T
A
K
E
T
H
E
W
O
R
L
D
W
T
H
Y
O
U
I
I
E
R
C
S
S
O
N
a
n
n
u
a
l
r
e
p
o
r
t
2
0
1
0
TAKE THE WORLD
WITH YOU
driving mobile broadband
ANNUAL REPORT 2010
Telefonaktiebolaget LM Ericsson
SE-164 83 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 0430 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2011
COVERXEN_v24.indd 1
28/02/2011 10:39
Wherever you’re going, whatever you’re doing,
mobile broadband means you take the world with you.
Our friends and families are online. Our workmates too – everyone around us.
We keep our most precious possessions online and we grow our most ambitious
ideas. We store our music. We post our photos and stream the films we love. We
manage our diaries and nurture our business plans.
We meet people online. We express ourselves and share our experiences.
We chat, we network and we trade.
With mobile broadband, you’re not tied down by a cable, or even by a wireless
hotspot. Wherever you’re going, whatever you’re doing, you take the world with you.
It could be in your lap, your palm or your pocket. In the city or the country, stationary
or on the move. You can access anything, on any screen, any time.
In 2010, 600 million people had this possibility. By 2016 almost 5 billion will.
That’s the power of mobile broadband.
TOCXINTROXEN_v30.indd 1
27/02/2011 13:48
CONTENTS
Annual Report 2010
2
Letter from the CEO
3 Our Business
4 Our Solutions
9 Our Assets
10 2010 Highlights
11 Five-Year Summary
12 Share Information
16 Letter from the Chairman
17 Board of Directors’ Report*
42 Consolidated Financial Statements*
46 Notes to the Consolidated Financial Statements*
99
Parent Company Financial Statements*
104 Notes to the Parent Company Financial Statements*
119 Risk Factors*
125 Auditors’ Report
126 Forward-Looking Statements
127 Remuneration Report
133 Corporate Governance Report 2010
158 Glossary, Financial Terminology and Exchange Rates
160 Shareholder Information
* Chapters covered by the Auditors’ Report, constituting the legal annual report.
Our viSiON
Our vision is to be the prime driver in an
all-communicating world.
This means a world where everyone
can use voice, data, images and video
to share ideas and information, wherever
and whenever they want.
We aim to make people’s lives
richer and easier, provide affordable
communications for all and enable new
ways of doing business.
Annual Publications
The Annual Report describes Ericsson’s
financial and operational performance during
2010. This publication includes a Corporate
Governance Report.
Ericsson issues a separate Sustainability and
Corporate Responsibility Report.
TOCXINTROXEN_v30.indd 1
27/02/2011 13:48
Ericsson Annual Report 2010 CONTENTS | 1
LETTER FROM ThE CEO
Letter from Hans VestBerG
Dear shareholders,
In 2010, Group sales decreased –2 percent to SEK 203.3 billion. Our operating
margin, before JV’s and excluding restructuring charges, was flat at 12 percent. Net
income increased 172 percent to SEK 11.2 billion, mainly due to improvements in
earnings in our joint venture Sony Ericsson and less restructuring charges.
In the first half of 2010, we were still impacted by the economic slowdown
in the world. In the latter part of the year, sales of mobile broadband took off,
especially in North America and Japan. This was driven by a strong increase in
mobile data traffic.
During the year, we struggled with the industry-wide component shortage.
While the supply of components has now normalized we are still not fully meeting
the increased demand on certain mobile broadband products due to the increased
customer demand.
We have four Group targets that should secure increased shareholder value:
grow faster than the market, deliver best-in-class margins, cash conversion of
more than 70 percent and improved earnings in our JVs.
Early market data indicates that we kept our market shares in our network
and services businesses. We delivered the industry’s best-in-class margins
and achieved a cash conversion of 112 percent. The fourth target, growth in JV
earnings, was partly reached thanks to better performance in Sony Ericsson.
2010 was the year when mobile broadband took off. The number of mobile
subscriptions increased by more than 60 percent to about 600 million and the number is
forecasted to almost double and hit 1 billion this year.
Once you are connected, you want connectivity 24/7, wherever you are.
This will become a reality for more and more people since we will see more smartphones
in the market, and also more affordable ones. Embedded mobile broadband modules will
become standard in laptops and other devices. To meet this consumer demand, network
speed, capacity and quality are prerequisites.
In the networked society, everything that benefits from a connection will be connected.
We have spoken about how 50 billion devices will be networked by 2020. We are already
today enabling the networked society: from the concept of building future networks in
demanding urban settings, to our networks which recently attained speeds of 168 Mbps
on HSPA – to our business in TV and media, and our services, which help manage and
integrate the complex networks that are behind the networked society.
Of course our joint ventures bring devices into the picture, and we are finding that this is
getting more and more personal for consumers. No longer is the device only a tool for them;
it is part of themselves that they want to have alongside them during their daily lives.
Finally, I would like to sincerely thank all our highly dedicated and skilled employees for
their efforts in 2010. In 2011, we will focus even more on understanding and meeting our
customer demand, ultimately seeking increased value for our shareholders. Continued
long-term growth and profitability are Ericsson’s characteristics, along with a healthy
financial position.
“ LonG-term GrowtH
and profitaBiLity
are ericsson’s
cHaracteristics”
financiaL
resuLts in sHort
NET saLEs
SEK 203.3 (206.5) billion
OpERaTiNg MaRgiN*
12% (12%)
NET iNCOME
SEK 11.2 (4.1) billion
NET Cash
SEK 51.3 (36.1) billion
EaRNiNgs pER shaRE
SEK 3.46 (1.14)
* Excluding restructuring charges and
share in earnings of JVs
Hans Vestberg
President and CEO
2 | LETTER FROM THE CEO Ericsson Annual Report 2010
CEOXEN_v47.indd 2
26/02/2011 14:37
OUR BUSINESS
OUR BUSINESS
Communication technology is positively changing the way
we work and live. As a leading provider of communications
infrastructure, services and multimedia solutions, Ericsson
strives to enable this change. We constantly innovate to
empower people, business and society.
Currently, we serve approximately 400 customers, most of
whom are network operators. Our ten largest customers account
for 46 percent of our net sales.
New customers include TV and media companies as well as
utility companies.
Network infrastructure provides the fundamentals for people
Our total addressable market was estimated at approximately
to communicate. Today, more than 40 percent of the world’s
mobile traffic passes through networks provided by Ericsson.
The networks we support for operators serve more than 2 billion
subscriptions.
USD 200 billion in 2009 (excluding joint ventures’ markets).
To best reflect our business, we report five business
segments, two of which are the joint ventures Sony Ericsson and
ST-Ericsson.
We are also a global leader in telecom services, which
accounts for close to 40 percent of our revenues.
NEtWORkS
MUltIMEdIA
GlOBAl SERvICES
Segment Networks develops
and delivers mobile and fixed
infrastructure equipment and related
software. We pioneered 2G/GSM and
3G/WCDMA mobile technologies.
We now provide 4G/LTE as the
evolution of mobile broadband and
toward all-IP environments. Our
portfolio also includes CDMA
solutions as well as xDSL, fiber
and microwave transmission.
Segment Multimedia develops and
delivers software-based solutions
for real-time & on-demand TV,
consumer & business applications
and Business Support Systems
(BSS) for telecom operators.
Revenue management, i.e.
software based solutions for
charging and billing, is part of BSS.
With more than 45,000 services
professionals globally, we have
robust local capabilities with
global expertise in managed
services, consulting, systems
integration, customer support
and network rollout. We manage
complex projects with advanced
IS/IT competence and multi-
vendor experience.
JOINt vENtURES
Sony Ericsson offers mobile phones,
accessories, content and applications.
Sony Ericsson is a 50/50 joint venture
with Sony Corporation.
ST-Ericsson offers wireless platforms
and semiconductors for leading handset
manufacturers. ST-Ericsson is a 50/50
joint venture with STMicroelectronics.
TRENDS_v83.indd 3
26/02/2011 15:03
Ericsson Annual Report 2010 OUR BUSINESS | 3
MOBIlE BROAdBANd
OUR SOLUTIONS
We are shifting our focus toward
a more solutions-oriented sales
process. During the year, we therefore
organized our portfolio into seven
solution areas to better address
customer needs. Here we describe
our solutions, the business drivers
and the market trends.
MOBIlE BROAdBANd
FIxEd BROAdBANd ANd CONvERGENCE
COMMUNICAtION SERvICES
MANAGEd SERvICES
tElEvISION ANd MEdIA MANAGEMENt
OpERAtIONS ANd BUSINESS SUppORt SYStEMS
CONSUMER ANd BUSINESS ApplICAtIONS
4
6
6
7
7
8
8
MOBILE BROADBAND
WhAT IS
MOBILE
BROADBAND?
Mobile broadband is a wireless
access technology that offers at
least 1 Mbps. It enables high-
speed internet access services,
such as video streaming.
User trends
1. Smartphones
change behavior
2. Soaring
video usage
3. Demand for 24/7
internet connectivity
4 | OUR SOLUTIONS Ericsson Annual Report 2010
24/7 connectivity to the internet is becoming an essential part of modern
life. during the year, we met increased demand for mobile broadband
infrastructure and services. the accelerated demand was fuelled by
smartphones and notebooks, coupled with sharply rising usage of video
services (like Youtube). Mobile data traffic more than doubled in 2010 and is
expected to double annually over the coming three years.
Expansion opportunities
Today, we are doing for broadband what we did for voice 20 years ago – making
it mobile and affordable for the vast majority of people. Mobile subscriptions
worldwide have reached 5.3 billion of which approximately ten percent are now on
mobile broadband. We estimate the number of mobile broadband subscriptions to
reach almost 5 billion in 2016, the vast majority being for smartphones.
Our broadband solutions not only include equipment but also business
advice, systems integration and roll-out service for fast implementation of
cost-effective solutions.
COvERAGE
Percentage of population
100
80
60
40
Rural
Sub
urban
20
Urban
Metro
0
World
population
World population of 6.9 billion people
>85%
<85%
>70%
35%
35%
<35%
<35%
GSM
GPRS
EDGE
WCDMA
HSPA
GSM
WCDMA
5-10%
HSPA
Evolution
approx 2%
LTE
LTE
TRENDS_v83.indd 4
26/02/2011 15:03
Meeting the need for speed
To accommodate the massive growth in data traffic, operators are turning to us
to boost capacity and speed in their networks. Networks are continuously being
upgraded as the number of data users and data volume transported increase.
All Ericsson-supplied commercial WCDMA networks have now been upgraded to
HSPA. Four of our customers have launched 4G/LTE networks in 2010, covering
140 million people, 60 percent of whom are served by Ericsson LTE equipment.
On the devices side, notebooks and other electronic devices are equipped with
our latest 3G/HSPA broadband modules, delivering speeds of up to 21 Mbps.
SUBSCRIBER tRAFFIC IN MOBIlE ACCESS NEtWORkS
Yearly Exabytes (1018)
60
50
40
30
20
10
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Ericsson
Mobile PC and tablets
Mobile handheld
Voice
Operators implement tiered pricing
When mobile broadband was introduced, many operators offered flat rates and
unlimited usage to encourage fast uptake of service. A challenge for operators
today is to secure user experience and increase revenue from mobile broadband.
The answer is differentiated service offerings. Tiered pricing and innovative
business models are becoming more common. The user can thus select and pay
for a subscription with a certain service level. Voice still represents the main source
of revenue for operators. Data traffic accounts for approximately 30 percent of total
revenues on average and will represent the majority of future growth.
Ramp up of our RBS 6000
The multi-standard radio base station, RBS 6000, can run 2G/GSM, 3G/WCDMA
and 4G/LTE technologies in the same unit, using different frequency spectrum
bands. The RBS 6000 takes up 25 percent less space and reduces power
consumption by up to 65 percent compared to previous-generation RBSs. This
is a significant saving as operators may spend up to 50 percent of operating
expenses on power. Many operators are therefore looking to modernize their radio
networks with the RBS 6000. Modernization projects often involve a high degree
of consulting, systems integration and network rollout.
Core networks may also need capacity upgrades to accommodate increasing
data traffic and speed. Our 4G/LTE core network, the Evolved Packet Core, is an
all-IP network, supporting both mobile and fixed access. Our 2G and 3G packet
core networks require only a software upgrade to support 4G/LTE access.
Mobile broadband stimulates GDP growth
High-speed broadband infrastructure (mobile and fixed) is becoming as essential as
roads, water and electricity. Studies show a direct correlation between broadband
penetration and GDP growth. In emerging markets, many users can access the
internet only via mobile devices due to the lack of fixed network infrastructure.
MOBIlE BROAdBANd
SpEEd ANd dAtA tRAFFIC
Feature phone user
10 kbps
approx. 10 MB/month
Smartphone user
100-1,000 kbps
approx. 100 MB/month
Mobile pC/tablet user
>1 Mbps
approx. 1 GB/month
MOBIlE BROAdBANd tRENd
Subscriptions (billion)
5
4
3
2
1
0
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
Mobile PC and tablets
Handheld devices
Source: Ericsson
RBS 6000
Our multi-standard radio base
station RBS 6000 can be remotely
upgraded with software.
Ericsson Annual Report 2010 OUR SOLUTIONS | 5
TRENDS_v83.indd 5
26/02/2011 15:03
FIxEd BROAdBANd ANd CONvERGENCE
FIXED BROADBAND AND CONVERGENCE
500 million
Subscriptions
are connected to fixed
broadband networks.
Includes all technologies.
FIxEd BROAdBANd tRENd
Subscriptions (million)
700
600
500
400
300
200
100
0
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
xDSL
Cable
Fiber
Source: Ericsson.
Includes xDSL, Cable and Fiber.
Other technologies excluded.
Fixed broadband
In today’s mature markets, most data traffic is handled by fixed networks.
Operators compete by evolving their networks to provide fast internet speeds,
reliable high-definition IPTV and video on demand. We enable this by providing
end-to-end broadband access solutions via high-speed fiber (such as GPON)
and copper (xDSL).
All-IP networks and convergence
To reduce cost and enable service bundling, fixed traffic can be provided over a multi-
service network converging telephony, internet and TV. This multi-service network is
IP based, providing lower-cost and higher-performance broadband services. IP starts
in the core network. Our Evolved Packet Core (EPC) provides support for multiple
access technologies and fixed-mobile convergence. New functionality is introduced
through software upgrades. With our breadth of experience, we provide a service,
including consulting and systems integration, to manage transformation of networks
to all-IP, often involving multiple-vendor equipment.
NEtWORk tRANSFORMAtION
k
r
o
w
t
e
n
s
s
e
e
r
i
l
W
k
r
o
w
t
e
n
d
e
x
F
i
k
r
o
w
t
e
n
t
e
n
r
e
t
n
i
/
a
t
a
D
k
r
o
w
t
e
n
V
T
e
b
a
C
l
Service network
Core network
Fixed broadband
access
Mobile broadband
access
Different services for devices
in separate systems.
Same services irrespective
of access device.
COMMUNICATION SERVICES
Communication services are the services people use to interact with each
other, such as voice and video calls as well as text and multimedia messaging.
These operator-based services are provided globally and are based on industry
standards, ensuring interoperability.
As voice and SMS still account for the main part of operator revenues,
operators now exploit opportunities to enhance user experience while reducing
costs for voice communication.
Users want enriched communication and the ability to instantaneously share
experiences and information with family, friends and colleagues – anywhere,
anytime and to any device. Our IP Multimedia Subsystem (IMS) makes this
possible. Services controlled by IMS are voice (incl. HD-voice), video calls, the
Rich Communication Suite (RCS) and messaging. With RCS, consumers get a
suite of IMS-based services (e.g. presence information, chat and content sharing)
from the address book of a mobile phone or from a broadband connection.
6 | OUR SOLUTIONS Ericsson Annual Report 2010
TRENDS_v83.indd 6
26/02/2011 15:03
tv ANd MEdIA MANAGEMENt
750 MILLION
subscribers worldwide are served
by networks that we manage.
Outsourcing trends:
> Reduce and control spending
> Focus on key business priorities
> Greater operational efficiency
> Lower risks, reduce complexity
> Shared capacity – structural
efficiency
MANAGED SERVICES
Network operations have traditionally been seen as core to operators.
Today, competitive pressure, rapid technology evolution and changing user
demands drive another focus. Many operators now view strategy, marketing
and customer retention as being equally important as technology. Our managed
services agreements free up in-house resources for this focus, and can reduce
network operating costs by as much as 20 percent.
We have a long history of taking on employees from operators. We have
invested USD 1 billion in tools, methods and processes to secure capabilities
and competence.
Improving operators’ operational efficiency
The need to improve operational efficiency, reducing both capital expenditures
and operating expenses, is a key driver for an operator to change its business.
It is estimated that a mature operator spends approximately 5-6 percent of
revenues on network equipment and 10-12 percent on operating the network, i.e.
operating expenses account for twice the capital expenditures for networks. Our
network operations contracts are often multi-year, multi-technology and multi-
vendor agreements.
Simplifying network complexity
Another key driver is the increasing complexity of networks as they are transformed
and modernized. IT and telecom convergence creates many opportunities for
us to act as an advisor, both in streamlining business and operations support
systems and helping to quickly and cost-efficiently introduce new services.
Shared networks and shared capacity
The initial growth of managed services was driven by operational efficiency. There is
now an increasing demand for business models that support shared capacity and
network sharing between two or more operators. This trend also drives structural
efficiencies in the networks. Managed services play a decisive role in this evolution.
TV AND MEDIA MANAGEMENT
TV is going digital and interactive
In the converging media landscape, broadcast and broadband are coming
together, moving towards a connected world.
The worldwide digital TV market is growing. TV solutions and services enable
global media companies and operators (cable, satellite, telecom and terrestrial)
to deliver TV content, either directly to consumers or for professional digital video
content exchange.
With a broad suite of open standards-based products, we offer high-quality
solutions for digital TV, HDTV, video on demand, IPTV, mobile TV, connected home
and content management.
High-performance video means large amounts of traffic in the networks. This
can be handled with our media distribution (MDN) solution for video delivery over
IP, combining a content distribution network with our TV portfolio.
Business consulting, systems integration and implementation ensure a smooth
launch of new TV services and infrastructure.
TRENDS_v83.indd 7
26/02/2011 15:03
Ericsson Annual Report 2010 OUR SOLUTIONS | 7
OpERAtIONS ANd
BUSINESS SUppORt SYStEMS
OPERATIONS AND BUSINESS SUPPORT SYSTEMS
Operations Support Systems – for control
Rising network complexity drives the need for one consolidated “dashboard-style”
Operations Support System (OSS). Our OSS includes capabilities for performance
monitoring and fault management, configuration and security management as well
as systems to optimize performance for efficiency. OSS can also handle multi-
vendor equipment.
Business Support Systems – efficient billing and charging
Our Business Support Systems (BSS) support operators in instant provisioning
and activation of services, devices and price plans. Our solutions can also provide
real-time convergent charging (i.e. the user gets one invoice for both mobile and
fixed usage) and billing and data management. With our solutions, operators can
capture and secure revenue streams. Users can instantly start using a new service
or device and control their spending.
Operators have to handle the increased data traffic in their networks along
with many new devices. At the same time, operators introduce tiered pricing and
new business models in order to maximize their revenues for mobile broadband
services as well as voice traffic. This development requires upgrading of old
support systems as well as the introduction of new BSS solutions.
Consulting and systems integration services are vital components of BSS solutions.
CONSUMER AND BUSINESS APPLICATIONS
Interaction and collaboration
To support operators in growing their revenues, we provide new means of
interaction and collaboration. Our solutions include messaging, social networks,
location-based services, media, advertising, internet commerce and enterprise
applications.
We support our customers in the modernization and consolidation of legacy
service delivery systems and messaging systems, such as SMS, MMS and
video mail.
Our Business Communication Suite (BCS) targets the enterprise market.
It enables sharing of voice, video data, messaging and web conferences in a
collaborative environment.
Our multimedia brokering solution facilitates payment and distribution of
content. We act as the interface between enterprises and multiple mobile
operators with consumer data and services such as via SMS.
Several of our solutions can be delivered as cloud services.
8 | OUR SOLUTIONS Ericsson Annual Report 2010
TRENDS_v83.indd 8
26/02/2011 15:03
OUR ASSETS
OUR ASSETS
Unique global presence and scale
Our global presence and scale give us a competitive advantage. In the industry
consolidation, where operators are merging, we can handle larger cross-border
contracts as well as targeted local assignments. It is key for us to stay close to
customers, building trust, earning a strong track record and applying our
GPRS, EDGE, WCDMA, HSPA
in-depth expertise.
LTE & BEYOND
GSM
Today, over 1,000 networks in more than 180 countries use equipment
supplied by us. Over the years, we have gained local knowledge and experience
in network rollouts and systems integration as well as managing, upgrading and
modernizing networks.
GPRS, EDGE, WCDMA, HSPA
GSM
LEADERSHIP IN
MOBILE BROADBAND
LEADERSHIP IN
MOBILE INTERNET
GSM
GSM
LEADERSHIP IN
MOBILE TELEPHONY
Technology leadership – investing for the future
Our technology leadership is a key asset that we leverage. We focus on early
involvement in creating new technologies, strong contribution in technology
standardization work, development of intellectual property rights and
establishment of licensing agreements. We pioneered the development of digital
AXE switching, 2G/GSM, 3G/WCDMA and 4G/LTE, leading to 27,000 granted
patents. We invested approximately 15 percent of our total sales into R&D in
2010. At year end, the number of R&D employees was more than 20,000. Over 80
percent of our product development is software related.
1990
2000
1980
2010
Mobile broadband
HSPA, LTE, CDMA2000 EV-DO
Mobile internet
GPRS, EDGE, WCDMA
Mobile telephony
GSM, CDMA2000
1990
2000
2010
Services leadership
Networks are becoming increasingly
complex and often include multi-
vendor equipment. The knowledge
gained from managing networks
for 750 million subscribers is an
asset. Today our global services
organization handles consulting,
systems integration, network
rollout, network operation, customer
support and education. Competence
development is further enhanced by
insourcing staff from operators and
acquiring companies in consulting
and systems integration.
nETwORk
OPERATiOn &
SUPPORT
COnSUlTing
& nETwORk
dESign
CUSTOMERS
SySTEMS
inTEgRATiOn
PROdUCTS
& SOlUTiOnS
Our breadth of experience enables us to offer
end-to-end support to our customers.
Ericsson Academy
In 2010 we launched Ericsson Academy
and Learning Services. It is an online
platform for sharing knowledge and
inspiration both internally and externally.
The site offers free telecom tutorials,
technical snapshots and a forum to
exchange smart ideas.
www.ericsson.com/academy
Creating a winning culture
We want to attract and develop the
most competent, high-performing and
motivated people in the industry. The
culture we encourage is innovative, fast
moving and responsive, with a business-
winning mindset. To get the entire
company moving in this direction, we
implemented a group wide empowerment
program. We also run a leadership training
program to promote global diversity and
cultivate top talent worldwide.
Putting consumer
insight to work
To stay abreast of consumer
trends, we use our ConsumerLab
market research unit, which
conducts more than 40,000
interviews annually. This represents
the combined opinions and
behavior patterns of more than
1 billion people. Not only do we
incorporate these insights into our
product development, but we can
also make them available to our
customers.
