Ericsson Annual Report 2009

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Telefonaktiebolaget LM Ericsson
SE-126 25 Stockholm, Sweden
Telephone +46 10 719 0000
www.ericsson.com

Printed on Maxi Offset and TerraPrint Silk – chlorine free
paper that meets international environmental standards
EN/LZT 138 0301 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2010

SMART
THINKING
SMART LIVING

ERICSSON
ANNUAL REPORT 2009

SMART
THINKING

Imagination is a gift that needs to be
nurtured and developed. At Ericsson
this is of the essence.

We have a rich heritage of

innovation from creative employees.

It is the creativity of our

employees that gives us the edge
in a highly competitive marketplace.
The world is changing all the time
and we strive to be one step ahead,
creating the patents, the standards,
the technology and the solutions
which empower people, business
and society.

SMART
LIVING

Technology is our business and it
has the power to change lives and
to make the world a better place.

Environmentally-friendly

communications solutions improve
people’s lives all around the world.
They make sustainable economic
growth a reality.

People everywhere, in mature
or growing markets, urban or rural
areas, can use new and exciting
services which make daily tasks
easier, improve safety or simply
make life more fun.

CONTENTS

Annual Report 2009

2009 Snapshot

2009 Milestones

Letter from the CEO

8 Five-Year Summary

Letter from the Chairman

10 Board of Directors’ Report*

34 Consolidated Financial Statements*

39 Notes to the Consolidated Financial Statements*

92 Parent Company Financial Statements*

97 Notes to the Parent Company Financial Statements*

113 Risk Factors*

117 Auditors’ Report

118 Forward-Looking Statements

119 Share Information

123 Market Trends

129

Information on the Company

138 Remuneration Report

143 Shareholder Information

144 Corporate Governance Report 2009

167 Glossary, Financial Terminology and Exchange Rates

* Chapters covered by the Auditors’ Report,
constituting the legal annual report.

Annual publications
The Ericsson Annual Report describes Ericsson’s
financial and operational performance during 2009.
This publication includes a Corporate Governance Report.

Ericsson issues a separate Corporate Responsibility Report.

THE ERICSSON

VISION

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 access and share ideas and information

whenever and wherever they want. As the

leading supplier of communication networks

and services, Ericsson plays a vital role in

making such a world a reality.

Ericsson Annual Report 2009 | CONTENTS

2009 SNAPSHOT

THIS IS ERICSSON
Founded in 1876, Ericsson is a leading
provider of communications networks,
related services and multimedia
solutions. Through our joint ventures
ST-Ericsson and Sony Ericsson, we
are also a major provider of handsets.
Our experience building networks
in more than 175 countries gives
us unique customer and consumer
insights, and our extensive portfolio
of telecommunications solutions and
intellectual property (patents) offer a true
business advantage. We are committed
to working with our customers and
partners to expand the borders of
telecommunications for the benefit of
people everywhere.

Our operations have been divided
into segments that create competitive
advantage and best meet the needs of
our global customer base.

> Networks

Technology leadership, a broad product portfolio and scale enable Ericsson to excel
in meeting the coverage, capacity and network evolution needs of fixed and mobile
operators. We provide products for all major standards as well as all essential
elements of a network on an end-to-end solutions basis.

> Services

Expertise in network design, rollout, integration, operation and customer support,
combined with a global structure and robust local capabilities, enables us to
understand and respond to the unique challenges of each customer. As a result
we are able to capitalize on the trend for operators to outsource a broader range
of activities.

> Multimedia

Innovative application platforms, service delivery and revenue management
solutions, combined with leading content developer and application provider
relationships, enable Ericsson to help customers create exciting and differentiating
multimedia services.

> SONY ERICSSON

The complementary strength of Sony Ericsson further enhances our consumer
perspective for superior end-to-end offerings. Sony Ericsson offers exciting
consumer experience through phones, accessories, content and applications.

> ST-ERICSSON

ST-Ericsson represents the link between infrastructure and handsets in Ericsson’s
offering. They provide a market-leading portfolio of wireless platforms and
semiconductors.

NET SALES
(SEK billion)

SALES BY REGION 2009
Ericsson net sales (SEK billion)
and change year-over-year

OUR LARGEST MARKETS
Percent of total sales

208.9

206.5

179.8

187.8

153.2

25.4

41%

20.1

–14%

–13%

2009

44.6

10% 7%

65.8

–4%

50.7

Western Europe

Central and Eastern Europe,
Middle East and Africa

Asia Pacific

Latin America

North America

4% 4%

C hina

India

U nited States

Ind onesia

Italy

U nited King d o m

Brazil

Japan

S pain

2005

2006

2007

2008

2009

2009 SNApShOT | Ericsson Annual Report 2009

performance
In a progressively more challenging environment during the year,
Ericsson’s market shares were well maintained, adjusted operating margin
was slightly improved, and cash conversion was well above target.

Grow faster than the market
In the economic slowdown, the market for GSM/WCDMA network
equipment and related services is estimated to have declined by more
than 10%. Ericsson’s sales for comparable units were down 9%,
adjusted for currency and hedging effects. A decline in Networks in
line with the market was partly offset by an increase in Professional
Services, driven by strong growth in managed services. Reported
Multimedia sales increased by 5% for comparable units. The
Multimedia market is still too fragmented to make relevant overall
market growth estimates.

Best-in-class operating margins
Operating margin, excluding JV results and restructuring, improved
slightly to 12% (11%) despite lower volumes and remained the highest
among major listed competitors. Multimedia showed the greatest
improvement, up significantly from breakeven levels in 2008.

Cash conversion of more than 70%
Cash conversion was well above the target at 117% (92%), reflecting
management’s ongoing focus on improving working capital efficiency
as well as a lower level of turnkey projects.

CURIOUS
MINDS

Ericsson holds 25,000 patents

worldwide. We are proud of our heritage

of innovation and believe that our

commitment to R&D is what keeps us

among the top players in telecoms.

Our people are the best in the business.

Our ideas are setting the standard. Our

innovation is born out of a desire to

create solutions for a better world.

KEY DEVELOPMENTS

Two billion subscribers supported by
Ericsson 24 hours a day, 7 days a week.

Ericsson provides managed services to
network operators which together serve
370 million subscribers.

North America set to become Ericsson’s
largest and fastest growing market.

Ericsson’s presence in North America
elevated – Chief Technology Officer
relocated to Silicon Valley.

Ericsson is the only supplier selected to
participate in all major 4G/LTE projects.

A new brand launched with the value
proposition: “Innovating to Empower”.

Both joint ventures make progress on
returning to report profits.

FINANCIAL RESULTS
IN SHORT

NET SALES
SEK 206.5 billion

OpERATING INCOME*
SEK 24.6 billion

OpERATING MARGIN*
12 percent

NET CASh
SEK 36.1 billion
(Dec. 31, 2009)

EARNINGS
pER ShARE
SEK 1.14

* Excluding restructuring charges and share in
earnings of JVs

Ericsson Annual Report 2009 | 2009 SNApShOT

2009 MILESTONES

JANUARY-MARCH

APRIL-JUNE

Verizon Wireless chose ericsson as one of two primary
suppliers to build its LTe network infrastructure. Verizon
Wireless will be the first operator to offer commercial LTe
services in the United States. Later in the year, Metro-PCS
chose ericsson as the sole supplier of its LTe network
buildout. Both operators are new ericsson customers.

China Unicom selected ericsson to supply 3G networks and
services for 15 Chinese provinces and to upgrade its GSM
networks to support 2G/3G interoperability in 10 provinces.

The ST-ericsson joint venture was launched as a leading
supplier of semiconductors and platforms for mobile devices
to four of the top five handset manufacturers.

With ericsson as its partner for mobile learning, the BBC
World Service Trust uses the creative power of media to
reduce poverty and promote human rights in Bangladesh.
The Financial Times reported that more than 300,000
people had already signed up to learn english over their
mobile phones.

In the first agreement of its kind in Africa, leading mobile
operator Zain awarded ericsson the management
responsibility for more than 4,000 sites across Nigeria,
including network operations, field operations and business
support systems.

In support of the initiative Caring for Climate of the UN
Global Compact, ericsson’s CeO Carl-Henric Svanberg
addressed the UN Secretary General Ban-Ki Moon during
the World Business Summit on Climate Change. The
message was that a modernized telecommunications
infrastructure can significantly contribute to the creation of
a carbon-lean economy.

The world’s largest upgrade of a live mobile network was
accomplished at a record pace for Vodafone essar in India.
ericsson replaced more than 10,500 of the operator’s GSM
radio sites in just 13 months, reaching a peak rate of one site
every minute and without disrupting service to more than 13
million subscribers.

SETTING THE
STANDARD

Operators gain support in the evolution to LTe

with an industry-leading evolved Packet Core

portfolio, minimizing expenditure and ensuring

a smooth transition process.

The portfolio will be introduced through

software upgrades for a simple step-by-step

migration.

2009 MILESTONES | ericsson Annual Report 2009

JULY-SEPTEMBER

OCTOBER-DECEMBER

ericsson’s first major services contract in North America is
also the world’s largest, valued at USD 4.5–5 billion over
seven years. Operator Sprint and its 50 million customers
benefit from ericsson’s leadership and best-in-class
economies of scale in network services.

ericsson signed framework agreements worth USD 1.7
billion for 2G/3G mobile communication equipment and
related services for 2009 with two major Chinese telecom
operators: China Mobile and China Unicom.

All three telecom operators in China selected ericsson to
provide fixed broadband access to millions of consumers
in nine provinces.

ericsson was selected by AT&T as one of two domain
suppliers of wireline access products and services. This
breakthrough win for ericsson in North America significantly
accelerates AT&T’s ability to bring new broadband services
to the market.

With the acquisition of Nortel’s CDMA and LTe business,
ericsson became the largest supplier of infrastructure and
services in North America, based on ericsson reported
sales and publicly reported sales and estimated sales for
ericsson’s main competitors.

Shipments of ericsson’s mobile broadband modules almost
reached 1.5 million units. Asus, the inventor of the netbook,
started to use ericsson’s embedded modules and ericsson
is now a supplier to 3 of the top 5 PC manufacturers.

ericsson announced low-cost mobile broadband for the
world’s three billion GSM subscribers through a software
upgrade. The eDGe evolution upgrade lets people enjoy
the benefits of 3G performance – a great opportunity in
countries where the mobile phone is the most affordable
way to access the internet.

Swedish TV network TV4 outsourced the operation of its
nationwide playout services. Addressing the broadcasting
industry substantially expands ericsson’s opportunities –
not only for managed services, but also for the multimedia
product portfolio.

WELCOME TO
TOMORROW

China’s three operators invest in future-

proof infrastructure and bring HDTV,

high speed broadband and quality voice

services to millions of people in China.

Users will be able to enjoy IPTV, high-

speed internet and VoIP for the first time.

ericsson Annual Report 2009 | 2009 MILESTONES

LETTER from the CEO

LOOKING BACK
Dear fellow shareholders,

While the current economic environment affects all parts

of society the longer-term fundamentals for our industry
remain solid. Over the past decade the number of mobile
subscriptions in the world has grown from some 700 million
to over 4.5 billion. Mobile telephony is reaching a penetration
beyond all expectations. Ten years ago it was all 2G; today 3G
is the prevailing technology, mobile broadband is a reality and
telecom is literally changing the world.

ericsson has played a vital role in bringing the benefits of
mobile broadband to the majority of the world’s population. What
we do greatly improves people’s lives and society at large – in
short, what we do shapes people’s lives and the world around
us. One of my strongest memories is from the day we launched
the network in Dertu, one of the Millennium Villages. Their chief,
one of the camel drivers, came up to me and said, “Today our
village is reborn”. People are now able to share ideas and in-
formation and accomplish things that were not possible before.
In the past ten years the telecom industry and ericsson have

transformed; from focus on voice to focus on internet, from
hardware to software and from providing network equipment to
providing solutions including services.

During the same period, many of our competitors have
been forced to leave the arena and new ones have entered.
We work harder than ever to outperform them and match our
customers’ needs.

We have extended our leadership in mobile communications

by building a highly successful services business which today
accounts for almost 40 percent of our total Group sales. With
less hardware, increased network complexity, and the move to
all-IP, today is very much about making it work and supporting
our customers in running and maintaining networks and
realizing business models and rollout plans. During 2009 we
captured additional strategic contracts in the services area and
we now manage networks with 370 million subscribers.

The acquisition of Nortel’s CDMA business during 2009,

on the heels of important breakthrough contract wins in
North America, positioned ericsson as the leading provider of
telecoms technology and services in the United States and
Canada. We have also firmly established ourselves in Silicon
Valley where much of the internet development takes place.
We also gained strategic contracts for the radio standard
LTe (Long-Term evolution) which offers even greater network
speeds and in December 2009 we passed another significant
milestone with the worlds’ first commercial launch of an LTe
network in Sweden.

LETTER FROM THE CEO | ericsson Annual Report 2009

“IN THE PAST
TEN YEARS
THE TELECOM
INDUSTRY AND
ERICSSON HAVE
TRANSFORMED.”

The industry has changed and our ability to change with it, and

indeed to lead the change, is perhaps our most important asset.
New and compelling challenges lie ahead and as a company
ericsson must continue to drive the transformation of our industry.
My years as President and CeO of ericsson have been

the best of my professional career. Telecom is one of the
most exciting industries to work in – so dynamic, challenging
and competitive. I truly believe that telecom and the entire
Information and Communication Technology (ICT) sector,
particularly broadband networks, will form the backbone of the
digital 21st century infrastructure, helping industries with the
necessary reductions in their carbon footprint.

In closing, I will continue to follow and be involved in
ericsson’s development in my role as a Board member. I am
proud and grateful to have had the opportunity to be at the helm
of this great company and I will remember all the extraordinary
people I have had the honor to work with, customers, partners
and colleagues alike.

Carl-Henric Svanberg
Former President and CeO

“IN THIS SEA OF
CONNECTIVITY
WE TAKE
THE ROLE OF
NAVIGATOR.”

LOOKING FORWARD
Dear shareholders,

2009 was a year of mixed trends and with varied operator

investment behavior. Some markets were impacted by the
financial climate while others continued to show growth.

Our Group sales for the full year, however, were flat and the

operating margin increased slightly. Despite the challenging
economic environment we maintained market shares, cash flow
was good and our financial position remained strong. During
the year we undertook significant cost reduction activities.
These, in combination with large losses in our joint ventures,
affected our earnings negatively. However, cost reductions will
result in reduced cost base going forward and our joint ventures
remain on track to return to profit.

It is now 2010 and we have a new decade ahead of us. A
decade of new opportunities and new challenges. Telecoms is
no longer about voice only. We do not just connect places and
people. We also connect machines and devices. We connect
the developing world to the developed world, rural areas to
urban areas. Telecoms is the nervous system of the world.

In ericsson we have a vision for this new decade – that there
will be 50 billion connected devices. We will connect people with
for example heart problems to remote monitoring systems so

they can stay in the comfort of their homes, and we will connect
our cars and trucks to smart road systems for safer driving and
better fuel economy. Broadband networks will be the backbone
of our smart cities, where houses will be connected so we can
monitor and manage power consumption.

In this world the challenge will lie in dealing with the

complexity of connecting all these devices. And we cannot fail.
Patients must be able to rely on their health monitoring services.
Transport companies must be sure that they can minimize gas
consumption by smart routing and up-to-date traffic information.
In this sea of connectivity we take the role of navigator. We
must support our customers and show them the way. This will
require us to always put our customers first. Always have the
best competence and drive innovation throughout the customer
relationship.

Our business is about both technology and services. We
have to be consultants; we have to be able to develop complex
network management systems, we have to be able to integrate
systems and solutions from many different suppliers and
vendors. In addition, we should be able to deliver the best
revenue management solutions and multimedia applications the
consumers have ever seen. everything must be based on
IP software.

This new decade requires a lot from us. We will have to
change our ways of working. Our success will be determined
by our ability to see beyond technology, stay ahead of our
customers and solve problems before they even arise.

In preparing ourselves to be successful in this new decade,
we will need to continuously adjust to changing economic and
competitive conditions while staying the course to our longer-
term objectives. We will continue to proactively take actions
to safeguard our financial position, leading technology and
customer relationships. In order to drive shareholder value we
focus on four financial targets; we want to grow the Company
faster than the market, maintain best-in-class operating margins,
have a healthy cash generation and grow earnings in the JVs.

We have exciting developments ahead. The future will require

us to be agile, brave and focused on performance in all we do.

I am proud and honored to lead ericsson into a new decade
where we will undoubtedly break new ground. even more people
and devices will share information across the world.

Hans Vestberg
President and CeO

ericsson Annual Report 2009 | LETTER FROM THE CEO

Five-Year Summary

For definitions of the financial terms used, see Glossary, Financial Terminology and exchange Rates.

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)
– end of period, basic
– average, basic
– average, diluted
Additions to property, plant and equipment
Depreciation and write-downs/impairments of property,
plant and equipment
Acquisitions/capitalization of intangible assets
Amortization and write-downs/impairments of intangible
assets
Research and development expenses
– as percentage of net sales

Ratios
Operating margin excluding joint ventures
Operating margin
eBITDA margin
Cash conversion
Return on equity
Return on capital employed
equity ratio
Capital turnover
Inventory turnover days
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 2009, as proposed by the Board of Directors.

FIVE-YEAR SUMMARY | ericsson Annual Report 2009

2009

Change

2008

2007

2006

2005

206,477
5,918
325
4,127

269,809
99,079
181,680
36,071
9,606
139,870
1,157

–1%
–64%
–67%
–65%

–6%
–1%
–
4%
–4%
–1%
–8%

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

40,653

–

40,354

33,404

21,552

30,860

1.15
1.14
2.00 1)

43.79

3,194
3,190
3,212
4,006

3,502
11,413

8,621
33,055
16.0%

6.5%
2.9%
8.7%
117%
2.6%
4.3%
52.3%
1.1
68
2.9
88,960
43.1%

82,493
18,217
94,829

–68%
–68%
8%
–1%

–
–
–
–3%

13%
–

55%
–2%
–

–
–
–
–
–
–
–
–
–
–
5%
–

3.54
3.52
1.85
44.21

3,185
3,183
3,202
4,133

3,105
1,287

5,568
33,584
16.1%

8.0%
7.8%
11.9%
92%
8.2%
11.3%
49.7%
1.2
68
3.1
84,917
40.6%

6.87
6.84
2.50
42.17

3,180
3,178
3,193
4,319

2,914
29,838

5,459
28,842
15.4%

12.5%
16.3%
20.8%
66%
17.2%
20.9%
55.1%
1.2
70
3.4
64,678
34.4%

8.27
8.23
2.50
37.82

3,176
3,174
3,189
3,827

3,038
18,319

4,479
27,533
15.3%

16.7%
19.9%
24.1%
57%
23.7%
27.4%
56.2%
1.3
71
3.9
67,454
37.5%

5%
–10%
–13%

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

2,438
2,250

3,364
24,059
15.7%

20.1%
21.6%
25.4%
47%
26.7%
28.7%
49.0%
1.2
74
4.1
78,647
51.3%

56,055
21,178
93,879

Letter from the Chairman

Dear sharehoLDer,

As we head into 2010 and a new decade, we should consider
the phenomenal transformation of the telecoms industry over
the past decade, including the convergence of the telecom,
IT and media industries. Through this and the explosive
development in fixed and mobile internet usage, mobile
communications has had a remarkable growth, with the number
of subscribers increasing from 700 million in 2000 to more
than 4.5 billion in 2009. Significant consolidation has occurred
among operators as well as equipment suppliers.

I would like to express my sincere thanks to Carl-Henric

Svanberg for his outstanding helmsmanship during his
time with the Company. Ericsson’s key to success during
these years has been Carl-Henric Svanberg’s willingness to
seek opportunity through change and proactively address
challenges.

The Board’s work in 2009 had a significant focus on
strategic matters. Ericsson’s strategy to leverage its leading
position and technological prowess to invest in future growth
areas remains unchanged.

The key future opportunity for the industry and Ericsson will
be the increased traffic generated by mobile broadband, driven
by internet and social media, and a shift from connecting
places and people to connecting devices and applications.
Systems integration skills and application enablers will play
an increasingly important role in this market development. The
Company intends to build a strong position in these areas to
complement the current leadership in network technologies
and operations.

sheet and a strong cash position. This enables the Company to
pursue emerging opportunities created by the market situation.
The debate around executive compensation has intensified.
Benchmarking with global companies similar to Ericsson shows
that we have a conservative but competitive compensation
structure that rewards performance and effectively aligns
employees’ longer-term interests with those of shareholders’.

I am confident that these principles remain appropriate and

Operator and consumer sensitivity to the macro-economy

reasonable.

is an important factor closely monitored by the Board.
During 2009, Ericsson was affected in the second half by
the economic downturn as many operators reduced their
network investments. This was largely offset by good sales
in the first half and by increasing sales of services and
multimedia solutions. The Board also addressed the Company’s
restructuring program, the Nortel acquisition, and the expanded
presence in Silicon Valley to support acceleration of the
move to all-IP technology. Through key contract wins and the
acquisition of parts of Nortel, Ericsson became the largest
supplier of network technology and services in North America.
Ericsson’s joint ventures Sony Ericsson and ST-Ericsson

were strongly affected by the market decline, and forceful
actions have been taken to restore their profitability.

That said, I believe Ericsson remains well positioned in
relation to its peers, with sustained revenues and margins and
in certain areas increased market shares, a healthy balance

Looking to the future, I welcome Hans Vestberg as our new
CEO and wish him all the best in his new role. The Board and
I are convinced that Hans has the qualities it takes to lead
Ericsson, and we give him and his new team our full support.
Change and challenge seem to be the by-words for the
world today. If embracing change and proactively addressing
challenges brings rewards, then the coming years certainly look
exciting for Ericsson.

I sincerely appreciate your support during the year.

Michael Treschow
Chairman of the Board

Ericsson Annual Report 2009 | LETTER FROM THE CHAIRMAN

BOARD OF DIRECTORS’
Report 2009

This Board of Directors’ Report is based on Ericsson’s consolidated

financial statements, prepared in accordance with IFRS as endorsed

by the EU. The application of reasonable but subjective judgments,

estimates and assumptions to accounting policies and procedures

affects the reported amounts of assets and liabilities and contingent

assets and liabilities at the balance sheet date as 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

Contents

Business Drivers 2009 ...................................... 11

Operational Goals and Results ......................... 12

Vision and Strategy .......................................... 13

Financial Results of Operations........................ 14

Financial Position ............................................. 16

are designed to facilitate analysis by indicating Ericsson’s underlying

Cash Flow ......................................................... 18

performance, however, these measures should not be viewed in

isolation or as substitutes to the IFRS measures. A reconciliation of non-

IFRS measures with the IFRS results can be found on page 14.

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.

118) and “Risk Factors” (p. 113).

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.

The terms “Ericsson”, “the Group”, and unless the context

reasonably requires otherwise, also “the Company”, all refer to

Telefonaktiebolaget LM Ericsson and its subsidiaries. Unless otherwise

noted, numbers in parentheses refer to the previous year (i.e. 2008).

Business Results .............................................. 20

Legal and Tax Proceedings .............................. 25

Material Contracts ............................................ 25

Corporate Governance ..................................... 26

Sustainability and Corporate Responsibility .... 28

Risk Management ............................................ 30

Parent Company .............................................. 32

Post-Closing events ......................................... 33

Board Assurance .............................................. 33

2009 IN SUMMARY

Economic conditions impacted second half

Maintained market shares well
in all segments

COST REDUCTIONS GIVING EFFECTS –
STABLE MARGINS

STRONG FINANCIAL POSITION

Net sales
SEK 206.5 billion

Flat despite unfavorable economic conditions,
driven by data traffic and services

Operating margin
12% excl. JVs and
restructuring charges
Margin sustained due to cost saving activities

Cash flow
SEK 24 billion

Lower income offset by strong working capital
management. Net Cash remained strong.

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

BuSINESS DRIVERS 2009
Five major trends affected our markets and operations in 2009:

Accelerated mobile data growth
Data traffic in developed markets is increasing dramatically,
generating sales for additional network capacity.
Network modernization and IP
Many operators started migration to all-IP core networks.
Technology shift – 2G/3G/4G
In 2009, ericsson’s 3G sales surpassed 2G, however not
yet offsetting the decline in GSM. The first commercial LTe
(Long-Term evolution) network was launched.
Impact from economic conditions
Demand for telecom infrastructure started to decline mid-
2009, affecting sales in Networks – particularly in some
developing markets, where the general economic downturn
was exacerbated by weak currencies.
Operator focus on efficiency
Sales of services increased, not only managed services but
also consulting and systems integration, driven by higher
network complexity and operator focus on cost reductions.

North America
During 2009, ericsson significantly strengthened its position in
North America. A number of key contracts were won: LTe with
Verizon and Metro PCS, the largest managed services contract
ever with Sprint and a domain supplier agreement with AT&T for
wireline access products. The Company also acquired Nortel’s
CDMA and LTe businesses in North America.

Tough times for the JVs
Both Sony ericsson and ST-ericsson were impacted by the
decline in handset demand in 2009. Sony ericsson’s situation
was worsened by an aging product portfolio. Both JVs reported
losses and initiated aggressive cost restructuring programs and

are on track to return to report profits. New CeOs and chairmen
of the Boards were appointed in both JVs.

ICT and the climate
In 2009, climate change was on the agenda for governments.
During the year, Carl-Henric Svanberg addressed the UN,
promoting that a focused utilization of ICT solutions could
reduce CO2 emissions by 15-20 percent. The ICT industry in
itself contributes less than 2 percent to the emissions.

Telecom is a long-term growth industry
The Company is convinced that the factors driving industry
growth are robust and should result in continued increased
demand. The growth will be driven by the combined effects of
the following:

>
>

Subscriber growth in emerging markets, supported by
cheaper handsets.
Increased coverage and use.
ever faster mobile broadband communications, improving
user efficiency and experiences.
Data traffic driven by IP-based mobile broadband; in
developed markets driven by the convenience of mobility, and
in emerging markets by the lack of fixed broadband access.
New multimedia applications and communication between
various new devices.

Competition
Competition remained intense. After the consolidation in recent
years, there are fewer vendors – all with comprehensive product
portfolios. ericsson has maintained or increased its market
shares during the year.

EVERYWHERE
CARE

Telecom infrastructure and mobile applications provide the

foundation for life-saving digital health solutions.

As part of the Millennium Villages Project, m-health is improving

care for people in the most remote areas. As well as dramatically

improving standards in healthcare provision, the project also

stimulates communication, development and commerce.

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 11

OpERATIONAl GOAlS
AND RESulTS

ericsson aims to be the preferred business partner to its
customers with an ultimate goal of sustainable long-term value
creation. Faster than market sales growth, a best-in-class
operating margin and a healthy cash conversion are key to the
fulfillment of this goal.

As a market leader, ericsson combines leading technology

and services skills to develop superior solutions that deliver
competitive advantage. ericsson believes that highly satisfied
customers and empowered and motivated employees are key
to success. Several annual key performance indicators are used
regarding shareholder value creation, customer satisfaction and
employee engagement.

Shareholder value creation
Although margins in 2009 remained below historic levels, the
Company strengthened its market position in strategically
important areas, such as: LTe/4G technology and commercial
contracts, market share in the US and managed services. This
combined with a strong balance sheet, efficient and leaner
processes after ambitious restructuring, and continued strong
customer relations provided the means for value creation also
in the macro-economic headwind. The share price increased
during the year and a dividend was paid for a total shareholder
return of 15 percent in 2009.

Management uses several metrics to monitor performance:
Faster than market sales growth
Ericsson’s sales for comparable units decreased by 9
percent, adjusted for currency and hedging effects. Due
to the effects of the economic slowdown and to weaker
demand for GSM equipment, the market for GSM/WCDMA
equipment and related services is estimated to have

declined by more than 10 percent in USD terms. Segment
Networks’ sales for comparable units in constant currencies
declined in line with the market. Based on external
analyses and reported results by ericsson and its main
competitors, the Company believes its market shares were
well maintained. A number of breakthrough contracts were
signed which should enable the Company to grow faster
than the market. Sales in Professional Services grew by
8 percent in local currencies. Sales for comparable parts of
Multimedia grew by 5 percent. The overall market growth for
Multimedia is difficult to assess,
as the segment is very fragmented.
Best-in-class operating margin
Based on reported results for 2009, the operating margin for
the Group, excluding joint ventures and restructuring charges,
was 12 (11) percent and remains the highest among the
Company’s main competitors that are publicly listed.
Cash conversion of over 70 percent
The cash conversion rate for 2009 was 117 (92) percent,
reflecting a strong focus on cash flow with a significant
reduction in operating assets.

Customer satisfaction and employee engagement
In the annual independent customer satisfaction survey,
approximately 9,700 employees from 380 operators around
the world were polled to assess their satisfaction with ericsson
compared to its main peers. In 2009, ericsson maintained a
level of excellence.

An employee survey is also independently conducted every

year. In 2009, 91 percent of employees participated in the
survey. The Human Capital Index, which measures employee
contribution in adding value for customers and meeting
business goals, remained at a high level.

VALUE CREATION

CUSTOMER SATISFACTION AND
EMPLOYEE ENGAGEMENT

Growth

Grow faster than
the market

Margin

Best-in-class
margins

Cash Flow

Cash conversion
>70%

2008

2009

SEK
208.9
billion

SEK
206.5
billion

Operating
margin
11%*

Operating
margin
12%*

*excluding JVs and
restructuring charges

Cash
conversion
92%

Cash
conversion
117%

Excellence

Strength

Potential

Improvements
needed

2005

2006

2007

2008

2009

Customer satisfaction

Employee engagement

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

VISION AND STRATEGY
ericsson’s vision of an all-communicating world is rapidly
becoming a reality as the convergence of the telecom, internet
and media sectors gains momentum. ericsson envisions
continued evolution, from having connected some
1.5 billion places to connecting more than 5 billion people and
50 billion devices. The Company envisions that anything that
can benefit from being connected will be connected, mainly via
IP-based wireless communications.

Mobile broadband at the forefront
Following the unprecedented growth of mobile telephony
is a rapidly expanding range of mobility-based devices and
applications. The accelerating penetration of smartphones and
mobile broadband usage are early signs of this development.
extending network coverage and increasing data speeds,
combined with devices that have large screens, intuitive user
interfaces and multimedia capabilities, enhances the user
experience and stimulates demand for mobile-broadband
services. Once areas have ubiquitous coverage, machine-to-
machine communication enables a large variety of existing
services to be enhanced, such as media, governmental,
utilities, industry automation, banking and transport.

Spurring socio-economic development
ericsson’s mission is to empower people, business and
society through innovation, industry leadership and a long-
term commitment to the vision of an all-communicating
world. In the course of making people’s lives easier and more
productive, ericsson is spurring socio-economic development
and a better environment which brings the Company’s vision
ever closer to reality.

Leveraging the competitive dynamics
The Company’s strategy is driven by the competitive dynamics of
the telecom market and ericsson’s position, the combination of
which gives rise to three strategic imperatives:

economies of scale and scope are prerequisites for
sustainable value creation. Industry standards govern
product design and functionality, making it challenging for
equipment suppliers to differentiate on product capabilities
alone. Therefore, the Company strives to combine
technology leadership with leadership in services.
The bargaining power of equipment suppliers depends
primarily on their installed base. Operators not only look
for the best products but also for long-term business
partnerships that they can rely on to deliver end-to-end
solutions for lower total cost of ownership, the ability to
minimize time-to-market, strong professional services
capabilities, and access to world-class subject matter
experts.
Primary end-to-end suppliers with well-entrenched local
presence, backed up by global resources and a proven
track record, have a competitive advantage. The Company
seeks to be a full systems solutions house with a broad but
integrated product portfolio combined with superior technical
competence, for example in systems integration.

Guiding principles
The guiding principles for attainment of the Company’s
strategic imperatives include:

>
>

customer intimacy; highly qualified employees working
closely with the customer to create effective solutions
continuous process improvements and innovation
scale in delivery and technical solutions.

NuRTuRING
NETWORKS

Sustainable mobile network solutions simplify

network management, lower costs and reduce

power consumption.

evo RAN is a future-proof solution which means

operators can run GSM, WCDMA and LTe as a

single network and enjoy the highest capacity at

the lowest cost to the environment.

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 13

FINANCIAL RESULTS OF OPERATIONS

ABBREvIATED InCOmE STATEmEnT wITh RECOnCIlIATIOn IFRS – nOn-IFRS mEASURES

SEK billion

Net sales
Cost of sales

Gross income
Gross margin %
Operating expenses
Operating expenses as % of sales
Other operating income and expenses
Operating income before share in earnings of JVs
and associated companies
Operating margin % before share in earnings of JVs
and associated companies

Share in earnings of JVs and associated companies

Operating income

Operating margin %

Financial income and expense, net
Taxes
net income
ePS diluted (SeK)

non-IFRS
measures
2009

non-IFRS
measures
2008

Percent
change

Restructuring Restructuring
charges 2009 charges 2008

–1%
0%

–3%

–6%

206.5
–132.1

74.4
36.0%
–52.9
25.6%
3.1

208.9
–132.1

76.8
36.8%
–56.4
27.0%
3.0

24.6

23.4

11.9%

–6.1

18.5

9.0%

11.2%

0.4

23.9

11.4%

–4.2

–7.1

–2.5

–4.2

IFRS
2009

206.5
–136.3

70.2
34.0%
–60.0
29.0%
3.1

IFRS
2008

208.9
–134.6

74.3
35.5%
–60.6
29.0%
3.0

–11.3

–6.7

13.3

16.7

–22%

–1.3

–12.6

–0.9

–7.6

6.5%

8.0%

–7.4

5.9

–0.4

16.3

2.9%

7.8%

0.3
–2.1
4.1
1.14

1.0
–5.6
11.7
3.52

Non-IFRS measures are used in the income statement as supplemental information to the IFRS results. Since there were significant
restructuring costs during 2008 and 2009, but with relatively little benefit in 2008 and consequently significant impact on reported
results and margins both years, 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. For more details on the restructuring activities and corresponding charges, please see Note C5 - “Expenses by Nature”.

Sales sustained in weaker market
Increased sales in the first half of 2009 were offset in the
second half by impact from the economic slowdown. Overall,
sales declined marginally from last year to SeK 206.5 billion.
Sales for comparable units were stable year over year, i.e.
excluding SeK 2.7 billion of sales from the acquired Nortel
business in North America in the fourth quarter and SeK 5.2

billion in 2008 from the divested PBX and mobile platform
operations. Adjusted also for effects of exchange rates and
hedging, sales declined 9 percent. Lower sales in Networks
were largely offset by higher sales in Professional Services and
Multimedia. The economic downturn coupled with tighter credit
supply impacted operator spending, in particular in certain
emerging markets.

SERvICES’ ShARE OF SAlES InCREASES

OPERATInG InCOmE AnD OPERATInG mARGIn
excluding share in earnings of JVs and restructuring charges

31%

33%

38%

69%

67%

62%

100%

80%

60%

40%

20%

n
o

i
l
l
i

b
K
E
S

13%

23.4

11%

23.4

12%

24.6

14%

12%

10%

2007

2008

2009

2007

2008

2009

Total Sales

SEK 188 billion

SEK 209 billion

SEK 207 billion

Services

Products

Operating income

Operating margin

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

The demand varied considerably between markets. Among our
largest markets, the US, China, UK and Turkey had good sales
increases. Australia, India and Japan were stable, whereas
sales in Brazil, Indonesia, Italy, Pakistan and Spain declined.
Several important contracts were won in 2009: four LTe
contracts, the appointment as fixed access domain supplier to
AT&T and a services contract with Sprint in the US.

Gross margin stable excluding restructuring charges
Gross margin declined only slightly as effects of price pressure,
increased share of services sales, and the initial transition costs
for the Sprint contract were largely offset by cost cutting and
restructuring efforts.

Operating expenses excluding restructuring charges
were reduced
Operating expenses declined year-over-year as a result of
restructuring activities and the spin-off of mobile platforms. The
Company continues to focus on innovations and R&D. however,
spending as a percentage of sales was 13 percent compared to
15 percent in 2008 due to cost reductions and efficiency gains.

Operating margin excluding share in earnings of Jvs
and restructuring charges increased slightly
Restructuring and other cost reduction measures have lowered
the breakeven point. The operating margin in Multimedia
increased significantly, reflecting a more narrow business focus.

Share in earnings of Jvs and associated companies
declined SEK 6.5 billion year-over-year
Both Sony ericsson and ST-ericsson were adversely affected
by the lower handset sales during the economic downturn.
Both companies have undertaken ambitious restructuring
activities, and Sony ericsson is improving its product portfolio
focusing on mid- to high-end phones.

Under new management, both JVs are well on track to return to
report profits.

Restructuring increased and will continue into 2010
In the beginning of the year, a program to reduce annual run
rate of costs by SeK 10 billion was launched, following the
2008 program aiming at SeK 6–7 billion. In the third quarter,
additional SeK 5–6 billion of savings were targeted with
anticipated costs of the same magnitude. Full effects are
expected to be achieved in the second half of 2010, assuming
current level of operations. This year’s restructuring charges
were SeK 11.3 (6.8) billion, relating to activities to reduce
production costs, reduce product variants and platforms,
increase the re-use of software, consolidate R&D activities,
and improve administrative processes. This resulted in fewer
platforms and solutions and was coupled with write-downs
of capitalized development costs and acquired IPR assets for
affected products.

Earnings per share (EPS) diluted down 68 percent
ePS diluted declined from SeK 3.52 last year to SeK 1.14
this year, largely driven by the losses in our JVs and the
restructuring program.

Employees increased by net 3,750 in 2009
Headcount increased to 82,500 (78,750), largely as a result
of new managed services contracts. About 2,500 employees
from the acquired Nortel CDMA and LTe operations will
be included from 2010. The additions were partly offset by
reductions due to restructuring and the transfer of mobile
platforms to ST-ericsson. The competence and capabilities of
the workforce is increasingly service and software oriented.

RESEARCh AnD DEvElOPmEnT PROGRAm

EmPlOYEES BY CATEGORY

expenses (SeK billion) 1)
As percent of Net sales
employees within R&D
as at December 31 2)
Patents 2)

2009

2008

2007

27.0
13.1%

30.9
14.8%

28.8
15.4%

18,300
25,000

19,800
24,000

19,300
23,000

1) excluding restructuring charges.
2) The number of employees and patents are approximate.

13%

22%

2009

48%

R&D

Services

Supply

Sales

Other

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 15

FINANCIAL POSITION

COnSOlIDATED BAlAnCE ShEET (ABBREvIATED)
December 31, SEK billion

2009

2008

ASSETS
Non-current assets, total
– of which intangible assets
– of which property, plant and equipment
– of which financial assets
– of which deferred tax assets
Current assets, total
– of which inventory
– of which trade receivables
– of which other receivables/financing
– of which short-term investments,

cash and cash equivalents

Total assets

87.4
48.2
9.6
15.3
14.3
182.4
22.7
66.4
16.6

76.7
269.8

87.2
48.2
10.0
14.1
14.9
198.5
27.8
75.9
19.8

75.0
285.7

EQUITY AnD lIABIlITIES
equity
Non-current liabilities

– of which post-employment benefits
– of which borrowings
– of which other non-current liabilities

Current liabilities

– of which provisions
– of which current borrowings
– of which trade payables
– of which other current liabilities

2009

2008

141.0
43.3
8.5
30.0
4.8
85.5
12.0
2.1
18.9
52.5

142.1
39.5
9.9
24.9
4.7
104.1
14.0
5.5
23.5
61.0

Total equity and liabilities 1)

269.8

285.7

1) Of which interest-bearing liabilities and post-employment benefits SeK 40.7 billion (SeK 40.4 billion in 2008).

In 2009, despite the strategic investments in ST-ericsson
and the Nortel operations and a difficult macro-economic
business environment, a healthy capital structure and equity
ratio were maintained and the debt maturity profile was
significantly improved.

Intangible assets flat with acquisitions offset by
amortizations and write-downs
Added intangible assets from the Nortel acquisition of
SeK 8.8 billion were offset by amortizations and impairment
losses. Impairment losses on acquired intangibles were
SeK 4.3 (0) billion in 2009, attributable to restructuring.

Financial assets up slightly
Financial assets increased slightly, with the investment in
ST-ericsson partially offset by the reduced value of investments
in JVs, attributable to their reported losses.

Customer financing did not increase and deferred tax assets

were slightly reduced with utilization of tax loss carryforwards.

Strong reductions in receivables and inventory
Considerable progress was made in the second half to achieve
stable days sales outstanding (DSO) at 106 and inventory days
at 68. However, targeted levels have not yet been reached and
the improvement efforts will be continued.

Property, plant and equipment slightly down
The Company’s assets are largely related to test equipment
for in-house manufacturing, R&D and services, including our
network operations centers. A large share of manufacturing and
IT operations are outsourced and most properties are leased.

Cash remained strong at SEK 77 (75) billion
Due to a strong cash flow, a good level of cash and short-term
investments was maintained. A strong liquidity is deemed
important to keep flexibility for volatility in sales and cash flows
and to be able to take advantage of opportunities in the market.

KEY RATIOS

120

100

102

106

35.5%

16.3%

7.8%

2005

2006

2007

2008

2009

Days sales outstanding

Target is less than 90 days

Inventory turnover days

Target is less than 65 days

Payable days

Target is more than 60 days

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

Equity down SEK 1.1 billion
Stockholders’ equity decreased by SeK 1.1 billion. The net
income of SeK 4.1 billion and a capital increase of SeK 0.7
billion, attributable to the employee stock purchase plan, were
more than offset by the dividend of SeK 6.3 billion. However, the
equity ratio was maintained at a healthy level of 52 (50) percent.

Return on equity 2.6 (8.2) percent
The decline in return on equity (ROe) was primarily a
consequence of JV losses and the restructuring charges.

Return on capital employed 4.3 (11.3) percent
The return on capital employed (ROCe) declined to 4.3 percent.
excluding restructuring charges, ROCe would have been 11.2
(15.5) percent .

Pension liabilities down SEK 1.4 billion after employer
contributions
Post-employment benefits related to defined benefit plans
declined to SeK 8.5 (9.9) billion in 2009. A liability increase
of SeK 1.2 billion, due to lower interest rates, was more than
offset by higher values of plan assets of SeK 1.2 billion and
employer contributions of SeK 2.1 billion to trust funds. The
funded ratio (plan assets as percentage of defined benefit
obligations) increased to 76 (68) percent.

Provisions declined due to larger cash outlays
The total amount for provisions declined to SeK 12.4 (14.4)
billion, largely attributable to SeK 4.7 billion of larger cash outlays
than last year, of which SeK 2.5 billion related to restructuring.

Trade payables declined by SEK 4.6 billion
The number of payable days improved some from 55 to 57
days, close to the target of 60 days or more, despite the
macroeconomic conditions, where some suppliers have had to
be supported with shorter payment terms in a tight credit market.

Debt maturity profile improved
During the year, the Company increased borrowings by SeK
1.7 billion and considerably improved the maturity profile. Debt
maturing in 2009 of USD 0.5 billion and in 2010 of eUR 0.5
billion were replaced with a 7-year loan of USD 0.6 billion and
a 4-year loan of eUR 0.6 billion. In addition to borrowings, the
Company also has unutilized committed credit facilities of USD
2.0 billion available, maturing in 2014.

Credit Ratings
Credit ratings were unchanged during 2009, remaining at “solid
investment grade”: Moody’s at Baa1 and Standard & Poor’s at
BBB+.

Sony Ericsson borrowings guaranteed
ericsson and SONY have on a 50/50 basis guaranteed eUR
350 million of borrowings for general business purposes, as
improved liquidity was needed following Sony ericsson’s weak
results and the restructuring program. The amount guaranteed is
not deemed significant, considering ericsson’s financial position.

Off-balance sheet arrangements
There are currently no material off-balance sheet arrangements
that have, or would be reasonably likely to have, a current
or anticipated effect on the Company’s financial condition,
revenues, expenses, result of operations, liquidity, capital
expenditures or capital resources.

DEBT mATURITY PROFIlE

n
o

i
l
l
i

b
K
E
S

2010

2011

2012

2013

2014

2015

2016

2017

Notes and bonds

Loan from the European Investment Bank

Other financial liabilities

Loan from the Swedish Export Credit Corporation

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 17

CASH FLOW

CASh FlOw (ABBREvIATED)
JAnUARY–DECEmBER
SEK billion

Net income
Income reconciled to cash
Changes in operating net assets
Cash flow from operating activities
Cash flow from investing activities
– of which capital expenditures, sales of PP&E, product development
– of which acquisitions/divestments, net
– of which short-term investments for cash management purposes and other investing activities
Cash flow before financing activities
Cash flow from financing activities

Cash conversion (Cash flow from operating activities divided by income reconciled to cash)

Gross cash (Cash, cash equivalents and short-term investments)

Net Cash (Gross cash less interest-bearing liabilities and post-employment benefits)

2009

4.1
21.0
3.5
24.5
–37.5
–4.9
–18.1
–14.5
–13.0
–1.7

117%

76.7

36.1

2008

11.7
26.0
–2.0
24.0
–8.5
–4.1
1.8
–6.2
15.5
–7.2

92%

75.0

34.7

Cash flow from operations stable at SEK 24.5 billion
A lower net income was offset by non-cash items, such as the
losses in JVs, depreciation, amortization of intangibles, largely
related to restructuring, and strong working capital reductions,
resulting in a similar cash flow from operations as in 2008.

Cash flow from financing activities SEK –1.7 billion
Dividends paid of SeK –6.3 billion were partly offset by
increased borrowings of SeK 4.3 billion and other financing
activities of SeK 0.2 billion.

Strong cash conversion at 117 (92) percent
The cash conversion rate was 117 (92) percent, well above the
target level of 70 percent. The percentage increase was largely
attributable to the strong improvement in operating net assets
and the lower income reconciled to cash.

Cash out from investing activities SEK –37.5 billion
Cash outlays for recurring investing activities increased slightly
to SeK –4.9 billion.

Acquisitions/divestments during the year were net SeK
–18.1 billion, with the major items being the formation of the
ST-ericsson joint venture, the minority stake in LHS and Nortel’s
CDMA and LTe businesses.

Cash outflow for short-term investments for cash management
purposes and other investing activities was net SeK –14.5 billion,
largely attributable to SeK –17.1 billion of short-term investments
driven by the strong cash flow from operations.

ChAnGE In GROSS CASh 2009

Operating cash flow 24.5 b

Investing activities –20.4 b
excl. short-term investments

Financing activities –1.7 b

n
o

i
l
l
i

b
K
E
S

100

Change in gross cash SEK 1.7 bILLION

Gross cash
opening balance

Net Income

Adj. reconcile
to cash

Working capital

Capex

Acquisitions/
divestments

Dividend

Other financing
activities

Gross cash
closing balance

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

Restricted cash
Cash balances in certain countries with restrictions on transfers
of funds to the Parent Company as cash dividends, loans or
advances amounted to SeK 8.9 (8.2) billion.

Capital expenditures
Amounts for annual capital expenditures are normally around
two percent of sales. This level corresponds to the needs for
keeping and maintaining the current capacity level, including
the continuous introduction of new technology and methods.
The expenditures are largely related to test equipment in R&D
units and network operations centers and to production and
test equipment in manufacturing and repair operations.

The Board reviews the Company’s investment plans and

proposals.

CAPITAl EXPEnDITURES 2005–2009

SeK billion
Capital expenditures

– of which in Sweden
as percent of net sales

2009
4.0

1.3
1.9%

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%

Capital expenditures in relation to sales are expected to

remain at about two percent. The Company has sufficient
cash and cash generation capacity to fund expected capital
expenditures as well as the acquisitions of the Nortel/GSM
operations and Pride Spa and the contribution to the Swedish
pension trust fund without external borrowings.

We believe that the Company’s property, plant and

equipment and the facilities that the Company now occupies
are suitable for its present needs in most locations. As of
December 31, 2009, no material land, buildings, machinery
or equipment were pledged as collateral for outstanding
indebtedness.

HOME
FROM
HOME

Connected Home Gateway

software gives users the freedom to

access and interact with their home

multimedia devices, services and

media, wherever they are.

Consumers can use their mobile

devices to communicate directly

with their home computer, TV or

media player and access their

personal media library on the move.

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 19

Business Results
Operator investments are increasing in mobile broadband,
driven by a strong ramp up of data traffic. The broadband
growth has not yet offset the decline in GSM sales, which in
2009 was accelerated due to the current economic climate.
Operator investment patterns varied significantly between
regions and countries. A number of developing markets
became increasingly cautious, while others, including large
markets such as China and the US, showed good growth.
There was a continued strong demand for services targeting
our customers’ operational efficiency.

Regional overview

SALES PER REGION AND SEGMENT 2009

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

23.8
32.7
50.5
13.0
17.1
137.1

18.3
12.9
12.2
5.9
6.7
56.1

66.4%
–3%

27.2%
15%

2.4
5.1
3.1
1.1
1.6
13.3

6.4%
5%

44.6
50.7
65.8
20.1
25.4
206.5

100%
–1%

–14%
–4%
4%
–13%
41%
–1%

1) Central and eastern europe, Middle east and Africa.

Sales in Western Europe decreased by –6 (–2) percent for
comparable units with growth of professional services and
broadband more than offset by lower GSM sales. The growing
demand for mobile broadband and professional services
is expected to continue, as is the decline for GSM. The
macro-economic development led to a weaker demand for
replacement handsets but mobile phone usage appeared to be
largely unaffected and mobile broadband traffic continued to
show strong growth.

In Central and Eastern Europe, Middle East and Africa

(CEMA), sales decreased by –4 (+9) percent, despite
continued network buildouts in a number of markets, as the
region has been more affected than most by the macro-
economic development. Many countries within the CeMA
region have low penetration levels and consumer demand
remains robust even if some operators are currently unable or
unwilling to invest at healthy levels. A similar situation is seen in
other emerging markets such as Latin America and Asia Pacific.

Asia Pacific remained Ericsson’s largest region with
a sales increase of +4 (+16) percent, fuelled by continued
good demand in China and India. The Company has a leading
position in India, where subscribers are expected to ultimately
exceed one billion from the current 496 million. Auctions
for 3G licenses in India were postponed to 2010. Although
Chinese suppliers have significantly increased their domestic
market share, ericsson maintains a strong market position in
China. Political unrest and effects of the economic slowdown
negatively affected sales growth in certain countries, such as
Indonesia, Pakistan and Bangladesh.

Latin American sales decreased by –13 (+25) percent,
reflecting lower demand across the region compared to strong
growth over the last couple of years. Demand for mobile
broadband continues to develop well, but delays in licensing of
new spectrum are causing operators to hold back investments
in new technologies and applications.

North American sales increased by +41 (+34) percent,

mainly driven by demand for mobile broadband and
professional services. With a number of breakthrough contracts
for LTe, fixed access and services and the acquisition of
Nortel’s CDMA and LTe businesses, the Company is well
positioned for continued growth and is now the largest supplier
of technology and services to network operators in the region.
Market shares were well maintained and the Company

retains its ambition to grow faster than the market.

GROWinG
tHe nORtH
AMeRiCAn
FOOtPRint

ericsson becomes the primary vendor

in the North American market, securing

its future in the region.

ericsson strengthened its position in

North America with the acquisition of

Nortel’s CDMA and LTe businesses

and groundbreaking deals with Verizon,

Sprint, Metro-PCS and AT&T.

