls are built on three
approval.
foundations: audit controls, our internal system that requires two
levels of managers to approve any remuneration decision and
Fixed Salary
Board of Directors and remuneration committee authorization.
Fixed salaries are set to be competitive within an individual’s
the remuneration committee advises the Board of Directors
home market, taking into account global remuneration practices.
on an ongoing basis on the remuneration of Group management,
the absolute levels are determined by the size and complexity of
including fixed salaries, pensions, other benefits and short-term
the position and the year-to-year performance of the individual.
and long-term variable remuneration. the remuneration
Group management salaries are, together with other elements of
committee also approves variable remuneration outcomes,
remuneration, subject to an annual review by the remuneration
prepares remuneration related proposals for Board and
committee, which considers external pay data to ensure that
shareholder approval and develops and monitors the
levels of pay remain competitive and appropriate in light of the
remuneration policy, strategies and general guidelines for
company’s remuneration policy. When setting fixed salaries the
ericsson annual report 2008
remuneration 145
remuneration committee considers the impact on total
General meeting. For Group management the payout is
remuneration, including pension contributions and associated
determined by three specific variables: the individual’s own
costs.
investment in shares, a long-term financial target at Group level
and the share price development.
Variable Remuneration and Performance
all long-term variable remuneration plans are designed to form
at ericsson we strongly believe that, where possible, we should
part of a well-balanced total remuneration and their central role in
encourage variable remuneration throughout the company to
ericsson’s remuneration system was positively confirmed in our
first and foremost align employees with clear and relevant targets
extensive review during 2007, reported in last year’s annual
and also to enable more flexible payroll costs whilst emphasizing
report. ericsson has no formal guidelines for equity ownership
the link between performance and pay.
but the long-term variable remuneration facilitates that Group
performance is specifically reflected in the variable
management and a large proportion of ericsson’s employees
remuneration – both in an annual variable component and in a
build up a significant personal ownership in the company’s stock
long-term variable part. although this may vary over time to take
over time. this is achieved through a combination of personal
account of pay trends, currently the target level of the short-term
investment and share-based remuneration made up of three
variable remuneration for Group management is between 30 and
different but linked plans: the all employee stock purchase plan,
40 percent of the fixed salary, but outcomes can vary between
the Key contributor retention plan and the executive
zero and twice the target opportunity. the long-term variable
performance stock plan.
remuneration is set to achieve a target of around 30 percent of
the fixed salary. in both cases the variable pay is measured
The Stock Purchase Plan
against the achievement of specific business objectives,
the all employee stock purchase plan is designed to offer, where
reflecting the judgment of the Board of Directors as to the right
practicable, an incentive for all employees to participate in the
balance between fixed and variable pay and the market practice
company, reinforcing a “one ericsson” aligned with shareholder
for remuneration of executives. all variable remuneration plans
interests. employees can save up to 7.5 percent (ceo 9 percent)
have maximum award and vesting limits.
of gross fixed salary for purchase of class B shares at market
Short-Term Variable Remuneration
price on the omX nasDaQ stockholm or aDss at nasDaQ
(contribution shares) during a twelve-month period. if the
the annual variable remuneration is through cash-based
contribution shares are retained by the employee for three years
programs, with specific business targets derived from the annual
after the investment and employment with the ericsson Group
business plan approved by the Board of Directors. the exact
continues during that time, the employee’s shares will be
nature of the targets will vary depending on the specific position
matched with a corresponding number of class B shares or aDss
but the aim is for them to support united goals and for individuals
free of consideration. the plan was introduced 2002 and
to be able to affect outcomes. For Group management targets
employees in 94 countries participate. in December 2008 the
are predominantly financial targets at either Group level or at a
number of participants was 19,000 or approximately 25 percent
specific business unit level and may also include operational
of employees.
targets and employee motivation targets.
participants save each month, beginning with august payroll,
We operate global short-term variable plans for management
towards quarterly investments. these investments (in november,
and for sales professionals and these plans are adapted to local
February, may and august) are matched on the third anniversary
requirements. the Board of Directors and the remuneration
of each such investment and hence the matching spans over two
committee decide on all ericsson Group targets, which are
financial years and two tax years.
cascaded to unit-related targets, all subject to the two level
management approval process. the remuneration committee
The Key Contributor Retention Plan
monitors the appropriateness and fairness of the target levels
the Key contributor retention plan is part of ericsson’s talent
throughout the year and has the authority to revise them should
management strategy and is designed to give individuals
they not remain relevant, stretching and/or enhance shareholder
recognition for performance, critical skills and potential as well as
value. employees not covered by global short-term variable plans
encourage retention of key employees. under the program,
may be eligible for local plans, which vary in design according to
operating units around the world are given quotas that total no
local competitive practice.
more than 10 percent of employees world-wide. each unit then
Long-Term Variable Remuneration
draws up a nominations list of individuals that have been
identified according to performance, critical skills and potential.
share based long-term variable remuneration plans are
the nominations are moderated in management teams locally
submitted each year for approval by shareholders at the annual
and reviewed by both local and corporate Human resources to
146
remuneration
ericsson annual report 2008
ensure that there is a minimum of bias and a strong belief in the
Pensions and other benefits
system. participants selected obtain one extra matching share in
pension benefits follow the competitive practice in the
addition to the one matching share for each contribution share
employee’s home country and in addition to any national system
purchased under the stock purchase plan during a twelve month
for social security, pension benefits may contain various
program period. the plan was introduced in 2004.
supplementary company plans. the basic principle is that other
benefits, such as company car and medical insurance, shall also
The Executive Performance Stock Plan
be competitive in the local market.
the executive performance stock plan was also first introduced
in 2004. the plan is designed to focus management on driving
to summarize, remuneration at ericsson is based on the
earnings and provide competitive remuneration. senior
principles of performance, competitiveness and fairness, and the
executives, including Group management, are selected to obtain
remuneration policy together with the mix of several remuneration
up to four or six extra shares (performance matching shares) in
elements are designed to reflect these remuneration principles in
addition to the one matching share for each contribution share
a balanced way by creating an integral remuneration package.
purchased under the all employee stock purchase plan. For the
For our senior management, total remuneration consists of fixed
programs since 2006, the ceo is allowed to invest up to 9
salary, short-term and long-term variable remuneration, pension
percent of fixed salary in contribution shares and may obtain up
and other benefits. if the size of any of these elements should be
to eight performance matching shares in addition to the stock
increased or decreased, at least one other element has to
purchase plan matching share for each contribution share. the
change where the competitive position should remain
performance matching is subject to the fulfillment of an earnings
unchanged.
per share (eps) performance target.
the past and continued use of average annual eps growth
relative to challenging and stretching targets as a performance
measure reflects the company’s ongoing strategy of adding
shareholder value through the long-term improvement of
profitability. 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 committee 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.
the performance targets are not capable of being retested
after the end of the three-year performance period. if the
minimum required performance is not achieved, all matching
shares subject to performance will lapse. the Board may also
reduce the number of performance matching shares, if deemed
appropriate, considering the company’s financial results and
position, conditions on the stock market and other relevant
circumstances at the time of matching.
ericsson annual report 2008
remuneration 147
Corporate Governance Report 2008
Contents
Compliance with requirements ......................... 149
Ownership structure ........................................ 150
share capital and voting rights ......................... 150
Meetings with the shareholders ....................... 151
Nomination Committee .................................... 152
Board of Directors ........................................... 154
Members of the Board of Directors .................. 160
Company structure and organization ............... 164
Members of the Group Management Team ...... 166
Auditors ........................................................... 168
Audit Committee pre-approval policies
and procedures ............................................... 168
Disclosure controls and procedures ................. 168
Ericsson’s disclosure policies ........................... 169
independence requirements ............................ 169
internal control over financial reporting
for the year 2008 ............................................. 170
governance and processes are, the more efficiently the
Board can address business and strategy issues for
sustainable shareholder value creation. Our reliance on
the Company’s corporate governance is dependent on a
strong ethos of ethical business practices that starts at the
top and permeates to all employees within the
organization. Therefore, the Board is committed to high
standards of corporate governance and we encourage all
employees to follow our example by constantly seeking
ways to make the internal controls and our oversight ever
more effective and reliable.
“The more effective and trustworthy our corporate
”
Michael Treschow
Chairman of the Board of Directors
bodies according to the rules, processes or laws to which they
Corporate governance describes the ways in which rights and
responsibilities are distributed among the various corporate
are subject. Corporate governance defines the decision-making
systems and structure through which owners directly or indirectly
control a company.
This Corporate Governance Report is rendered in accordance
with the Swedish Code of Corporate Governance (the “Code”).
The report has not been reviewed by Ericsson’s auditor and does
not constitute a part of the formal annual report.
Highlights of 2008
• Roxanne S. Austin was elected new Board member at the
Annual General Meeting (AGM) 2008.
• The AGM resolved that part of the fee to the Directors, in
respect of the Board assignment, should be payable in the
form of synthetic shares.
• Three new members joined the Group Management Team.
• The AGM resolved on a reverse split of shares 1:5.
• The Company’s series B shares have been delisted from
the London Stock Exchange.
148
CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Compliance with requirements
High standards in business ethics
Our Code of Business Ethics sets out how we work to achieve
and maintain our high standards. it summarizes the Group’s
fundamental policies and directives governing our relationships
with each other and with our stakeholders. This document has
been translated into more than 20 languages to ensure that
everyone who works for Ericsson understands our policies and
directives and the importance of conducting all business
activities in an ethical manner. All employees must regularly
review the Code of Business Ethics and, by signing a form as part
of the recruitment and at regular intervals, 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 conducted in
accordance with the rules and guidelines set forth in this
document. Our Code of Business Ethics satisfies the applicable
requirements of the sarbanes-Oxley Act of 2002 and NAsDAQ.