Ericsson Annual Report 2010 OUR ASSETS | 9
EMPLOYEESXEN_v40.indd 9
26/02/2011 14:27
2010 HIGHLIGHTS
2010 HIGHLIGHTS
210
FIve YeAR SALeS
SEK billion
208.9
206.5
206.5
203.3
200
210
190
200
180
190
170
180
160
170
160
208.9
206.5
206.5
203.3
187.8
187.8
179.8
179.8
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
TOp FIve COUNTRIeS IN SALeS
Percentage of total sales
25
20
25
15
20
10
15
5
10
0
5
0
23%
23%
10%
10%
United
States
United
States
9%
9%
7%
9%
9%
7%
China
5%
3%
5%
Japan
3%
7%
7%
4%
4%
4%4%
4%4%
India
4%
4%
4%4%
4%4%
Italy
2009
China
Japan
2010
India
Italy
JANUARY-MARCH
> World record of 84 Mbps HSPA demonstrated.
> TeliaSonera rolls out 4G/LTE in Norway and Sweden, with core network and
RBS 6000 from Ericsson. Three more customers have since launched LTE.
> Ericsson delivers LTE network equipment and services to AT&T.
> A world record is set with 1 Gbps for LTE in a live demo.
> Ericsson performs a live demo of the world’s first high-speed microwave radio
connection with a transporting capacity of 2.5 Gbps.
ApRIL-JUNe
> Ericsson increases presence in Korea by acquiring Nortel’s stake in the joint
venture LG-Nortel. The business is consolidated by Ericsson.
> First managed operations contract in Canada, for Mobilicity’s 3G network.
>
Indosat, Indonesia, prepares for 4G and launched Asia’s fastest network with
42 Mbps.
> Ericsson chosen to operate Telefonica’s network operations center in São Paulo.
> Ericsson provides industry’s first 3D sports television network, ESPN 3D, with
standards-based video processing solution, tuned for 3D and HD broadcasts.
JULY-SepTeMbeR
> Mobile data is growing ten times faster than voice.
> China Mobile Hebei selects Ericsson as its managed services partner.
> MetroPCS launches first 4G/LTE network in the USA, with Ericsson as
primary supplier.
> Ericsson gets its largest fiber-to-the-home contract in India.
> Ericsson announces embedded mobile broadband modules – world’s first to
support 21 Mbps (HSPA) for notebooks and other consumer electronics.
> EMOBILE upgrades its HSPA network with the HSPA Evolution technology –
the highest-speed network in Japan with a peak data rate of 42 Mbps.
OCTObeR-DeCeMbeR
> TeliaSonera renews and expands its managed services contract with Ericsson
to include field service for voice and data networks in 29 countries.
> Hans Vestberg, CEO, participated via Telepresence at COP 16 in Mexico, to
stress the importance of ICT in addressing climate change.
> Ericsson is selected as key equipment and services provider for next evolution
of the Sprint network, supplying radio access, core and IP/Microwave backhaul.
> Ericsson wins managed services contract with China Unicom.
> Verizon Wireless launches the world’s largest LTE network with Ericsson as
the primary vendor.
> 3 Italia chooses Ericsson for data center consolidation and modernization of
IT infrastructure.
10 | 2010 HIGHLIGHTS Ericsson Annual Report 2010
RESULTSXSUMMARYXEN_v31.indd 10
26/02/2011 12:26
Five-year summary
Five-Year SummarY
For definitions of the financial terms used, see Glossary, Financial Terminology and Exchange Rates.
Five-year summary
seK million
income statement items
Net sales
Operating income
Financial net
Net income
year-end position
Total assets
Working capital
Capital employed
Gross cash
Net cash
Property, plant and equipment
stockholders’ equity
Non-controlling interest
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
EBiTA 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 2010, as proposed by the Board of Directors.
2010
Change
2009
2008
2007
2006
203,348
16,455
–672
11,235
281,815
105,488
182,640
87,150
51,295
9,434
145,106
1,679
35,855
3.49
3.46
2.25 1)
45.34
3,200
3,197
3,226
3,686
3,296
7,246
6,657
31,558
15.5%
8.7%
8.1%
11.0%
112%
7.8%
9.6%
52.1%
1.1
74
3.2
96,951
47.7%
90,261
17,848
100,070
–2%
178%
–307%
172%
4%
6%
1%
14%
42%
–2%
4%
45%
206,477
5,918
325
4,127
269,809
99,079
181,680
76,724
36,071
9,606
139,870
1,157
208,930
16,252
974
11,667
285,684
99,951
182,439
75,005
34,651
9,995
140,823
1,261
187,780
30,646
83
22,135
245,117
86,327
168,456
57,716
24,312
9,304
134,112
940
179,821
35,828
165
26,436
214,940
82,926
142,447
62,280
40,728
7,881
120,113
782
–12%
40,653
40,354
33,404
21,552
203%
204%
13%
4%
–
–
–
–8%
–6%
–
–23%
–5%
–
–
–
–
–
–
–
–
–
–
–
9%
–
9%
–2%
6%
1.15
1.14
2.00
43.79
3,194
3,190
3,212
4,006
3,502
11,413
8,621
33,055
16.0%
6.5%
2.9%
6.7%
117%
2.6%
4.3%
52.3%
1.1
68
2.9
88,960
43.1%
82,493
18,217
94,829
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%
9.4%
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%
18.0%
66%
17.2%
20.9%
55.1%
1.2
70
3.4
64,678
34.4%
78,740
20,155
109,254
74,011
19,781
102,486
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%
21.0%
57%
23.7%
27.4%
56.2%
1.3
71
3.9
67,454
37.5%
63,781
19,094
98,694
5XYEAR_v26.indd 11
2011-02-26 14.10
Ericsson Annual Report 2010 FivE-yEAR summARy | 11
STOCK EXCHANGE TRADING
18%
INcREASE
IN 2010 OF
MARkET cApITAlIZATION
> OMX Stockholm Index
increase in 2010: 23 percent
> S&P 500 Index increase
in 2010: 13 percent
> Ericsson’s total market
capitalization at year end:
SEK 255 (215) billion
THE ERICSSON SHARE
Share listings
NASDAQ OMX, Stockholm
NASDAQ, New York
Total number of
shares outstanding
3,273,351,735
of which Class A shares
261,755,983
of which Class B shares 3,011,595,752
of which Ericsson
treasury shares, Class B
Quotient value
Market capitalization,
December 31, 2010
GICs (Global Industry
Classification)
73,088,515
SEK 5.00
approx.
SEK 255b.
45201020
Ticker codes
NASDAQ OMX
Stockholm
NASDAQ, New York
Bloomberg NASDAQ
OMX Stockholm
Bloomberg NASDAQ
Reuters NASDAQ
OMX Stockholm
Reuters NASDAQ
ISIN
ERIC A
ERIC B
ERIC
CUSIP
ERIC A
ERIC B
ERIC
ERICA SS
ERICB SS
ERIC US
ERICa.ST
ERICb.ST
ERIC.O
SE0000108649
SE0000108656
US2948216088
294821608
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 2010, approximately 6 (7) billion Ericsson shares were traded, of which
about 3.4 billion were traded on NASDAQ OMX Stockholm and about 1.6 billion
were traded on NASDAQ. (Note: The approximate total volumes include trading
on alternative trading venues such as BATS Europe, Burgundy, Chi-X Europe.)
Trading volume in Ericsson shares decreased by approximately 30 percent
on NASDAQ OMX Stockholm and decreased by approximately 7 percent on
NASDAQ as compared to 2009.
CHANGES IN NuMbER Of SHARES AND CAPITAl STOCK 2006–2010
Number of shares
Share capital
2006
2007
2008
2008
2008
2009
2009
2010
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
December 31
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
3,273,351,735
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
16,366,758,678
PERfORMANCE INDICATORS
Earnings per share, diluted (SEK)
Operating income per share
(SEK) 1)
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) 3)
2010
3.46
7.42
8.31
45.34
22
22
2.25
1) For 2010, 2009 and 2008 excluding restructuring charges.
2) 2006 and 2007 restated for reverse split 1:5 in 2008.
3) For 2010 as proposed by the Board of Directors.
2009
1.14
5.80
7.67
43.79
57
15
2.00
2008
3.52
7.50
7.54
44.21
17
–20
1.85
2007 2)
2006 2)
6.84
8.23
9.64
11.29
6.04
5.82
42.17
11
–43
2.50
37.82
17
3
2.50
For definitions of the financial terms used, see Glossary, Financial Terminology and Exchange Rates.
All performance indicators except Earnings per share, diluted, and Stockholders’
equity per share, basic, end of period are calculated on average number of shares
outstanding, basic.
12 | SHARE INFORMATION Ericsson Annual Report 2010
SHAREXINFOXEN_v71.indd 12
2011-02-26 14.28
SHARE TRENd
In 2010, Ericsson’s total market capitalization increased by about 18 (13) percent
to SEK 255 billion (SEK 215 billion in 2009). The OMX Stockholm Index on
NASDAQ OMX Stockholm increased by 23 percent, the S&P 500 Index increased
by 13 percent and the NASDAQ composite index increased by 17 percent.
Class A shares
SEK m.
350
SEK m.
Class A shares
SHARE TuRNOvER AND PRICE TREND, NASDAq OMX STOCKHOlM
Class A shares
SEK
200
180
SEK
200
160
180
140
120
160
SEK
140
200
100
120
180
80
100
160
60
80
140
40
60
120
20
40
100
0
Jan-Dec, 2006
Jan-Dec, 2007
Jan-Dec, 2008
Jan-Dec, 2009
Jan-Dec, 2010
Turnover, SEK million
Jan-Dec, 2006
Jan-Dec, 2007
Price, SEK
Jan-Dec, 2008
Jan-Dec, 2009
Jan-Dec, 2010
OMX Stockholm (indexed to share price)
20
80
0
60
40
Turnover, SEK million
Price, SEK
OMX Stockholm (indexed to share price)
20
Jan-Dec, 2006
Jan-Dec, 2007
Class B shares
Jan-Dec, 2008
Jan-Dec, 2009
Jan-Dec, 2010
0
SEK
200
Turnover, SEK million
Price, SEK
Class B shares
OMX Stockholm (indexed to share price)
SEK
180
Class B shares
200
160
180
140
160
SEK
120
140
200
100
120
180
80
100
160
60
80
140
40
60
120
20
40
100
0
Jan-Dec, 2006
Jan-Dec, 2007
Jan-Dec, 2008
Jan-Dec, 2009
Jan-Dec, 2010
Turnover, SEK million
Jan-Dec, 2006
Jan-Dec, 2007
Price, SEK
Jan-Dec, 2008
Jan-Dec, 2009
Jan-Dec, 2010
OMX Stockholm (indexed to share price)
20
80
0
60
40
Turnover, SEK million
Price, SEK
OMX Stockholm (indexed to share price)
20
0
Volumes reflect trading on NASDAQ OMX Stockholm only.
Jan-Dec, 2006
Jan-Dec, 2007
Jan-Dec, 2008
Jan-Dec, 2009
Jan-Dec, 2010
0
Turnover, SEK million
Price, SEK
OMX Stockholm (indexed to share price)
SHARE TuRNOvER AND PRICE TREND, uS MARKET
ADS
ADS
ADS
9.00
8.23
6.84
6.00
3.00
USD
25
USD
25
20
20
USD
15
25
3.52
10
15
20
10
5
15
1.14
5
0
10
300
350
250
300
SEK m.
200
250
350
150
200
300
100
150
250
50
100
200
0
50
150
0
100
50
SEK m.
0
140,000
SEK m.
120,000
140,000
100,000
120,000
SEK m.
80,000
100,000
140,000
60,000
80,000
120,000
40,000
60,000
100,000
20,000
40,000
80,000
0
20,000
60,000
0
40,000
20,000
USD m.
4,500
USD m.
4,000
4,500
3,500
4,000
3,000
USD m.
3,500
2,500
4,500
3,000
2,000
4,000
2,500
1,500
3,500
2,000
1,000
3,000
1,500
500
2,500
1,000
0
2,000
500
1,500
0
1,000
500
0
SHARE TREND
buSINESS DRIvERS
buSINESS DRIvERS
DIvIDEND PER SHARE
SEK
2.50
2.50
2.25
2.00
1.85
2.50
2.00
1.50
1.00
0.50
0.00
2006
2007
2008
2009
2010 1)
1) For 2010 as proposed by the Board of Directors.
EARNINGS PER SHARE,
DIluTED
SEK
9.00
8.23
50.00
44.21
43.79
45.34
42.17
6.84
40.00
37.82
6.00
3.00
0.00
3.52
3.46
1.14
30.00
20.00
10.00
0.00
2006
2007
2008
2009
2010
2006
2007
2008
2009
2010
STOCKHOlDERS’ EquITy
PER SHARE, bASIC
SEK
50.00
40.00
37.82
44.21
43.79
45.34
42.17
3.46
30.00
20.00
10.00
0.00
Jan-Dec, 2006
Jan-Dec, 2007
Jan-Dec, 2008
Jan-Dec, 2009
0.00
Jan-Dec, 2010
Turnover, USD million
Jan-Dec, 2006
Jan-Dec, 2007
Price, USD
Jan-Dec, 2008
S&P 500 (indexed to ADS price)
Jan-Dec, 2009
2007
Jan-Dec, 2010
2006
2008
Turnover, USD million
Price, USD
S&P 500 (indexed to ADS price)
Jan-Dec, 2006
Jan-Dec, 2007
Jan-Dec, 2008
Jan-Dec, 2009
Jan-Dec, 2010
Turnover, USD million
Price, USD
S&P 500 (indexed to ADS price)
0
2009
2010
2006
2007
2008
2009
2010
5
0
Ericsson Annual Report 2010 SHARE INFORMATION | 13
SHAREXINFOXEN_v71.indd 13
2011-02-26 14.28
OffER AND lISTING DETAIlS
OFFER ANd lISTINg dETAIlS
Principal trading market – NASDAq OMX
Stockholm – share prices
The table below states the high and low share prices for our
Class A and Class B shares as reported by NASDAQ OMX
Stockholm for the last five years. Trading on the exchange
generally continues until 5:30 p.m. (CET) each business day. In
addition to trading on the exchange there is also trading off the
exchange and on alternative venues during trading hours and
also after 5:30 p.m. (CET).
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. The equity securities listed
on the NASDAQ OMX Stockholm Official Price List of Shares
currently comprise the shares of 258 companies.
Host market NASDAq – ADS prices
The table below states the high and low share 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.
SHARE PRICES ON NASDAq OMX STOCKHOlM
(SEK)
2010
2009
2008
2007 1)
2006 1)
Class A at last day of
trading
Class A high for year
(June 21, 2010)
Class A low for year
(January 4, 2010)
Class B at last day of
trading
Class B high for year
(June 21, 2010)
Class B low for year
(January 4, 2010)
74.00
65.00 59.30
76.80
138.00
88.40
78.80 83.60 148.50
154.50
65.20
55.40 40.60
73.00
104.50
78.15
65.90 58.80
75.90
138.25
90.45
79.60
83.70 149.50
155.00
65.90
55.50 40.60
72.65
104.50
1) 2006 and 2007 restated for reverse split 1:5 in 2008.
SHARE PRICES ON NASDAq NEw yORK
(uSD)
2010
2009
2008
2007 1)
2006 1)
ADS at last day of trading
ADS high for year
(April 23, 2010)
ADS low for year
(February 5, 2010)
11.53
9.19
7.81
11.68
20.12
12.39
10.92 14.00
21.71
20.57
9.40
6.60
5.49
11.12
14.44
1) 2006 and 2007 restated for reverse split 1:5 in 2008.
SHARE PRICES ON NASDAq OMX STOCKHOlM AND NASDAq
NASDAq OMX Stockholm
NASDAq
SEK per Class A share
low
High
SEK per Class b share uSD per ADS 1)
High
High
low
low
154.50
148.50
83.60
78.80
88.40
78.00
78.80
78.60
76.25
78.70
88.40
86.55
77.05
79.45
78.50
74.50
72.00
77.05
78.55
104.50
73.00
40.60
55.40
65.20
55.40
64.10
65.80
64.70
65.20
73.00
69.00
66.95
69.00
69.70
68.80
66.95
70.00
72.50
155.00
149.50
83.70
79.60
90.45
78.70
79.60
79.50
76.95
80.00
90.45
89.35
79.95
81.05
80.65
76.80
74.20
79.95
82.00
104.50
72.65
40.60
55.50
65.90
55.50
64.00
66.10
65.25
65.90
74.15
70.85
68.85
70.85
71.85
70.65
68.85
72.45
74.80
20.57
21.71
14.00
10.92
12.39
9.65
9.92
10.84
10.92
11.33
12.39
12.20
11.71
11.40
11.33
11.60
11.20
11.71
12.61
14.44
11.12
5.49
6.60
9.40
6.60
8.10
9.10
8.94
9.40
9.51
9.62
9.96
9.62
9.98
10.49
9.96
10.48
10.99
Period
Annual high and low
2006 2)
2007 2)
2008
2009
2010
quarterly high and low
2009 First Quarter
2009 Second Quarter
2009 Third Quarter
2009 Fourth Quarter
2010 First Quarter
2010 Second Quarter
2010 Third Quarter
2010 Fourth Quarter
Monthly high and low
August 2010
September 2010
October 2010
November 2010
December 2010
January 2011
1) One ADS = 1 Class B share.
2) 2006 and 2007 restated for reverse split 1:5 in 2008.
14 | SHARE INFORMATION Ericsson Annual Report 2010
SHAREXINFOXEN_v71.indd 14
2011-02-26 14.28
SHAREHOldERS
As of December 31, 2010, the Parent Company had 630,592 shareholders
registered at Euroclear Sweden AB (the Central Securities Depository – CSD),
of which 1,334 holders had a US address. According to information provided by
Citibank, there were 262,814,956 ADSs outstanding as of December 31, 2010,
and 4,888 registered holders of such ADSs. A significant number of Ericsson
ADSs are held by banks, broker and/or nominees for the accounts of their
customer. As of December 31, 2010, the number of bank, broker and/or nominee
accounts holding Ericsson ADSs was 196,360.
According to information known at year-end 2010, almost 78 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.
TOP EXECuTIvES AND bOARD MEMbERS, OwNERSHIP
SHAREHOlDERS
fIvE lARGEST COuNTRIES
Percent of capital
Sweden: 45.85% (47.17%)
United States: 24.94% (24.29%)
United Kingdom: 8.17% (7.33%)
Norway: 2.45% (2.63%)
Singapore: 1.34% (0.58%)
Other countries: 17.25% (18.00%)
Number of
Class A shares
Number of
Class b shares
voting rights,
percent
Source: Capital Precision
Top executives and Board members as
a group (31 persons)
For individual holdings, see Corporate Governance Report.
2,416
3,937,920
0.07
The table shows the total number of shares in the Parent Company owned by top
executives and Board members (including Deputy employee representatives) as a
group as of December 31, 2010.
The following table shows share information, as of December 31, 2010, with respect to our 15 largest shareholders, ranked by voting
rights, as well as percentage of voting rights as of December 31, 2010, 2009 and 2008.
lARGEST SHAREHOlDERS, DECEMbER 31, 2010 AND PERCENTAGE Of vOTING RIGHTS, DECEMbER 31, 2010, 2009 AND 2008
Identity of person or group 1)
Investor AB
AB Industrivärden
Handelsbankens Pensionsstiftelse
Skandia Liv
Swedbank Robur Fonder AB
Pensionskassan SHB Försäkringsföreningen
BlackRock Fund Advisors
Dodge & Cox, Inc.
AMF Pensionsförsäkring AB
OppenheimerFunds, Inc.
Handelsbanken Fonder AB
Gamla Livförsäkringsbolaget SEB Trygg Liv
Aberdeen Asset Managers Ltd.
SEB Investment Management AB
PRIMECAP Management Co.
Others
Total
1) Source: Capital Precision.
Number
of Class A
shares
102,664,038
77,680,600
19,800,000
15,719,072
1,495,549
11,672,000
0
0
800,000
0
1,340
4,675,919
0
498,441
0
26,749,024
261,755,983
Of total
Class A
shares,
percent
39.22
29.68
7.56
6.01
0.57
4.46
0.00
0.00
0.31
0.00
0.00
1.79
0.00
0.19
0.00
10.21
100.00
Number
of Class b
shares
61,414,664
0
0
10,745,693
138,868,343
0
81,187,654
80,330,400
67,174,148
72,416,412
59,260,630
12,275,600
56,648,517
50,604,935
52,241,292
2,268,427,464
3,011,595,752
Of total
Class b
shares,
percent
2.04
0.00
0.00
0.36
4.61
0.00
2.70
2.67
2.23
2.40
1.97
0.41
1.88
1.68
1.73
75.32
100.00
2010
voting
rights,
percent
19.33
13.80
3.52
2.98
2.73
2.07
1.44
1.43
1.34
1.29
1.05
1.05
1.01
0.99
0.93
45.04
100.00
2009
voting
rights,
percent
19.33
13.62
3.52
3.02
3.07
2.25
1.81
1.05
1.30
1.29
0.94
0.98
0.71
0.89
0.83
45.39
100.00
2008
voting
rights,
percent
19.42
13.28
3.00
2.89
2.44
2.26
0.00
0.98
1.55
1.31
1.02
1.04
0.38
0.98
0.56
48.89
100.00
SHAREXINFOXEN_v71.indd 15
2011-02-26 14.28
Ericsson Annual Report 2010 SHARE INFORMATION | 15
Letter from the chairman
Letter from michaeL treSchoW
Dear shareholders,
When i summarized year 2009, i wrote that the key future opportunities for the
industry and ericsson would be increased mobile traffic. in 2010 we saw massive
data traffic uptake, driven by laptops and smartphones. the global mobile data
traffic actually more than doubled. as a consequence, ericsson saw a growing
demand for mobile broadband.
the telecom industry has for a very long time been characterized by rapid
technology development and consolidation. along with the introduction of new
technologies, ericsson’s business is becoming more and more services and
software-related. management has taken action to adapt the company to this
change and the implementation of a new organization has so far been smooth.
this is an important foundation for ericsson’s future growth.
in 2010, ericsson acquired companies to the value of SeK 3.3 billion. many
new employees came aboard during the year, 5,250 joined through acquisitions
and about 1,300 through managed services contracts. the Board closely follows
the integration of acquired businesses and the insourcing of new employees
from operators via managed services contracts. ericsson has a well-established
integration process and a culture where new colleagues quickly become a part of
the company.
During the year, the Board has continued to monitor the company’s
remuneration principles. the Board is of the opinion that ericsson has a well-
balanced and competitive compensation structure which rewards performance. We think it
is beneficial that senior executives invest in shares and we hope the new long-term variable
remuneration (LtV) program will prove to be motivational.
ericsson has a strong financial position with net cash of SeK 51.3 billion. a strong
cash position is important since it gives the company the ability to play a role in industry
consolidation and to strengthen its assets in areas such as systems integration and
consulting.
at my very first Board meeting in april 2002, ericsson was in a quite different situation.
the company was in a financial crisis and at that meeting, we took the decision to propose
a rights offering of SeK 30 billion. Since then we have paid back about SeK 41.9 billion in
dividends to our shareholders, including the proposed dividend for 2010. in 2002 the share
price declined below the subscription price of SeK 3.80 per B-share. following the rights
offering the share price saw sustained growth until 2007. Since then the share price
has underperformed.
it has been an exciting journey for me to help to steer ericsson and shape the industry
during my years as chairman of the Board. i have introduced two new ceos and their
management teams. We have seen the services part of the company grow to represent
close to 40 percent of revenues. ericsson and the industry are now in the initial phase of
rolling out mobile broadband on a large scale.
it is an exciting future ahead for ericsson. taking into account the company’s strong
market and financial position, it is well positioned to continue to lead the industry.
after nine years in this position it is time to hand over to my successor. i wish the new
chairman and ericsson all the best.
michael treschow
chairman of the Board
16 | Letter from the chairman ericsson annual report 2010
BoDXINTROXCHAIRM_v39.indd 16
26/02/2011 14:15
BOARD OF
DIRECTORS’ REpORT
Contents
VisioN aNd strategy
BusiNess focus
operatioNal goals aNd results
fiNaNcial results of operatioNs
fiNaNcial positioN
cash flow
BusiNess results
legal aNd tax proceediNgs
material coNtracts
corporate goVerNaNce
risk maNagemeNt
sourciNg aNd supply
sustaiNaBility aNd corporate respoNsiBility
pareNt compaNy
Board assuraNce
18
19
21
22
24
26
28
35
36
36
37
37
38
40
41
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. 54).