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

SALES BY REGION 2009
ericsson net sales (SeK billion)
and change (percent) year-over-year

25.4

41%

44.6

20.1

–14%

–13%

2009

65.8

–4%

50.7

Western Europe

Central and Eastern Europe,
Middle East and Africa

Asia Pacific

Latin America

North America

Networks
Overall operator demand for mobile GSM/WCDMA network
equipment and related services is estimated to have declined
by more than 10 percent in 2009. At the same time consumer
demand continued to grow, the number of mobile subscriptions
increased to a total of almost 4.6 billion and data traffic
accelerated.

Network sales were down by –3 (+10) percent to SeK
137.1 (142.0) billion. Sales for comparable units declined by 5
percent, i.e. excluding SeK 2.7 billion of sales from acquired
Nortel operations. Adjusted also for currency and hedge
effects, sales declined in line with the market. Lower GSM
sales, particularly in high-growth markets such as China,
contributed to the decline. Sales in WCDMA continued to show
good growth driven by demand for mobile broadband.

GSM shipments reached their all-time-high volume in 2008.
This year, ericsson’s WCDMA sales surpassed that of GSM for
the first time. WCDMA growth did not offset the GSM decline.
Mobile broadband continues to be in focus as more and
more networks are being upgraded. Smartphones, netbooks
and notebooks drive data traffic and revenues for operators,
resulting in demand for network expansions and upgrades.

The global network coverage from WCDMA is still less than
half of that of GSM. In China, the 3G licenses were awarded early
2009. ericsson participated in China Unicom’s WCDMA rollout,
the largest and fastest ever. Another achievement was the world’s
largest live network upgrade in record time for Vodafone essar in
India, reaching a peak replacement rate of one radio base station
every minute. India is expected to award 3G licenses in 2010.
For the next generation wireless technology, 4G/LTe,
ericsson won key contracts with Verizon, Metro PCS, NTT
DoCoMo and TeliaSonera. The industry support for LTe is very
strong and this technology is expected to play an important role
in many markets with suitable spectrum. ericsson is leading the
transformation and convergence of the core network with the

largest installed base of all-IP networks based on Softswitch
and IP Multimedia System (IMS) technology.

The LTe core network is all-IP. To meet the demand for
this new all-IP core, ericsson has introduced the industry’s
most comprehensive evolved Packet Core portfolio which
will support LTe network introduction. The portfolio is built on
ericsson’s existing packet core products and new functionality
will be introduced through software upgrades.

The increased data traffic driven by mobile broadband
continues to create demand for transmission capacity for
mobile backhaul. ericsson offers a wide range of solutions
to remove bottlenecks in the transport network. Successful
mobile backhaul networks were completed in Turkey, Sweden,
Canada and the US in 2009. Sales of optical and microwave
transmission solutions to fixed as well as mobile operators
developed in line with the market.

In the fixed access area, the Company had break-in wins for

fiber (GPON) connection in the Americas and in China.
Operators are evolving from legacy circuit-switched
networks to all-IP, in both fixed and mobile networks, and
this creates opportunities for ericsson. A new Silicon Valley
campus has been established with the intention of driving the
convergence of IP and mobile networks and reaching out to
new partners in mobile broadband markets. The Company
remains optimistic regarding growth opportunities for all-IP
networks with IP routing, IMS and transmission.

With the acquisition of the Nortel assets for CDMA and

LTe, the Company strengthened its ability to serve North
America’s mobile operators. The acquisition significantly
expands ericsson’s footprint in this market, particularly as
operators in this region are emerging as early adopters of LTe
technology. The agreement also includes certain patents and
patent licenses relating to CDMA and LTe. Going forward, R&D
expenses are expected to be relatively low in CDMA compared
with other technologies.

networks sales
seK 137.1 billion

– of which SEK 23.1 billion network rollout

NETWORKS SALES
OF TOTAL

NETWORKS SALES
BY REGION
(SeK billion and percent)

SEK 137.1
billion

17.1

23.8

9%
66%

66%

12%
13

12%
17%

17%

> Stable margins despite drop in sales

> Data growth drives backhaul and IP router sales

2009

2009
24%

24%

32.7

11%

operating margin
excl. restructuring charges

–3%

sales growth

37%

50.5

Networks

Western Europe

Professional Services

Multimedia

Central and Eastern Europe,
Middle East and Africa

Asia Pacific

Latin America

North America

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 21

Consulting and systems integration also had encouraging

developments during the year, particularly in revenue
assurance and support systems transformation, exemplified
by a multi-country contract for revenue assurance with
Mobilkom Group of Austria and a service assurance contract
with Wataniya in Algeria. Operational consulting is also
an area of growth, exemplified by a contract with Claro in
Guatemala (fixed and wireless).

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.
Services expertise and experience, in combination with
technology leadership and business understanding, enable
the Company to take on a prime integrator role in complex
deployment and transformation projects.

Professional Services
Professional Services sales continued to show good growth,
increasing by 15 (14) percent to SeK 56.1 (49.0) billion. Growth
measured in local currencies amounted to 8 (13) percent.
However, sales were negatively affected by the reduced scope
of a managed services agreement and somewhat lower sales
of project-related services, reflecting the slowdown in network
sales. Managed services was one of the main drivers for the
sales increase, growing by 22 (17) percent to SeK 17.4 (14.3)
billion, significantly outpacing the market. More than 60 percent
of revenues in Professional Services are now of a recurring
nature.

As the professional services market develops, there are many
opportunities for project business, but operators are also seeking
longer-term partnerships for a competitive edge. Combined with
an expanding managed services market, this should help sustain
a healthy level of recurring business for ericsson.

ericsson is the clear leader in managed services and at
year end 2009 ericsson-managed network operations served
over 370 (250) million users. Despite a higher proportion of
managed services sales from new contracts with associated
start-up costs, Professional Services’ operating margin
remained in the mid-teens at 15 (16) percent. This is due to
increased efficiency in the delivery organization.

ericsson won several milestone contracts for managed
services during the year. These include Sprint and Zain, the
first full-scope managed services contracts in North America
and Africa – not only firsts for ericsson but also for the industry.
The acquisition of Nortel’s CDMA and LTe businesses creates
opportunities for synergies in the services operations in North
America.

PROFessiOnAl
seRViCes sales
seK 56.1 billion

> Continued good growth

> Several strategic services contracts incl. Sprint

15%

operating margin excl.
restructuring and adjusted
for sales of TEMS in 2009

15%

sales growth

PROFESSIONAL SERVICES
SALES OF TOTAL

PROFESSIONAL SERVICES
SALES BY REGION
(SeK billion and percent)

SEK 56.1
billion

27%
23%

6.7

5.9

12%

5.9

12%

18.3

11%

33%

2009

22%

12.2

23%

12.9

Networks

Western Europe

Professional Services

Multimedia

Central and Eastern Europe,
Middle East and Africa

Asia Pacific

Latin America

North America

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

Multimedia
Multimedia sales increased 5 percent for comparable units with
revenue management negatively affected during the second
half of the year by lower network deployments. The segment
continues to have attractive prospects for sales growth to
network operators and service providers and the Company is
well positioned to benefit from a market rebound.

Operating margin improved to 8 (0) percent while eBITDA
margin doubled to 16 percent with stringent cost control and
the operational benefits of a more concentrated business, i.e.
excluding PBX systems and mobile platforms, focusing on TV
solutions, business support systems and revenue management.

Solution area TV performed well during 2009 in what

proved to be a challenging market environment. The Company
strengthened its position in the IPTV market with a number of
wins for its industry-leading IMS-enabled middleware, where
full systems integration and solutions delivery is also provided.
The product range in the Video on Demand and Content
Management area was extended and a new generation of
encoding platforms was introduced, redefining the achievable
limits of compression performance. Industry recognition of
market leadership was reinforced by three prestigious awards
at IBC: Best IPTV solution, Best Content Management solution
and Best Compression solution.

As operators modernize and transform their networks to
all-IP, with more and more services added, the importance
of business support systems increases. ericsson’s business
support systems enable management of subscribers,
provisioning of services and subscriptions, collection of usage
data, charging and invoicing for services used and settlements
with business partners in the service value chain. Business
support systems presence was increased by leveraging the
strong market position in Networks and Professional Services,
especially systems integration, with a broad solutions portfolio
in revenue management, provisioning and service delivery.

More than 800 million subscriptions have been activated
through ericsson’s provisioning and service delivery platforms
and 1 billion subscribers are now charged and billed through
ericsson’s Revenue Management solutions. A Dynamic
Discount Solution (DDS), the first telecom yield management
system, was launched and deployed in a number of high-
growth markets.

ericsson advanced its leadership in mobile payment

solutions and is first with a global solution to power
application stores with mobile web payment capabilities.
An Online Payment service was launched with great success
through 60 operators in 15 markets. ericsson was awarded
the Best Transactions Provider Award – Mobile entertainment
2009 and received a high ranking in the Forrester Messaging
Wave Report.

There are opportunities for network operators and service

providers to increase the value of their offerings toward
consumers by taking advantage of the transformation to all-IP.
ericsson’s introduction of the two IP-based applications Rich
Communication Suite and Business Communication Suite has
attracted significant market interest. They enable ericsson’s
customers to provide services regardless of handset model or
operating system. ericsson also reinforced its leading position
in Location Based Services with a number of new contracts. In
addition, a Real Time Traffic Information service was launched
in europe and Asia.

The Company is making good progress in building a strong

portfolio of applications enabling network operators and
service providers to grow revenues and expand into new value
chains beyond traditional telecom services. ericsson continues
to invest in new multimedia opportunities which may affect
profitability on occasion. Most earlier investments are starting
to pay off.

MultiMeDiA sales
seK 13.3 billion

Good development in TV and Multimedia Brokering

> Business Support Systems gaining

operator interest

operating margin
excl. restructuring charges

sales growth for
comparable units

MULTIMEDIA SALES
OF TOTAL

MULTIMEDIA SALES
BY REGION
(SeK billion and percent)

SEK 13.3 billion

1.6

2.4

6%
9%

1.1

12%
1.1

12%

18%

23%

2009

23%

3.1

38%

5.1

Networks

Western Europe

Professional Services

Multimedia

Central and Eastern Europe,
Middle East and Africa

Asia Pacific

Latin America

North America

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 23

Joint Ventures

Sony Ericsson
The global handset market is believed to have declined by 10
percent in unit shipments, mainly due to weakening demand
for mid- to high-end feature phones – an important segment
for Sony ericsson with its higher than average market share
exposure. As a consequence, Sony ericsson’s market share
decreased from ~7 percent to less than 5 percent.

Units shipped declined by 41 percent to 57.1 (96.6) million
while the average selling price increased by 3 percent to eUR
119 (116). Sales decreased by 40 percent from eUR 11.2 billion
to 6.8 billion. Gross margin declined significantly year-on-year
but improved during the year as benefits of cost reductions and
new products started to materialize.

Income before taxes, excluding restructuring charges, was a
loss of eUR 878 million. The income gradually improved during
the year from an improved gross margin and reduced operating
expenses. ericsson’s share in Sony ericsson’s income before
taxes was SeK –5.7 billion.

In the second half of the year, borrowing facilities of eUR

455 million were secured to improve liquidity. The parent
companies guaranteed eUR 350 million of these facilities on a
50/50 basis without joint responsibility. eUR 255 million were
utilized and eUR 200 million remain available as a backup
facility. The net cash position was eUR 620 million at year end.

Programs initiated 2008 to lower annual operating expenses

by eUR 880 million will continue, with full benefits expected in
the second half of 2010. Restructuring charges are estimated to
be well within the previously announced eUR 500 million.

Sir Howard Stringer, Chairman, CeO and President of SONY

Corporation succeeded Carl-Henric Svanberg as Chairman of
the Board and Bert Nordberg, executive Vice President and
Head of ericsson Silicon Valley, succeeded Dick Komiyama as
President and CeO.

ST-Ericsson
Proforma sales declined 25 percent from USD 3.6 billion to 2.7
billion. Sales grew progressively during the year, mainly due
to good performance in Asia. The joint venture remains a key
supplier to four of the five largest mobile phone manufacturers
in the world.

Adjusted operating losses for the full year amounted to
USD 440 million but results improved progressively during the
year. The first quarter saw a proforma loss of USD 149 million.
This was followed by losses of USD 165 million in the second
quarter, USD 77 million in the third quarter and USD 50 million
in the fourth quarter. The improvements reflect a tight control of
product costs and operating expenses as well as the positive
effects of cost reduction activities.

ST-ericsson is reporting in US-GAAP. ericsson’s share in
ST-ericsson’s income before tax, adjusted to IFRS, was SeK
–1.8 billion. Adjustments for IFRS-compliance mainly consist of
capitalization of R&D expenses for hardware development.

The cost reduction programs are on schedule and target
USD 595 million savings per year, of which USD 250 million
were achieved by end of 2009. The full effects of the cost-
reduction activities are expected in the second half of 2010.
A new product roadmap for market leadership has been
established by combining the strengths of parent companies
STMicroelectronics and ericsson. ST-ericsson’s market position
was further enhanced by securing leadership in the fast
growing TD-SCDMA technology for the Chinese market and
the announcement of a close cooperation with Nokia to deliver
platforms for new smartphones.

Wireless microelectronics industry veteran Gilles Delfassy

succeeded Alain Dutheil as President and CeO after the
successful integration of the JV operations. Hans Vestberg
succeeded Carl-Henric Svanberg as Chairman of the Board.

SONY ERICSSON NET SALES
AND ADJUSTED INCOME BEFORE TAXES

ST-ERICSSON NET SALES
AND ADJUSTED OPERATING INCOME

12,916

10,959

11,244

n
o

i
l
l
i

m
o
r
u
E

14,000

12,000

10,000

8,000

6,000

4,000

2,000

–2,000

7,269

6,788

n
o

i
l
l
i

m
D
S
U

800

700

600

500

400

300

200

100

–100

–200

–300

666

562

728

740

2005

2006

2007

2008

2009

Q1 Proforma

Net sales

Income before taxes excl. restructuring charges

Net sales

Operating income adjusted for restructuring
and amortization of acquisition-related intangibles

All figures in accordance with reported adjusted US GAAP figures

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

leGAl AnD tAx PROCeeDinGs
In the fall of 2007, ericsson was named a defendant in three
putative class action suits filed in the United States District
Court for the Southern District of New York. The complaints
alleged violations of US securities laws in connection with
ericsson’s October 2007 profit warning. In February 2008, the
court consolidated the three class actions into one. In June 2008,
ericsson filed a motion to dismiss the complaint. In December,
the court granted the motion and dismissed the case. In early
January 2009, the plaintiffs appealed the decision to dismiss the
case. On October 8, 2009, the Second Circuit affirmed the district
court and dismissed the case. Consequently, there are no pending
legal actions that relate to ericsson’s October 2007 profit warning.

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.
In November 2009, the complaints were withdrawn and the
investigation closed.

Together with most of the mobile communications industry,

ericsson has been named a defendant in two class action
lawsuits in the US, where plaintiffs allege that adverse health
effects could be associated with mobile phone usage. The cases
are currently pending in the federal court in Pennsylvania and the
Superior Court of the District of Columbia. 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 an appeal in a related case.

In April 2007, an Australian company, QPSX Developments

Pty Ltd., filed a patent infringement lawsuit against ericsson
and other defendants in the US, alleging that ericsson
infringed a patent related to asynchronous transfer mode
(ATM) technology. Currently, all of the asserted patent claims

have been rejected as invalid by an examiner in the US Patent
and Trademark Office in connection with a reexamination
proceeding. QPSX is appealing that decision. On August 27,
2009, the court granted ericsson’s motion to stay pending the
outcome of the reexamination proceeding.

Swedish fiscal authorities have disallowed deductions for
sales commission payments via external service companies to
sales agents in certain countries. Most of the taxes have already
been paid. The decision covering the fiscal year 1999 was
appealed. In December 2006, the County Administrative Court in
Stockholm rendered a judgment in favor of the fiscal authorities.
The Administrative Court of Appeal in Stockholm affirmed the
County Administrative Court’s judgment. The judgment has
been appealed to the Administrative Supreme Court.

For more information on risks related to litigations, see

chapter Risk Factors.

MAteRiAl COntRACts
Material contractual obligations are outlined in Note C33
“Contractual obligations”. These are primarily related
to operating leases for office and production facilities,
purchase contracts for outsourced manufacturing, R&D
and IT operations, and the purchase of components for the
Company’s own manufacturing.

ericsson is party to certain agreements, which include
provisions that may take effect or be altered or invalidated
by a change in control of the Company as a result of a public
takeover offer. However, none of the agreements currently in
effect would entail any material consequence to ericsson due
to a change in control of the Company.

BRiGHt
iDeAs
BRiGHt
PROsPeCts

ericsson’s solutions can make

a significant contribution to the

creation of a carbon-lean economy.

Low carbon communication

solutions will support new ways of

living and working, allowing us all to

contribute to a brighter future.

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 25

CORPORAte GOVeRnAnCe
In accordance with the Swedish Code of Corporate
Governance (the Code), a separate Corporate Governance
Report including an Internal Control section has been prepared.
The Company is committed to complying with best-practice
corporate governance standards on a global level wherever
possible. This includes continued compliance with the
corporate governance provisions expressed by the Code.

An ethical business
ericsson’s Code of Business ethics summarizes the Group’s
fundamental policies and directives governing its relationships
internally, with its stakeholders and with others. It also sets out
how the Group works to achieve and maintain its high
standards. There have been no amendments or waivers to
ericsson’s Code of Business ethics for any Director, member
of management or other employee.

Board of Directors 2009/2010
The Annual General Meeting on April 22, 2009, re-elected
Michael Treschow as Chairman of the Board and Roxanne S.
Austin, Sir Peter L. Bonfield, Börje ekholm, Ulf J. Johansson,
Sverker Martin-Löf, Nancy McKinstry, Anders Nyrén, Carl-Henric
Svanberg, and Marcus Wallenberg as Directors of the Board.
Anna Guldstrand, Jan Hedlund and Karin Åberg were appointed
as union representatives with Monica Bergström, Pehr Claesson
and Kristina Davidsson as deputies.

Management
In 2009, Hans Vestberg was appointed new President and CeO,
succeeding Carl-Henric Svanberg as of January 1, 2010. The
President and CeO is supported by the Group Management
Team which, in addition to the President and CeO, consists
of heads of Group Functions and heads of business units.

A management system is implemented to ensure that the
business is well managed and able to fulfill the objectives of
major stakeholders within established risk limits. The system
also monitors internal control and compliance with applicable
laws, listing requirements and governance codes.

Remuneration
Fees to the members of the Board of Directors and the
remuneration of management as well as the 2009 guidelines
for remuneration to senior management are reported in
Notes to the Consolidated Financial Statements – Note C29,
“Information Regarding Members of the Board of Directors,
the Management and employees”.

As of December 31, 2009, 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
management.

All relevant information regarding remuneration can be

found in chapter Remuneration Report.

The Board of Directors’ proposal for guidelines for
remuneration to senior management
The Board of Directors proposes the following guidelines
for remuneration and other employment terms for the senior
management for the period up to the 2011 Annual General
Meeting. Compared to the guidelines resolved by the
2009 Annual General Meeting, these guidelines have been
restructured and rephrased to better demonstrate the basic
principles for remuneration within the ericsson Group.

Details of how we deliver on our principles and policy,

including information on previously decided long-term variable
remuneration that has not yet become due for payment,
can be found in the Remuneration Report and in Note C29,
“Information regarding Members of the Board of Directors, the
Management and employees” in the Annual Report 2009.

sOMetHinG OlD
sOMetHinG neW

ericsson’s VDSL2-based broadband technology

means operators can maximize the reuse of

existing infrastructure and enhance fiber access

deployments with copper lines in the last mile.

As a result more consumers will be able to enjoy

true broadband services such as HDTV and

video-on-demand in their homes.

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

Variable remuneration is through cash and stock-based
programs awarded against specific business targets derived
from the long-term business plan approved by the Board
of Directors. Targets may include financial targets at either
corporate or unit level, operational targets, employee
motivation targets and customer satisfaction targets.
With the current composition of Group Management, the
Company’s cost during 2010 for the variable remuneration of
Group Management can, at a constant share price, amount
to between 0 and 140 percent of the aggregate fixed salary
cost, all excluding social security costs.
All benefits, including pension benefits, follow the
competitive practice in the home country taking total
compensation into account. The retirement age is normally
60 to 65 years of age.
By way of exception, additional arrangements can be
made when deemed required. Such additional arrangement
shall be limited in time and shall not exceed a period
of 36 months and two times the remuneration that the
individual concerned would have received had no additional
arrangement been made.
The mutual notice period may be no more than 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 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.

2010 Remuneration Policy
Remuneration at ericsson is based on the principles of
performance, competitiveness and fairness. These principles
and good practice in Sweden guide our policy to:

Attract and retain highly competent, performing and
motivated people that have the ability, experience and skill
to deliver on the ericsson strategy.
encourage behavior consistent with ericsson’s culture and
core values of professionalism, respect and perseverance.
ensure fairness in reward by delivering total remuneration
that is appropriate but not excessive.
ensure a total compensation mix of fixed and variable
remuneration and benefits that reflects the Company´s
principles and is competitive where ericsson competes
for talent.
encourage variable remuneration which, first, aligns
employees with clear and relevant targets, second,
reinforces performance and, third, enables flexible
remuneration costs.
ensure that all variable remuneration plans have maximum
award and vesting limits.
encourage employees to deliver sustained performance and
build up a personal shareholding in ericsson, aligning the
interests of shareholders and employees.
Communicate clearly to both employees and shareholders
how ericsson translates remuneration principles and policy
into practice.

Group Management
For senior management consisting of the executive Leadership
Team, including the President and CeO, in the following referred
to as the “Group Management”, total remuneration consists
of fixed salary, short- and long-term variable remuneration,
pension and other benefits. Furthermore, the following
guidelines apply for Group Management:

CitY netWORKs
CitY PROGRess

Operator-neutral city networks bring the highest level of

services to residents and promise sustainable growth.

With ericsson’s solution, residents are able to select

individual high-speed broadband services such as HD

IPTV and video-on-demand from a provider of their choice.

The city gains high quality infrastructure that will help keep

corporations and businesses in the region.

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 27

SuStainability and
Corporate reSponSibility

The Company has implemented strong social, environmental
and ethical standards supporting risk management and value
creation. This commitment generates positive business impacts
that benefit society.

ericsson’s approach to Sustainability and Corporate

Responsibility (CR) is integrated into its core business
operations and in its relationships with stakeholders. The Board
of Directors considers these aspects in governance decision-
making. Group level policies and directives ensure consistency
across global operations.

ericsson publishes an annual Sustainability and CR Report

which provides additional information.

Minimizing risk

Responsible business practices
ericsson supports the UN Global Compact and endorses its ten
principles regarding human and labor rights, anti-corruption and
environmental protection. The ericsson Group Management
System includes policies and directives that cover responsible
business practices, such as the Code of Business ethics,
Code of Conduct (CoC), anti-corruption and environmental
management. It is reinforced by training, workshops and
monitoring, including a global assessment program run by
an external assurance provider in which CR criteria represent
approximately 20 percent of the total areas assessed.

Supply chain
Suppliers must comply with ericsson’s CoC and environmental
Requirements. The Company performs regular audits and works
with suppliers to ensure measurable and continuous

improvements. Priorities from a risk model include network roll-
out, tower manufacturing and logistics. Findings are followed up
to ensure that lasting improvements are made. One common
finding is suppliers’ insufficient routines for ensuring compliance
to the CoC requirements in their supply chain.

Design for Environment
Controls are in place to ensure compliance with environmental
regulations, e.g. the eU regulation for Registration, evaluation,
Authorization and restriction of Chemicals (ReACH).
ericsson’s List of Banned and Restricted Substances was
updated in 2009. The Company has to date produced more
than 10 million lead-free soldered printed board assemblies
with reliability equal to lead-soldered boards.

Take-back
ericsson ecology Management and Product Take-back is a
global initiative to take responsibility of products at the end of
their life. Close to 100 percent of decommissioned equipment
is recycled, exceeding the Waste from electronic and electrical
equipment Directive (Weee) stipulation of 75 percent. During
2009 more than 5,300 tons were collected.

Radio waves and health
ericsson provides public information on radio waves and
health, and supports independent research to further increase
knowledge in this area. ericsson currently co-sponsors about
40 ongoing research projects related to electromagnetic
fields, radio waves and health; over 90 studies have been
supported since 1996. Independent expert groups and public
health authorities, including the World Health Organization,
have reviewed the total amount of research and consistently
concluded that the balance of evidence does not demonstrate
any health effects associated with radio wave exposure from
either mobile phones or radio base stations.

FailSaFe
ForeCaStinG

Mobile transmission of weather information

has the potential to save lives in Africa.

The ‘Weather Info for All’ initiative plans to

deploy 5,000 automatic weather stations

in mobile network sites across Africa. The

initiative, set up by the Global Humanitarian

Forum, the World Meteorological

Organization, ericsson and Zain, will enable

those on the front line of climate change to

access accurate weather information.

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

Creating value

The environmental opportunity
Information and Communication Technology (ICT) represents
about two percent of global CO2 emissions, but can potentially
offset a significant portion of the remaining 98 percent from
other sectors. ericsson takes active measures to ensure that
its own carbon footprint will be reduced. A carbon footprint
reduction target was set in 2008 to reduce emissions relative
to products sold by 40 percent over five years, from in-house
activities and the life-cycle impacts of products. In 2009,
ericsson exceeded the annual 10 percent reduction target by:
A 20 percent reduction in direct emissions from ericsson
activities, through reducing product weight, increasing
the share of surface mode transports to 60 percent, and
by reducing business travel by approximately 10 percent
globally. This led to a 200,000 ton CO2 reduction.
A 15 percent reduction in indirect emissions from
products in operation was achieved. Reducing the energy
consumption of products sold will lead to a 3.5 million ton
CO2 reduction over the product lifetime.

In addition, part of ericsson’s sustainability strategy is to focus
on the role that broadband can play in helping to offset global
CO2 emissions. In 2009, ericsson focused on sustainable city
solutions, and partnered with WWF Sweden to assess the
positive impact that ICT has in the creation of low-carbon
economies, co-publishing recommendations for policy makers.
Sony ericsson launched its Greenheart phone, with an in-
phone manual, recycled plastics, energy efficient display and
waterbased paints decreasing the overall CO2 emissions of the
phone by 15 percent.

Meeting the Millennium Development Goals
Mobile connectivity fuels economic growth, which is particularly
vital for the billions of people living at the base of the economic

pyramid – the markets of the future. ericsson is committed
to using its technology and competence to help achieve the
UN Millennium Development Goals (MDGs), and customer
engagement is part of its strategy to meet this aim.

In 2009, a monitoring and evaluation study, conducted in
cooperation with Columbia University, revealed that access
to mobile communications in the Millennium Villages has
concretely contributed to the achievement of the MDGs. It also
showed that mobile applications are especially well suited for
collecting information and monitoring critical areas such as
health, education, security and small business development.

Ericsson Response
ericsson Response is a global employee volunteer initiative
to rapidly roll out communication solutions and provide
telecoms experts to assist disaster relief operations. ericsson
Response cooperates with the UN Office for the Coordination
of Humanitarian Affairs, the UN World Food Programme and
the International Federation of Red Cross and Red Crescent
Societies (IFRC).

In 2009, support was provided to relief workers in saving
children in Southern Sudan and after heavy flooding in Panama.
Continued support was given to the UN in establishing
operations in the Central African Republic and in the
Democratic Republic of Congo.

In recognition of performance
The Millennium Villages Project received a Global Telecoms
Business Innovation Award.

ericsson China was named the “China Green Benchmark

Company” for the second year in a row. ericsson was also
recognized as the “Green Pioneer” at the 2009 “Korea-eU
Industrial Cooperation Day”. In the UK Brand emissions
Leaders survey, ericsson was named one of the brand leaders
in reducing its carbon emissions.

ERICSSON LIFE-CYCLE ASSESSMENT
CARBON FOOTPRINT 2009

CARBON INTENSITY 2009

O
C
s
n
o
T
M

–5

~19

0.6

~–0.3

~ –15%

~ –20%

Supply
chain

Ericsson
activities

Operator
activities

Products
operation

End-of-life
treatment

Activities in 2009

Future (lifetime) operation of products delivered in 2009

Ericsson’s direct emissions (own activities)

~ = Approximately

Indirect emissions (all other life-cycle related emissions)

2005

2006

2007

2008

2009

Product operation kg CO2 / Capacity [subscriber/line/port] and year

Ericsson activities kg CO2 / Capacity [subscriber/line/port]

Ericsson activities ton CO2 / Net sales [MSEK]

Goal 2009 for product operation and Ericsson activities: –10%
(actual achievements are stated in the 2009 columns)

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 29

riSk ManaGeMent
ericsson’s Board of Directors is actively engaged in the
Company’s risk management. Risks related to set long-term
objectives are discussed and strategies formally approved by
the Board as part of the annual strategy process. Risks related
to annual targets for the Company are also reviewed by the
Board and then monitored continuously during the year.
Operational risk management is integrated within the

ericsson Group Management System to ensure effectiveness,
efficiency, business continuity and compliance with corporate
governance, legal and other requirements. Certain transactional
risks require specific Board approval, e.g. material acquisitions,
management remuneration, borrowing or customer finance in
excess of pre-defined limits.

For more information on risks related to ericsson’s business,

see chapter Risk Factors.

Strategic and tactical risks
In the annual strategy and target setting process, objectives
are set for the next five years, risks and opportunities are
assessed and strategies are developed to achieve the
objectives. To ensure that actions are taken to realize the
strategies, focus areas are identified in target setting and
planning for the coming year.

In 2009, the general economic downturn in 2008–2009 and

the consequences for the business were assessed in relation
to both strategy and target setting. For the setting of long-term
objectives, important industry and market fundamentals were
analyzed and risks and opportunities evaluated. Near-term, a
continued focus on cost management and a strong liquidity
were emphasized due to the increased difficulties of forecasting
customer demand.

Risks and opportunities were identified and analyzed in the

following balanced scorecard perspectives:

STRATEGY, TARGET SETTING AND RISK MANAGEMENT CYCLE

Financial perspective

Top line growth: the decline caused by reduction in 2G
spend has yet to be offset by growth in 3G and LTe driven
by data traffic in mobile broadband networks. ericsson
will focus on converged solutions, IMS, multi-standard
radios and services plus opportunities in transmission and
evolved eDGe.
Margin improvement: addressed by platform consolidation,
software reuse, reduced number of sites and rapid
transformation of transferred managed services operations
and integration of acquired Nortel units.
Cash flow: continued focus on working capital
improvements. A strong cash position is deemed important
for flexibility to execute on potential market opportunities.
JVs: continued cooperation with JVs and co-owners needed
to make them profitable again as soon as possible.

Customer perspective

Convergence of the telecom, datacom and media industries
results in new forms of competition and customers. ericsson
will focus on competitive offerings for mobile broadband,
converged core solutions, network management systems
and systems integration.
The competitive landscape is constantly changing, as
consolidation continues among customers and vendors.
Continued investments in R&D for premium, cost-effective
and future-proof solutions are essential. Customer intimacy
for network planning and migration is key for forging
customer partnerships.
ericsson’s installed base is an important asset for sales of
upgrades, network convergence and systems integration.
Now also Nortel’s US customer base is added, providing
additional opportunities in CDMA and LTe.
Continuous follow-up of quality of delivered products and
services to be maintained to ensure customer satisfaction.

Board Target Approval
Review of one-year risks

Group Management Strategy directives
Quantitative and qualitative situation analysis

Target Setting
(12 month horizon) Related risk
identification and mitigation

Nov

Oct

Sep

Dec

Jan

Group Strategy Development
(five year perspective)

Feb

Mar

Apr

New Business
Development

Market Unit &
Account Planning

Board Strategy Approval
Review of long-term risks

Aug

May

Jul

Jun

Business Unit & Group
Function Strategy planning
Strategic risk identification and mitigation

Quarterly risk monitoring

Global Management Conference on Strategy

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

Market position perspective

Continued strong competition in the market is addressed
through cost reductions and premium end-to-end solutions,
based on continued leadership in R&D and services.
Market leadership is being safeguarded through rapid
technological development and establishment of a key
player position in network transformation – IP, mobile
broadband, multimedia and consulting.
Backhaul demand is growing, driven by strong data traffic.
ericsson will seize this opportunity by harvesting its leading
microwave position.
The Company will also leverage the broader product
portfolio created through acquisitions, promote OneVoice
and IMS for LTe networks, and continue its strong Design
for environment program to lower operators’ cost of
ownership and drive a positive environmental impact.
The Company will capitalize on the dramatic improvement
of its US footprint and its Silicon Valley presence.
The joint ventures will need to execute their restructuring
programs and also address multiple operating systems and
new market players, e.g. Google/Android. Sony ericsson will
focus its product portfolio more on high-end handsets.

Operations and people perspectives

Restructuring and other activities have been defined for margin
protection, including industrialization of managed services.
Continued focus in R&D on shortened lead times for
product/solution development.
Increased flexibility and responsiveness will be achieved
through efforts to shorten lead times also for delivery of
hardware and software.
The Company must ensure it has top competence in key
technology areas and systems integration.
empowerment and remuneration are important aspects to
continue to be a competitive and attractive employer.

Operational and financial risks
Operational risks are owned and managed by operational
units. Risk management is embedded in various process
controls, such as decision tollgates and approvals. Certain
cross-process risks, such as information security/IT, corporate
responsibility and business continuity as well as insurable
risks are centrally coordinated. Financial risk management is
governed by a Group policy and carried out by the Treasury
and Customer Finance functions, both supervised by the
Finance Committee of the Board of Directors. The policy
governs risk exposures related to foreign exchange, liquidity/
financing, interest rates, credit risk and market price risk
in equity instruments. For further information on financial
risk management, see Notes to the Consolidated Financial
Statements – Note C14, “Trade Receivables and Customer
Finance”, Note C19, “Interest-Bearing Liabilities” and Note
C20, “Financial Risk Management and Financial Instruments”.

Compliance risks
ericsson has implemented Group policies and directives to
ensure compliance with applicable laws and regulations,
including a Code of Business ethics. Risk management is
integrated in the Company’s business processes. Policies and
controls are implemented to ensure compliance with financial
reporting standards and stock market regulations, e.g. the US
Sarbanes-Oxley Act.

Monitoring and audits
Company management monitors the compliance with policies,
directives and processes through internal self-assessment
within all units. This is complemented by internal and
external audits. external financial audits are performed by
PricewaterhouseCoopers, and ISO/management system audits
by Det Norske Veritas, DNV.

liVe
liFe

Interactive TV platform

supports advanced services

such as video-on-demand

and music-on-demand.

Users can schedule their

entertainment around their

lives and catch up with their

favorite TV at any time.

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 31

parent CoMpany
The Parent Company business consists mainly of corporate
management, holding company functions and internal banking
activities as well as customer credit management, performed
on a commission basis by ericsson Credit AB.

The Parent Company is the owner of a substantial part of
ericsson’s intellectual property rights. It manages the patent
portfolio, including patent applications, licensing and cross-
licensing of patents and defending of patents in litigations.

The Parent Company has 6 (7) branch offices. In total, the

Group has 65 (62) branch and representative offices.

Financial information
Net sales for the year amounted to SeK 0.3 (5.1) billion and
income after financial items was SeK 8.1 (19.4) billion.
effective January 1, 2009, the right to all license revenues
from third parties related to patent licenses was transferred
to ericsson AB, a wholly owned subsidiary, and consequently
net sales in 2009 were insignificant compared to 2008. TeMS
SWeDeN AB was sold during the year.

exports accounted for 100 (70) percent of net sales. The
Parent Company had no sales in 2009 or 2008 to subsidiaries,
while 45 (46) percent of total purchases of goods and services
were from such companies.

Major changes in the Parent Company’s financial position

for the year include:

>
>

Investments in the joint venture ST-ericsson of SeK 8.6 billion.
Decreased current and non-current receivables from
subsidiaries of SeK 10.1 billion.
Decreased other current receivables of SeK 2.0 billion.
Increased cash, cash equivalents and short-term
investments of SeK 3.2 billion.
Increased current and non-current liabilities to subsidiaries
of SeK 5.0 billion.

Decreased other current liabilities of SeK 7.4 billion.
At year end, cash, cash equivalents and short-term

investments amounted to SeK 62.4 (59.2) billion.

Share information
In the second quarter, as decided by the Board of Directors with
authorization from the Annual General Meeting, a stock issue
and a subsequent repurchase was made for the share-based
employee remuneration program. 27 million Class C shares
were issued and later repurchased as treasury stock. The
shares were converted into Class B shares. The quotient value
of the repurchased shares was SeK 135.0 million, representing
less than 1 percent of capital stock, and the acquisition cost
was SeK 135.1 million.

As per December 31, 2009, the total number of shares was

3,273,351,735, of which 261,755,983 Class A shares, each
carrying one vote, and 3,011,595,752 Class B shares, each
carrying one-tenth of one vote. The two largest shareholders at
year end were Investor and Industrivärden holding 19.33 and 13.62
percent respectively of the voting rights in the Parent Company.

In accordance with the conditions of the Long-Term Variable
Remuneration Program (LTV) for ericsson employees, 9,087,564
treasury shares were sold or distributed to employees in
2009. The quotient value of these shares was SeK 45.4
million, representing less than 1 percent of capital stock,
and compensation received amounted to SeK 213.2 million.
The holding of treasury stock at December 31, 2009, was
78,978,533 Class B shares. The quotient value of these shares
is SeK 394.9 million, representing 2 percent of capital stock,
and the related acquisition cost amounts to SeK 672.4 million.

Proposed disposition of earnings
The Board of Directors proposes that a dividend of SeK 2.00
(1.85 in 2008) per share be paid to shareholders duly registered
on the record date April 16, 2010, and that the Parent Company

one For all

MBNL, the 50/50 joint venture formed by

3 and T-Mobile in the UK, accelerates its

consolidation program to improve coverage

while reducing its number of sites.

The program will result in the creation of

an integrated network providing close

to complete population coverage for 3G

services in the UK.

BOARD OF DIRECTORS’ REPORT | ericsson Annual Report 2009

shall retain the remaining part of non-restricted equity.
The Class B treasury shares held by the Parent Company are
not entitled to receive a dividend. Assuming that no treasury
shares remain on the record date, the Board of Directors
proposes that earnings be distributed as follows:

Amount to be paid to the shareholders
Amount to be retained
by the Parent Company

SEK 6,546,703,470

SEK 35,406,164,930

Total non-restricted equity
of the Parent Company

SEK 41,952,868,400

As a basis for its dividend proposal, the Board of Directors has
made an assessment in accordance with Chapter 18, Section
4 of the Swedish Companies Act of the Parent Company’s and
the Group’s need for financial resources as well as the Parent
Company’s and the Group’s liquidity, financial position in other
respects and long-term ability to meet their commitments. The
Group reports an equity ratio of 52 (50) percent and a net cash
amount of SeK 36.1 (34.7) billion.

The Board of Directors has also considered the Parent

Company’s result and financial position and the Group’s position
in general. In this respect, the Board of Directors has taken into
account known commitments that may have an impact on the
financial positions of the Parent Company and its subsidiaries.
The proposed dividend does not limit the Group’s ability to
make investments or raise funds, and it is our assessment that
the proposed dividend is well-balanced considering the nature,
scope and risks of the business activities as well as the capital
requirements for the Parent Company and the Group.

poSt-CloSinG eVentS
In an auction on November 25, 2009, ericsson acquired certain

assets relating to Nortel’s GSM business in North America for
a cash purchase price of USD 70 million. Closing is expected
by March 31, 2010, subject to approval by US and Canadian
bankruptcy courts and satisfying normal regulatory conditions.
On January 12, 2010, ericsson announced an agreement to
acquire Pride Spa, an Italian systems integration company with
approximately 1,000 employees.

On January 18, 2010, the Company appointed Rima Qureshi

and Magnus Mandersson as heads of business unit CDMA
and Global Services respectively. Both are members of the
executive Leadership Team.

In January 2010, as per the trust’s funding requirements, the
Company made an employer contribution payment of SeK 730
million to the Swedish pension trust fund.

On February 8, 2010, the Company announced the

appointment of Mats H. Olsson and Angel Ruiz as members of
the executive Leadership Team as well as a reorganization of its
23 market units into ten regions.

board aSSuranCe
The Board of Directors and the President declare that the
consolidated financial statements have been prepared in
accordance with IFRS, as adopted by the eU, and give a fair
view of the Group’s financial position and results of operations.
The financial statements of the Parent Company have been
prepared in accordance with generally accepted accounting
principles in Sweden and give a fair view of the Parent
Company’s financial position and results of operations.

The Board of Directors’ Report for the ericsson Group and
the Parent Company provides a fair view of the development
of the Group’s and the Parent Company’s operations, financial
position and results of operations and describes material
risks and uncertainties facing the Parent Company and the
companies included in the Group.

Stockholm February 26, 2010

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

Carl-Henric Svanberg

Member of the Board

Sverker Martin-Löf

Deputy Chairman

Nancy McKinstry

Member of the Board

Börje Ekholm

Member of the Board

Hans Vestberg

President and CeO

Marcus Wallenberg

Deputy Chairman

Anders Nyrén

Member of the Board

Roxanne S. Austin

Member of the Board

Jan Hedlund

Member of the Board

Karin Åberg

Member of the Board

Anna Guldstrand

Member of the Board

ericsson Annual Report 2009 | BOARD OF DIRECTORS’ REPORT 33

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

operating income before shares in earnings
of joint ventures and associated companies
Operating margin before shares in earnings
of joint ventures and associated companies (%)

Share in earnings of joint ventures and associated companies

operating income

Financial income
Financial expenses

income after financial items

Taxes

net income

Net income attributable to:
Stockholders of the Parent Company
Minority interest

other information
Average number of shares, basic (million) 1)
earnings per share attributable to stockholders of the Parent Company, basic (SeK) 1) 2)
earnings per share attributable to stockholders of the Parent Company, diluted (SeK) 1) 2)

1) A reverse split 1:5 was made in June 2008. Comparative figures are restated accordingly.
2) Based on Net income attributable to stockholders of the Parent Company.

notes

C3, C4

2009

2008

2007

206,477
–136,278

70,199
34.0%

–33,055
–26,908

–59,963

208,930
–134,661

74,269
35.5%

–33,584
–26,974

–60,558

187,780
–114,059

73,721
39.3%

–28,842
–23,199

–52,041

3,082

2,977

1,734

13,318

16,688

23,414

6.5%

8.0%

12.5%

C12

C7
C7

C9
C9
C9

–7,400

5,918

1,874
–1,549

6,243

–2,116

4,127

3,672
455

3,190
1.15
1.14

–436

16,252

3,458
–2,484

17,226

–5,559

11,667

7,232

30,646

1,778
–1,695

30,729

–8,594

22,135

11,273
394

21,836
299

3,183
3.54
3.52

3,178
6.87
6.84

consolidated financial statements | ericsson Annual Report 2009

Consolidated Statement
of comprehensive income

Years ended december 31, seK million

net income
other comprehensive income
Actuarial gains and losses, and the effect of the asset ceiling,
related to pensions
Revaluation of other investments in shares and participations
Fair value remeasurement
Cash Flow hedges
Gains/losses arising during the period
Reclassification adjustments for gains/losses included in profit or loss
Adjustments for amounts transferred to initial carrying amount of hedged items
Changes in cumulative translation adjustments
Tax on items relating to components of OCI

total other comprehensive income

total comprehensive income

Total Comprehensive Income attributable to:
Stockholders of the Parent Company
Minority interest

notes

2009

4,127

2008

11,667

2007

22,135

C16

C16
C16
C16
C16
C16

–605

–4,015

1,208

–2

–7

672
3,850
–1,029
–1,361
–1,040

485

4,612

–5,080
1,192
–
8,528
2,330

2,948

14,615

584
–1,390
–
–797
–73

–466

21,669

4,211
401

13,988
627

21,371
298

ericsson Annual Report 2009 | consolidated financial statements 35

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

2009

2008

C10

2,079
27,375
18,739

2,782
24,877
20,587

Property, plant and equipment

C11, C26, C27

9,606

9,995

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
C14
C15

C20
C25

C16
C16

C17
C18
C8
C19, C20

C18
C19, C20
C22
C21

11,578
256
830
2,577
14,327

87,367

7,988
309
846
4,917
14,858

87,159

22,718

27,836

66,410
1,444
15,146

53,926
22,798

75,891
1,975
17,818

37,192
37,813

182,442

198,525

269,809

285,684

139,870
1,157

141,027

8,533
461
2,270
29,996
2,035

43,295

11,970
2,124
18,864
52,529

85,487

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

total equity and liabilities 1)

269,809

285,684

1) Of which interest-bearing liabilities and post-employment benefits SeK 40,653 million (SeK 40,354 million in 2008).

consolidated financial statements | ericsson Annual Report 2009

Consolidated Statement
of Cash Flows

January–december, seK million

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
Trade payables
Provisions and post-employment benefits
Other operating assets and liabilities, net

notes

2009

2008

2007

C25

4,127
16,856

20,983

5,207
598
7,668
–3,522
–2,950
–3,508

3,493

11,667
14,318

25,985

–3,927
549
–11,434
4,794
3,830
4,203

–1,985

22,135
7,172

29,307

–445
365
–7,467
–1,558
–4,401
3,409

–10,097

cash flow from operating activities

24,476

24,000

19,210

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

cash flow from investing activities

C11

C25, C26
C25, C26
C10

–4,006
534
–19,321
1,239
–1,443
2,606
–17,071

–37,462

–4,133
1,373
–74
1,910
–1,409
944
–7,155

–8,544

–4,319
152
–26,292
84
–1,053
396
3,499

–27,533

cash flow before financing activities

–12,986

15,456

–8,323

financing activities
Proceeds from issuance of borrowings
Repayment of borrowings
Sale of own stock and options exercised
Dividends paid
Other financing activities

cash flow from financing activities

14,153
–9,804
69
–6,318
199

–1,701

5,245
–4,216
3
–8,240
–

–7,208

15,587
–1,291
94
–8,132
–

6,258

effect of exchange rate changes on cash

–328

1,255

406

net change in cash

–15,015

9,503

–1,659

cash and cash equivalents, beginning of period

37,813

28,310

29,969

cash and cash equivalents, end of period

C25

22,798

37,813

28,310

ericsson Annual Report 2009 | consolidated financial statements 37

Consolidated Statement
of Changes in Equity

Revalua-
tion of
other
invest-
ments in
shares
and
partici-
pations

addi-
tional
paid in
capital

capital
stock

cumula-
tive
transla-
tion

cash
flow
hedges

adjust- Retained
earnings
ments

holders’ minority
interests

equity

total
equity

stock-

January 1, 2009

16,232

24,731

Total comprehensive income

transactions with owners
Stock issue
Sale of own shares
Repurchase of own shares
Stock Purchase and Stock Option Plans
Dividends paid
Business combinations

–

135
–
–
–
–
–

–

–
–
–
–
–
–

december 31, 2009

16,367

24,731

January 1, 2008

16,132

24,731

Total comprehensive income

transactions with owners
Stock issue
Sale of own shares
Repurchase of own shares
Stock Purchase and Stock Option Plans
Dividends paid
Business combinations

–

100
–
–
–
–
–

–

–
–
–
–
–
–

–1

–3

–
–
–
–
–
–

–4

–6

–
–
–
–
–
–

–2,356

2,124

100,093

140,823

1,261

142,084

2,434

–1,461

3,241

4,211

401

4,612

–
–
–
–
–
–

–
75
–135
658
–5,897
–

135
75
–135
658
–5,897
–

–
–
–
–
–421
–84

135
75
–135
658
–6,318
–84

663

98,035

139,870

1,157

141,027

307

–6,345

99,282

134,112

–2,663

8,469

8,188

13,988

940

627

135,052

14,615

–
–
–
–
–
–

–
88
–100
589
–7,954
–

100
88
–100
589
–7,954
–

–
–
–
–
–286
–20

100
88
–100
589
–8,240
–20

december 31, 2008

16,232

24,731

–1

–2,356

2,124

100,093

140,823

1,261

142,084

January 1, 2007

16,132

24,731

Total comprehensive income

transactions with owners
Sale of own shares
Stock Purchase and Stock Option Plans
Dividends paid
Business combinations

–

–
–
–
–

–

–
–
–
–

december 31, 2007

16,132

24,731

–
–
–
–

877

–5,569

83,939

120,113

–570

–776

22,715

21,371

782

298

120,895

21,669

–
–
–
–

62
509
–7,943
–

–
–
–189
49

62
509
–8,132
49

307

–6,345

99,282

134,112

940

135,052

consolidated financial statements | ericsson Annual Report 2009

notes to the Consolidated
Financial statements
Contents
C1 Significant Accounting Policies ..................................................................................................................................................................................................................................... 40

C2 Critical Accounting estimates and Judgments ................................................................................................................................................................................................ 47

C3 Segment Information ............................................................................................................................................................................................................................................................... 50

C4 Net Sales ............................................................................................................................................................................................................................................................................................. 54

C5 expenses by Nature ................................................................................................................................................................................................................................................................. 54

C6 Other Operating Income and expenses ................................................................................................................................................................................................................ 54

C7 Financial Income and expenses ................................................................................................................................................................................................................................... 55

C8 Taxes ....................................................................................................................................................................................................................................................................................................... 55

C9 earnings per Share ..................................................................................................................................................................................................................................................................... 57

C10 Intangible Assets .......................................................................................................................................................................................................................................................................... 57

C11 Property, Plant and equipment ...................................................................................................................................................................................................................................... 59

C12 Financial Assets, Non-Current ....................................................................................................................................................................................................................................... 60

C13 Inventories .......................................................................................................................................................................................................................................................................................... 61

C14 Trade Receivables and Customer Finance ......................................................................................................................................................................................................... 62

C15 Other Current Receivables ................................................................................................................................................................................................................................................. 64

C16 equity and Other Comprehensive Income .......................................................................................................................................................................................................... 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 ........................................................................................................................................................................................................................................................ 79

C22 Trade Payables .............................................................................................................................................................................................................................................................................. 79

C23 Assets Pledged as Collateral ........................................................................................................................................................................................................................................... 79

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 Members of the Board of Directors, Management and employees ................................................................................ 84

C30 Related Party Transactions ............................................................................................................................................................................................................................................... 90

C31 Fees to Auditors ............................................................................................................................................................................................................................................................................ 91

C32 events after the Balance Sheet Date ......................................................................................................................................................................................................................... 91

C33 Contractual Obligations ......................................................................................................................................................................................................................................................... 91

ericsson Annual Report 2009 | notes to the consolidated financial statements 39

NOTe C1

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 joint ventures and associated companies. The
Parent Company is domiciled in Sweden at Torshamnsgatan 23, Se-164 83
Stockholm.

The consolidated financial statements for the year ended December
31, 2009, have been prepared in accordance with International Financial
Reporting Standards (IFRS) as endorsed by the eU and RFR 1.2 “Additional
rules for Group Accounting”, related interpretations issued by the Swedish
Financial Reporting Board (Rådet för Finansiell Rapportering), and the
Swedish Annual Accounts Act. For the financial reporting of 2009, the
Company has applied IFRS as issued by the IASB (IFRS effective as
per December 31, 2009) and without any early application. There is no
difference between IFRS effective as per December 31, 2009, and IFRS as
endorsed by the eU, nor is RFR 1.2 or the Swedish Annual Accounts Act in
conflict with IFRS.