As a swedish public limited-liability company with securities
quoted on NAsDAQ OMX stockholm as well as on NAsDAQ,
Ericsson is subject to a variety of rules that affect its governance.
Major external regulations include:
• The swedish Companies Act.
• listing requirements of NAsDAQ OMX stockholm.
• NAsDAQ stock Market Rules – including applicable NAsDAQ
corporate governance requirements, subject to certain
exemptions principally reflecting mandatory swedish legal
requirements, as explained in “NAsDAQ Corporate
Governance Exemptions”.
• Applicable requirements of the us securities and Exchange
Commission including the sarbanes-Oxley Act.
in addition, to ensure compliance with legal and regulatory
requirements and the high ethical standards that we set for
ourselves, Ericsson has internal rules that include:
• Work procedure of the Board of Directors.
• Code of Business Ethics.
• Group steering Documents including Group policies and
directives, instructions and business processes for approval,
control and risk management.
• Code of Conduct whose provisions shall be applied in the
production, supply and support of Ericsson products and
services worldwide.
Compliance with the
Swedish Code of
Corporate Governance
The Code has been applied
by Ericsson since July 2005.
We are committed to
complying with best-practice
corporate governance
provisions on a global level
wherever possible. This
includes continued
compliance with the
corporate governance
provisions expressed by the
Code without deviations.
CoDE of BuSinESS EThiCS
CODE OF BUSINESS ETHICS
The Code of Business Ethics has been
translated into more than 20 languages.
The Code of Business Ethics can be found at:
www.ericsson.com/ericsson/corporate_responsibility/
employees/code_businessethics.shtml
information on our website does not form
part of this document.
TAKING YOU FORWARD
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 149
Ownership structure
share capital and voting rights
As of December 31, 2008 Ericsson had, according to information
The share capital of Ericsson consists of three classes of shares;
from the share register kept by Euroclear sweden AB (formerly VPC
A, B and C shares. Each A share carries one vote, each B share
AB), a total of 728,333 shareholders. Almost 80 percent of the
one tenth of one vote and each C share one-thousandth of one
shares are owned by institutions, swedish and international.
vote. Class A and B shares entitle the holder to the same
investor and industrivärden, two swedish industrial holding
proportion of assets and earnings and carry equal rights in terms
companies with long-term investment cycles, are the largest
of dividends. Class C shares are only used for issuance and
shareholders with 5.05 and 2.29 percent of the share capital and
buy-back to finance the Company’s long-term variable
19.42 and 13.28 percent of the voting rights, respectively.
remuneration program. When the Company has acquired the C
A significant number of the shares held by foreign investors are
shares, they are converted into B shares.
held off record by banks, brokers and/or nominees on behalf of their
To increase transparency as to the pricing of the Company’s
customers. This means that the actual shareholder is not displayed in
Class B share and ADs (American Depositary shares)
the share register and is not included in the shareholding statistics
respectively, and to obtain a number of shares more suitable for
identifying the largest shareholders, e.g. for the purposes of
the Company, the Annual General Meeting of shareholders 2008
appointing the members to the Nomination Committee.
resolved on a reverse split 1:5 of the Company’s Class A and B
shares. This implied that for five A shares and five B shares,
shareholders received one A share and one B share, respectively.
Apart from having a different quotient value, each new
consolidated A and B share carries the same rights as those
previously attached to the shares in the respective class of
shares.
ownERShip pERCEnTAGE (CApiTAL)
12%
34%
54%
Foreign investors 54%
swedish institutions 34%
Private swedish investors 12%
ouR GoVERnAnCE STRuCTuRE
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
Committee
nomination
Committee
External
Auditors
president and CEo
Management
150
CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Meetings with the shareholders
Ericsson’s Annual General Meeting 2008
1,135 shareholders, representing 59 percent of the votes,
The Annual General Meeting is held in stockholm. The date and
attended the Annual General Meeting (AGM) held on April 9,
the venue for the meeting are announced on our website, at the
2008, at the Annex to the Globe Arena in stockholm. Ericsson’s
latest in conjunction with the release of the third-quarter report.
Board of Directors, members of the Group Management Team
shareholders who cannot participate in person may be
and the external auditors were present at the meeting. Decisions
represented by proxy. Additional requirements for participation
apply for shareholders who have their shares nominee-registered
and the shares must be registered in the name of the owner by
the record date for the General Meeting.
The Annual General Meeting is held in swedish and
simultaneously interpreted into English. All information is also
available in English.
of the AGM 2008 included:
• Payment of a dividend of sEK 0.50 per share for 2007.
• Re-election of sir Peter l. Bonfield, Börje Ekholm,
ulf J. Johansson, Nancy McKinstry, Anders Nyrén and
Carl-Henric svanberg as members of the Board of Directors.
• Re-election of Michael Treschow as Chairman of the Board of
Directors, re-election of Marcus Wallenberg and
Resolutions at General Meetings of shareholders are normally
sverker-Martin-löf as Deputy Chairmen.
passed by a simple majority. However, the swedish Companies
Act requires special quorums and majorities in certain cases. For
example, the resolution to transfer own shares to employees
• Election of Roxanne s. Austin as a new Board member.
• Board of Directors’ fees to remain unchanged i.e. Chairman
sEK 3,750,000; other non-employed Board members sEK
participating in Ericsson’s stock Purchase Plan must be
750,000 each; in addition sEK 350,000 to the Chairman of the
approved by 90 percent of the votes cast and by 90 percent of
Audit Committee and sEK 250,000 each to the other two
the shares represented at the General Meeting of shareholders.
non-employed members of the Audit Committee; and sEK
The Annual General Meeting gives shareholders the
125,000 each to the Chairmen and other non-employed
opportunity to raise questions regarding the Company and the
members of the Finance and Remuneration committees.
results of the year under review. The members of the Board of
Additionally, part of the Directors’ fees shall be paid in the form
Directors, the Group Management Team and the external
of synthetic shares.
Auditors are normally present to answer such questions.
• Approval of the principles on remuneration to the top
shareholders and other interested parties may also
executives.
correspond in writing with the Board of Directors or executive
• implementation of long-Term Variable Compensation
management at any time.
Program.
The minutes of the AGM 2008 are available at
www.ericsson.com/ericsson/investors/shareholders/agm
AGM ATTEnDAnCE AnD pERCEnTAGE of VoTES 2006–2008
t
n
e
s
e
r
p
s
r
e
d
o
h
e
r
a
h
S
l
1,600
1,400
1,200
1,000
800
600
400
200
0
AGM 2006
AGM 2007
AGM 2008
Annual General Meeting 2009
Ericsson’s Annual General Meeting 2009 will take place on
April 22, in Stockholm
Shareholders who wish to have a matter considered at the
AGM 2009 shall make a written request to this effect to the
Board of Directors no later than March 4, 2009.
How to contact the Board of Directors
Telefonaktiebolaget LM Ericsson
The Board of Directors’ Secretariat
SE-164 83 Stockholm, Sweden
boardsecretariat@ericsson.com
s
e
t
o
v
f
o
e
g
a
t
n
e
c
r
e
P
60%
59%
58%
57%
56%
55%
54%
53%
52%
51%
50%
Shareholders present
Percentage of votes
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 151
Nomination Committee
Members of the Nomination Committee
The Nomination Committee, appointed on the basis of the
A Nomination Committee was elected by the Annual General
procedure resolved by the Annual General Meeting of
Meeting for the first time in 2001. since then, each Annual
shareholders 2008, consists of four representatives appointed by
General Meeting has appointed a Nomination Committee, or
the four shareholders with the largest voting power as of April 30,
resolved on the procedure for appointing the Nomination
2008: Jacob Wallenberg (investor AB, Chairman of the
Committee. The Annual General Meeting of shareholders 2008
Nomination Committee), Carl-Olof By (AB industrivärden),
resolved that the Nomination Committee shall consist of the
Caroline af ugglas (livförsäkringsaktiebolaget skandia) and
Chairman of the Board of Directors and representatives of the
Mats lagerqvist (swedbank Robur Fonder) and further,
four largest shareholders as per the end of the month in which
Michael Treschow (Chairman of the Board of Directors). No
the Annual General Meeting is held. However, as further
changes in the composition of the Committee have occurred
described in the procedure for appointing members to the
during the year.
Nomination Committee, the Nomination Committee may
comprise additional members pursuant to a request by a
The tasks of the Nomination Committee
shareholder justified by changes in shareholder structure. such
The tasks of the Nomination Committee have evolved over the
requests shall be received by the Nomination Committee no later
years to comply with the requirements of the Code and best-
than December 31 in order to allow for continuity in the work of
practice provisions. since the inception of the Nomination
the Nomination Committee. The fundamental principles that
Committee, its main task has been to propose candidates for
characterize the procedure for appointing members to the
election to the Board of Directors. The Nomination Committee
Nomination Committee are:
• Transparency – clear rules and objective procedures shall
must take into consideration all the various rules on
independence of the Board applicable to the Company, which
determine the way the largest shareholders are appointed to
are further described later in this report.
the Nomination Committee.