Also non-IFRS measures are used to provide meaningful supplemental
information to the IFRS results. Non-IFRS measures are designed 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. A reconciliation of non-IFRS measures with the IFRS results can be
found on page 22.
This report includes forward-looking statements subject to risks and uncertainties.
Actual developments could differ materially from those described or implied. Please
see “Forward-Looking Statements” (p. 126) and “Risk Factors” (p. 119).
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. The “Parent Company” solely refers to Telefonaktiebolaget LM
Ericsson. Unless otherwise noted, numbers in parentheses refer to the previous
year (i.e. 2009).
BODXPART1XEN_v93.indd 17
coNteNts
NET SAlES
SEk 203.3 (206.5)
BIllION
sales decreased –2%.
OpERATINg
mARgIN 12% (12%)
ExCl. JOINT VENTURES AND
RESTRUCTURINg ChARgES
operating income was
24.4 (24.6) billion.
CASh FlOw
SEk 29.8 (28.7)
BIllION
cash flow is adjusted for cash
outlays for restructuring of
sek 3.3 (4.2) billion.
Net sales aNd Net iNcome
SEK billion
250
200
150
100
50
0
26.4
179.8
22.122.1
208.9
206.5
203.3
187.8
11.7
11.2
4.1
2006
2007
2008
2009
2010
Net sales
Net income
30
25
20
15
10
5
0
30
26.4
operatiNg iNcome aNd
operatiNg margiN
Excluding restructuring charges and share in
earnings of JVs
22.1
25
20
12%
12%
11.7
24.6
24.4
11%
23.4
30
25
20
15
10
n
o
i
l
l
i
b
K
E
S
5
2006
0
2007
2008
2008
2009
2010
14%
12%
10%
8%
6%
4.1
4%
2%
2009
0%
operating income
operating margin
26.4
22.1
15
10
5
0
30
25
Ericsson Annual Report 2010 BoARd of diREctoRS’ REpoRt | 17
20
15
10
5
0
11.7
27/02/2011 13:54
4.1
2006
2007
2008
2009
n
o
i
l
l
i
b
K
E
S
11%
30
25
20
15
10
5
0
12%
12%
12%
12%
24.6
24.6
25
23.4
12%
12%
12%
12%
11%
11%
11%
11%
11%
10%
n
o
i
l
l
i
b
K
E
S
30
20
15
10
5
0
11%
12%
12%
12%
12%
11%
11%
11%
11%
11%
10%
2008
2009
2010
2008
2009
2010
VisioN aNd strategy
VISION
Ericsson’s vision is to be the prime driver in an all-
communicating world. the vision of an all-communicating world
is rapidly becoming a reality as there are more than 5.3 billion
subscriptions today for mobile telecommunications. Ericsson
envisions a continued evolution, from having connected
5 billion people to connecting 50 billion “things”. the company
envisions that anything that can benefit from being connected
will be connected, mainly via mobile broadband.
50 BillioN coNNectioNs iN 2020
s
n
o
i
t
c
e
n
n
o
c
n
o
i
l
l
i
B
50
40
30
20
10
0
Turning point for
mobile communication
THINGS
PEOPLE
PLACES
1980
1990
2000
2010
2020
STRATEgy
By leveraging global presence and scale as well as technology
and services leadership, Ericsson will continue to be the prime
driver in the telecom industry.
global presence and scale
Ericsson has today business in more than 180 countries. the
company is the largest provider of operator equipment and
with 45,000 service professionals, the company has secured
scale advantages.
Going forward, Ericsson intends to increase its market share
in the solution areas: communication Services, consumer and
Business Applications, fixed Broadband and convergence,
Managed Services, Mobile Broadband, operations and Business
Support Systems and television and Media Management.
With its strong financial position, the company intends to
grow also through acquisitions, targeting small and medium-
sized companies.
Ericsson sees opportunities to increase its footprint, i.e.
installed equipment base, mainly in Europe, where its market
share is lower than the overall global position. By outperforming
its competitors, there is an opportunity for the company to
grow footprint by achieving a larger part of a roll-out project
than initially assigned by the customer.
18 | BoARd of diREctoRS’ REpoRt Ericsson Annual Report 2010
market iNdicators
in understanding where the market is heading, Ericsson follows
different drivers.
for segment Networks the company monitors the traffic
development in the networks and the evolution of the installed
equipment. these parameters vary between countries and
regions. operators’ total capital expenditure is not a key
indicator since only around 50 percent of the cost is related
to telecom. of the telecom part, about 10-15 percent is
designated for telecom equipment. Accordingly, operator
capital expenditure can therefore decrease without necessarily
impacting Ericsson sales.
for segment Global Services, it is relevant to study
operators’ operating expenses, since Ericsson offers services
and solutions to reduce their operating cost.
Multimedia is more fragmented, with a number of parameters
for different parts of the business.
BusiNess mix
Ericsson’s Group margins depend to a high degree on the
business mix with the proportion of services, software and
hardware content as well as type of projects. Rolling out a
new network, increasing coverage, or modernizing a network,
means deploying hardware, i.e. radio base stations (RBSs) and
controllers, on a large scale. these projects are often won in
open tenders in a highly competitive environment. Later, after
deployment, the hardware will be regularly upgraded with
software to enable for example higher data speeds and new
functionality/features. these upgrades normally provide the
company with more even revenue streams. the initial large
projects are a necessary first step to secure future software and
services business when upgrades and/or expansions of the
networks take place.
technology leadership
By continuing to invest in research and development (R&d), the
company will secure its technology leadership. the objectives
are to deliver superior performance and to be the thought
leader in the industry.
Ericsson has one of the industry’s largest organizations
for R&d.
research aNd deVelopmeNt
the company’s total spend on R&d was SEK 29.9 (27.0) billion
excluding restructuring charges. More than 20,000 people work
in developing products and solutions. With approximately 600
research engineers, research accounts for about three percent
of the overall investment in R&d.
All research is closely connected to future solutions and
products. the applied research usually targets products that will
reach the market within three to five years. Research performed
in the areas of multimedia and user services target products
and solutions which are closer in time. An increasing part of
the solutions are software based which requires a different
mode of operation in R&d. during the last years, developing
BODXPART1XEN_v93.indd 18
27/02/2011 13:54
the company’s software capabilities has been important and a
key part of this has been to implement new ways of working.
An agile engineering method has been implemented, allowing
quick response to market changes. the new ways of working as
well as product packaging, enable online delivery of software,
and new customization possibilities. the strategy to develop
software-based solutions also means new business models in
the customer engagement, such as software subscription or
software-as-a-service.
the research activities are performed in-house as well as
in collaboration with research institutes and universities. An
essential part of the research work is performed in parallel
with standardization work. Standardization is performed
together with peers in different industry bodies. open
standards are a foundation for the industry in order to secure
ecosystems and interoperability.
to speed up the transfer of knowledge and research
concepts into product development, research engineers
responsible for the initial project usually move along to the
product development units. to fill the gap in the research
organization, Ericsson continuously recruits talented research
engineers with the task to take on new projects.
When developing new technologies such as 3G/WcdMA or
4G/LtE, the project cycles have normally been longer, up to ten
years. However, when developing new services or applications
other project models have been created with shorter lead-times,
sometimes only a few months. in order to shorten the time from
idea to product, Ericsson has introduced beta tests with up to
1,000 users trying out new services and applications. A focus
area for Ericsson is now how to support the commercialization
of these ideas into new solutions.
Every quarter, the executive team in Ericsson reviews the
project portfolio in R&d. Return on investment is calculated as
net present value for the different projects.
Read more about Ericsson’s R&d in 2010 on page 20.
iNtellectual property rights aNd liceNsiNg
the intellectual property rights (ipR) are licensed to other
companies (infrastructure equipment suppliers, embedded module
suppliers, handset suppliers and mobile application developers)
in return for royalty payments and/or access to their ipRs. the
company is of the opinion that it has access to all essential
patents that are material to the business in part or in whole. the
net revenue from ipRs was about SEK 4.6 (4.5) billion in 2010.
services leadership
With 45,000 service professionals across the world, the
company has the industry’s largest services organization. the
company provides managed services, consulting and systems
integration, customer support and network rollout.
the services organization, with its broad skills and experiences,
provides a competitive advantage for sales of infrastructure.
drawing on the experiences gained in providing services
related to the infrastructure business, the company is also
able to offer new, more advanced and stand-alone services,
BusiNess focus 2010
such as managing data centers. A key area is to develop new
business models such as network sharing and new ways of
bundling technology and services. the company has over the
years strengthened its competence in services through the
insourcing of staff from telecom operators and acquiring small
and medium-sized companies in the field of consulting and
systems integration.
moving into new industry segments
Ericsson has in 2010 taken the decision to increase its efforts to
approach customers in new segments, such as governments,
health industry, transport and utilities. these are industries with
either similar business models as telecom operators and/or
obvious benefits from mobile broadband.
guiding principles
the basic principles for Ericsson’s strategy are:
> customer intimacy; highly qualified employees working
closely with the customer to create effective solutions
> continuous process improvements and innovation in all areas
> Scale in delivery and technical solutions.
BUSINESS FOCUS
meeting demand for mobile broadband worldwide
the business focus in 2010 has been to provide operators
with mobile broadband. the most obvious driver of this
development was the massive data traffic growth, especially in
the US and Japan.
Recently introduced mobile devices such as smartphones
and tablets drive data traffic and the need for higher speeds
and enhanced capacity in the networks.
telecom operators across the world see an increasing part
of their revenues emerging from data, although voice still is the
main source for sales revenues. for some operators in Japan,
mobile data represents more than 50 percent of total revenues.
in many countries, such as the US, operators have introduced
tiered pricing for mobile data services, further spurring demand
for data services. in addition, quality of service has become a
moBile BroadBaNd growth
Subscriptions (billion)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
2010
2016
Mobile pc and tablets
Handheld devices
Ericsson Annual Report 2010 BoARd of diREctoRS’ REpoRt | 19
BODXPART1XEN_v93.indd 19
27/02/2011 13:54
BusiNess focus 2010
differentiator for operators, driving investments for expansions
and upgrades.
for Ericsson, this resulted in an increasing demand for mobile
broadband and quicker than expected ramp-up of volumes of the
new radio-base station RBS 6000. during the first half of 2010,
Ericsson was still impacted by the cautious operator investments
that started in the second half of 2009. the company also put
a lot of focus on mitigating the effects of the industry-wide
component shortage that occurred mid 2010. While the supply
of components has now normalized, we are still not fully meeting
the increased demand on certain mobile broadband products.
the total global number of mobile subscriptions is 5.3 billion.
in 2010, mobile broadband subscriptions increased more than
60 percent to approximately 600 million, still only representing
some 10 percent of total mobile subscriptions. Ericsson
expects the strong uptake for mobile broadband to continue
in 2011. Already in 2011, the number of mobile broadband
subscriptions is expected to hit one billion. this development
is mainly driven by the use of smartphones. devices with
embedded modules such as tablets are also expected to show
continuously strong growth.
increasing market share
in 2010, focus was also on increasing footprint in Europe and to
secure footprint in the rollout of 3G networks in india. in Europe,
approximately 800,000 radio-base stations are expected to
be replaced. these base stations were installed before 2004
and consume 30 percent more energy than new equipment.
Since energy represents a significant part of the total operating
expenses of a radio site, replacement is a good business case.
Ericsson has seen the initial modernization of networks in
Europe and has so far managed to gain contracts in countries
where the company previously had a weaker position.
However, modernization projects typically last for a couple of
years, so it is still too early to conclude what the company’s
market position will be. Ericsson has in general a lower market
share in Europe than in the rest of the world. this was a result
of the 3G rollouts that took place in Europe approximately eight
years ago. Ericsson was then in a financially turbulent situation
and lost out on certain 3G deals.
in india, 3G rollouts started in 2010 and Ericsson has
maintained a market share in line with its 2G position.
Ericsson also acquired companies to strengthen its market
position:
> Nortel’s GSM business in North America with 350 employees
> Nortel’s share in LG-Nortel in Korea with 1,300 employees.
Ericsson also signed agreements to acquire GdNt, a chinese
R&d and services company with 1,100 employees, and the
Nortel multi-service switch business. these two businesses
were not consolidated in 2010.
technology
Ericsson invested SEK 29.9 (27.0) billion in R&d in 2010,
excluding restructuring charges. the increase is mainly a result
of consolidation of acquired companies.
20 | BoARd of diREctoRS’ REpoRt Ericsson Annual Report 2010
of the total cost for development of new products in
2010, the majority was spent on further enhancements of 3G/
WcdMA/HSpA as well as 4G/LtE. Resources are also spent
on further adaptations of 2G/GSM although at lower levels
compared to previous years.
the complexity in the industry with a number of
technologies installed, new solutions and services as well as
more frequencies used, requires continued efforts in R&d to
secure Ericsson’s technology leadership also in coming years.
current radio research focus is on ensuring that radio
networks can handle the massive data growth that we have
experienced since introducing mobile broadband technologies.
Ericsson held 27,000 (25,000) granted patents globally
as of december 31, 2010. the company is expected to hold
approximately 25 percent of all essential patents in LtE.
the company has a number of essential patents relating to
GSM, Edge, WcdMA, HSpA, td-ScdMA, cdMA2000, WiMAX
and LtE. Ericsson also holds patents in other areas, including
iMS, voice-over-ip, AtM, messaging, WAp, Bluetooth, SdH/
SoNEt, WdM and carrier Ethernet.
Read more about Ericsson’s R&d strategy and ipR’s on
page 18.
increasing services business
in 2010, 54 (30) managed services contracts were signed, with
fixed, mobile and cable operators and for enterprise networks.
26 (9) of the contracts were extensions or expansions.
the year was also characterized by further acquisitions. the
company acquired companies in the area of consulting and
systems integrations:
> pride in italy with 1,000 employees
incode, a US strategy and consulting firm with 45 employees
>
> optimi, a US-Spanish network management and
optimization company with 200 employees.
competence and skills
Ericsson introduced a new go-to-market model in 2010. the
company set up ten regions, replacing the former 23 market
units. the regions approach customers with solutions, covering
services, software and hardware. By this, Ericsson will move from
a product-led to a solutions-led sales approach, selling the full
breadth of the portfolio. the company also started up projects in
the regions, developing solutions for new customer segments.
At year end, Ericsson had 90,261 (82,493) employees. in
2010, 5,250 individuals joined Ericsson through acquisitions
and about 1,300 through managed services contracts.
Approximately 5,000 were made redundant and 6,000 were
recruited. the vast majority of recruitments took place in india,
china and Brazil. these new recruitments were primarily made
within the areas of R&d and service delivery.
Half of the workforce, 45,000 people, are service
professionals. the competence and capabilities of the company’s
employees is increasingly service and software oriented.
BODXPART1XEN_v93.indd 20
27/02/2011 13:54
OpERATIONAl gOAlS
AND RESUlTS
Ericsson’s overall goal is to create shareholder value.
Management uses four metrics to monitor the company’s overall
performance: faster than market sales growth, a best-in-class
margin, a strong cash conversion and growth in JV earnings.
shareholder value creation
oBJectiVes
GROW FASTER THAN THE MARKET
BEST IN CLASS OPERATING MARGINS
STRONG CASH CONVERSION >70%
GROWTH IN JV EARNINGS
grow faster thaN the market
the company is the largest provider of operator equipment. in
the market for 4G/LtE, the company’s market share is higher
than for earlier radio technology generations since Ericsson has
managed to get a good start in the rollout of 4G/LtE. the 4G/
LtE market is still small though, since it is in its initial phase.
When including cdMA in the operator equipment market,
Ericsson increased its market share in 2010 due to the acquired
Nortel business. in professional services, the company is
estimated to have kept or slightly increased its market share.
the overall market position for segment Multimedia is difficult
to assess, as the market is fragmented.
Best-iN-class operatiNg margiN
the operating margin for the company, excluding joint
ventures and restructuring charges, was 12 (12) percent.
Based on reported results for 2010, the margin remains the
highest among the company’s traditional telecom competitors
that are publicly listed.
cash coNVersioN of oVer 70 perceNt
the cash conversion rate for 2010 was 112 (117) percent,
reflecting a strong focus on cash flow and a higher net income.
cash conversion is defined as cash flow from operating
activities divided by net income reconciled to cash.
operatioNal goals aNd results
growth iN JV earNiNgs
JV earnings improved in 2010 to SEK –0.7 (–6.1) billion,
excluding restructuring charges. Ericsson’s share in earnings in
Sony Ericsson was SEK 0.9 (–4.8) billion, excluding restructuring
charges, and in St-Ericsson SEK –1.5 (–1.3) billion, excluding
restructuring charges. Sony Ericsson’s improved results were
driven by a streamlined product portfolio focused on higher-end
smartphones and an improved cost structure. St-Ericsson is
on its way of completing the transition program and has new
products coming.
other performance indicators
Ericsson believes that satisfied customers and motivated
employees are key to success.
customer satisfactioN
Every year, an independent customer satisfaction survey is
performed. in 2010, approximately 10,000 representatives,
in different professions, of Ericsson customers around the
world were polled to assess their satisfaction with Ericsson,
compared to its main competitors. over the past five years,
Ericsson has maintained a level of excellence. the goal is to
increase this level further.
employee eNgagemeNt
in 2004 Ericsson began measuring motivation among its
employees. this survey is conducted by an independent
company. in 2010, 87 (91) percent of all employees across the
world responded to the survey. the human capital index, which
measures employee contribution in adding value for customers
and meeting business goals, was 72 (69). this is a high level,
but as with customer satisfaction, the objective is to further
increase employee engagement and motivation.
customer satisfactioN aNd
employee eNgagemeNt
80
70
60
50
40
Excellence
Strength
Potential
Improvements needed
2006
2007
2008
2009
2010
customer satisfaction
Employee engagement
BODXPART1XEN_v93.indd 21
27/02/2011 13:54
Ericsson Annual Report 2010 BoARd of diREctoRS’ REpoRt | 21
Financial results oF operations
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)
iFrs
2009
2010
2008
203.3
–129.1
74.3
206.5
–136.3
70.2
208.9
–134.6
74.3
36.5% 34.0% 35.5%
–60.6
–60.0
–58.6
28.8% 29.0% 29.0%
restructuring charges
2010
2009
2008
–3.4
–3.4
–4.2
–4.2
–2.5
–2.5
–3.5
–7.1
–4.2
non-iFrs
measures
2010
2009
percent
change
non-iFrs
measures
2008
203.3
–125.7
77.6
38.2%
–55.2
206.5
–132.1
74.4
36.0%
–52.9
27.1%
25.6%
–2%
–5%
4%
4%
208.9
–132.1
76.8
36.8%
–56.4
27.0%
2.0
3.1
3.0
–
–
–
2.0
3.1
–35%
3.0
17.6
13.3
16.7
–6.8
–11.3
–6.7
24.4
24.6
–1%
23.4
–0.5
–7.3
–1.3
–12.6
–0.9
–7.6
12.0%
11.9%
–0.7
23.7
11.7%
–6.1
18.5
9.0%
11.2%
0.4
23.9
11.4%
28%
8.7%
6.5%
8.0%
–1.2
16.5
8.1%
–0.7
–4.5
11.2
3.46
–7.4
5.9
2.9%
0.3
–2.1
4.1
1.14
–0.4
16.3
7.8%
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, 2009 and 2010 and consequently significant impact on reported results and margins, 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”.
soFtware, hardware and
services share oF sales
s
e
a
s
l
l
a
t
o
T
100%
80%
26%
24%
60%
36%
37%
40%
20%
0%
38%
39%
2009
2010
software
Hardware
services
Financial results of operations
Growth of sales, operating margin and net income are the overriding targets. in
2010, sales did not increase despite the strong demand for mobile broadband in
the second half of the year. However, net income improved significantly, mainly
due to improvements in sony ericsson earnings and less restructuring charges.
for 2011, the main objectives remain. to achieve these targets, an essential
ingredient is a continued focus on cost and internal efficiency work.
sales
the cautious operator investments that started to impact in the second half of
2009 continued during the first half 2010. in the second half of 2010 demand
for mobile broadband started to increase. during part of the year, the company
struggled with the industry-wide component shortage. at year end, the supply
of components had normalized. despite necessary inflow of components, the
company could at year-end not fully meet the increased demand on certain
mobile broadband products. in 2010, voice related sales decreased and the
increase in demand for mobile broadband products and services could not fully
compensate for that decline.
sales were also negatively impacted by the strong seK. sales for comparable
units, adjusted for currency exchange rate effects and hedging, decreased
–7 percent.
in 2010, the company saw the share of software sales decline to 24 (26) percent
of sales. the portion of hardware increased to 37 (36) percent. the increase in
22 | Board of directors’ report ericsson annual report 2010
BODXPART2XEN_v95.indd 22
26/02/2011 13:03
Financial results oF operations
business drivers
operating income
operating income increased significantly, due to improved
earnings in sony ericsson.
Financial net
the financial net was seK –0.7 (0.3) billion. the difference is
mainly attributable to a negative impact of around seK 0.6
billion due to foreign exchange currency revaluation effects and
lower interest net of seK 0.3 billion compared to 2009.
taxes
the tax expense for the year was seK 4.5 (2.1) billion or 28.8
(33.9) percent of income after financial items. the tax rate may
vary between years depending on business and geographic
mix. the tax rate excluding joint ventures and associated
companies was 25.7 (25.7) percent due to lower tax rate from
the loss-making joint venture.
net income
Net income increased seK 7.1 billion to seK 11.2 (4.1) billion
as a result of improved earnings in sony ericsson and less
restructuring charges.
earnings per share, diluted
earnings per share increased by seK 2.32 to seK 3.46 (1.14),
as a result of improved net income. the Board of directors
proposes a dividend of seK 2.25 (2.00).
restructuring charges
total restructuring charges were seK 6.8 (11.3) billion. cash
outlays was seK 3.3 (4.2) billion. a cost reduction program was
initiated in 2009 and completed by the second quarter 2010.
charges of seK 4.2 billion were taken in 2010 related to the
program. in the second half of the year, an additional seK 2.6
billion in charges were taken. these charges primarily relate to
efficiency activities in service delivery, product development
and administration. at the end of the year, cash outlays of seK
3.2 billion remain to be made. in 2011, restructuring charges of
approximately seK 2 billion are estimated.
research and development proGram
2010
2009
2008
expenses (seK billion) 1)
as percent of Net sales
employees within r&d as at december 31 2) 20,800
patents 2)
27,000
30.9
14.7% 13.1% 14.8%
19,800
18,300
24,000
25,000
29.9
27.0
1) excluding restructuring charges.
2) the number of employees and patents are approximate.
hardware is a result of demand for mobile broadband products.
in the short term, the software share might continue to decrease
due to a higher portion of projects with a lot of hardware.