The financial statements were approved by the Board of Directors on
February 26, 2010. 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, 2009, changing presentation or disclosure:

IAS 1 (Revised), “Presentation of Financial Statements”. The revised
standard requires all non-owner changes in equity to be shown in a
performance statement. The Company therefore presents two statements,
the Income Statement and a Statement of Comprehensive Income.
Also, to improve the understanding of the Company’s financial
performance, a new subtotal line has been added in the Income
Statement, “Operating income before share in earnings of joint ventures
and associated companies”. This is to distinguish between operating
income from operations consolidated and from shares in earnings of
joint ventures and associated companies accounted for using the equity
method.
IFRS 7 “Financial instruments – Disclosures” (amendment). The
amendment requires enhanced disclosures about fair value
measurement and liquidity risk. In particular, the amendment
requires disclosure of fair value measurements by level of a fair value
measurement hierarchy. As the change in accounting policy only results
in additional disclosure, there is no impact on earning per share.
IFRS 8 “Operating Segments”. This standard replaces IAS 14 “Segment
Reporting” and requires a “management approach”, under which
segment information is presented on the same basis as that used
for internal reporting to the Chief Operating Decision Maker (CODM).
In ericsson, the Group Management Team is defined as the CODM
function. The new standard has not resulted in any changes of the
reportable segments, except for changes in the content of disclosures in
note C3 Segment Information.

New standards, amendments of standards and interpretations, effective as
from January 1, 2009, changing financial result and position and disclosures:

IFRS 2 (amendment), “Share-based payment” 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. These features would
need to be included in the grant date fair value for transactions with
employees and others providing similar services. In the period when an
employee takes a refund of previously made contributions (and stops
making further contributions) all remaining compensation expense
is recognized. Non-vesting conditions would not impact the number
of awards expected to vest or valuation thereof subsequent to grant
date. The amendment has not had a material impact on the Company’s
financial statements.

Revised IAS 23, “Borrowing Costs” and “Improvements to IFRSs”, (May
2008). In respect of borrowing costs relating to qualifying assets for
which the commencement date for capitalization is on or after January
1, 2009, the Company capitalizes borrowing costs directly attributable to
the acquisition, design, construction or production of a qualifying asset
as part of the cost of that asset. Previously the Company immediately
recognized all borrowing costs as an expense. The change in IAS 23
has not had a material impact on the Company’s financial statements.
Any capitalization of borrowing costs would normally relate to internally
generated intangible assets (see note C10).

The following amendments and IFRIC:s have not had any material impact on
the Company’s financial statements:

>
>
>

IAS 32 and IAS 1 (Amendments) “Puttable Financial Instruments” and
“Obligations Arising on Liquidation”.
IAS 39 (Amendment) “Financial instruments: Recognition and
Measurement – eligible hedged Items.”
Amendments to IAS 39 Financial Instruments: Recognition and
Measurement and IFRS 7 Financial Instruments: Disclosures.
Amendments to IFRIC Interpretation 9 and IAS 39. Reassessment of
embedded Derivatives.
IFRIC 13 “Customer Loyalty Programmes” addresses the accounting
by companies that operate, or otherwise participate in, customer loyalty
programmes for their customers.
IFRIC 15 “Agreements for Construction of Real estate”. In note C4 Net
Sales the Company discloses the split between revenue related to IAS
11 and IAS 18.
IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”.
IFRIC 18 ”Transfers of Assets from Customers”.
Improvements to IFRSs, published in May 2008 and effective from
January 1, 2009
Improvements to IFRSs, published in April 2009 and effective from
January 1, 2010.

For information on “New standards and interpretations not yet adopted”
please see page 46.

changes in financial reporting structure
The joint venture ST-ericsson was formed on February 3, 2009. By merging
STMicroelectronics’ wireless business and ericsson Mobile Platforms, a
large company in the semiconductor industry was created. ST-ericsson is
reported as a separate operating segment, accounted for using the equity
method.

definition of other comprehensive income (oci)
OCI comprises items of income and expense (including reclassification
adjustments) that are not recognized in the income statement as required or
permitted by IFRS. See also comments under IAS 1 above.

Basis of presentation
The financial statements are presented in millions of Swedish Krona (SeK).
They are prepared on a historical cost basis, except for certain financial
assets and liabilities that are stated at fair value: derivative financial
instruments, financial instruments held for trading, financial instruments
classified as available-for-sale and plan assets related to defined benefit
pension plans.

Basis of consolidation
The consolidated financial statements are prepared in accordance with the
purchase method. Accordingly, consolidated stockholders’ equity includes
equity in subsidiaries, joint ventures and associated companies earned only
after their acquisition.

Subsidiaries are all companies in which ericsson has an ownership
interest, directly or indirectly, including effective potential voting rights,
has the power to govern the financial and operating policies generally

notes to the consolidated financial statements | ericsson Annual Report 2009

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.

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. Final amounts must be established within
one year after the transaction date at the latest.

minority interest
The Company treats transactions with minority interests as transactions with
external parties. Disposals of minority interests are recognized as gains and
losses in the income statement. Purchases from minority interests result
in goodwill if there is a difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidiary.

Joint ventures and associated companies
Investments in joint ventures and 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 joint ventures and associated companies 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.

Shares in earnings of joint ventures and associated companies included

in consolidated equity which are undistributed are reported in Retained
earnings in the balance sheet.

Impairment testing as well as recognition or reversal of impairment

of investments in each joint venture is performed in the same manner as
for intangible assets other than goodwill. The entire carrying amount of
each investment, including goodwill, is tested as a single asset. See also
description under “Intangible assets other than goodwill” below.

foreign currency remeasurement and translation
Items included in the financial statements of each entity of the Company 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.

NOTe C1

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 OCI 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 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 OCI.

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 OCI.

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 OCI. When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in OCI 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 statement of cash flow 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.
license 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,

ericsson Annual Report 2009 | notes to the consolidated financial statements 41

NOTe C1

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.

Sales are recorded net of value added taxes, goods returned, trade

discounts and rebates. Revenue is recognized with reference to all
significant contractual terms when the product or service has been delivered,
when the revenue amount is fixed or determinable, and when collection
is reasonably assured. Specific contractual performance and acceptance
criteria may impact the timing and amounts of revenue recognized.

The profitability of individual contracts is periodically assessed, and
provisions for any estimated losses are made immediately when losses are
probable.

For sales between consolidated companies, associated companies, joint

ventures and segments, the Company applies arm’s length pricing.

definitions of contract types and related more specific
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 are accounted for in accordance with IAS 18 are:
Delivery-type contracts, i.e. 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 with multiple elements, revenue is allocated
to each element based on relative fair values. If there are undelivered
elements essential to the functionality of delivered elements, the
Company defers recognition of revenue until all elements essential to
the functionality have been delivered.
Contracts for services include various types of 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 license fees from third parties for the use of
the Company’s technology or intellectual property rights. Revenue is
normally recognized based on sales of products sold to the customer/
licensee.

The contract type that is accounted for in accordance with 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.

earnings per share
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, other operating income, financial income or financial
expense, depending on the intent with the transaction.

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 as well as amounts where risk and rewards have
been transferred to the customer but the invoice has not yet been issued.
Collectibility of the receivables is assessed for purposes of initial

revenue recognition.

available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other 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.

notes to the consolidated financial statements | ericsson Annual Report 2009

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
OCI. Changes in the fair value of monetary and non-monetary securities
classified as available-for-sale are recognized in OCI. When securities
classified as available-for-sale are sold or impaired, the accumulated fair
value adjustments previously recognized in OCI 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 OCI 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 recoveries of amounts previously
written off are credited to selling expenses in the income statement.

financial liabilities

Financial liabilities are recognized when the Company becomes bound to
the contractual obligations 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.

Borrowings
Borrowings are initially recognized at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortized cost; any
difference between the proceeds (net of transaction costs) and the
redemption value is recognized in the income statement over the period of
the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Company
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

NOTe C1

are recognized immediately in the income statement either as cost of sales,
other operating income, 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) fair value hedge: a hedge of the fair value of recognized liabilities;
b) cash flow hedge: a hedge of a particular risk associated with a highly

probable forecast transaction; or

c) net investment hedge: a hedge of a net investment in a foreign

operation.

At the inception of the hedge, 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 OCI are shown
in Note C16, “equity and OCI”.

The fair value of a hedging derivative is classified as a non-current asset

or liability when the remaining maturity of the hedged item is more than 12
months, and as a current asset or liability when the remaining maturity of
the hedged item is less than 12 months. Trading derivatives are classified as
current assets or liabilities.

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 remaining period to
maturity.

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 OCI. The gain
or loss relating to an ineffective portion is recognized immediately in the
income statement within financial income or expense.

Amounts deferred in OCI 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 OCI are transferred from OCI 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 OCI is recognized

ericsson Annual Report 2009 | notes to the consolidated financial statements 43

NOTe C1

in the income statement when the forecast transaction is ultimately
recognized. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in OCI is immediately transferred
to the income statement within financial income or expense.

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 OCI. 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 OCI 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

intangible assets other than goodwill
Intangible assets other than goodwill comprise capitalized development
expenses and acquired intangible assets, such as patents, customer
relations, trademarks 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 any 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.

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 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.

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. ericsson’s five operating
segments have been identified as CGUs. Goodwill is assigned to three of
them, Networks, Professional Services and Multimedia.

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.

Additional disclosure is required in relation to goodwill impairment

testing, see 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 any 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 equipment on
lease. 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 cost to sell with the carrying amount and are recognized
within Other operating income and expenses in the income statement.

Amortization of acquired intangible assets, such as patents, customer

leasing

relations, brands and software, is made according to the straight-line
method over their estimated useful lives, 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

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

notes to the consolidated financial statements | ericsson Annual Report 2009

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 the equipment Is recorded as property, plant

and equipment 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 or OCI. For those
items, the related income tax is also reported directly in equity or OCI. 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 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 when It Is probable that
the temporary difference will 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 or OCI, in which case the
adjustment is also recognized in equity or OCI.

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, customer 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

NOTe C1

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 unresolved income tax issues,
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.

In the ordinary course of business, the Company is subject to

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.

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, see Note 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. 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 results will differ from the
estimated results or that the actuarial assumptions will change from one
period to another. These differences are reported as actuarial gains and

ericsson Annual Report 2009 | notes to the consolidated financial statements 45

NOTe C1

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 OCI 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.

Payroll taxes related to actuarial gains and losses are included in

determining actuarial gains and losses.

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 based on a measure of the value to the company
of services received under the plans.

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 and other features that
are non-vesting conditions. The employee pays 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. Other
features of a share-based payment are not vesting conditions. These
features would need to be included in the grant date fair value for
transactions with employees and others providing similar services. In the
period when an employee takes a refund of previously made contributions
(and stops making further contributions) all remaining compensation
expense is recognized. Non-vesting conditions would not impact the
number of awards expected to vest or valuation thereof subsequent to
grant date. When calculating the compensation costs for shares under
performance-based matching programs, the Parent Company at each
reporting date assesses the probability that the performance targets are met.
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.

compensation to the Board of directors
During 2008, the Parent 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 Parent Company at the time of payment, as further disclosed
in Note C29, “Information Regarding Members of the Board of Directors,
Management and employees”. The cost for cash settlements is measured
and recognized 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
An operating segment is a component of a company whose operating
results are regularly reviewed by the Company’s chief operating decision
maker, (CODM), to make decisions about resources to be allocated to
the segment and assess its performance. Within the Company, the Group
Management Team is defined as the CODM function.

The segment presentation, as per each segment is based on the
accounting policies as disclosed in this note. The arm’s length principle is
applied in transactions between the segments.

The Company’s segment disclosure about geographical areas is based

on in which country transfer of risks and rewards occur.

Borrowing costs
The Company capitalizes borrowing costs in relation to qualifying assets,
for the Company normally being internally generated intangible assets as
capitalized development expenses. All other borrowing costs are expensed
as incurred.

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.

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,
2009, and have not been applied in preparing these consolidated financial
statements:

IAS 27 (revised), ‘Consolidated and separate financial statements’,
(effective from July 1, 2009). The revised standard requires the effects
of all transactions with non-controlling interests to be recorded in OCI
if there is no change in control and these transactions will no longer
result in goodwill or gains or losses. The standard also specifies the
accounting when control is lost. Any remaining interest in the entity is re-
measured to fair value, and a gain or loss is recognized in profit or loss.
The Company will apply IAS 27 (revised) prospectively to transactions
with non-controlling interests from January 1, 2010.
IFRS 3 (revised), ‘Business combinations’ (effective from July 1, 2009).
The revised standard continues to apply the acquisition method to

notes to the consolidated financial statements | ericsson Annual Report 2009

business combinations, with some significant changes. For example,
all payments to purchase a business are to be recorded at fair value
at the acquisition date, with contingent payments classified as debt
subsequently re-measured through the income statement. There is a
choice on an acquisition-by-acquisition basis to measure the non-
controlling interest in the acquiree either at fair value or at the non-
controlling interest’s proportionate share of the acquiree’s net assets.
All acquisition-related costs should be expensed as incurred. The
Company will apply IFRS 3 (revised) prospectively from January 1, 2010.
Acquisition-related costs incurred prior to the adoption of IFRS 3 (R)
have been treated as a part of the purchase price, as required by IFRS 3.
These costs amount to SeK 53 million as per December 31, 2009.
IFRS 2 (amendments), ‘Group cash-settled share-based payment
transactions’ (effective from January 1, 2010). In addition to
incorporating IFRIC 8, ‘Scope of IFRS 2’, and IFRIC 11, ‘IFRS 2 –
Group and treasury share transactions’, the amendments expand
on the guidance in IFRIC 11 to address the classification of group
arrangements that were not covered by the interpretation. The new
guidance is not expected to have a material impact on the Group’s
financial statements. The eU has not yet endorsed.
Improvements to IFRSs, published in April 2009 and effective from
January 1, 2010. None of these improvements are expected to have a
material impact on the Company’s financial statements. The eU has not
yet endorsed.
Amendment to IAS 32 Classification of Rights Issues (published in
October 2009 and effective for periods beginning after February 1, 2010).
This amendment prescribes the accounting treatment of a contract
that will or may be settled in the Company’s own equity instruments.
The amendment is not expected to have a significant impact on the
Company’s financial statements and is planned to be applied as from
January 1, 2011.
IFRIC 17,”Distributions of Non-cash Assets to Owners”. This
interpretation is not expected to have a material impact on the
Company’s financial statements.
Amendments to IFRIC 14, ‘Prepayment of a minimum funding
requirement’ (effective from January 1, 2011). These new amendments
are not expected to have a material impact on the group’s financial
statements. The eU has not yet endorsed.
IFRIC19, ‘extinguishing financial liabilities with equity instruments’
(effective for periods beginning after July 1, 2010). This new IFRIC is not
expected to have a material impact on the group’s financial statements.
The eU has not yet endorsed.
IAS 24 (revised) ‘Related party disclosures’ (effective from January 1,
2011). This amendment only impact disclosures. The eU has not yet
endorsed.
IFRS 9 ‘Financial Instruments’ (effective from January 1, 2013). The
objective of this IFRS is to establish principles for the financial reporting
of financial assets that will present relevant and useful information to
users of financial statements for their assessment of the amounts, timing
and uncertainty of the entity’s future cash flows. The Company has
not yet evaluated the impact of this new standard. The eU has not yet
endorsed.

NOTe C1– 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, 2009, were SeK 1.7 (1.8) billion or 2.4
(2.2) 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.

inventory valuation

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, 2009,
amounted to SeK 3.0 (3.5) billion or 12 (11) percent of gross inventory.

investments in joint ventures and associated
companies

Key sources of estimation uncertainty
Impairment testing is performed after initial recognition whenever there is an
indication of impairment.

At December 31, 2009, the amount of joint ventures and associated

companies amounted to SeK 11.6 (8.0) billion.

ericsson Annual Report 2009 | notes to the consolidated financial statements 47

NOTe C2

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, 2009, the value of deferred tax assets amounted to
SeK 14.3 (14.9) 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 testing amounts are based on estimates of
future cash flows for the respective products.

At December 31, 2009, the capitalized development expenses

amounted to SeK 2.1 (2.8) billion. An impairment charge of SeK 0.2 (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.

Judgments made in relation to accounting policies applied
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 the Company’s 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 and the evaluation of impairment

indicators also require 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 estimated, to ensure that the
initial carrying values do not exceed the expected discounted cash flows for
the items of this type of assets. After initial recognition impairment testing
is performed 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 2009 well

exceeded the value of the Company’s net assets.

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, 2009, the amount of acquired intellectual property

rights and other intangible assets amounted to SeK 46.1 (45.5) billion,
including goodwill of SeK 274 (24.9) billion. An impairment charge of SeK
4.3 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.

Judgments made in relation to accounting policies applied
At initial recognition and subsequent remeasurement, 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 these 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.

Provisions

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, 2009,
amounted to SeK 2.5 (1.9) billion.

notes to the consolidated financial statements | ericsson Annual Report 2009

NOTe C2

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, 2009,
provisions other than warranty commitments amounted to SeK 9.9 (12.4)
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.

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, employee 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, 2009, defined benefit obligations for pensions and other
post-employment benefits amounted to SeK 30.7 (28.0) billion and fair value
of plan assets to SeK 23.2 (19.0) billion. For more information on estimates
and assumptions, see Note C17, “Post-employment Benefits”.

financial instruments, 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. Forecasts are based on estimations of
future transactions, a forecast is therefore per definition uncertain to some
degree.

Judgments made in relation to accounting policies applied
establishing highly probable sales volumes involves gathering and
evaluating sales and purchases estimates for future periods as well as
analyzing actual outcome versus 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”.

ericsson Annual Report 2009 | notes to the consolidated financial statements 49

NOTE C3

C3 Segment InformatIon
operating segments
The Company has the following five operating 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.
Fixed access solutions; increase the customers’ ability to modernize
fixed networks to enable new IP-based services with higher bandwidth.
Ericsson’s core network solutions include industry leading softswitches,
IP infrastructure for EDGE- and core routing, IP Multimedia Subsystem
(IMS) and media gateways.
Transmission/backhaul; micro-wave and optical transmission solutions
for mobile and fixed networks.
Related network rollout services.
Network management tools; supporting operator activities for
management of existing networks as well as for introduction of new
network architectures, technologies and services.

GSM and WCDMA share a common core network, preserving investments.
IMS is a platform that enables converged services to be transparently
provided independent 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 provides enablers and applications enabling operators to deliver
a rich user experience seamlessly on any device, any time and anywhere.
The offering includes:

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 delivery and provisioning platforms enabling operators and
service providers to create, sell and manage multimedia offerings and
multi-play offerings.

sony ericsson, consisting of the joint venture Sony Ericsson Mobile
Communications. Sony Ericsson delivers innovative and feature-rich mobile
phones and accessories.

st-ericsson, consisting of the joint venture ST-Ericsson. ST-Ericsson is
an industry leader in design, development, and creation of cutting-edge
mobile platforms and wireless semiconductors. ST-Ericsson was formed
on February 2, 2009, by merging ST-NXP Wireless and Ericsson Mobile
Platforms.

Unallocated
Some revenues, costs, assets and liabilities are not identified as part of any
operating segment and are therefore not allocated. Examples of such items
are costs for corporate staff, IT costs and general marketing costs.

Geographical areas
The Company operates world-wide and reports its operations divided in
five geographical areas: (1) Western Europe, (2) Central and Eastern Europe,
Middle East and Africa, (3) Asia Pacific, (4) North America and (5) Latin
America.

major customers
The Company does not have any customer for which revenues from
transactions have exceeded 10 percent of the Company’s total revenues for
the years 2009, 2008 or 2007.

notes to the consolidated financial statements | Ericsson Annual Report 2009

oPeR atinG seGments

2009

Segment sales
Inter–segment sales

net sales

operating income

Operating margin (%)
Financial income
Financial expenses

income after financial items

Taxes

net income

other segment items
Share in earnings of joint ventures and
associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses from divestments

sony

total
ericsson ericsson segments

st-

NOTE C3

Unallo-
cated

elimi-

nations 3) Group

Professional

multi-
services media

networks

136,312
770

137,082

56,065
58

12,996
276

56,123

13,272

71,984
164

72,148

13,535
5,731

290,892
6,999

–
–

–85,519 205,373
1,104
–5,895

19,266

297,891 –

–91,414 206,477

6,879 2)

6,990 1)

12%

655

–10,820

–2,615

1,089

–855

5,684

5,918

–15%

–14%

–

3%
1,874
–1,549

6,243

–2,116

4,127

37
–2,673
–2,768
–4,333 2)

–8,748 2)

33
–574
–627
–
9
–2,044

777 1)

–1
–910
–155
–80
2
–385
41

–5,693
–165
–1,124
–
–
–1,754
–

–1,762
–828
–997
–46
–
–890
47

–7,386
–5,150
–5,671
–4,459
49
–13,821
875

–14
–
–
–
–
–82
–32

–
941
2,121
46
–
1,322
–

–7,400
–4,209
–3,550
–4,413
49
–12,581
843

total assets

116,226

33,515

17,650

33,586

22,187

223,164

92,101

–45,456 269,809

1) In Q2 2009, the TEMS business was divested, resulting in a capital gain of SEK 0.8 billion.
2) Including impairment losses related to restructuring activities of SEK 4.3 billion.
3) Sony Ericsson and ST-Ericsson are accounted for in accordance with the equity method. The difference between what is reported to the CODM and externally is eliminated.

GeoGRaPhical aReas

2009

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

non-current

net sales

assets 1)

44,579
4,096
50,725
65,770
18,455
15,252
25,350
21,538
20,053

206,477
49,313

56,118
43,574
1,202
1,630
903
225
8,359
8,100
2,066

69,375
49,158

1) Total non-current assets excluding financial instruments, deferred tax assets, and post-employement benefit assets.

For employee information, see Note C29, “Information Regarding Members of the Board of Directors, the Management and Employees”.

Ericsson Annual Report 2009 | notes to the consolidated financial statements 51

NOTE C3

oPeR atinG seGments

2008

Segment sales
Inter-segment sales

net sales

operating income

Operating margin (%)
Financial income
Financial expenses

income after financial items

Taxes

net income

networks

142,031
19

142,050

Professional multi-

sony

services media 1) ericsson segments

total Unallo-
cated

elimi-
nations 2)

48,940
38

12,614
5,288

108,492
261

312,077
5,606

– –108,492
–261
–

Group

203,585
5,345

48,978

17,902

108,753

317,683

–

-108,753

208,930

11,145

6,346

13%

–118

–1%

–1,094

16,279

–618

–

591

–

–25
–3,210
–2,347
–547
6
–5,131
9

91
–368
–532
–
1
–1,272
–16

1
–1,429
–228
–19
–
–337
992

-503
–53
–1,138
–
–
–1,692
–

–436
–5,060
–4,245
–566
7
–8,432
985

–
1
–1
–
–
–20
113

–
53
1,138
–
–
846
–

16,252

8%
3,458
–2,484

17,226

–5,559

11,667

-436
–5,006
–3,108
–566
7
–7,606
1,098

total assets

131,127 3)

32,099 3) 20,891

48,837

232,954

94,873

–42,143

285,684

1) Multimedia figures include the Mobile Platforms business which from 2009 is part of ST-Ericsson.
2) Sony Ericsson is accounted for in accordance with the equity method. The difference between what is reported to the CODM and externally is eliminated.
3) Amounts for 2007 and 2008 have been restated to be consistent with asset allocation method applied as from 2009.

GeoGRaPhical aReas

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

non-current

net sales

assets 1)

51,570
8,876
53,080
63,307
15,068
15,176
17,925
14,132
23,048

208,930
57,601

53,019
46,458
1,178
1,436
688
156
8,917
8,829
1,676

66,226
52,945

1) Total non-current assets excluding financial instruments, deferred tax assets, and post-employement benefit assets.

For employee information, see Note C29, “Information Regarding Members of the Board of Directors, the Management and Employees”.

notes to the consolidated financial statements | Ericsson Annual Report 2009

oPeR atinG seGments

2007

Segment sales
Inter-segment sales

net sales

operating income

Operating margin (%)
Financial income
Financial expenses

income after financial items

Taxes

net income

other segment items
Share in earnings of joint ventures
and associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Gains/losses from divestments

networks

128,985
32

129,017

Professional multi-

sony

services media 1,2) ericsson segments

total Unallo-
cated

elimi-
nations 3)

42,892
10

11,997
3,908

119,068
333

302,942
4,283

– –119,068
–377
–

42,902

15,905

119,401

307,225

– –119,445

187,780

NOTE C3

Group

183,874
3,906

17,398

13%

6,394

15%

–135

–1%

14,270

37,927

–119

-7,162

12%

–

61
–4,630
–2,601
–105
297
–

66
–237
–367
–1
–
–

–3
–566
–152
–
–
–

7,108
–
–1,052
–
–
–

7232
–5,433
–4,172
–106
297
–

–
–
–1
–
–
280

–
–
1,052
–
–
–

30,646

16%
1,778
–1,695

30,729

–8,594

22,135

7,232
–5,433
–3,121
–106
297
280

total assets

117,863 4)

28,078 4) 18,945

50,832

215,718

70,682

–41,283

245,117

1) Multimedia figures include the Enterprise PBX business which was divested in 2008.
2) Multimedia figures include the Mobile Platforms business which from 2009 is part of ST-Ericsson
3) Sony Ericsson is accounted for in accordance with the equity method. The difference between what is reported to the CODM and externally is eliminated.
4) Amounts for 2007 and 2008 have been restated to be consistent with asset allocation method applied as from 2009.

GeoGRaPhical aReas

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

non-current

net sales

assets 1)

52,685
8,395
48,661
54,629
13,598
10,517
13,422
10,529
18,383

187,780
58,978

57,537
49,283
1,158
1,313
618
124
8,794
8,668
1,846

70,648
57,148

1) Total non-current assets excluding financial instruments, deferred tax assets, and post-employement benefit assets.

For employee information, see Note C29, “Information Regarding Members of the Board of Directors, the Management and Employees”.

Ericsson Annual Report 2009 | notes to the consolidated financial statements 53

NOTE C4–C6

C4 Net SaleS

Sales of products and
network rollout services
Of which:
– Delivery-type contracts
– Construction-type contracts
Professional Services sales
License revenues 1)

C6 Other OperatiNg
iNCOme aNd expeNSeS

2009

2008

2007

2009

2008

2007

145,873 150,846 138,011

144,908 148,358 130,890
7,121
42,892
6,877

2,488
48,978
9,106

965
56,123
4,481

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

Other operating revenues

total other operating income
and expenses

193

302

–126

–190

–104

962

1,236

–119

910

2,172

–138

1,210

1,767

296

–16

254

1,480

3,082

2,977

1,734

net sales
export sales from Sweden

206,477 208,930

187,780
94,829 109,254 102,486

1) The ST-ericsson joint venture was formed in February 2009, figures for 2007 and 2008

include licenses revenues from Mobile Platforms.

C5 expeNSeS by Nature

Goods and services
Amortization and depreciation
Impairments and obsolescence
allowances, net of reversals
employee remunerations
Interest expenses
Taxes

expenses incurred
Less:
Inventory changes 1)
Additions to Capitalized development

expenses charged to the
income statement

2009

2008

2007

124,627 138,298
8,114

7,759

113,195
8,554

5,637
54,877
1,549
2,116

2,680
51,297
2,484
5,559

1,435
44,771
1,695
8,594

196,565 208,432 178,244

–4,784
1,443

3,761
1,409

802
1,053

199,906 203,262 176,389

1) The inventory changes are based on changes of gross inventory values prior to

obsolescence allowances.

The increase in impairments and obsolescence allowances, net of reversals,
is mainly due to restructuring-related impairments of intangible assets,
somewhat offset by decreased obsolescence allowances for inventories
as well as decreased impairments of trade receivables and capitalized
development expenses.

In January, 2009, cost reduction activities were initiated targeting annual
savings of SeK 10 billion with full effect to be achieved in the second half of
2010, assuming current level of operations. In the third quarter an increase
of the target with an additional SeK 5–6 billion of savings was set with
anticipated costs of the same magnitude. The restructuring charges relate to
activities to reduce production cost, reduce product variants and platforms,
increase the re-use of software, consolidate R&D activities, and improve
administrative processes. In the product portfolio reviews, opportunities to
reduce the number of platforms and solutions were identified, resulting in
write-downs of capitalized development costs and acquired IPR assets for
the affected products.

For 2009, restructuring charges amounted to SeK 11.3 billion.
Restructuring charges are included in the expenses presented above.

Restructuring charges by function

2009

2008

2007

Cost of sales
R&D expenses
Selling and administrative expenses

total restructuring charges

4,180
6,045
1,034

11,259

2,540
2,648
1,572

6,760

–
–
–

–

notes to the consolidated financial statements | ericsson Annual Report 2009

NOTe C7– C8

C7 FinanCial inCome and expenses

2009

2008

financial
income

financial
expenses

financial
income

financial
expenses

2007

financial
income

financial
expenses

Contractual interest on financial assets
Of which on financial assets at
fair value through profit or loss

Contractual interest on financial liabilities
Of which on 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

1,287

814

635

–
–53

2,938

2,282

–1,616

–2,023

–

155

155
–

–2
–86

–

280

–32
–
–
–656
–85

322

–
–
191
–
7

total

1,874

–1,549

3,458

–2,484

2,293

1,094

–181

–
–
–342
–
8

1,778

–1,543

–

–60

–7
–
–
11
–103

–1,695

1) excluding net gain from operating assets and liabilities, SeK 2,247 million (net loss of SeK 4,234 million in 2008, net loss of SeK 762 million in 2007), reported as Cost of Sales.

C8 Taxes

The Company’s expense for the year was SeK 2,116 (5,559) million or 33.9
(32.3) percent of the income after financial items, mainly due to a lower tax
rate from the loss making joint venture companies. The tax rate excluding
joint ventures and associated companies was 25.7 percent.

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 previous years
Deferred tax income/expense (–)

Sub total
Share of taxes in joint ventures and
associated companies

Taxes

2009

2008

2007

–4,605

–5,574

–4,115

441
661

167
–297

–294
–2,227

–3,503

–5,704

–6,636

1,387

145

–1,958

–2,116

–5,559

–8,594

A reconciliation between actual tax expense for the year and the theoretical
tax expense that would arise when applying statutory tax rate in Sweden,
26.3 percent, on income before taxes is shown in the table below.

Reconciliation of swedish income tax to the actual
income tax

Tax rate in Sweden (26.3 %)
effect of foreign tax rates
Of which joint ventures
and associated companies
Current income taxes related to
previous years
Recognition/remeasurement of
tax losses related to previous years
Recognition/remeasurement of
deductible temporary differences
related to previous years
Tax effect of non-deductible expenses
Tax effect of non-taxable income
Tax effect of changes in tax rates

taxes

2009

2008

2007

–1,643
–812

–4,823
22

–8,604
62

–550

441

167

–294

–169

–204

267
–1,155
630
148

62
–986
327
–159

472
–810
853
–69

–2,116

–5,559

–8,594

ericsson Annual Report 2009 | notes to the consolidated financial statements 55

NOTe C8

deferred tax balances

Tax effects of temporary differences and tax loss carryforwards are
attributable as shown in the table below:

tax effects of temPoRaRY diffeRences and tax loss caRRYfoRwaRds

deferred tax deferred tax
liabilities

assets

net balance

deferred tax deferred tax
liabilities

assets

net balance

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

359
2,481
852
2,240
1,901
4,343
3,961

16,137
–1,810

14,327

2,264
53
472
–
–
1,291 1)
–

4,080
–1,810

2,270

313
2,056
1,054
2,473
2,941
3,743
4,736

17,316
–2,458

4,081
80
138
–
–
897 1)
–

5,196
–2,458

12,057

14,858

2,738

12,120

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. Tax loss carryforwards for Sony ericsson and
ST-ericsson are not included, as they are accounted for in accordance with
the equity method.

At December 31, 2009, the available tax loss carryforwards amounted
to SeK 14,493 (16,327) 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

2010
2011
2012
2013
2014
2015 or later

total

28
41
101
256
379
13,688

14,493

tax
effect

7
8
20
55
96
3,775

3,961

1) Referring mainly to R&D credits and intellectual property rights.

changes in defeRRed taxes

opening balance, net
Recognized in income statement
Recognized in OCI
Acquisitions/disposals of subsidiaries
Translation differences

closing balance, net

2009

2008

12,120
661
–1,040
186
130

8,891
–296
2,330
861
334

12,057

12,120

Tax effects reported directly in Other Comprehensive Income amount to
SeK –1,040 (2,330) million, of which actuarial gains and losses related to
pensions SeK 173 (931) million, cash flow hedges SeK –1,059 (1,225) million
and changes in cumulative translations adjustments SeK –154 (174) 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.

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 3,961 million, SeK
2,420 million relate to Sweden with indefinite time of utilization. Due to the
Company’s strong current financial position and taxable income during
2009, ericsson has been able to utilize part of its tax loss carryforwards
during the year. The assessment is that ericsson will be able to generate
sufficient income in the coming years to also utilize the 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.

notes to the consolidated financial statements | ericsson Annual Report 2009

NOTe C9 – C10

C9 earnings per share

Basic
Net income attributable to stockholders
of the Parent Company (SeK million)
Average number of shares
outstanding, basic (millions)
earnings per share, basic (seK)

diluted
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)

2009

2008

2007 1)

3,672

11,273

21,836

3,190
1.15

3,183
3.54

3,178
6.87

3,672

11,273

21,836

3,190
–
22

3,183
1
18

3,212
1.14

3,202
3.52

3,178
2
13

3,193
6.84

1) A reverse split 1:5 was made in June 2008. Comparative figures are restated

accordingly.

C10 inTangible asseTs

2009

accumulated acquisition costs
Opening balance
Acquisitions/capitalization
Balances regarding divested/
acquired businesses 1)
Sales/disposals
Contribution to joint ventures
Translation difference

closing balance

accumulated amortization
Opening balance
Amortization
Sales/disposals
Translation difference

closing balance

accumulated impairment losses
Opening balance
Impairment losses 2)

closing balance

net carrying value

capitalized development expenses

goodwill

for internal use

to be
marketed

acquired
costs

internal
costs

total

intellectual property rights (iPR), trade-
marks and other intangible assets

trademarks
and similar
rights

Patents
and
acquired
R&d

total

5,518
1,045

–
–
–1,342
–

5,221

–1,570
–534
–
–

–2,104

–1,508
–157

–1,665

1,452

1,821
239

1,217
159

8,556
1,443

24,877
–

–
–
–
–

–
–
–1,342
–

3,534
–21
–
–1,015

9,429
602

811
–142
–
–76

20,450
2

29,879
604

5,021
–
–
–575

5,832
–142
–
–651

2,060

1,376

8,657

27,375

10,624

24,898

35,522

–1,562
–68
–
–

–1,630

–55
–

–55

375

–1,042
–45
–
–

–1,087

–37
–

–37

252

–4,174
–647
–
–

–4,821

–1,600
–157

–1,757

–
–
–
–

–

–
–

–

–2,425
–360
131
15

–2,639

–6,853
–3,202
–
180

–9,278
–3,562
131
195

–9,875

–12,514

–
–

–

–14
–4,255

–4,269

2,079

27,375

7,985

10,754

18,739

1) During 2009, ericsson acquired Nortel SeK 8.7 billion.
2) The write-down (impairment charge) of SeK 4.255 billion is a consequence of the restructuring program decision to phase out certain products.

The goodwill is allocated to the operating segments Networks SeK 16.5
(15.3) billion, Professional Services SeK 3.7 (2.8) billion and Multimedia
SeK 7.2 (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 regarding revenue growth, approved by group
management and each operating segment’s management, are based
on industry sources and projections made within the Company for the
development 2010–2014 for key industry parameters:

the number of global mobile subscriptions is estimated to grow from 4.5
billion by the end of 2009 to approximately 7.1 billion. Of these, some
hundred millions will have mobile PC connections, while more than 2
billion will have a mobile broadband connection.

ericsson Annual Report 2009 | notes to the consolidated financial statements 57

NOTe C10

Mobile PC includes USB dongles and embedded modules for
CDMA2000 eV-DO, HSPA, LTe, Mobile WiMax and TDSCDMA and can
also be used for fixed applications.
Mobile Broadband includes CDMA2000 eV-DO, HSPA, LTe, Mobile
WiMax and TDSCDMA. It includes handsets, USB dongles and
embedded modules. The vast majority is handsets.
Fixed broadband subscriptions will grow from slightly above 400 million
to almost 600 million in the same time perspective.
Mobile traffic volume is estimated to increase more than 10 times, while
the fixed Internet traffic and fixed IPTV traffic is estimated to increase
around 7–8 times, however from a much larger base.

The demand for multimedia solutions is driven by the opportunities for
new types of service offerings enabled by IP technology and high-speed
broadband.

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 (3) percent per year thereafter. The impairment tests 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 2009, the market capitalization of the Company well

exceeded the value of the Company’s net assets.

An after-tax discount rate of 12 (12) percent has for all cash generating

units been applied for the discounting of projected after-tax cash flows.
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

intellectual property rights (iPR), trade-
marks and other intangible assets

2008

accumulated acquisition costs
Opening balance
Acquisitions/capitalization
Balances regarding divested/
acquired businesses
Sales/disposals
Reclassification 2)
Translation difference

closing balance

accumulated amortization
Opening balance
Amortization
Sales/disposals
Translation difference

closing balance

accumulated impairment losses
Opening balance
Impairment losses

closing balance

net carrying value

for internal use

to be
marketed

acquired
costs

internal
costs

total

trademarks
and similar
rights

Patents
and
acquired
R&d

total

30,130
20

–172
–1,243
–209
1,353

12,478
1,107

–
–8,067
–
–

5,518

–7,911
–1,726
8,067
–

–1,570

–974
–534 3)

–1,508

2,440

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

1,821

1,217

8,556

24,877

9,429

20,450

29,879

–1,562
–
–
–

–1,562

–38
–17

–55

204

–1,042
–
–
–

–1,042

–26
–11

–37

138

–10,515
–1,726
8,067
–

–4,174

–1,038
–562

–1,600

–
–
–
–

–

–
–

–

–2,072
–674
496
–175

–2,425

–
–

–

–4,086
–2,606
8
–169

–6,158
–3,280
504
–344

–6,853

–9,278

–14
–

–14

–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.

notes to the consolidated financial statements | ericsson Annual Report 2009

C11 ProPerty, Plant and equiPment

2009

Real estate

machinery and
other technical
assets

other
equipment,
tools and
installations

construction in
process and
advance
payments

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
Opening balance
Impairment losses
Reversals of impairment losses
Sales/disposals
Translation difference

closing balance

net carrying value

4,054
362
–
–282
240
–157

4,217

–1,545
–303
–
174
–75
57

–1,692

–47
–
–
–
2

–45

2,480

6,131
657
–183
–1,241
151
–217

5,298

–4,211
–735
112
1,188
–51
140

–3,557

–125
–
33
–
1

–91

1,650

18,058
1,699
–95
–2,184
947
–338

18,087

–12,967
–2,512
191
1,873
126
231

–13,058

–148
–1
16
–
2

–131

4,898

795
1,288
–1
–148
–1,338
–18

578

–
–
–
–
–
–

–

–
–
–
–
–

–

578

Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2009, amounted to SeK 236 (229) million.
The reversal of impairment losses have been reported under Cost of sales.

2008

Real estate

machinery and
other technical
assets

other
equipment,
tools and
installations

construction in
process and
advance
payments

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
Opening balance
Impairment losses
Reversals of impairment losses
Sales/disposals
Translation difference

closing balance

net carrying value

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

NOTE C11

total

29,038
4,006
–279
–3,855
–
–730

28,180

–18,723
–3,550
303
3,235
–
428

–18,307

–320
–1
49
–
5

–267

9,606

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

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.

ericsson Annual Report 2009 | notes to the consolidated financial statements 59

NOTE C12

C12 FinanCial assets, non-Current

equity in joint ventures and associated companies

Opening balance
Share in earnings
Taxes
Translation difference
Change in hedge reserve
Pensions
Dividends
Contributions to joint ventures and associated companies
Reclassification
Disposals

joint ventures

2009

2008

6,694
–7,455
1,388
–277
6
21
–

9,941 1)
–1
–

9,549
–503
151
1,084
36
4
–3,627
–
–
–

associated companies

total

2009

1,294
55
–1
–17
–
–
–70
2
–2
–

2008

1,354
67
–6
130
–
–
–236
46
–1
–60

2009

2008

7,988
–7,400
1,387
–294
6
21 4
–70
9,943
–3
–

11,578

10,903
–436
145
1,214
36

–3,863
46
–1
–60

7,988

closing balance

10,317 2)

6,694

1,261 3)

1,294

1) Including contribution of SeK 5.0 billion paid to STMicroelectronics.
2) Including goodwill for ST-ericsson of SeK 1,341 million
3) Goodwill, net, amounts to SeK 16 million (SeK 16 million in 2008).

ericsson’s share of assets, liabilities and income in joint
venture sony ericsson mobile communications

ericsson’s share of assets, liabilities and income in joint
venture st-ericsson

Non-current assets
Current assets
Non-current liabilities
Current liabilities
net assets

net sales
Income after financial items
Income taxes

2009

2008

2007

4,003
12,790
130
14,675
1,988

36,074
–5,540
1,252

3,228
21,190
157
17,593
6,668

54,377
–400
151

2,701
22,714
121
15,745
9,549

59,700
7,276
–1,957

net income

–4,288

–249

5,319

Net income attributable to:
Stockholders of the Parent Company
Minority interest
Assets pledged as collateral
Contingent liabilities

–4,441
153
182
17

–353
104
–
20

5,151
168
–
12

ericsson’s share of assets, liabilities and income in
associated company ericsson nikola tesla d.d. 1)

2009

2008

2007

Non-current assets
Current assets
Non-current liabilities
Current liabilities

net assets

net sales
Income after financial items
Income taxes

net income

Net income attributable to:
Stockholders of the Parent Company
Minority interest
Assets pledged as collateral
Contingent liabilities

1) ericsson’s share is 49.07 percent.

311
754
3
240

822

994
90
1

91
–
5
151

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

All three companies apply IFRS in the reporting to ericsson.

Non-current assets
Current assets
Non-current liabilities
Current liabilities

net assets

net sales
Income after financial items
Income taxes

net income

Net income attributable to:
Stockholders of the Parent Company
Minority interest
Assets pledged as collateral
Contingent liabilities

2009

7,238
3,856
129
2,691

8,274

9,633
–1,762
136

–1,626

–1,626
–
–
6

st-ericsson: On February 2, 2009, the 50/50 joint venture consisting of ST-
NXP wireless business and ericsson Mobile Platforms was established.

ST-ericsson is an industry leader in design, development, and
the creation of new generations of mobile platforms and wireless
semiconductors. ST-ericsson is a key supplier to four of the industry’s top
five handset manufacturers, who together represent about 80 percent of
global handset shipments, as well as to other leading companies in the
industry.

ericsson contributed with net cash and net assets, of which SeK 5.0

billion was paid to STMicroelectronics.

The joint venture is headquartered in Geneva, Switzerland, and employs

approximately 8,000 persons.

notes to the consolidated financial statements | ericsson Annual Report 2009

NOTE C12– C13

other financial assets, non–current

accumulated acquisition costs
Opening balance
Additions
Business combinations
Disposals/repayments/deductions
Change in value in funded pension plans 1)
Reclassifications
Revaluation
Translation difference

other investments
in shares and
participations
2008

2009

customer
finance,
non-current
2008

2009

derivatives,
non-current
2008

2009

other
financial assets,
non-current
2008

2009

1,783
1
–
–36
–
–1
–
–87

2,019
4
–
–462 2)
–
–
–
222

1,082
408
–
–258
–
–
–
–

1,221
623
–
–761
–
–
–
–1

2,814
–
–
–
–
–
–1,971
–

96
–
–
–
–
–
2,718
–

3,557
389
– –
–244
–521
–
– –
16

4,092
292

–713
–307
–

193

closing balance

1,660

1,783 2)

1,232

1,082

843

2,814

3,197

3,557

accumulated impairment losses/allowances
Opening balance
Impairment losses/allowance
Business combinations
Disposals/repayments/deductions
Translation difference

closing balance

net carrying value

–1,474
–3
–
–
73

–1,281
–
–
–7
–186

–1,404

–1,474

256

309

–236
–222
–
56
–

–402

830

–209
–48
–
21
–

–236

846

–
–
–
–
–

–

–
–
–
–
–

–

–1,454
–74
– –
– –
65

–1,270
–14

–170

–1,463

–1,454

843

2,814

1,734

2,103

1) For further information, see Note C17, “Post-employment benefits”.
2) In 2008, the divestment of shares in Symbian, with a cash flow effect of SeK 1,256 million, is included in divestments of subsidiaries and other operations.

C13 inventories

Raw materials, components, consumables
and manufacturing work in progress
Finished products and goods for resale
Contract work in progress

inventories, net

2009

2008

6,190
6,621
9,907

7,413
7,616
12,807

22,718

27,836

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 2,961

(3,493) million.

movements in obsolescence allowances

opening balance
Additions, net
Utilization
Translation difference
Balances regarding acquired/divested
businesses

closing balance

2009

2008

2007

3,493
562
–1,297
2

2,752
1,553
–1,039
250

2,578
1,276
–1,114
17

201

–23

–5

2,961

3,493

2,752

The amount of inventories recognized as expense and included in Cost of
sales was SeK 52,255 (58,155) million.

ericsson Annual Report 2009 | notes to the consolidated financial statements 61

NOTE C14

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

2009

2008

67,133
–924

76,827
–1,471

66,209

75,356

201

535

66,410

75,891

3,046
–772

2,274
1,444

3,147
–326

2,821
1,975

Credit commitments for customer finance

3,027

3,811

Days Sales Outstanding were 106 (106) in December, 2009.

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, 2009

trade receivables
2008

2009

2007

customer finance
2008

2009

2007

1,471
388
–583
–312
10
–43
–7

924

1,351
651
–492
–81
–69
115
–4

1,471

1,372
564
–554
–137
56
50
–

1,351

326
595
–67
–37
–
–45
–

772

275
90
–3
–74
–
38
–

326

418
49
–43
–141
–
–8
–

275

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
less than
or more
90 days

Trade receivables excluding associated companies
and joint ventures
Allowances for impairment of receivables
Customer finance
Allowances for impairment of customer finance

67,133
–924
3,046
–772

58,727
–
1,292
–

43
–8
1,314
–342

2,962
–
9
–

2,081
–
1
–

774
–180
145
–145

2,546
–736
285
–285

aging analysis as PeR decembeR 31, 2008

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
less than
or more
90 days

Trade receivables excluding associated companies
and joint ventures
Allowances for impairment of receivables
Customer finance
Allowances for impairment of customer finance

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

notes to the consolidated financial statements | ericsson Annual Report 2009

NOTE C14

commercial, e.g. a borrower’s deteriorated creditworthiness.

As of December 31, 2009, ericsson’s total outstanding exposure related

to customer finance was SeK 3,046 (3,147) million. As of December 31,
2009, ericsson also had unutilized customer finance commitments of SeK
3,027 (3,811) million. During 2009 ericsson transferred certain customer
finance assets to third parties, and continues to recognize a part of such
assets corresponding to the extent of its continuing involvement. The
total carrying amount of the original assets transferred is SeK 560 million,
the amount of the assets that ericsson continues to recognize is SeK 28
million, and the carrying amount of the associated liabilities is SeK 28
million. Customer finance is arranged for infrastructure projects in different
geographic markets and for a large number of customers. As of December
31, 2009, there were a total of 68 (69) customer finance arrangements
originated by or guaranteed by ericsson. The five largest facilities
represented 43 (44) percent of the total credit exposure.

Of ericsson’s total outstanding customer finance exposure as of
December 31, 2009, 57 (58) percent was related to Central and eastern
europe, Middle east and Africa, 15 (22) percent to America, 14 (18) percent
to Western europe, and 14 (2) percent to Asia Pacific.

The effect of risk provisions and reversals for customer finance affecting

the income statement amounted to a net negative impact of SeK 480 (16)
million in 2009. Credit losses incurred were SeK 67 (3) million.

Security arrangements for customer finance facilities normally include

pledges of equipment, pledges of certain assets belonging to the borrower
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 is as a rule 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. A credit risk transfer under a sub participation arrangement with a
bank can also be arranged. In this case the entire credit risk and the funding
is taken care of by the bank for the part that they cover. A credit risk cover
from a third party may also be issued by an insurance company. During
2009, ericsson has not taken possession of any collateral it holds as security
or called on any other credit enhancement.

Information about guarantees related to customer finance is included in

note C24.

The table below summarizes ericsson’s outstanding customer finance as

of December 31, 2009 and 2008.

oUtstanding cUstomeR finance

Total customer finance
Accrued interest
Less third-party risk coverage

ericsson’s risk exposure

2009

3,046
57
–382

2008

3,147
81
–162

2,721

3,066

credit risk

Credit risk is divided into three categories: credit risk in trade receivables,
customer finance risk and financial credit risk (see C20, Financial Risk
Management and Financial Instruments).

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 Company 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. This is based on the credit risk set on the customer. Credit
blocks appear if the credit limit set on customer is exceeded or if past
due receivables are higher than permitted levels. Release of a 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 67,133 (76,827) million as of

December 31, 2009. Provisions for expected losses are regularly assessed
and amounted to SeK 924 (1,471) million as of December 31, 2009.
ericsson’s nominal credit losses have, however, historically been low. The
amounts of trade receivables closely follow the distribution of ericsson’s
sales and do not include any major concentrations of credit risk by customer
or by geography. The five largest customers represent 26 percent of the total
trade receivables.

customer finance credit risk
All major commitments to finance customers are made only after the
approval by the Finance Committee of the Board of Directors according to
the established credit approval process.

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 of each transaction (for political and commercial risk). The credit risk
analysis is made by using an assessment 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 credit risk exposure. The
output from the assessment tool for the credit rating also include an internal
pricing of the risk. This is expressed as a risk margin per annum over funding
cost. The reference pricing for political 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.

Risk provisions related to customer finance risk exposures are only
made upon events which occur after the financing arrangement has become
effective and 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

ericsson Annual Report 2009 | notes to the consolidated financial statements 63

dividend proposal
The Board of Directors will propose to the Annual General Meeting 2010 a
dividend of SeK 2.00 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.

cash flow hedges
The cash flow hedge 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 cumulative translation adjustments 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. Actuarial gains and losses related
to pensions are included in retained earnings.

NOTe C15 – C16

C15 Other Current
reCeivables

Prepaid expenses
Accrued revenues
Advance payments to suppliers
Derivatives with a positive value 1)
Taxes
Other

total

2009

2008

2,403
1,538
776
1,760
4,830
3,839

3,134
1,885
1,278
2,796
4,130
4,595

15,146

17,818

1) Also see Note C20 “Financial Risk Management and Financial Instruments”

C16 equity and Other
COmprehensive inCOme
capital stock 2009

Capital stock at December 31, 2009, consisted of the following:

Parent company

Class A shares
Class B shares

total

number capital
stock

of shares

261,755,983
3,011,595,752

1,309
15,058

3,273,351,735

16,367

The capital stock of the Parent 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. 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, 2009, the total number of treasury shares was

78,978,533 (61,066,097 in 2008 and 46,398,309 1) in 2007) Class B shares.
ericsson repurchased 27,000,000 shares in 2009, in relation to the Stock
Purchase Plans and the Stock Option Plans.

1) A reverse split 1:5 was made in June 2008. Comparative figures are restated accordingly.