The Nomination Committee also proposes a candidate for
• Continuity – there should at all times be a functioning
Nomination Committee and its work should be allowed
election of the Chairman of General Meetings of shareholders. in
addition, the Nomination Committee prepares proposals
continuity to the fullest extent possible.
concerning the level of remuneration for Directors elected by the
• Predictability – the time for the reading of the shareholding
statistics in view of identifying the largest shareholder has to
Annual General Meeting of shareholders but not employed by
Ericsson; to the auditors and members of the Nomination
be predictable, not least in the interest of foreign shareholders.
Committee for resolution by the Annual General Meeting. To date,
the Nomination Committee has not proposed that it should be
paid any fees. Moreover, in years in which auditors are elected,
the Nomination Committee proposes candidates based on the
preparations carried out by the Audit Committee of the Board.
ShARE of VoTES AS of
AppoinTMEnT – MEMBERS of
ThE noMinATion CoMMiTTEE
19.49%
2008
13.36%
62.42%
2.88%
1.85%
Investor AB
AB Industrivärden
Livförsäkrings AB Skandia
Swedbank Robur Fonder
Other shareholders
Shareholders may submit recommendations to the
nomination Committee at any time.
however, in order to be considered
by the nomination Committee,
such recommendations should
reach the Committee no later than March 4, 2009.
How to contact the
Nomination Committee
Telefonaktiebolaget LM Ericsson
The nomination Committee
c/o General Counsel’s office
SE-164 83 Stockholm, Sweden
nomination.committee@ericsson.com
152
CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Work of the Nomination Committee for the
Annual General Meeting 2009
As of February 20, 2009, the Nomination Committee has held
four meetings. At the first meeting, plans for the continued work
of the Committee was discussed and the Committee was
informed by the Chairman of the Board on how the Board work is
functioning, as well as on the Company’s strategy and future
challenges, to be able to make assessments in terms of the
competence and experience that is required by the Board
members.
The Nomination Committee has also been informed of the
results of the evaluation process for Board work and procedures,
including the performance of the Chairman of the Board.
Further, the Nomination Committee has acquainted itself with
the assessments made by the Company and the Audit
Committee in terms of Auditor work, as well as the Audit
Committee’s recommendation in respect of Audit fees.
The work of the Nomination Committee is still in progress and
more details on its work will be presented at the Annual General
Meeting of shareholders 2009.
woRK of ThE noMinATion CoMMiTTEE
Planned meeting of the
Nomination Committee and
submission of proposals
to the Board
Fourth meeting of the
Nomination Committee
Third meeting of the
Nomination Committee
Q1
Mar
Apr
Q2
Feb
May
Jan
Dec
Work of the
Nomination
Committee
2008/2009
Jun
Jul
Second meeting of the
Nomination Committee
Q4
Nov
Aug
Oct
Sep
Q3
Annual General Meeting of
Shareholders, April 9, 2008
Reading of shareholding
statistics, April 30, 2008
Appointment of Nomination
Committee for the Annual
General Meeting of
Shareholders 2009
First meeting of the
Nomination Committee
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 153
Board of Directors
Members of the Board of Directors
Our Board of Directors consists of 10 Directors, including the
The Board of Directors is ultimately responsible for the
Chairman of the Board, elected by the shareholders at the
organization of the Company and the management of the
Annual General Meeting 2008, for the period until the close of the
Company’s operations. it develops guidelines and instructions
Annual General Meeting 2009, and three employee
for the day-to-day management of the Company, conducted by
representatives, each with a deputy, appointed by the trade
the President and CEO who ensures that the Board of Directors
unions for the same period of time. The President and CEO,
receives regular reports regarding the Group’s business
Carl-Henric svanberg, is the only Board member who is a
development its results, financial position and liquidity and
member of the Company’s management.
events of importance to the Group.
According to the Articles of Association, Ericsson’s Board of
Work procedure of the Board of Directors
Directors shall consist of a minimum of five directors and a
Complementary to the provisions in the swedish Companies Act
maximum of 12 directors, with no more than six deputies.
and the Articles of Association of the Company, the Board of
Directors are elected by the shareholders at the Annual General
Directors has adopted a work procedure for its activities that
Meeting for the period from the close of the Annual General
outlines rules regarding the distribution of tasks between the
Meeting until the close of the following Annual General Meeting,
Board and its Committees as well as between the Board, its
but can serve any number of consecutive terms. in addition,
Committees and the President and CEO. The work procedure is
under swedish law, unions have the right to appoint three
reviewed, evaluated and adopted by the Board as required, at
directors and their deputies to the Ericsson Board of Directors.
least once a year.
While the President and CEO of the Company may be elected
as a director on the Board, the swedish Companies Act prohibits
Independence of the Directors
the President of a public company from being elected Chairman
The composition of Ericsson’s Board of Directors meets all
of the Board.
independence criteria it is subject to, as described in more detail
Ericsson abides by strict rules and regulations regarding
under “independence requirements” later in the report. in
conflicts of interest. Directors and the President and CEO cannot
connection with its proposal to the Annual General Meeting of
participate in any decision regarding agreements between
shareholders 2008, the Nomination Committee concluded that,
themselves and the Company, or between the Company and any
for the purposes of the swedish Code of Corporate Governance,
third party or legal entity in which the individual has an interest.
at least the following persons that were proposed for election
in addition, in order to ensure independence, the Audit
were independent of the Company, its senior management and
Committee has implemented a procedure for complying with
the Company’s major shareholders: Roxanne s. Austin,
NAsDAQ’s rules on related-party transactions and a pre-
sir Peter l. Bonfield, ulf J. Johansson, Nancy McKinstry and
approval process for non-audit services carried out by the
Michael Treschow.
external auditors.
154
CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Work of the Board of Directors
to the Board meeting. A Board meeting also typically includes
The work of the Board follows a yearly cycle, starting with the
the President and CEO’s report on general business and market
statutory Board meeting held in connection with the Annual
developments, including the performance of the Company. The
General Meeting. Members of each of the three Committees of
Board is regularly informed of recent developments in legal and
the Board are appointed at the statutory meeting, and the Board
regulatory matters and addresses, whenever necessary, the
resolves on matters such as authorization to sign for the
adoption and implementation of various corporate governance
Company. At the next ordinary meeting, the Board handles the
rules. Material for each Board meeting is distributed by the
first interim report for the year along with the press release
Board of Directors’ secretariat according to a pre-established
related to the report. in June, a Board meeting generally takes
time plan. The time plan is established with due regard for
place away from Company headquarters, giving Directors a
corporate governance requirements, including prompt
chance to visit major Company operations. Towards the end of
distribution of the minutes of Board meetings. unless
July, the Board meets to handle the interim report for the second-
exceptional circumstances prevent them from doing so, all
quarter of the year. strategy matters are frequently addressed at
Directors participate in all Board meetings.
any appropriate Board meeting, but a two-day Board meeting in
The Board meets with Ericsson’s external auditors at least
August is entirely devoted to the overall strategy of the Group.
once a year to receive and consider the auditors’ observations
The August meeting also addresses the overall risk management
regarding the Annual Report and internal controls. The auditors
of the Group. A third-quarter interim report Board meeting is held
also annually prepare reports for the management on the
at the end of October. in order to allow for the Nomination
accounting and financial reporting practices of the Company and
Committee to be able to take into account the results of the
the Group. Moreover, the Audit Committee meets with the
Board work in due time, the Board thoroughly evaluates its own
auditors to receive and consider the auditors’ observations on
work and the results of this evaluation are presented and
the interim reports. The Audit Committee reports its findings to
discussed at the October meeting. The last meeting of the
the Board. The auditors have been instructed to reflect in their
calendar year addresses budget and financial outlook. At the first
reports whether the Company and Group are organized so that
meeting of the calendar year, generally in the end of January, the
the accounts, the management of funds and the financial
Board focuses on the financial result of the entire year and also
position of the Company and Group in other respects are up to a
handles the fourth-quarter report. At the Board meeting in
good standard and controlled in a prudent manner. The Board
February, which closes the yearly cycle of work, the Board signs
has reviewed and assessed the Company’s process for financial
the annual report.
reporting, as described later in “internal control over financial
As the Board is responsible for financial oversight, financials
reporting for year 2008”. The Board’s own review of interim and
are presented and evaluated at each Board meeting. Further,
annual reports in combination with the Company’s internal
each Board meeting generally includes reports by the Chairman
controls is deemed to give reasonable assurance regarding the
of each of the three Committees based on the minutes from the
quality of the financial reporting.
Committee meetings, which are distributed to all Directors prior
ThE BoARD’S AnnuAL woRK CYCLE
Budget, financial outlook meeting
Q3 meeting
– Q3 Financial report
– Board work evaluation
Q4
Dec
Jan
Nov
Feb
Q4 meeting
– Financial result of the entire year
Q1
Annual report meeting
– Board signs the annual report
Oct
Sep
Board
meetings
− yearly cycle
Mar
Apr
Aug
May
Q3
Jul
Jun
Q2
Two-day strategy meeting
– Overall strategy and risk
management of the Group
Q2 meeting
– Q2 Financial report
Statutory meeting
– appointment of
Committee Members
– authorization to sign
for the company
Q1 meeting
– Q1 Financial report
Meeting – generally off-site
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 155
Training of the Board of Directors
technology evolution. An important part of the strategic work is
All new Directors receive comprehensive training tailored to their
to identify and assess various internal and external risk factors, a
individual requirements. introduction training includes meetings
need that is intensified as a result of the financial turmoil that has
with the heads of the major businesses and functions and, if
characterized the year.
appropriate, training arranged by NAsDAQ OMX to enhance
Apart from regular matters addressed in line with the annual
knowledge regarding listing issues and insider rules. in addition,
Board work cycle, the Board addressed the future of Ericsson’s
full-day training sessions are generally held twice a year for all
mobile platform business (EMP), where Ericsson and
Directors, to assist them in their work for Ericsson by enhancing
sTMicroelectronics plan to merge EMP and sT-NXP Wireless into
their knowledge of Group operations and by covering specific
a joint venture, and the divestment of the Enterprise business to
issues, as appropriate.