Longer term, the software part should increase following more
expansions and upgrades of networks.
seasonality
the company’s quarterly sales, income and cash flow from
operations are seasonal in nature, 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.
most recent Five-year averaGe seasonality
First
quarter
second
quarter
third
quarter
Fourth
quarter
sequential change
share of annual sales
–21%
22%
9%
25%
–5%
23%
30%
30%
Gross margin
Gross margin, excluding restructuring, improved to 38 (36)
percent due to business mix with a higher proportion of
network upgrades and expansions. cost of sales was also
reduced as a result of efficiency work.
operating expenses
to secure continued technology leadership, focus is on
innovation and r&d. r&d expenses amounted to seK 29.9
(27.0) billion. spending on r&d as a percentage of sales was
15 (13) percent. the increase is a result of lower sales, higher
investments in certain r&d areas and the acquired Nortel and
LG-ericsson operations. in 2011, r&d expenses of seK 31-33
billion is estimated, including restructuring charges. the amount
might fluctuate due to currency exchange rate effects.
selling and administrative expenses, excluding restructuring
charges, was stable in relation to sales 12 (13) percent. the
amount was seK 25.3 (25.9) billion. in the year, there were
positive effects from efficiency work along with the strong
seK. However, costs for the integration of acquired companies
impacted negatively. the company also conducted a growing
number of Lte trials across the world which increased selling
and administrative expenses.
operating margin before Jvs
despite the improved gross margin, operating margin, before
share in JV earnings and excluding restructuring charges, was flat
at 12 (12) percent. this was an effect of increased r&d expenses.
share in earnings of Jvs
sony ericsson returned to profit in 2010, after two years
of losses. the turnaround has been possible thanks to
restructuring and a streamlined product portfolio focused on
higher-end smartphones.
st-ericsson is still reporting a loss. the company is on its
way of completing the transition program and has new products
coming. ericsson’s share in sony ericsson’s income before
tax was seK 0.9 (–4.8) billion, excluding restructuring charges.
ericsson’s share in st-ericsson’s income before tax, adjusted to
ifrs, was seK –1.5 (–1.3) billion, excluding restructuring charges.
BODXPART2XEN_v95.indd 23
26/02/2011 13:03
ericsson annual report 2010 Board of directors’ report | 23
Financial position
Financial position
consolidated balance sheet (abbreviated)
december 31,
seK billion
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
2010
2009
2008
2010
2009
2008
83.4
46.8
9.4
14.5
12.7
87.4
48.2
9.6
15.3
14.3
87.2
48.2
10.0
14.1
14.9
eQuity and liabilities
equity
Non-current liabilities
of which post-employment benefits
of which borrowings
of which other non-current liabilities
198.4
182.4
198.5
current liabilities
29.9
61.1
20.2
87.2
281.8
22.7
66.4
16.6
76.7
269.8
27.8
75.9
19.8
75.0
of which provisions
of which current borrowings
of which trade payables
of which other current liabilities
146.8
141.0
142.1
38.3
5.1
27.0
6.2
96.8
9.4
3.8
25.0
58.6
43.3
8.5
30.0
4.8
85.5
12.0
2.1
18.9
52.5
39.5
9.9
24.9
4.7
104.1
14.0
5.5
23.5
61.0
285.7
total equity and liabilities 1)
281.8
269.8
285.7
1) of which interest-bearing liabilities and post-employment benefits seK 35.9 billion (seK 40.7 billion in 2009).
Key ratios
120
100
80
85
71
60
54
106
106
102
70
57
68
55
68
57
88
74
62
0
2006
2007
2008
2009
2010
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
ericsson’s strategy is to maintain a strong balance sheet including a sufficiently
large cash position to ensure the financial flexibility to operate freely and to
capture business opportunities. this has been particularly important during the
past years’ difficult macroeconomic and financial market situation.
By maintaining a strong cash position, the company can also maintain an
active strategy for mergers and acquisitions. during 2010, ericsson made five
acquisitions and strengthened its market position in the Usa and Korea along
with adding competencies in consulting and systems integration.
an important focus area is the release of working capital. Major efforts
have been made during the year in order to reduce days sales outstanding
and inventory turnover days as well as to increase payable days. the target for
inventory turnover days was not met, while the other two were achieved. the
efforts to release further working capital will continue in 2011.
at year end, the strong seK impacted net operating assets positively when
translating assets denominated in foreign currencies into seK.
the Board of directors will propose to the annual General Meeting 2011 a
dividend of seK 2.25 per share. in 2010, the dividend was seK 2.00 per share.
When considering the level of dividend, the Board of directors take into account
the need to secure a continued strong cash position as well as capital needed in
order to secure a healthy business going forward.
current assets
inventory levels have been higher than expected due to the industry-wide
component shortage and supply chain bottlenecks. at year end, inventory was
seK 29.9 (22.7) billion. the higher inventory level followed a higher level of work in
progress in the regions. this was an effect from delayed project implementations
within network rollout due to the component shortage earlier in the year. effects
from component shortage and supply chain bottlenecks were eliminated at year
end while there was still an impact of slightly higher component inventories.
the target of inventory turnover days less than 65 days was not reached and
improvement efforts will continue in 2011.
24 | Board of directors’ report ericsson annual report 2010
BODXPART2XEN_v95.indd 24
26/02/2011 13:03
trade receivables: days sales outstanding reached high levels in parts of the
year, but had improved significantly at year end, reaching 88 (106) days at year
end. the improvement was mainly due to a strong collection and positive effects
from a stronger seK. the company’s nominal credit losses have historically been
low and continued to be so in 2010.
net cash increased to seK 51.3 (36.1) billion, mainly due to a strong operating
cash flow. read more about changes in cash on page 26.
equity
equity increased by seK 5.8 billion to seK 146.8 (141.0) billion. Net income was
seK 11.2 (4.1) billion and a dividend of seK 6.7 (6.3) billion was paid during the
year. the equity ratio was maintained at a healthy level of 52 (52) percent.
return on equity increased to 7.8 (2.6) percent, primarily due to improved
earnings in the joint venture sony ericsson and less restructuring charges.
return on capital employed (roce) improved to 9.6 (4.3) percent. excluding
restructuring charges, roce would have been 13.6 (11.2) percent.
non-current liabilities
post-employment benefits related to defined benefit plans declined to seK 5.1
(8.5) billion. the year 2010 was characterized by a general increase in discount
rates and plan assets yielded higher than expected. consequently, the company
experienced a decrease in the net pension liability and the funded ratio (plan
assets as percentage of defined benefit obligations) increased to 89 (76) percent.
current liabilities
provisions declined to seK 9.4 (12.0) billion. seK 3.2 (4.3) billion were related
to restructuring. the cash outlays of provisions were seK 7.2 billion. the lower
amount of provisions is mainly a result of business mix with more upgrades and
expansions. there is also an effect of improved project management as well as
geographical mix. provisions will fluctuate over time, depending on business mix,
market mix and technology shifts.
payable days increased by five days to 62 (57) days. the target of payable days
of above 60 days was met.
non-current borrowings decreased to seK 27.0 (30.0) billion. No major changes
were made in the debt maturity profile during 2010. debt of seK 3.4 billion is
maturing in 2012 and seK 5.4 billion in 2013. the company also has unutilized
committed credit facilities of Usd 2.0 billion available, maturing in 2014.
credit ratings at “solid investment grade”
credit ratings were unchanged during 2010, remaining at “solid investment grade”:
Moody’s at Baa1 and standard & poor’s at BBB+, both with stable outlook.
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.
Financial position
debt maturity proFile
seK billion
5.4
1.21.2
4.0
4.5
3.4
3.4
2.0
1.2
6
5
4
3
2
1
0
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
0
2
0
2
Notes and bonds
financial leases
Loan from the european
investment Bank
Loan from the swedish export
credit corporation
Loan from the swedish export
credit corporation, guaranteed
by the swedish export credit
Guarantee Board
return on capital employed
percent
30
24
18
12
6
0
27.4%
20.9%
11.2%
11.3%
9.6%
4.3%
4.3%
2006
2007
2008
2009
2010
BODXPART2XEN_v95.indd 25
26/02/2011 13:03
ericsson annual report 2010 Board of directors’ report | 25
cash Flow
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
adjusted operating cash flow 1)
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)
1) cash flow from operations excl. restructuring cash outlays that have been provided for.
2010
11.2
23.7
2.9
26.6
29.8
–12.5
–5.2
–2.8
–4.5
14.0
–5.7
112%
87.1
51.3
2009
4.1
21.0
3.5
24.5
28.7
–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
22.1
–8.5
–4.1
1.8
–6.2
15.5
–7.2
92%
75.0
34.7
at the end of the year, gross cash had increased by seK 10.4
billion to seK 87.2 (76.7) billion. the increase was mainly
attributed to a strong cash flow from operating activities of seK
26.6 (24.5) billion, offsetting investing activities of seK 12.5 (37.5)
billion and a dividend to shareholders of seK 6.7 (6.3) billion.
Net cash increased to seK 51.3 (36.1) billion.
cash flow from operating activities
the adjusted operating cash flow was positively impacted by
improved net income as well as released working capital.
cash flow from operating activities tends to fluctuate between
quarters. this is due to changes in trade receivables where there
is a seasonal effect from project completion. there is also an
effect from seasonal purchase patterns of network operators.
the cash flow is therefore evaluated on a yearly basis.
cash flow from investing activities
cash outlays for recurring investing activities increased slightly
to seK –5.2 (–4.9) billion.
acquisitions and divestments during the year were net seK
–2.8 (–18.1) billion, with the major items being the Nortel stake
in the LG-Nortel joint venture and Nortel’s GsM business in
North america. divestments were seK 0.5 (1.2) billion.
cash outflow for short-term investments for cash
management purposes and other investing activities was net
seK –4.5 (–14.5) billion, largely attributable to seK –3.0 (–17.1)
billion of short-term investments.
capital expenditures
annual capital expenditures are normally around two percent of
sales and are expected to remain at this level. this corresponds
to the needs for keeping and maintaining the current
capacity level, including the introduction of new technology
and methods. the expenditures are largely related to test
equipment in r&d units, network operations centers as well as
manufacturing and repair operations.
the Board of directors reviews the company’s investment
plans and proposals.
the company has sufficient cash and cash generation
capacity to fund expected capital expenditures as well as
acquisitions without external borrowings in 2011.
We believe that the company’s property, plant and
equipment and the facilities the company occupies are suitable
for its present needs in most locations. as of december 31,
2010, no material land, buildings, machinery or equipment were
pledged as collateral for outstanding indebtedness.
capital eXpenditures 2006–2010
seK billion
2010
2009
2008
2007
2006
capital expenditures
of which in Sweden
3.7
1.4
4.0
1.3
4.1
1.6
4.3
1.3
3.8
1.0
as percent of net sales
1.8%
1.9%
2.0%
2.3%
2.2%
26 | Board of directors’ report ericsson annual report 2010
BODXPART2XEN_v95.indd 26
26/02/2011 13:03
cash flow from financing activities
restricted cash
dividends paid in the amount of seK –6.7 (–6.3) billion, were
partly offset by increased borrowings of seK 1.1 billion and
other financing activities of seK –0.1 billion.
cash balances in certain countries with restrictions on transfers
of funds to the parent company as cash dividends, loans or
advances amounted to seK 10.8 (8.9) billion.
cash Flow
cash conversion
cash conversion was 112 (117) percent, well above the
target of 70 percent. over the past three years, cash conversion
has been above target.
the cash conversion was largely attributable to the strong
improvement in net operating assets and the lower income
reconciled to cash.
chanGe in Gross cash 2010
seK billion
110
100
90
80
70
60
50
40
Operating cash flow 26.6 b
Investing activities –10.2 b*
Financing activities –5.7 b
FX on cash
–0.3 b
6.1
6.1
23.7
–3.3
–3.3
–3.7
76.7
Adjusted cash flow SEK 29.8
–6.5
–6.5
1.0
1.0
–6.7
–0.3
87.2
Change in gross cash SEK 10.4 bILLION
Gross cash
opening balance
Net income
reconciled
to cash
Change net
operating
assets excl.
restructuring
Restructuring
Capex
Acquisitions,
divestments
and other
Dividend
Other financing
activities
FX on cash
Gross cash
closing balance
* as disclosed under financial terminology, Gross cash is defined as cash, cash equivalents and short-term investments. cash, as presented in the balance sheet and
related notes includes cash, cash equivalents and short-term investments of a maturity less than three months. due to different treatment of cash in the above table
and related foreign currency impact, the amounts differ from those in other presentations of cash flows.
BODXPART2XEN_v95.indd 27
26/02/2011 13:03
ericsson annual report 2010 Board of directors’ report | 27
buSineSS reSultS
SaleS by region 2010
Net sales (SEK billion and percent)
4%
7%
7 . 4
4 . 9
1
6
2
2
.
9
6
.
8
1
.
5
1
13%
5%
4%
24%
4
9
.
5
1
7
.9
12.2
7%
22.6
1
9
.9
6%
11%
10%
North america
Latin america
Northern Europe and central asia
Western and central Europe
Mediterranean
Middle East
india
Sub-Saharan africa
china and North East asia
South East asia and oceania
other*
the contracts mentioned are a selection of deals
signed by Ericsson in 2010. Ericsson normally publicly
announces only a part of its wins. typically only
agreements that have some kind of significance in terms
of strategy or value are announced via a press release.
Ericsson also always seeks for customer approval for
any contract release.
SaleS Per region anD
SegMent 2010
SEK billion
north aMerica
Business Results
regional development
the regions are the company’s primary sales channels. as of January 1, 2010,
Ericsson has changed its geographical reporting. instead of the five geographical
areas reported in previous years, ten regions are reported, mirroring the new
internal geographical organization.
SaleS Per region anD SegMent 2010
9%
SeK billion
networks
global
Services
Multi-
media
North America
Latin America
Northern Europe & Central Asia
Western & Central Europe
Mediterranean
Middle East
Sub-Saharan Africa
India
China & North East Asia
South East Asia & Oceania
Other*
total
Share of total
percent change
30.5
9.2
7.2
8.3
10.6
7.2
3.6
5.1
17.1
7.8
6.0
112.7
56%
–1%
17.7
7.7
4.3
10.5
10.6
6.6
4.6
2.8
8.3
6.5
0.5
80.1
39%
1%
1.3
0.9
0.6
1.0
1.4
1.4
1.0
0.7
0.5
0.6
1.1
10.5
5 %
–21%
Percent
change
107%
–11%
2%
–12%
–10%
–17%
–40%
–43%
0%
–29%
4%
–2%
total
49.5
17.9
12.2
19.9
22.6
15.1
9.2
8.6
26.0
14.9
7.4
203.3
100%
–2%
* other – this includes sales of e.g. mobile broadband modules, cables, power modules as well as licensing and
ipr. Mobile broadband modules are sold directly by business unit Networks to pc/netbook manufacturers. a
central ipr unit manages sales of licenses to equipment vendors or others who wish to use Ericsson’s patented
technology. tV solutions are sold both through other equipment vendors as resellers and directly by business
unit Multimedia to cable-tV operators.
north aMerica
Sales was positively impacted by the acquired Nortel businesses and negatively
affected by the strong SEK. Ericsson became the largest player in the region,
driven by organic growth as well as acquisitions. the main growth drivers were the
managed services agreement with Sprint, data traffic driven network expansions
and the initial build out of LtE networks. Ericsson is a leading supplier of
WcdMa/cdMa and LtE to Verizon, at&t and MetropcS. MetropcS and Verizon
commercially launched their LtE networks in 2010. North america is Ericsson’s
largest market measured in sales and its second largest after Sweden measured in
number of employees.
30.5
Sprint announced Ericsson as key partner in their network evolution strategy
“Network vision” program.
latin aMerica
the region was characterized by major mergers between regional operators.
Lower cost smartphones have created continuous growth in mobile broadband
usage, driving operators to invest in networks and services. the services
business developed favorably, especially managed services. LtE trials are
ongoing in the region.
the world’s first solution to connect public buses to mobile broadband
was provided by dataprom and Ericsson in Brazil. Ericsson was also selected
to manage telefonica’s network operation center in São paulo with core,
transmission and fixed-access equipment.
17.7
1.3
0
5
10
15
20
25
30
latin aMerica
9.2
7.7
0.9
0
5
10
15
20
25
30
Networks
Global Services
Multimedia
28 | Board of dirEctorS’ rEport Ericsson annual report 2010
BODXPART3XEN_v92.indd 28
26/02/2011 16:54
buSineSS reSultS
SaleS Per region anD
SegMent 2010
SEK billion
northern euroPe
& central aSia
7.2
4.3
0.6
0
5
10
15
20
25
30
WeStern & central euroPe
8.3
10.5
1.0
0
5
10
15
20
25
30
MeDiterranean
10.6
10.6
1.4
0
5
10
15
20
25
30
MiDDle eaSt
7.2
6.6
1.4
0
5
10
15
20
25
30
Networks
Global Services
Multimedia
northern euroPe anD central aSia
in the eastern part of the region, both 2G expansions and mobile broadband
buildouts are taking place. in Scandinavia, focus is on 4G/LtE deployments. 4G/
LtE trials are planned or ongoing across the region. operators have operational
efficiency high on the agenda, which creates good demand for managed services.
denmark’s leading operator tdc is about to upgrade to 4G/LtE and has chosen
Ericsson to supply and manage its nationwide network. Ericsson was also chosen
to provide the broadband access network based on VdSL2 technology
to teliaSonera.
WeStern anD central euroPe
Mobile broadband usage continues to increase in the region. following
conclusions of auctions for 4G/LtE in several markets, Ericsson has been
selected for a number of 4G/LtE trials now being implemented with major
operators. Ericsson is also supporting operators in connection with data capacity
and modernization projects. operators’ focus on efficiency continued to drive
strong interest for managed services, network sharing and network transformation
leading to opportunities in both services and networks. the UK is at the forefront
of network sharing. Ericsson has completed the consolidation of shared sites
(over 12,000) for Mobile Broadband Network Ltd (MBNL). Ericsson also extended
the managed services business through extensions of existing contracts. this
includes a three-year extension with Netia poland, as well as a renewed and
expanded multi-country managed services contract with teliaSonera international
carrier for field operation services for voice and data networks, built on multi-
vendor equipment. Ericsson also signed a five-year managed field service
contract for Vodafone in Germany.
MeDiterranean
operator investments especially in Spain and Greece were cautious due to
the overall economic environment and price competition among operators. in
order to meet demand for mobile broadband services, operators continued to
focus on network modernization. operational efficiency continues to be high on
the agenda, creating good momentum for managed services and consulting in
networks as well as in all ict areas.
Ericsson signed a seven-year managed services contract with 3 italia for data
center consolidation and modernization of it infrastructure.
the largest utility company in Spain, Endesa, selected Ericsson to operate its
corporate telecommunication network.
MiDDle eaSt
the sales drop was caused by cautious operator investments in parts of the
region. development in the region showed large variations where the Gulf
countries continued to show good momentum, while most other parts of
the region were slow. Services continues to be a large part of the business,
representing 43 percent of total sales. operators are starting to show interest in
4G/LtE with several trials going on throughout the region. Mobile subscriptions
in the region are developing positively with net additions for both voice and
broadband services.
to offer innovative services to its customers, the Qtel Group chose Ericsson’s
Service delivery platform. its customers across the Middle East, North africa and
South East asia get access to new multimedia services such as social networking
and mobile music.
BODXPART3XEN_v92.indd 29
26/02/2011 16:54
Ericsson annual report 2010 Board of dirEctorS’ rEport | 29
buSineSS reSultS
SaleS Per region anD
SegMent 2010
SEK billion
Sub-Saharan africa
3.6
4.6
1.0
0
5
10
15
20
25
30
inDia
5.1
2.8
0.7
0
5
10
15
20
25
30
china anD north-eaSt aSia
17.1
8.3
0.5
0
5
10
15
20
25
30
South-eaSt aSia anD oceania
7.8
6.5
0.6
0
5
10
15
20
25
30
Networks
Global Services
Multimedia
Sub-Saharan africa
the region was impacted by the global economic downturn with a tight credit
environment as well as operator consolidation. the region is predominately a
market where 2G rollouts are in focus. However, demand for mobile broadband is
emerging throughout the region, although at a low pace. Services sales increased
and now represents 50 percent of total sales.
inDia
india sales were impacted by 3G auctions and security clearance in the first half
of the year. in the middle of the year, Ericsson got security clearance for deliveries
of equipment. in the fall, contracts for 3G deployments were signed. Ericsson has
a market share for 3G which is in line with its 2G position. throughout the year,
the recurring services business maintained good development. radius infratel
signed a fiber-to-the-home contract with Ericsson, providing more than half a
million subscribers with fixed broadband.
china anD north-eaSt aSia
While operators on mainland china are still focused on successful 3G launches,
operators across the region also now have 4G/LtE on the agenda. in Japan,
demand for mobile broadband had a positive effect on sales.
Ericsson won a managed services contract with china Unicom for field
maintenance of radio base station sites, fixed network and transmission as well
as a contract with china Mobile for field maintenance of radio base station sites.
Leading Japanese operator SoftBank Mobile invested in capacity by upgrading
its HSpa radio access network with Ericsson’s rBS 6000. increased use of
smartphones and advanced mobile applications boost data traffic and in order to
ensure continued user quality, EMoBiLE has enhanced its network with 3G/HSpa
42 Mbps supplied by Ericsson.
on June 30, the acquisition of Nortel’s part of LG-Nortel was completed.
this positions Ericsson as a leading vendor in Korea. another milestone was the
showcase of the first complete td-LtE solution with end-to-end-capabilities,
together with St-Ericsson in china.
South-eaSt aSia anD oceania
Sales of network equipment were weaker overall due to cautious investment
in a number of markets. investment highlights include network expansions in
Bangladesh and indonesia. access to spectrum for 3G and 4G/LtE remains a
limitation in several markets. overall there is an increasing interest for managed
services among operators in several countries.
the region includes a mix of markets focused on long-term government-
sponsored fiber deployments as well as operator investment in 3G/HSpa
upgrades and 4G/LtE trials. other markets in the region are continuing to expand
in 2G and mobile broadband.
indonesian GSM and 3G operator aXiS extended its managed services
contract with Ericsson. Ericsson will be responsible for aXiS’ network operations,
field maintenance, support services and spare parts management in Greater
Jakarta and Northern Sumatra. indosat has commissioned Ericsson to modernize
its network and launched asia’s fastest mobile network, based on Ericsson’s 3G/
HSpa 42 Mbps.
30 | Board of dirEctorS’ rEport Ericsson annual report 2010
BODXPART3XEN_v92.indd 30
26/02/2011 16:54
networks
Network sales declined –1 percent to SEK 112.7 (114.0) billion. Sales were
positively impacted by the acquisition of Nortel businesses. there was a negative
impact from the industry-wide component shortage during the year.
in November 2009, Nortel’s cdMa and LtE business were consolidated in
Networks. Nortel’s GSM business was consolidated on March 31, 2010. on
June 30, 2010, the former LG-Nortel business, now named LG-Ericsson, was
consolidated in Networks.
Mobile broadband sales increased during the year, especially driven by
demand in North america and Japan. the increased demand related to radio,
backhaul and packet core. Voice-related sales, i.e. 2G radio and core, was slow in
the year and could not be compensated for by the increase in mobile broadband.
the operating margin was 15 (14) percent. the improvement is due to cost
reductions as well as business mix in the first half of the year with a higher
proportion of network upgrades and expansions.
Sales to network operators are normally based on multi-year frame
agreements after an initial tender. during the frame agreement, software,
equipment, services and spare parts are called off according to price lists.
the value of the market for operator equipment was approximately USd
100 billion in 2009. Market data shows that Ericsson has a market share of
approximately 40 percent in GSM/WcdMa radio base stations.
to grow market share organically Ericsson is striving to increase footprint,
especially in Europe where the company has a lower market share than
elsewhere. Network modernization projects, along with the 3G rollouts in india,
puts initial pressure on gross margin. However, these projects are essential parts
of the company’s strategy to build a good platform for continued long-term
growth and profitability.