Reconciliation of numbeR of shaRes

Number of shares Jan 1, 2009
Number of shares Dec 31, 2009

number
of shares

capital
stock

3,246,351,735
3,273,351,735

16,232
16,367

For further information about number of shares, see chapter Share
information.

notes to the consolidated financial statements | ericsson Annual Report 2009

Revalua-
tion of
other
invest-
ments in
shares
and
partici-
pations

addi-
tional
paid in
capital

capital
stock

cumula-
tive
transla-
tion

cash
flow
hedges

NOTe C16

stock-

2009

January 1, 2009

net income
Group
Joint ventures and associated companies

other comprehensive income
Actuarial gains and losses, and the effect of the
asset ceiling, related to pensions

Group
Joint ventures and associated companies

Revaluation of other investments in shares
and participations
Fair value remeasurement

Group
Joint ventures and associated companies

Cash flow hedges
Gains/losses arising during the year

Group
Joint ventures and associated companies
Reclassification adjustments for gains/losses

included in profit or loss

Adjustments for amounts transferred to initial
carrying amount of hedged items
Changes in cumulative translation adjustments

Group
Joint ventures and associated companies

Tax on items relating to components of OCI 3)

total other comprehensive income

total comprehensive income

transactions with owners
Stock issue
Sale of own shares
Repurchase of own shares
Stock Purchase and Stock Option Plans

Group
Joint ventures and associated companies

Dividends paid
Business combinations

december 31, 2009

adjust- Retained holders’ minority
interests
ments earnings

equity

total
equity

16,232

24,731

–1

–2,356

2,124

100,093

140,823

1,261

142,084

–
–

–

–
–
–

–

135
–
–

–
–
–
–

–
–

–

–
–
–

–

–
–
–

–
–
–
–

–
–

–2
–

–
–

–

–
–
–1

–3

–
–
–

–
–
–
–

–
–

665
7

3,850 1)

–1,029

–
–
–1,059

–
–

–

–1,013 2)
–294
–154 4)

2,434

–1,461

2,434

–1,461

–
–
–

–
–
–
–

–
–
–

–
–
–
–

9,685
–6,013

455
–

10,140
–6,013

–633
28

–
–

–

–
–
174

–431

3,241

–
75
–135

–2
–

665
7

3,850

–1,029

–1,013
–294
–1,040

539

4,211

135
75
–135

658
–
–5,897
–

–
–

–

–54
–
–

–54

401

–
–
–

–
–
–421
–84

–633
28

–2
–

665
7

3,850

–1,029

–1,067
–294
–1,040

485

4,612

135
75
–135

658
–
–6,318
–84

16,367

24,731

–4

663

98,035

139,870

1,157

141,027

1) SeK 3,720 million is recognized in Net Sales, SeK 698 million is recognized in Cost of Sales and SeK –568 million is recognized in R&D.
2) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SeK -1,015 million (SeK 2,993 million in 2008, SeK –914 million in

2007), gain/loss from hedging activities of foreign entities, SeK 586 million (SeK –660 in 2008, SeK –52 million in 2007) and SeK 10 million (SeK 13 million in 2008, SeK –70 million in 2007)
of realized gain/losses net from sold/liquidated companies.

3) For further disclosures, see note C8 “Taxes”.
4) Deferred tax on gains/losses on hedges on investments in foreign entities.

ericsson Annual Report 2009 | notes to the consolidated financial statements 65

NOTe C16

2008

January 1, 2008

net income
Group
Joint ventures and associated companies

other comprehensive income
Actuarial gains and losses related to pensions

Group
Joint ventures and associated companies

Revaluation of other investments in shares
and participations
Fair value remeasurement

Group
Joint ventures and associated companies

Cash flow hedges
Gains/losses arising during the year

Group
Joint ventures and associated companies
Reclassification adjustments for gains/losses

included in profit or loss

Adjustments for amounts transferred to initial
carrying amount of hedged items
Changes in cumulative translation adjustments

Group
Joint ventures and associated companies

Tax on items relating to components of OCI

total other comprehensive income

total comprehensive income

transactions with owners
Stock issue
Sale of own shares
Repurchase of own shares
Stock Purchase and Stock Option Plans

Group
Joint ventures and associated companies

Dividends paid
Business combinations

december 31, 2008

Revalua-
tion of
other
invest-
ments in
shares
and
partici-
pations

addi-
tional
paid in
capital

capital
stock

16,132

24,731

–
–

–

–
–
–

–

100
–
–

–
–
–
–

–
–

–

–
–
–

–

–
–
–

–
–
–
–

–
–

–6
–1

–
–

–

–
–
1

–6

–
–
–

–
–
–
–

cumula-
tive
transla-
tion

cash
flow
hedges

stock-

adjust- Retained holders’ minority
interests
ments earnings

equity

total
equity

307

–6,345

99,282

134,112

940

135,052

11,564
–291

394
–

11,958
–291

–
–

–5,116
36

1,192

–

–
–
1,225

–
–

–

–4,019
4

–
–

–

–6
–1

–5,116
36

1,192

–

7,081
1,214
2,330

2,715

7,081
1,214
174

–
–
930

–2,663

8,469

–3,085

–2,663

8,469

8,188

13,988

–
–
–

–
–
–
–

–
–
–

–
–
–
–

–
88
–100

589
–
–7,954
–

100
88
–100

589
–
–7,954
–

–

–
–

–

233
–
–

233

627

–
–
–

–
– –
–286
–20

–4,019
4

–6
–1

–5,116
36

1,192

–

7,314
1,214
2,330

2,948

14,615

100
88
–100

589

–8,240
–20

16,232

24,731

–1

–2,356

2,124

100,093

140,823

1,261

142,084

notes to the consolidated financial statements | ericsson Annual Report 2009

2007

January 1, 2007

net income
Group
Joint ventures and associated companies

other comprehensive income
Actuarial gains and losses related to pensions

Group
Joint ventures and associated companies

Revaluation of other investments in shares
and participations
Fair value remeasurement

Group
Joint ventures and associated companies

Cash flow hedges
Gains/losses arising during the year

Group
Joint ventures and associated companies
Reclassification adjustments for gains/losses

included in profit or loss

Adjustments for amounts transferred to initial
carrying amount of hedged items
Changes in cumulative translation adjustments

Group
Joint ventures and associated companies

Tax on items relating to components of OCI

total other comprehensive income

total comprehensive income

transactions with owners
Sale of own shares
Stock Purchase and Stock Option Plans

Group
Joint ventures and associated companies

Dividends paid
Business combinations

december 31, 2007

NOTe C16

stock-

Revalua-
tion of
other
invest-
ments in
shares
and
partici-
pations

addi-
tional
paid in
capital

capital
stock

cumula-
tive
transla-
tion

cash
flow
hedges

adjust- Retained holders’ minority
interests
ments earnings

equity

total
equity

16,132

24,731

–
–

–

–
–
–

–
–

–

–
–
–

–

–
–
–
–

–
–

–

–
–
–

–
–

–

–
–
–

–

–
–
–
–

16,132

24,731

–
–

–

2
–
–

–
–

–

–
–
–

–

–
–
–
–

877

–5,569

83,939

120,113

782

120,895

–
–

–

–
–
–

580
4

–1,390

–

–
–
236

–570

–

–
–
–
–

–
–

–

–
–
–

–
–

–

–1,155
359
20

–776

–

–
–
–
–

16,562
5,274

299
–

16,861
5,274

1,210
–2

–
–
–

–
–

–

–
–
–329

879

2
–
–

580
4

–1,390

–

–1,155
359
–73

–465

–

–
–
–

–
–

–

–1
–
–

–1

1,210
–2

2
–
–

580
4

–1,390

–

–1,156
359
–73

–466

22,715

21,371

298

21,669

–

528
–19
–7,943
–

–
–
–189
49

528
–19
–8,132
49

307

–6,345

99,282

134,112

940

135,052

ericsson Annual Report 2009 | notes to the consolidated financial statements 67

NOTE C17

C17 Post-EmPloymEnt
BEnEfits

Ericsson sponsors a number of post-employment benefit plans throughout
the Company, which are in line with market practice in each country.
The year 2009 was characterised by a positive return of plan assets and
significant employer contributions.
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 OCI
6. Actuarial Assumptions
7. Summary Information on Pension Plans per Geographical Zone

section one: amount Recognized in the consolidated Balance sheet

2009
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)

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)

sweden

UK euro zone

other

total

16,150
10,927

5,223
–

5,223

–

5,223

14,866
8,181

6,685
–

6,685

–

6,685

5,688
5,336

352
–

352

190

542

4,867
4,407

460
–

460

495

3,840
2,406

1,434
–14

1,420

1,449

3,557
2,330

1,227
1

1,228

304

1,532

2,781
1,974

807
–

807

–

807

2,258
2,563

–305
–79

–384

896

512

30,717
23,206

7,511
–93

7,418

1,115

8,533

2,789
2,289

1,931
1,830

28,010
19,037

500
–

500

171

671

101
–75

464

490

8,973
–74

8,899

974

9,873

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.

notes to the consolidated financial statements | Ericsson Annual Report 2009

NOTE C17

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.

2009
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

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

1) See cost details in table below.

sweden

UK euro zone

other

total

1,686
674

2,360

1,607
625

2,232

1,166
471

1,637

73
66

139

40
156

196

265
279

544

385
202

587

345
179

524

370
128

498

124
49

173

114
35

149

105
42

147

185
144

329

72
33

105

148
100

248

2,453
1,135

3,588

8.7%

2,178
1,028

3,206

8.3%

2,054
1,020

3,074

9.0%

cost details foR defined Benefit Plans Recognized in the income statement
sweden

UK euro zone

other

total

2009
Current service cost
Interest cost
Expected return on plan assets
Past service cost
Curtailments and settlements

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

594
590
–366
–
–144

674

539
549
–431
–
–32

625

473
435
–412
–
–25

471

205
284
–270
–
–153

186
299
–310
–
–19

156

257
307
–285
–
–

279

138
194
–125
5
–10

202

141
160
–143
11
10

179

186
135
–125
–
–68

128

35
171
–156
–
–1

29
142
–137
–
1

33
139
–135
3
2

131
155
–208
25
41

144

122
133
–201
8
–29

140
109
–163
8
6

100

1,103
1,394
–1,125
30
–267

1,135

1,017
1,283
–1,222
19
–69

1,028

1,089
1,125
–1,120
11
–85

1,020

Ericsson Annual Report 2009 | notes to the consolidated financial statements 69

NOTE C17

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.

2009
opening balance
Current service cost
Interest cost
Employee contributions
Pension payments
Actuarial gain/loss (–/+)
Settlements
Curtailments
Business combinations
Other
Translation difference

closing balance

Of which medical benefit schemes

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

1) Business combinations in 2008 are related to the divesture of the Enterprise Business.

sweden

UK euro zone

other

total

14,866
594
590
–
–107
351
–
–144
–
–
–

16,150

–

12,512
539
549
–
–74
1,372
–
–32
–
–
–

14,866

–

4,867
205
284
14
–108
543
–
–153
–
–13
49

5,688

–

5,606
186
299
43
–87
–436
–
–19
–
–7
–718

4,867

–

3,557
138
194
4
–90
204
–
–14
–
74
–227

3,840

–

3,079
141
160
4
–133
–185
–
10
–14
7
488

3,557

–

2,789
35
171
–
–172
143
–
–
–
26
–211

2,781

631

2,238
29
142
–
–144
38
–
1
–
19
466

2,789

639

1,931
131
155
12
–142
–120
–1
–
–13
40
265

2,258

–

1,791
122
133
12
–86
25
–16
–13
–
–7
–30

28,010
1,103
1,394
30
–619
1,121
–1
–311
–13
127
–124

30,717

631

25,226
1,017
1,283
59
–524
814
–16
–53
–14
12
206

1,931

28,010

–

639

funded status
The funded ratio, defined as total plan assets in relation to the total defined
benefit obligation (DBO), was 75.5 percent in 2009, compared to 68.0
percent in 2008.

The following table summarizes the value of the DBO per geographical
area based on whether there are plan assets wholly or partially funding each
pension plan.

2009
DBO, closing balance
Of which partially or fully funded
Of which unfunded

2008
DBO, closing balance
Of which partially or fully funded
Of which unfunded

sweden

UK euro zone

other

total

16,150
15,660
490

14,866
14,375
491

5,688
5,688
–

4,867
4,867
–

3,840
2,659
1,181

3,557
2,355
1,202

2,781
2,119
662

2,789
2,118
671

2,258
1,813
445

1,931
1,522
409

30,717
27,939
2,778

28,010
25,237
2,773

notes to the consolidated financial statements | Ericsson Annual Report 2009

NOTE C17

sweden

UK euro zone

other

total

8,181
366
1,076
1,305
–
–
–
–
–1
–

4,407
270
342
387
14
–122
–
–
–
38

10,927

5,336

9,463
431
–1,713
–
–
–
–
–
–
–

8,181

4,854
310
–595
527
43
–95
–
–
–
–637

4,407

2,330
125
–136
213
4
–75
–
–1
90
–144

2,406

2,104
143
–343
132
4
–30
–
–2
–
322

2,289
156
–253
49
–
–115
–
–
–
–152

1,974

1,779
137
19
61
–
–88
–
–
–
381

2,330

2,289

1,830
208
162
122
12
–125
–
–11
–2
367

19,037
1,125
1,191
2,076
30
–437
–
–12
87
109

2,563

23,206

2,036
201
–320
85
12
–73
–16
–
–5
–90

1,830

20,236
1,222
–2,952
805
59
–286
–16
–2
–5
–24

19,037

sweden

UK euro zone

1,441
–1,283

612
–284

–10
–200

–97
156

other

total

370
–119

2,316
–1,730

sweden

UK euro zone

other

total

3,824
7,103
–

10,927
–

2,577
5,604
–

8,181
–

1,825
2,801
710

5,336
–

1,674
2,161
572

4,407
–

1,094
1,051
261

2,406
–

900
1,291
139

2,330
–

1,069
741
164

1,974
–

831
1,256
202

2,289
–

394
1,747
422

2,563
–

306
1,258
266

1,830
–

8,063
13,586
1,557

23,206
–

6,288
11,570
1,179

19,037
–

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.

2009
opening balance
Expected return on plan assets
Actuarial gain/loss (+/–)
Employer contributions
Employee contributions
Pension payments
Settlements
Business combinations
Other
Translation difference

closing balance

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

1) Business combinations in 2008 are related to the divesture of the Enterprise Business.

Refunds from or reductions in future contributions to plan assets are
recognized if they are available and firmly decided.

actUal RetURn on Plan assets

2009
2008

asset allocation

2009
Equities
Interest-bearing securities
Other

total
Of which Ericsson securities

2008
Equities
Interest-bearing securities
Other

total
Of which Ericsson securities

Equity instruments amount to 35 percent of the total assets, interest bearing
instruments amount to 59 percent of the total assets, and other instruments
amount to 6 percent of the total assets.

The contributions to the defined benefit plans for the upcoming year
will be based on the development of the financial markets as well as on the
growth of the pension liability, and how these developments affect the target
funding ratio of the Company.

Ericsson Annual Report 2009 | notes to the consolidated financial statements 71

NOTE C17

section five: actuarial gains and losses Reported directly in oci

2009

2008

mUlti-yeaR sUmmaRy

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) The gain in 2008 is related to terminated pension plans.

5,402

1,806

–70
–
–6

5,326

3,765
–7
–162

5,402

Since January 1, 2006, Ericsson applies immediate recognition of actuarial
gains and losses directly in OCI, as disclosed in the statement of OCI.
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

2009

2008

2007

2006

2005

Plan assets
DBO

23,206
30,717

19,037
28,010

20,236
25,226

18,395
24,612

16,784
22,314

Deficit/Surplus (–/+)
Actuarial gains and
losses (–/+)
Experience-based
adjustments of
pension obligations
Experience-based
adjustments
of plan assets

–7,511

–8,973

–4,990

–6,217

–5,530

310

–76

232

–415

–1,191

2,952

–358

–706

2009
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

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

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.

sweden

UK euro zone 1)

Us 1)

other 1)

4.00%
4.55%
3.25%
2.00%
n/a
21
24

5.60%
6.00%
4.90%
3.60%
n/a
21
24

5.50%
6.40%
4.30%
3.00%
n/a
21
24

5.26%
6.31%
2.92%
2.17%
n/a
22
25

5.86%
6.51%
3.00%
2.25%
n/a
22
25

5.89%
7.00%
4.50%
2.50%
9.00%
18
20

6.25%
7.50%
4.50%
2.50%
9.00%
18
20

8.91%
9.34%
6.77%
3.80%
n/a
18
22

8.53%
10.05%
6.81%
4.23%
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

–50

notes to the consolidated financial statements | Ericsson Annual Report 2009

NOTE C17

section seven: summary information on Pension
Plans per geographical zone

Applicable to all countries: In 2009, the positive return of plan assets
resulted in an actuarial gain and an increase in the total value of the plan
assets. The actuarial gain on plan assets is the difference between the
expected return on plan assets and the actual return on plan assets.
Changes in discount rate resulted in an overall actuarial loss and an increase
in the defined benefit obligation. The net actuarial gain amounted to SEK 70
million.

sweden:
In 2009, the Swedish discount rate is unchanged compared to 2008. The
actuarial loss was purely due to experience-based adjustments on pension
obligations and plan assets. Sweden was positively affected by the positive
performance of the plan assets and the employer contribution to the
Swedish Trust fund.

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.

Alecta has a collective funding ratio which is a buffer for its insurance

commitments to protect against fluctuations in investment return and
insurance risks. Alecta’s target ratio is 140 percent and 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.

UK:
The increase in the discount rate was more than offset by the rise in inflation
and future salary increases, which resulted in an overall actuarial loss. The
restructuring of the UK operations resulted in a curtailment of approximately
SEK 150 million.

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 decreased, resulting in an increase in

the defined benefit obligation and an actuarial loss.

Us:
The discount rate decreased resulting in an increase in the defined benefit
obligation and an actuarial loss.

other:
Brazil is the country included in Other with the most significant defined
benefit pension plan.

Ericsson Annual Report 2009 | notes to the consolidated financial statements 73

NOTE C18

C18 Provisions

2009
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

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

Warranty
commitments

Restruc-
turing

Project
related

other

total

1,931
2,141
–171

–1,427
96
19
–56

2,533

1,814
1,568
–392

–1,150
–30
1
120

1,931

3,830
4,920
–210

–4,248
–
146
–139

4,299

1,051
4,328
–131

–1,756
–2
71
269

3,830

3,794
1,952
–451

–3,459
–
–128
–14

1,694

2,619
3,960
–799

–2,164
–51
45
184

3,794

4,795
2,129
–915

–1,595
16
–595
70

3,905

4,242
2,105
–493

–970
–15
–173
99

4,795

14,350
11,142
–1,747
9,395
–10,729
112
–558
–139

12,431

9,726
11,961
–1,815
10,146
–6,040
–98
–56
672

14,350

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. 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.

For 2009, new or additional provisions amounting to SeK 11.1 billion

were made, and SeK 1.7 billion were reversed. The actual utilization for
2009 was SeK 10.7 billion compared with the estimated SeK 9 billion. The
expected utilization in 2010 is approximately SeK 8 billion.

Of the total provisions, SeK 461 (311) million are classified as non-

current. 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 2009 was SeK 1.4 billion and in line with the expected SeK
1 billion. Provisions amounting to SeK 2.1 billion were made and due to
more favorable outcomes in certain cases reversals of SeK 0.2 billion were
made. The utilization of warranty provisions during year 2010 is estimated to
approximately SeK 2 billion.

Restructuring

In January, 2009, cost reduction activities were initiated, targeting annual
savings of SeK 10 billion from the second half of 2010 split equally
between cost of sales and operating expenses. In the third quarter 2009,
it was reported that the program was ahead of plan and that additional
opportunities for efficiency improvements had evolved. This would lead to
further restructuring charges during the last three quarters of the program
with full cost savings to be achieved in second half of 2010, assuming
current level of operations. As part of this cost reduction plan, SeK 4.9
billion in provision were made. The actual utilization was SeK 4.2 billion,
where SeK 2.6 billion was related to restructuring programs initiated before
2009. The utilization for 2010 is estimated to approximately SeK 3 billion.

Project related
Project provisions relate to estimated losses on onerous contracts, including
probable contractual penalties. The utilization of project related provisions
were SeK 3.5 billion and in line with the estimated SeK 3 billion. Provisions
amounting to SeK 2.0 billion were made and SeK 0.5 billion were reversed
due to a more favorable outcome than expected. The utilization for 2010 is
estimated to be approximately SeK 1 billion.

other
Other provisions include provisions for tax issues, litigations, supplier claims,
and other. The utilization was SeK 1.6 billion in 2009 compared to the
estimate of SeK 2 billion. During 2009, new provisions amounting to SeK 2.1
billion were made and SeK 0.9 billion were reversed during the year due to a
more favorable outcome. For 2010, the estimated utilization is approximately
SeK 2 billion.

notes to the consolidated financial statements | ericsson Annual Report 2009

C19 Interest-BearIng
LIaBILItIes

As of December 31, 2009, ericsson’s outstanding interest-bearing liabilities
were SeK 32.1 (30.5) billion.

inteRest-BeaRinG liaBilities

Borrowings, current
Current part of non-current borrowings 1)
Other current borrowings

Total current borrowings

Borrowings, non-current
Notes and bond loans
Other borrowings, non-current

Total non-current interest-
bearing liabilities

total interest-bearing liabilities

2009

2008

684
1,440

2,124

3,903
1,639

5,542

23,801
6,195

18,879
6,060

29,996

24,939

32,120

30,481

1) Including notes and bond loans of SeK 0 (3,794) million.

All outstanding notes and bond loans are issued by the Parent Company
under its euro Medium-Term Note (eMTN) program. Bonds issued at a fixed
interest rate are swapped to a floating interest rate using interest rate swaps,

NOTe C19

resulting in a weighted average interest rate of 2.88 percent at December 31,
2009. These bonds are revalued based on changes in benchmark interest
rates according to the fair value hedge methodology stipulated in IAS 39.

On May 20, 2009, the USD bond issued in 1999 of 483 million matured

and was repaid.

On June 22, 2009, a new eUR fixed rate bond was issued under the
eMTN program. The nominal amount of the issue was 600 million eUR and
the maturity date 24 June 2013.

On June 23, 2009, ericsson signed a seven year floating rate loan of
USD 625 million with Svensk exportkredit. This loan is issued under the
eMTN program.

On November 30, 2009, ericsson called the eUR bond issued in 2003 of

eUR 471 million with maturity date 28 November 2010 at par.

In 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

2004–2012
2007–2012
2007–2012
2007–2014
2007–2017
2009–2013
2009–2016

total

nominal
amount

450
1,000
2,000
375
500
600
625

coupon

currency

Book value
(seK m.)

maturity date
(yy-mm-dd)

Unrealized hedge
gain/loss (incl. in
book value)

1.275%
5.100%
0.730%
1.006%
5.380%
5.000%
3.29875%

SeK
SeK
SeK
eUR
eUR
eUR
USD

450
1,058 1)
2,000
3,863
5,714 1)
6,229 1)
4,487

23,801

12-12-07 2)
12-06-29
12-06-29 3)
14-06-27 4)
17-06-27
13-06-24
16-06-23 5)

–59

–591
–81

–731

1) Interest rate swaps are designated as fair value hedges.
2) Next contractual repricing date 2010-06-03 (semi annual).
3) Next contractual repricing date 2010-03-25 (quarterly).
4) Next contractual repricing date 2010-03-25 (quarterly).
5) Next contractual repricing date 2010-03-19 (quarterly).

ericsson Annual Report 2009 | notes to the consolidated financial statements 75

NOTE C20

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 Company 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 related information

Capital (SeK billion)
equity ratio (percent)
Cash conversion rate (percent)
Positive net cash (SeK billion)

credit rating
Moody’s
Standard & Poor’s

2009

2008

141
52
117
36.1

142
50
92
34.7

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 Company’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.

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 Company 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.

Net sales and Operating Income are affected by changes in foreign
exchange rates from two different kinds of exposures, translation exposure
and transaction exposure. In the Operating Income we are primarily exposed
to transaction exposure which is partially addressed by hedging.

currency exposure

net sales

net cost

of which
translation
exposure

exposure

of which
translation
exposure

exposure

42%
22%
8%
5%
3%
3%

13%
16%
8%
7%
3%
3%

21%
25%
5%
3%
2%
3%

13%
19%
7%
7%
3%
4%

USD
eUR
CNY
INR
JPY
BRL

translation exposure
Translation exposure relates to Sales and Cost of sales in foreign entities
when translated into SeK upon consolidation. These exposures can not
be addressed by hedging, but as the Income Statement is translated using
average rate, the impact of volatility in foreign currency rates is reduced.

transaction exposure
Transaction exposure relates to Sales and Cost of sales in non-reporting
currencies in individual group companies. 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 subsidiaries’
balance sheets (i.e. trade receivables and payables and customer finance
receivables) should be fully hedged, except for non-tradable currencies.
Group Treasury has a mandate to leave selected transaction exposures in
local companies’ balance sheets unhedged up to an aggregate Value at Risk
(VaR) of SeK 20 million, given a confidence level of 99 percent and a 1-day
horizon.

Foreign exchange exposures in balance sheet items are hedged through

offsetting balances or derivatives.

As of December 31, 2009, outstanding foreign exchange derivatives
hedging transaction exposures had a positive net market value of SeK 0.3
(negative 2.9) billion. The market value is partly deferred in the hedge reserve
in OCI to offset the gains/losses on hedged future sales in foreign currency.

notes to the consolidated financial statements | ericsson Annual Report 2009

cash flow hedges

The purpose of hedging future cash flows is to 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 can not
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 OCI during 2009 were negative, SeK 1.4 billion, including hedging gain of
SeK 0.6 billion.

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 36.1 (34.7) billion at the end of
2009, consisting of cash, cash equivalents and short-term investments of
SeK 76.7 (75.0) billion and interest-bearing liabilities and post-employment
benefits of SeK 40.7 (40.4) 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, 2009, 88 (87) percent of ericsson’s interest-bearing

liabilities and 61 (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.

NOTE C20

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

2009
asset liability

2008
asset liability

580

500

2,671

2,489

910
90
84
3

423
44
–
–

1,639
40
–
–

1,666 1)

967

4,350 1)

4,022
589
–
–

7,100

–

28
49
175
685

937 1)

–

3,503

179

–

40
151
40
58

289

315
129
105
711

1,260 1)

–

121
25
–
53

199

–

845

–

1,152

1) Of which 843 (2,814) million is reported as non-current assets.

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 2009 was for the interest rate mandate
SeK 14.3 (20.5) million and for the transaction exposure mandate SeK 13.9
(14.4) million. No VaR-limits were exceeded during 2009.

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.

ericsson mitigates these risks by investing cash primarily in well-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
2009, neither on external investments nor on derivative positions.

At December 31, 2009, the credit risk in financial cash instruments
was equal to the instruments’ carrying value. Credit exposure in derivative
instruments was SeK 2.6 (5.6) billion.

ericsson Annual Report 2009 | notes to the consolidated financial statements 77

NOTE C20

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 Note C33,
“Contractual obligations”. The current cash position is deemed to satisfy all
short-term liquidity requirements.

During 2009, cash and bank and short-term investments increased by
SeK 1.7 billion to SeK 76.7 billion. The increase was mainly due to positive
operating cash flow.

cash, cash equivalents and short-term investments

(seK billion)

2009
2008

remaining time to maturity

< 3
months

31.8
43.5

< 1
year

2.6
23.7

1–5
years

34.4
5.9

>5
years

7.9
1.9

total

76.7
75.0

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. Cash, Cash equivalents and short-term investments are mainly
held in SeK unless off-set by eUR-funding.

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)

2010
2011
2012
2013
2014
2015
2016
2017
2018

total

0.5
–
–
–
–
–
–
–
–

0.5

–
–
3.5
6.2
3.9
–
4.5
5.2
–

23.3

–
0.6
–
–
0.1
4.0
–
0.1
–

4.8

total

0.5
0.6
3.5
6.2
4.0
4.0
4.5
5.3
–

28.6

1) excluding finance leases reported in Note C27, “Leasing”.

Debt financing is mainly carried out through borrowing in the Swedish and
international debt capital markets.

Bank financing is used for certain subsidiary funding and to obtain

committed credit facilities.

fundinG proGrams

euro Medium-Term Note program
(USD m.)
euro Commercial Paper program
(USD m.)
Swedish Commercial Paper program
(SeK m.)
Long-term Committed Credit facility
(USD m.)
european Investment Bank
(SeK m.)
Indian Commercial Paper program
(INR m.)

amount utilized unutilized

5,000

3,158

1,842

1,500

5,000

2,000

–

1,500

5,000

2,000

4,000

–

5,000

4,000

1,000

At year-end, ericsson’s credit ratings 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
The fair value of the majority of the Company’s financial instruments are
determined based on quoted market prices or rates. In the following tables,
carrying amounts and fair values of financial instruments that are carried
in the financial statements at other than fair values are presented. Assets
valued at fair value through profit or loss showed a net gain of SeK 2.1
billion. For further information about valuation principles, please see Note
C1, “Significant accounting policies”.

financial instruments carried at other than fair value1)
fair value

carrying amount

seK billion

2009

2008

2009

2008

Current maturities of
non-current borrowings
Notes and bonds
Other borrowings non-current

total

0.7
23.8
4.8

29.3

3.9
18.9
4.6

27.4

0.7
22.8
4.0

27.5

4.0
15.9
3.7

23.6

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.

market price risk in own shares and other listed
equity investments

risk related to our own share price
ericsson is exposed to the development of its own share price through stock
option and stock purchase plans for employees and synthetic share-based
compensations to the Board of Directors. The obligation to deliver shares,
or pay compensation amounts, under these plans is covered by holding
ericsson Class B shares as treasury stock and warrants for issuance of
new ericsson Class B shares or provisions. 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. For further information about the
stock option and stock purchase plans, please see note C29, “Information
Regarding Members of the Board of Directors, the Management and
employees”.

notes to the consolidated financial statements | ericsson Annual Report 2009

financial instruments, carryinG amounts

seK billion

customer
finance
c14

trade
receiv-
ables
c14

short-
term
invest-
ments

cash borrow-
ings
c19

equiva-
lents

trade
payables
c22

other
financial
assets
c12

other
current
receivables
c15

other
current
liabilities
c21

2.3

66.4

53.9

1.6
2.8

1.8

–1.3

2.2

Assets at fair value
through profit or loss
Loans and receivables
Available for sale assets
Financial liabilities at
amortized cost

total

2.3

66.4

53.9

4.4

2.2

1.8

–1.3

78.7

75.3

–32.1

–18.9

NOTE C20 –C23

2009

2008

56.0
73.7
–

41.6
87.4
0.3

–51.0

–54.0

C21 otheR CuRRent
liabilities

C22 tRade Payables

Income tax liabilities
Advances from customers
Liabilities to associated companies
and joint ventures
Accrued interest
Accrued expenses, of which
employee related
other 1)
Deferred revenues
Derivatives with a negative value 2)
Other 3)

2009

1,890
4,903

152
378
29,957
10,137
19,820
8,267
1,255
5,727

2008

2,213
4,412

93
421
24,289
10,369
13,920
9,204
7,299
13,101

Payables to associated
companies and joint ventures
Other

total

2009

2008

1,186
17,678

83
23,421

18,864

23,504

C23 assets Pledged
as CollateRal

total

52,529

61,032

1) Major balance relates to accrued expenses for customer projects.
2) See Note C20, “Financial Risk Management and Financial Instruments”.
3) Includes items such as VAT and withholding tax payables, social security payables and

other payroll deductions, and liabilities for goods received where invoice is not yet
received.

Chattel mortgages
Bank deposits

total

2009

2008

167
383

550

149
267

416

ericsson Annual Report 2009 | notes to the consolidated financial statements 79

NOTE C24–C25

C24 Contingent LiabiLities

Contingent liabilities

total

2009

2008

1,245

1,080

1,245

1,080

Contingent liabilities assumed by ericsson include guarantees of loans to
other companies of SeK 76 (72) million. ericsson has SeK 542 (568) 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.

Financial guarantees for third party amounted to SeK 52 million as of
December 31, 2009. Maturity date for major part of the issued guarantees
occurs in 2018 at latest.

In addition to the above, ericsson has issued guarantees for a long-term

loan granted to Sony ericsson Mobile Communications AB (SeMC) with a
maximum amount of SeK 3,606 million. The parent companies of ericsson
and Sony Corporation have issued guarantees for this loan on a 50/50 basis,
without joint responsibility. ericsson’s part thus amounted to SeK 1,803
million. As of December 31, 2009, ericsson’s part of the principal amount
outstanding amounted to SeK 779 million inclusive of accrued interest SeK
6 million. Maturity date for the maximum amount of the issued guarantees
occurs in 2011 (SeK 1,030 million) and 2010 (SeK 773 million). See also
Note C30, “Related Party Transactions”.

C25 statement of Cash
fLows

Interest paid in 2009 was SeK 772 million (SeK 1,689 million in 2008, SeK
1,513 million in 2007) and interest received was SeK 1,900 million (SeK
2,375 million in 2008, SeK 1,864 million in 2007). Taxes paid, including
withholding tax, were SeK 4,427 million (SeK 4,274 million in 2008, SeK
5,116 million in 2007).

Cash and cash equivalents includes cash of SeK 18,372 million (SeK

28,939 million in 2008) and temporary investments of SeK 4,426 million
(SeK 8,874 million in 2008). 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 regulations or other legal restrictions in
certain countries amounted to SeK 8,907 million (SeK 8,197 million in 2008,
SeK 5,797 million in 2007).

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

and other intangible assets

Total amortization

Impairments

Capitalized development expenses
Intellectual Property Rights, brands

and other intangible assets

total

total depreciation, amortization
and impairment losses on property,
plant and equipment and
intangible assets

Taxes
Dividends from joint ventures/
associated companies 1)
Undistributed earnings in joint
ventures/associated companies 1)
Gains/losses on sales of investments
and operations, intangible assets and
PP&e, net 2)
Other non-cash items 2) 3)

total adjustments to reconcile
net income to cash

2009

2008

2007

3,550

3,108

3,121

–48

–3

–207

3,502

3,105

2,914

647

1,726

2,371

3,562

3,280

3,062

4,209

5,006

5,433

157

562

4,255

–

8,621

5,568

5,449

12,123

8,673

8,363

–1,011

1,032

1,119

3,863

4,223

6,013

291 –5,636

–910 –1,210
1,669

571

–254
–643

16,856 14,318

7,172

1) See also note C12, “Financial Assets, Non-Current”.
2) See also note C26, “Business Combinations”.
3) Refers mainly to unrealized foreign exchange, gains/losses on financial instruments.

acqUisitions/divestments of sUbsidiaRies
and otheR oPeR ations
2009

acquisitions divestments

Cash flow from business combinations 1)
Capital contribution to joint venture

total

1) See also note C26, “Business Combinations”.

–9,633
–9,688

–19,321

1,239
–

1,239

notes to the consolidated financial statements | ericsson Annual Report 2009

C26 Business ComBinations
acquisitions and divestments
acquisitions

2009

2008

2007

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

5,832
297
3,534
1,235

–
–1,270
–
5

9,633

–209
–
–882
887

–
278
–
–

11,627
325
16,917
4,266

–127
–6,227
45
2,387

–
–

2,387
534

29,213

cash flow effect

9,633

26,292

In 2009, ericsson made acquisitions with a cash flow effect amounting to
SeK 9,633 million (SeK 74 million in 2008), primarily:

On July 25, the Company announced that it had entered into an
nortel:
asset purchase agreement to acquire the parts of the Carrier networks
division of Nortel relating to CDMA and LTe technology. The purchase is
structured as an asset acquisition deal at a cash purchase price of USD
1.18 billion on cash and debt free basis. The acquisition strengthens
ericsson’s ability to serve North America’s leading wireless operators
in the evolution to LTe. Nortel employs approximately 2,500 persons.
Net sales for acquired Nortel business amounted to approximately
SeK 2,711 million for the period November 13 – December 31, 2009.
The acquired Nortel business had a positive impact on the result. The
main reasons for that part of the acquisition costs are recognized as
goodwill, representing 30 percent of total assets acquired, are that future
synergies are estimated and also the value of the acquired assembled
work force. Transaction costs for the acquisition amounted to SeK 96
million.

noRtel business

net assets acquired

intangible assets

Intellectual property rights

Customer relationships
Goodwill

other assets and liabilities

Inventory

Property, plant and equipment
Other assets
Other liabilities

total purchase price

Less:
Cash and cash equivalents

cash flow effect

book
value

fair value
adjustments

fair
value

–
–
–

187
261
392
–1,242

4,979
811
2,957

187
–
261
–
–
392
– –1,242

8,345

–

8,345

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 adjustments.

NOTE C26

On May 28, the Company announced that it has acquired all

bizitek:
shares in Bizitek, a Turkish systems integrator of business support
systems. With this acquisition ericsson will strengthen its local R&D
force as well as its leadership in the field of systems integration. The
acquisition gives ericsson an additional competence to provide end-to-
end solutions in business support systems for charging, provisioning,
billing and customer relations management. The purchase price was TTL
5,840 million. All 116 employees were transferred to ericsson.
On June 17, the Company announced the purchase of
elcoteq:
elcoteq’s manufacturing operations in Tallinn, estonia, to secure
manufacturing capacity. elcoteq Se is a leading electronics
manufacturing Services Company in the communications technology
field. The purchase price was eUR 30 million, mainly relating to inventory
and some minor assets. The agreement includes transfer of about 1,200
employees.
On July 3, the Company announced that it has acquired additional
lhs:
shares in LHS, thereby increasing its ownership in the German company
to 99.83 percent. In addition goodwill increased by SeK 560 million.

otheR

net assets acquired

intangible assets
Customer relationships
Goodwill

other assets and liabilities

Inventory

Property, plant and equipment
Other assets
Cash and cash equivalents
Other liabilities

total purchase price

Less:
Cash and cash equivalents

cash flow effect

book
value

fair value
adjust-
ments

fair
value

–
–

298
36
358
5
–28

42
577

–
–
–
–
–

42
577

298
36
358
5
–28

1,288

–

1,288

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.

In 2008 the preliminary purchase price allocations made in 2007 related to
acquired businesses were finalized with the following effects:

An increase in deferred tax assets of SeK 593 million,

Redback:
goodwill decreased correspondingly.
Decreased intangible assets by SeK 209 million, increased
tandberg:
goodwill by SeK 71 million and increased deferred tax assets by SeK
138 million.
An increase in deferred tax assets of SeK 130 million,
entrisphere:
goodwill decrease correspondingly. In addition goodwill decreased
by SeK 260 million, regarding entrisphere, since the additional
consideration never was materialized.

ericsson Annual Report 2009 | notes to the consolidated financial statements 81

NOTE C26

divestments

net assets disposed of

2009

2008

2007

Property, plant and equipment
Other assets
Provisions, including post-
employment benefits
Other liabilities

Net gains from divestments

Less:
Cash and cash equivalents

cash flow effect

5
586

–
–38

553
780

1,239

3
1,005

–
–456

552
296

194

654

13
498

–19
–234

258
280

454

In 2009, the Company made divestments with a cash flow effect amounting
to SeK 1,239 million (SeK 654 million in 2008), primarily:

On March 23, 2009, the Company announced an agreement

tems:
to divest its TeMS branded products business, consisting of tools
for air interface monitoring and radio network planning, to Ascom.
The purchase price was CHF 190 million, excluding net of assets
and liabilities. The agreement involves transfer of approximately 300
employees. Sales in 2009 amounted to approximately SeK 256 million.

acquisitions 2007–2009
company

description

tems business
net assets disposed of

Property, plant and equipment
Other assets
Other liabilities

Net gains from divestments

Less:
Cash and cash equivalents

cash flow effect

2009

5
276
–38

243
777

926

Divestments in 2008 refer mainly to enterprise PBX solutions business with
a gain amounting to SeK 151 million and a Cash flow effect of SeK 637
million.

date

Nov 13, 2009

June 17, 2009

May 28, 2009

Mar 31, 2008

Dec 30, 2007

Oct 1, 2007

June 28, 2007

Feb 12, 2007

Jan 23, 2007

date

Nortel

elcoteq

Bizitek

Mobeon

HyC

LHS

Drutt

An asset purchase agreement of the Carrier networks division of Nortel relating to CDMA and
LTe technology.

estonian electronics manufacturing service company with around 1,200 employees.

Turkish systems integrator of business support systems with around 116 employees.

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.

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.

diVestments 2007–2009
company

description

TeMS

enterprise

Tools for air interface monitoring and radio network planning. Cash flow effect of SeK 0.9 billion.

Mar 23, 2009

PBX solutions business. Cash flow effect SeK 0.6 billion.

May 1, 2008

notes to the consolidated financial statements | ericsson Annual Report 2009

C27 Leasing
leasing with the company as lessee
Assets under finance leases, recorded as property, plant and equipment,
consist of:

leases with the company as lessor

Leasing income mainly relates to subleasing of real estate. These leasing
contracts vary in length from 1 to 11 years.

At December 31, 2009, future minimum payment receivables were

distributed as follows:

NOTe C27– C28

2010
2011
2012
2013
2014
2015 and later

total

Unearned financial income
Uncollectible lease payments

net investments in financial leases

finance operating
leases
leases

–
–
–
–
–
–

–

–
–

–

112
51
17
14
14
54

262

n/a
n/a

n/a

Leasing income in 2009 was SeK 181 (205) million.

C28 Tax assessmenT
VaLues in sweden

Land and land improvements
Buildings

total

2009

2008

58
265

323

58
265

323

finance leases

acquisition costs
Real estate
Machinery

accumulated depreciation
Real estate
Machinery

accumulated impairment losses
Real estate

net carrying value

2009

2008

1,942

2,059

4 4

1,946

2,063

–662
–4

–666

–763
–4

–767

–49

–10

1,231

1,286

As of December 31, 2009, future minimum lease payment obligations for
leases were distributed as follows:

2010
2011
2012
2013
2014
2015 and later

total

Future finance charges 1)

finance operating
leases
leases

177
168
166
164
209
1186

3,185
2,611
2,102
1,270
935
2,371

2,070

12,474

–676

n/a

Present value of finance lease liabilities

1,394

12,474

1) Average effective interest rate on lease payables is 5.63 percent.

expenses in 2009 for leasing of assets were SeK 3,839 (4,708) million, of
which variable expenses were SeK 0 (1) 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, they relate to charges for
heating linked to the oil price index. Most of the leases of real estate contain
terms of renewal, giving the company 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 2009 | notes to the consolidated financial statements 83

NOTE C29

C29 InformatIon
regardIng members of the
board of dIreCtors, the
management and
employees

Remuneration to the Board of directors

RemuneR ation to memBeRs of the BoaRd of diRectoRs

Contents

1. Remuneration to the Board of Directors .............................. 84
2. Remuneration to the Group Management ............................ 85
Remuneration costs for the Group Management ................. 85
Remuneration Policy for Group Management ...................... 85
3. Long-Term Variable Remuneration ....................................... 86
Stock Purchase Plan ............................................................ 86
The Key Contributor Retention Plan ..................................... 86
The Executive Performance Stock Plan ............................... 86
Stock option plans ................................................................ 87
Shares for all plans ............................................................... 88
4. Employee numbers, wages and salaries .............................. 89
Employee numbers ............................................................... 89
Employee wages and salaries .............................................. 89

number
of synthetic
shares/
portion of
Board fee

Board
fees

3,750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
–

18,000
21,000
19,500
19,500
21,000
21,000

40,747/75%
2,716/25%
0/0%
8,149/75%
2,716/25%
8,149/75%
8,149/75%
5,433/50%
0/0%
–

–
–
–
–
–
–

Board member
Michael Treschow
Marcus Wallenberg
Sverker Martin–Löf
Roxanne S. Austin
Sir Peter L. Bonfield
Börje Ekholm
Ulf J. Johansson
Nancy McKinstry
Anders Nyrén
Carl-Henric Svanberg
Employee Representatives
Jan Hedlund
Anna Guldstrand
Karin Åberg
Monica Bergström
Kristina Davidsson
Pehr Claesson

grant date previously

Value at number of net change
in value
allocated of allocated
synthetic
shares

of synthetic
shares
allocated 2009

synthetic committee
fees

shares 1)

total
fees paid

in cash 2)

total
recognized
costs
2009

(a+B+c)

2,812,500
187,500
–
562,500
187,500
562,500
562,500
375,000
–
–

38,323.80
2,554.80
–
7,664.60
2,554.80
7,664.60
7,664.60
7,664.60
–
–

+227,763
+15,153
–
+45,524
+15,153
+45,524
+45,524
+53,904
–
–

–
–
–
–
–
–

250,000
125,000
–
250,000
250,000
125,000
350,000
125,000
125,000
–

–
–
–
–
–
–

1,187,500
687,500
750,000
437,500
812,500
312,500
537,500
500,000
875,000
–

18,000
21,000
19,500
19,500
21,000
21,000

4,227,763
890,153
750,000
1,045,524
1,015,153
920,524
1,145,524
928,904
875,000
–

18,000
21,000
19,500
19,500
21,000
21,000

Total

9,870,000

76,059

5,250,000

74,091.80

+448,545

1,600,000 6,220,000

11,918,545

1) The difference in value as of December 31, 2009 compared to December 31, 2008 (with respect to synthetic shares allocated 2008) and compared to grant date 2009 (with respect to

synthetic shares allocated 2009). The value of synthetic shares allocated 2008 includes SEK 1.85 per share in compensation for dividends resolved by the Annual General Meeting 2009.

2) Committee fee and cash portion of the Board fee.

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 non-employed
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 non-employed 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. None of the directors have entered into a service contract with
the Parent Company or any of its subsidiaries, providing for termination
benefits.
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
and their deputies.
The Annual General Meeting 2009 resolved that non-employed Directors
may choose to receive the Board fee, (i.e. exclusive of committee fee)
as follows: i) 25 percent of the Board fee in cash and 75 percent in the
form of synthetic shares, with a value corresponding to 75 percent of
the Board fee at the time of allocation, ii) 50 percent 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 and receive 100 percent of
the Board fee in cash. Committee fees are always paid in cash.
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 Ericsson’s interim report for the first quarter of 2009:
SEK 69.0222. The number of synthetic shares is rounded down to the
nearest whole number of shares.

notes to the consolidated financial statements | Ericsson Annual Report 2009

The synthetic shares are vested during the Directors’ term of office
and the 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 synthetic share program, i.e. in 2014.

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.
Synthetic shares were allocated to members of the Board for the first

time 2008, on equal terms and conditions as resolved 2009. Payment
based on synthetic shares may thus occur for the first time in 2013
with respect to the synthetic shares allocated 2008. The value of all
outstanding synthetic shares fluctuates in line with the market value of
Ericsson’s Class B share and may differ from year to year compared to
the original value on their respective grant dates. The change in value
of the outstanding synthetic shares is established each year and affects
the total recognized costs that year. As per December 31, 2009 the total
number of synthetic shares under the programs is 150,150.80 and the
total accounted debt is SEK 10,039,515.

Remuneration to the group management

Remuneration costs for the group management

The total remuneration to the President and CEO and to other members
of the Group Management includes fixed salary, short-term and long-term
variable remuneration, pension and other benefits. These remuneration
elements are based on the guidelines for remuneration and other
employment conditions for senior management as approved at AGM 2009,
see the approved guidelines in “2009 Remuneration Policy for Group
Management”.

The Remuneration Policy and how it is implemented at Ericsson is

outlined in “Remuneration Report”.

RemuneRation costs incuRRed duRing 2009 foR the PResident
and ceo and otheR memBeRs of gRouP management

NOTE C29

compensation for outstanding vacation at the time of his resignation, i.e.
earned but not used vacation days during his employment at Ericsson.
“Long-term variable remuneration provisions” refers to the
compensation costs during 2009 for all outstanding share based plans.
For a description of compensation cost, including accounting treatment,
see Note C1, “Significant Accounting Policies, Share based employee
compensation”.
For the President and CEO and other members of Group Management
employed in Sweden a supplementary plan is applied in addition to
the occupational pension plan for salaried staff on the Swedish labor
market (ITP) with pension from 60 years. These pension plans are not
conditional upon future employment at Ericsson. For the President
and CEO, the contribution during 2009 for old age pension in the
supplementary pension plan was SEK 7,489,825 and the fee in the
ITP plan SEK 1,427,795. The pension cost for the President and CEO
includes a pension supplement of SEK 10,000,000 paid to his existing
pension insurance. Changes of commitments made to the President
and CEO and other members of Group Management for benefit based
temporary disability and survivor’s pension until retirement age are also
included in the pension costs.
Ericsson’s commitments for benefit based pensions per December
31, 2009, under IAS 19 amounted to SEK 3,025,527 for the President
and CEO which refers to the ITP plan. For other members of Group
Management the Company’s commitments amounted to SEK
47,969,448 of which SEK 36,890,051 refers to the ITP plan and the
remaining SEK 11,079,397 to temporary disability and survivor’s
pensions until retirement age.
For previous Presidents, the Company has made provisions for defined
benefit pension plans in connection with their active service periods
within the Company.

outstanding matching Rights

as per december 31, 2009
number of class B shares

the
President

other members
of group
management

other members
of group
President management

the

Stock Purchase Plans 2006, 2007,
2008 and 2009 and Executive Performance
Stock Plans 2007, 2008 and 2009

total

410,123

553,688

15,981,000

45,672,309

61,653,309

seK

Salary
Provisions for annual
variable remuneration
earned 2009 to be
paid 2010
Long-term variable
remuneration provision
Pension costs
Other benefits

6,226,920

15,137,637

21,364,557

1,261,476
18,917,620
59,664

1,910,875
28,656,277
2,363,773

3,172,351
47,573,897
2,423,437

total

42,446,680

93,740,871

136,187,551

comments to the table

>
>

During 2009, there were three Executive Vice Presidents, appointed by
the Board of Directors, of whom one has have left his position during the
year. No one of these executives has acted as deputy to the President
and CEO during the year. 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, Jan Frykhammar, Johan Wibergh,
Carl Olof Blomqvist, Cesare Avenia (from November 9, 2009), Håkan
Eriksson, Douglas Gilstrap (from September 7, 2009), Marita Hellberg,
Magnus Mandersson (from November 13, 2009), Torbjörn Possne, Henry
Sténson, and Jan Wäreby. Bert Nordberg left the Group Management
Team as of September 1, 2009. Joakim Westh left the Group
Management Team as of January 1, 2009, but is included up to June 30,
2009, as he was fulfilling his six-month notice period.
The salary stated in the table includes vacation salary paid during 2009.
During 2010, the President and CEO has received SEK 6,804,000 as

comments to the tables

For the definition of matching rights, see description in “Long-term
variable remuneration”.
The number of matching rights is based on expected performance
matching under Executive Performance Stock Plans 2007, 2008 and
2009 (there is no payout under the 2006 Executive Performance Stock
Plan).
During 2009, the President and CEO received 9,183 matching shares
and other members of Group Managemement 10,857 matching shares.

Remuneration Policy for group management
The following guidelines for remuneration and other employment terms for
Group Management were approved by the Annual General Meeting 2009.

2009 Remuneration Policy for group management
This policy covers the remuneration and other terms of employment for the
Group Management Team, including the President and CEO, in the following
referred to as the “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

Ericsson Annual Report 2009 | notes to the consolidated financial statements 85

NOTE C29

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.

1. 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 practices together with the
practice of the home country of each member of 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 remuneration - 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
to 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
remuneration of executives. All variable remuneration plans have maximum
award and vesting limits.

With the current composition of Group Management, the Company’s

cost during 2009 for the short-term variable and the long-term variable
remuneration of Group Management can, at a constant share price, amount
to between 0 and 125 percent of the aggregate fixed salary cost, all
excluding social security costs.

2. 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.

Share based long-term variable remuneration plans are submitted each

year for approval by the shareholders in General Meeting. The payout is
determined by three specific variables, the individual’s own investment in
shares, a long-term financial target at corporate level and the share price
development.

3. Pension
Pension benefits follow the competitive practice 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 of age but can vary in individual

cases.

4. other benefits
The basic principle is that other benefits, such as company car and medical
schemes, shall be competitive in the local market.