Aastra Technologies. The Board also addressed other long and
Training sessions organized in 2008 have provided the
short-term strategies with regard to operator and vendor
Directors with an in-depth knowledge of markets, strategy and
consolidation, increased data traffic in telecom networks, the
governance within the business area Global services as well as
effects of migration of networks towards iP technology with
its products and services. in addition, annual training has been
increased focus on content and multimedia and the changing
conducted to advise the Board on material issues and key focus
competitive landscape among telecom operators, cable TV
areas for the Company pertaining to corporate responsibility and
providers and other data-network operators.
sustainability. These include energy efficiency, climate change,
The Heads of the three business units have provided the Board
supply chain management, human rights, and telecommunications
with thorough presentations of their respective areas of
for social and economic development.
responsibility to further enhance the Directors’ knowledge of
Work of the Board of Directors in 2008
business operations and the strategies of each of the three
business units. The Board is also continuously reviewing the
The work of the Board of Directors is continuously characterized
Management succession planning. in terms of remuneration, the
by a high level of activity and 11 Board meetings were held in
Board put forward a proposal for a long-Term Variable
2008. (For attendance at Board meetings see “Directors’
Compensation Program 2008 (lTV) to the Annual General
Attendance 2008”). Two meetings were held away from the
Meeting of shareholders 2008. For the purposes of financing the
Company headquarters, one in san José, California, focusing on
lTV, the Board also proposed a new directed issue and
the acquired operations in silicon Valley, and one in lund,
acquisition of C shares to be converted into B shares.
sweden, with a focus on sony Ericsson and Ericsson Mobile
The Board is continuously working to improve its ways of
Platform strategies.
working and procedures based on the Board evaluation along
Maintaining technology leadership and profitability in an
with discussions with the Chairman of the Board and the
increasingly competitive landscape have been key strategic
Committee Chairmen.
areas of focus during the year. A leading position and
effectiveness in research and development is key in the rapid
oRGAnizATion of ThE BoARD woRK
Board of Directors
13 Directors
finance
Committee
(4 Directors)
• Financing
• Investing
• Customer credits
Remuneration
Committee
(4 Directors)
• Remuneration policy
• Long-Term Variable
Remuneration
• Executive
compensation
Audit
Committee
(4 Directors)
• Oversight over
financial reporting
• Oversight over
internal control
• Oversight over auditing
156
CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Board work evaluation
This involves:
The objectives of the Board evaluation are to ensure that the
Board is well-functioning, to gain an understanding of the type of
• Reviewing, with management and the external auditors, the
financial statements, including conformity with generally
issues that the Board considers should be afforded greater
accepted accounting principles.
scope to determine the areas in which additional competence is
• Reviewing, with management, the reasonableness of
needed within the Board. The evaluation also serves as guidance
significant estimates and judgments made in preparing the
to the work of the Nomination Committee.
financial statements, as well as the quality of the disclosures in
The Chairman of the Board initiates and leads the evaluation of
the financial statements.
Board and Committee work and procedures each year. The
evaluation process includes detailed questionnaires as well as
• Reviewing matters arising from reviews and audits performed.
The Audit Committee itself does not perform audit work. Ericsson
interviews and discussions. in 2008, the Chairman held
has an internal audit function, which reports to the Audit
individual meetings with all the Directors who responded to three
Committee and performs independent audits.
separate written questionnaires; one that covered the Board
The Audit Committee is also involved in the preparatory work
work in general, one that covered the Chairman’s performance,
of proposing candidates for the election of auditors, when
and one that covered the performance of the President and CEO.
applicable, and monitors their ongoing performance and
The Chairman and the President and CEO are neither involved in
independence, as well as Group transactions to avoid conflicts of
the development, compilation or evaluation of the questionnaires
interest. To achieve this, the Audit Committee has implemented
related to their respective performances, nor are they present
approval procedures for audit and other services performed by
when their respective performance is evaluated. The results of
the external auditors (see “Audit Committee pre-approval policies
the evaluations were thoroughly discussed in order to further
and procedures”); a pre-approval process for transactions with
improve the work of the Board and the CEO.
related parties and a “whistle-blower” procedure for the reporting
of violations in relation to accounting, internal control and
Committees of the Board of Directors
auditing matters.
The Board of Directors has established three Committees: Audit,
Alleged violations are investigated by Ericsson’s internal audit
Finance and Remuneration. Members of each Committee are
function in conjunction with the relevant Group Function.
appointed amongst the Board members. The work of the
information regarding any incidents, including measures taken,
Committees is principally preparatory, they prepare matters for
details of the responsible Group Function and the status of any
final resolution by the Board. However, the Board has authorized
investigation are reported to the Audit Committee.
each Committee to determine certain issues in limited areas and
may also provide extended authorization to a Committee to
Members of the Audit Committee
determine specific matters. The Board of Directors and each
The Audit Committee consists of four members appointed by the
Committee have the right to engage external expertise, either in
Board from among its members. in 2008, the Audit Committee
general or in respect to specific matters, if deemed appropriate.
comprised ulf J. Johansson (Chairman of the Committee),
Prior to each Board meeting, each Committee submits a
sverker Martin-löf, sir Peter l. Bonfield, and Jan Hedlund. All
report to the Board on the issues handled, resolved or referred to
members, except the employee representative, are independent
the Board since the previous ordinary Board meeting. The
from the Company and senior management. Each member is
reporting by the Chairman of the Committee on the Committee
financially literate and familiar with the accounting practices of
work in addition to the written report is a recurring item at each
an international company comparable to Ericsson. At least one
Board meeting. The minutes of each Committee meeting are
member must be an audit committee financial expert. The
attached to the minutes of the Board meeting following each
Board of Directors has determined that ulf J. Johansson,
Committee meeting.
The Audit Committee
sverker Martin-löf and sir Peter l. Bonfield all satisfy these
requirements.
The Audit Committee has appointed an external expert advisor,
The Audit Committee, on behalf of the Board, monitors the
Peter Markborn, formerly authorized public accountant, to assist
integrity of the financial statements, compliance with legal and
and advise the Committee.
regulatory requirements and the effectiveness of the systems of
internal control over financial reporting.
The Audit Committee is also primarily responsible for reviewing
annual and interim financial reports and for overseeing the
external audit process, including audit fees.
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 157
Work of the Audit Committee
Members of the Finance Committee
The Audit Committee held nine meetings in 2008 – attendance is
The Finance Committee consists of four members appointed by
reflected in the table “Directors’ Attendance 2008.” During the
the Board from among its members. in 2008, the Finance
year, the Audit Committee reviewed the scope and results of
Committee comprised Marcus Wallenberg (Chairman of the
external financial audits, the independence of the external
Committee), Anna Guldstrand, Anders Nyrén and Michael Treschow.
auditors and monitored the external audit fees. in addition,
certain services other than audits performed by the external
Work of the Finance Committee
auditors were approved by the Audit Committee under its pre-
The Finance Committee held 13 meetings in 2008 – for
approval policies and procedures. The Audit Committee
attendance, see “Directors’ Attendance 2008”.
approved the annual audit plan for the internal audit function and
The Committee has devoted considerable time to the
reviewed its reports. The Audit Committee also reviewed and
increasing uncertainty in the financial market and in view of the
discussed with the external auditors each interim report prior to
large exposure to the currently unstable financial sector, has
publishing. in addition, the Audit Committee monitored the
executed its strategy to reduce the Company’s credit exposure
continued compliance with the sarbanes-Oxley Act and the
by re-arranging the investment policy and procedures. During
internal control and risk management process. The Audit
the year the Committee has also approved numerous customer
Committee also approved certain related-party transactions in
finance and credit facility arrangements with a continued focus
accordance with its pre-approval process.
on capital structure, cash flow and cash generating ability.
The Finance Committee
The Finance Committee is primarily responsible for:
• Handling matters regarding acquisitions and divestments.
• Capital contributions to companies inside and outside the
Ericsson Group.
• Raising of loans, issuances of guarantees and similar
undertakings, and approval of financial support to customers.
• Continually monitoring the Group’s financial risk exposure.
The Finance Committee is authorized to determine matters
such as direct or indirect financing, provision of credits, granting
of securities and guarantees and certain investments, divestments
and financial commitments.