Ericsson has focus on operational excellence and cost efficiencies.
for hardware, cost efficiencies can be gained by using more standardized
components, merging platforms and using more land transportation etc. in
software development and implementation, efficient programming, project
execution and re-use of platforms are key to keeping costs down. Measures to
secure these cost efficiencies are an element of every operation.
in 2010, Ericsson commercially launched its multi-standard radio base station
rBS 6000 which is now shipping in large volumes. a number of commercial 4G/
LtE launches took place in the US and Sweden, with Ericsson as a supplier.
operators have launched 4G/LtE covering more than 140 million people, of
whom 60 percent are served by Ericsson 4G/LtE equipment. the company could
thus secure early volume deliveries of 4G/LtE. these activities should give the
company competitive scale advantages.
an industry-wide component shortage hit the company in 2010, making it
difficult for the company to meet the increased demand for mobile broadband
related products. Ericsson ramped up production of its new radio base station
rBS 6000 much quicker and with less quality issues than expected. to mitigate
the effects of the industry-wide component shortage, internal measures were
taken to re-design products and to secure a reduced degree of customized
components. in the fourth quarter, the supply of components had normalized.
in the Networks segment, Ericsson competes mainly with large and well-
established telecommunication equipment suppliers. the most significant
competitors include alcatel-Lucent, Huawei, Nokia Siemens Networks,
cisco, ZtE and Juniper. the company also competes with local and regional
manufacturers and providers of telecommunications equipment.
buSineSS reSultS
netwoRks sales
sek 112.7 (114.0)
Billion
> good demand for
mobile broadband
> Voice sales slow
> 40% market share
15% operating margin excl.
restructuring charges
–1% sales growth
netWorKS SaleS of total
2010
SEK 112.7 billion
55%
Networks
Global Services
Multimedia
netWorKS SaleS
by region 2010
Net sales (SEK billion and percent)
5%
6 . 0
7 . 8
7%
.1
7
1
1
.
5
6
.
3
16%
5%
28%
3
0
.
5
9.2
8%
3%
2
7.
6%
10.6
8
.3
7.2
6%
9%
7%
North america
Latin america
Northern Europe and central asia
Western and central Europe
Mediterranean
Middle East
Sub-Saharan africa
india
china and North East asia
South East asia and oceania
other
BODXPART3XEN_v92.indd 31
26/02/2011 16:54
Ericsson annual report 2010 Board of dirEctorS’ rEport | 31
buSineSS reSultS
GloBal seRViCes
sales sek 80.1
(79.2) Billion
> Strong growth in
managed services
> Supports 2 billion
people 24/7
11% operating margin excl.
restructuring charges
1% sales growth
global SerViceS SaleS
of total 2010
SEK 80.1 billion
39%
Networks
Global Services
Multimedia
global SerViceS SaleS
by region 2010
Net sales (SEK billion and percent)
1%
0.5
8%
10%
. 5
6
8.3
.8
2
6
.
4
6
.
6
3%
6%
8%
23%
1
7
.
7
7
.
7
10%
4.3
10.6
1
0
.5
5%
13%
13%
North america
Latin america
Northern Europe and central asia
Western and central Europe
Mediterranean
Middle East
Sub-Saharan africa
india
china and North East asia
South East asia and oceania
other
global Services
Global Services sales increased 1 percent to SEK 80.1 (79.2) billion. operating
margin was 11 (11) percent. Global Services includes professional Services and
Network rollout.
professional Services consists of managed services, consulting and systems
integration, customer support and education. professional Services increased 4
percent to SEK 58.5 (56.1) billion and in local currencies 9 percent, in line with
previous years’ growth pace. Managed Services increased 21 percent to SEK 21.1
(17.4) billion. the increase was primarily driven by the contract with the US-based
operator Sprint, which started in September 2009. the contract value was USd
5.5 billion for seven years at the time of the announcement.
two thirds of professional Services’ revenues are recurring, mainly managed
services and customer support. contracts are often long, five to seven years, and
payments are made in advance. consulting and systems integration deals are by
nature shorter and paid after fulfillment of contract.
Network rollout decreased –7 percent to SEK 21.6 (23.1) billion. Network
rollout includes turnkey projects with a large part of third party sourcing, making it
a lower-margin business.
Ericsson’s services offering covers all areas within an operator’s operational
scope. Ericsson can be provided the opportunity to design, plan, build and
manage a core network or operate all field operations for an operator’s business
support system, service, core, transmission and access network. Most often
however, operators turn to Ericsson for support in a certain part of its operation.
Ericsson has three assignments where the company is responsible for everything
within an operator’s operational scope. those agreements are with Sprint in the
US, 3 in the UK and 3 in italy. Ericsson manages networks, or parts of networks,
with 450 million subscribers. if also field operations and spare parts management
contracts are included, the figure is 750 million subscribers.
over the past years, Ericsson has seen a growing interest from operators for
sharing the access networks. through this, operators can reduce cost for the so
called passive equipment at a site, like rental costs for towers, power and cooling.
Execution of a sharing plan requires complex integration of multi-vendor systems,
which is one of Ericsson’s key competencies.
the total global telecom services market was valued at USd 239-249 billion in
2009 (see graph on next page). roughly two thirds is operator-internal operating
spending. Services handled by suppliers represented a third of the total market.
over the years 2005-2009 the total services market grew in average by about 11
percent annually.
Ericsson estimates its market share in telecom services at over 10 percent.
due to the fragmented market, Ericsson is by far the largest player. the company
has 45,000 professionals across the world. over the years, the company has
insourced more than 20,000 employees from operators.
Services is a local business and all competitors therefore basically have the
same cost structure. in order to gain synergies and cost efficiencies, global
methods, processes and tools are a prerequisite. over the past years, Ericsson
has invested USd 1 billion in developing methods, processes and tools, securing
efficiencies and cost advantages. as telecom is becoming more and more of a
software industry, monitoring and maintenance of networks as well as upgrading
of software can be done remotely. Ericsson today has four global network
operations service centers in Mexico, romania, india and china. the company
secures the operation of networks around the clock, throughout the year, for 2
billion subscribers.
in managed services, Ericsson can insource employees from the customer.
in the transition period, restructuring costs are taken, for e.g. replacement of
32 | Board of dirEctorS’ rEport Ericsson annual report 2010
BODXPART3XEN_v92.indd 32
26/02/2011 16:54
iS/it-systems, migration of employees into new systems and premises. all this
to transform operations to standardized processes, methods and tools. in this
process, management’s leadership and communication skills are of utmost
importance. Ericsson has a culture of putting individuals in focus, showing respect
and giving employees the opportunities to develop. in the transformation phase,
following the transition, scale synergies are carried through.
of operators’ internal operating expenditures a large part relates to iS/it.
With solutions for operations Support Systems (oSS) and Business Support
Systems (BSS), Ericsson targets also this iS/it-oriented part of the market.
oSS/BSS are software-based solutions, but require a lot of integration work on
the customer’s site, both for iS/it and telecom systems. Systems integration
business is also important to the Business Support System’s (BSS) area within
segment Multimedia.
competition in the Global Services segment includes many of the traditional
telecommunication equipment suppliers. Since a lot of business in Global
Services is about moving up the value chain, the company competes with large
companies from other industry sectors, such as accenture, Hp, iBM, oracle
and india-based off-shore companies, e.g. tata consultancy Services and tech
Mahindra. among competition is also a large number of smaller but specialized
companies operating on a local or regional basis.
buSineSS reSultS
global telecoM
SerViceS MarKet
USd billion
~158-162
~156-160
~150-154
~43-45
~9-11
~19
2007
~49-51
~50-52
~11-13
~21-23
~13-15
~20-22
2008
2009
CAGR 2005-2009: approx 11%
m
a
r
k
e
t
C
u
r
r
e
n
t
l
y
a
d
d
r
e
s
s
e
d
operator-internal services spending
professional services, excluding
Managed Services
Managed Services
Network roll-out services
BODXPART3XEN_v92.indd 33
26/02/2011 16:54
Ericsson annual report 2010 Board of dirEctorS’ rEport | 33
Multimedia
Multimedia sales declined –21 percent to SEK 10.5 (13.3) billion. operating margin
was –4 (8) percent. the segment showed a strong recovery in the last quarter,
mainly as a result of increased operator investments in revenue management as
well as continued good development for tV solutions.
in 2010, a program for return to profitability was initiated. the program
includes phase-out of products, reduction of sourcing and supply costs and
decoupling of software and hardware using commercial off-the-shelf hardware.
increased volumes at the end of the year resulted in a recovery in the last quarter.
operations within Multimedia are divided into three areas with their specific
market drivers.
Business Support Systems is the segment’s largest market with a total value
of about USd 35 billion in 2009. Within this market, the revenue management
market is the largest. the company is the market leader and more than 1.2 billion
subscribers are charged and billed via Ericsson’s solutions.
the decline in Multimedia’s total sales 2010 was mainly related to revenue
management. Segment Multimedia in general and revenue management in
particular has a large exposure to markets such as india, Middle East and Sub-
Saharan africa where operators postponed investments mainly due to operator
consolidation. Going forward, there is growth potential as operators want to
modernize their business support systems to capture the full revenue potential of
mobile broadband and to merge billing and charging systems into one solution.
the second largest operation in Multimedia is television and Media
Management which developed well in 2010. the compression business
continues to grow. Ericsson is the leading player with a market share of 25
percent in compression and 40 percent in iptV head-ends. the worldwide digital
tV market showed strong growth, with digital tV homes expected to double in
the next five years.
the third operation is consumer and Business applications. a key aim is to
support operators in modernizing their legacy value-added services environment,
by providing for example messaging systems and service delivery systems.
With a market share of 40 percent in mobile positioning and more than 10
percent in service delivery platforms, Ericsson holds a leading position. the
Business communication Suite targets the enterprise market. it combines unified
communication with mobility, providing business communities with a collaboration
and multimedia solution.
Multimedia is mainly a software business. the solutions often require local
adaptations in customers’ networks. therefore Multimedia sales also drive sales
of systems integration services.
the market for the Multimedia segment is rather fragmented. competitors vary
widely depending on the solution being offered. they include many of the traditional
telecommunication equipment and it suppliers, such as amdocs and comverse, as
well as companies from other industries, such as Harmonic, oracle and thompson.
buSineSS reSultS
MultiMeDia
sales sek 10.5
(13.3) Billion
> Weak sales for revenue
management
> good development in tV
–4% operating margin excl.
restructuring charges
–21% sales growth for
comparable units
MultiMeDia SaleS of total
2010
SEK 10.5 billion
5%
Networks
Global Services
Multimedia
MultiMeDia SaleS
by region 2010
Net sales (SEK billion and percent)
10%
12%
5%
5%
0.6
. 0
1
1.3
0.5
7
.
0
0
.
1
7%
9%
9%
0
.
9
0
.
6
6%
1.0
10%
1.4
1.4
13%
14%
North america
Latin america
Northern Europe and central asia
Western and central Europe
Mediterranean
Middle East
Sub-Saharan africa
india
china and North East asia
South East asia and oceania
other
34 | Board of dirEctorS’ rEport Ericsson annual report 2010
BODXPART3XEN_v92.indd 34
26/02/2011 16:54
Joint Ventures
Sony ericSSon
Sony Ericsson is a 50/50 joint venture between Sony corporation
and Ericsson, established in 2001. Sony Ericsson is accounted
for according to the equity method.
the global handset market is believed to have increased
slightly in volume to almost 1.2 billion units. Sony Ericsson’s
market share in the total global handset market 2010 was
approximately 4 percent in units and 6 percent in value. Sony
Ericsson focuses on the smartphone segment and the android
operating system.
Units shipped declined by –25 percent to 43.1 (57.1) million
while the average selling price increased by 23 percent to EUr
146 (119). Sales decreased by –7 percent to EUr 6.3 (6.8) billion.
Gross margin improved during the year to 29 (15) percent as
benefits of cost reductions and new smartphones materialized.
income before taxes, excluding restructuring charges, was
EUr 0.2 (–0.9) billion. income increased during the year thanks
to improved gross margin and reduced operating expenses.
Ericsson’s share in Sony Ericsson’s income before taxes was
SEK 0.7 (–5.7) billion.
Sony Ericsson’s primary competitors include apple, Htc,
LG, Motorola, Nokia, riM and Samsung.
Sony ericSSon net SaleS anD
aDJuSteD incoMe before taXeS
Euro million
12,916
12,916
11,244
11,244
10,959
14,000
12,000
10,000
8,000
6,000
4,000
2,000
1,298
1,574
92
0
–2,000
2006
2007
2008
Net sales
11,244
6,788
6,294
189
2010
–878
2009
income before taxes excl. restructuring charges
St-ericSSon
St-Ericsson is a 50/50 joint venture between StMicroelectronics
and Ericsson, which started in february, 2009. St-Ericsson is
accounted for according to the equity method. it has one of the
industry’s strongest product offering in semiconductors and
platforms for mobile devices. St-Ericsson is a key supplier to
top handset manufacturers. in 2010, St-Ericsson continued its
transition, merging three operations. its focus today is to deliver
new products to the market.
legal anD taX ProceeDingS
Sales declined –9 percent to USd 2.3 (2.5) billion. the
operating loss for the year, adjusted for restructuring costs, was
USd –0.4 (–0.4) billion.
St-Ericsson is reporting in US-Gaap. Ericsson’s share in
St-Ericsson’s income before taxes, adjusted to ifrS, was
SEK –1.8 (–1.8) billion. adjustments for ifrS-compliance
mainly consist of capitalization of r&d expenses for hardware
development.
the company’s net financial position was USd –82 (229)
million at year-end. in the fourth quarter 2010, a short-term
credit facility of USd 150 million made available on a 50:50
basis by parent companies was utilized.
during 2010, two restructuring plans of USd 345 million
were finalized. the first one of USd 230 million gave full impact
from third quarter and the second plan of USd 115 million was
completed by year end.
St-Ericsson’s largest competitor is Qualcomm. the market
is growing in complexity as several new operating systems for
handsets and other devices have been launched, e.g. Google’s
android, Microsoft’s Windows and Samsung’s Bada.
St-ericSSon net SaleS anD
aDJuSteD oPerating incoMe
USd million
3,000
2,500
2,000
1,500
1,000
500
0
–500
12,916
2,524
11,244
2,293
Net sales
operating income
adjusted for amortization
of acquired intangibles
and restructuring charges
–369
2009
–436
2010
all figures in accordance with reported adjusted US Gaap figures
leGal anD tax pRoCeeDinGs
together with most of the mobile communications industry,
Ericsson has been named a defendant in two class action
lawsuits in the US in which plaintiffs allege that adverse health
effects could be associated with mobile phone usage. the
cases are currently pending in federal court in pennsylvania and
the Superior court of the district of columbia. in September
2008, the federal court in pennsylvania dismissed the plaintiffs’
claims as preempted by federal law. the third circuit court
of appeals subsequently affirmed this ruling. in July 2010,
the d.c. Superior court granted in part and denied in part
the defendants’ motion to dismiss. in September 2010, the
Ericsson annual report 2010 Board of dirEctorS’ rEport | 35
BODXPART3XEN_v92.indd 35
26/02/2011 16:54
legal anD taX ProceeDingS
plaintiff filed a third amended complaint. in october 2010, the
defendants moved to dismiss the district of columbia 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. the lawsuit was stayed in august 2009 pending the
resolution of a reexamination proceeding in the US patent and
trademark office (pto). the stay was lifted in November 2010
after all the asserted patent claims were confirmed as valid by
the pto. the trial is scheduled for September 2011.
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.
in January 2011, a US company SynQor filed a patent
infringement lawsuit against Ericsson inc. in the Eastern district
of texas alleging that Ericsson infringes five U.S. patents
related to bus converters. in february 2011, SynQor filed a
motion for preliminary injunction seeking to prevent Ericsson
from manufacturing, using, selling, and offering for sale in the
U.S. and/or importing into the U.S. certain unregulated and
semi-regulated bus converters and any Ericsson products that
contain those bus converters. SynQor also seeks to prevent
Ericsson from selling the accused bus converters to companies
that in-turn sell products incorporating the bus converters in or
into the U.S.
MateRial ContRaCts
Material contractual obligations are outlined in Note c32
“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.
CoRpoRate GoVeRnanCe
in accordance with the annual accounts act (1995:1554
chapter 6, Section 6), a separate corporate Governance report,
including an internal control section, has been prepared.
continued compliance with the
Swedish corporate governance code
the company applies the Swedish corporate Governance
code. 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 this code
without deviations.
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 2010/2011
the annual General Meeting on april 13, 2010, 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. the annual General Meeting elected Hans Vestberg
and Michelangelo Volpi as new members of the Board. anna
Guldstrand, Jan Hedlund and Karin Åberg were appointed as
union representatives with pehr claesson, Kristina davidsson
and Karin Lennartsson as deputies.
Management
Hans Vestberg was appointed president and cEo, succeeding
carl-Henric Svanberg, as of January 1, 2010. the president and
cEo is supported by the Executive Leadership team which, in
addition to the president and cEo, consists of heads of Group
functions, heads of business units, two heads of region and the
chief Brand officer. a management system is implemented to
ensure that the business is well controlled 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 Group management as well as the 2010
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
Group management and Employees”.
36 | Board of dirEctorS’ rEport Ericsson annual report 2010
BODXPART3XEN_v92.indd 36
26/02/2011 16:54
Sourcing anD SuPPly
souRCinG anD supply
Ericsson’s hardware largely consists of electronics, such as
circuit boards, radio frequency (rf) modules, antennas etc.
for manufacturing, the company purchases customized
and standardized components, services etc. from several
global providers as well as from numerous local and regional
suppliers. certain types of components, such as power
modules and cables, are produced in-house.
the production of electronic modules and sub-assemblies
is mostly outsourced to manufacturing services companies,
of which the vast majority is in low-cost countries. Node
production is largely done in-house and on-demand. this
consists of assembly, testing of modules and integrating them
into complete radio base stations, mobile switching centers etc.
Where possible Ericsson relies on alternative supply sources.
When selecting a new supplier, the supplier code of conduct
should be met. Variations in market prices for raw materials
generally have a limited effect on total cost of goods sold.
as of december 31, 2010, 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 that the current guidelines
for remuneration and other employment terms for the senior
management (remuneration policy) remain unchanged for the
period up to the 2012 annual General Meeting.
details of how Ericsson delivers on these principles and
policy, including information on previously decided long-
term variable remuneration that has not yet become due for
payment, can be found Note c29, “information regarding
Members of the Board of directors, the Group management
and Employees”.
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 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, the continuous monitoring
through monthly and quarterly steering group meetings and
during operational processes by transaction (customer bid/
contract, acquisition, investment and product development
projects). they are subject to various controls such as
decision tollgates and approvals.
a central security unit coordinates management of certain
risks, such as business interruption, information security and
physical security. a crisis Management council deals with ad
hoc events of serious nature.
for information of risks that could impact the fulfillment of
the targets and form the basis for mitigating activities, see the
other sections of the Board of directors’ report, Notes c14,
“trade receivables and customer finance”, c19, “interest-
bearing liabilities”, c20, “financial risk management and
financial instruments” and chapter risk factors on page 119.
BODXPART3XEN_v92.indd 37
26/02/2011 16:54
Ericsson annual report 2010 Board of dirEctorS’ rEport | 37
sustainability anD
coRpoRate Responsibility
eRicsson
life-cycle assessMent
caRbon footpRint 2010
~18
~3
~2
0.64
e
2
O
C
s
e
n
n
o
t
M
20
15
10
5
0
–5
A
B
C
D
E
activities in 2010
A = Supply chain
B = Ericsson’s own activities
future (lifetime) operation of
products delivered 2010
C = Operator activities
D = Products operation
E = End-of-life treatment
Direct emissions
(Ericsson own
activities)
Indirect emissions
(all other life-cycle
related emissions)
~ = approximately
Ericsson received recognition and
a number of prestigious awards
for its sustainability and corporate
responsibility achievements.
Vodafone presented Ericsson
with its Corporate Responsibility
supplier award.
Greenpeace named Ericsson
one of the best ICT companies in
its Cool lT Leaderboard. Ericsson’s
focus and accomplishment
on sustainability and life-cycle
management was awarded the
InfoWorld Green Award. Gartner
has also recognized Ericsson for
its sustainability leadership.
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
~–0.2
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. During 2010, Ericsson launched a new Sustainability
Policy and an e-learning program on Sustainability and CR for all employees.
supply chain
Suppliers must comply with Ericsson’s CoC. Some 150 employees, covering
all regions, are trained as supplier CoC auditors and the Company performs
regular audits and works with suppliers to ensure measurable and continuous
improvements. Findings are followed up to ensure that lasting improvements
are made. As a complement to the audits, a free web-based CoC training is
now available for all suppliers in 13 languages. To effectively address the issue
of conflict minerals, Ericsson participates in the Global e-Sustainability Initiative
(GeSI) work group for conflict minerals.
Design foR enviRonMent
Processes and controls are in place to ensure compliance with relevant product
related environmental, customer and regulatory requirements. The areas
covered are energy efficiency and materials management. To better meet the
rapidly changing legal requirements on materials management a new materials
declarations tool was released in 2010.
take-back
Ericsson Ecology Management and Product Take-back is a global initiative to
take responsibility of products at the end of their life. More than 95 percent of
decommissioned equipment is recycled, exceeding the EU Waste Electronic
Electrical Equipment Directive (WEEE) stipulation of 75 percent. During 2010
more than 2,500 tonnes of e-waste were collected. This is less than 2009 due
to there being a fewer number of operator change-outs of equipment. During
2010, Ericsson has continued to improve its capabilities to handle WEEE in Latin
America and the Middle East as well as in production facilities in Sweden, India
and China. Alignment of the process in order to comply with the Indian WEEE
Directive has also begun.
38 | BOARD OF DIRECTORS’ REPORT Ericsson Annual Report 2010
BODXPART4XEN_v64.indd 38
26/02/2011 13:33
sustainability anD
coRpoRate Responsibility
caRbon footpRint taRget Result 2010
5
4
3
2
1
0
~–15%
~–26%
~–20%
~–20%
2006
2007
2008
2009
2010
Product operation kg CO2 /capacity [subscriber/line/port] and year
Ericsson activities kg CO2 /capacity [subscriber/line/port]
Baseline 2008 for Ericsson activities and product operation:
Actual achievements compared to baseline are shown.
~ = approximately
In 2010, Ericsson and its partners, The Earth Institute,
Columbia University and Millennium Promise, launched a global
education initiative, Connect To Learn, as an extension of its
commitment to the MDGs.
eRicsson Response
Ericsson Response is a global employee volunteer initiative
with the aim to rapidly roll out communication solutions and
provide telecommunications experts to assist disaster relief
operations. Ericsson Response cooperates with the UN Office
for the Coordination of Humanitarian Affairs (UNOCHA), the
UN World Food Programme (WFP), the UN Children’s fund
(UNICEF) and other International Organizations and Non-
Governmental Organizations (NGO) like the International
Federation of Red Cross and Red Crescent Societies (IFRC)
and Save the Children.
In 2010, support was provided to WFP and UNICEF working
in Haiti, Port-au-Prince, during six months of on-site work by
19 volunteers. This is one of the longest disaster response
deployments of Ericsson Response’s history. This year also
marked the tenth anniversary and a decade of relief work
provided by Ericsson Response.