5. 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 encourage individuals to 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 remuneration that the individual concerned
would have received had no additional arrangement been made.

6. 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

notes to the consolidated financial statements | Ericsson Annual Report 2009

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 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.

long-term Variable Remuneration
the stock Purchase Plan
The Stock Purchase Plan is 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. For the 2009 plan
employees are able to 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 table below shows the contribution periods and participation details

for ongoing plans.

Plan

Stock Purchase
plan 2006
Stock Purchase
plan 2007
Stock Purchase
plan 2008
Stock Purchase
plan 2009

contribution participants

number of take-up rate
– percent of
at launch all employees

period

August 2006 –
July 2007
August 2007 –
July 2008
August 2008 –
July 2009
August 2009 –
July 2010

17,000

19,000

18,000

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.

the Key contributor Retention Plan
The Key Contributor Retention Plan is part of Ericsson’s 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 (2009: 6,702 employees) are
selected through a nomination 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 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 (2009:
218 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.
The table below shows all Executive Performance Stock Plans to date.

NOTE C29

executiVe PeRfoRmance stocK Plans

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)

Percentage
vesting

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%

Performance Stock Plan 2009

2.90

5% to 15%

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

100%
100%

0%
0%

0%
0%
0%

30%
45%

30%
45%
72%

1) Sum of four quarters up to June 30 of plan year.
2) EPS range found from three-year average EPS of the twelve quarters to the end of the performance period and corresponding growth targets.
3) Corresponding to EPS range (no Performance Share Plan matching below this range). Matching shares per contribution share invested in addition to Stock Purchase Plan matching

according to program of up to 4, 6 or 8 matching shares.

4) At full investment, full vesting and constant share price. Excludes Stock Purchase Plan matching.
5) The 2004 plan vested in full.
6) No vesting and therefore no Performance Share Plan matching for 2005 and 2006 plans

stock option plans

Originally, for the Stock Option Plan 2002, 10.8 million options were granted
to 12,800 key employees. Of the originally issued employee options, there
remained, as of December 31, 2009, no employee options outstanding
whatsoever, since the plan expired on November 11, 2009. Each employee
option did entitle the holder to purchase one Class B share for SEK 39.00.

stocK oPtion Plans

ongoing plans 2009

grant/expiry date

exercise

price 1)
(seK)

Stock Option Plan 2002 2)

11 Nov 2002/11 Nov 2009

39.00

number of
participants
at grant

12,800

number of
participants
end of 2009

–

Vesting period
from grant date

1/3 after 1 year,
1/3 after 2 years,
1/3 after 3 years

1) Market price at grant date – re-pricing is only permitted under limited circumstances, principally relating to changes in the capital structure of Ericsson.
2) For stock options exercised during 2009, the weighted average share price was SEK 72.18.

Ericsson Annual Report 2009 | notes to the consolidated financial statements 87

NOTE C29

shares for all plans

All plans are funded with treasury stock and are equity settled. Treasury
stock for all plans has been issued in directed cash issues 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 social security payments when arising due to exercise
of options or matching of shares. During 2009, 1,044,535 shares were sold
at an average price of SEK 70.04. Sale of shares is recognized directly in
equity.

If, as of December 31, 2009, 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 54 million Class B shares would
be transferred, corresponding to 1.7 percent of the total number of shares
outstanding, 3,194 million. As of December 31, 2009, 79 million Class B
shares were held as treasury stock.

The table below shows how shares (representing options and matching

rights but excluding shares for social security costs) are being used for
all outstanding plans. From left to right the table includes (A) the number
of shares originally approved by the Annual General Meeting, adjusted
for rights offering and reverse split where applicable; (B) how many of the
originally designated shares that were outstanding at the beginning of 2009;
(C) how many shares awards that were granted over during 2009; (D) the
number of shares exercised or matched during 2009; (E) the number of
shares forfeited by participants or expired under the plan rules during 2009;
(F) the balance left as outstanding at the end of 2009, having added new
grants to the shares outstanding at the beginning of the year and deducted
the shares related to awards exercised, matched, forfeited and expired. The
final column (G) shows the compensation costs charged to the accounts
during 2009 for each plan, calculated as fair value in SEK.

For a description of compensation cost, including accounting treatment,

see Note C1, “Significant Accounting Policies, Share-based employee
compensation”.

shaRes foR all Plans

Plan (million shares)

2002 Stock Option Plan

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

2009 Stock Purchase Plan,
Key Contributor and Executive
Performance Stock Plans

total

outstanding
beginning

originally
designated 1)

awarded
of 2009 during 2009

matched

during 2009 during 2009

expired outstanding
end of 2009

exercised/

forfeited/

compensation
costs charged
during 2009
(mseK)

10.8

6.3

6.4

9.7

16.5

22.4

72.1

3.8

3.2

4.6

9.4

3.7

–

3.4

f=B+c-d-e

0.4

2.7

0.5

– 2)

–

25 4)

1.2

0.1

3.3

126 4)

0.5

0.3

8.6 3)

189 4)

8.3

0.4

0.3

11.3 3)

183 4)

–

24.7

2.5

10.8

–

8.2

–

1.6

2.5 3)

25.7

6 4)

529 5)

1) Adjusted for rights offering and reverse split when applicable.
2) All outstanding options in the 2002 Stock Option Plan expired during 2009 and no options therefore remain exercisable.
3) Presuming maximum performance matching under the Executive Performance Stock Plans. The 2005 and 2006 plans have lapsed.
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. Fair value is also adjusted for participants failing to keep hold of their contribution shares during the vesting period. 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 2009 was: February 15 SEK 68.11, May 15 SEK 60.00, August 15 SEK 60.88 and November 15 SEK 65.83.

5) Total compensation costs charged during 2008: SEK 572 million, 2007: SEK 496 million.

notes to the consolidated financial statements | Ericsson Annual Report 2009

NOTE C29

numBeR of emPloyees Related to cost of sales
and oPeRating exPenses

employee numbers, wages and salaries
employee numbers

aVeR age numBeR of emPloyees

men Women

2009
total

men Women

2008
total

30,676

9,493 40,169 32,289

9,167 41,456

Cost of sales
Operating expenses

total

emPloyee moVements

8,168
13,513
5,876
9,366

9,999
1,831
3,825 17,338
7,130
1,254
2,358 11,724

7,028
12,111
6,151
4,556

1,723
8,751
3,343 15,454
7,486
1,335
5,842
1,286

Head count at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees

Western
Europe 1)
Central and
Eastern Europe,
Middle East
and Africa
Asia Pacific
Latin America
North America

2009

2008

2007

41,521
40,972

35,717
43,023

33,904
40,107

82,493

78,740

74,011

2009

2008

82,493
9,147
12,900
693

78,740
3,415
8,144
1,124

total 2)

67,599 18,761 86,360 62,135 16,854 78,989

1) Of which
Sweden
2) Of which EU

4,591 18,521 14,685
13,930
32,970 10,055 43,025 34,100

4,990 19,675
9,633 43,733

numBeR of emPloyees at yeaR end

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

2009

2008

38,305

41,618

10,145
16,766
6,055
11,222

7,976
15,165
8,247
5,734

82,493

78,740

18,217
41,396

20,155
43,093

49,874
24,570
8,049

45,823
23,244
9,673

82,493

78,740

emPloyees By gendeR and age at yeaR end 2009

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

1,228
6,778
6,918
2,908
784

3,321
23,022
23,749
10,768
3,017

5%
36%
37%
17%
5%

23%

77%

100%

employee wages and salaries

Wages and salaRies and social secuRity exPenses
2009

Wages and salaries
Social security expenses
Of which pension costs

41,247
13,630
3,588

2008

38,607
12,690
3,206

Amounts related to the President and CEO and the Group Management
Team are included.

Wages and salaRies PeR Region

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

2009

2008

23,039

24,138

4,323
5,346
2,181
6,358

3,354
4,594
1,879
4,642

41,247

38,607

10,324
4,928
23,734

11,825
3,296
24,699

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

2009

2008

315
42
34

316
41
36

BoaRd memBeRs, PResidents and gRouP management
By gendeR at yeaR end

2008
females males females males

2009

Parent company
Board members and President
Group Management

subsidiaries
Board members and Presidents

38%
8%

62%
92%

38%
9%

62%
91%

10%

90%

12%

88%

Ericsson Annual Report 2009 | notes to the consolidated financial statements 89

NOTe C30

C30 Related PaRty
tRansaCtions

During 2009, various related party transactions were executed pursuant to
contracts based on terms customary in the industry and negotiated on an
arm’s length basis. For information regarding equity and ericsson’s share of
assets, liabilities and income in joint ventures and associated companies,
see Note C12, “Financial Assets, Non-Current”.

sony ericsson mobile communications aB (semc)
In October 2001, SeMC was established as a joint venture between Sony
Corporation and ericsson, and a substantial portion of ericsson’s handset
operations was sold to SeMC. The joint venture is headquartered in London,
United Kingdom. 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, receive license revenues for SeMC’s usage of trademarks and
intellectual property rights. The decline in license revenues during 2009
is a consequence of the formation of ST-ericsson.
Purchases.
contracts with a number of customers for mobile systems which also
include limited quantities of phones.
Both owners of SeMC receive dividends, when so decided
dividends.
by the board of directors. During 2009 ericsson received no dividends
from SeMC.

ericsson purchases mobile phones from SeMC to support

Both owners of SeMC, Sony Corporation and

Related party transactions
License revenues
Purchases
ericsson’s share of dividends

Related party balances
Receivables
Liabilities

2009

2008

2007

1,746
164
–

5,856
261
3,627

5,743
333
3,949

369
14

1,002
176

932
204

ericsson provides ST-ericsson with services in the areas of R&D,

Major transactions are as follows:
sales.
HR, IT and facilities.
Purchases.
consists of chipsets and R&D services.
dividends.
decided by the board of directors. During 2009 ericsson received no
dividends from ST-ericsson.

Both owners of ST-ericsson receive dividends, when so

Major part of ericsson’s purchases from ST-ericsson

Related party transactions
Sales
Purchases
ericsson’s share of dividends

Related party balances
Receivables
Liabilities

2009

740
624
–

244
365

ericsson does not have any contingent liabilities, assets pledged as
collateral or guarantees toward ST-ericsson.

ericsson nikola tesla d.d.
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 Nikola Tesla d.d. is located in
Zagreb, Croatia. ericsson holds 49.07 percent of the shares.

ericsson sells telecommunication equipment to ericsson Nikola

Major transactions are as follows:
sales.
Tesla d.d.
license revenues.
Nikola Tesla d.d.’s usage of trademarks.
Purchases.
Nikola Tesla d.d.
dividends.
during 2009.

ericsson receives license revenues for ericsson

ericsson purchases development resources from ericsson

ericsson received dividends from ericsson Nikola Tesla d.d.

SeMC has been granted a long-term loan with a maximum amount of SeK
3,606 million. The parent companies of ericsson and Sony Corporation have
issued guarantees for this loan on a 50/50 basis, without joint responsibility.
ericsson’s part thus amounted to SeK 1,803 million. As of December 31,
2009, ericsson’s part of the principal amount outstanding amounted to SeK
779 million inclusive of accrued interest SeK 6 million. Maturity date for
the maximum amount of the issued guarantees occurs in 2011 (SeK 1,030
million) and 2010 (SeK 773 million).

Related party transactions
Sales
License revenues
Purchases
ericsson’s share of dividends

Related party balances
Receivables
Liabilities

2009

2008

2007

654
7
569
66

93
70

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.

st-ericsson
ST-ericsson, the joint venture between ericsson and STMicroelectronics,
was formed on February 2, 2009, by merging ericsson Mobile Platforms
with ST-NXP Wireless. The joint venture is equally owned by ericsson
and STMicroelectronics. ST-ericsson is an industry leader in design,
development and the creation of cutting-edge mobile platforms and wireless
semiconductors. ST-ericsson is a key supplier to four of the industry’s top
five handset manufacturers, who together represent about 80 percent of
global handset shipments, as well as to other leading companies in the
industry. The joint venture is headquartered in Geneva, Switzerland, and
employs approximately 8,000 persons.

notes to the consolidated financial statements | ericsson Annual Report 2009

C31 fEEs to auDitors

Price-
waterhouse-

coopers others

total

2009
Audit fees
Audit related fees
Tax services fees
Other fees

total

2008
Audit fees
Audit related fees
Tax services fees
Other fees

total

2007
Audit fees
Audit related fees
Tax services fees
Other fees

total

98
10
16
1

125

97
7
14
1

119

102
4
13
–

119

3
–
2
2

4
–
2
5

7
–
12
6

101
10
18
3

132

101
7
16
6

130

109
4
25
6

144

During the period 2007–2009, 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.

NOTE C31–C33

C32 EvEnts aftEr thE
BalanCE shEEt DatE

In a November 25 auction, 2009, ericsson acquired certain assets relating
to Nortel’s GSM business in North America for a cash purchase price of
USD 70 million. Closing is expected by March 31, 2010, subject to approval
by US and Canadian bankruptcy courts and satisfying normal regulatory
conditions.

On January 12, 2010, ericsson announced agreement to acquire Pride

Spa, an Italian systems integration company with approximately 1,000
employees.

In January 2010, the Company made an employer contribution payment

of SeK 730 million to the Swedish pension trust fund due to funding
requirements.

C33 ContraCtual
oBligations

contRactUal oBliGations 2009

(seK billion)

Long-term debt 1) 2)
Finance lease
obligations 3)
Operating leases 3)
Other non-current
liabilities
Purchase
obligations 4)
Trade Payables
Commitments
for customer
financing 5)

total

Payment due by period

<1
year

1–3
years

3–5
years

>5
years

total
2009

1.2

4.2

10.8

14.2

30.4

0.2
3.2

0.3
4.7

0.4
2.2

1.2
2.4

2.1
12.5

–

0.3

0.1

1.6

2.0

7.1
18.9

3.0

33.6

–
–

–

–
–

–

–
–

–

9.5

13.5

19.4

7.1
18.9

3.0

76.0

1) Including interest payments.
2) See also Note C20, “Financial Risk Management and Financial Instruments”.
3) See also Note C27, “Leasing”.
4) The amounts of purchase obligations are gross, before deduction of any related

provisions.

5) See also Note C14, “Trade Receivables and Customer Financing”.

For information about financial guarantees, see Note C24, “Contingent
Liabilities”

except for those transactions described in this report, ericsson has not
been a party to any material contracts over the past three years other than
those entered into during the ordinary course of business.

ericsson Annual Report 2009 | notes to the consolidated financial statements 91

Parent Company
Income Statement

years ended December 31, seK million

Net sales 1)
Cost of sales

Gross income

Selling expenses
Administrative expenses

operating expenses

Other operating income and expenses

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

P4
P4

P15
P15

2009 1)

300
–21

279

–1,399
–1,738

–3,137

2,977

119

9,358
–1,396

8,081

417
485

902

–804

8,179

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

–1,733

17,227

2007

3,236
–368

2,868

–632
–719

–1,351

2,723

4,240

13,747
–3,262

14,725

–448
183

–265

–1,315

13,145

1) Effective January 1, 2009, the right to all license revenues from third parties was transferred to Ericsson AB, a wholly owned subsidiary.

Parent comPany financial statements | Ericsson Annual Report 2009

Parent Company
Balance Sheet

December 31, seK million

notes

2009

20081)

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 1)
Cash and cash equivalents 1)

total assets

P6
P7, P26

2,219
527

2,604
695

P8, P9
P8, P9
P8
P8, P12
P8, P11
P5
P8

P10

P11
P11
P12

P13
P19
P19

75,540
13,066
10
10,316
846
387
1,179

74,571
4,466
11
15,781
910
68
3,030

104,090

102,136

42
590
20,035
360
2,677
53,926
8,477

86,168

576
835
24,676
351
4,686
37,166
22,048

90,418

190,258

192,554

1) Cash and cash equivalents and Short-term investments for 2008 have been restated to reflect the transfer of highly liquid monetary short-term investments, with a remaining maturity of

three months or less, from Short-term investments to Cash and cash equivalents.

Ericsson Annual Report 2009 | parent company financial statements 93

Parent ComPany BalanCe Sheet (Continued)

December 31, seK million

notes

2009

2008

stocKHolDers’ eQUity, proVisions anD liaBilities
stockholders´equity
Capital stock
Revaluation reserve
Statutory reserve

Restricted equity

Retained earnings
Net income

Non-restricted equity

Untaxed reserves

provisions
Pensions
Other provisions

non-current liabilities
Notes and bond loans
Liabilities to 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

P14

16,367
20
31,472

47,859

33,774
8,179

41,953

89,812

16,232
20
31,472

47,724

24,727
17,227

41,954

89,678

P15

915

1,817

P16
P17

P18
P18
P12

P18
P21
P12
P20

P22
P23

372
697

1,069

23,801
4,000
28,966
244

57,011

–
335
39,135
1,981

41,451
190,258

550
13,072

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

parent company financial statements | Ericsson Annual Report 2009

Parent Company
Statement of Cash Flows

years ended December 31, seK million

notes

2009

2008

2007

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
Trade payables
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
Short-term investments

cash flow from investing activities

8,179

17,227

13,145

P24

–3,831

4,348

5,146

22,373

–891

12,254

20
193
261
–132
–4
–685

4
–478
–464
16
–49
2,252

7
1,041
–155
–34
–442
978

4,001

23,654

13,649

–124
109
–
–11,015
1,134
6,663
–9
–14,436

–17,678

–388
8
–
–305
2,122
1,541
31
–6,760

–3,751

–262
6
–579
–35,918
6,189
3,839
–19
5,487

–21,257

cash flow before financing activities

–13,677

19,903

–7,608

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 financing activities

cash flow from financing activities

Effect from remeasurement in cash
net change in cash and cash equivalents

4,755
11,532
–8,910
68
–5,897
–1,363
–

–470
4,000
–3,119
89
–7,954
–7,582
–7

185

–15,043

–79
–13,571

629
5,489

2,417
11,050
–
64
–7,943
–3,324
–

2,264

228
–5,116

cash and cash equivalents, beginning of period

22,048

16,559

21,675

cash and cash equivalents, end of period

P19

8,477

22,048

16,559

From 2008, the effect from remeasurement in cash and other adjustments to reconcile net income to cash have been included, and 2007 has been restated accordingly. From 2009,
Short-term investments with remaining maturity greater than three months have been moved to Investing activties from cash and short-term investments, and 2008 and 2007 have been
restated accordingly.

Ericsson Annual Report 2009 | parent company financial statements 95

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
Transferred to income statement at sale, net of taxes

cash flow hedges
Gains arising during the period
Amounts transferred to initial carrying amount of hedged items
Tax on cash flow items reported directly in/or transferred from equity
Net income

closing balance

For further information, see Note P14 “Stockholders’ Equity”.

notes

P14

2009

89,678
135
75
139
–135
–2,403
610
–5,897

2008

82,849
100
88
36
–100
–4,288
1,155
–7,954

–

–4

612
–1,385 –
204
8,179

89,812

773

–204
17,227

89,678

Parent comPany financial statements | Ericsson Annual Report 2009

notes to the Parent Company
Financial statements

Contents
P1 Significant Accounting Policies .................................................................................................................................................................................................................................... 98

P2 Segment Information .............................................................................................................................................................................................................................................................. 98

P3 Other Operating Income and expenses ............................................................................................................................................................................................................... 98

P4 Financial Income and expenses .................................................................................................................................................................................................................................. 99

P5 Taxes ..................................................................................................................................................................................................................................................................................................... 99

Intangible Assets ........................................................................................................................................................................................................................................................................ 99

P7 Tangible Assets ........................................................................................................................................................................................................................................................................ 100

P8 Financial Assets ........................................................................................................................................................................................................................................................................ 101

Investments .................................................................................................................................................................................................................................................................................. 102

P10

Inventories ..................................................................................................................................................................................................................................................................................... 103

P11 Trade Receivables and Customer Finance ..................................................................................................................................................................................................... 104

P12 Receivables and Liabilities – Subsidiary companies ............................................................................................................................................................................ 105

P13 Other Current Receivables ............................................................................................................................................................................................................................................ 105

P14 Stockholders’ equity ........................................................................................................................................................................................................................................................... 105

P15 Untaxed Reserves .................................................................................................................................................................................................................................................................. 106

P16 Pensions .......................................................................................................................................................................................................................................................................................... 106

P17 Other Provisions ....................................................................................................................................................................................................................................................................... 107

P18

Interest-bearing Liabilities .............................................................................................................................................................................................................................................. 108

P19 Financial Risk Management and Financial Instruments ..................................................................................................................................................................... 109

P20 Other Current Liabilities..................................................................................................................................................................................................................................................... 110

P21 Trade Payables ........................................................................................................................................................................................................................................................................... 110

P22 Assets Pledged as Collateral ........................................................................................................................................................................................................................................ 110

P23 Contingent Liabilities ............................................................................................................................................................................................................................................................ 110

P24 Statement of Cash Flows ..................................................................................................................................................................................................................................................111

P25 Leasing ...............................................................................................................................................................................................................................................................................................111

P26 Tax Assessment Values in Sweden .........................................................................................................................................................................................................................111

P27

Information Regarding employees ...........................................................................................................................................................................................................................111

P28 Related Party Transactions ............................................................................................................................................................................................................................................ 112

P29 Fees to Auditors ........................................................................................................................................................................................................................................................................ 112

P30 events after the Balance Sheet Date..................................................................................................................................................................................................................... 112

ericsson Annual Report 2009 | notes to the parent company financial statements 97

NOTe P1–P3

P1 sIgnIFICant aCCountIng
PolICIes

The financial statements of the Parent Company, Telefonaktiebolaget LM
ericsson, have been prepared in accordance with RFR 2.2 “Reporting in
separate financial statements”. RFR 2.2 requires the Parent Company to
use the same accounting principles as for the Group, i.e. IFRS to the extent
allowed by RFR 2.2.

The main deviations between accounting policies adopted for the Group

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

and accounting policies for the Parent Company are:

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

2009

2008

2007

–13

1,603

1,478

–
167
99
47

300

–56
–13

–

1,254
2,192
37

33
1,383
304
38

5,086

3,236

1,506
1,603

1,336
1,478

Parent Company net sales in 2009 relate to business segment Networks
with 70 percent and with 30 percent to business segment Multimedia.
(Parent Company net sales in 2008 and 2007 in Sweden were mainly related
to business segment Multimedia and the remaining part of net sales were
related to business segment Networks).

P3 other oPeratIng InCome
and exPenses

License revenues and other
operating revenues
Subsidiary companies
Other
Net gains/losses (–) on sales of
tangible assets

total

2009

2008

2007

2,433
532

2,407
659

2,058
667

–1

–2

2,977

3,065

2,723

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
2.2 is chosen. Financial guarantees are included in Contingent liabilities.

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
SRS RedR 4 “Accounting for pension liability and pension cost” from the
Institute for the Accountancy Profession in Sweden. According to RFR
2.2, IAS 19 shall be adopted regarding supplementary disclosures when
applicable.

segment information
Segment information is reported according to requirements in the Swedish
Annual Accounts Act regarding net sales for business segments and
geographical areas.

Borrowing costs
All borrowing costs in relation to qualifying assets are expensed as incurred.

notes to the parent company financial statements | ericsson Annual Report 2009

P4 FInanCIal InCome
and exPenses

financial income
Result from participations
in subsidiary companies
Dividends
Net gains on sales
Result from participations in joint
ventures 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

total

financial expenses
Losses on sales of participations
in subsidiary companies
Write-down of investments
in subsidiary companies
Write-down of participations
in other companies
Interest expenses and
similar profit/loss items
Subsidiary companies
Other
Other financial expenses

total

financial net

2009

2008

2007

5,732
1,087

14,465
676

4,308
2,345

66
1

3,854
–

4,216
20

–27

–

–213

–551

–7,027

–1,061

–1

–

–150
–630
–37

–1,068
–1,655
–41

–995
–918
–75

–1,396

–9,791

–3,262

7,962

14,340

10,485

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

2009

2008

2007

–610

–1,155

–1,194

–250

–259

–47
103

–21
–307

–49
187

–804

–1,733

–1,315

NOTe P4–P6

reconciliation of actUal income taX rate to the sWeDish
income taX rate

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
Tax effect of change in deferred
tax rate

2009

2008

2007

–26.3%

–28.0%

–0.2%

–0.1%

–0.3%

–0.9%

–0.3%

–0.8%

20.1%

29.7%

22.0%

–1.6%

–10.3%

–2.0%

–

–0.1%

–

actual tax rate

–8.9%

–9.1%

–

807

–

Deferred tax assets and liabilities have been calculated with the new tax
rate from December 31, 2008.

386
2,086

1,233
3,096

1,641
1,217

9,358

24,131

13,747

Deferred tax balances
Tax effects of temporary differences have resulted in deferred tax assets as
follows:

Deferred tax assets

2009

2008

387

Deferred tax assets refer mainly to costs related to customer finance and
provisions for restructuring costs.

P6 IntangIble assets

patents, licenses, traDemarks anD similar rights

accumulated acquisition costs
Opening balance
Sales/disposals
closing balance

accumulated amortization
Opening balance
Amortization
Sales/disposals

closing balance

net carrying value

2009

2008

3,888
–
3,888

–1,284
–385

– 5

3,893
–5
3,888

–904
–385

–1,669

–1,284

2,219

2,604

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.

ericsson Annual Report 2009 | notes to the parent company financial statements 99

NOTe P7

P7 tangIble assets

land and
buildings

other
equipment
and installations

construction
in process and
advance payments

2009
accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

closing balance

accumulated depreciation
Opening balance
Depreciation
Sales/disposals
closing balance

net carrying value

2008
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
–
–
–

–
–
–
–

1,113
22
–258
173

1,050

–571
–193
161
–603

447

711
77
–19
344

1,113

–454
–127
10
–571

542

140
100
–
–173

–
–
–
–

173
311
–
–344

140

–
–
–
–

140

total

1266
122
–258
–

1,130

–571
–193
161
–603

527

897
388
–19
–

1,266

–454
–127
10
–571

695

100

notes to the parent company financial statements | ericsson Annual Report 2009

P8 Financial assets

investments in subsidiary companies, joint ventures and associated companies

NOTe P8

associated
companies
2008

2009

330
– –
– –
– –
– –
– –
330

330

subsidiary companies
2008

2009

joint ventures
2008

2009

74,571
1,480
508
–551
–461
–7
75,540

81,406
176
141
–7,027
–125
–
74,571

4,136
8,384
209
–
–
7
12,736

4,136
–
–
–
–
–
4,136

other
investments in shares
and participations
2008

2009

receivables
from subsidiaries,
non-current
2008

2009

customer finance,
non-current 1)

2009

2008

other financial
assets, non-current
2008

2009

19
–
–
–
–

–8
–1
–
–

–9

484
1
–466
–
–

–9
–
1
–

–8

15,781
–
–1
–5,464
–

18,433
271
–3,243
–
320

974
363
–84
–111
–49

10,316

15,781

1 093

–
–
–
–

–

–
–
–
–

–

10, 316

15,781

–64
–208
22
3

–247

846

800
620
–502
–
56

974

–49
–34
24
–5

–64

910

358
2,716
–44

3,030
178
–2,029
– –
– –

1,179

3,030

– –
– –
– –
– –

– –

1,179

3,030

Opening balance
Acquisitions and stock issues
Shareholders’ contribution
Write-downs
Disposals
Reclassification
closing balance

other financial assets

accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/deductions
Reclassifications
Translation difference

closing balance

accumulated write-downs/allowances
Opening balance
Write-downs/allowances
Disposals/repayments/deductions
Translation difference

closing balance

net carrying value

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.

ericsson Annual Report 2009 | notes to the parent company financial statements 101

NOTe P9

P9 investments

The following listing shows certain shareholdings owned directly and
indirectly by the Parent Company as of December 31, 2009. 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 company

type company

reg. no.

domicile

percentage
of ownership

par value
in local
currency,
million

carrying
value,
seK million

556056-6258
556251-3266
556404-4286
556030-9899
556326-0552

Sweden
Sweden
Sweden
Sweden
Sweden

100
100
100
100
100
–
100
100
100
100
100
100
100

53 1)

100
100
100
100
100
100
–
100

95 2)

100
–
100
100
100
100
70
100
80
49 3)
–

50
50
50
49

50
361
2
14
5
–
4
90
13
26
20
1,301
2
23
222
75
161
5
–
328
–
2,817
60
n/a
–
20
2
65
725
2
2
240
90
–

–

50
436
5
65

–

20,731
2,216
306
6
5
2,058
115
216
196
524
4,227
120
15
3,151
3,200
114
1,788
5
–
4,094
428
29,006
260
1,550
61
100
2
475
147
4
1
20
17
382

75,540

4,136
8,325
275
330

13,066

Austria
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
The Netherlands
Norway
Norway
Russia
Switzerland
United Kingdom

United States
Argentina
Mexico

Australia
China
China
India
Malaysia
Singapore
Taiwan
Thailand

Sweden
Switzerland
Switzerland
Croatia

I
I
I
II
I
I
II
I
II
I
II
I
I
II

subsidiary companies
ericsson AB
I
ericsson Shared Services AB
I
Netwise AB
I
AB Aulis
II
ericsson Credit AB
III
Other (Sweden)
ericsson Austria GmbH
ericsson Danmark A/S
Oy LM ericsson Ab
ericsson Participations France SAS
ericsson GmbH
ericsson Hungary Ltd.
LM ericsson Holdings Ltd.
ericsson Telecomunicazioni S.p.A.
ericsson Holding International B.V.
ericsson A/S
TANDBeRG Television ASA
ericsson Corporatia AO
ericsson AG
ericsson Holding Ltd.
Other (europe, excluding Sweden)
ericsson Holding II Inc.
Cía ericsson S.A.C.I.
ericsson Telecom S.A. de C.V.
Other (United States, Latin America)
Teleric Pty Ltd.
ericsson Ltd.
ericsson (China) Company Ltd.
ericsson India Private Ltd.
ericsson (Malaysia) Sdn. Bhd.
ericsson Telecommunications Pte. Ltd.
ericsson Taiwan Ltd.
ericsson (Thailand) Ltd.
Other countries (the rest of the world)

II
I
I
I
I
I
I
I

II
I
I

total

joint ventures and associated companies
I
II
III
I

Sony ericsson Mobile Communications AB
ST-ericsson Holdings AG
ST-ericsson AT Holding AG
ericsson Nikola Tesla d.d.

total

556615-6658

102

notes to the parent company financial statements | ericsson Annual Report 2009

shares owned by subsidiary companies

type company

reg. no.

domicile

556044-9489

subsidiary companies
II
I
I
I
II
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

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.
ericsson Telekomunikasyon A.S.
ericsson Ltd.
ericsson Canada Inc.
ericsson Inc.
ericsson IP Infrastructure Inc.
ericsson Amplified Technologies Inc.
ericsson Services Inc.
Drutt Corporation Inc.
Redback Networks Inc.
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
France
Germany
Ireland
The Netherlands
The Netherlands
Spain
Turkey
United Kingdom
Canada
United States
United States
United States
United States
United States
United States
Brazil
Australia
China
China
Japan
Singapore

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.

NOTe P9 –P10

percentage
of ownership

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100

P10 inventories

Finished products and goods for resale

inventories

2009

2008

ericsson Annual Report 2009 | notes to the parent company financial statements 103

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”.

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

aging analysis as per december 31, 2009

2009

2008

70
–37

9 2

1,829
–393

1,436

576
–2

574

576

1,838
–93

1,745

movements in allowances for impairment

trade receivables customer finance
2008

2009

2008

Opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference

closing balance

2
38
–
–
–3

12
–
–10
–
–

94
355
–12
–20
–24 9

393

64
53
–3
–29

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, 2008

of which
neither
impaired
nor past
due

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

12
–

5
709
–

–
–

–
1,043
–317

18
–

4
1
–

3
–

–
–
–

1
–1

–
20
–20

36
–36

–
56
–56

of which
neither
impaired
nor past
due

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

535
–

2
1,577
–

–
–

–
230
–67

35
–

–
5
–

4
–

–
–
–

2
–2

–
2
–2

–
–

–
24
–24

amount

70
–37

9
1,829
–393

amount

576
–2

2
1,838
–93

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

2009

2008

1,829
135

1,964
18
–382

1,600

1,436
590

762

1,838
168

2,006
24
–148

1,882

1,745
835

956

During 2009 the Parent Company transferred certain customer finance
assets to third parties, and continues to recognize a part of such assets
corresponding to the extent of its continuing involvement. The total carrying
amount of the original assets transferred is SeK 560 million, the amount
of the assets that the Parent Company continues to recognize is SeK 28
million, and the carrying amount of the associated liabilities is SeK 28
million.

104

notes to the parent company financial statements | ericsson Annual Report 2009

NOTe P12–P14

2009

2008

88
430
125
1,762
272

669
666
535
2,498
318

2,677

4,686

P12 reCeivables and
liabilities – subsidiary
COmPanies

P13 Other Current
reCeivables

total
2009

payment due by period
>5
years

1–5
years

< 1
year

total
2008

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

10,316

–

– 10,316 15,781

2,358
2,358
17,677 17,677

20,035 20,035

–
–

–

–
1,008
– 23,668

– 24,676

28,966

–

– 28,966 27,866

560

560
38,575 38,575

39,135 39,135

–
–

–

–
541
– 34,725

– 35,266

1) Including non interest-bearing receivables and liabilities, net, amounting to

SeK –18,650 million (SeK –15,866 million in 2008). Interest-free transactions involving
current receivables and liabilities may also arise at times.

Receivables from associated
companies and joint ventures
Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other

total

P14 stOCkhOlders’ equity
capital stock 2009
Capital stock at December 31, 2009, consisted of the following:

Class A shares 1)
Class B shares 1)

Total

number
of shares

261,755,983
3,011,595,752

3,273,351,735

capital
stock

1,309
15,058

16,367

1) Class A-shares (quotient value SeK 5.00) and Class B-shares (quotient value

SeK 5.00).

changes in stockholders’ equity

2009
January 1, 2009

cash flow hedges
Gains arising during the period
Amounts transferred to initial carrying
amount of hedged items
Tax on cash flow items reported directly in/or
transferred from 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 2009

december 31, 2009

revalua-

capital
stock

tion statutory
reserve

reserve

total disposi-
tion
reserve

restricted
equity

fair
value

other

non-
retained restricted
equity

reserves earnings

total

16,232

31,472

47,724

100

569

41,285

41,954

89,678

–

135
–
–
–

–
–
–

–

–
–
–
–

–
–
–

–

–
–
–
–

–
–
–

–

135
–
–
–

–
–
–

–

–
–
–
–

–
–
–

–

16,367

31,472

47,859

100

612

–1,385

204

–
–
–
–

–
–
–

–

–
75
139
–135

612

–1,385

204

–
75
139
–135

204

135
75
139
–135

–2,403
610
–5,897

8,179

41,853

41,953

89,812

ericsson Annual Report 2009 | notes to the parent company financial statements 105

NOTe P15–P16

changes in stockholders’ equity

2008
January 1, 2008

revaluation of other investments
in shares
Transferred to income statement at sale

cash flow hedges
Gains arising during the period
Tax on cash flow items reported directly
in/or transferred from 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

revalua-

capital
stock

tion statutory
reserve

reserve

total disposi-
tion
reserve

restricted
equity

fair
value

other

non-
retained restricted
equity

reserves earnings

total

16,132

31,472

47,624

100

35,121

35,225

82,849

–

100
–
–
–

–
–
–

–

–
–
–
–

–
–
–

–

–
–
–
–

–
–
–

–

100
–
–
–

–
–
–

–

–
–
–
–

–
–
–

–

–6

773

–202

–
–
–
–

–
–
–

–

–
88
36
–100

–6

773

–202

–
88
36
–100

–202

100
88
36
–100

–4,288
1,155
–7,954

17,227

16,232

31,472

47,724

100

569

41,285

41,954

89,678

P15 untaxed reserves

2009

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

institute. Pension obligations are calculated annually, on the balance
sheet date, based on actuarial assumptions.

1,260
72

1,332

485

1,817

–385
–32

875
40

–417

915

–485

–902

–

915

defined Benefit oBligation- amount recognized in the
Balance 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 not accounted for

closing balance provision for pensions

2009

2008

582
–640

–58
372
58 –

372

551
–530

21
382

403

Change in depreciation in excess of plan of intangible assets relates mainly
to Marconi and Redback trademarks.

1) This FPG/PRI obligation is covered by the Swedish law on safeguarding of pension

commitments.

Changes in other untaxed reserves related to additions to reserve
for doubtful receivables, SeK 227 million in 2008. Deferred tax liability on
untaxed reserves, not accounted for in deferred taxes, amounts to SeK 241
million (SeK 478 million in 2008).

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

and in 2009 an additional transfer of SeK 23 million was made.

The Parent Company utilizes no assets held by the pension trust. Return

on plan assets for 2009 is 16.5 percent (–13.8) percent.

P16 PensiOns

The Parent Company has two types of pension plans:

Defined contribution plans: post-employment benefit plans where the
Parent Company pays fixed contributions into separate entities and
has no legal or constructive obligation to pay further 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

106

notes to the parent company financial statements | ericsson Annual Report 2009

NOTe P16 –P17

2009

2008

28
35
2

107

–29
143

24
43
–5

85
233

2009

2008

total pension cost and income recognized
in the income statement

plan assets allocation

equities
Interest-bearing securities

Of which Ericsson securities

change in the defined Benefit oBligation

opening balance
Payment to pension trust
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
Previous excess from plan assets reclassified

closing balance provision for pensions

167
363

530

224
416

640

– –

2009

2008

403
–23

63
–42
–87

58 –
–

372

402
–

67
–48
85

–103

403

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

Of the total pension cost SeK 137 million (SeK 105 million in 2008) is
included in operating expenses and SeK 6 million (SeK 128 million in 2008)
in the financial net.

estimated pension payments for 2010 are SeK 50 million.

P17 Other PrOvisiOns

2009
opening balance
Additions
Reversal of excess amounts
Utilization/Cash out
Reclassification

closing balance

2008
opening balance
Additions
Reversal of excess amounts
Utilization/Cash out
Reclassification

closing balance

Warranty
commitments

restruc-
turing

customer
finance

other

total other
provisions 1)

1
–
–
–1
–

–

1
–
–
–
–

109
297
–7
–50
–

349

114
47
–9
–31
–12

109

162
–
–16
–51
–

177
21
–
–36
–

162

384
295
–303
–123
–

253

363
181
–112
–60
12

384

656
592
–326
–225
–

697

655
249
–121
–127
–

656

1) Of which SeK 230 million (SeK 150 million in 2008) are expected to be utilized within one year.

ericsson Annual Report 2009 | notes to the parent company financial statements 107

NOTe P18

P18 interest-bearing
liabilities

As per December 31, 2009, the Parent Company’s outstanding interest-
bearing liabilities, excluding liabilities to subsidiaries, were SeK 27.8 billion.

interest-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

total interest-bearing liabilities

notes and Bond loans

issued-maturing

2004–2012
2007–2012
2007–2012
2007–2014
2007–2017
2009–2013
2009–2016

total

2009

2008

–

3,732

23,801
4,000

18,941
4,000

27,801

22,941

27,801

26,673

nominal
amount

450
1,000
2,000
375
500
600
625

coupon

currency

Book value
(sek million)

maturity date
(yy-mm-dd)

unrealized hedge
gain/loss (incl. in
book value)

1.275%
5.100%
0.730%
1.006%
5.380%
5.000%
3,29875%

SeK
SeK
SeK
eUR
eUR
eUR
USD

450
1,058 1)
2,000
3,863
5,714 1)
6,229 1)
4,487

23,801

12-12-07 2)
12-06-29
12-06-29 3)
14-06-27 4)
17-06-27
13-06-24
16-06-23 5)

–59

–591
–81

–731

All outstanding notes and bond loans are issued under the euro Medium-
Term Note (eMTN) 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 2.88 percent at December 31, 2009.
These bonds are revalued based on changes in benchmark interest rates
according to the fair value hedge methodology stipulated in IAS 39.

On May 20, 2009, the USD bond issued in 1999 of 483 million matured

and was repaid.

On June 22, 2009, a new eUR fixed rate bond was issued under the
eMTN program. The nominal amount of the issue was 600 million eUR and
the maturity date 24 June 2013. The yearly coupon of the bond is 5 percent.
On June 23, 2009, ericsson signed a seven year floating rate loan of
USD 625 million with Svensk exportkredit. This loan is issued under the
eMTN program.

On November 30, 2009, ericsson called the eUR bond issued in 2003 of

eUR 471 million with maturity date 28 November 2010 at par.

108

notes to the parent company financial statements | ericsson Annual Report 2009

2009
asset liability

2008
asset liability

total

17.6

2.6

34.4

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”.

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

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

606

531

2,562

2,742

1,039
134
84
3

817
44
–
–

4,887
167
–
–

1,866 1) 3) 1,392 2) 7,616 3)

4,054
700
–
–

7,496

–

28
49
175
685

937 3)

–

40
151
40
58

289

–

315
129
105
711

1,260 3)

845

–

1,152

–

121
25
–
53

199

–

1) Of which internal counterparts 200.
2) Of which internal counterparts 538.
3) Of which 843 million is reported as non-current assets for 2009 and 2,814 million for

2008.

NOTe P19

cash, cash equivalents and short-term investments

seK billion

remaining time to maturity
1–5
< 3
> 5
year years years
months

< 1

2009

2008

Bank deposits

6.9

–

6.9

14.5

type of issuer/
counterpart
Governments
Banks
Corporations
Mortgage institutes

7.4
3.1
0.2
–

2.6
–
–
–

19.5
–
–
14.9

7.4
–
–
0.4

7.8

36.9
3.1
0.2
15.3

23.9
6.2
1.6
13.0

62.4

59.2

The instruments are classified as held for trading and are therefore short-
term investments.

During 2009, cash, cash equivalents and short-term investments

increased by SeK 3.2 billion to SeK 62.4 billion.

repayment schedule of long-term borrowings

nominal amount
seK billion

2010
2011
2012
2013
2014
2015 and later

total

current
maturities of long-
term debt

borrowings
(non-current)

–

–
–
3.5
6.2
3.9
13.7

27.3

total

–
–
3.5
6.2
3.9
13.7

27.3

Debt financing is mainly carried out through borrowing in the Swedish and
international debt capital markets.

funding programs

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)

amount utilized unused

5,000

3,158

1,842

1,500

5,000

2,000

–

1,500

5,000

2,000

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”.

ericsson Annual Report 2009 | notes to the parent company financial statements 109

seK billion

Assets at fair value
through profit or loss
Loans and receivables
Available for sale assets
Financial liabilities at
amortized cost

total

seK billion

Current maturities of
long-term borrowings
Borrowings non-current

NOTe P19 –P23

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

financial instruments carrying amount

had a net gain of SeK 1.8 billion. For further information about valuation
principles, see Notes to the Consolidated Financial Statements – Note C1,
“Significant Accounting Policies”.

short-
trade
term
receiva-
bles
invest-
p11 ments

receiva-
bles and
liabilities borrow-
subsidia-
ries p12

ings payables
p21
p18

trade financial
assets
p8

other
current
receiva-
bles
p13

other
current
liabilities
p20

2009

2008

55.5

1.5

–0.3
30.2

0.8

1.8
0.1

–1.1

1.5

55.5

–67.6

–37.8

–27.8

–0.3

0.8

1.9

–1.1

–9.7

financial instruments carried at other than fair value

carrying amount
2008

2009

fair value
2008

2009

P21 tRade Payables

–
27.8

27.8

3.7
23.0

26.7

–
26.0

26.0

3.9
19.0

22.9

Trade payables excluding associated
companies and joint ventures

total

All trade payables fall due within 90 days.

P22 assets Pledged
as collateRal

P20 otheR cuRRent
liabilities

Bank deposits

total

Accrued interest
Accrued expenses, of which
employee related
other
Deferred revenues
Derivatives with a negative value
Other current liabilities

total

2009

2008

341

411

283
44
23
1,143
147

266
45
1,252
7,268
161

1,981

9,403

The major item in bank deposits is the internal bank’s clearing and
settlement commitments of SeK 383 million (SeK 266 million in 2008).

P23 contingent liabilities

total contingent liabilities

2009

2008

13,072

13,029

Contingent liabilities include pension commitments of SeK 10,797 million
(SeK 10,783 million in 2008) and guarantees for Sony ericsson Mobile
Communications AB’s borrowing from financial institutions of SeK 779
million (SeK 0 million in 2008).

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 2009 was
SeK 18,001 million (SeK 20,997 million in 2008). Potential payments due
under these bonds are related to ericsson’s performance under applicable
contracts.

110

notes to the parent company financial statements | ericsson Annual Report 2009

56.7
31.8
– –

–95.7

45.9
39.9

–90.0

–4.2

2009

2008

335

605

2009

2008

550

414

P24 stateMent oF cash
Flows

P26 tax assessMent
Values in sweden

Interest paid in 2009 was SeK 508 million (SeK 2,376 million in 2008 and
SeK 1,977 million in 2007) and interest received was SeK 2,083 million
(SeK 3,520 million in 2008 and SeK 3,066 million in 2007). Income taxes
paid were SeK 341 million (SeK 370 million in 2008 and SeK 559 million in
2007).

adjustments to reconcile net income to cash

2009

2008

2007

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

total adjustments to reconcile net
income to cash

193

385

578

463

127

385

512

1,363

111

389

500

756

–521

5,545

–1,088

–902
–1,254
–2,195

478
–5
–2,747

265
–
–1,324

–3,831

5,146

–891

P25 leasing
leasing with the parent company as lessee

At December 31, 2009, future payment obligations for leases were
distributed as follows:

2010
2011
2012
2013
2014
2015 and later

operating
leases

969
859
638
412
500
751

4,129

leasing with the parent company as lessor

At December 31, 2009, future minimum payment receivables were
distributed as follows:

2010
2011
2012
2013
2014
2015 and later

operating
leases

20
6
1
1
1
2

The operating lease income is mainly income from sublease of real estate.
See Notes to the Consolidated Financial Statements – Note C27, “Leasing”.

NOTe P24–P27

2009

2008

8 8

Land and land improvements

total

P27 inFoRMation
RegaRding eMPloyees

average number of employees

Western europe 1) 2)
Central and eastern
europe, Middle east
and Africa

total

1) Of which Sweden
2) Of which EU

2008
men women total men women total

2009

194

147

341

181

149

330

108

302

194
194

162

147
147

123

464

341
341

184

181
181

150

149
149

334

330
330

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

Long-term absence due to illness total 1)

2009

2008

0%
2%

1%
1%

0%
2%

1%
1%

0.6%

1) Defined as absence during a consecutive period of time of 60 days or more. Information

Absence due to illness regards employees employed in Sweden.

remuneration

wages and salaries and social security expenses
2009

Wages and salaries
Social security expenses
Of which pension costs

480
421
174

2008

353
404
265

wages and salaries per geographical area

Western europe 1) 2)
Central and eastern europe, Middle
east and Africa

total

1) Of which Sweden
2) Of which EU

2009

2008

380

351

100 2

480

380
380

353

351
351

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

ericsson Annual Report 2009 | notes to the parent company financial statements 111

NOTe P28–P30

remuneration policy and remuneration to the board
of directors and the president and ceo

See Notes to the Consolidated Financial Statements – Note C29,
“Information Regarding Members of the Board of Directors, the Management
and employees”.

The Parent Company holds 49.99 percent of shares in ST-ericsson Holding
AG and 50.01 percent in ST-ericsson AT Holding AG, both in Switzerland.
The Parent Company has no major transacions or balances toward ST-
ericsson in 2009
The Parent Company does not have any contingent liabilities, assets
pledged as collateral or guarantees toward ST-ericsson.

long-term variable remuneration
the stock purchase plan
Compensation costs for all employees of the Parent Company amounted to
SeK 9,1 million in 2009 (SeK 5.6 million in 2008).

other related parties

For information regarding the remuneration of management, see Notes to
the Consolidated Financial Statements – Note C29, “Information Regarding
Members of the Board of Directors, Management and employees”.

P28 Related PaRty
tRansactions

During 2009, 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.

SeMC has been granted a long-term loan with a maximum amount of
SeK 3,606 million. The Parent Company and Sony Corporation have issued
guarantees for this loan on a 50/50 basis, without joint responsibility. As
of December 31, 2009, the Parent Company´s share of the outstanding
principle and accrued interest, in the total amount of SeK 779 million, has
been reported as a contingent liability in the Parent Company.

P29 Fees to auditoRs

2009
Audit fees
Audit related fees
Tax services fees

total

2008
Audit fees
Audit related fees
Tax services fees

total

2007
Audit fees
Audit related fees
Tax services fees

2009

2008

total

price-
waterhouse-
coopers

33
3
2

33
2
1

37
3
–

related party transactions
License revenues
Dividends

related party balances

Receivables

293
–

2,011
3,627

626

During the period 2007–2009, 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.

P30 eVents aFteR the
balance sheet date

On November 25, 2009, the Parent Company entered into an agreement to
acquire certain assets relating to Nortel´s GSM business in North America
for a cash purchase price of USD 70 million. This asset transaction will not
directly affect the Parent Company´s balance sheet as these assets will be
transferred to operating subsidiaries.

In January 2010, as per the trust´s funding requirements, the Parent
Company made an employer contribution payment of SeK 31 million to the
Swedish pension trust fund.

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

related party balances
Payables

2009

2008

7 9

227

–

The Parent Company does not have any contingent liabilities, assets

pledged as collateral or guarantees toward ericsson Nikola Tesla d.d.

st-ericsson
ST-ericsson was formed on February 2, 2009, by merging ericsson Mobile
Platforms with STMicroelectronics’s wireless business. It is an industry
leader in design, development and the creation of cutting-edge mobile
platforms and wireless semiconductors.

112

notes to the parent company financial statements | ericsson Annual Report 2009

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 risk factors discussed elsewhere in this report, could
have a material negative effect on our business, operational
and after-tax results, financial position, cash flow, liquidity,
credit rating, brand 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”.

Market, technology and Business Risks

Demand is difficult to predict

Adverse economic conditions could cause network operators to postpone
investments or initiate other cost-cutting initiatives to improve their financial
position. This could result in significantly reduced expenditures for network
infrastructure and services, in which case our operating results would suffer.
We have established flexibility to cost-effectively accommodate fluctuations
in demand. However, if demand were to fall in the future, we may experience
material adverse effects on our revenues, cash flow, capital employed and
value of our assets and we may even incur operating losses. If demand is
significantly weaker or more volatile than expected, this may have a material
adverse impact on our credit rating, borrowing opportunities and costs as
well as on the trading price of our shares. When deemed necessary, we
undertake specific restructuring or cost saving initiatives, however, there are
no guarantees that such initiatives are sufficient, successful or executed in
time to deliver necessary improvements in earnings.