MEMBERS of ThE CoMMiTTEES
Members of the Committees of the Board of Directors 2008
Audit
Committee
finance
Committee
• Ulf J Johansson
(Chairman)
• Sverker Martin-Löf
• Sir Peter L. Bonfield
• Jan Hedlund
• Marcus Wallenberg
(Chairman)
• Anna Guldstrand
• Anders Nyrén
• Michael Treschow
Remuneration
Committee
• Michael Treschow
(Chairman)
• Nancy McKinstry
• Monica Bergström
• Börje Ekholm
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CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
The Remuneration Committee
Work of the Remuneration Committee
The Remuneration Committee’s main responsibility is to advise
The Remuneration Committee held seven meetings in 2008 –
the Board of Directors regarding salary and other remuneration,
attendance is reflected in the table “Directors’ Attendance 2008”.
including retirement compensation of the President and CEO,
The Committee reviewed and prepared for the Board a proposal
Executive Vice Presidents and other officers reporting directly to
for a long-term Variable Compensation Program 2008, which
the President and CEO. Other responsibilities include:
• Developing and monitoring strategies and general guidelines
for employee remuneration, including variable plans and
was approved by the Annual General Meeting of shareholders in
April. The Committee also prepared proposals for salaries and
variable pay for 2008, including remuneration of the President
retirement compensation.
and CEO. Towards the end of the year, the Committee concluded
• Approving variable pay under the previous year’s plan
(beginning of each year).
its analysis of the current long-Term Variable Remuneration
structure and remuneration policy to be referred to the Annual
• Preparation of the long-term variable remuneration program for
referral to the Board and subsequent resolution by the General
General Meeting of shareholders 2009 for resolution. For further
information on remuneration, fixed and variable pay, please see
Meeting of shareholders.
“Remuneration” in the Annual Report.
• Preparation of the targets for variable pay for the following year
for resolution by the Board.
To achieve this, the Committee holds annual strategic remuneration
reviews with representatives of the Company to determine the
direction to follow, allow 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
appointed by the Board from among its members. in 2008, the
Remuneration Committee comprised Michael Treschow
(Chairman of the Committee), Nancy McKinstry, Monica
Bergström and Börje Ekholm.
The Remuneration Committee has appointed an independent
expert advisor, Gerrit Aronson, to assist and advise the
Committee, in particular with regard to international trends and
developments.
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 159
Members of the Board of Directors
Board members elected by the Annual General Meeting of Shareholders 2008
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 science, 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): 164,000 Class B shares.
Principal work experience and other information: Board Chairman
of the Confederation of swedish Enterprise 2004–2007, President and
CEO of AB Electrolux 1997–2002 and Chairman of its Board of
Directors 2004–2007. Earlier positions mainly include positions in 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 and AB Electrolux. Honorary Chairman: international Chamber
of Commerce (iCC). Board member: AstraZeneca PlC, stora Enso Oy,
the Knut and Alice Wallenberg Foundation and Temasek Holdings
limited. Holdings in Ericsson 1): 142,000 Class B shares.
Principal work experience and other information: Positions in 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, stockholm. Board Chairman: skanska AB,
svenska Cellulosa Aktiebolaget sCA and ssAB. Deputy Chairman:
AB industrivärden and the Confederation of swedish Enterprise.
Board member: svenska Handelsbanken.
Holdings in Ericsson 1): 10,400 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.
Roxanne S. Austin (elected 2008)
Born 1961, B.B.A. in Accounting, university of Texas, san Antonio usA.
Board member: Abbott laboratories, Teledyne Technologies inc.,
Target Corporation. Holdings in Ericsson: None.
Principal work experience and other information: since 2004,
President of Austin investment Advisors. President and CEO of
DiRECTV 2001–2003. Corporate senior Vice President and Chief
Financial Officer of Hughes Electronics Corporation 1997–2000, which
company she joined in 1993. Prior to joining Hughes, Roxanne Austin
was a partner at Deloitte & Touche. Member of the board of trustees of
the California science Center, member of the California state society of
certified Public Accountants and the American institute of Certified
Public Accountants.
Sir Peter L. Bonfield (first elected 2002)
Member of the Audit Committee
Born 1944, Honors degree in Engineering, loughborough university,
leicestershire, uK. Board Chairman: supervisory Board of NXP.
Deputy Chairman: British Quality Foundation.
Board member: Mentor Graphics inc., sony Corporation, and TsMC.
Holdings in Ericsson 1): 4,400 Class B shares.
Principal work experience and other information: CEO and
Chairman 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 Venture
Michael Treschow
Marcus Wallenberg
Sverker Martin-Löf
Roxanne S. Austin
Sir Peter L. Bonfield
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CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Partners llP, The longreach Group and Apax Partners llP. Non-
executive Director of Actis Capital llP and Dubai international Capital.
Board Mentor of CMi.
Börje Ekholm (first elected 2006)
Member of the Remuneration Committee
Born 1963, Master of science in Electrical Engineering, Royal institute
of Technology, stockholm. Master of Business Administration, iNsEAD,
France. Board member: investor AB, AB Chalmersinvest, Husqvarna
AB, scania, KTH Holding AB, lindorff Group AB and the Royal institute
of Technology, stockholm.
Holdings in Ericsson 1): 21,760 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 positions at
Novare Kapital AB and McKinsey & Co inc.
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): 6,435 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 spectra-Physics AB, where he was
the President and CEO, Ericsson Radio systems AB. Member of the
Royal Academy of Engineering sciences.
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 Chairman
of the Executive Board of Wolters Kluwer n.v. President and CEO of CCH
legal information services 1996–1999. Previous positions at Booz, Allen
& Hamilton, and New England Telephone Company. 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 Economics, 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 and svenska Handelsbanken.
Board member: svenska Cellulosa Aktiebolaget sCA,
AB industrivärden, skanska AB, ssAB, and Ernströmgruppen.
Holdings in Ericsson 1): 6,686 Class B shares.
Principal work experience and other information: President and
CEO of industrivärden since 2001. CFO and EVP of skanska AB 1997–
2001. Director Capital Markets of 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 Administration, university of uppsala.
Board Chairman: sony Ericsson Mobile Communications AB.
Board member: The Confederation of swedish Enterprise,
Melker schörling AB and uppsala university.
Holdings in Ericsson 1): 3,202,528 Class B shares.
Principal work experience and other information: President and CEO
of Telefonaktiebolaget lM Ericsson since 2003. Prior to this,
Carl-Henric svanberg was the President and CEO of Assa Abloy AB
(1994–2003). Various positions within securitas AB (1986–1994) and
ABB Group (1977–1985). Carl-Henric svanberg does not have material
shareholdings or part ownerships in companies with which the
Company has material business relationships.
Börje Ekholm
Ulf J. Johansson
Nancy McKinstry
Anders Nyrén
Carl-Henric Svanberg
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 161
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 unionen union.
Holdings in Ericsson 1): 1,236 Class B shares.
Jan Hedlund (first appointed 1994)
Employee representative
Member of the Audit Committee
Born 1946. Appointed by the iF Metall union.
Holdings in Ericsson 1): 566 Class B shares.
Anna Guldstrand (first appointed 2004)
Employee representative
Member of the Finance Committee
Born 1964. Appointed by the union The swedish Association of
Graduate Engineers.
Holdings in Ericsson 1): 1,153 Class B shares.
Kristina Davidsson (first appointed 2006)
Deputy employee representative
Born 1955. Appointed by the iF Metall union.
Holdings in Ericsson 1): 837 Class B shares.
Karin Åberg (first appointed 2007)
Deputy employee representative
Born 1959. Appointed by the unionen union.
Holdings in Ericsson 1): 1,292 Class B shares.
Pehr Claesson (appointed 2008)
Deputy employee representative
Born 1966. Appointed by the union The swedish Association of
Graduate Engineers.
Holdings in Ericsson 1): 422 Class B shares
Carl-Henric 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 shareholder, customer, supplier or other person.
1) The number of Class B shares (and Class A shares, if applicable) includes holdings by
related natural or legal persons. The number of Class B shares also includes American
Depositary Receipts, where applicable.
Monica Bergström
Jan Hedlund
Anna Guldstrand
Kristina Davidsson
Karin Åberg
Pehr Claesson
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CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Board of Directors’ remuneration
Board members to be paid part of the fee, in respect of the Board
Remuneration to Board members not employed by the Company
assignment, in the form of so-called synthetic shares. A synthetic
is proposed by the Nomination Committee for resolution by the
share gives the right to receive a future payment of an amount
Annual General Meeting. Board members who are not employed
which corresponds to the market value of a Class B share in the
by Ericsson are not invited to participate in the Group’s share
Company at the time of payment. The purpose of paying part of
based long-term variable remuneration plans.
the Board of Director’s fee in the form of synthetic shares is to
The Annual General Meeting 2008 approved the proposal by
further enhance the Directors’ interest in Ericsson and its
the Nomination Committee for yearly fees to the non-employed
financial development and also provides an opportunity for the
Board members for Board and Committee work. For information
Directors to have a financial interest in the Company comparable
on Board of Directors’ fees 2008, please refer to the table in
with that of a shareholder. For more information on the terms and
Notes to the Consolidated Financial statements – Note C29
conditions of the synthetic shares, please refer to the notice
“Remuneration to the Board of Directors” in the Annual Report.
convening the Annual General Meeting 2008 (www.ericsson.
The Annual General Meeting 2008 also approved the Nomination
com/ericsson/investors/shareholders/agm). information on our
Committee’s proposal that it will be possible for non-employed
website does not form part of this document.
DiRECToRS’ ATTENDANCE 2008
Board member
Michael Treschow
sverker Martin-löf
Marcus Wallenberg
Roxanne s. Austin 1)
sir Peter l. Bonfield
Börje Ekholm
ulf J. Johansson
Katherine Hudson 2)
Nancy McKinstry
Anders Nyrén
Carl-Henric svanberg
Monica Bergström
Jan Hedlund
Torbjörn Nyman 2)
Pehr Claesson 3)
Anna Guldstrand 4)
Kristina Davidsson
Karin Åberg
Total
1) Joined the Board of Directors as of April 9, 2008.
2) Resigned from the Board of Directors as of April 9, 2008.
3) Joined the Board of Directors as deputy employee representative as of April 9, 2008.