Ericsson is a partner in the Ghana E-waste project. Its goal
is to establish local recycling capabilities and transform informal
e-waste recycling into a formal business and thereby help to
alleviate poverty. This is being coordinated by the Raw Materials
Group in cooperation with the Ghana Environmental Protection
Agency and financed by the Nordic Development Fund.
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 has co-sponsored over 90
studies related to electromagnetic fields, radio waves and
health 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.
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 continuously 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 2010,
Ericsson met the annual 10 percent reduction target:
> There was a slight increase in direct emissions from
Ericsson’s in-house activities. Component shortages have
led to an increase in shipping by air, and business travel has
increased somewhat due to increased number of employees
> A 14 percent reduction was achieved in indirect emissions
from products in operation per capacity, resulting in 26
percent total from 2008. This improvement was mainly due to
the introduction of the radio base station RBS 6000 family.
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. Ericsson focused on sustainable
city solutions, and has actively engaged in global climate
policy, including the Guadalajara ICT Declaration and Global
e-Sustainability Initiative publication “Evaluating the Carbon-
Reducing Impacts of ICT”.
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.
BODXPART4XEN_v64.indd 39
26/02/2011 13:33
Ericsson Annual Report 2010 BOARD OF DIRECTORS’ REPORT | 39
proposed disposition of earnings
The Board of Directors proposes that a dividend of SEK 2.25
(2.00) per share be paid to shareholders duly registered on the
record date April 18, 2011, and that the Parent Company 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 7,365,041,404
SEK 35,608,440,926
Total non-restricted equity
of the Parent Company
SEK 42,973,482,330
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 (52) percent and a net cash
amount of SEK 51.3 (36.1) 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.
paRent coMpany
parent Company
The Parent Company business consists mainly of corporate
management, holding company functions and internal banking
activities. It also handles 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
crosslicensing of patents and defending of patents in litigations.
The Parent Company has 6 (6) branch offices. In total, the
Group has 68 (65) branch and representative offices.
financial information
Net sales for the year amounted to SEK 0.0 (0.3) billion and
income after financial items was SEK 6.8 (8.1) billion. Exports
accounted for 100 (100) percent of net sales. The Parent
Company had no sales in 2010 or 2009 to subsidiaries, while 45
(45) percent of total purchases of goods and services were from
such companies.
Major changes in the Parent Company’s financial position
for the year included:
Investments in LG-Ericsson of SEK 1.9 billion
>
> Decreased current and non-current receivables from
>
>
>
subsidiaries of SEK 8.3 billion
Increased other current receivables of SEK 1.6 billion
Increased cash, cash equivalents and short-term
investments of SEK 9.2 billion
Increased current and non-current liabilities to subsidiaries
of SEK 4.7 billion
> Decreased other current liabilities of SEK 0.2 billion.
At year end, cash, cash equivalents and short-term investments
amounted to SEK 71.6 (62.4) billion.
share information
As per December 31, 2010, the total number of shares
was 3,273,351,735, of which 261,755,983 were 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 13.80 percent respectively of the voting
rights in the Parent Company.
Both classes of shares have the same rights of participation
in the net assets and earnings.
In accordance with the conditions of the Long-Term
Variable Remuneration Program (LTV) for Ericsson employees,
5,890,018 treasury shares were sold or distributed to employees
in 2010. The quotient value of these shares was SEK 29.4
million, representing less than 1 percent of capital stock, and
compensation received amounted to SEK 59.8 million. The
holding of treasury stock at December 31, 2010 was 73,088,515
Class B shares. The quotient value of these shares is SEK 365.4
million, representing 2.2 percent of capital stock, and the
related acquisition cost amounts to SEK 622.2 million.
40 | BOARD OF DIRECTORS’ REPORT Ericsson Annual Report 2010
BODXPART4XEN_v64.indd 40
26/02/2011 13:33
boaRD assuRance
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 21, 2011
telefonaktiebolaget lM ericsson (publ)
org. no. 556016-0680
sverker Martin-löf
Deputy chairman
Roxanne s. austin
Member of the board
ulf J. Johansson
Member of the board
Michael treschow
chairman
sir peter l. bonfield
Member of the board
nancy Mckinstry
Member of the board
carl-henric svanberg
Member of the board
hans vestberg
president, ceo and member of the board
anna guldstrand
Member of the board
Jan hedlund
Member of the board
Marcus wallenberg
Deputy chairman
börje ekholm
Member of the board
anders nyrén
Member of the board
Michelangelo volpi
Member of the board
karin Åberg
Member of the board
BODXPART4XEN_v64.indd 41
26/02/2011 13:33
Ericsson Annual Report 2010 BOARD OF DIRECTORS’ REPORT | 41
CONSOLIDATED INCOME STATEMENT AND
STATEMENT Of COMprEhENSIvE INCOME
Consolidated Income
Statement and statement of
Comprehensive income
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
Non-controlling interest
Other information
Average number of shares, basic (million)
Earnings per share attributable to stockholders of the Parent Company, basic (SEK) 1)
Earnings per share attributable to stockholders of the Parent Company, diluted (SEK) 1)
1) Based on Net income attributable to stockholders of the Parent Company.
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
Share of other comprehensive income on joint ventures and associated companies
Tax on items relating to components of Other comprehensive income
Total other comprehensive income
Total comprehensive income
Total Comprehensive Income attributable to:
Stockholders of the Parent Company
Non-controlling interest
42 | CONSOlIdATEd FINANCIAl STATEmENTS Ericsson Annual Report 2010
Notes
C3, C4
2010
2009
2008
203,348
–129,094
74,254
36.5%
–31,558
–27,072
–58,630
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
C6
2,003
3,082
2,977
17,627
13,318
16,688
8.7%
–1,172
16,455
1,047
–1,719
15,783
–4,548
11,235
11,146
89
3,197
3.49
3.46
6.5%
–7,400
5,918
1,874
–1,549
6,243
–2,116
4,127
3,672
455
3,190
1.15
1.14
8.0%
–436
16,252
3,458
–2,484
17,226
–5,559
11,667
11,273
394
3,183
3.54
3.52
C12
C7
C7
C8
C9
C9
C9
Notes
2010
11,235
2009
4,127
2008
11,667
C16
C16
C16
C16
C16
C16
C16
C16
3,892
–633
–4,019
7
–2
–6
966
–238
–136
–3,259
–434
–1,120
–322
10,913
10,814
99
665
3,850
–1,029
–1,067
–259
–1,040
485
4,612
4,211
401
–5,116
1,192
–
7,314
1,253
2,330
2,948
14,615
13,988
627
CONSXISXEN_v29.indd 42
2011-02-25 14.30
CoNSolIDAtED BAlANCE ShEEt
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
2010
2009
C10
3,010
27,151
16,658
2,079
27,375
18,739
Property, plant and equipment
C11, C26, C27
9,434
9,606
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
Non-controlling 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
9,803
219
1,281
3,079
12,737
83,372
11,578
256
830
2,577
14,327
87,367
29,897
22,718
61,127
3,123
17,146
56,286
30,864
198,443
66,410
1,444
15,146
53,926
22,798
182,442
281,815
269,809
C16
C16
145,106
1,679
146,785
139,870
1,157
141,027
C17
C18
C8
C19, C20
C18
C19, C20
C22
C21
5,092
353
2,571
26,955
3,296
38,267
9,391
3,808
24,959
58,605
96,763
8,533
461
2,270
29,996
2,035
43,295
11,970
2,124
18,864
52,529
85,487
totAl EQUItY AND lIABIlItIES 1)
281,815
269,809
1) Of which interest-bearing liabilities and post-employment benefits SEK 35,855 million (SEK 40,653 million in 2009).
CONSXBSXEN_v20.indd 43
2011-02-25 14.31
Ericsson Annual Report 2010 CONSOlIDATED FINANCIAl STATEmENTS | 43
CONSOlIDatED StatEmENt
OF CaSh FlOwS
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
2010
2009
2008
C25
11,235
12,490
23,725
–7,917
–2,125
4,406
5,964
–2,739
5,269
2,858
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
Cash flow from operating activities
26,583
24,476
24,000
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
–3,686
124
–3,286
454
–1,644
–1,487
–3,016
–12,541
–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
Cash flow before financing activities
14,042
–12,986
15,456
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
Effect of exchange rate changes on cash
Net change in cash
2,580
–1,449
51
–6,677
–175
–5,670
14,153
–9,804
69
–6,318
199
–1,701
5,245
–4,216
3
–8,240
–
–7,208
–306
–328
1,255
8,066
–15,015
9,503
Cash and cash equivalents, beginning of period
22,798
37,813
28,310
Cash and cash equivalents, end of period
C25
30,864
22,798
37,813
44 | CONSOlIDATED fINANCIAl STATEmENTS Ericsson Annual Report 2010
CONSXCF_v24.indd 44
2011-02-25 14.35
CoNSolIDATeD STATemeNT
of ChANgeS IN equITy
Consolidated Statement
of Changes in Equity
January 1, 2010
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock Purchase Plans
Dividends paid
Business combinations
December 31, 2010
Notes
C16
Addi-
tional
paid in
capital
24,731
–
–
–
–
–
–
24,731
Capital
stock
16,367
–
–
–
–
–
–
16,367
January 1, 2009
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
December 31, 2009
January 1, 2008
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
December 31, 2008
16,232
–
24,731
–
C16
135
–
–
–
–
–
16,367
–
–
–
–
–
–
24,731
16,132
–
24,731
–
C16
100
–
–
–
–
–
16,232
–
–
–
–
–
–
24,731
Revalua-
tion of
other
invest-
ments in
shares
and
partici-
pations
Cumula-
tive
transla-
tion
adjust-
ments
Cash
flow
hedges
Stock-
holders’
equity
Non-
controlling
interest
(NCI)
Total
equity
Retained
earnings
–4
4
–
–
–
–
–
–
–1
–3
–
–
–
–
–
–
–4
5
–6
–
–
–
–
–
–
–1
78
440
–
–
–
–
–
518
663
–3,808
98,035
14,178
139,870
10,814
1,157 141,027
10,913
99
–
–
–
–
–
–3,145
–
52
762
–6,391
–
106,636
–
52
762
–6,391
–
145,106
–
–
–
–286
708
–
52
762
–6,677
708
1,679 146,785
–2,356
2,434
2,124
–1,461
100,093
3,241
140,823
4,211
1,261 142,084
4,612
401
–
–
–
–
–
–
78
–
–
–
–
–
–
663
–
75
–135
658
–5,897
–
98,035
135
75
–135
658
–5,897
–
139,870
–
–
–
–
–421
–84
135
75
–135
658
–6,318
–84
1,157 141,027
307
–2,663
–6,345
8,469
99,282
8,188
134,112
13,988
940 135,052
627
14,615
–
–
–
–
–
–
–2,356
–
–
–
–
–
–
2,124
–
88
–100
589
–7,954
–
100,093
100
88
–100
589
–7,954
–
140,823
–
–
–
–
–286
–20
100
88
–100
589
–8,240
–20
1,261 142,084
CONSXEQUITYXEN_v23.indd 45
2011-02-25 14.37
Ericsson Annual Report 2010 COnSOliDATED finAnCiAl STATEmEnTS | 45
Contents
notes to the Consolidated
Financial statements
Contents
C1 SignifiCant aCCounting PoliCieS ............................................................................................................................................................................................................................47
C2 CritiCal aCCounting eStimateS and JudgmentS................................................................................................................................................................................... 55
C3 Segment information........................................................................................................................................................................................................................................................... 57
C4 net SaleS............................................................................................................................................................................................................................................................................................ 61
C5 exPenSeS by nature................................................................................................................................................................................................................................................................ 61
C6 other oPerating inCome and exPenSeS.......................................................................................................................................................................................................... 61
C7 finanCial inCome and exPenSeS............................................................................................................................................................................................................................... 62
C8 taxeS........................................................................................................................................................................................................................................................................................................ 62
C9 earningS Per Share............................................................................................................................................................................................................................................................... 64
C10
intangible aSSetS..................................................................................................................................................................................................................................................................... 64
C11 ProPerty, Plant and equiPment.............................................................................................................................................................................................................................. 66
C12 finanCial aSSetS, non-Current............................................................................................................................................................................................................................... 67
C13
inventorieS...................................................................................................................................................................................................................................................................................... 68
C14 trade reCeivableS and CuStomer finanCe................................................................................................................................................................................................. 69
C15 other Current reCeivableS......................................................................................................................................................................................................................................... 71
C16 equity and other ComPrehenSive inCome................................................................................................................................................................................................... 71
C17 PoSt-emPloyment benefitS............................................................................................................................................................................................................................................ 75
C18 ProviSionS..........................................................................................................................................................................................................................................................................................81
C19
intereSt-bearing liabilitieS.......................................................................................................................................................................................................................................... 82
C20 finanCial riSk management and finanCial inStrumentS............................................................................................................................................................ 83
C21 other Current liabilitieS................................................................................................................................................................................................................................................ 86
C22 trade PayableS............................................................................................................................................................................................................................................................................ 86
C23 aSSetS Pledged aS Collateral................................................................................................................................................................................................................................. 86
C24 Contingent liabilitieS......................................................................................................................................................................................................................................................... 87
C25 Statement of CaSh flowS................................................................................................................................................................................................................................................ 87
C26 buSineSS CombinationS...................................................................................................................................................................................................................................................... 88
C27 leaSing.................................................................................................................................................................................................................................................................................................. 90
C28 tax aSSeSSment valueS in Sweden........................................................................................................................................................................................................................ 90
C29 information regarding memberS of the board of direCtorS, the grouP management and emPloyeeS.......................... 91
C30 related Party tranSaCtionS...................................................................................................................................................................................................................................... 97
C31 feeS to auditorS........................................................................................................................................................................................................................................................................ 98
C32 ContraCtual obligationS.............................................................................................................................................................................................................................................. 98
46 | noteS to the ConSolidated finanCial StatementS ericsson annual report 2010
C1XC3XEN_v89.indd 46
2011-02-25 14.38
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, 2010, have been prepared in accordance with international financial
reporting Standards (ifrS) as endorsed by the eu and rfr 1 “additional
rules for group accounting”, related interpretations issued by the Swedish
financial reporting board (rådet för finansiell rapportering), and the
Swedish annual accounts act. for the financial reporting of 2010, the
Company has applied ifrS as issued by the iaSb (ifrS effective as
per december 31, 2010) and without any early application. there is no
difference between ifrS effective as per december 31, 2010, and ifrS
as endorsed by the eu, nor is rfr 1 related interpretations issued by the
Swedish financial reporting board (rådet för finansiell rapportering) or the
Swedish annual accounts act in conflict with ifrS.
the financial statements were approved by the board of directors on
february 21, 2011. 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, 2010, changing presentation or disclosure:
>
>
ifrS 3 business Combinations (revised with prospective application)
the revised standard continues to apply the acquisition method to
business combinations, with some significant changes. for example, the
definition of a business and a business combination has been expanded,
all payments to purchase a business are to be recorded at fair value
at the acquisition date, with contingent cash 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 shall be expensed as incurred.
iaS 27 Consolidated and separate financial statements (revised with
prospective application). the revised standard requires the effects of
all transactions with non-controlling interests to be recorded in equity
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 income
statement.
the following new or amended standards and interpretations have also been
adopted:
>
>
>
ifriC17, distributions of non-Cash assets to owners (issued november
27, 2008)
ifrS 2, amendment, group Cash-settled Share-based Payment
transactions (issued June 18, 2009)
improvements to ifrSs (issued april 16, 2009).
none of the new or amended standards and interpretations has had
any significant impact on the financial result or position of the Company.
however, the impact on business combination accounting due to the
revised ifrS 3 business Combinations is dependent on type and size of any
future arrangement involving a business combination.
for information on “new standards and interpretations not yet adopted”
please see page 54.
note.C1
Changes.in.financial.reporting.structure
Change.in.segments
as of January 1, 2010, ericsson reports the following segments: networks,
global Services, multimedia, Sony ericsson and St-ericsson.
the only change compared to previous years is that network rollout is
now included in global Services instead of networks. all other segments are
unchanged. with this change the external reporting is aligned with the new
internal reporting structure.
Segments as of January 1, 2010:
> networks
> global Services
> of which Professional Services
> of which managed Services
> of which network rollout
> multimedia
> Sony ericsson
> St-ericsson
Change.in.geographiCal.break.down
as of January 1, 2010, the geographical reporting structure is changed.
instead of five geographical areas, ten regions are reported, mirroring
the new internal geographical organization. a part called “other” is also
reported, consisting of business not reported in the geographical structure,
e.g. embedded modules, cables, power modules as well as intellectual
property rights and licenses.
regions as of January 1, 2010:
> north america
latin america
>
> northern europe and Central asia
> western and Central europe
> mediterranean
> middle east
> Sub-Saharan africa
>
> China and northeast asia
> South east asia and oceania
> other
india
in 2008 and 2009 ericsson reported top 15 countries in sales. as of January
1, 2010, top five countries are reported.
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
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.
ericsson annual report 2010 noteS to the ConSolidated finanCial StatementS |..47
C1XC3XEN_v89.indd 47
2011-02-25 14.38
note.C1
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
business.Combinations.From.January.1,.2010
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, including any cost
related to contingent consideration. transaction costs attributable to the
acquisition are expensed as incurred. the acquisition cost is allocated to
acquired assets, liabilities and contingent liabilities based upon appraisals
made, including assets and liabilities that were not recognized on the
acquired entity’s balance sheet, for example intangible assets such as
customer relations, brands, patents and financial liabilities. goodwill arises
when the purchase price exceeds the fair value of recognizable acquired net
assets. final amounts are established within one year after the transaction
date at the latest.
in case there is a put option for non-controlling interest in a subsidiary a
corresponding financial liability is recognized.
business.Combinations.beFore.January.1,.2010
at the acquisition of a business, the cost of the acquisition, being the
purchase price, was measured as the fair value of assets acquired, and
liabilities incurred or assumed at the date of exchange, plus costs directly
attributable to the acquisition. the acquisition cost was 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 arose when the purchase price exceeded
the fair value of recognizable acquired net assets. final amounts had to be
established within one year after the transaction date.
non-controlling.interest
aCquisitions.From.January.1,.2010
the Company treats transactions with non-controlling interests as
transactions with equity owners of the Company. for purchases from non-
controlling interests, the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidiary
is recorded in equity. gains or losses on disposals to non-controlling
interests are also recorded in equity.
when the Company ceases to have control or significant influence,
any retained interest in the entity is remeasured to its fair value, with the
change in carrying amount recognized in profit or loss. the fair value is the
initial carrying amount for the purposes of subsequently accounting for the
retained interest in an associate, joint venture or financial asset. in addition,
any amounts previously recognized in other comprehensive income in
respect of that entity are accounted for as if the Company had directly
disposed of the related assets or liabilities. this may mean that amounts
previously recognized in other comprehensive income are reclassified to
profit or loss.
if there were differences between any consideration paid and the relevant
share acquired of the carrying value of net assets of the subsidiary. the
non-controlling interest in the acquiree was measured at the non-controlling
interests proportionate share of the acquiree’s net assets.
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.
if the ownership interest in an associate is reduced but significant
influence is retained, only a proportionate share of the amounts previously
recognized in other comprehensive income are reclassified to profit or loss
where appropriate.
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.
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 other
Comprehensive income (oCi) under the hedge accounting practices as
described below.
at acquisition, there is a choice on an acquisition-by-acquisition basis to
Changes in the fair value of monetary securities denominated in foreign
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.
aCquisitions.beFore.January.1,.2010
the Company treated transactions with non-controlling interests (formerly
minority interests) as transactions with external parties. disposals of
minority interests were recognized as gains and losses in the income
statement. Purchases from non-controlling interests resulted in goodwill
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.
48 | noteS to the ConSolidated finanCial StatementS ericsson annual report 2010
C1XC3XEN_v89.indd 48
2011-02-25 14.38
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,
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 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.
note.C1
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, including
the impact of any discount or rebate, 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.
ericsson annual report 2010 noteS to the ConSolidated finanCial StatementS |..49
C1XC3XEN_v89.indd 49
2011-02-25 14.38
note.C1
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.
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 evidence 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.
derivatives are classified as held for trading, unless they are designated
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
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.
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 (excluding 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.
Collectability 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.
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.
50 | noteS to the ConSolidated finanCial StatementS ericsson annual report 2010
C1XC3XEN_v89.indd 50
2011-02-25 14.38
note.C1
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 the 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.
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.
Fair.value.hedges
intangible.assets.
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
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.
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.
amortization of acquired intangible assets, such as patents, customer
relations, brands and software, is made according to the straight-line
method over their estimated useful lives, not exceeding ten years. however,
if the economic benefit related to an item of intangible assets is front-end
loaded the amortization method reflects this. thus, the amortization for
such an item is amortized on a digressive curve basis and the asset value
decreases with higher amounts in the beginning of the useful life compared
to the end.
C1XC3XEN_v89.indd 51
2011-02-25 14.38
ericsson annual report 2010 noteS to the ConSolidated finanCial StatementS |..51
note.C1
the Company has not recognized any intangible assets with indefinite
leasing.
useful life other than goodwill.
impairment tests are performed whenever there is an indication of
possible impairment. however, intangible assets not yet available for use
are tested annually. an impairment loss is recognized if the carrying amount
of an asset or its cash-generating unit exceeds its recoverable amount. the
recoverable amount is the higher of the value in use and the fair value less
costs to sell. in assessing value in use, the estimated future cash flows after
tax are discounted to their present value using an after-tax discount rate
that reflects current market assessments of the time value of money and the
risks specific to the asset. application of after tax amounts in calculation,
both in relation to cash flows and discount rate is applied due to that
available models for calculating discount rate include a tax component. the
after tax discounting, applied by the Company is not materially different
from a discounting based on before-tax future cash flows and before-tax
discount rates, as required by ifrS.
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 four of
them, networks, Professional Services, multimedia and St-ericsson.
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 real estate and 3–10 years for machinery and
equipment. depreciation and any impairment charges are included in Cost
of sales, research and development or Selling and administrative expenses.
the Company recognizes in the carrying amount of an item of property,
plant and equipment the cost of replacing a component and derecognizes
the residual value of the replaced component.
impairment testing as well as recognition or reversal of impairment
of property, plant and equipment is performed in the same manner as for
intangible assets other than goodwill, see description under “intangible
assets other than goodwill” above.
gains and losses on disposals are determined by comparing the
proceeds less cost to sell with the carrying amount and are recognized
within other operating income and expenses in the income statement.
leasing.when.the.Company.is.the.lessee
leases on terms in which the Company assumes substantially all the risks
and rewards of ownership are classified as finance leases. upon initial
recognition, the leased asset is measured at an amount equal to the lower
of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accordance
with the accounting policy applicable to that type of asset, although the
depreciation period must not exceed the lease term.
other leases are operating leases, and the leased assets under such
contracts are not recognized on the balance sheet. Costs under operating
leases are recognized in the income statement on a straight-line basis
over the term of the lease. lease incentives received are recognized as an
integral part of the total lease expense, over the term of the lease.
leasing.when.the.Company.is.the.lessor
leasing contracts with the Company as lessor are classified as finance
leases when the majority of risks and rewards are transferred to the lessee,
and otherwise as operating leases. under a finance lease, a receivable
is recognized at an amount equal to the net investment in the lease and
revenue is recognized in accordance with the revenue recognition principles.
under operating leases 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.
52 | noteS to the ConSolidated finanCial StatementS ericsson annual report 2010
C1XC3XEN_v89.indd 52
2011-02-25 14.38
note.C1
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
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 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”.