The extent of the current adverse conditions in the financial markets and

global economic downturn may exacerbate some of the risk factors we are
exposed to. Most of our customers are financially stable and have networks
with good utilization. However, some operators, in particular in markets
with weak currencies, may incur borrowing difficulties and lower traffic than
expected, which may affect their investment plans. The potential adverse
effects of the economic downturn include:

Reduced demand for products and services, resulting in increased price
competition or deferrals of purchases, with lower revenues not being
possible to compensate with reduced costs.
Risks of excess and obsolete inventories and excess manufacturing
capacity and risk of financial difficulties or failures among our suppliers.
Increased demand for customer finance, difficulties in collection of
accounts receivable and increased risk of counterpart failures.
Risk of impairment losses related to our intangible assets as a result of
lower forecasted sales of certain products.
Increased difficulties in forecasting sales and financial results as well as
increased volatility in our reported results.
Decline in the value of the assets in the Company’s pension plans.

short-term volatility has an impact
Our sales to network operators represent a mix of equipment, software
and services, which normally generate different gross margins. Third
party products normally have lower margins than own products. As a
consequence, reported gross margin in a specific period will be affected
by the overall mix of products and services as well as the relative content
of third party products. Network expansions and upgrades have much
shorter lead times for delivery than initial network buildouts. Such orders

Contents

Market, Technology and
Business Risks ...................................113

Regulatory, Compliance and
Corporate Governance Risks .............116

Risks associated with owning
Ericsson shares .................................116

are normally placed with short notice by customers, i.e. less than a month,
and consequently variations in demand are difficult to forecast. As a result,
changes in our product and service mix may affect our ability to accurately
forecast sales and margins or detect in advance whether actual results will
deviate from market consensus.

convergence brings opportunity and risk
We are affected by market conditions within the telecom industry,
including the convergence of the telecom, data and media industries. The
convergence is largely driven by technological development related to
IP-based communications. This change increases our addressable market,
changes the competitive landscape, and affects our objective setting, risk
assessment and strategies. If we fail to understand the market development,
acquire the necessary competence or develop and market products,
services and solutions that are competitive in this changing market, our
future results will suffer.

We depend on growth and the success of new services
Most of our business depends on continued growth in mobile
communications in terms of both number of subscriptions and usage per
subscriber, which in turn requires the continued deployment and evolution of
our network systems by customers. If operators are not successful in their
attempts to increase the number of subscribers and/or stimulate increased
usage, our business and operational results could be materially adversely
affected.

Fixed and mobile networks converge and new technologies, such as IP

and broadband, enable operators to deliver a range of new types of services
in both fixed and mobile networks. We are dependent upon the market
acceptance of such services, e.g. music, internet and navigation in the
handset, and on the outcome of regulatory and standardization activities in
this field, such as spectrum allocation. If delays in standardization or market
acceptance occur, this could adversely affect our business and operational
results.

We operate in a highly competitive industry
The markets we operate in are highly competitive in price, functionality and
service quality as well as in the timing of development and introduction of
new products and services.

Ericsson Annual Report 2009 | Risk factoRs 113

We face intense competition from significant competitors and Chinese

companies in particular have become relatively stronger in recent years.
Our competitors may implement new technologies before we do, offer more
attractively priced or enhanced products, services or solutions, or they may
offer other incentives that we do not provide. Some of our competitors may
have greater resources in certain business segments or geographic markets
than we do. We may 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.

Continuous price erosion is a symptom of this rapid technological
change and we must counteract this by introducing new products to the
market and by continuously enhancing the functionality while reducing the
cost of new and existing products. Our operating results depend largely on
our ability to compete in this market environment.

Vendor consolidation may lead to a new competitive
landscape
Industry convergence and consolidation among equipment suppliers could
potentially result in stronger competitors that are competing as end-to-
end suppliers as well as competitors more specialized in particular areas.
Consolidation may also result in competitors with greater resources than
we have or in reduction of our current scale advantages. This could have
a material adverse effect on our business, operating results, and financial
condition.

operator consolidation may increase our dependence
on a limited number of customers
We derive most of our business from large, multi-year agreements with
a limited number of significant customers. Although no single customer
currently represents more than 5 percent of sales, a loss of or a reduced role
with a key customer could have a significant adverse impact on sales, profit
and market share for an extended period.

In recent years, network operators have undergone significant
consolidation, resulting in a large number of operators with activities in
several countries. This trend is expected to continue, and also intra-country
consolidation is likely to accelerate as a result of competitive pressure.

A market with fewer and larger operators will increase our reliance on

key customers and may negatively impact our bargaining position and
profit margins. Moreover, if the combined companies operate in the same
geographic market, networks may be shared and less network equipment
and associated services will be required. Another possible consequence
of customer consolidation could be a delay in network investments
pending negotiations of e.g. merger/acquisition agreements, securing
necessary approvals, or integration of their businesses. Recently, network
operators have started to share parts of their network infrastructure through
cooperation agreements rather than legal consolidations, which may
adversely affect demand for network equipment.

Long-term frame agreements can expose us to risk
Long-term agreements are typically awarded on a competitive bidding
basis. In some cases, such agreements also include commitments to future
price reductions. In order to maintain the gross margin with such price
reductions, we continuously strive to reduce the costs of our products. We
reduce costs through design improvements, negotiation of better purchase
prices, allocation of more production to low-cost countries and increased
productivity in our own production. However, there can be no assurance that
our actions to reduce costs will be sufficient or quick enough to maintain our
gross margin in such contracts.

transforming into a more service-based company
Operators are increasingly outsourcing parts of their operations as a way to
reduce cost and focus on new services. This has opened up a market which

we have addressed. The growth rate is difficult to forecast and each new
contract carries a risk that transformation and integration of the operations is
not as fast or smooth as planned. Early contract margins are generally lower
and the mix of new/old contracts may affect reported results negatively in
a given period. Contracts normally cover several years and revenues are of
a recurring nature. However, sometimes contract scopes are reduced with
negative impact on sales and earnings. Ericsson is the market leader in
managed services but competition in this area is increasing, which may have
adverse effects on growth and profitability.

success of R&D investments is uncertain
To be a player in our industry requires large investments in technology and
creates exposure to rapid technological and market changes. We spend
significant amounts and resources in innovation work for new technology,
products and solutions. In order for us to be successful, those technologies,
products and solutions must be accepted by relevant standardization
bodies and by the industry as a whole. If we invest in the development of
technologies, products and solutions that do not function as expected, are
not adopted by the industry, are not ready in time or are not successful in
the marketplace our sales and earnings may suffer.

acquisitions and divestments
In addition to in-house innovation efforts, we make strategic acquisitions
in order to obtain various benefits, e.g. to reduce time-to-market, to gain
access to technology and/or competence, to increase our scale or to
broaden our product portfolio or expand our customer base. From time to
time we also divest parts of our operations to optimize our product portfolio
or operations. There are no guarantees that such acquisitions or divestments
are successful or that we will succeed in integrating the acquired entities to
gain the expected benefits within the time frame we expect or at all.

Joint ventures and partnerships
If our partnering arrangements fail to perform as expected (whether through
an incorrect assessment of our needs or the capabilities or financial stability
of our strategic partners), our ability to work with these partners or 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, such partnerships
may adversely affect our results of operations or financial position.

a limited number of suppliers of components, production
capacity and R&D and it services
Our ability to deliver according to market demands and contractual
commitments depends significantly on obtaining timely and adequate supply
of materials, components and production capacity and other vital services
on competitive terms. Although we strive to avoid single-source supplier
solutions, this is not always possible. Failure by any of our suppliers could
interrupt our product supply or operations and significantly limit our sales
or increase our costs. To find an alternative supplier or re-design products
to replace components may take significant time. If we fail to anticipate
customer demand properly, an over/under-supply of components and
production capacity could occur. In many cases, some of our competitors
utilize the same contract manufacturers and if they have purchased capacity
ahead of us we could be blocked from acquiring the needed products. This
factor could limit our ability to supply our customers or could increase our
costs. At the same time, we commit to certain capacity levels or component
quantities, which, if unused, will result in charges for unused capacity or
scrapping costs. We are also exposed to financial counterpart risks to
suppliers where we pay in advance. We conduct regular supplier audits and
evaluations to mitigate the risks mentioned as well as brand risks related to
the suppliers’ compliance with e.g. labor and environmental regulations.

114

Risk factoRs | Ericsson Annual Report 2009

Product or service quality issues

Litigations

Sales contracts normally include warranty undertakings for faulty products
and often also provisions regarding penalties and/or termination rights in
the event of a failure to deliver ordered products or services on time or with
required quality. Although we undertake a number of quality assurance
measures to reduce such risks, product quality or service performance
issues may affect our results negatively.

significant foreign exchange exposures
With the majority of our cost base in SEK and a very large share of sales
in other currencies, and significant operations outside Sweden, our foreign
exchange exposures are significant. Currency exchange rate fluctuations
affect our consolidated income statement, balance sheet and cash flows
when foreign currencies are exchanged or translated to SEK, which
increases volatility in reported results.

As market prices are predominantly established in USD or EUR, and with

a net revenue exposure in foreign currencies, a stronger SEK exchange rate
would generally have a negative effect on our reported results. Our attempts
to reduce the effects of exchange rate fluctuations through a variety of
hedging activities may not be sufficient or successful, resulting in an adverse
impact on our results.

intellectual property rights (iPR)
Although we have a large number of patents, there can be no assurance that
they will not be challenged, invalidated, or circumvented, or that any rights
granted in relation to our 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 protect our intellectual property
rights. However, these measures may not be adequate to prevent or deter
infringement or other misappropriation. Moreover, we may not be able to
detect unauthorized use or take appropriate and timely steps to establish
and enforce our proprietary rights. In fact, existing laws of some countries
in which we conduct business offer only limited protection of intellectual
property rights, if at all.

Our solutions may also require us to license technologies from third
parties. It may be necessary in the future to seek or renew licenses and there
can be no assurance that they 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 proprietary rights in our products.

Many key aspects of telecommunications and data network technology
are governed by industry-wide standards usable by all market participants.
As the number of market entrants and the complexity of technology
increases, the possibility of functional overlap and inadvertent infringement
of intellectual property rights also increases. Third parties have asserted,
and may assert in the future, claims, directly against us or indirectly against
our customers, alleging infringement of their intellectual property rights.
Defending such claims may be expensive, time-consuming and divert
the efforts of our management and/or technical personnel. As a result of
litigation, we could be required to pay damages and other compensation
directly or indemnifying our customers for such damages and other
compensation, develop non-infringing products/technology or enter into
royalty or licensing agreements. However, we cannot be certain that such
licenses will be available to us on commercially reasonable terms or at all.

In the normal course of our business we are involved in legal proceedings.
Litigation can be expensive, lengthy and disruptive to normal business
operations. Moreover, the results of complex legal proceedings are difficult
to predict. An unfavorable resolution of a particular lawsuit could have a
material adverse effect on our business, reputation, operating results, or
financial condition.

As a publicly listed company, Ericsson may be exposed to lawsuits, in
which plaintiffs allege that the Company or its officers have failed to comply
with securities laws, stock market regulation or other laws, regulations or
requirements. 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 impact on
our reported results and reputation. For additional information regarding
certain of the lawsuits in which we are involved, see “Legal and Tax
Proceedings” in the Board of Directors’ Report.

Business interruption
Our business operations rely on complex IT operations and communications
networks, which are vulnerable to damage or disturbance from a variety of
sources. Having outsourced a significant portion of our IT operations, we
depend partly on security and reliability measures of external companies.
Regardless of protection measures, essentially all IT systems and
communications networks are susceptible to disruption from equipment
failure, vandalism, computer viruses, security breaches, natural disasters,
power outages and other events. We also have a concentration of operations
on certain sites, e.g. for production, R&D, network operation centers, logistic
centers, shared services centers, where business interruptions could cause
material damage and costs. Although we have assessed these risks,
implemented controls, performed business continuity planning and selected
reputable companies for outsourced services, we cannot be sure that
interruptions with material adverse effects will not occur.

attract and retain highly qualified employees
We believe that our future success largely depends on our continued ability
to hire, develop, motivate and retain engineers and other qualified personnel
needed to develop successful new products, support our existing product
range and provide services to our customers. Competition for skilled
personnel and highly qualified managers in the telecommunications industry
remains intense. We are continuously developing our corporate culture,
remuneration, promotion and benefit policies as well as other measures
aimed at empowering our employees and reducing employee turnover.
However, there are no guarantees that we will be successful in attracting
and retaining employees with appropriate skills in the future.

access to short-term and long-term capital
If we do not generate sufficient amounts of capital to support our
operations, service our debt and continue our research and development
and customer finance programs, or if we cannot raise sufficient amounts
of capital at the times and on the terms required by us, our business is
likely to be adversely affected. Access to short-term funding may decrease
or become more expensive as a result of our operational and financial
condition and market conditions or due to deterioration in our credit rating.
We cannot assure that additional sources of funds that we from time to time
may need will be available or available on reasonable terms.

Ericsson Annual Report 2009 | Risk factoRs 115

Regulatory, compliance and corporate Governance
Risks

Regulatory environment changes

Telecommunications is an industry subject to particular regulation and
regulatory changes affect both our customers’ and our own operations.
For example, regulations imposing more stringent, time-consuming or
costly planning and zoning requirements or building approvals for radio
base stations and other network infrastructure could adversely affect the
timing and costs of network construction or expansion, and ultimately
the commercial launch and success of these networks. Similarly, tariff
and roaming regulations or rules on network neutrality could also affect
operators’ ability or willingness to invest in network infrastructure, which in
turn could affect the sales of our systems and services. Also radio frequency
spectrum allocation between different types of usage may affect operator
spending adversely or force us to develop new products to be able to
compete.

License fees, environmental, health and safety, privacy and other
regulatory changes, in general or particular to our industry, may increase
costs and restrict operations for network operators and service providers
or us. Also indirect impacts of such changes could affect our business
adversely even though the specific regulations may not apply directly to our
products or us.

country-specific political, economic and regulatory risks
We conduct business throughout the world and are subject to the effects
of general global economic conditions as well as conditions unique to a
specific country or region. We conduct business in more than 170 countries,
with a significant proportion of our sales to emerging markets in Asia Pacific,
Latin America, Eastern Europe, the Middle East and Africa. We expect that
sales to such emerging markets will represent an increasing portion of total
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
where we do 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. In addition we must
comply with the export control regulations of the countries and any trade
embargoes in force at the time of sale and/or delivery. Although we seek to
comply with all such regulations, even unintentional violations could have
material adverse effects on our business, operational results and brand.

compliance with high standards of corporate governance
Ericsson applies mandatory corporate governance statutes and rules, such
as the Swedish Code of Corporate Governance and is also committed to
several corporate responsibility and environmental initiatives. To ensure
that our operations are executed in accordance with these requirements,
our management system includes a robust corporate culture and a Code of
Business Ethics as well as policies and directives to govern our processes
and operations. We regularly perform communication and training in these
areas, and we monitor and audit internal compliance with the policies and
directives as well as our suppliers’ adherence to our Supplier Code of
Conduct. There is however no guarantee that violations will not occur, which
could have material adverse effects on our brand, reputation and business.

compliance with a 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 laws and regulations. However, there is a risk that we may have

to incur expenditures to cover environmental and health liabilities to maintain
compliance with current or future laws and regulations or to undertake
any necessary remediation. It is difficult to reasonably estimate the future
impact of environmental matters, including potential liabilities. This is due
to several factors, particularly the length of time often involved in resolving
such matters.

Potential health risks related to electromagnetic fields
The mobile telecommunications industry is subject to claims that mobile
handsets and other devices that generate electromagnetic fields expose
users to health risks. At present, a substantial number of scientific studies
conducted by various independent research bodies have indicated that
electromagnetic fields, at levels within the limits prescribed by public health
authority safety standards and recommendations, cause no adverse effects
to human health. However, any perceived risk or new scientific findings of
adverse health effects of mobile communication devices and equipment
could adversely affect us through a reduction in sales or through liability
claims. Although Ericsson’s products are designed to comply with all current
safety standards and recommendations regarding electromagnetic fields, we
cannot guarantee that we or the jointly owned Sony Ericsson Mobile
Communications or ST-Ericsson will not become the subject of product
liability claims or be held liable for such claims or be required to comply with
future regulatory changes that may have an adverse effect on our business.

Risks associated with owning Ericsson shares

our share price has been and may continue to be volatile
Our share price has been volatile partly due to the high volatility in the
securities markets generally and for telecommunications and technology
companies in particular. The share price is also likely to be affected by
the development in our market, our reported financial results and the
expectations of financial analysts, as well as statements and market
speculation regarding our future prospects. or the timing or content of any
profit warning by us or our competitors.

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 other circumstances with adverse
effects on our reputation.
Announcements by our customers, competitors or us regarding capital
spending plans of network operators.
Financial difficulties for our customers.
Awards of large supply or service contracts.
Speculation in the press or investment community about the business
level or growth in the market for mobile communications.
Technical problems, in particular those relating to the introduction and
viability of new network systems like LTE/4G.
Actual or expected results of ongoing or potential litigation.
Announcements concerning bankruptcy or investigations into the
accounting procedures of other telecommunications companies, even if
we are not involved.
Our ability to forecast and communicate our future results in a manner
consistent with investor expectations.

currency fluctuations may adversely affect share value or
value of dividends
Because our shares are quoted in SEK on NASDAQ OMX Stockholm (our
primary stock exchange), but in USD on NASDAQ (ADSs), fluctuations
in exchange rates between SEK and USD may affect the value of your
investment. In addition, because we pay cash dividends in SEK, fluctuations
in exchange rates may affect the value of distributions if arrangements with
your bank, broker or depositary call for distributions to you in currencies
other than SEK. An increasing part of the trade in our shares is carried out
on alternative exchanges or markets, which may lead to less accurate share
price information on NASDAQ OMX Stockholm or NASDAQ,

116

Risk factoRs | Ericsson Annual Report 2009

Auditors’ report

to the Annual General Meeting of the shareholders
of telefonaktiebolaget LM ericsson (publ),
organization number 556016-0680

and consolidated accounts as well as evaluating the overall presentation

of information in the annual accounts and the consolidated accounts. As

a basis for our opinion concerning discharge from liability, we examined

significant decisions, actions taken and circumstances of the Company

We have audited the annual accounts, the consolidated accounts, the

in order to be able to determine the liability, if any, to the Company of any

accounting records and the administration of the Board of Directors and the

Board Member or the President and CEO. We also examined whether any

President and CEO of Telefonaktiebolaget LM Ericsson (publ) for the year

Board Member or the President and CEO has, in any other way, acted in

2009. (The Company’s annual accounts are included in the printed version

contravention of the Companies Act, the Annual Accounts Act or the Articles

on pages 10-116). The Board of Directors and the President and CEO are

of Association. We believe that our audit provides a reasonable basis for our

responsible for these accounts and the administration of the Company as

opinion set out below.

well as for the application of the Annual Accounts Act when preparing the

The annual accounts have been prepared in accordance with the Annual

annual accounts and the application of international financial reporting

Accounts Act and give a true and fair view of the Company’s financial

standards IFRSs as adopted by the EU and the Annual Accounts Act

position and results of operations in accordance with generally accepted

when preparing the consolidated accounts. Our responsibility is to express

accounting principles in Sweden. The consolidated accounts have been

an opinion on the annual accounts, the consolidated accounts and the

prepared in accordance with international financial reporting standards,

administration based on our audit.

IFRSs, as adopted by the EU and the Annual Accounts Act and give a true

We conducted our audit in accordance with generally accepted auditing

and fair view of the group’s financial position and results of operations. The

standards in Sweden. Those standards require that we plan and perform

Board of Directors’ report is consistent with the other parts of the annual

the audit to obtain reasonable assurance that the annual accounts and

accounts and the consolidated accounts.

the consolidated accounts are free of material misstatement. An audit

We recommend to the annual general meeting of share holders that the

includes examining, on a test basis, evidence supporting the amounts

income statements and balance sheets of the Parent Company and the

and disclosures in the accounts. An audit also includes assessing the

Group be adopted, that the profit of the Parent Company be dealt with in

accounting principles used and their application by the Board of Directors

accordance with the proposal in the Board of Directors’ report and that

and the President and CEO and significant estimates made by the Board of

the members of the Board of Directors and the President and CEO be

Directors and the President and CEO when preparing the annual accounts

discharged from liability for the financial year.

Stockholm, February 26, 2010

peter Clemedtson

Authorized Public Accountant

PricewaterhouseCoopers AB

Ericsson Annual Report 2009 | Auditors’ report 117

Forward-looking statements

This Annual Report includes forward-looking statements,
including statements reflecting management’s current views
relating to the growth of the market, future market conditions,
future events and expected operational and financial
performance. The words “believe”, “expect”, “foresee”,
“anticipate”, “assume”, “intend”, “may”, “could”, “plan”,
“estimate”, “will”, “should”, “could”, “aim”, “target”, “might”
or, in each case, their negative, and similar words are intended
to help identify forward-looking statements. Forward-looking
statements may be found throughout this document, but
in particular in the chapters “Board of Directors’ Report”
and “Information on the Company”, and include statements
regarding:

our goals, strategies and operational or financial
performance 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, our
credit ratings and the development in the capital markets,
affecting our industry or us;
the expected demand for our existing as well as new
products and services;
the expected operational or financial performance of our
joint ventures and other strategic cooperation activities;
the time until acquired entities will be accretive to income;
technology and industry trends including regulatory and
standardization environment, competition and our customer
structure;
our plans for new products and services including research
and development expenditures.

Although we believe that the expectations reflected in these
and other forward-looking statements are reasonable, we
cannot assure you that these expectations will materialize.
Because forward-looking statements are based on
assumptions, 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 whether and to what extent any of our forward-looking
statements materialize include, but are not limited to:

our ability to respond to changes in the telecommunications
market and other general market conditions in a cost
effective and timely manner;
developments in the political, economic or regulatory
environment affecting the markets in which we operate,
including trade embargoes, changes in tax rates, changes
in patent protection regulations, allegations of health risks

from electromagnetic fields, cost of radio licenses for our
customers, allocation of radio frequencies for different
purposes and results of standardization activities;
the effectiveness of our strategies and their execution,
including partnerships, acquisitions and divestments;
financial risks, including changes in foreign exchange
rates or interest rates, lack of liquidity or access to
financing, changes in tax liabilities, credit risks in relation
to counterparties, customer defaults under significant
customer finance arrangements and risks of confiscation of
assets in foreign countries;
the impact of the consolidation in the industry, and the
resulting (i) reduction in the number of customers, and
adverse 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 not sell at the rates or levels we anticipate;
the product mix and margins of our sales;
the volatility of market demand and difficulties to forecast
such demand;
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
deliver quality products on time and in sufficient volumes,
and risks related to concentration of proprietary or
outsourced production in a single facility or sole source
situations with a single vendor;
our ability to successfully manage operators’ networks to
their satisfaction with satisfactory margins;
our ability to maintain a strong brand and good reputation
and to be acknowledged for good corporate governance;
our ability to recruit and retain qualified management and
other key employees.

Certain of these risks and uncertainties are described further in
“Risk Factors”. We undertake no obligation to publicly update
or revise any forward-looking statements included in this
Annual Report, whether as a result of new information, future
events or otherwise, except as required by applicable law or
stock exchange regulation.

118

Forward-looking statements | Ericsson Annual Report 2009

Share information

Stock exchange trading
The Ericsson Class A and Class B shares are listed on NASDAQ
OMX Stockholm. In the United States, the Class B shares are
listed 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.
In 2009, approximately 7 (20) billion shares were traded
on NASDAQ OMX Stockholm and NASDAQ, of which about
74 (84) percent were on NASDAQ OMX Stockholm and about
26 (16) percent were on NASDAQ. Trading volume in Ericsson
shares decreased by approximately 71 percent on NASDAQ
OMX Stockholm and increased by approximately 7 percent on
NASDAQ as compared to 2008. (Note: Ericsson had a reversed
split of shares of 1:5 for the B-share on June 2, 2008 and a 10:1
to 1:1 change in the ADS ratio from June 10, 2008 which affects
the comparative figures above.)

Share price trend
In 2009, Ericsson’s total market value increased by about
13 (–22) percent to approximately SEK 215 billion (SEK
191 billion in 2008). The OMXSP Index on NASDAQ OMX
Stockholm increased by 47 percent, the NASDAQ telecom
index (CUTL) increased by approximately 48 percent and the
NASDAQ composite index (CCMP) increased by approximately
44 percent.

share data

Earnings per share,
diluted (SEK)
Operating income
per share (SEK) 2)
Cash flow from operating
activities per share (SEK)
Stockholders’ equity
per share, basic, end
of period (SEK)
P/E ratio
Total shareholder return %
Dividend per share (SEK) 1) 2)

2009

2008

2007

2006

2005

1.14

3.52

6.84

8.23

7.64

5.80

7.50

9.64

11.29

10.44

7.67

7.54

6.04

5.82

5.26

43.79
57
15
2.00

44.21
17
–20
1.85

42.17
11
–43
2.50

37.82
17
3
2.50

32.03
18
31
2.25

1) 2005, 2006 and 2007 restated for reverse split 1:5 in 2008.
2) For 2009 and 2008 excluding restructuring charges.
3) For 2009 as proposed by the Board of Directors.

All share based performance indicators except Earnings per
share and Stockholders’ equity per share are calculated based
on average number of shares outstanding, basic. Comparison
periods has been restated for consistency.

share PriCes on nasdaQ omx stoCkholm
(sek)

2009

2008

2007

2006

2005

Class A at last day
of trading 1)
Class A high for year
(April 17, 2009) 1)
Class A low for year
(January 20, 2009) 1)
Class B at last day
of trading 1)
Class B high for year
(April 17, 2009) 1)
Class B low for year
(January 20, 2009) 1)

65.00

59.30

76.80 138.00 137.50

78.80

83.60 148.50 154.50 143.50

55.40

40.60

73.00 104.50

99.00

65.90

58.80

75.90 138.25 136.50

79.60

83.70 149.50 155.00 145.00

55.50

40.60

72.65 104.50

97.00

1) 2005, 2006 and 2007 restated for reverse split 1:5 in 2008.

share PriCe trend, nasdaQ omx stoCkholm,
2005–2009 (sek)

share PriCe trend, nasdaQ omx stoCkholm,
JanUarY–deCemBer 2009 (sek)

250

200

150

100

120

100

2005

2006

2007

2008

2009

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 2009 | share information 119

offer and liSting detailS

Principal trading market – nasdaQ omx stockholm
– share prices
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 258 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

Period

annual high and low
2005 2)
2006 2)
2007 2)
2008
2009

nasdaQ omx stockholm
sek per

sek per

Class a share Class B share
low high
high

low high

low

nasdaQ
Usd per
ads 1)

143.50 99.00 145.00 97.00 18.60 13.89
154.50 104.50 155.00 104.50 20.57 14.44
11.12
148.50 73.00 149.50 72.65 21.71
5.49
83.60 40.60 83.70 40.60 14.00
6.60
78.80 55.40 79.60 55.50 10.92

Quarterly high and low
2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter

monthly high and low
August 2009
September 2009
October 2009
November 2009
December 2009
January 2010

51.10 78.90 50.25 12.28
79.50
83.60 58.70 83.70 57.50 14.00
75.80 61.60 75.80 61.20 12.65
9.15
66.60 40.60 65.90 40.60

9.65
78.00 55.40 78.70 55.50
78.80 64.10 79.60 64.00
9.92
78.60 65.80 79.50 66.10 10.84
76.25 64.70 76.95 65.25 10.92

70.60 65.80 71.20 66.10 10.04
74.30
67.10 74.70 67.50 10.84
76.25 67.00 76.95 67.30 10.92
75.40 65.65 76.00 66.30 10.74
9.96
68.35 64.70 68.90 65.25
72.20 65.20 73.30 65.90 10.31

8.52
9.76
9.03
5.49

6.60
8.10
9.10
8.94

9.10
9.29
9.73
9.56
8.94
9.46

1) One ADS = 1 Class B share.
2) 2005, 2006 and 2007 restated for reverse split 1:5 in 2008.

share PriCe trend, nasdaQ,
JanUarY–deCemBer 2009 (Usd)

share tUrnover 2009
(million shares)

800

600

400

200

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.

120

share information | Ericsson Annual Report 2009

Changes in nUmBer of shares and CaPital stoCk 2005–2009

2005
2006
2007
2008
2008
2008
2009
2009

December 31 (no changes)
December 31 (no changes)
December 31 (no changes)
June 2, reverse split 1:5
July 23, new issue. (Class C shares, later converted to Class B)
December 31
June 8, new issue (Class C-shares, later converted to Class B)
December 31

number of shares

share capital

16,132,258,678
16,132,258,678
16,132,258,678
3,226,451,735
19,900,000
3,246,351,735
27,000,000
3,273,351,735

16,132,258,678
16,132,258,678
16,132,258,678
16,132,258,678
99,500,000
16,231,758,678
135,000,000
16,366,758,678

Share capital
In the second quarter, as decided by the Board of Directors with
authorization from the Annual General Meeting, a stock issue
and a subsequent repurchase was made for the share-based
employee remuneration program. 27 million Class C shares
were issued and later repurchased as treasury stock. The
shares were converted into Class B shares. The quotient value
of the repurchased shares was SEK 135.0 million, representing
less than 1 percent of capital stock, and the acquisition cost
was SEK 135.1 million.

As of December 31, 2009, the Parent Company’s share
capital was SEK 16,366,758,678 (16,231,758,678) represented
by 3,273,351,735 (3,246,351,735) shares. The quotient value
of each share is SEK 5.00 (SEK 5.00). As of December 31,
2009, the shares were divided into 261,755,983 (261,755,983)
Class A shares, each carrying one vote, and 3,011,595,752
(2,984,595,752) Class B shares, each carrying one-tenth of one
vote. As of December 31, 2009, Ericsson held 78 978 533 Class
B shares as treasury shares.

ShareholderS
As of December 31, 2009, the Parent Company had 690,726
shareholders registered at Euroclear Sweden AB (the Central
Securities Depository – CSD), of which 1,421 holders had a
US address. According to information provided by Citibank,
there were 242,229,433 ADSs outstanding as of December 31,
2009, and 5,068 registered holders of such ADSs. A significant
number of the ADSs are held of record by banks, brokers and/
or nominees for the accounts of their customers. As of year end
2009, banks, brokers and/or nominees held ADSs on behalf of
240,915 accounts.

According to information known at year-end 2009, almost
77 percent of our Class A and Class B shares were owned by
institutions, Swedish and international.

Our major shareholders do not have different voting rights

than other shareholders holding the same classes of shares.

As far as we know, the Company is not directly or indirectly

owned or controlled by another corporation, by any foreign
government or by any other natural or legal person(s) separately
or jointly.

ten largest CoUntries, ownershiP

toP exeCUtives and direCtors, ownershiP

Percent of capital

Sweden
United States
United Kingdom
Norway
Canada
Japan
Switzerland
France
Netherlands
Denmark
Other countries

as of december 31,
2008
2009

47.9%
24.2%
7.9%
1.9%
1.2%
1.2%
1.1%
1.1%
0.8%
0.8%
11.9%

47.2%
25.0%
8.9%
1.3%
1.1%
1.3%
1.7%
1.1%
0.8%
0.8%
10.8%

number of
Class a
shares

number of
Class B
shares

voting
rights,
percent

Top executives and directors
as a group (28 persons)

2,416

3,844,472

0.07

For individual holdings, see “Corporate Governance Report”.

The table shows the total number of shares in the Parent
Company owned by top executives and directors as a group as
of December 31, 2009.

Source: Capital Precision, December 31, 2009.

The information from Capital Precision is based on the shareholders’ domicile or in case of

funds, areas of operation.

Ericsson Annual Report 2009 | share information 121

The following table shows share information, as of December 31, 2009, with respect to our 15 largest shareholders, ranked by voting
rights, as well as percentage of voting rights as of December 31, 2009, 2008 and 2007.

largest shareholders, deCemBer 31, 2009 and PerCentage of voting rights, deCemBer 31, 2009, 2008 and 2007

identity of person or group 1)

number

Percentage
of Class a of total Class
a shares

number Percentage

2007
of Class B of total Class voting rights voting rights voting rights
percent

B shares

percent

2008

2009

102,664,038
76,680,600
19,800,000
1,510,466
15,270,077

Investor AB
AB Industrivärden
Handelsbankens Pensionsstiftelse
Swedbank Robur Fonder AB
Skandia Liv AB
Pensionskassan SHB
Försäkringsföreningen
12,672,000
BlackRock Advisors, Inc.
0
Brandes Investment Partners LP
0
AMF Pensionsforsakring AB
800,000
OppenheimerFunds, Inc.
0
0
Dodge & Cox, Inc.
Gamla Livförsäkringsbolaget SEB Trygg Liv 4,675,919
2,335
Handelsbanken Fonder AB
Norges Bank Investment Management
0
480,909
SEB Investment Management AB
27,199,639
Others

39.22
29.29
7.56
0.58
5.83

4.84
0.00
0.00
0.31
0.00
0.00
1.79
0.00
0.00
0.18
10.40

61,414,664
0
0
157,785,431
17,079,591

0
101,632,540
55,603,761
65,104,680
72,541,045
29,149,700
8,475,600
52,894,889
50,368,857
45,030,567
2,294,514,427

2.04
0.00
0.00
5.24
0.57

0.00
3.38
2.54
2.16
2.41
1.96
0.28
1.76
1.67
1.50
74.49

19.33
13.62
3.52
3.07
3.02

2.25
1.81
1.36
1.30
1.29
1.05
0.98
0.94
0.89
0.89
44.68

19.42
13.28
3.00
2.44
2.89

2.26
0.00
2.08
1.55
1.31
0.98
1.04
1.02
0.46
0.98
47.29

19.49
13.36
3.01
1.67
2.75

2.27
0.06
1.73
0.89
1.57
0.00
1.04
1.08
0.35
0.78
49.95

total

261,755,983

100.00

3,011,595,752

100.00

1) Sources: Capital Precision, December 2009 and 2008. Euroclear Sweden AB, December 31, 2007.

earnings Per share,
dilUted 2005–2009 (sek)

stoCkholders’ eQUitY
Per share, BasiC 2005–2009 (sek)

8.23

7.64

8.23

7.64

6.84

42.17

44.21
42.17

44.21
43.79

43.79

37.82

30
32.03

32.03

3.52

0
2005

2005
2006

2006
2007

2007
2008

2008
2009

2009

1.14

0
2005

2005
2006

2006
2007

2007
2008

2008
2009

2009

122

share information | Ericsson Annual Report 2009

MARKET TRENDS

Telecommunications plays a central role in the daily life of
practically every person on earth. It is fundamental to the global
economy and increasingly important to the environment. Over
the last decade, mobile became a ubiquitous communications
service, enabling people from all regions and walks of life to
connect at an unprecedented level.

With the widespread adoption of mobile communications
for voice and text messaging, the impetus to add more voice
subscribers has started to diminish. Growth will continue with
more than two billion new mobile voice subscriptions expected
over the coming years but these will mainly come from low-
usage customers in developing areas or users with multiple
subscriptions. This dilutes average revenue per subscription
but the underlying growth in minutes of use per user is
stronger than the subscription dilution. Thus the total voice
traffic continues to grow.

Mobile broadband is fast becoming the main growth driver

for operators and equipment suppliers globally. Consumer
behavior is changing with the introduction of mobile broadband
prompting innovation in a number of areas and driving the need
for ever greater bandwidth and data speeds. The industry focus
is shifting from connecting places and people to connecting
devices and applications.

There are many devices whose utility is enabled by mobile

broadband, including mobile phones, personal computers
and a growing number of electronic devices and software
applications. Wireless connectivity will make broadband mobile
and affordable to the majority of people. Particularly in the case
of machine-to-machine communications, it will also enable

applications for a variety of industries and uses (e.g. smart
grids, transportation, financial services and healthcare.) This is
far beyond the capability and scope of today’s networks.

We envision 50 billion network connections over the next
decade, compared with some 5 billion currently. The underlying
network technologies must be enhanced to accommodate such
a vast number of connections. We expect ericsson to benefit
from this as network operators and service providers:

Accelerate the transition from legacy technologies to IP-
based technologies.
Respond to rising demands for services that aid economic,
societal and environmental development.
Invest in mobile and fixed broadband access, multi-service
edge routing, IP multimedia subsystems (IMS) based
services and Metro optical and/or radio transport.
Prioritize suppliers that combine technology with services
for lower total cost, faster time-to-market and reduced
project risks.
Outsource more of their network-related activities and
operations for increased flexibility and focus more on the
consumer experience.

These are all areas where the Company is well positioned and
continues to invest heavily. ericsson is now focused exclusively
on serving network operators and service providers while
device manufacturers and consumers are addressed via two
joint venture companies, i.e. ST-ericsson and Sony ericsson.

VIsIOn OF 50 BIllIOn COnneCtIOns

ICt BOOsts GdP GrOWtH

s
n
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c
e
n
n
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Turning point for
mobile communication

THINGS

1980

1990

2000

2010

2020

PEOPLE

PLACES

s
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P

1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0

1.4

1.2

1.1

0.8

0.75

0.7

0.6

0.45

Fixed Voice

Mobile Voice

Internet

Broadband

High-income economies

Low-and middle-income economies

GDP growth for every 10 percent penetration increase

ericsson Annual Report 2009 | market trends 123

mobile systems market is estimated to have declined by more
than 10 percent due to the economic slowdown and weaker
demand for GSM. However, we believe investments in mobile
communications are below optimal levels – suggesting the
possibility of increased spending once the economy recovers.

At the end of 2009, the 4.6 (4.0) billion mobile subscriptions

worldwide represented a global subscription penetration
of 64 (59) percent (the actual number of mobile users is
probably some 20-25 percent less due to inactive and multiple
subscriptions). The High Speed Packet Access (HSPA) version
of 3G/WCDMA is now deployed in 303 (247) commercial
networks across 130 (110) countries. ericsson supplies
144 (115) of these networks, serving the majority of mobile
broadband subscribers.

The number of subscribers covered by commercial 3G/
WCDMA networks remains well below half that of 2G/GSM.
Subscribers to mobile broadband services worldwide reached
360 (180) million by the end of 2009. The vast majority of the
360 million are handheld devices and the figure is set to soar
with the mass consumer adoption of mobile internet devices
such as smartphones and netbooks. This additional demand
presents a significant opportunity for network infrastructure
and systems integration, areas in which ericsson has a market-
leading position.

ICt, especially mobile, positively affects GdP levels
as well as the environment
even though the benefits of a connected society are difficult
to precisely quantify, telecommunications has become as
essential to any nation’s infrastructure as water, transportation
or electricity. As already well demonstrated by telephony, there
is clear evidence that the ubiquitous availability of affordable
ICT services has a positive effect on any country’s economy.
The ICT industry generates approximately 2 percent of global
CO2 emissions. However, ICT could potentially reduce the other
98 percent by 15 percent or more.

A higher GDP level obviously enables more broadband
adoption but studies of the relationship between broadband
penetration and economic development indicate that
broadband plays an even more fundamental role than telephony
in accelerating the economic and social development of a
country. Mobile broadband networks, along with suitable
devices and appropriate applications, can accelerate
broadband penetration by avoiding the relatively more
expensive and time-consuming deployments of fixed networks.

mobile communications market
Mobile communication is the service of choice for consumers
across the world and we believe there is considerable potential
for further growth with the introduction of mobile broadband.
During 2010, ericsson expects mobile subscriptions to grow
to more than 5.2 billion, mainly driven by voice in developing
markets and broadband in more developed markets.

Although at a slower pace than in previous years, mobile

communications continued to grow in 2009 with over 600
(670) million new subscriptions added. The number of mobile
phones shipped was approximately 1,100 (1,190) million,
mainly due to less subscriber additions and longer replacement
intervals. Based on vendor reports and ericsson estimates, the

mOBIle sUBsCrIPtIOns By system standard

mOBIle sUBsCrIPtIOns PenetratIOn By reGIOn

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2009

2010

2011

2012

2013

2014

2015

2008

2009

2010

2011

2012

2013

2014

2015

LTE

GSM/GPRS/EDGE

WCDMA/HSPA/TD-SCDMA

CDMA

Latin America

North America

Asia Pacific

Central and Eastern Europe,
Middle East and Africa
Western Europe

124

market trends | ericsson Annual Report 2009

Fixed and mobile broadband main market drivers
The number of fixed and mobile broadband subscriptions
is expected to increase five times between 2009 and 2015
to approximately 4 billion, of which the vast majority will be
subscriptions for mobile broadband. Broadband internet
access revenues for fixed operators (including cable operators)
are expected to grow from around 25 to around 30 percent of
total revenues in the next five years. Similarly, data’s share of
mobile operators’ revenue, which is currently some 25 percent,
is expected to account for a progressively larger portion of
global mobile revenues over the next five years.

These projections assume the cost for mobile data services

aligns with subscriber expectations, i.e. data must be priced
lower than voice when comparing the amount of bandwidth
consumed. Hence, operators may implement cost-efficient
solutions for delivering more network capacity with revenues
based on service value rather than the amount of capacity.
This motivates a next-generation network that offers fixed and
mobile convergence and leverages IP technology for a lower
cost, higher performance broadband service.

However, operators’ willingness to invest in modernizing
their networks can be inhibited by governmental regulations on
how they can monetize their investments. For example, open
access policies seek to facilitate the entrance into broadband
markets for new competitors by requiring existing operators
to lease access to their networks at regulated wholesale
rates. The basic idea is that the more competitive consumer
broadband markets are, the better the service offering, i.e. at
lower prices, to more consumers. The alternative approach is to
avoid forcing operators to lease network assets to competitors
as it can undermine the incentive to invest.

The major challenge is identifying regulatory policies
and practices that promote ubiquitous availability without
undermining competition by mandating how an operator can
monetize usage and capacity consumption.

mobile broadband creates bottlenecks in parts of the
network
The deployment of access nodes that connect devices at ever
faster speeds increases subscriber uptake which can quickly
create bottlenecks in other parts of the network especially on
the backhaul part of the transport network.

Backhaul capacity needs to be provided more dynamically

and efficiently than is possible with traditional backhaul
solutions. Support of multiple services is required to
ensure continuity for existing services as well as allowing
new services. Operators want to maximize investments in
existing infrastructure while leveraging the capabilities of new
technologies.

Roughly two-thirds of backhaul globally is provided via
microwave radio with the notable exception of the US and
China where fiber is the preferred method. The dynamic nature
of multi-service broadband access requires changes in the
network technology used – a change from TDM/STM/ATM
structures to IP/ethernet. ericsson already has a market-leading
position in microwave radio systems and with the acquisitions
of Marconi and Redback, the Company is well positioned with
optical transmission systems and IP/ethernet products.

Convergence and network transformation in focus
Placing greater emphasis on smarter networks and bundled
service offerings, operators are starting the conversion to all-IP
broadband networks. An increase in broadband access, routing
and transmission deployments, combined with next-generation
service delivery and revenue management systems, means
operators will be able to offer a broader range of services to key
customer segments. each segment (business, consumer and
wholesale) requires a different and varying mix of fixed, mobile
and converged services.

ericsson has developed a network architecture that meets

consumer desires and operator requirements for converged

BrOadBand sUBsCrIPtIOns

sUBsCrIBer traFFIC In mOBIle aCCess netWOrks

)

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3,500

3,000

2,500

2,000

1,500

1,000

500

2008

2009

2010

2011

2012

2013

2014

2015

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2009

2010

2011

2012

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:
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S

Mobile broadband: Mobile handheld (the vast majority), dongles, embedded modules.
Fixed broadband: DSL, FTTx, cable modems.

Mobile PC – Mobile data traffic generated by PCs using cellular access
Mobile handheld – Mobile data traffic generated by handheld terminals
Mobile voice

ericsson Annual Report 2009 | market trends 125

services, covering the device ecosystems, fixed and mobile
broadband access, transport, control, applications, revenue
management, services and operations management. All the
components have been integrated for a high performance and
scalable end-to-end solution.

ericsson’s full-service broadband solution has been built
from in-house development, e.g. mobile broadband and IMS,
and is complemented by the acquisitions of IP-routing products
(Redback), optical transport (Marconi), deep fiber access
systems (entrisphere) and IPTV (Tandberg). The Company
has also developed a comprehensive network transformation
service that leverages professional services such as consulting
and systems integration.

the internet is changing tV
The vision of the television industry is a simple one: to let you
watch whatever, whenever and wherever you want and to
help you discover other interesting programs and share your
favorites and comments with other people. We believe that the
best way to achieve this is to use internet technology enhanced
with telecom-grade performance.

Consumers are already using the internet to find new ways
of accessing TV, with interactive on-demand capabilities now
a basic expectation. Despite this trend, we do not expect
operators to become marginalized as bit pipe providers.
efficient bit pipes will be needed, but to differentiate their
services, operators will need to continue to leverage their
network capabilities. This is where IMS comes into play to
provide the reliability and combination of services required
for a portfolio of applications which differentiates from the
competition.

Today some 1.2 billion (850 million) households have
television services, of which only 25 (20) million are currently
served by IPTV. This number is expected to grow to above
130 million by end of 2015. In the same time period, DSL-

based broadband access is forecasted to grow from some
300 million to 400 million households and cable-TV-based
broadband access is estimated to grow from 90 million to more
than 100 million households. FTTx-based broadband access
is estimated to increase from 35 million to some 100 million
households. Building on the acquisitions of Tandberg Television
and entrisphere, the Company continues to invest in a leading
position in IPTV and FTTx broadband access.

mobility is changing the internet
Today, less than 40 percent of mobile subscribers are also
internet users. However, the increasing use of high-speed
applications in the fixed environment is stimulating a parallel
expectation on the mobile side. When people become
accustomed to using bandwidth-intensive applications at home
or in the office, they tend to want them everywhere they go.

Multimedia-capable mobile internet devices and affordable
mobile broadband access are driving a change in usage. Users
will be able to create and discover content of personal interest
and instantaneously share ideas and information with friends
and colleagues. We see mobile internet devices helping to
accelerate consumer demand for wireless internet access.
This will have the greatest impact on emerging markets, where
household PC penetration is only about 10 percent compared
with well over 60 percent in developed markets. This is
particularly significant as there are more than three times as
many households in emerging markets as there are in more
developed markets.

The Company has established a product unit to provide
mobile broadband connectivity for notebook PCs and other
mobile internet devices. Three of the world’s largest notebook
manufacturers are already using ericsson embedded modules.
In addition, Intel, among others, has signed an agreement to
use ericsson’s mobile broadband technology.

FIxed BrOadBand sUBsCrIPtIOns By teCHnOlOGy

FIxed data traFFIC – last mIle aCCess

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2010

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2012

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DSL

Cable

Fiber

IPTV

126

market trends | ericsson Annual Report 2009

Operator consolidation and network sharing
Operator consolidation continues in all regions globally. In the
Americas, consolidation has substantially reduced the number
of operators. In europe, mergers continue along with other
collaborations such as network sharing and outsourcing of
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). Western european-
based operators continue to invest in operators in developing
markets such as Brazil and India. There have also been
attempts to combine certain Indian operators with African
operators but with little progress so far.

Despite the trend for operator consolidation, the number of
mobile operators has actually increased in many regions over
the past few years, with the notable exception of the Americas.
The introduction of mobile number portability in many markets
has simplified service substitution, leading to fierce competition
and declining market share for the top two players in each
market. Consequently, mobile operator margins are under
pressure from the more intense competition which requires
lower costs to compensate.

Network sharing offers potentially significant capex and

opex savings to operators. However, the overall impact
of network sharing should ultimately be neutral for mobile
equipment vendors. To a certain extent, short-term disruption
of capital expenditure plans or re-negotiation of contracts
with the network sharing companies may be offset by faster
coverage buildout, an earlier entry into expansion phases and
increased sales of professional services, particularly network
integration and managed operations. Over the longer term, the
majority of savings come from shared plant and property rather
than equipment as the equipment has to be dimensioned for
the total traffic load of the combined networks.

ericsson is well positioned to benefit from operator

consolidation with a suite of solutions for network sharing and
a well proven capability for outsourcing network operations,
consulting and systems integration as well as a strong presence
with consolidating companies.

Opportunities in Professional services
Outsourcing of network operations is another form of
consolidation. Operators are able to tap into the global scale
and efficiency offered by a company like ericsson via managed
services. ericsson is well positioned to benefit from this trend
for operator consolidation with a suite of professional
services and a well proven capability for outsourcing network
operations.

Demand for professional services (i.e., managed services,

consulting, systems integration, network optimization and
modernization) is growing rapidly. The demand for professional
services is increasing, driven by operators’ desire to optimize
capex investments, take out unnecessary costs and deliver a
competitive end-user experience.

The potential market for managed services is larger than the
market for network equipment and related deployment services.
A mature operator is estimated to typically spend some 5–6
percent of revenues on network equipment and 10–12 percent
on operating its network.

More than two-thirds of network operational expenses today

are believed to be handled in-house by operators but network
operations are increasingly being outsourced as operators
realize the competitive advantages and potential cost savings.
Therefore, the available market for managed services is
expected to continue to show good growth prospects

Over time, as networks evolve, grow and become more
versatile, their complexity increases and so does the number of
operations and business support systems. This creates many
opportunities to help operators streamline both networks and
operations. One aspect of streamlining is reducing the number

arCHIteCtUre COnCePt-netWOrk transFOrmatIOn

CaPex and OPex sHare
OF OPeratOr reVenUes

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Service Network

Core Network

Fixed broadband
access

Mobile broadband
access

BEFORE

NOW

Connectivity to any device

2009

Opex; excluding network operations

Opex; network operations part

Capex; excluding equipment

Capex; equipment part

ericsson Annual Report 2009 | market trends 127

security of unlicensed phones, but enforcement is far less strict
in most other emerging markets.

Sony ericsson has refined its product portfolio and value
proposition to target an increased share of the replacement
market.

effects of the macro-economic slowdown
While not a trend, the economic recession affected ericsson’s
business development for networks, but with improving
operational efficiency, a market leading position, scale and a
solid balance sheet, the Company is in a good position to meet
continued tough market conditions.

The macro-economic developments are externally driven
and beyond the control or the influence of the Company. But
the Company does control the cost structure and is adjusting to
a more challenging market environment including the effects of
a global recession.

of support systems needed for the network. The other aspect
of streamlining comes from outsourcing operations. Operators
may also ask for advice and best-practice to create efficiency
in their own operations. An indicator of this streamlining or
efficiency trend is the increasing demand for consulting and
systems integration services like revenue assurance, operations
and business support systems transformation and service
assurance.

replacement rates affect mobile handset sales
With subscriber additions slowing, mobile phone replacements
have increasingly become the key market driver, now
accounting for roughly two-thirds of shipments and an even
higher proportion of sales.

Mobile phone replacement tends to go in tandem with
contract renewal. In mature markets, this is often operator
driven via subsidies that lower or eliminate the upfront cost of
buying a new phone in exchange for multi-year subscription
commitments. Many operators are now pushing SIM card only
plans to reduce phone subsidies for lower value subscriptions
and prioritizing subsidies for smartphones and mobile internet
devices that carry much higher value subscriptions. This is
slowing the demand for replacement phones, especially in
the low- to mid-end price range, as consumers postpone
upgrading their mobile phones.