4) Ordinary employee representative as of April 9, 2008.
No of
Board
meetings
No of Audit No of Finance
Committee
Committee
meetings
meetings
No of
Remuneration
Committee
meetings
11
10
10
8
11
11
11
3
10
11
11
10
11
3
8
10
10
11
11
7
7
7
7
8
9
9
9
12
13
12
4
9
9
13
7
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 163
Company structure and
organization
The President and Chief Executive Officer –
operational management
The organization is operated in two dimensions:
• legal entities: more than 200 companies in more than 100
countries.
• Operational units: Group Functions (7), business units (3) and
market units (23).
The Board of Directors appoints the President and CEO and the
Group Functions
Executive Vice Presidents. Management of day-to-day operations
Group Functions coordinate the Company’s strategies,
is the responsibility of the President and CEO supported by the
operations and resource allocation and define the necessary
Group Management Team which, in addition to the President and
directives, processes and organization for the effective
CEO, consist of the Heads of Group Functions and the Heads of
governance of the Group. By optimizing common processes,
the business units.
tools and the organization, the Group Functions drive operational
The role of the Group Management Team is to:
excellence across the Company. The Group Functions are:
• Establish long-term vision, Group objectives, 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
Communication, Finance, Human Resources & Organization,
legal Affairs, sales & Marketing, strategy & Operational
Excellence and Technology. The Group Functions also manage
common units like Ericsson Research, iT and shared service
Centers. The heads of Group Functions report to the CEO.
interest to Ericsson.
Business units
Organization and corporate culture
Business units are innovators, developers and suppliers of
competitive, high-quality products, services and customer
Corporate culture has long been acknowledged as a very
offerings. Business units define business and product strategies
important factor for driving behavior, not only for compliance with
and, by optimizing the product development and supply
rules but also in communication, decision making, reaching of
operations, ensure high-quality and competitive solutions.
objectives and striving for efficiency. Respect, professionalism
Business units are responsible for the profitable growth and
and perseverance are the values that are the foundation of the
consolidated results within their respective areas. The business
Ericsson culture, guiding us in our daily work, how we relate to
units reflect the product- and service structure of the business:
people and how we do business. Consequently, executive
Networks, Global services and Multimedia. Business unit heads
management makes communication and development of the
report to the CEO.
Ericsson culture a key task in the management of the Company.
ERiCSSoN’S CoRE vALUES
ERiCSSoN oRGANi ZATioN
PRofESSioNALiSM
• Listen – lead through
innovation
• Keep commitments
– be responsive
• Seek the truth –
know your numbers
RESPECT
• Build strength through
a shared vision
• Qualify everyday –
generate energy
• Diversity as a strength –
provide equal
opportunities
PERSEvERANCE
• Lead change – shape
the future
• Always deliver –
walk the extra mile
• Trusted global partner
for more than a
century!
CEO
Group Functions
Business Unit
Networks
Market units
Research
Business Unit
Global Services
Business Unit
Multimedia
Global Customer
Resources
Multi-Country
Accounts
C
U
S
T
O
M
E
R
S
Sony Ericsson Mobile Communications
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CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Market units
Management and control
Market units are marketing and sales channels and the
Ericsson uses balanced scorecards as a tool for translating
Company’s representatives in the local market environment.
strategic objectives into a set of performance indicators for its
Market units define customer strategies and, by building excellent
operating units focusing primarily on: market and customer
relations with customers and local authorities, drive business
performance, competitive position, internal efficiency, financial
growth. They manage the complete customer relations ranging
performance and employee satisfaction and empowerment.
from marketing to after-sales and support activities. Heads of
Based on the Company’s annual strategy work, these scorecards
market units report to the CEO directly or via a selected member
are updated with targets for each unit for the next year and
of the Group Management Team.
communicated throughout the organization. The balanced
Efficiency and coordination
scorecard is also used as a management tool to align operating
unit goals and personal goals to Company goals, follow up
Each of the business and market units is supported by an internal
progress towards goals and monitor identified risks.
steering group. A steering group is chaired by an appointed
Group-wide policies and directives govern how the
member of the Group Management Team who reports to the
organization works and include important areas, such as a code
CEO. The chairman selects the participation in the internal
of business ethics, policies on roles and responsibilities,
steering group to best support the specific needs of the unit.
segregation of duties, capital expenditures, management of
Joint ventures
intellectual property rights, financial reporting, environmental
matters, and risk management.
in certain areas, the Company has chosen to work with joint
venture partners. The mobile handset partnership with sONY
Processes and IT tools
Corporation in sony Ericsson Mobile Communications has been
As a leading vendor, Ericsson tries to utilize its possible
in operation since 2001. During the year, the Company signed a
competitive advantages through scale of operations and
joint venture agreement with sTMicroelectronics for mobile
therefore has implemented common processes and iT tools
platform technology and wireless semiconductors.
across all its operating units. Through management and
Company management
continuous improvement of these processes and iT tools,
Ericsson reduces cost through standardized operational internal
As defined in the swedish Companies Act and outlined in further
controls and performance indicators.
detail in the work procedure of the Board of Directors, the CEO is
managing the Company’s daily operations. The CEO and his
Risk management
appointed Group Function heads have implemented a
We broadly categorize risks into operational and financial risks.
management system to ensure that the business is managed:
• so that the objectives of Ericsson’s major stakeholders
(customers, shareholders, employees) are fulfilled.
• Within established risk limits and with good internal control.
• so that the Company is compliant with applicable laws, listing
requirements and governance codes and fulfills is corporate
social responsibilities.
Our risk management is based on the following principles, which
apply universally across all business activities and risk types:
• Risk management is an integrated part of the Ericsson Group
Management system.
• Each operational unit is accountable for owning and managing
its risks according to policies, directives and process tools,
with decisions made or escalated according to a well-defined
delegation of authority. Financial risks are coordinated through
The Ericsson Group Management System
our group function Finance.
The Ericsson Group Management system comprises three
elements:
• Management and control elements, i.e. objective setting and
• Risks are dealt with on three levels: in the strategy process, in
the annual planning and target setting, and in the operational
processes by transaction (customer bid/contract, acquisition,
strategy formulation, and steering documents, such as policies
investment, product development project). They are subject to
and directives.
• Operational processes and iT tools.
• Organization and corporate culture.
various process controls such as decision tollgates and
approvals.
A central security unit coordinates management of certain
risks, such as: business interruption, information security/iT and
Ericsson is isO 9001 certified. The management system is an
physical security. A Crisis Management Council deals with ad-
important foundation and it is continuously evaluated and improved
hoc events of a serious nature.
in accordance with the isO requirements.
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 165
Members of the Group Management Team
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 Administration, university of uppsala.
Carl-Henric svanberg holds honorary doctorates at luleå university of
Technology, sweden, and linköping university of Technology, sweden.
Chairman: sony Ericsson Mobile Communications AB.
Board member: The Confederation of swedish Enterprise,
Melker schörling AB and university of uppsala.
Holdings in Ericsson 1): 3,202,528 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
First Executive Vice President and Chief Financial Officer and Head
of Group Function Finance (since October 2007)
Born 1965, Bachelor in Business Administration, university of uppsala.
Board member: sony Ericsson Mobile Communications AB, svenska
Handbollsförbundet. Holdings in Ericsson 1): 18,920 Class B shares.
Background: Prior to these positions Hans Vestberg was Executive
Vice President and Head of Business unit Global services (up to
December 31, 2007) Hans Vestberg has held various positions in the
Company since 1988, including Vice President and Head of Market unit
Mexico and Head of Finance and Control in usA, Brazil and Chile.
Bert Nordberg
Executive Vice President and Chairman of Redback and Entrisphere
(since 2008)
Born 1956, Degree in Electronic Engineering, Malmö, Engineer in the
Marines, Berga, university courses in international Management,
Marketing and Finance, iNsEAD, France. Board Chairman: litos Repro
i Malmö AB. Holdings in Ericsson 1): 22,482 Class B shares.
Background: Prior to assuming this position, Bert Nordberg was
Executive Vice President and Head of Group Function sales and
Marketing (since 2004) and held other various positions within Ericsson.
Johan Wibergh
Senior Vice President and Head of Business Unit Networks
(since 2008)
Born 1963. Master of Computer science, linköping institute of
Technology. Holdings in Ericsson 1): 8,555 Class B shares.
Background: Prior to assuming this position, Johan Wibergh was
President of Ericsson Brazil. Other former experience includes President
of Market unit Nordic and Baltics, Vice President and Head of sales at
Business unit Global services.
Jan frykhammar
Senior Vice President and Head of Business Unit Global Services
(since 2008)
Born 1965. Bachelor of Business Administration and Economics,
university of uppsala. Holdings in Ericsson 1): 906 Class B shares.
Background: Prior to assuming this position, Jan Frykhammar was
Head of sales and Business Control in Business unit Global services,
CFO in North America and Vice President, Finance and Commercial
within the Global Customer Account Vodafone.
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 Mobile Communications AB.
Holdings in Ericsson 1): 37,698 Class B shares.
Background: From 2002 to 2006, Jan Wäreby was Executive Vice
President and Head of sales and Marketing for sony Ericsson Mobile
Communications.
Carl-Henric Svanberg
Hans vestberg
Bert Nordberg
Johan Wibergh
Jan frykhammar
Jan Wäreby
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CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
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 uppsala.
Holdings in Ericsson 1): 1,216 Class A shares and 24,911 Class B shares.
Background: Prior to assuming this position, Carl Olof Blomqvist was a
partner of Mannheimer swartling law firm.