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
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 all 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.
this value is based on the fair value of, for example free shares at grant
date, measured as stock price as per each investment date. the value at
grant date is charged to the income statement as any other remuneration
over the service period. for example, value at grant date is 90. given the
normal service period of three years within ericsson, 30 are charged per
year during the service period.
the amount charged to the income statement is reversed in equity each
time of the income statement charge.
the reason for this accounting principle of ifrS is that compensation
cost is a cost with no direct cash flow impact. the purpose of share-
based accounting according to ifrS (ifrS 2) is to present an impact of
share based programs, being part of the total remuneration, in the income
statement.
post-employment.benefits
Compensation.to.employees
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
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
ericsson annual report 2010 noteS to the ConSolidated finanCial StatementS |..53
C1XC3XEN_v89.indd 53
2011-02-25 14.38
note.C1
(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,
the group 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,
2010, and have not been applied in preparing these consolidated financial
statements:
below is a list of standards/interpretations that have been issued, except
for amendments related to ifrS 1, ‘first time adoption of international
financial reporting Standards’ and are effective for the periods starting as
from January 1, 2011.
> amendment.to.ias.32,.‘Financial.instruments:.presentation.–.
Classification.of.rights.issues’.
the iaSb amended iaS 32 to allow rights, options or warrants to acquire
a fixed number of the entity’s own equity instruments for a fixed amount
of any currency to be classified as equity instruments provided the entity
offers the rights, options or warrants pro rata to all of its existing owners
of the same class of its own non-derivative equity instruments.
iFriC.19,.‘extinguishing.financial.liabilities.with.equity.instruments’
Clarifies the requirements of ifrSs when an entity renegotiates the
terms of a financial liability with its creditor and the creditor agrees
to accept the entity’s shares or other equity instruments to settle the
financial liability fully or partially.
ias.24,.‘related.party.disclosures’.(revised.2009)
amends the definition of a related party and modifies certain related
party disclosure requirements for government-related entities,
associated companies and joint ventures.
>
>
> amendments.to.iFrs.7
amends disclosures in relation to transfers of financial assets.
> amendment.to.iFriC.14,.ias.19.–.‘the.limit.on.a.defined.benefit.asset,.
minimum.funding.requirements.and.their.interaction’..
removes unintended consequences arising from the treatment of
prepayments where there is a minimum funding requirement. this
results in prepayments of contributions in certain circumstances being
recognized as an asset rather than an expense.
iFrs.9,.‘Financial.instruments’..
ifrS 9 is the first standard issued as part of a wider project to replace
iaS 39. ifrS 9 retains but simplifies the mixed measurement model and
establishes two primary measurement categories for financial assets:
amortized cost and fair value. the basis of classification depends on the
entity’s business model and the contractual cash flow characteristics of
the financial asset. the guidance in iaS 39 on impairment of financial
assets and hedge accounting continues to apply.
improvements.to.iFrss.2010.
>
>
the amendments are generally applicable for annual periods beginning at
January 1, 2011, except for amendments to ifrS 7 that is applicable as
from January 1, 2012, and ifrS 9 that is applicable as from January 1, 2013.
the eu has not endorsed amendments to ifrS 7, ifrS 9 or improvements
to ifrSs.
none of the amendments effective as from January 1, 2011, are
expected to have a significant impact on the Company’s financial result or
position. the impact of amendments to ifrS 7 and ifrS 9 have not yet
been evaluated.
54 | noteS to the ConSolidated finanCial StatementS ericsson annual report 2010
C1XC3XEN_v89.indd 54
2011-02-25 14.38
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, 2010, were Sek 1.1 (1.7) billion or 1.6
(2.4) 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, 2010,
amounted to Sek 3.1 (3.0) billion or 10 (12) 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, 2010, the amount of joint ventures and associated
companies amounted to Sek 9.8 (11.6) billion.
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, 2010, the value of deferred tax assets amounted to
Sek 12.7 (14.3) 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, 2010, the capitalized development expenses
amounted to Sek 3.0 (2.1) billion. an impairment charge of Sek 0 (0.2)
billion was recognized as a part of the restructuring program. under
this program decisions were 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 begin 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.
ericsson annual report 2010 noteS to the ConSolidated finanCial StatementS |..55
C1XC3XEN_v89.indd 55
2011-02-25 14.38
note.C2
the market capitalization of the Company as per year-end 2010 well
Judgments made in relation to accounting policies applied
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 as for goodwill.
at december 31, 2010, the amount of acquired intellectual property
rights and other intangible assets amounted to Sek 43.8 (46.1) billion,
including goodwill of Sek 27.2 (27.4) billion. the Company has also
recognized goodwill in St-ericsson of Sek 1.4 (1,3) billion, as disclosed in
note C12, “financial assets, non-Current”. an impairment charge of Sek
0.9 (4.3) billion was recognized as a part of the restructuring program. under
this program decisions were 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, 2010,
amounted to Sek 2.5 (2.5) billion.
provisions.other.than.warranty.provisions
Key sources of estimation uncertainty
Provisions, other than warranty provisions, mainly comprise amounts related
to contractual obligations and penalties to customers and estimated losses
on customer contracts, restructuring, risks associated with patent and
other litigations, supplier or subcontractor claims and/or disputes, as well
as provisions for unresolved income tax and value added tax issues. the
estimates related to the amounts of provisions for penalties, claims or losses
receive special attention from the management. at december 31, 2010,
provisions other than warranty commitments amounted to Sek 7.3 (9.9)
billion. for further detailed information, see note C18, “Provisions”.
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, 2010, defined benefit obligations for pensions and other
post-employment benefits amounted to Sek 28.7 (30.7) billion and fair value
of plan assets to Sek 25.4 (23.2) 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 and purchases volumes involve 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”.
56 | noteS to the ConSolidated finanCial StatementS ericsson annual report 2010
C1XC3XEN_v89.indd 56
2011-02-25 14.38
C3 segment inFormation
operating.segments
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
>
> multimedia
> Sony ericsson
> St-ericsson
Professional Services
>
networks delivers products and solutions for mobile and fixed broadband
access, core networks, and transmission. the offering includes:
> radio access solutions that interconnect with devices such as mobile
phones, notebooks and PCs, supporting all major standardized mobile
technologies.
fixed access solutions for both fiber and copper, such as gPon and
dSl, increase the customers’ ability to modernize fixed networks to
enable iP-based services with high bandwidth.
iP core network solutions (switching, routing and control) include
softswitches, iP infrastructure for edge- and core routing, iP multimedia
Subsystem (imS) and media gateways.
transmission/backhaul; microwave (mini-link) and optical transmission
solutions for mobile and fixed networks.
>
>
> network management tools; supporting operators’ management of
existing networks as well as introduction of new network architectures,
technologies and services. this includes tools for configuration,
performance monitoring, security management, inventory management
and software upgrades.
global.services.delivers managed services, consulting and systems
integration, customer support and network rollout services. the offering
includes:
> managed services comprise solutions for network design and planning,
network operations (the management of day-to-day operations of
customer networks), field operations and site maintenance and shared
solutions such as hosting of platforms and applications.
> Consulting and Systems integration; technology and operational
consulting, integration of multi-vendor equipment, design and
integration of new solutions and handling of technology change and
transformation programs, learning services and optimization services
ensuring the best possible user experience. industry-specific solutions
for vertical industries are also included.
> Customer support; staff world-wide provide around-the-clock support
note.C3
> Consumer and business applications; solutions for the consumer
include service delivery platforms, rich Communication Suite (rCS),
messaging, a social media portal, and location-based services.
enterprise market solutions include converged business communication
solutions such as ericsson business Communication Suite (bCS).
brokering solutions facilitate payment and distribution of content.
> business Support Systems includes revenue management (Pre-
paid, Post-paid, convergent Charging and billing), Customer Care,
Provisioning, device management and analytics.
sony.ericsson, the joint venture delivers innovative and feature-rich mobile
phones and accessories. the Jv forms an essential part of our end-to-end
capability for mobile multimedia services.
st-ericsson, the joint venture develops semiconductors and wireless
platforms for gSm, edge, wCdma, hSPa, td-SCdma and lte to handset
manufacturers, as well as to mobile operators and device manufacturers.
Sony ericsson’s and 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.
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.
regions
our regions are our primary sales channel. the Company operates world-
wide and reports its operations divided into ten regions. other includes
sales of for example embedded modules, cables, power modules as well as
licensing and iPr.
> north america
latin america
>
> northern europe & Central asia
> western and Central europe
> mediterranean
> middle east
> Sub-Saharan africa
>
> China & north east asia
> South east asia & oceania
> other
india
and advice to ensure network uptime and performance.
major.customers
> network rollout services, deploying new networks, modernizing and
expanding existing networks.
multimedia provides enablers and applications for operators. the offering
includes:
>
tv solutions; a suite of open, standards-based digital tv solutions in
hd, 3g or standard quality (real- time and on- demand), combined
with interactive services. the offering includes iPtv solutions, video
compression, on-demand solutions, content management systems,
advertising and interactive tv applications for operators, service
providers, advertisers and content providers.
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 2010, 2009 or 2008.
we derive most of our sales from large, multi-year agreements with
a limited number of significant customers. out of a customer base of
approximately 400, mainly network operators, the 10 largest customers
account for 46 (42) percent of our net sales. our largest customer accounted
for approximately 8 (5) percent of sales in 2010. for more information, see
risk factors, “market, technology and business risks”.
C1XC3XEN_v89.indd 57
2011-02-25 14.38
ericsson annual report 2010 noteS to the ConSolidated finanCial StatementS |..57
note.C3
note.C1
operating.segments
2010
Segment sales
inter-segment sales
net.sales
operating.income
operating margin (%)
financial income
financial expenses
income.after.financial.items
taxes
net.income
networks
111,459
1,249
112,708
12,481
11%
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
–64
–4,554
–2,600
–675
9
–3,915
154
global.
services
multi-.
media
sony.
ericsson
st-
ericsson
total.
segments
unallo-
cated
elimi-
nations 1)
80,117
6
80,123
6,513
8%
–17
–303
–555
–276
2
–2,675
53
10,504
13
10,517
60,118
60
60,178
13,116
3,403
16,519
275,314
4,731
280,045
–
–
–
–73,234
–3,463
–76,697
–643
–6%
1,523
3%
–3,527
–21%
16,347
6%
–805
–
913
–
–2
–806
–144
–52
1
–207
92
664
–25
–731
–
–
–402
–
–1,763
–930
–1,022
–61
–
–536
–
–1,182
–6,618
–5,052
–1,064
12
–7,735
299
10
–
–
–
–
–17
59
–
955
1,753
61
–
469
–
group
202,080
1,268
203,348
16,455
8%
1,047
–1,719
15,783
–4,548
11,235
–1,172
–5,663
–3,299
–1,003
12
–7,283
358
1) 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 in the
eliminations column.
regions
2010
north america
Of which the United States
latin america
northern europe & Central asia 1) 2)
western & Central europe 2)
mediterranean
middle east
Sub-Saharan africa
india
China & north east asia
Of which China
South east asia & oceania
other1) 2)
total
1) Of which Sweden
2) Of which EU
non-current.
net.sales
assets 3)
49,473
46,104
17,882
12,171
19,868
22,628
15,099
9,194
8,626
25,965
14,633
14,902
7,540
203,348
4,237
43,707
7,251
6,977
1,998
42,112
8,629
1,523
84
51
262
3,795
1,013
351
–
66,056
41,683
46,563
3) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
for employee information, see note C29, “information regarding members of the board of directors, the group management and employees”.
58 | noteS to the ConSolidated finanCial StatementS ericsson annual report 2010
C1XC3XEN_v89.indd 58
2011-02-25 14.38
note.C3
note.C1
group
205,373
1,104
206,477
5,918
3%
1,874
–1,549
6,243
–2,116
4,127
–7,400
–4,209
–3,550
–4,413
49
–12,581
843
operating.segments
2009
networks 1)
services 1) multi.media
global.
sony.
ericsson
st-.
ericsson
total.
segments unallo.cated
elimi-
nations 2)
Segment sales
inter-segment sales
net.sales
113,339
746
114,085
79,038
82
79,120
12,996
276
13,272
71,984
164
72,148
7,598 3)
7%
6,271 4)
8%
655
5%
–10,820
–15%
13,535
5,731
19,266
–2,615
–14%
290,892
6,999
297,891
–
–
–
–85,519
–5,895
–91,414
1,089
0%
–855
–
5,684
–
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
37
–2,673
–2,768
–4,333 3)
38
–8,358 3)
10
33
–574
–627
–
9
–2,434
777 4)
–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
–
1) amounts for 2009 and 2008 have been restated to be consistent with the segment allocation method applied as from 2010.
2) 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 in the
eliminations column.
3) including impairment losses related to restructuring activities of Sek 4.3 billion.
4) in q2 2009, the temS business was divested, resulting in a capital gain of Sek 0.8 billion.
regions
2009
north america
Of which the United States
latin america
northern europe & Central asia 1) 2)
western & Central europe 2)
mediterranean
middle east
Sub-Saharan africa
india
China & north east asia
Of which China
South east asia & oceania
other 1) 2)
total
1) Of which Sweden
2) Of which EU
non-current.
net.sales
assets 3)
25,301
21,538
20,034
13,124
22,772
25,200
18,252
15,361
15,297
26,115
18,445
21,530
3,492
206,447
4,096
49,313
8,359
8,100
2,066
44,091
11,713
1,352
115
49
225
988
903
417
–
69,375
43,574
49,158
3) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
for employee information, see note C29, “information regarding members of the board of directors, the group management and employees”.
C1XC3XEN_v89.indd 59
2011-02-25 14.38
ericsson annual report 2010 noteS to the ConSolidated finanCial StatementS |..59
note.C3
note.C1
operating.segments
2008
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
networks 1)
services 1) multi.media 2)
global.
120,504
16
120,520
12,540
10%
70,467
41
70,508
4,951
7%
12,614
5,288
17,902
–118
–1%
sony.
ericsson
108,492
261
108,753
total.
segments unallo.cated
elimi-
nations 3)
312,077
5,606
317,683
–
–
–
–108,492
–261
–108,753
–1,094
0%
16,279
5%
–618
–
591
–
–25
–3,210
–2,347
–547
6
–4,870
9
91
–368
–532
–
1
–1,533
–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
–
group
203,585
5,345
208,930
16,252
8%
3,458
–2,484
17,226
–5,559
11,667
–436
–5,006
–3,108
–566
7
–7,606
1,098
1) amounts for 2009 and 2008 have been restated to be consistent with the segment allocation method applied as from 2010.
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 in the eliminations column.
regions
2008
north america
Of which the United States
latin america
northern europe & Central asia 1) 2)
western & Central europe 2)
mediterranean
middle east
Sub-Saharan africa
india
China & north east asia
Of which China
South east asia & oceania
other 1) 2)
total
1) Of which Sweden
2) Of which EU
non-current.
net.sales
assets 3)
17,930
14,132
23,047
16,421
22,331
29,830
17,910
15,534
15,253
22,556
15,068
21,320
6,798
208,930
8,876
57,601
8,917
8,829
1,676
47,037
5,537
1,499
70
54
156
816
688
464
–
66,226
46,458
52,945
3) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
for employee information, see note C29, “information regarding members of the board of directors, the group management and employees”.
60 | noteS to the ConSolidated finanCial StatementS ericsson annual report 2010
C1XC3XEN_v89.indd 60
2011-02-25 14.38
Note c4–c6
C6 Other OperatiNg
iNCOme aNd expeNSeS
other operatINg INcome aNd expeNses
Gains on sales of intangible
assets and PP&E
Losses on sales of intangible
assets and PP&E
Gains on sales of investments
and operations
Losses on sales of investments
and operations
Capital gains/losses, net
Other operating revenues
total other operating income
and expenses
2010
2009
2008
301
193
302
–422
–126
–190
577
962
1,236
–219
237
1,766
–119
910
2,172
–138
1,210
1,767
2,003
3,082
2,977
C4 Net SaleS
Net sales
Sales of products and
network rollout services
Of which:
Delivery-type contracts
Construction-type contracts
Professional Services sales
License revenues 1)
Net sales
Export sales from Sweden
2010
2009
2008
140,222
145,873
150,846
140,156
66
58,529
4,597
203,348
100,070
144,908
965
56,123
4,481
206,477
94,829
148,358
2,488
48,978
9,106
208,930
109,254
1) The ST-Ericsson joint venture was formed in February 2009, figures for 2008 include
licenses revenues from Mobile Platforms.
C5 expeNSeS by Nature
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
2010
2009
2008
130,725
8,962
124,627
7,759
138,298
8,114
966
57,183
1,719
4,548
204,103
5,637
54,877
1,549
2,116
196,565
2,680
51,297
2,484
5,559
208,432
8,465
1,647
–4,784
1,443
3,761
1,409
193,991
199,906
203,262
1) The inventory changes are based on changes of gross inventory values prior to
obsolescence allowances.
The cost reduction program, initiated in first quarter 2009, has been
completed by the second quarter 2010. Total restructuring charges in
2010 were SEK 6.8 (11.3) b. Cost and capital efficiency remain high on
the company agenda and efficiency work will continue also in 2011. This
primarily relates to service delivery, product development and administration.
Restructuring charges are included in the expenses presented above.
restructurINg charges by fuNctIoN
Cost of sales
R&D expenses
Selling and administrative expenses
total restructuring charges
2010
3,354
1,682
1,778
6,814
2009
4,180
6,045
1,034
11,259
2008
2,540
2,648
1,572
6,760
C4XC6XEN_v26.indd 61
2011-02-25 14.42
Ericsson Annual Report 2010 NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS | 61
note c7–c8
C7 FinanCial inCome and expenses
fInancIal Income and 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
total
financial
income
2010
financial
expenses
financial
income
2009
financial
expenses
financial
income
2008
financial
expenses
811
304
–
–
295
–
–
–68
–
9
1,047
–
–
–1,315
–
–206
151
–
–
–4
–194
–1,719
1,287
814
–
–
635
–
–
–53
–
5
1,874
–
–
–1,616
–
155
155
–
–
–2
–86
–1,549
2,938
2,282
–
–
322
–
–
191
–
7
3,458
–
–
–2,023
–
280
–32
–
–
–656
–85
–2,484
1) Excluding net gain from operating assets and liabilities, SEK 1,528 million (net gain of SEK 2,247 million in 2009, net loss of SEK 4,234 million in 2008), reported as Cost of Sales.
C8 Taxes
The Company’s expense for 2010 was SEK 4,548 (2,116) million or 28.8
(33.9) percent of the income after financial items. The tax rate may vary
between years depending on business and geography mix. The tax rate
excluding joint ventures and associated companies was 25.7 (25.7) percent
mainly due to a lower tax rate on losses made by the joint venture.
Income taxes recognIzed In the Income statement
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
2010
2009
2008
–4,635
–4,605
–5,574
–35
307
–4,363
–185
–4,548
441
661
–3,503
1,387
–2,116
167
–297
–5,704
145
–5,559
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
2010
2009
2008
–4,150
–405
–1,643
–812
–4,823
22
–467
–550
1
–35
441
167
–257
8
–169
172
–830
880
77
–4,548
267
–1,155
630
148
–2,116
62
–986
327
–159
–5,559
62 | NOTES TO ThE CONSOLIDATED FINANCIAL STATEmENTS Ericsson Annual Report 2010
C7XC8XEN_v58.indd 62
2011-02-25 14.42
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
Intangible assets and property,
plant and equipment
Current assets
Post-employment benefits
Provisions
Equity
Other
Loss carryforwards
Deferred tax assets/liabilities
Netting of assets/liabilities
net deferred tax balances
deferred
tax assets
deferred
tax liabilities
net balance
deferred
tax assets
deferred
tax liabilities
2010
2009
net balance
543
3,398
976
2,019
781
3,395
3,537
14,649
–1,912
12,737
3,725
110
636
12
–
–
–
4,483
–1,912
2,571
10,166
359
2,481
852
2,240
1,901
4,343
3,961
16,137
–1,810
14,327
3,096
53
472
–
–
459
–
4,080
–1,810
2,270
12,057
changes In deferred taxes, net
tax loss carryforwards
Opening balance, net
Recognized in income statement
Recognized in OCI
Acquisitions/disposals of subsidiaries
Translation differences
closing balance, net
2010
12,057
307
–1,120
–606
–472
10,166
2009
12,120
661
–1,040
186
130
12,057
Deferred tax assets regarding tax loss carryforwards are reported to the
extent that realization of the related tax benefit through future taxable profits
is probable also when considering the period during which these can be
utilized, as described below.
At December 31, 2010, the available tax loss carryforwards amounted to
SEK 13,030 (14,493) 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:
tax loss carryforwards year of expIratIon
year of expiration
2011
2012
2013
2014
2015
2016 or later
total
tax loss
carryforwards
tax
effect
0
32
299
898
498
11,303
13,030
0
7
80
244
119
3,087
3,537
Tax loss carryforwards for Sony Ericsson and ST-Ericsson are not included,
as they are accounted for in accordance with the equity method.
Tax effects reported directly in Other Comprehensive Income amount to
SEK –1,120 (–1,040) million, of which actuarial gains and losses related
to pensions SEK –836 (173) million, cash flow hedges SEK –183 ( –1,059)
million and deferred tax on gains/losses on hedges on investments in foreign
entities SEK –101 (–154) 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 3,537 million, SEK
2,222 million relate to Sweden with indefinite time of utilization. Due to the
Company’s strong current financial position and taxable income during
2010, 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.
Deferred tax assets for Sony Ericsson and ST-Ericsson are not included,
as they are accounted for in accordance with the equity method. Sony
Ericsson has in its annual report deferred tax assets of EUR 574 million. The
major part of the tax assets relates to the Swedish company.
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.
C7XC8XEN_v58.indd 63
2011-02-25 14.42
Ericsson Annual Report 2010 NOTES TO ThE CONSOLIDATED FINANCIAL STATEmENTS | 63
NoTE C9–C10
C9>earnIngs>Per>share>
EARNINGS PER SHARE 2008–2010
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)
C10>IntangIble>assets
INTANGIBLE ASSETS 2010
2010
2009
2008
11,146
3,197
3.49
11,146
3,197
–
29
3,226
3.46
3,672
3,190
1.15
3,672
3,190
–
22
3,212
1.14
11,273
3,183
3.54
11,273
3,183
1
18
3,202
3.52
Capitalized development expenses
Goodwill
Intellectual property rights (IPR), trade
marks and other intangible assets
For internal use
To be
marketed
Acquired
costs
Internal
costs
Total
Total
Trademarks,
customer
rel ation ships
and similar
rights
Patents and
acquired
R&D
5,221
1,389
–
–
–
–
6,610
–2,104
–422
–
–
–2,526
–1,665
–49
–1,714
2,370
2,060
153
–
–
–
–
2,213
–1,630
–145
–
–
–1,775
–55
–
–55
383
1,376
102
–
–
–
–
1,478
–1,087
–97
–
–
–1,184
–37
–
–37
257
8,657
1,644
–
–
–
–
10,301
–4,821
–664
–
–
–5,485
–1,757
–49
–1,806
3,010
27,375
–
1,256
–
–
–1,480
27,151
–
–
–
–
–
–
–
–
27,151
10,624
521
2,800
–
–
–363
13,582
–2,639
–1,450
–
152
–3,937
–
–
–
9,645
24,898
–
1,025
–55
–
–538
25,330
–9,875
–3,549
27
294
–13,103
–4,269
–945
–5,214
7,013
Total
35,522
521
3,825
–55
–
–901
38,912
–12,514
–4,999
27
446
–17,040
–4,269
–945
–5,214
16,658
Accumulated acquisition costs
Opening balance
Acquisitions/capitalization
Balances regarding 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
1) For more information on acquired businesses, see Note C26 “Business Combinations”.