In emerging markets, operators often subsidize multi SIM
card plans rather than handsets. This has stimulated the market
for ultra low priced phones rather than curtailing subscription
growth or mobile phone usage. With inflationary and other
economic pressures rising in these markets, consumers are
buying more refurbished or unlicensed phones. Manufacturers
of illicit phones enjoy cost advantages because they do not pay
for licenses, test their products for safety or provide warranties
or offer sales support. Some countries, such as India, are
especially concerned about personal safety and national

mOBIle PHOne sHIPments

100

2006

2007

2008

2009

Replacements

New subscribers

128

market trends | ericsson Annual Report 2009

120

100

120

100

103.4

96.6

74.8

51.2

42.3

2004

2005

2006

2007

2008

103.4

96.6

74.8

51.2

42.3

2004

2005

2006

2007

2008

9%XX%

23%

2008

17%

2008

41%

9%XX%

23%

2008

17%

2008

41%

27%

9%XX%

23%

2008

17%

2008

41%

27%

120

100

103.4

96.6

74.8

51.2

42.3

2004

2005

2006

2007

2008

NETWORK SALES OF

NETWORK SALES BY

MULTIMEDIA SALES

TOTAL

REGION

(SEK billion and percent)

OF TOTAL

BY REGION

(SEK billion and percent)

23%

2008

17%

2008

68%

27%

XX%

41%

23%

41%

2008

17%

2008

27%

Networks

Professional Services

Multimedia

Western Europe

Central & Eastern Europe,

Middle East and Africa

Asia Pacific

Latin America

North America

Networks

Professional Services

Multimedia

Western Europe

Central & Eastern Europe,

Middle East and Africa

Asia Pacific

Latin America

North America

NETWORK SALES OF

NETWORK SALES BY

TOTAL

REGION

(SEK billion and percent)

23%

XX%

2008

Networks

Professional Services

Multimedia

41%

17%

2008

27%

Western Europe

Central & Eastern Europe,

Middle East and Africa

Asia Pacific

Latin America

North America

NET SALES

(SEK billion)

SALES BY REGION 2008

Ericsson net sales (SEK billion)

and change year-over-year

Percent ot total sales

51.6

7% 7% 7%

208.9

179.8

187.8

153.2

132.0

2004

2005

2006

2007

2008

17.9

34%

25%

–2%

2008

16%

53.3

53.1

Western Europe

Central & Eastern Europe,

Middle East and Africa

Asia Pacific

Latin America

North America

4% 4%

3% 3%

India

C hina

U nited States

Italy

Ind onesia

S w eden

Brazil

Japan

S pain

U nited King d o m

information on the company

Company history
and development

innovating to empower people, business and society
Our origins date back to 1876 when Alexander Graham Bell
filed a patent application in the United States for the telephone.
The same year, Lars Magnus Ericsson opened a small
workshop in Stockholm to repair telegraph instruments and sell
his own telephone equipment.

Today, Ericsson is a leading provider of communications
equipment, professional services and multimedia solutions.
Our customers are operators of mobile and fixed networks
worldwide. Over 1,000 networks in more than 175 countries
utilize our equipment. More than 40 percent of all mobile traffic
goes through Ericsson equipment.

We invest heavily in R&D and promote standardization
and open systems. We have a long history of innovation and
pioneering future telecommunications technologies. We have
one of the industry’s most comprehensive intellectual property
portfolios with approximately 25,000 patents.

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 access
information whenever and wherever they want. Within a few
years, we foresee communications extending beyond places
and people to devices. Then everything that benefits from being
connected will be. We strongly believe that affordable and
generally available telecommunications are a prerequisite for
social and economic development, and that the ICT industry is

Contents

Company history and
development ..................................... 129

General facts on the Company ......... 130

Market environment .......................... 132

Segment overview ............................ 134

a key enabler for a sustainable and prosperous society and for
bridging the digital divide.

Our strategy to realize our vision and reach our goals is to:
Excel with a leading portfolio in mobile and converged
networks.
Expand in services by enabling world-class operations and
network evolution.
Extend in multimedia, with leading applications and
business support solutions.

Successful execution of the strategy is built on (1) close
customer relations; (2) technology and services leadership and
(3) operational excellence in all we do.

the mobiLe inDUStry haS eVoLVeD (2000–2009)

ericSSon haS eVoLVeD

700 million subscriptions

4.5 billion subscriptions

Equipment-led business

Services-led business

Voice and SMS

Internet and multimedia

Many competitors

Few competitors

Telecom

Hardware

Software

Hardware

Software

Equipment

Services

culture and competence
remain key

Ericsson Annual Report 2009 | information on the company 129

close customer relations
The foundation for our business is our strong, long-term
customer relationships. We have been present in most of our
markets for more than 100 years. We work closely with the
operators to understand their business, their objectives and
technology needs.

We are a major supplier to most of the world’s leading mobile

operators and many leading wireline operators. We believe
that our ability to offer superior end-to-end solutions and
services makes us well positioned to assist operators with their
network development and operations. With our significant scale
advantage, custom-tailored end-to-end solutions and local
presence, we are able to serve as a true partner – providing
fast time-to-market and competitive total cost of ownership –
helping our customers reach their business objectives.

Ericsson has 82,500 employees across the world, close
to our customers. Local operations have strong technical,
commercial and administrative support from specialist
functions in R&D, supply, network operations centra and Group
functions.

technology and services leadership
Innovation is an important element of our corporate culture. It is
key to our competitiveness and future success. We have a long
tradition of developing innovative communication technologies.
By early involvement in creating new standards we are often
first to market with new solutions – a distinct competitive
advantage.

We are a market leader in GSM, WCDMA/HSPA, LTE, packet

core networks, microwave transmission, revenue management
applications and managed services. We are growing in the
area of wireline access, metro Ethernet solutions and optical
transport, and we are a provider of multimedia solutions and
brokering services for both wireless and wireline operators and

TV broadcasters. We have recently acquired Nortel’s CDMA and
LTE operations in North America.

Within our ambitious R&D program, we have approximately
18,300 (19,800) employees in 17 (17) countries worldwide and
in 2009 we invested SEK 27 billion (excluding SEK 6 billion
restructuring charges) or 13 percent of sales. Most of this is
invested in product development, of which the greater part
is in network infrastructure. We have continued to invest in
strategically important areas of broadband access, converged
core networks, 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.

Through many years of development of new technologies
we have built up a considerable portfolio of intellectual property
rights (IPR). As of December 31, 2009, we held approximately
25,000 (24,000) patents worldwide, including patents essential
to the standards GSM, GPRS, EDGE, WCDMA, HSPA, MBMS,
TD-SCDMA, cdma2000, WiMAX and LTE. We also hold
essential patents for many other areas, e.g. IMS, Voice-over-
IP, ATM, Messaging, WAP, Bluetooth, SDH/SONET, WDM and
Carrier Ethernet.

Our intellectual property rights are valuable business assets.
We license these rights to many other companies (infrastructure
equipment suppliers, embedded module suppliers, handset
suppliers and mobile application developers) in return for
royalty payments and/or access to their intellectual property
rights. We believe that we have access to all essential patents
that are material to our business in part or in whole.

For more information, please see also Risk Factors, “Market,

Technology and Business Risks”.

General faCts
on the Company

Legal name of the parent company: Telefonaktiebolaget LM
Ericsson (publ)
organization number: 556016-0680
Legal form of the parent company: A Swedish limited liability
company, organized under the Swedish Companies Act. The
terms “Ericsson”, “the Company”, “the Group”, “us”, “we”,
and “our” all refer to Telefonaktiebolaget LM Ericsson and its
subsidiaries.
country of incorporation: Sweden.
Date of incorporation: The Parent Company was incorporated
on August 18, 1918, as a result of a merger between AB LM

Ericsson & Co. and Stockholms Allmänna Telefon AB.
Domicile: Our registered office is Telefonaktiebolaget LM
Ericsson, SE–164 83 Stockholm, Sweden. Our headquarters
are located at Torshamnsgatan 23, Kista, Sweden.
telephone number: +46 10 719 0000
Website: www.ericsson.com
agent in the US: Ericsson Inc., Vice President Legal Affairs,
6300 Legacy Drive, Plano, Texas 75024. Telephone number:
+1 972 583 0000.
Shares: Ericsson’s Class A and Class B shares are traded on
NASDAQ OMX Stockholm. In the US, our American Depository
Shares (ADS), each representing one underlying Class B share,
are traded on NASDAQ.
parent company operations: The business of the Parent
Company, Telefonaktiebolaget LM Ericsson, consists mainly

130

information on the company | Ericsson Annual Report 2009

We continuously focus on improving processes, support
systems and our ways of working. Our mission, to empower
people, business and society, requires strong change
capabilities and efficient and effective processes, delivering
innovative, high-quality solutions with low cost of ownership.
The Company culture of innovation and competitiveness
and continuous competence development of our employees
are key enablers for success. Ericsson Academy is one of our
vehicles to achieve this - a new, innovative forum for learning
and sharing of ideas and knowledge, open to our employees
and available to our customers during 2010. We believe this will
sharpen our employees’ skills, enhance performance for our
customers, and give us a competitive edge in the new business
and technology landscape.

To further increase flexibility and efficiency and reduce cost,
we have several partnerships with strong players in outsourced
manufacturing, IT services and certain areas of R&D and
services. Examples are: Flextronics, HP, IBM and Tieto.

operational excellence in all we do
Ericsson is focused mainly on infrastructure solutions and
services for telecom operators. This focus enables us to
have a functional organization and leverage our scale to gain
competitive advantage. The Group is organized in some 200
legal entities, aligned to a common functional structure, using
standardized processes.

Group functions coordinate the Company’s strategies,
operations and resource allocation and establish the
necessary directives, processes and organization for the
effective governance of the Group. They also manage
support units, such as Ericsson Research, IT and shared
service centers.

The main operational functions/processes are:

Business units:
product management
product/service and solution development
sourcing, manufacturing and supply of products
sales of spare parts and repair.
Market units:
marketing and sales
service delivery
customer support

>
>
>
>

>
>
>

Operational excellence is an important competitive advantage.
and we focus on three areas:

Speed – to reduce time to market and working capital and to
increase flexibilty and responsiveness.
Scale – to leverage our market-leading position, enabling us
to afford developing best-in-class solutions.
Skills – to work according to standardized processes with
highly educated employees and partners.

of corporate management, holding company functions and
internal banking activities. Parent Company operations also
include customer credit management activities performed by
Ericsson Credit AB on a commission basis.
Subsidiaries and associated companies: For a listing of
our significant subsidiaries, please see Notes to the Parent
Company Financial Statements – Note P9, “Investments”. In
addition to our joint ventures Sony Ericsson and ST-Ericsson,
we are engaged in a number of other minor joint ventures,
cooperative arrangements and venture capital initiatives. For
more information regarding risks associated with joint ventures,
strategic alliances and third-party agreements please see Risk
Factors, “Market, Technology and Business Risks”.
Documents on display: We file annual reports and other
information (normally in Swedish only) for certain domestic legal

entities with Bolagsverket (Swedish Companies Registration
Office) pursuant to Swedish rules and regulations.

You may order any of these reports from their website
www.bolagsverket.se. If you access these reports, please be
aware that the information included may not be indicative of
our published consolidated results in all aspects. Other than
information related to the Parent Company, only consolidated
numbers for the Group totals are included in our reports.
filing in the US: Annual reports and other information are
filed with the Securities and Exchange Commission (SEC) in
the United States, pursuant to the rules and regulations that
apply to foreign private issuers. Electronic access to these
documents may be obtained from the SEC’s website, www.sec.
gov/edgar/searchedgar/webusers.htm, where they are stored in
the EDGAR database.

Ericsson Annual Report 2009 | information on the company 131

market environment

Ericsson has evolved with the changes in the industry:

from equipment driven, to services driven, with close to 40
percent of sales and almost 50 percent of employees now
related to services
from hardware to software, with more and more of the
functionality in our solutions being software-based
from narrow-band voice to all-IP broadband, with strong
focus on converged networks and services capabilties.

customers
We supply equipment, integrated solutions, multimedia
applications and services to almost all major operators globally.
We derive most of our sales from large, multi-year agreements
with a limited number of significant customers. Out of a
customer base of more than 425 network operators, the 10
largest customers account for 42 (42) percent of our net sales
and the 20 largest customers account for 57 (61) percent of our
net sales. Our largest customer accounted for approximately
5 (6) percent of sales in 2009. For more information, see Risk
Factors, “Market, Technology and Business Risks”

Our customers have different needs and demands when
interacting with us:

>
>

Strategy and business model development in an increasingly
complex environment.
Network expansion and evolution in response to subscriber
and traffic growth and new technology.
Support, training and spare parts.
Efficient operations to keep operating expenses competitive.

Our own market units are our primary sales channel. They
perform most of the sales where the customer is a fixed or
mobile telecommunications operator.

For certain products or solutions we also use other channels:
TV solutions are sold through other equipment vendors as
resellers as well as directly by business unit Multimedia to
cable-TV operators.
Mobile broadband modules are sold directly by business
unit Networks to PC/netbook manufacturers.
For newly acquired entities, certain market channels
normally prevail during a transition period, e.g. LHS has
maintained its market channels for billing solutions until it is
fully owned and integrated.
A central IPR unit is managing sales of licenses to
equipment vendors or others who wish to use our patented
technology.
Our two joint ventures are the channels to the handset and
mobile platform/chipset markets.

Our sales to network operators is normally based on multi-year
frame agreements after an initial tender with a system and
supplier selection.

During the frame agreement, equipment, software, services

and spare parts are called off according to price lists. On
a highly selective basis we occasionally provide customer
financing. The vast majority of customer financing is provided
by third parties, often guaranteed by Swedish export credit
agencies. Various types of services, such as training or
consulting, are often ordered separately as needed. Managed
services contracts are normally also multi-year contracts and
negotiated separately as they require extensive scoping and
planning for transfer of employees and operations.

We have implemented a strict trade compliance program
throughout the Company in order to comply with foreign and
domestic laws and regulations, trade embargoes and sanctions
in force. Our business activities should not be construed as
supporting a particular political agenda or regime in any way.

conVerGinG inDUStrieS

teLecom’S roLe in Society GroWS (2009–2050)

Media/content

Internet

AN ALL-COMMUNICATING
WORLD

Telecom

Devices

132

information on the company | Ericsson Annual Report 2009

Broadband everywhere – society’s
new highways

Internet goes mobile

Communication for all –
bridging the digital divide

Broadband from “installation”
to “deployment”

Sustainability in focus for ICT

As this segment grows, we expect to see additional

competitors emerge, possibly as a result of network sharing or
of network operators attempting to expand their business.

In the Multimedia segment we face significant competition.
As the market is rather fragmented, our competitors vary widely
depending on the product or service being offered. Competitors
include many of the traditional communication equipment and
IT suppliers as well as companies from other industries, such as
Acision, Amdocs, Comverse, Harmonic, Oracle and Thomson.

Within the handset market, Sony Ericsson’s primary
competitors include Nokia, Motorola, Samsung, LG, NEC
and Sharp, as well as companies like Apple, HTC and RIM
for smartphones. We believe that our joint venture with SONY
Corporation creates a distinctive competitive advantage by
combining our telecom expertise with their media, content and
consumer equipment know-how.

We also compete in the mobile platform/wireless chipset
market through our joint venture ST-Ericsson. Here, the largest
competitor is Qualcomm. This market is growing in complexity
as several new software platforms for handsets and other
devices are being launched, e.g. Google’s Android, Microsoft’s
Windows and Samsung’s Bada.

For more information on competitive risks, see Risk Factors,

“Market, Technology and Business Risks”.

Seasonality
Our quarterly sales, income and cash flow from operations are
seasonal in nature and generally lowest in the first quarter of
the year and highest in the fourth quarter. This is mainly a result
of the seasonal purchase patterns of network operators. The
table below illustrates the average seasonal effect on sales for
the five-year period 2005 through 2009.

moSt recent 5-year aVeraGe SeaSonaLity

first Second

fourth
quarter quarter quarter quarter

third

Sequential Change
Share of annual sales

–20%
22%

13%
25%

–6%
23%

29%
30%

competitors
In the Networks segment, we compete mainly with large and
well-established communication equipment suppliers. Our
most significant competitors include Alcatel/Lucent, Huawei,
Nokia/Siemens, Cisco, ZTE and Juniper. We also compete with
numerous local and regional manufacturers and providers of
communication equipment and services.

We believe the most important competitive factors in this

industry include; existing customer relationships, superior
network performance and subscriber experience, technological
innovation, product design and cost, and the ability to scale/
upgrade/migrate existing network investments, and the
systems integration capability.

Competition in the Professional Services segment includes
not only many of the suppliers mentioned above, but also large
companies from other industry sectors, such as Accenture, HP/
EDS, IBM, and several India-based off-shore companies, e.g.
Tata Consultancy Services and Tech Mahindra, as well as a
large number of smaller but specialized companies operating
on a local or regional basis.

Anything that benefits from being

connected will be connected.

Ericsson Annual Report 2009 | information on the company 133

seGment overview
operating segments
Ericsson is a vendor of solutions and services to telecom
operators of fixed and mobile networks. We also provide
TV solutions and managed services for television broadcast
companies and mobile access modules to netbook
manufacturers. Through two joint ventures we address the
mobile handset and mobile platform/wireless chipset markets.

When determining our operating segments, we have looked
at which markets and what type of customers our products and
services aim to attract as well as what distribution channels
they are sold through. We have also considered commonality
regarding technology, research and development. To best
reflect our business focus and to facilitate comparability with
peers, we report five operating segments:

>
>
>
>
>

Networks
Professional Services
Multimedia
Sony Ericsson
ST-Ericsson

Segment Networks
Networks includes products/solutions for:

>
>
>
>
>

wireless and wireline access
IP core networks
transmission/backhaul
network management
network rollout services

In 2009, we acquired Nortel’s CDMA and LTE operations.
Services, other than network rollout, are reported under
Professional Services. In 2009, segment Networks accounted
for 66 percent of total sales.

Wireless and wireline access
Ericsson provides market-leading wireless access solutions
to network operators for reliable, efficient and cost-effective
mobile telephony networks. Ericsson also has a strong product
portfolio for wireline access. Our leadership in GSM, WCDMA/
HSPA and LTE technologies and now also CDMA enables us
to offer tailored solutions regardless of the existing network
standard used, delivering superior performance and consumer
experience.

We provide wireline access solutions, for both fiber and
copper, such as GPON and DSL. In 2009, AT&T appointed
Ericsson as a domain vendor for wireline access solutions.

ip core network (switching, routing and control)
Our core network solutions include industry-leading
softswitches, IP infrastructure for edge and core routing
(Ericsson SmartEdge), IP-based Multimedia Subsystem (IMS)
and gateways. GSM and WCDMA/HSPA share a common
core network. Therefore operators’ previous investments are
preserved as they migrate from voice-centric to multimedia
networks. Our switching products have industry-leading
scalability and capacity.

transmission/backhaul
Our MINI-LINK microwave system is one of the world’s most
widely deployed mobile backhaul solutions. Transport networks
(e.g. MINI-LINK, metro optical networks) are essential elements
of our end-to-end solutions.

network management
Ericsson offers a portfolio of network management tools,
supporting vital operator activities for management of
existing networks as well as for introduction of new
network architectures, technologies and services, such as:
configuration, performance monitoring, security management,

conVerGeD netWorK architectUre

eration and
ss Sup p ort

p
O

e
in
s
u
B

Customized Services

ort
p
s
n

Standard Services

Multi Access Edge

n
s
p
ort

Wireline Access

Radio Access

s
i

n
d

p
o
r
t

teChniCal milestones

>
>
>

1878 Telegraph to telephone
1923 Manual switching to automatic switching
1981 Fixed communications to mobile
communications
1998 Integration of voice and data in mobile
networks
2001 Launch of WCDMA/3G networks in Western
Europe
2006 Launch of HSPA mobile broadband networks
globally
2009 Mobile broadband traffic gains momentum
and first LTE network launched

134

information on the company | Ericsson Annual Report 2009

inventory management and software upgrades. The tools
are applicable for fixed and mobile access, transport and
core. They are often capable of managing also multi-vendor
networks.

network rollout services
Fast rollout of large networks involves a heavy ramp-up of
resources. Ericsson’s Global Services organization uses a mix
of local, in-house capabilities, authorized service providers
and central specialist resources. We manage our capabilities
in a way that has proven to be highly successful, resulting in
successful projects and satisfied customers.

Sourcing, manufacturing and supply
and availability of materials
Our hardware products largely consist of electronics, such
as circuit boards, radio frequency (RF) modules, antennas
etc. For manufacturing of products we purchase customized
and standardized equipment, components and services from
several global providers as well as from numerous local and
regional suppliers. We produce certain types of components
in-house, such as power modules and cables.

The production of electronic modules and sub-assemblies

is mostly outsourced to manufacturing services companies
(EMS), of which the vast majority is in low-cost countries. Node
production, i.e. assembly, integration and testing of modules
into complete radio base stations, mobile switching centers
etc., is largely done in-house and on-demand.

Where possible, we rely on alternative supply sources for

the purchased elements of our products. This avoids sole
source situations and secures sufficient supply at competitive
prices. When selecting a new supplier, we try to ensure that
our technical standards and other requirements are met,
including our supplier code of conduct. Assuming there will
only be a moderate increase in near-term market demand, we

do not foresee any supply constraints to meet our expected
production requirements during 2010. Variations in market
prices for copper, aluminum, steel, precious metals, plastics
and other raw materials generally have a limited effect on
our total cost of goods sold. For more information related to
sourcing, see Risk Factors, “Market, Technology and Business
Risks”.

We continuously adjust our production capacity to meet

expected demand. At year-end 2009, our overall capacity
utilization was close to 100 percent. The table “Primary
manufacturing and assembly facilities” summarizes where we
have major sites as well as the total floor space at year-end. In
Sweden, the majority of the floor space within our production
facilities is used for node assembly and verification.

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 27 percent of

total sales in 2009, up from 23 percent in 2008.

managed services
We are the industry leader in managed services, managing
networks with more than 370 million subscribers. We offer the
most comprehensive managed services capabilities within the
telecom industry:

>
>

Network design and planning.
Network operations; including networks without any
Ericsson equipment installed, such as Sprint’s fixed and
mobile CDMA/IDEN networks in the US.
Field operations and maintenance of sites.
Shared solutions; e.g. managed backhaul or hosting of
platforms like pre-paid or real time billing/charging.

primary manUfactUrinG anD aSSembLy faciLitieS

ericSSon manaGeD SerViceS

2009

2008
Sites thousands Sites thousands Sites thousands
of sq meters

of sq meters

2007

Strategy

Design

Plan

Build

Operate

Field
Operations

Network
Operations

Sweden
China
Estonia
Italy
Brazil
India
USA
Other

8
4
1
2
1
1
–
–

224.7
46.4
26.6
20.1
23.3
13.6
–
–

8
4
–
2
1
1
1
1

226.0
38.5
–
20.1
18.0
9.0
5.0
0.3

8
4
–
2
1
1
1
1

total

354.7

316.9

244.3
33.9
–
20.1
25.9
6.4
5.0
0.3

335.9

Business
Support System

Service Network

Core Network

Trans Network

Access Network

Ericsson responsibility

Operator responsibility

Ericsson Annual Report 2009 | information on the company 135

Systems integration
Operators can minimize risk by engaging Ericsson to:

>
>
>

integrate equipment from multiple suppliers
manage technology change programs
design and integrate new solutions.

More and more operators who introduce multimedia services
or face challenging technology transformations ask us to serve
as prime integrator, ensuring successful deployment of the total
solution.

consulting
With expertise in business, strategy and technology, our
consultants support customers in decision-making, planning
and execution in order 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.

education
We provide our customers with tailored education programs
to ensure their employees have the skills and competences
necessary for managing today’s and tomorrow’s complex
technologies.

customer support
Having experienced professionals available around-the-clock
to provide customer support is a crucial part of our service
offering. We support operators across the world with over one
billion customers in total.

Segment Multimedia
Sales in segment Multimedia were 6 of total sales excluding
mobile platforms and PBX business.

consumer and business applications
We provide our operator customers with multimedia solutions
for the consumer and business markets. For the consumer
segment, we offer Rich Communication Suite (RCS), mobile TV
solutions, messaging, a social media portal, and location-based
services. In the business communication segment, we provide
converged, fixed-mobile, business communication solutions
for enterprise needs. Ericsson Business Communication Suite
(BCS) is a network operator application for business users.

multimedia brokering
Ericsson Multimedia Brokering offers a range of payment,
messaging and location-based services solutions: e.g. IPX
Payment, IPX Messaging and IPX Subscriber Information
services. We offer multimedia brokering solutions, to help
network operators monetize their network assets by facilitating
payment and distribution of content through interconnection
of network operators with content and media companies,
information and search services, consumer brands and a
variety of enterprises.

Service delivery and provisioning
Our service delivery platforms and provisioning solutions
enable operators and service providers to create, sell, and
manage multimedia services and multi-play offerings. By
combining products, solutions, systems integration and
business consulting into one offering, we create a multimedia
marketplace for each customer’s specific needs.

a new
player

ST-Ericsson enters the arena as a

powerful driving force in the wireless

semiconductor industry.

Find out more at www.ericsson.com

136

information on the company | Ericsson Annual Report 2009

revenue management
We provide revenue management solutions, enabling new
business models, utilizing our unique combined competence
in prepaid and postpaid. Our convergent charging and billing
offering helps operators reduce cost and increase revenues by
creating one unified solution to manage all their customers and
services.

tV
We have an industry-leading IMS-enabled middleware in
the IPTV market, and also offer a full system integration and
solutions delivery role. We have strengthened our compression
market leadership through the launch of the next-generation
encoding platforms. In the Video on Demand and Content
Management area, we extended our product range.

Segment Sony Ericsson
Sony Ericsson delivers innovative and feature-rich mobile
phones, and accessories, 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. It forms an essential part of our
end-to-end capability for mobile multimedia services.

Sony Ericsson’s 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”.

Segment ST-Ericsson
Ericsson and STMicroelectronics formed ST-Ericsson as a
50/50 joint venture in February 2009. The combined company
has one of the industry’s strongest product offerings in
semiconductors and platforms for mobile devices for GSM/

in toUCh
in tUne

China’s largest social network, Kaixin001,

goes mobile, connecting 50 million people

anytime, anywhere.

Find out more at www.ericsson.com

EDGE, WCDMA/HSPA and TD-SCDMA as well as LTE.
ST-Ericsson is a leading supplier to the top handset vendors,
and its products and technologies enable more than half of all
handsets in use today.

ST-Ericsson’s results are reported according to the equity

method under “Share in earnings of joint ventures and
associated companies” in the income statement.

Please see also Notes to the Consolidated Financial

Statements – Note C3, “Segment Information”.

Geographical areas
Sales are reported in five geographical areas; Western Europe,
CEMA (Central and Eastern Europe, Middle East and Africa),
Asia Pacific, Latin America and North America. The areas have
different characteristics in terms of penetration of fixed and
mobile telephony, network traffic, sophistication of services,
average country GDP and other economic factors. The
distribution of sales between the areas mitigates volatility, as a
decrease in one area is often offset by an increase in another.
No individual country accounts for more than 10 percent of
sales. However, due to our improved market position there, the
US is expected to account for between 10 and 15 percent of
sales next year.

SaLeS per reGion anD SeGment 2009

networks

professional
Services

multi-
media

SeK billion

Western Europe
CEMA 1)
Asia Pacific
Latin America
North America

total

23.8
32.7
50.5
13.0
17.1

137.1

18.3
12.9
12.2
5.9
6.7

56.1

total

44.6
50.7
65.8
20.0
25.4

2.4
5.1
3.1
1.1
1.6

13.3

206.5

1) Central and Eastern Europe, Middle East and Africa.

Ericsson Annual Report 2009 | information on the company 137

remuneration report

the Remuneration Committee advises the Board of
Directors on an ongoing basis on the remuneration of Group
management. this includes fixed salaries, pensions, other
benefits and short-term and long-term variable remuneration,
all in the context of pay and employment conditions
throughout ericsson. the Remuneration Committee also
approves variable remuneration outcomes, prepares
remuneration related proposals for Board and shareholder
approval and develops and monitors the remuneration policy,
strategies and general guidelines for employee remuneration.

Remuneration 2009
During 2009, as the financial crisis hit the world with its full
force, there was an increased public focus on compensation and
benefits matters. In its work the Remuneration Committee has
followed the debate closely. The Committee met seven times
during the year. The winter meetings were primarily dedicated
to reviewing and implementing a zero salary increase for senior
management, the vesting of variable compensation awards
and proposals to shareholders at the Annual General Meeting
(AGM). In 2009 the policy for senior management remuneration
and the Long-Term Variable share-based plans were brought to
the AGM with no major changes proposed. During the summer
the Committee reviewed short-term targets to ensure that they
remained appropriate and challenging. In the fall it began the
cycle again with a review of the remuneration strategy, the
variable compensation plans and levels of fixed compensation.
As is illustrated below, the Committee has also considered
market trends, existing and potential remuneration risks, target
setting, its working arrangements and investor consultations.

annual CyCle of the RemuneRation Committee’s woRk

Contents

Remuneration 2009 .......................... 138

The Remuneration Committee .......... 139

Remuneration policy ......................... 139

Key elements of remuneration .......... 140

Activities during the second half of 2009 resulted in an updated
remuneration policy being brought to the AGM which better
demonstrates the basic remuneration principles within Ericsson.

This chapter outlines how the remuneration policy is
implemented throughout Ericsson in line with corporate
governance best practice, with specific references to senior
management. To begin with, the work of the Remuneration
Committee and our remuneration policy are explained, followed
by descriptions of plans and approaches. More details of the
remuneration of senior management and Board members’
fees can be found in the Notes to the Consolidated Financial
Statements – Note C29, “Information regarding Members of the
Board of Directors, Management and Employees” (“Note C29”).
Senior management comprises the Group Management Team,
including the CEO, and will hereafter be referred to as “Group
Management”.

FALL
• Review of committee working arrangements
• Issues, trends and market practice analyses
• Review of Executive Performance Stock Plan

target achievement and vesting decision

• Review of risks associated with remuneration
• Review of remuneration policy, package
construction and design of individual
elements

SUMMER
• Review of appropriateness of targets

138

RemuneRation RepoRt | Ericsson Annual Report 2009

WINTER
• Salary review for Group Management and

other senior executives

• Review of target achievements for Short-Term

Variable plan, vesting and target setting
decisions

• Target setting for Long-Term Variable plan
• Proposals for AGM
• Communications to investors, including

Annual Report

• Review of total remuneration outcomes and

costs

SPRING
• Annual General Meeting of shareholders

summaRies of 2009 shoRt- anD lonG-teRm VaRiaBle RemuneRation
what we call it

what is the objective?

what is it?

who participates?

how is it earned?

short-term: Remuneration delivered over 12 months or less
Fixed salary

Fixed remuneration
paid at set times

Attract and retain employees,
delivering part of annual remune-
ration in a predictable format

Short-Term Variable
compensation (STV)

A variable plan that is
measured and paid
over a single year

Local and Sales
Incentive Plans

Tailored versions
of the STV

Align employees with clear and
relevant targets, providing an
earnings opportunity in return for
variable cost and performance

As for STV, tailored for local
or business requirements,
such as sales

long-term: Remuneration delivered over 3 years or more
Stock Purchase
Plan (SPP)

All-employee stock-
based plan

Reinforce a “One Ericsson” and
align employees’ interests with
those of shareholders

All employees

Managers,
including Group
Management

Most employees

All employees
are eligible

Key Contributor
Retention Plan (KC)

Share-based plan for
selected individuals

Recognize, retain and motivate
key contributors for performance,
critical skills and potential

Up to 10 percent
of employees

Market appropriate levels set accor-
ding to position and evaluated
according to individual performance

Achievements against set targets.
Reward can increase to up to twice
the target level and decrease to zero,
depending on performance

Similar to STV. All plans have
maximum award and vesting
limits

Buy one share and it will be
matched by one share after 3
years if still employed

If selected, get one more
matching share in addition to
the SPP one

Executive Performance Share-based plan for
Stock Plan (EPSP)

senior executives

Remuneration for long-term
commitment and earnings
performance

Senior executives,
including Group
Management

Get up to 4, 6 or, for CEO, 8 further
matching shares to the SPP one
for EPS growth performance

the Remuneration Committee
The Remuneration Committee’s work is the foundation for
the governance of our remuneration processes together with
our internal systems and audit controls. The Committee is
chaired by Michael Treschow and its other members are Nancy
McKinstry, Börje Ekholm and Karin Åberg. Karin Åberg replaced
Monica Bergström after the 2009 Annual General Meeting. All
the members are non-executive directors, independent (except
for the employee representative) as required by the Swedish
Code of Corporate Governance and have relevant knowledge
and experience of remuneration matters.

The Company’s General Counsel acts as secretary to
the Committee. The Chief Executive Officer, the Senior Vice
President Human Resources & Organization and the Vice
President Compensation & Benefits attend the Remuneration
Committee meetings by invitation and assist the Committee
in its considerations, except when issues relating to their own
remuneration are being discussed.

The Remuneration Committee has appointed an

independent expert advisor, Gerrit Aronson, to assist and
advise the Committee. Gerrit Aronson provided no other
services to the Company during 2009. The Remuneration
Committee is also provided with national and international pay
data collected from external survey providers and can call on
other independent expertise, should it so require. The Chairman
continues to ensure that contact is maintained, as necessary
and appropriate, with principal shareholders on the subject of
remuneration.

The purpose and function of the Remuneration Committee
will continue going forward and its terms of reference can be
found on the Ericsson website (www.ericsson.com). These
terms of reference, together with the remuneration policy,
are reviewed annually in light of matters such as changes to
corporate governance best practice or changes to accounting,
legislation, political opinion or business practices among
peers. This helps to ensure that the policy continues to provide
Ericsson with a competitive remuneration strategy. The policy
for senior management remuneration is, in accordance with
Swedish law, brought to shareholders annually for approval.

Remuneration policy
Remuneration at Ericsson is based on the principles of
performance, competitiveness and fairness. Our remuneration
policy together with the mix of remuneration elements are
designed to reflect these remuneration principles by creating
a balanced remuneration package. The policy for 2009 can be
found in Note C29. The proposed resolution for the 2010 AGM
can be found in the Board of Directors’ Report and, together
with resolutions relating to the long-term variable remuneration
plans, in the Notice of Annual General Meeting on our website.
The auditors’ opinion on how we have followed our policy
during 2009 is also posted on the website.

Ericsson Annual Report 2009 | RemuneRation RepoRt 139

shoRt-teRm VaRiaBle RemuneR ation stRuC tuRe

CEO 2009
CEO 2010
Average Group Management 2009 1)
Average Group Management 2010 1)

short-term Variable remuneration
as percentage of fixed salary
target maximum actual paid
for 2009
level

level

40%
40%
31%
34%

80%
80%
62%
68%

39.5%
–
39.0%
–

percentage of short-term Variable
remuneration opportunity

Group financial

targets financial targets

unit/functional non-financial
targets

90%
90%
62%
73%

0%
0%
23%
16%

10%
10%
15%
11%

1) Excludes CEO – differences in target and maximum levels from year to year are due to changes in the composition of Group Management

key elements of remuneration
For Group Management, total remuneration consists of fixed
salary, short-term and long-term variable remuneration,
pension and other benefits. If the size of any one of these
elements is increased or decreased, at least one other element
has to change where the competitive position should remain
unchanged.

Variable remuneration
At Ericsson we strongly believe that, where possible, we should
encourage variable compensation. First and foremost this
aligns employees with clear and relevant targets but it also
enables more flexible payroll costs and emphasizes the link
between performance and pay. All variable remuneration plans
have maximum award and vesting limits.

Fixed salary
Fixed salaries are set to be competitive within an individual’s
home market. When setting fixed salaries the Remuneration
Committee considers the impact on total remuneration,
including pension and associated costs. The absolute levels are
determined by the size and complexity of the position and the
year-to-year performance of the individual. Together with other
elements of remuneration, Group Management salaries are
subject to an annual review by the Remuneration Committee,
which considers external pay data to ensure that levels of pay
remain competitive and appropriate to the remuneration policy.
For 2009 it was decided that it was strategically appropriate
not to increase fixed salaries for Group Management and other
senior executives.

short-term Variable remuneration
The annual variable remuneration is delivered through cash-
based programs. Specific business targets are derived from the
annual business plan approved by the Board of Directors and,
in turn, defined by the Company’s long-term strategy. Ericsson
strives to grow faster than the market with best-in-class
margins and strong cash conversion and therefore the starting
point is to have these as three core targets:

>
>
>

Sales Growth
Operating Income
Cash Flow

For Group Management, targets are thus predominantly
financial targets at either Group level or at the individual unit
level and may also include operational targets like customer
satisfaction and employee motivation. Targets are cascaded to
all managers and will vary depending on the specific position.

fixeD salaRy, shoRt-teRm anD lonG-teRm VaRiaBle
RemuneRation as peRCent of total taRGet
RemuneRation

shoRt-teRm VaRiaBle RemuneRation payouts anD
taRGet leVels

100

CEO 2009

CEO 2010

Average GMT
excl. CEO

Long-Term Variable Target

Short-Term Variable Target

Fixed salary

Max

Target

2005

2006

2007

2008

2009

CEO

Average Group Management
excluding CEO

200

175

150

125

100

96.6

140

RemuneRation RepoRt | Ericsson Annual Report 2009

All variable remuneration targets have to be objective and
measurable and typically refer to a result that is achieved on
a collective basis. Each target is, in accordance with our strict
governance instructions, defined in a “target specification” and
measured over the calendar year. The target setting process
is fully integrated with the strategy work and target levels are
tested against plans and forecasts up until they are finalized
around the turn of the year. The Board of Directors and the
Remuneration Committee decide on all Ericsson Group targets,
which are cascaded to unit-related targets throughout the
Company, always subject to a two levels of management
approval process. The Remuneration Committee monitors the
appropriateness and fairness of Group target levels throughout
the performance year and has the authority to revise them
should they cease to be relevant, stretching and/or enhance
shareholder value.

During 2009, approximately 65,000 employees participated
in short-term variable plans. Of these 6,000 were in the global
Short-Term Variable remuneration plan (“STV”) for management,
including Group Management, and 4,000 were in the global
Sales Incentive Plan. Local plans vary in design according to
local competitive practice.

The chart on the previous page illustrates how payouts to

Group Management have varied with performance over the
past five years.

long-term Variable remuneration
Share-based long-term variable remuneration plans are
submitted each year for approval by shareholders at the Annual
General Meeting. All long-term variable remuneration plans are
designed to form part of a well-balanced total remuneration
and span over a minimum of three years. As these are variable
plans, outcomes are unknown and rewards depend on
long-term personal investment, corporate performance and
resulting share price performance. During 2009, share-based
remuneration was made up of three different but linked plans:
The all-employee Stock Purchase Plan, the Key Contributor
Retention Plan and the Executive Performance Stock Plan.

the stock purchase plan
The all-employee Stock Purchase Plan is designed to offer,
where practicable, an incentive for all employees to participate,
reinforcing a “One Ericsson” aligned with shareholder interests.
Employees can save up to 7.5 percent (CEO 9 percent) of gross
fixed salary for purchase of class B shares at market price on the
NASDAQ OMX Stockholm or ADSs on NASDAQ (contribution
shares) over a twelve-month period. If the contribution shares
are retained by the employee for three years after the investment
and 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. The plan was
introduced in 2002 and employees in 94 countries participate.
In December 2009 the number of participants was in excess of
18,000 or approximately 25 percent of eligible employees.
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 and hence the matching
spans over two financial years and two tax years.

the key Contributor Retention plan
The Key Contributor Retention Plan is part of Ericsson’s talent
management strategy and is designed to give individuals
recognition for performance, critical skills and potential as well
as encourage retention of key employees. Under the program,
operating units around the world are given quotas that total
no more than 10 percent of employees world-wide. Each unit
nominates individuals that have been identified according to
performance, critical skills and potential. The nominations are
calibrated in management teams locally and reviewed by both
local and corporate Human Resources to ensure that there is a
minimum of bias and a strong belief in the system. Participants
selected obtain one extra matching share in addition to the
one matching share for each contribution share purchased
under the Stock Purchase Plan during a twelve-month program
period. The plan was introduced in 2004.

the executive performance stock plan
The Executive Performance Stock Plan was also first introduced
in 2004. The plan is designed to focus management on driving
earnings and provide market competitive remuneration. Senior
executives, including Group Management, are selected to
obtain up to four or six extra shares (performance matching
shares). This is in addition to the one matching share for each
contribution share purchased under the all employee Stock
Purchase Plan and the performance matching is subject to the
fulfillment of an Earnings per Share (EPS) performance target.
For the programs since 2006, the CEO is 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 use of average annual EPS growth with challenging
and stretching targets as a performance measure has reflected
Ericsson’s ongoing strategy of adding shareholder value
through the long-term improvement of profitability.

The Remuneration Committee has been satisfied that the
use of an EPS performance target has been preferable to other
measures, including those that reflect relative performance.
However, alternative measures are being considered for
future plans. 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. The
Remuneration Committee analyzes the financial results against
those of competitors in the industry.

Ericsson Annual Report 2009 | RemuneRation RepoRt 141

RemuneRation leVels as at the BeGinninG of 2009 (sek)

CEO
Average Group Management 1)

2009
fixed salary

15,750,000
3,815,272

2009 target
short-term
Variable

6,300,000
1,234,359

2009 target
total target total target
long-term Remuneration Remuneration
2008

Variable 2)

2009 3)

7,087,500
1,144,581

29,137,500
6,194,212

29,137,500
6,620,636

1) Excludes CEO
2) Excludes personal investment from net income of up to 7.5% of gross fixed salary (9% CEO). Stock Purchase Plan matching shares plus half the maximum number of matching shares

under the Executive Performance Stock Plan

3) The cost of pensions and other benefits are shown in Note C29. Swedish vacation pay costs are shown under Salary in Note C29

Benefits and terms of employment
Pension benefits follow the competitive practice in the
employee’s home country and may contain various
supplementary plans, in addition to any national system for
social security. Where possible, pension plans are operated on
a defined contribution basis. Under these plans, Ericsson pays
contributions into a plan but does not guarantee the ultimate
benefit, unless local regulations or legislation prescribe that
defined benefit plans that do give such guarantees have to be
offered.

For the CEO and other members of Group Management
employed in Sweden a supplementary pension plan is applied
in addition to the occupational pension plan for salaried staff on
the Swedish labor market (ITP). The pension age is according
to local practice, for Group Management normally 60 years. The
pensionable salary for Group Management in Sweden consists
of the annual fixed salary including vacation pay and the target
value of the Short-Term Variable remuneration. For members of
Group Management who are not employed in Sweden similar
market competitive pension arrangements apply.

Other benefits, such as company car and medical insurance,

are also set to be competitive in the local market. Group
Management may not receive loans from the Company.

Group Management members have a mutual notice period

of up to six months. Upon termination of employment by the
Company, severance pay can amount to up to 18 months fixed
salary.

Total remuneration
When we consider the remuneration of an individual, it is the
total remuneration that matters. We first consider the total
annual cash compensation, looking at target level of short-term
variable compensation plus fixed salary. We then add target
long-term variable remuneration to get total target remuneration

RemuneR ation outComes 2009 (sek)

and, finally, pension and other benefits to arrive at the total
package.

The remuneration costs for the CEO and Group

Management are reported in Note C29 but as those numbers
reflect costs recognized in the income statement rather than the
remuneration offered or the amounts received, we outline in the
tables above and below how the total remuneration adds up in
its structure and the alternative viewpoint of what was received
during 2009. The table above shows the remuneration levels
expected at the beginning of 2009 with the fixed salary level
for the year and the expected value of short- and long-term
variable remuneration.

The table below shows how much was received during
2009 as remuneration outcomes. This means adding the fixed
salary paid; the short-term variable remuneration from the
previous year which was paid out in 2009; and the long-term
variable remuneration outcomes from the 2002 stock option
plan, and parts of the 2005 and 2006 Stock Purchase Plans
(the Executive Performance Stock Plan did not vest for either
program). The different tables show different aspects but
illustrate, in particular, the variability of variable remuneration
through the differences of costs, outcomes and expected
rewards.

Board of Directors
The remuneration of Directors not employed by Ericsson
is handled separately by the Nomination Committee and
approved by the Annual General Meeting of shareholders. The
remuneration consists of fees for Board and committee work,
part of which can be delivered under a synthetic share program.
The synthetic shares, which are valued in line with Ericsson’s
Class B shares, vest in cash after the publication of the year-
end financial statement during the fifth year after award.

CEO
Total Group Management 1)

2009
fixed salary

2008
short-term

Variable 2)

15,750,000
44,277,637

630,000
16,287,601

2002, 2005
and 2006
long-term

Variable 3)

646,470
3,266,122

total

total
Remuneration Remuneration
Received
2008

Received

2009 4)

17,026,470
63,831,360

20,230,551
75,170,676

1) Excludes CEO
2) The STV payouts for 2009, paid in 2010, were 6,226,920 for the CEO and 15,137,637 for the rest of Group Management
3) The CEO did not participate in the 2002 stock option plan. The 2005 and 2006 Long-Term Variable remuneration consists of vesting from the 2005 and 2006 Stock Purchase Plans only as

the 2005 and 2006 Executive Performance Stock Plans did not vest

4) The cost of pensions and other benefits are shown in Note C29. Swedish vacation pay costs are shown under Salary in Note C29

142

RemuneRation RepoRt | Ericsson Annual Report 2009

Shareholder Information

Telefonaktiebolaget LM Ericsson’s shareholders are invited
to participate in the Annual General Meeting to be held on
Tuesday, April 13, 2010 at 3 p.m. at Kistamässan,
Kistagången 1, Kista/Stockholm.

registration and notice of attendance
Shareholders who wish to attend the Annual General Meeting
must

be recorded in the share register kept by Euroclear
Sweden AB (the Swedish Securities Registry) on
Wednesday, April 7, 2010; and
give notice of attendance to the Company at the latest
on Wednesday, April 7, 2010. Notice of attendance can
be given on Ericsson’s website: www.ericsson.com, by
telephone: +46 8 402 90 54 on weekdays between 10 a.m.
and 4 p.m. or by fax: +46 8 21 60 87.

Notice of attendance may also be given in writing to:
Telefonaktiebolaget LM Ericsson
General Meeting of Shareholders
Box 7835, SE-103 98 Stockholm, Sweden

When giving notice of attendance, please state name, date of
birth, address, telephone no. and number of assistants.

The meeting will be conducted in Swedish and

simultaneously interpreted into English.

shares registered in the name of a nominee
In addition to giving notice of attendance, shareholders who
have their shares registered in the name of a nominee must
request the nominee to temporarily enter the shareholder into
the share register in order to be entitled to attend the meeting.
In order for such registration to be effective on Wednesday
April 7, 2010, shareholders should contact their nominee well
before that day.

Proxy
Shareholders represented by proxy shall submit to the
Company a power of attorney for the representative. A power
of attorney issued by a legal entity must be accompanied by
a copy of the entity’s certificate of registration (should no such
certificate exist, a corresponding document of authority must
be submitted). Such documents must be no more than one year
old. In order to facilitate the registration at the Annual General
Meeting, the power of attorney in original, certificates of
registration and other documents of authority should be sent to
the Company in advance. All documents should be sent to the
Company at the address above for receipt by Monday, April 12,
2010. Forms of power of attorney in Swedish and English are
available on Ericsson’s website: www.ericsson.com/investors.

dividend
The Board of Directors has decided to propose the Annual
General Meeting to resolve on a dividend of SEK 2.00 per share
for the year 2009 and that Friday, April 16, 2010 will be the
record day for dividend.

financial information from ericsson
>

Interim reports 2010:
April 23, 2010 (Q1)
July 23, 2010 (Q2)
October 22, 2010 (Q3)
January 25, 2011 (Q4)
Annual Report 2010: March, 2011
Form 20-F for the US market 2009: during Q2, 2010

>
>

Annual reports and other financial reports are available on our
website: www.ericsson.com/investors.

for printed publications, contact
Strömberg Distribution i Huddinge AB
SE-120 88 Stockholm, Sweden
Phone: +46 8 449 89 57
Email: ericsson@strd.se
In the United States, Ericsson’s Transfer Agent Citibank:
Citibank Shareholder Services
Registered holders: +1 877 881 59 69 (toll free within the U.S.)
Interested investors: +1 781 575 45 55 (outside of the U.S.)
Email: ericsson@shareholders-online.com
www.citi.com/dr

Ordering a hard copy of the Annual Report:
Phone toll free: +1 866 216 046
http://proxy.georgeson.com/annualreport/ericsson.htm

Contact information
Investor Relations for Europe, Middle East,
Africa and Asia Pacific:
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone: +46 10 719 00 00
Email: investor.relations@ericsson.com

Investor Relations for the Americas:
Ericsson
The Grace Building
1114 Ave of the Americas, Suite #3410
New York, NY 10036, USA
Telephone: +1 212 685 40 30
Email: investor.relations@ericsson.com

Ericsson Annual Report 2009 | shareholder information 143

Corporate Governance
Report 2009

Our corporate governance is based on a strong ethos of ethical
business practice that starts at the top and permeates to all
ericsson employees. The Board is committed to high standards
of corporate governance and we encourage all employees
to constantly seek ways of making our internal controls
and oversight even more effective and reliable. It is during
challenging times that the quality of a company’s governance
truly shows and during the past year we have been able to
draw on our strengths in this area.

Michael Treschow
Chairman of the Board of Directors

Corporate governance describes the ways in which rights and
responsibilities are distributed among the various corporate
bodies according to the laws, rules and processes to which
they 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 report has not been reviewed by ericsson’s auditor and
does not constitute a part of the formal Annual Report.

Contents

Regulation and compliance ............... 145

Shareholders ..................................... 146

General Meeting of Shareholders ...... 147

Nomination Committee ..................... 148

Board of Directors ............................. 149

Members of the Board of Directors ... 156

Company Management ..................... 159

Members of the Group
Management Team ............................ 161

Auditors ............................................. 164

Internal control over financial
reporting 2009 ................................... 164

HiGHliGHts
of 2009

Hans Vestberg, CFO, was appointed new President
and CeO succeeding Carl-Henric Svanberg as of
January 1, 2010.

Jan Frykhammar was appointed new CFO
succeeding Hans Vestberg as of November 1, 2009.

Three new members joined the Group
Management Team.

144

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

ReGulation and
ComplianCe

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 rules include:

>
>
>
>

The Swedish Companies Act.
Rulebook for issuers of NASDAQ OMX Stockholm.
The Swedish Code of Corporate Governance (the “Code”).
NASDAQ Stock Market Rules – including applicable
NASDAQ corporate governance requirements, subject to
certain exemptions principally reflecting mandatory Swedish
legal requirements.
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:

>
>

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 to be applied in the product development,
production, supply and support of ericsson products and
services worldwide.

Further, the Board of Directors has included internal rules in its
work procedure.

Compliance with the Swedish Code of
Corporate Governance
The Code has been applied by ericsson since July 2005.
ericsson is committed to complying with best-practice
corporate governance on a global level wherever possible. This
includes continued compliance with the corporate governance
provisions expressed by the Code.

An ethical business
ericsson’s Code of Business ethics sets out how the Group
achieves and maintains its high ethical standards and
summarizes the Group’s fundamental policies and directives.
The ethical code has been translated into more than 20
languages. This ensures that it is accessible to all employees
and underpins the importance of ethical conduct in all
business activities. During recruitment employees sign a form
to acknowledge that they are aware of the principles of the
Code of Business ethics. This procedure is repeated at regular
intervals throughout the term of employment.

Through this meticulous process, ericsson strives to
ensure that high ethical standards are upheld continuously.
All employees have an individual responsibility to ensure that
business practice adheres to the rules of the Code of Business
ethics. The Code of Business ethics satisfies the applicable
requirements of the Sarbanes-Oxley Act of 2002 and NASDAQ
Stock Market rules.

The Code of Business ethics can be found at:
www.ericsson.com/ericsson/corporate_responsibility/
employees/code_businessethics.shtml (information on the
ericsson website does not form part of this Report).

CaRBon-lean
CommuniCation

ericsson is at the forefront of sustainable

development, enabling the use of ICT in
smarter ways to reduce global CO2 emissions.

Find out more at www.ericsson.com

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 145

sHaReHoldeRs

Ownership structure
According to the share register kept by euroclear Sweden AB,
as of December 31, 2009 ericsson had 690,726 shareholders.
Almost 77 percent of the shares are owned by institutions,
both Swedish and international. Investor and Industrivärden,
two public listed Swedish industrial holding companies, are the
largest shareholders. They hold 5.01 and 2.34 percent of the
share capital and 19.33 and 13.62 percent of the voting rights,
respectively.

A significant number of the shares held by foreign investors

are nominee-registered, i.e. held off record by banks, brokers
and/or nominees. This means that the actual shareholder is not
displayed in the share register or included in the shareholding
statistics. As a result, the ultimate shareholder does not show in
the shareholder statistics used, for example, for the purpose of
appointing members of the Nomination Committee.