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 Ericsson 1): 18,618 Class B shares.
Background: Prior to assuming this position, Håkan Eriksson was senior
Vice President and Head of Research and Development. He has held
various positions within Ericsson since 1986.
Marita Hellberg
Senior Vice President and Head of Group Function Human Resources
and Organization (since 2003)
Born 1955, Bachelor of Human Resources Management, stockholm
university, Advanced Management Program, Cedep, France.
Board member: utbildningsradion.
Holdings in Ericsson 1): 23,325 Class B shares.
Background: Prior to assuming this position, Marita Hellberg was
senior Vice President of Human Resources of the NCC Group.
Torbjörn Possne
Senior Vice President and Head of Group Function Sales and
Marketing (since 2008)
Born 1953. Master of science, Royal institute of Technology,
stockholm. Holdings in Ericsson 1): 16,586 Class B shares.
Background: Prior to assuming this position, Torbjörn Possne was
Head of Market unit Northern Europe and Global Customer Account
Deutsche Telekom and also held other various positions within Ericsson.
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 member: stronghold and the stockholm Chamber of
Commerce. Holdings in Ericsson 1): 17,403 Class B shares.
Background: Prior to assuming this position, Henry sténson was Head
of sAs Group Communication.
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 and Astronautics,
MiT, Boston, usA. Board chairman: Absolent AB. Board member:
VKR Holding A/s.
Holdings in Ericsson 1): 35,646 Class B shares.
Background: Prior to assuming this position, Joakim Westh was senior
Vice President and Head of Group Function Operational Excellence.
Member of Assa Abloy Executive Management Team. Before this,
Joakim Westh was a partner with McKinsey & Co. inc.
up to June 30, 2008 Kurt Jofs, former Executive Vice President and
Head of Business unit Networks and Björn Olsson, former Executive
Vice President and Deputy Head of Business unit Networks were
members 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.
Carl olof Blomqvist
Håkan Eriksson
Marita Hellberg
Torbjörn Possne
Henry Sténson
Joakim Westh
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 167
Auditors
Ericsson’s external independent auditors are elected by the
Audit Committee pre-approval
policies and procedures
shareholders at the Annual General Meeting for a period of four
The Audit Committee makes recommendations to the Board of
years. The auditors report to the shareholders at shareholders’
Directors regarding the auditors’ performance and submits
Meetings.
The auditors:
• update the Board of Directors regarding the planning, scope
recommendations regarding auditor’s fees to the Nomination
Committee. it reviews the scope and execution of audits performed
(external and internal) and analyzes the result and the cost.
and content of the annual audit.
The Audit Committee has established pre-approval policies
• Examine the year-end financial statements and report findings
to assess accuracy and completeness of the accounts and
and procedures for services other than audits performed by the
external auditors. For other matters, an auditor submits an
adherence to accounting procedures and principles.
application to the CFO. if supported by the CFO, the application
• Advise the Board of Directors of additional services performed
(non-auditing), the consideration paid and other issues that are
is presented to the Audit Committee for final approval.
Pre-approval authority may not be delegated to management.
needed to determine the auditors’ independence. For further
The policies and procedures include a list of prohibited services.
information on the contacts between the Board and the
auditors, please see “Work of the Board of Directors” earlier in
the report.
All Ericsson’s quarterly reports are reviewed by the auditors.
Statutory auditors
PricewaterhouseCoopers AB was elected at the Annual General
Meeting 2007 for a period of four years until the close of the
Annual General Meeting 2011.
PricewaterhouseCoopers AB has appointed Bo Hjalmarsson,
Authorized Public Accountant, to serve as auditor in charge.
Bo Hjalmarsson is also auditor in charge at other large
companies such as Eniro, sony Ericsson Mobile
Communications, lundin Petroleum, Vostok Nafta, Vostok
Gas and Duni.
Fees paid to external auditors
Ericsson paid the fees (including expenses) listed in the table in
Notes to the Consolidated Financial statements – Note C31,
“Fees to auditors” in the Annual Report for audit-related and
other services.
The Audit Committee reviews and pre-approves any non-audit
services to be performed by the external auditors to ensure the
auditors’ independence.
such services fall into two broad headings:
• General pre-approval services can be pre-approved by the
Audit Committee without consideration to specific case-by-
case service. Tax, transaction, risk management, corporate
finance, attestation and accounting services and general
services have received a general pre-approval of the Audit
Committee, provided that the estimated fee level for the project
does not exceed sEK 1 million. The external auditors must
advise the Audit Committee of services rendered under the
general pre-approval policy.
• specific pre-approval – all other audit-related, tax and other
services must receive specific pre-approval. The Audit
Committee Chairman has the delegated authority for specific
pre-approval, provided service fees do not exceed sEK 2.5
million. The Chairman reports any pre-approval decisions to
the Audit Committee at its scheduled meetings.
Disclosure controls and
procedures
Ericsson has controls and procedures in place to make sure that
information to be disclosed under the securities Exchange Act of
1934, and under Ericsson’s agreements with NAsDAQ OMX
stockholm and NAsDAQ, is 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
in 2003. One of the main tasks of the Disclosure Committee is to
monitor the integrity and effectiveness of the Company’s
disclosure controls and procedures.
Ericsson also has investments in certain entities that we do not
control or manage. Our disclosure controls and procedures with
respect to such entities are substantially more limited than those
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CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
we maintain with respect to our subsidiaries.
During the year, management, with the participation of
independence requirements
Ericsson’s President and CEO and CFO, supervised and
The Ericsson Board of Directors is subject to, and complies with,
participated in an evaluation of the effectiveness of our disclosure
a variety of independence requirements. However, it has sought
controls and procedures. As a result, Ericsson’s President and
and received exemptions from certain sarbanes-Oxley Act and
CEO and CFO concluded that the disclosure controls and
NAsDAQ requirements, including those that are contrary to
procedures were effective at a reasonable assurance level.
swedish law, see “NAsDAQ Corporate Governance
There were no changes to our internal control over financial
Exemptions”.
reporting during the period covered by the Annual Report 2008
that have materially affected, or are likely to materially affect, our
internal control over financial reporting.
Ericsson’s disclosure policies
Listing requirements of NASDAQ OMX
Stockholm
• No more than one member of the board elected by the
shareholders may work as a senior executive in the company
or its subsidiaries.
Ericsson’s financial disclosure policies are designed to facilitate
transparent, informative and consistent communication with the
• The majority of the directors elected by the shareholders’
meetings must be independent of the company and its
investment community on a fair and equal basis, which will reflect
management.
in a fair market value for Ericsson shares. We want our
• At least two of the directors who are independent of the
shareholders and potential investors to have a good
company and its management must also be independent of
understanding of how our Company works, our operational
the company’s major shareholders. One of these directors
performance, our prospects and the risks we face that jeopardize
must be experienced in requirements placed on a listed
the fulfilment of our opportunities.
company.
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.
• Consistent – we aim for consistent and comparable disclosure
The Swedish Code of Corporate Governance
independence requirements on the board of directors (excluding
employee representatives):
• No more than one member of the board elected by the
shareholders may work as a senior executive in the company
within and between reporting periods.
or its subsidiaries.
• simple – information should be provided in as simple a manner
as possible, so readers gain the appropriate level of
• A majority of the directors elected by the shareholders’
meetings must be independent of the company and its
understanding of our business operations and performance.
management.
• Relevant – we focus our disclosure on what is relevant to
Ericsson’s stakeholders or required by regulation or listing
• At least two of the directors who are independent of the
company and its management must also be independent of
agreements, to avoid information overload.
the company’s major shareholders.
• Timely – we utilize well-established 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.
• A reflection of best practice – we strive to ensure that our
disclosure is in line with industry norms.
Our website (www.ericsson.com/investors) includes
comprehensive information on Ericsson, including an archive of
independence requirements on the Audit Committee:
• The majority of Audit Committee members must be
independent of the company and senior management.
• At least one member of the committee must be independent of
the company’s major shareholders.
• A board member who is part of senior management may not
be a member of the audit committee.
independence requirements on the remuneration committee:
• Committee members must be independent of the company
our annual and interim reports, on-demand-access to recent
and the senior management.
news and copies of presentations given by senior management
at industry conferences. information on our website does not
form part of this document.
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 169
The NASDAQ Marketplace Rules
independence requirements on the board of directors:
• A majority of the members of the board of directors must be
internal control over financial
reporting for the year 2008
independent within the meaning of the NAsDAQ rules.
This section has been prepared in accordance with the swedish
Ericsson has obtained an exemption from NAsDAQ allowing
Code of Corporate Governance, section 10.5, and is thereby
employee representative directors to be exempt from NAsDAQ’s
limited to internal control over financial reporting.
independence requirements.
since the Company is listed in the united states, the
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 sarbanes-Oxley Act of 2002.
requirements for establishing and maintaining internal controls
over financial reporting and for management to report on its
assessment of the effectiveness of internal controls over financial
reporting, outlined in the sarbanes-Oxley Act (sOX) apply. The
Company has implemented detailed controls, documentation
and testing procedures in accordance with the COsO framework
for internal control, issued by the Committee of sponsoring
The sarbanes-Oxley Act of 2002 includes a specific exemption
Organizations of the Treadway Commission, to ensure
for non-executive employee representatives.
compliance with sOX. Management’s internal control report
NASDAQ Corporate Governance Exemptions
Form 20-F, which will be filed with the sEC in the united states.
Pursuant to a 2005 amendment to NAsDAQ’s Marketplace Rules,
During 2008, the Company has continued to work with the
foreign private issuers such as Ericsson may follow home-
improvement in design and execution of its financial reporting
according to sOX will be included in Ericsson’s Annual Report on
country practice in lieu of certain NAsDAQ corporate governance
controls.
requirements.
Before the amendment was adopted, NAsDAQ’s Marketplace
Internal control over financial reporting
Rules provided that foreign private issuers could, upon
Ericsson has integrated risk management and internal control
application, be exempt from certain of its corporate governance
into its business processes. As defined in the COsO framework,
requirements when these requirements were contrary to the
components of internal control are a control environment, risk
laws, rules or regulations, or generally accepted business
assessment, control activities, information and communication
practices of the issuer’s home jurisdiction.
and monitoring.
Ericsson has received (and is entitled to continue to rely
thereon under the 2005 amendment) exemptions from NAsDAQ’s
Control environment
corporate governance requirements under the Marketplace Rules
The Company’s internal control structure is based on the division
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
common market practice respectively.
• Employee representatives on the Board to attend all Board and
all Committee meetings (including the Audit Committee), in
of labor between the Board of Directors and its Committees and
the President and CEO and the Company has implemented a
management system that is based on:
• The Company’s organization and mode of operations, with
well-defined roles and responsibilities and delegations of
authority.
• steering documents, such as policies and directives, and a
Code of Business Ethics.
• several well-defined processes for planning, operations and
accordance with swedish laws concerning attendance and
support.
decision making processes.
in addition, Ericsson relies on the exemption provided by the
2005 amendment to overcome contradictions between NAsDAQ
and swedish law requirements regarding quorums for its
meetings of holders of common stock.
The most essential parts of the control environment relative to
financial reporting are included in steering documents and
processes for accounting and financial reporting. These steering
documents are updated regularly to include, among other things,
changes to laws, financial reporting standards and listing
requirements, such as iFRs and sOX. The processes include
specific controls to be performed to ensure high-quality reports.
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CORPORATE GOVERNANCE REPORT
ERiCssON ANN uAl REPORT 2008
Risk assessment
based on a common iT platform with a common chart of account
Risks related to financial reporting include fraud and loss or
and common master data.
embezzlement of assets, undue favorable treatment of counter-
parties at the expense of the Company. Other risks of material
Information and communication
misstatements in the financial statements can occur in relation to
The Company’s information and communication channels
recognition and measurement of assets, liabilities, revenue and
support completeness and correctness of financial reporting, by
cost or insufficient disclosure. identified types of risks are
making internal process instructions and policies regarding
mitigated through segregation of duties in the Company’s
accounting and financial reporting accessible to all employees
business processes and through appropriate delegation of
concerned and through regular updates and briefing documents
authority, requiring specific approval of material transactions.
regarding changes in accounting policies and reporting and
Accounting and financial reporting policies and directives cover
disclosure requirements.
areas of particular significance to support correct accounting,
subsidiaries and operating units make regular financial and
reporting and disclosure.
Control activities
management reports to internal steering groups and Company
management, including analysis and comments on financial
performance and risks. The Board of Directors receives financial
The Company’s business processes include financial controls
reports monthly. The Audit Committee of the Board has
regarding the approval and accounting of business transactions.
established a “whistle blower” procedure for reporting violations
The financial closing and reporting process has controls for
in accounting, internal controls and auditing matters.
recognition, measurement and disclosure, including the
application of critical accounting policies and estimates, for
Monitoring
individual subsidiaries and in the consolidated accounts. All legal
The Company’s financial performance is reviewed at each Board
entities, business units and market units in Ericsson have their
meeting. The committees of the Board fulfill important monitoring
own dedicated controller functions which participate in the
functions regarding remuneration, borrowing, investments,
planning and evaluation of each unit’s performance. Regular
customer finance, cash management, financial reporting and
analysis of the financial results for their respective units cover the
internal control. The Audit Committee and the Board of Directors
significant elements of assets, liabilities, revenues, costs and
review all interim and annual financial reports before they are
cash flow. Together with analysis of the consolidated financial
released to the market. The Audit Committee also receives
statements performed at Group level, this important element of
regular reports from the external auditors. The Audit Committee
internal control ensures that the financial reports do not contain
follows up on any actions taken to improve or modify controls.
material errors.
The Company’s process for financial reporting is reviewed
For external financial reporting purposes, additional controls
annually by management and forms a basis for evaluating the
performed by a Disclosure Committee established by Company
internal management system and internal steering documents to
management ensure that all disclosure requirements are fulfilled.
ensure that they cover all significant areas related to financial
The Company has implemented controls to ensure that the
reporting. The shared service center management continuously
financial reports are prepared in accordance with its internal
monitors the accounting quality through a set of performance
accounting and reporting policies and iFRs as well as with
indicators. Compliance with policies and directives is monitored
relevant listing regulations. To ensure that the Company’s CEO
through annual self-assessments and representation letters from
and CFO can assess the effectiveness of the controls in a way
heads and controllers in all subsidiaries as well as from business
that is compliant with sOX. The Company also maintains detailed
units and market units. The Company’s internal audit function,
documentation on internal controls related to accounting and
which reports to the Audit Committee, performs independent
financial reporting, as well as records on the monitoring of the
audits.
execution and results of such controls. A review of materiality
levels related to the financial reports has resulted in the
implementation of detailed process controls and documentation
in almost all subsidiaries. Ericsson has also implemented overall
entity-wide controls in all subsidiaries related to the control
environment and compliance with the policies and directives
related to financial reporting. To ensure efficient and
standardized accounting and reporting processes, the Company
has established several shared services centers, performing
accounting and financial reporting services for subsidiaries
ERiCssON ANN uAl REPORT 2008
CORPORATE GOVERNANCE REPORT 171
Glossary
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
communications, for voice and data
services and also video services
such as tV.
ARPU
average revenue per user.
ATM
(asynchronous transfer Mode)
a communication standard
for transmission and management
of high-speed packet-switched
networks.
Broadband
Data speeds that are high enough
to allow transmission of multimedia
services with good quality.
Capex
capital expenditure.
CATV
cable-tV.
Centrex solutions
centrex is a telephony service for
enterprises, delivered by a service
provider.
Downlink
= to your device.
DSL access
Digital subscriber line
technologies for broadband
multimedia communications in fixed
line networks. examples: ip-Dsl,
aDsl and VDsl.
EDGE
a 3G 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
subscription penetration below 60
percent.
Exabyte
= billion gigabytes.
FTTx
Fiber-to-the-x, e.g. FttH (Fiber-to-
the-home) refers to fiber optic
broadband connections to
individual homes.
GbE (Gigabit Ethernet)
ethernet is a key technology for
high-performance broadband
networks.
GDP
Gross domestic product
the total annual cost of all finished
goods and services produced
within a country.
GPON
(Gigabit passive optical network)
used for fiber-optic communication
to the home (FttH).
GPRS
(General packet radio service)
a packet-switched technology (2.5G)
that enables GsM networks to
handle mobile data communications
at rates up to 115 kbps.
HSPA
(High speed packet access)
enhancement of 3G/WcDMa that
enables mobile broadband. a
subscriber can download files to a
3G mobile device at speeds of
several Mbps.
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.
IPTV
(ip television) a technology that
delivers digital television via fixed
broadband access.
IPX
(internet payment eXchange)
the global payment and messaging
delivery solution for sMs, MMs,
Web and Wap.
LTE
(long-term evolution)
the next evolutionary step of mobile
technology beyond Hspa, allowing
data rates above 100 Mbps.
Managed services
Management of operator networks
and/or hosting of their services.
MOU
Minutes of use.
Opex
operating expenses.
PBX
(private Branch eXchange)
a telephone exchange that serves
a particular business or office.
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 replaces 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. integrates ip-
telephony and the legacy circuit-
switched part of the network.
TDM
time division multiplexing, legacy
technology for circuit switching.
Telecom grade
99.999 percent availability;
performance requirement on
telecom networks.
VoIP
Voice over ip, same as ip telephony.
WCDMA
(Wideband code Division Multiple
access) a 3G mobile communication
standard. WcDMa builds on the
same core network infrastructure as
GsM.
WDM
(Wavelength division multiplexing)
uses multiple light wavelengths to
increase the transmission capacity
of fiber cables for optical networks.
Uplink
= from your device, e.g. to the
internet.
172
ericsson annual report 2008
GLOSSARY AND FiNANciAL teRmiNOLOGY Financial terminology
Stockholders’ equity per share
stockholders’ equity divided by the
number of shares outstanding at
end of period, basic.
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
probability during a certain period
of time.
Working capital
current assets less current non-
interest-bearing provisions and
liabilities.
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,
Depreciation 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 365 days.
Payment readiness
cash and cash equivalents and
short-term investments less short-
term borrowings plus long-term
unused credit commitments.
payment readiness is also shown as
a percentage of net sales.
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
stockholders of the parent
company as a percentage of
average stockholders’ equity
(based on the amounts at
January 1 and December 31).
Capital employed
total assets less non-interest-
bearing provisions and liabilities.
Capital turnover
net sales divided by average
capital employed.
Cash conversion
cash flow from operating activities
divided by net income reconciled 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 quarter 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.
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, projections 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 telecommunications 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 Harley Marketing communications and paues Media
Photography Felix oppenheim, andreas lind
Reprographics alfaprint aB 2009
Printing alfaprint aB 2009
ericsson annual report 2008
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ERICSSON ANNUAL REPORT 2008
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