For more information on the Company’s shareholders, see

the chapter “Share Information” in the Annual Report.

Shares and voting rights
The share capital of Telefonaktiebolaget LM ericsson consists
of two classes of listed shares; A and B. each class A share
carries one vote and each class B share carries one tenth of
one vote. Class A and B shares entitle the holder to the same
proportion of assets and earnings and carry equal rights in
terms of dividends. In addition, the Parent Company may
issue Class C shares in order to create treasury stock to hedge
incentive programs resolved by the General Meeting. Class
C shares held by ericsson do not entail rights to dividend
or voting rights. The class C shares are converted into class
B shares before they are transferred to participants of the
incentive programs.

The members of the Board of Directors and the Group

Management Team do not have different voting rights on shares
than other shareholders.

OWNERSHIP PERCENTAGE
(CAPITAL)

OUR GOVERNANCE STRUCTURE

11%

2009

53%

36%

Foreign Investors 53%

Swedish Institutions 36%

Private Swedish Investors 11%

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

146

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

GeneRal meetinG of
sHaReHoldeRs

The decision-making rights of ericsson’s shareholders are
exercised at General Meetings. The Annual General Meeting
is held in Stockholm. The date and venue for the meeting is
announced on the ericsson website no later than in conjunction
with the release of the third-quarter report.

Shareholders who cannot participate in person may be
represented by proxy. Shareholders who have their shares
nominee-registered must, to be able to vote, request to be
entered into the share register in the owner’s own name by
the record date for the General Meeting. The Annual General
Meeting is held in Swedish and simultaneously interpreted into
english. All documentation provided by the Company is also
available in english.

The Annual General Meeting gives shareholders the
opportunity to raise questions relating to the operations of
the Group. Normally, the members of the Board of Directors
and the Group Management Team are present to answer such
questions. The auditor is always present at the Annual General
Meeting. Shareholders and other interested parties may also
correspond in writing with the Company at any time.

Most resolutions at General Meetings are passed by a

simple majority. However, the Swedish Companies Act requires
qualified majorities in certain cases. For example, qualified
majority is required for the resolution to transfer own shares to
employees participating in ericsson’s Stock Purchase Plan and
for amending the articles of association.

Ericsson’s Annual General Meeting 2009
696 shareholders, representing approximately 59 percent of
the votes, attended the Annual General Meeting (AGM) held
on April 22, 2009. The meeting was held at the Annex to the
ericsson Globe in Stockholm.

The Board of Directors, members of the Group Management

Team and the external auditor were present at the meeting.
Decisions of the AGM 2009 included:

>
>

Payment of a dividend of SeK 1.85 per share for 2008.
Re-election of Chairman of the Board of Directors, Michael
Treschow.
Re-election of members of the Board of Directors, Roxanne
S. Austin, Sir Peter L. Bonfield, Börje ekholm, Ulf J.
Johansson, Sverker Martin-Löf, Marcus Wallenberg, Nancy
McKinstry, Anders Nyrén and Carl-Henric Svanberg.
Board of Directors’ fees to remain unchanged: Chairman
SeK 3,750,000 and other non-employed Board members
SeK 750,000 each. SeK 350,000 to the Chairman of the
Audit Committee and SeK 250,000 each to the other two
non-employed members of the Audit Committee. SeK
125,000 each to the Chairmen and other non-employed
members of the Finance and Remuneration committees.
Additionally, part of the Directors’ Board fees may be paid in
the form of synthetic shares.
Approval of the remuneration policy for senior management.
Implementation of a Long-Term Variable Remuneration
Program.
Conditional amendments to the Articles of Association
regarding the way General Meetings are convened.

The minutes of the AGM 2009 are available at:
www.ericsson.com/ericsson/investors/shareholders/agm
(information on the ericsson website does not form part of this
Report).

annual General meeting 2010

Ericsson’s Annual General Meeting 2010 will take place on

April 13, at Kistamässan, Kista/Stockholm.

Shareholders who wish to have a matter considered at the

AGM shall make a written request to the Board in due time

before the AGM. Further information on Ericsson’s website.

How to contact
the Board of directors

Telefonaktiebolaget LM Ericsson

The Board of Directors’ Secretariat

SE-164 83 Stockholm, Sweden

boardsecretariat@ericsson.com

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 147

Ericsson’s Annual General Meeting 2009

nomination Committee

A Nomination Committee was elected by the Annual General
Meeting for the first time in 2001. Since then, each Annual
General Meeting has appointed a Nomination Committee,
or resolved on the procedure for appointing the Nomination
Committee.

The Annual General Meeting 2009 resolved that the

Nomination Committee shall consist of representatives of the
four largest shareholders by voting power by the end of the
month in which the Annual General Meeting was held plus
the Chairman of the Board of Directors. However, as further
described in the procedure for appointing members of the
Nomination Committee, it may include additional members
following a request by a larger shareholder. Such a request
must be justified by changes in the shareholder’s share
ownership and be received by the Nomination Committee no
later than December 31.

Members of the Nomination Committee
The current Nomination Committee consists of, in addition to
the Chairman of the Board of Directors, the four representatives
appointed by the four shareholders with the largest voting
power as of April 30, 2009:

These are Petra Hedengran (Investor AB), Carl-Olof By (AB

Industrivärden, Svenska Handelsbankens Pensionsstiftelse
and Pensionskassan SHB Försäkringsförening, Chairman of
the Nomination Committee), Caroline af Ugglas (Livförsäkrings-
aktiebolaget Skandia) and Marianne Nilsson (Swedbank Robur
Fonder). Marianne Nilsson replaced Mats Lagerqvist (Swedbank
Robur Fonder) during the year.

The tasks of the Nomination Committee
Over the years the tasks of the Nomination Committee have
evolved to comply with the requirements of the Code. The
main task of the Committee is to propose candidates for
election to the Board of Directors. The Committee must
consider all applicable rules on the independence of the
Board of Directors.

Work of the Nomination Committee for the Annual
General Meeting 2010
As of February 18, 2010 the Nomination Committee has held
six meetings. The Committee starts its work by orientating
itself on the functioning of the Board work and ericsson’s
strategy and future development. In 2009, the Nomination
Committee has met with both the resigning President and
CeO, Carl-Henric Svanberg, and the incoming President and
CeO, Hans Vestberg, both of whom have given their views on
the Company’s development and future. From this basis the
Committee is able to make assessments on the competence
and experience required by the Board members.

The Committee has been informed of the results of the
evaluation of the Board work and procedures, including the
performance of the Chairman of the Board. The Committee
applies a recruitment procedure where it assesses potential
candidates for the Board of Directors. The Committee has also
acquainted itself with the assessments made by the Company
and the Audit Committee in terms of quality and efficiency of
external auditor work, including recommendations regarding
audit fees.

Shareholders may submit proposals to the Nomination

Committee at any time, but should do so in due time

It also prepares remuneration proposals for those Directors

before the Annual General Meeting to assure that

elected by the Annual General Meeting but not employed by
ericsson, for the auditors and for members of the Nomination
Committee, for resolution by the Annual General Meeting. To
date, the Committee has not proposed that it should be paid
any fees. When proposing auditors, the Nomination Committee
selects candidates in co-operation with the Audit Committee of
the Board.

they are considered by the Committee. See further

information on Ericsson’s website.

Contact the
nomination Committee

Telefonaktiebolaget LM Ericsson

The Committee also proposes a candidate for election of the

The Nomination Committee

Chairman of General Meetings.

c/o General Counsel’s Office

SE-164 83 Stockholm, Sweden

nomination.committee@ericsson.com

148

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

BoaRd of diReCtoRs

The Board of Directors is ultimately responsible for the
organization of ericsson and the management of the
operations. It develops guidelines and instructions for the day-
to-day operations, managed by the President and CeO. In turn,
the President and CeO ensures the Board is updated regularly
on events of importance to the Parent Company, including
business development, results, financial position and liquidity of
the Group.

According to the Articles of Association, the Board of
Directors shall consist of no less than five directors and
no more than 12 directors, with no more than six deputies.
Directors will serve from the close of the Annual General
Meeting where they are elected to the close of the following
Annual General Meeting, but can serve any number of
consecutive terms. In addition, under Swedish law, trade unions
have the right to appoint three directors and their deputies to
the Board.

While the President and CeO may be elected as a director of

the Board, the Swedish Companies Act prohibits the President
of a public company from being elected Chairman of the
Board. ericsson strictly follows rules and regulations regarding
conflicts of interest. Directors are disqualified to participate in
any decision regarding agreements between themselves and
ericsson. The same applies for agreements between ericsson
and any third party or legal entity in which the Board member
has an interest.

In order to ensure compliance with NASDAQ Stock Market
Rules, the Audit Committee has implemented a procedure on
related-party transactions. Further, the Audit Committee has
established a pre-approval process for non-audit services
carried out by the external auditor.

Composition of the Board of Directors
The Board of Directors consists of 10 Directors, including the
Chairman of the Board, elected by the shareholders at the
Annual General Meeting 2009, for the period until the close
of the Annual General Meeting 2010, and three employee
representatives, each with a deputy, appointed by the trade
unions for the same period of time. The President and CeO,
Carl-Henric Svanberg, is the only Board member who was also
a member of ericsson’s management during 2009.

Work procedure of the Board of Directors
Pursuant to the Swedish Companies Act, the Board of Directors
has adopted a work procedure that outlines rules for the
distribution of tasks between the Board and its Committees as
well as between the Board, its Committees and the President
and CeO. This complements the regulation in the Swedish
Companies Act and the Articles of Association of the Company.
The work procedure is reviewed, evaluated and adopted by the
Board at least once a year as required.

Independence of the Directors
The Board of Directors and its Committees are subject to
a variety of independence requirements. ericsson applies
independence rules in applicable Swedish law, the Rulebook
for issuers of NASDAQ OMX Stockholm, the Swedish Code
of Corporate Governance, the NASDAQ Stock Market Rules
and in the Sarbanes-Oxley Act of 2002. However, ericsson has
sought and received exemptions from certain requirements
in the Sarbanes-Oxley Act and in the NASDAQ Stock Market
Rules, including those that are contrary to Swedish Law.
The composition of the Board of Directors meets all

applicable independence criteria.

The Nomination Committee concluded before the Annual
General Meeting of Shareholders 2009, that, for the purposes
of the Code of Corporate Governance, at least five of the

Board of Directors

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 149

persons nominated to the Board were independent of ericsson,
its senior management and its major shareholders. These were
Roxanne S. Austin, Sir Peter L. Bonfield, Ulf J. Johansson,
Nancy McKinstry and Michael Treschow.

Work of the Board of Directors
The work of the Board follows a yearly cycle, starting with the
statutory Board meeting which is held in connection with the
Annual General Meeting. At this meeting, members of each of
the three Committees are appointed and the Board resolves on
matters such as signatory power.

At the next ordinary meeting, the Board handles the first
interim report for the year. In June, a Board meeting generally
takes place away from the headquarters, giving Directors a
chance to visit major ericsson business operations. In July, the
Board convenes to handle the interim report for the second-
quarter of the year. Particular strategy matters are regularly
addressed at appropriate Board meetings and a two-day Board
meeting following the summer is mainly devoted to the overall
strategy of the Group. The strategy meeting also addresses the
overall risk management of the Group. A Board meeting is held
at the end of October to handle the third-quarter interim report.
The Board has developed a process to thoroughly evaluate

its own work. The results of the evaluation are presented and
discussed by the Board during the fall. The last meeting of
the calendar year addresses budget and financial outlook. At
the first meeting of the calendar year the Board focuses on
the financial result of the entire year and handles the fourth-
quarter report. At the second Board meeting in February,
which closes the yearly cycle of work, the Board concludes
the Annual Report.

As the Board is responsible for financial oversight, financials

are presented and evaluated at each Board meeting. each
Board meeting generally also includes reports on committee
work by the Chairman of each committee. In addition, minutes

THE BOARD’S ANNUAL WORK CYCLE

from the committee meetings are distributed to all Directors
prior to the Board meeting.

A Board meeting also typically includes the President and
CeO’s report on business and market developments, including
the financial performance of the Company. The Board is
regularly informed of developments in legal and regulatory
matters of importance.

The Board meets with ericsson’s external auditor at least
once a year to receive and consider the auditor’s observations.
The auditor also prepares reports for the management on the
accounting and financial reporting practices of the Group.
The Audit Committee also meets with the auditor to receive
and consider observations on the interim reports. The auditor
has been instructed to report on whether the accounts, the
management of funds and the general financial position of the
Group are well controlled in all material respects.

The Board also reviews and assesses the process for
financial reporting, as described later in “Internal control over
financial reporting 2009”. Combined with the internal controls,
the Board’s and the auditor’s review of interim and annual
reports are deemed to give reasonable assurance on the quality
of the financial reporting.

Training of the Board of Directors
All new Directors receive comprehensive training tailored to
their individual requirements. Introductory training typically
includes meetings with the heads of the major businesses and
functions and training arranged by NASDAQ OMX Stockholm
on listing issues and insider rules. In addition, full-day training
sessions are generally held twice a year for all Directors, to
enhance their knowledge of specific operations and specific
issues as appropriate.

Training sessions organized in 2009 have provided the

Directors with an in-depth knowledge of the industry landscape,
new technologies, network transformation and future products.

Budget, financial outlook meeting

Q4 meeting
– Financial result of the entire year

Q3 meeting
– Q3 Financial report
– Board work evaluation

Nov

Dec

Jan

Feb

Annual report meeting
– Board signs the annual report

Oct

Sep

Aug

Board
meetings –
yearly cycle

Mar

Apr

Jul

Jun

May

Statutory meeting
– Appointment of

Committee Members
– Authorization to sign
for the Company

Q1 meeting
– Q1 Financial report

Q2 meeting
– Q2 Financial report

Meeting – Generally off-site

Two-day strategy meeting
– Overall strategy and risk

management of the Group

150

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

In addition, annual training has been conducted to advise
the Board on material issues and key focus areas regarding
corporate responsibility and sustainability. These include energy
efficiency, climate and health, human rights, supply chain
management and anti-corruption.

Work of the Board of Directors in 2009
The work of the Board of Directors is continuously
characterized by a high level of activity and 14 Board meetings
were held in 2009. Two meetings were held away from the
headquarters, one in Geneva, Switzerland and one in Lund,
Sweden. Both meetings were particularly focusing on the joint
ventures ST-ericsson and Sony ericsson respectively. For
attendance at Board meetings see table on page 155.

2009 has been characterized by the financial turmoil and
uncertainty in the market development. During the year the
Board has thoroughly monitored and analyzed related risk
factors. In a market downturn, focus on key strategic areas
such as maintaining technology and services leadership,
profitability and risk management has been continuously
important. A leading position and effectiveness in research and
development is key in the rapid technology evolution and in the
increasingly competitive landscape, sharpened over the year by
the uncertainty in the financial market.

Apart from regular matters in the annual Board work cycle,
the Board addressed various acquisitions that were completed
during the year, namely Nortel’s North American CDMA and LTe
businesses, Bizitek and certain operations of elcoteq and also
the establishment of the new joint venture ST-ericsson together
with STMicroelectronics.

The Board addressed long and short-term goals and
strategies with regard to the joint ventures Sony ericsson and
ST-ericsson and a network transformation strategy. Also, in 2009,
Hans Vestberg was appointed new President and CeO following
Carl-Henric Svanberg’s resignation as of January 1, 2010.

The heads of the business units have provided the Board
with thorough updates of their respective business operations
and strategies. In terms of remuneration, the Board put forward
a proposal for a Long-Term Variable Remuneration Program
2009 (LTV) to the Annual General Meeting 2009. For the
purposes of financing the LTV, the Board further proposed a
new directed issue and re-purchase of Class C shares to be
converted into B shares.

The Board is continuously working to improve its ways of
working based on the Board evaluation and discussions with
the Chairman of the Board and the Committee Chairmen.

Board work evaluation
A key objective of the Board evaluation is to ensure that
the Board is functioning well. This includes gaining an
understanding of the issues which the Board thinks warrant
greater scope and determining areas within the Board where
additional competence is needed. The evaluation also serves as
guidance for the work of the Nomination Committee.

each year, the Chairman of the Board initiates and leads the
evaluation of Board and Committee work and procedures. The
evaluation tools include detailed questionnaires, interviews and
discussions. In 2009, the Chairman held individual meetings
with all the Directors, following their response to two separate
written questionnaires; one covering the Board work in general
and one covering the Chairman’s performance. The Chairman
was not involved in the development, compilation or evaluation of
the questionnaire which related to his performance. Nor was he
present when his performance was evaluated. The results of the
evaluations were thoroughly discussed in order to further improve
the work of the Board. Normally, an evaluation of the CeO’s work is
conducted. However, in view of Carl-Henric Svanberg’s resignation
as of January 1, 2010, it was deemed redundant this year.

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ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 151

Committees of the Board of Directors
The Board of Directors has established three Committees: Audit
Committee, Finance Committee and Remuneration Committee.
Members of each Committee are appointed amongst the Board
members.

Reviewing matters arising from reviews and audits
performed.
The Audit Committee itself does not perform audit work.
ericsson has an internal audit function, which reports to the
Audit Committee and performs independent audits.

The work of the Committees is mainly to prepare matters

for final resolution by the Board. However, the Board has
authorized each Committee to determine certain issues in
limited areas and may also on occasion provide extended
authorization to determine specific matters.

If deemed appropriate, the Board of Directors and each
Committee have the right to engage external expertise, either in
general or in respect to specific matters.

Prior to every Board meeting, each Committee submits, in

addition to minutes, a written summary to the Board on the
issues handled or resolved since the previous ordinary Board
meeting. In addition to the minutes and the written summary,
the Chairman of the Committee also reports on the Committee
work at each Board meeting.

Audit Committee
On behalf of the Board, the Audit Committee monitors the
scope and correctness of the financial statements, compliance
with legal and regulatory requirements and internal control
over financial reporting. The Audit Committee also reviews the
annual and interim financial reports and oversees the external
audit process, including audit fees.

This involves:
Reviewing, with management and the external auditor, the
financial statements, including conformity with generally
accepted accounting principles.
Reviewing, with management, the reasonableness of
significant estimates and judgments made in preparing the
financial statements, as well as the quality of the disclosures
in the financial statements.

When applicable, the Committee is also involved in the
preparatory work of proposing candidates for the election of
auditor. It also monitors Group transactions and the ongoing
performance and independence of the auditor to avoid conflicts
of interest.

To achieve this, the Audit Committee has implemented
approval procedures for audit and other services performed
by the external auditor (see “Audit Committee pre-approval
policies and procedures”). A process for reviewing transactions
with related parties and a whistle-blower procedure for the
reporting of violations relating to accounting, internal control
and auditing matters are also in place.

Alleged violations are investigated by ericsson’s internal
audit function in conjunction with the relevant Group Function.
Information regarding any incidents, including measures taken,
details of the responsible Group Function and the status of any
investigation are reported to the Audit Committee.

Members of the Audit Committee
The Audit Committee consists of four Board members as
appointed by the Board. In 2009, the Audit Committee
comprised: Ulf J. Johansson (Chairman of the Committee),
Roxanne S. Austin, Sir Peter L. Bonfield and Jan Hedlund.

All members, except Jan Hedlund, who is appointed Board

member by the unions pursuant to Swedish mandatory law,
are independent from the Company and senior management.
each member is financially literate and familiar with the
accounting practices of an international company such as
ericsson. At least one member must be an audit committee
financial expert, in accordance with the Sarbanes-Oxley Act,

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

152

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

Section 407. The Board of Directors has determined that
Ulf J. Johansson, Roxanne S. Austin and Sir Peter L. Bonfield
all satisfy this requirement.

Former authorized public accountant, Peter Markborn, is

appointed external expert advisor to assist and advise the
Audit Committee.

Chairman reports any pre-approval to the Audit Committee
at its next meeting. For matters which may not be handled
by the Chairman and, hence, require specific pre-approval
by the Audit Committee, the auditor submits an application
to the Parent Company for final approval by the Audit
Committee.

Work of the Audit Committee in 2009
The Audit Committee held eight meetings in 2009. Directors’
attendance is reflected in the table on page 155. During the
year, the Audit Committee reviewed the scope and results of
external financial audits and the independence of the external
auditors and monitored the external audit fees.

Further, certain additional non-audit services performed by

the external auditor were approved by the Audit Committee
Chairman under the Committee’s pre-approval policies and
procedures. The Committee approved the annual audit plan
for the internal audit function and reviewed its reports. Prior to
publishing, the Committee also reviewed and discussed each
interim report with the external auditor. The Committee also
monitored the continued compliance with the Sarbanes-Oxley
Act and the internal control and risk management process. The
Committee has also reviewed certain related-party transactions
in accordance with its established process.

Audit Committee pre-approval policies and procedures
The Audit Committee reviews and approves the scope of
audits to be performed (external and internal) and analyzes
the results and costs of the audits. The Committee makes
recommendations to the Board of Directors regarding the
auditor’s performance and to the Nomination Committee
regarding the external auditor’s fees.

In order to ensure the auditor’s independence, the Audit

Committee has established pre-approval policies and
procedures for non-audit related services to be performed
by the external auditor. Pre-approval authority may not be
delegated to management. The policies and procedures include
a list of prohibited services and services that require pre-
approval by the Committee. Such services fall into two broad
categories; general pre-approval and specific pre-approval:
General pre-approval – certain services regarding taxes,
transactions, risk management, corporate finance,
attestation and accounting and so called general services.
These services have received general pre-approval by the
Audit Committee, provided that the estimated fee for each
project does not exceed SeK 1 million. The external auditor
must advise the Audit Committee of services rendered under
the general pre-approval policy.
Specific pre-approval – all other non-audit related services
must receive specific pre-approval. The Audit Committee
Chairman has the delegated authority for specific pre-
approval in between Committee meetings, provided that
the fee in each case does not exceed SeK 2.5 million. The

Finance Committee
The Finance Committee is primarily responsible for:

>
>

Handling matters related to acquisitions and divestments.
Handling capital contributions to companies inside and
outside the ericsson Group.
Raising of loans, issuances of guarantees and similar
undertakings, and the approval of financial support to
customers and suppliers.
Continuously 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 Finance Committee
The Finance Committee consists of four Board members as
appointed by the Board. In 2009, the Finance Committee
comprised: Marcus Wallenberg (Chairman of the Committee),
Anna Guldstrand, Anders Nyrén, and Michael Treschow.

Work of the Finance Committee in 2009
The Finance Committee held seven meetings in 2009.
Directors’ attendance is reflected in the table on page 155. The
Committee has devoted considerable time to the uncertainty
in the financial market and has thoroughly monitored the
Company’s financial position and credit exposure. In order
to reduce gross debt and to gain net interest savings, the
Committee has approved a premature re-purchase during
2009 of a eUR 471 million bond loan, maturing in November
2010. In view of the unstable financial sector over the year,
the Committee has re-arranged the investment policy and
procedures to reduce the credit exposure.

During the year the Committee has also approved customer
finance and credit facility arrangements, with a continued focus
on capital structure, cash flow and cash generating ability.

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 153

particularly regarding international trends and developments.

Work of the Remuneration Committee in 2009
The Remuneration Committee held seven meetings in 2009.
Directors’ attendance is reflected in the table on page 155. The
Committee reviewed and prepared for resolution by the Board a
proposal for a Long-term Variable Remuneration Program 2009,
which was approved by the Annual General Meeting in April
2009. The Committee further resolved on salaries and short
term variable pay for 2009 for CeO direct reports and prepared
for resolution by the Board remuneration to the incoming
President and CeO, Hans Vestberg. Also, the Committee
prepared a remuneration policy, which was subsequently
referred by the Board to the Annual General Meeting for
approval. Towards the end of the year, the Committee
concluded its analysis of the current long-term variable
remuneration structure and remuneration policy. Proposals in
respect hereof will be referred to the Annual General Meeting
2010 for resolution. For further information on remuneration,
fixed and variable pay, please see Note C29 “Information
Regarding Members of the Board of Directors, the Management
and employees” in the Annual Report and the “Remuneration
Report” included the Annual Report.

Remuneration Committee
The Remuneration Committee’s main responsibility is to prepare
for resolution by the Board of Directors matters regarding salary
and other remuneration. This includes pension benefits of the
President and CeO, the executive Vice Presidents and other
officers who report directly to the President and CeO. Other
responsibilities include:

Developing and monitoring strategies and general guidelines
for employee remuneration, including short-term variable
remuneration and pension benefits.
Reviewing the results of short-term variable pay plans before
pay out.
Preparation of the long-term variable remuneration program
for referral to the Board and resolution by the General Meeting.
Preparation of targets for short-term variable pay for the
following year, for resolution by the Board.
To achieve this, the Committee holds annual remuneration

reviews with Company representatives to determine the
strategic direction and align program designs and pay policies
with the business objectives.

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 before approving any salary adjustment for CeO
direct reports. In addition the Committee prepares salary
adjustments for the President and CeO for resolution by the
Board.

Members of the Remuneration Committee
The Remuneration Committee consists of four Board members
as appointed by the Board. In 2009, the Remuneration
Committee comprised: Michael Treschow (Chairman of the
Committee), Börje ekholm, Nancy McKinstry, and Karin Åberg.

Gerrit Aronson is appointed by the Remuneration Committee

as an independent expert advisor to assist the Committee,

MEMBERS OF THE COMMITTEES

Members of the Committees of the Board of Directors 2009

Audit
Committee

Finance
Committee

> Ulf J Johansson
(Chairman)
> Roxanne S. Austin
> Sir Peter L. Bonfield
> Jan Hedlund

> Marcus Wallenberg
(Chairman)
> Anna Guldstrand
> Anders Nyrén
> Michael Treschow

Remuneration
Committee

> Michael Treschow
(Chairman)
> Nancy McKinstry
> Karin Åberg
> Börje Ekholm

154

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

Remuneration to Board members
Remuneration to Board members not employed by the
Company is proposed by the Nomination Committee for
resolution by the Annual General Meeting.

The Annual General Meeting 2009 approved the Nomination

Committee’s proposal for fees to the non-employed Board
members for Board and Committee work. For information on
Board of Directors’ fees 2009, please refer to Notes to the
Consolidated Financial Statements – Note C29 “Information
Regarding Members of the Board of Directors, the Management
and employees” in the Annual Report. The Annual General
Meeting 2009 also approved the Nomination Committee’s
proposal that non-employed Board members may be paid part
of their Board fee in the form of synthetic shares.

A synthetic share gives the right to receive a future cash
payment of an amount which corresponds to the market value
of a Class B share in ericsson at the time of payment. The
purpose of paying part of the Board of Director’s fee in the form
of synthetic shares is to further align the Directors’ interest with
shareholder interest. For more information on the terms and
conditions of the synthetic shares, please refer to the notice
convening the Annual General Meeting 2009 (www.ericsson.
com/ericsson/investors/shareholders/agm). (Information on the
ericsson website does not form part of this document.)

DIRECTORS’ ATTENDANCE AND FEES 2009

Fees resolved by the AGM 2009

Number of Board/Committee meetings attended

Board member

Board fees 4) Committee fees

Board

Audit
Committee

Finance
Committee

Remuneration
Committee

250,000

125,000
250,000
250,000
125,000
350,000
125,000
125,000

Michael Treschow
Sverker Martin-Löf 1)
Marcus Wallenberg
Roxanne S. Austin
Sir Peter L. Bonfield
Börje ekholm
Ulf J. Johansson
Nancy McKinstry
Anders Nyrén
Carl-Henric Svanberg
Monica Bergström 2)
Jan Hedlund
Pehr Claesson
Anna Guldstrand
Kristina Davidsson
Karin Åberg 3)

Total number of meetings

3,750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
-
-
-
-
-
-
-

14
14
14
13
14
13
13
14
12
14
13
12
14
14
14
13

5
8

1) Member of the Audit Committee until April 22, 2009 and thereafter replaced by Roxanne S. Austin
2) Deputy employee representative as of April 22, 2009.
3) Ordinary employee representative and member of the Remuneration Committee as of April 22, 2009 (replacing Monica Bergström).
4) Non-employed Directors can choose to receive part of their Board fee (i.e. exclusive of Committee fees) in the form of synthetic shares.

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 155

MeMbers of the board of directors
Board members elected by the Annual General Meeting 2009

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): 164,008 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 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): 1,200 Class A shares and
140,800 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
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 (first elected 2008)

Member of the Audit Committee
Born 1961, B.B.A. in Accounting, University of Texas, San Antonio USA.
Board member: Move Networks Inc., Abbott Laboratories, Teledyne
Technologies Inc., Target Corporation.
Holdings in Ericsson 1): 3,000 Class B shares.
Principal work experience and other information: President and CeO
of Move Networks Inc. since 2009. President of Austin Investment
Advisors since 2004. 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.

Michael Treschow

Marcus Wallenberg

Sverker Martin-Löf

Roxanne S. Austin

Sir Peter L. Bonfield

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CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

Chairman and CeO of ICL PLC 1990–1996. Positions with STC PLC
and Texas Instruments Inc. Member of the International Advisory Board
of Citigroup. Member of the Advisory Boards of New Venture Partners
LLP, The Longreach Group and Apax Partners LLP. Non-executive
Director of Actis Capital LLP. 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, eQT Partners
AB, 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, he 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 as President
and CeO and at 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, 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, SSAB, ernströmgruppen and AB Volvo.
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 member: Sony ericsson Mobile Communications AB and
ST-ericsson until end of 2009, the Confederation of Swedish enterprise,
Melker Schörling AB, Uppsala University and BP PLC.
Holdings in Ericsson 1): 3,234,441 Class B shares.
Principal work experience and other information: President and CeO of
ericsson 2003 – 2009. Prior to this, Carl-Henric Svanberg was the President

and CeO of Assa Abloy AB (1994–2003). He held 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 Annual Report 2009 | CORPORATE GOVERNANCE REPORT 157

MeMbers of the board of directors
Board members and deputies appointed by the unions

Jan Hedlund (first appointed 1994)

Pehr Claesson (first appointed 2008)

Employee representative
Member of the Audit Committee
Born 1946. Appointed by the IF Metall union.
Holdings in Ericsson 1): 735 Class B shares.

Deputy employee representative
Born 1966. Appointed by the union The Swedish Association of
Graduate engineers.
Holdings in Ericsson 1): 513 Class B shares

Anna Guldstrand (first appointed 2004)

Monica Bergström (first appointed 1998)

Employee representative
Member of the Finance Committee
Born 1964. Appointed by the union The Swedish Association of
Graduate engineers.
Holdings in Ericsson 1): 1,373 Class B shares.

Deputy employee representative
Born 1961. Appointed by the union Unionen.
Holdings in Ericsson 1): 1,508 Class B shares.

Karin Åberg (first appointed 2007)

Employee representative
Member of the Remuneration Committee
Born 1959. Appointed by the union Unionen.
Holdings in Ericsson 1): 1,596 Class B shares.

Kristina Davidsson (first appointed 2006)

Deputy employee representative
Born 1955. Appointed by the IF Metall union.
Holdings in Ericsson 1): 988 Class B shares.

Carl-Henric Svanberg was the only Director who held an operational
management position at ericsson in 2009. 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 and American Depositary Receipts, where applicable.

Jan Hedlund

Anna Guldstrand

Karin Åberg

Kristina Davidsson

Pehr Claesson

Monica Bergström

158

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

coMpany ManageMent

The President/CEO and Group Management
The Board of Directors appoints the President and CeO and
the executive Vice Presidents. The President and CeO is
responsible for the management of day-to-day operations
and is supported by the Group Management Team which, in
addition to the President and CeO, consists of heads of Group
functions and heads of business units.

The role of the Group Management Team is to:

establish a long-term vision, a strong corporate culture and
group strategies and policies, all based on objectives stated
by the Board.
Determine targets for operational units, allocate resources
and monitor unit performance.
Secure operational excellence and realize global synergies
through efficient organization of the Group.

Remuneration of Group Management
Guidelines on remuneration and other employment terms for
Group Management were approved by the Annual General
Meeting 2009. For further information on remuneration, fixed
and variable pay, see Remuneration Report and Notes to the
Consolidated Financial Statements – Note C29, “Information
Regarding Members of the Board of Directors, the Management
and employees” in the Annual Report.

The Ericsson Group Management System
The CeO and heads of Group functions have implemented a
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 reliable internal

control,
so that the Company is compliant with applicable laws,
listing requirements and governance codes and fulfills its
corporate social responsibilities.

ericsson is ISO 9001 and ISO 14001 certified. The management
system is an important foundation and is continuously
evaluated and improved in line with ISO requirements.

The ericsson Group Management System comprises three
elements:

Management and control; i.e. corporate culture, objective
setting and strategy formulation, and steering documents,
such as Group policies and directives.
Operational processes and IT tools, to support operational
excellence and leverage ericsson’s scale advantages.
Organization and resources.

>
Risk management is an integrated part of the ericsson Group
Management System.

Management and control
ericsson uses balanced scorecards as tools for translating
strategic objectives into a set of performance indicators for its
operating units. These focus primarily on market and customer
performance, competitive position, internal efficiency, financial
performance and employee satisfaction and empowerment.
Based on the annual strategy work, these scorecards are
updated with targets for each unit for the next year and
communicated throughout the organization. The balanced
scorecard is also used as a management tool to align operating
unit and personal goals to Company goals, follow up progress
and monitor identified risks.

Corporate culture has long been acknowledged as an
important factor for driving behavior, not only for compliance
but also in communication, decision making, efficiency and
the reaching of objectives. Respect, professionalism and

ERiCSSON GROUP MANAGEMENT SYSTEM

ERiCSSON’S CORE VALUES

Demands
and Expectations

Objectives
Strategies

Performance
Improvement

Customers
Key Stakeholders
Business Environment

Management and Control
Vision

Policies and Directives

Corporate Culture

Satisfaction through
Value Deliverables

Results

Performance
Evaluation

The Ericsson Business Process
IT

Organization and Resources

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

Perserverance

> Lead change

– shape the future

> Always deliver

– walk the extra mile

> Trusted global partner
for more than a century

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 159

Risk management
Risks are broadly categorized into operational and financial
risks. ericsson’s 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. Decisions are made or escalated according
to a well-defined delegation of authority. Financial risks are
coordinated through Group Function Finance.
Risks are dealt with during the strategy process, the
annual planning and target setting and during operational
processes by transaction (customer bid/contract,
acquisition, investment, product development project). They
are subject to 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
physical security. A Crisis Management Council deals with ad-
hoc events of a serious nature.

For more information on ericsson’s risk management, see

the “Board of Directors’ Report” in the Annual Report.

perseverance are the values that underpin ericsson’s culture,
guiding daily work, relationships and business. Consequently,
executive management makes the communication and
development of ericsson’s culture a key task in the
management of the Group.

Group-wide policies and directives govern how the

organization works. These include important areas, such as a
code of business ethics, policies on roles and responsibilities,
segregation of duties, capital expenditures, management of
intellectual property rights, financial reporting, environmental
matters, and risk management.

Operational Processes and iT tools
As a leading vendor, ericsson tries to utilize the competitive
advantages that are gained through scale and has implemented
common processes and IT tools across all its operating
units. Through management and continuous improvement of
these processes and IT tools, ericsson reduces costs with
standardized internal controls and performance indicators.

Organization and resources
ericsson is operated in two dimensions:

Legal entities: more than 200 companies in more than 100
countries, each with a board of directors, in many cases also
with local non-ericsson employee members. ericsson also
operates through two joint ventures.
Operational units: business units (4) and market units (23).
>
In addition, Group functions coordinate ericsson’s strategies,
operations and resource allocation and define the necessary
directives, processes and organization for the effective
governance of the Group.

For more information on ericsson’s organization, see chapter

“Information on the Company” in the Annual Report.

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CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

Ericsson Group Management Team
Missing from picture is Cesare Avenia.

MeMbers of the group ManageMent teaM

Carl-Henric Svanberg

Jan Frykhammar

President and CEO until December 31, 2009 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 and Linköping University of Technology.
Board member: Sony ericsson Mobile Communications AB and
ST-ericsson until end of 2009, the Confederation of Swedish enterprise,
Melker Schörling AB, Uppsala University and BP PLC.
Holdings in Ericsson 1): 3,234,441 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 until December 31, 2009.
President and CEO as of January 1, 2010.
Born 1965, Bachelor of Business Administration and economics,
University of Uppsala.
Board member: Sony ericsson Mobile Communications AB,
Chairman of ST-ericsson and Svenska Handbollsförbundet.
Holdings in Ericsson 1): 39,825 Class B shares.
Background: Hans Vestberg was Chief Financial Officer and Head of
Group Function Finance until October 31, 2009. Prior to these positions
Hans Vestberg was executive Vice President and Head of Business Unit
Global Services. He 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.

Executive Vice President and Chief Financial Oficer and Head of Group
Function Finance (since November 1, 2009) and Head of Business Unit
Global Services (since 2008)
Born 1965. Bachelor of Business Administration and economics,
University of Uppsala.
Holdings in Ericsson 1): 2,307 Class B shares.
Background: Jan Frykhammar has held various positions within
ericsson such as 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.

Johan Wibergh

Executive Vice President (as of January 1, 2010) and Head of Business
Unit Networks (since 2008)
Born 1963. Master of Computer Science, Linköping Institute of
Technology.
Holdings in Ericsson 1): 14,024 Class B shares.
Background: Prior to assuming these positions, Johan Wibergh was
President of ericsson Brazil. He has also been President of Market Unit
Nordic and Baltics, Vice President and Head of Sales at Business Unit
Global Services.

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,
ST-ericsson, LHS Telekommunikation.
Holdings in Ericsson 1): 41,733 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

Jan Frykhammar

Johan Wibergh

Jan Wäreby

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 161

Magnus Mandersson

Håkan Eriksson

Senior Vice President, Chief Technology Officer and Head of Group
Function Technology & Portfolio Management (since 2003). As of
January 1, 2010 also Head of Ericsson Silicon Valley.
Born 1961, Master of Science and Honorary Ph D, Linköping Institute
of Technology.
Board member: Linköping University, Anoto, Vestas, Stockholm
Chamber of Commerce.
Holdings in Ericsson 1): 25,500 Class B shares.
Background: Prior to assuming these positions, Håkan eriksson was
Senior Vice President and Head of Research and Development. He has
held various positions within ericsson since 1986.

Douglas L. Gilstrap

Senior Vice President and Head of Group Function Strategy (since
September 2009)
Born 1963, Master of Business Administration, emory University, Atlanta.
Holdings in Ericsson 1): 385 Class B shares.
Background: Prior to assuming this position, Douglas L. Gilstrap held
senior management positions at equant Networks and Cable and
Wireless.

Senior Vice President and Head of Business Unit CDMA (since
November 2009)
Born 1959, Bachelor of Business Administration, University of Lund.
Holdings in Ericsson 1): 5,146 Class B shares.
Background: Prior to assuming this position, Magnus Mandersson was
Head of Market Unit Northern europe and Global Customer Account
Deutsche Telekom AG.

Cesare Avenia

Chief Brand Officer (since November 2009) and Head of Market Unit
South East Europe (since 2006)
Born 1950, Bachelor’s degree of science, Tele Communication,
University of Naples, Italy.
Board member: ericsson Telecomunicazioni S.P.A. and sole Director in
ericsson Network Services Italia S.P.A.
Holdings in Ericsson 1): 10,913 Class B shares. Background: Prior to
assuming these positions he was Head of Market Unit Italy.

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.
Board member: Aktiemarknadsbolagens Förening and the Swedish
Securities Council (since 2010).
Holdings in Ericsson 1): 1,216 Class A shares and 31,839 Class B shares.
Background: Prior to assuming this position, Carl Olof Blomqvist was a
partner of Mannheimer Swartling law firm.

Magnus Mandersson

Cesare Avenia

Carl Olof Blomqvist

Håkan Eriksson

Douglas L. Gilstrap

162

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

Up to August 31, 2009, Bert Nordberg was executive Vice President
and Chairman of Redback and entrisphere, and also Head of ericsson
Silicon Valley and a member of the Group Management Team of the
Company. Bert Nordberg joined Sony ericsson as Co-President on
September 1, 2009, to become its President as of October 15, 2009.

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 Members of the
Board of Directors, the Management and employees” in the Annual Report.

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): 29,554 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): 21,874 Class B shares.
Background: Prior to assuming this position, Torbjörn Possne was Head
of Market Unit Northern europe and Global Customer Account Deutsche
Telekom. He has held various positions within ericsson since 1979.

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.
Holdings in Ericsson 1): 22,729 Class B shares.
Background: Prior to assuming this position, Henry Sténson was Head
of SAS Group Communication.

Marita Hellberg

Torbjörn Possne

Henry Sténson

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 163

auditors
According to the Articles of Association, the Parent Company
shall have no less than one and no more than three registered
public accounting firms as external independent auditors. The
auditors are elected by the shareholders at the Annual General
Meeting for a period of four years. The auditors report to the
shareholders at General Meetings.

The auditors:

Update the Board of Directors regarding the planning, scope
and content of the annual audit.
examine the year-end financial statements to assess
accuracy and completeness of the accounts and adherence
to accounting procedures and principles.
Advise the Board of Directors of non-audit services
performed, the consideration paid and other issues that
determine the auditors’ independence.
For further 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.

Current auditor
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 Peter

Clemedtson, Authorized Public Accountant, to serve as auditor
in charge. Peter Clemedtson is also auditor in charge of
Skandinaviska enskilda Banken.

Fees to the auditor
ericsson paid the fees (including expenses) for audit-
related and other services listed in the table in Notes to the
Consolidated Financial Statements – Note C31, “Fees to
Auditors” in the Annual Report.

164

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

internal control over
financial reporting 2009

This section has been prepared in accordance with the Swedish
Code of Corporate Governance, section 10.5, and is limited to
internal control over financial reporting.

Since ericsson is listed in the United States, the requirements

outlined in the Sarbanes-Oxley Act (SOX) apply. These regulate
the establishment and maintenance of internal controls over
financial reporting and also management’s assessment of
the effectiveness of the controls. In order to comply with
SOX, the Company has implemented detailed controls as
well as documentation, testing and reporting procedures in
accordance with the COSO framework for internal control. The
COSO framework is issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management’s
internal control report according to SOX will be included in
ericsson’s Annual Report on Form 20-F and filed with the SeC
in the United States. During 2009, the Company has continued
to improve the design and execution of its financial reporting
controls as well as include operations in acquired entities.

Disclosure policies
ericsson’s financial disclosure policies aim to ensure
transparent, relevant and consistent communication with the
equity and debt investors on a fair and equal basis. This will
support a fair market value for ericsson shares. ericsson wants
current and potential investors to have a good understanding
of how the Company works, including operational performance,
prospects and potential risks.

To achieve these objectives, financial reporting and

disclosure must be:

Transparent – enhance understanding of the economic
drivers and operational performance of the business, hence
build trust and credibility.
Consistent – comparable in scope and level of detail to
facilitate comparison between reporting periods.
Simple – to support understanding of business operations
and performance and to avoid misinterpretations.
Relevant – with focus on what is relevant to ericsson’s
stakeholders or required by regulation or listing agreements,
to avoid information overload.
Timely – with regular scheduled disclosures as well as
ad-hoc information, such as press releases on important
events, performed on a timely basis.
Fair and equal – where all material information is published
via press releases to ensure the whole investor community
receives the information at the same time.
Complete, free from material errors and a reflection of best
practice – disclosure is compliant with applicable financial
reporting standards and listing requirements and in line with
industry norms.

ericsson’s website (www.ericsson.com/investors) includes
comprehensive information on the Group, including an archive
of annual and interim reports, on-demand access to recent
news and copies of presentations given by senior management
at industry conferences. (Information on the ericsson website
does not form part of this document.)

Disclosure controls and procedures
ericsson has controls and procedures in place to ensure timely
information disclosure under the U.S. Securities exchange Act of
1934 and under agreements with NASDAQ and NASDAQ OMX
Stockholm. These procedures also ensure that such information
is provided to management, including the CeO and CFO, so
timely decisions can be made regarding required disclosure.

A Disclosure Committee comprising 15 members
with various expertise assists managers in fulfilling their
responsibility regarding disclosures made to the shareholders
and the investment community. One of the main tasks of the
committee is to monitor the integrity and effectiveness of the
disclosure controls and procedures.

ericsson has investments in certain entities that the

Company does not control or manage. With respect to such
entities, disclosure controls and procedures are substantially
more limited than those maintained with respect to subsidiaries.
During the year, ericsson’s President and CeO and the CFO
evaluated the disclosure controls and procedures and concluded
that they were effective at a reasonable assurance level as at
December 31, 2009.

During the period covered by the Annual Report 2009, there

were no changes to the disclosure controls and procedures
that have materially affected, or are likely to materially affect,
the internal control over financial reporting.

internal control over financial reporting
ericsson has integrated risk management and internal
control into its business processes. As defined in the COSO
framework, internal control includes components such as
a control environment, risk assessment, control activities,
information and communication and monitoring.

Control environment
The Company’s internal control structure is based on the
division of labor between the Board of Directors and its
Committees and the President and CeO. The Company has
implemented a management system that is based on:

Steering documents, such as policies, directives and a code
of business ethics, and a strong corporate culture.
The Company’s organization and mode of operations, with
well-defined roles and responsibilities and delegations of
authority.
Several well-defined group-wide processes for planning,
operations and support.

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. each reporting legal entity, market unit and business
unit has a financial controller function supporting the entity
management with execution of controls related to transactions
and reporting. A financial controller function is also established
on group level, reporting to the CFO.

Risk assessment
Risks of material misstatements in financial reporting may occur
in relation to recognition and measurement of assets, liabilities,
revenue and cost or insufficient disclosure. Other risks related
to financial reporting include fraud, loss or embezzlement of
assets and undue favorable treatment of counterparties at the
expense of the Company.

Policies and directives regarding accounting and financial
reporting cover areas of particular significance to support correct,
complete and timely accounting, reporting and disclosure.

Identified types of risks are mitigated through well defined

business processes with integrated risk management
activities and segregation of duties and appropriate delegation
of authority. This requires specific approval of material
transactions and ensures adequate asset management.

Control activities
The Company’s business processes include financial
controls regarding the approval and accounting of business
transactions. The financial closing and reporting process has
controls regarding recognition, measurement and disclosure.
These include the application of critical accounting policies
and estimates, in individual subsidiaries as well as in the
consolidated accounts.

Regular analyses of the financial results for each subsidiary,

market unit and business unit cover the significant elements
of assets, liabilities, revenues, costs and cash flow. Together
with further analysis of the consolidated financial statements
performed at Group level, this ensures that the financial reports
do not contain material errors.

For external financial reporting purposes, additional

controls performed by the Disclosure Committee ensure that all
disclosure requirements are fulfilled.

The Company has implemented controls to ensure that the

financial reports are prepared in accordance with its internal
accounting and reporting policies and IFRS as well as with
relevant listing regulations. The Company also maintains
detailed documentation on internal controls related to
accounting and financial reporting, as well as records on the
monitoring of the execution and results of such controls. This

ericsson Annual Report 2009 | CORPORATE GOVERNANCE REPORT 165

ensures that the CeO and CFO can assess the effectiveness of
the controls in a way that is compliant with SOX.

entity-wide controls, focusing on the control environment

and compliance with the financial reporting policies and
directives, are implemented in all subsidiaries. Detailed process
controls and documentation of controls performed are also
implemented in almost all subsidiaries, covering all items with
significant materiality and risk.

To ensure efficient and standardized accounting and reporting

processes, the Company operates several shared services
centers. Based on a common IT platform, a common chart
of account and common master data, the centers perform
accounting and financial reporting services for most subsidiaries.

information and communication
The Company’s information and communication channels
support complete, correct and timely financial reporting by
making all relevant internal process instructions and policies
accessible to all the employees concerned. Regular updates and
briefing documents regarding changes in accounting policies,
reporting and disclosure requirements are also supplied.

Subsidiaries and operating units prepare regular financial

and management reports to internal steering groups and
Company management. These include analysis and comments
on financial performance and risks. The Board of Directors
receives financial reports monthly. The Audit Committee of the
Board has established a whistle blower procedure for reporting
violations in accounting, internal controls and auditing matters.

Monitoring
The Company’s process for financial reporting is reviewed
annually by the management. This forms a basis for evaluating
the internal management system and internal steering
documents to ensure that they cover all significant areas related
to financial reporting. The shared service center management
continuously monitors the accounting quality through a set
of performance indicators. Compliance with policies and
directives is monitored through annual self-assessments
and representation letters from heads and controllers in all
subsidiaries as well as in business units and market units.
The Company’s financial performance is also reviewed
at each Board meeting. The committees of the Board fulfill
important monitoring functions regarding remuneration,
borrowing, investments, customer finance, cash management,
financial reporting and internal control. The Audit Committee
and the Board of Directors review all interim and annual
financial reports before they are released to the market. The
Company’s internal audit function, which reports to the Audit
Committee, performs independent audits. The Audit Committee
also receives regular reports from the external auditor. The
Audit Committee follows up on any actions taken to improve or
modify controls.

166

CORPORATE GOVERNANCE REPORT | ericsson Annual Report 2009

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.

4G
See LTE.

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.

ATM
(Asynchronous Transfer Mode)
A communication standard for
transmission and management of
high-speed packet-switched
networks.

Backhaul
Transmission between radio base
stations and the core network.

Broadband
Data speeds that are high enough
to allow transmission of
multimedia services with good
quality.

Capex
Capital expenditure.

CDMA
(Code division multiple access )
The cdmaOne (2G) and
CDMA2000 (3G) mobile
communication standards
are both based on CDMA.

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.

Evo RAN
A Radio Access Network (RAN)
solution to run GSM, WCDMA and
LTE as a single network.

Exabyte
= billion gigabytes.

FTTx
Fiber-To-The-x, e.g. FTTH (Fiber-
to-the-home) refers to fiber optic
broadband connections to
individual homes.

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.

ICT
Information and Communication
Technology.

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.

JV
(Joint venture) A business
enterprise in which two or more
companies enter a partnership.

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.

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.

Ericsson Annual Report 2009 | GLOSSARY, FINANCIAL TERMINOLOGY AND EXCHANGE RATES 167

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.

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.

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, as
a percentage of Net Sales.

Equity ratio
Equity, expressed as a
percentage of total assets.

Gross Cash
Gross cash consists, in addition
to cash and cash equivalents plus
short-term cash investments less
interest-bearing liabilities and
post-employment benefits, also
of short-term investments held for
cash management purposes.

Inventory turnover days
(ITO-days)
365 divided by inventory turnover,
calculated as total adjusted cost
of sales divided by the average
inventories for the year (net of
advances from customers).

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).

Exchange Rates

EXCHANGE RATES USED IN THE CONSOLIDATION

SEK/EUR
Average rate
Closing rate
SEK/USD
Average rate
Closing rate

Jan–Dec

2009

2008

10.63
10.30

7.63
7.18

9.67
10.95

6.61
7.73

168 GLOSSARY, FINANCIAL TERMINOLOGY AND EXCHANGE RATES | Ericsson Annual Report 2009

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 shares: www.ericsson.com/investors

Project Management Ericsson Investor Relations
Design and production Harley Marketing Communications and Paues Media
All Group Management and Board of Directors photography Andreas Lind
Reprographics Litografia Alfaprint AB 2010
Printing Litografia Alfaprint AB 2010

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Telefonaktiebolaget LM Ericsson
SE-126 25 Stockholm, Sweden
Telephone +46 10 719 0000
www.ericsson.com

Printed on Maxi Offset and TerraPrint Silk – chlorine free
paper that meets international environmental standards
EN/LZT 138 0301 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2010

SMART
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ERICSSON
ANNUAL REPORT 2009