2) The write-down (impairment charge) of SEK 0,9 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
(16.5) billion, Global Services SEK 4.1 (3.7) billion and Multimedia
SEK 6.6 (7.2) 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 2011–2015 for key industry parameters:
>>
The number of global mobile subscriptions is estimated to grow from 5.3
billion by the end of 2010 (6 billion by the end of 2011) to approximately
8 billion by the end of 2015. Of these, some hundred millions
(approximately 450 million 2015) will have mobile PC connections, while
more than 3 billion 2015 will have a mobile broadband connection.
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.
64 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C9XC10XEN_v54.indd 64
2011-02-25 14.44
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 around 500 million
(470 in 2010 and 510 in 2011) to around 600 million in the same time
perspective. Fixed broadband includes Fiber, Cable and xDSL
>> Mobile traffic volume is estimated to increase (around 15 times
>>
2010–2015, around 8 times 2011–2015), while the fixed Internet traffic
is estimated to increase (around 6 times 2010–2015, around 4 times
2011–2015), 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. There is strong IPTV subscriber growth, rapid growth in digital
viewing and on-demand services. The development and build out of
Mobile Broadband networks and increasing number of mobile broadband
subscriptions drives growth in service introduction and traffic. This puts high
demand on charging and payment systems. The Business Support Systems’
growth is driven by introduction of new services, new business models and
price plans.
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
INTANGIBLE ASSETS 2009
NoTE C10
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 2010, the market capitalization of the Company well
exceeded the value of the Company’s net assets.
An after-tax discount rate of 8 (12) percent has for all cash generating
units been applied for the discounting of projected after-tax cash flows.
The assumptions for 2009 are disclosed in note C10 in the Annual Report
of 2009.
The Company´s discounting is based on after-tax future cash flows and
after-tax discount rates. This discounting is not materially different from a
discounting based on before-tax future cash flows and before-tax discount
rates, as required by IFRS.
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
For internal use
To be
marketed
Acquired
costs
Internal
costs
Total
Total
Trademarks,
customer
rel ation ships
and similar
rights
Patents and
acquired
R&D
5,518
1,045
–
–
–1,342
–
5,221
–1,570
–534
–
–
–2,104
–1,508
–157
–1,665
1,452
1,821
239
–
–
–
–
2,060
–1,562
–68
–
–
–1,630
–55
–
–55
375
1,217
159
–
–
–
–
1,376
–1,042
–45
–
–
–1,087
–37
–
–37
252
8,556
1,443
–
–
–1,342
–
8,657
–4,174
–647
–
–
–4,821
–1,600
–157
–1,757
2,079
24,877
–
3,534
–21
–
–1,015
27,375
–
–
–
–
–
–
–
–
27,375
9,429
602
811
–142
–
–76
10,624
–2,425
–360
131
15
–2,639
–
–
–
7,985
20,450
2
5,021
–
–
–575
24,898
–6,853
–3,202
–
180
–9,875
–14
–4,255
–4,269
10,754
Total
29,879
604
5,832
–142
–
–651
35,522
–9,278
–3,562
131
195
–12,514
–14
–4,255
–4,269
18,739
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
1) During 2009, Ericsson acquired Nortel SEK 8.7 billion.
2) The write-down (impairment charge) of SEK 4.3 billion is a consequence of the restructuring program decision to phase out certain products.
C9XC10XEN_v54.indd 65
2011-02-25 14.44
Ericsson Annual Report 2010 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 65
NOTE C11
C11 ProPerty, Plant and equiPment
PROPERTY, PLANT AND EQUIPMENT 2010
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
Real estate
Machinery and
other technical
assets
Other equipment,
tools and
installations
Construction in
process and
advance payments
4,217
283
14
–102
87
–261
4,238
–1,692
–361
–2
60
4
122
–1,869
–45
–
–
–
2
–43
2,326
5,298
411
4
–543
190
–356
5,004
–3,557
–629
–3
553
9
250
–3,377
–91
–6
–
–
2
–95
1,532
18,087
1,480
473
–1,449
817
–832
18,576
–13,058
–2,309
–297
1,384
–13
598
–13,695
–131
–3
12
–
3
–119
4,762
578
1,512
–5
–148
–1,094
–29
814
–
–
–
–
–
–
–
–
–
–
–
–
–
814
Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2010, amounted to SEK 303 (236) million.
The reversal of impairment losses have been reported under Cost of sales.
PROPERTY, PLANT AND EQUIPMENT 2009
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
Real estate
Machinery and
other technical
assets
Other equipment,
tools and
installations
Construction in
process and
advance payments
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.
66 | NOTES TO ThE CONSOlIDATED FINANCIAl STATEmENTS Ericsson Annual Report 2010
Total
28,180
3,686
486
–2,242
–
–1,478
28,632
–18,307
–3,299
–302
1,997
–
970
–18,941
–267
–9
12
–
7
–257
9,434
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
C11XEN_v19.indd 66
2011-02-25 14.46
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
closing balance
1) Including contribution of SEK 5.0 billion paid to STMicroelectronics.
2) Including goodwill for ST-Ericsson of SEK 1,381 million (SEK 1,341 million in 2009).
3) Goodwill, net, amounts to SEK 16 million (SEK 16 million in 2009).
joint ventures
2009
2010
associated companies
2009
2010
total total
2009
2010
10,317
–1,099
–181
–391
22
–20
–
–
–
8,648 2)
6,694
–7,455
1,388
–277
6
21
–
9,941 1)
–1
10,317 2)
1,261
–73
–4
–47
–
–
–119
138
–1
1,155 3)
1,294
55
–1
–17
–
–
–70
2
–2
1,261
11,578
–1,172
–185
–438
22
–20
–119
138
–1
9,803
7,988
–7,400
1,387
–294
6
21
–70
9,943
–3
11,578
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
net income
Net income attributable to:
Stockholders of the Parent Company
Non-controlling interest
Assets pledged as collateral
Contingent liabilities
2010
6,673
2,249
214
2,519
6,189
8,260
–1,762
50
–1,712
–1,713
1
3
–
2009
7,238
3,856
129
2,691
8,274
9,633
–1,762
136
–1,626
–1,626
–
–
6
2010
2009
2008
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
Non-controlling interest
Assets pledged as collateral
Contingent liabilities
3,622
9,904
592
10,533
2,401
30,089
705
–231
474
433
41
–
16
4,003
12,790
130
14,675
1,988
36,074
–5,540
1,252
–4,288
–4,441
153
182
17
Ericsson’s sharE of assEts, liabilitiEs and incomE in
associatEd company Ericsson nikola tEsla d.d. 1)
2010
2009
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
Non-controlling interest
Assets pledged as collateral
Contingent liabilities
1) Ericsson’s share is 49.07 percent.
92
749
2
209
630
784
17
–1
16
16
–
4
43
311
754
3
240
822
994
90
1
91
91
–
5
151
3,228
21,190
157
17,593
6,668
54,377
–400
151
–249
–353
104
–
20
2008
394
695
6
253
830
1,182
139
–5
134
134
–
5
172
All three companies apply IFRS in the reporting to Ericsson.
C12XC13XEN_v46.indd 67
2011-02-25 14.48
Ericsson Annual Report 2010 NOTES TO ThE CONSOlIDATED FINANCIAl STATEMENTS | 67
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
closing balance
accumulated impairment losses/allowances
Opening balance
Impairment losses/allowance
Business combinations
Disposals/repayments/deductions
Translation difference
closing balance
net carrying value
other investments
in shares and
participations
2009
2010
customer finance,
non-current
2009
2010
1,660
114
–33
–
–
–
–
–134
1,607
–1,404
–75
–
–26
117
–1,388
219
1,783
1
–
–36
–
–1
–
–87
1,660
–1,474
–3
–
–
73
–1,404
256
1,232
3,562
–
–3,322
–
–
–
2
1,474
–402
2
–
206
1
–193
1,281
1,082
408
–
–258
–
–
–
–
1,232
–236
–222
–
56
–
–402
830
2010
843
–
–
–
–
–
–843
–
–
–
–
–
–
–
–
–
derivatives,
non-current
2009
other
financial assets,
non-current
2009
2010
2,814
–
–
–
–
–
–1,971
–
843
–
–
–
–
–
–
843
3,197
683
–
–35
726
–
–
–189
4,382
–1,463
–7
–
–
167
–1,303
3,079
3,557
389
–
–244
–521
–
–
16
3,197
–1,454
–74
–
–
65
–1,463
1,734
1) This amount includes asset ceiling. For further information, see Note C17, “Post-employment benefits”.
C13 inventories
invEntoriEs
movEmEnts in obsolEscEncE allowancEs
Raw materials, components, consumables
and manufacturing work in progress
Finished products and goods for resale
Contract work in progress
inventories, net
2010
2009
8,509
11,894
9,494
29,897
6,190
6,621
9,907
22,718
Contract work in progress includes amounts related to delivery-type
contracts, service contracts and construction-type contracts with ongoing
work in progress.
Reported amounts are net of obsolescence allowances of SEK 3,090
(2,961) million.
The increase in inventories during 2010 is due to higher level of working
progress in the regions. During the year it has been industry component
shortages and supply chain bottlenecks.
Opening balance
Additions, net
Utilization
Translation difference
Balances regarding acquired/
divested businesses
closing balance
2010
2009
2008
2,961
250
–165
–46
90
3,090
3,493
562
–1,297
2
201
2,961
2,752
1,553
–1,039
250
–23
3,493
The amount of inventories recognized as expense and included in Cost of
sales was SEK 47,415 (52,255) million.
68 | NOTES TO ThE CONSOlIDATED FINANCIAl STATEMENTS Ericsson Annual Report 2010
C12XC13XEN_v46.indd 68
2011-02-25 14.48
NOTE C14
C14 Trade reCeivables and
CusTomer FinanCe
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
2010
2009
61,609
–766
60,843
67,133
–924
66,209
284
61,127
201
66,410
4,725
–321
4,404
3,123
3,046
–772
2,274
1,444
Credit commitments for customer finance
3,282
3,027
Days Sales Outstanding were 88 (106) in December, 2010.
MOVEMENTS IN ALLOWANCES FOR IMPAIRMENT
NOTE C9–C10
Opening balance
Additions
Utilization
Reversal of excess amounts
Reclassification
Translation difference
Balances regarding acquired/divested business
Closing balance
AgINg ANALySIS AS PER DECEMbER 31, 2010
Trade receivables excluding associated companies
and joint ventures
Allowances for impairment of receivables
Customer finance
Allowances for impairment of customer finance
AgINg ANALySIS AS PER DECEMbER 31, 2009
Trade receivables excluding associated companies
and joint ventures
Allowances for impairment of receivables
Customer finance
Allowances for impairment of customer finance
Trade receivables
2010
924
282
–285
–169
33
–19
–
766
2009
1,471
388
–583
–312
10
–43
–7
924
2008
1,351
651
–492
–81
–69
115
–4
1,471
Customer finance
2010
2009
772
25
–87
–359
–
–30
–
321
326
595
–67
–37
–
–45
–
772
2008
275
90
–3
–74
–
38
–
326
of which
neither
impaired
nor past due
of which
impaired,
not past due
of which past due in the
following time intervals
90 days
less than
or more
90 days
of which past due and
impaired in the following
time intervals
90 days
or more
less than
90 days
54,510
–
3,804
–
52
–16
528
–75
2,227
–
62
–
1,500
–
85
–
418
–90
18
–18
2,902
–660
228
–228
of which
neither
impaired
nor past due
of which
impaired,
not past due
of which past due in the
following time intervals
90 days
less than
or more
90 days
of which past due and
impaired in the following
time intervals
90 days
or more
less than
90 days
58,727
–
1,292
–
43
–8
1,314
–342
2,962
–
9
–
2,081
–
1
–
774
–180
145
–145
2,546
–736
285
–285
Amount
61,609
–766
4,725
–321
Amount
67,133
–924
3,046
–772
C14XEN_v29.indd 69
2011-02-25 14.49
Ericsson Annual Report 2010 NOTES TO ThE CONSOliDATED FiNANCiAl STATEmENTS | 69
events can be political (normally outside the control of the borrower) or
commercial, e.g. a borrower’s deteriorated creditworthiness.
As of December 31, 2010, Ericsson’s total outstanding exposure related
to customer finance was SEK 4,725 (3,046) million. As of December 31,
2010, Ericsson also had unutilized customer finance commitments of SEK
3,282 (3,027) million. During 2010 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 3,808 (560) million,
the amount of the assets that Ericsson continues to recognize is SEK 190
(28) million, and the carrying amount of the associated liabilities is SEK
190 (28) million. Customer finance is arranged for infrastructure projects
in different geographic markets and for a large number of customers.
As of December 31, 2010, there were a total of 74 (68) customer finance
arrangements originated by or guaranteed by Ericsson. The five largest
facilities represented 44 (43) percent of the total credit exposure.
Of Ericsson’s total outstanding customer finance exposure as of
December 31, 2010, 66 (57) percent was related to Central and Eastern
Europe, middle East and Africa, 11 (15) percent to the Americas, 9 (14)
percent to Western Europe, and 14 (14) percent to Asia Pacific.
The effect of risk provisions and reversals for customer finance affecting
the income statement amounted to a net positive impact of SEK 331 million
compared to a negative impact of SEK 480 million in 2009. Credit losses
amounted to SEK 87 (67) million. A credit loss reported in 2005 was partly
recovered in 2010 for the amount of SEK 136 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
2010, 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, “Contingent liabilities”.
The table below summarizes Ericsson’s outstanding customer finance as
of December 31, 2010 and 2009.
OUTSTANDINg CUSTOMER FINANCE
Total customer finance
Accrued interest
less third-party risk coverage
Ericsson’s risk exposure
2010
4,725
69
–1,409
3,385
2009
3,046
57
–382
2,721
NOTE C14
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 61,609 (67,133) million as of
December 31, 2010. Provisions for expected losses are regularly assessed
and amounted to SEK 766 (924) million as of December 31, 2010. 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 29 (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
70 | NOTES TO ThE CONSOliDATED FiNANCiAl STATEmENTS Ericsson Annual Report 2010
C14XEN_v29.indd 70
2011-02-25 14.49
NOTE C15–C16
NOTE C16
C15 Other Current
reCeivables
Dividend proposal
The Board of Directors will propose to the Annual General Meeting 2011 a
dividend of SEK 2.25 per share (2.00 in 2010 and 1.85 in 2009).
OTHER CURRENT RECEIVABLES
Prepaid expenses
Accrued revenues
Advance payments to suppliers
Derivatives with a positive value 1)
Taxes
Other
Total
2010
2,369
1,850
881
3,042
5,439
3,565
17,146
2009
2,403
1,538
776
1,760
4,830
3,839
15,146
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.
1) Also see Note C20 “Financial Risk Management and Financial Instruments”
C16 equity and Other
COmprehensive inCOme
Capital stock 2010
Capital stock at December 31, 2010, consisted of the following:
CAPITAL STOCK
Parent Company
Class A shares
Class B shares
Total
Number
of shares
261,755,983
3,011,595,752
3,273,351,735
Capital
stock
1,309
15,058
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, 2010, the total number of treasury shares was
73,088,516 (78,978,533 in 2009 and 61,066,097 in 2008) Class B shares.
Ericsson did not repurchase shares in 2010, in relation to the Stock
Purchase Plan.
RECONCILIATION Of NUmBER Of SHARES
Number
of shares Capital stock
Number of shares Jan 1, 2010
Number of shares Dec 31, 2010
3,273,351,735
3,273,351,735
16,367
16,367
For further information about number of shares, see chapter Share
information.
C15XC16XEN_v43.indd 71
2011-02-25 14.51
Ericsson Annual Report 2010 NOTES TO ThE CONSOlIDATED FINANCIAl STATEMENTS | 71
NOTE C16
EQUITY AND OTHER COmPREHENSIVE INCOmE 2010
Revalua
tion of
other
invest
ments in
shares
and
partici
pations
Capital
stock
Addi tional
paid in
capital
Cumula
tive
transla
tion
adjust
ments
Cash flow
hedges
Retained
earnings
Stock
holders’
equity
Non
control
ling
interest
(NCI)
Total
equity
16,367
24,731
–4
78
663
98,035
139,870
1,157
141,027
12,503
–1,357
12,503
–1,357
89
–
12,592
–1,357
2010
January 1, 2010
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
Stock Purchase Plan
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Group
Joint ventures and associated companies
Dividends paid
Business combinations
December 31, 2010
–
–
–
–
16,367
–
–
–
–
24,731
–
–
–
–
7
–
–
–
–
–
–
–
–3
4
4
–
–
–
–
–
–
–
–
–
–
–
–
–
966
31
–238 1)
–136
–
–
–183
440
440
–
–
–
–
–
–
518
–
–
–
–
–
–
–
–
–
–
3,892
–27
3,892
–27
–
–
–
–
–
–
7
–
966
31
–238
–136
–3,269 2)
–438
–101 4)
–3,808
–3,808
–
–
–833
3,032
–3,269
–438
–1,120
–332
14,178
10,814
–
–
–
–
–
–
–3,145
–
52
762
–
–6,391
–
106,636
–
52
762
–
–6,391 5)
–
145,106
–
–
–
–
–
–
–
–
10
–
–
10
99
–
–
3,892
–27
7
–
966
31
–238
–136
–3,259
–438
–1,120
–322
10,913
–
52
–
–
–286
708
1,679
762
–
–6,677
708
146,785
1) SEK 1,139 million is recognized in Net Sales, SEK –586 million is recognized in Cost of Sales and SEK –315 million is recognized in R&D expenses.
2) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK –1,480 million (SEK –1,015 million in 2009, SEK 2,993 million in
2008), gain/loss from hedging activities of foreign entities, SEK 385 million (SEK 586 in 2009, SEK –660 million in 2008) and SEK 140 million (SEK 10 million in 2009, SEK 13 million in 2008)
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.
5) Dividends paid per share amounted to SEK 2.25 (SEK 2.00 in 2009 and SEK 1.85 in 2008).
72 | NOTES TO ThE CONSOlIDATED FINANCIAl STATEMENTS Ericsson Annual Report 2010
C15XC16XEN_v43.indd 72
2011-02-25 14.51
NOTE C16
EQUITY AND OTHER COmPREHENSIVE INCOmE 2009
Revalua
tion of
other
invest
ments in
shares
and
partici
pations
Cumula
tive
transla
tion
adjust
ments
Cash flow
hedges
Capital
stock
Addi tional
paid in
capital
Stock
holders’
equity
Non
controlling
interest
(NCI)
Retained
earnings
Total
equity
16,232
24,731
–1
–2,356
2,124
100,093
140,823
1,261
142,084
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
135
–
–
–
–
–
–
16,367
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,731
–
–
–
–
–2
–
–
–
–
–
–
–
–1
–3
–3
–
–
–
–
–
–
–
–4
–
–
–
–
–
–
665
7
3,850
–1,029
–
–
–1,059
2,434
2,434
–
–
–
–
–
–
–
78
–
–
–
–
–
–
–
–
–
–
–1,013
–294
–154
–1,461
–1,461
–
–
–
–
–
–
–
663
9,685
–6,013
9,685
–6,013
455
–
10,140
–6,013
–633
28
–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
–
–
–
–
–
–
–
–
–54
–
–
–54
401
–
–
–
–633
28
–2
–
665
7
3,850
–1,029
–1,067
–294
–1,040
485
4,612
135
75
–135
658
–
–5,897
–
98,035
658
–
–5,897
–
139,870
–
–
–421
–84
1,157
658
–
–6,318
–84
141,027
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
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
C15XC16XEN_v43.indd 73
2011-02-25 14.51
Ericsson Annual Report 2010 NOTES TO ThE CONSOlIDATED FINANCIAl STATEMENTS | 73
NOTE C16
EQUITY AND OTHER COmPREHENSIVE INCOmE 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
Capital
stock
Addi tional
paid in
capital
16,132
24,731
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
16,232
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,731
Revalua
tion of
other
invest
ments in
shares
and
partici
pations
Cumula
tive
transla
tion
adjust
ments
Cash flow
hedges
Stock
holders’
equity
Non
controlling
interest
(NCI)
Retained
earnings
Total
equity
307
–6,345
99,282
134,112
940
135,052
11,564
–291
11,564
–291
394
–
11,958
–291
–4,019
4
–4,019
4
5
–
–
–
–
–6
–1
–
–
–
–
–
–
1
–6
–6
–
–
–
–
–
–
–
–1
–
–
–
–
–
–
–5,116
36
1,192
–
–
–
1,225
–2,663
–2,663
–
–
–
–
–
–
–
–2,356
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–6
–1
–5,116
36
1,192
–
7,081
1,214
2,330
2,715
13,988
100
88
–100
7,081
1,214
174
8,469
8,469
–
–
–
–
–
930
–3,085
8,188
–
88
–100
–
–
–
–
–
–
–
233
–
–
233
627
–
–
–
–4,019
4
–6
–1
–5,116
36
1,192
–
7,314
1,214
2,330
2,948
14,615
100
88
–100
–
–
–
–
2,124
589
–
–7,954
–
100,093
589
–
–7,954
–
140,823
–
–
–286
–20
1,261
589
–
–8,240
–20
142,084
74 | NOTES TO ThE CONSOlIDATED FINANCIAl STATEMENTS Ericsson Annual Report 2010
C15XC16XEN_v43.indd 74
2011-02-25 14.51
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 2010 was characterized by the overall increase in discount rates, and
a higher than expected return on plan assets. Consequently, the Company
experienced a decrease in the net pension liability, and an actuarial gain.
NOTE C17
ContEnts
AMOUNT RECOGNIZED IN THE
CONSOLIDATED BALANCE SHEET
TOTAL PENSION ExPENSES RECOGNIZED
IN THE INCOME STATEMENT
CHANGE IN THE DEfINED BENEfIT
OBLIGATION, DBO
CHANGE IN THE PLAN ASSETS
ACTUARIAL GAINS AND LOSSES
REPORTED DIRECTLy IN OTHER
COMPREHENSIvE INCOME
ACTUARIAL ASSUMPTIONS
INfORMATION ON ISSUES AffECTING THE
NET PENSION LIABILITy fOR THE yEAR
75
76
77
78
79
79
80
Section One: Amount Recognized in the Consolidated Balance Sheet
AMOUNT RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET
2010
Defined benefit obligation (DBO) 1)
Fair value of plan assets 2)
Deficit/Surplus (+/–)
Unrecognized past service costs
Closing balance
Plans with net surplus excluding asset ceiling 3)
Provision for post-employment benefits 4)
2009
Defined benefit obligation (DBO) 1)
Fair value of plan assets 2)
Deficit/Surplus (+/–)
Unrecognized past service costs
Closing balance
Plans with net surplus excluding asset ceiling 3)
Provision for post-employment benefits 4)
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.
Sweden
UK Euro zone
US
Other
Total
14,980
12,389
2,591
–
2,591
–
2,591
16,150
10,927
5,223
–
5,223
–
5,223
5,437
5,691
–254
–
–254
290
36
5,688
5,336
352
–
352
190
542
3,163
2,514
649
5
654
643
1,297
3,840
2,406
1,434
–14
1,420
29
1,449
2,693
2,048
645
–
645
–
645
2,781
1,974
807
–
807
–
807
2,437
2,793
–356
–60
–416
939
523
2,258
2,563
–305
–79
–384
896
512
28,710
25,435
3,275
–55
3,220
1,872
5,092
30,717
23,206
7,511
–93
7,418
1,115
8,533
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”).
4) Plans with net liabilities are reported in the balance sheet as Post-employment benefits, non-current.
C17XEN_v38.indd 75
2011-02-25 14.53
Ericsson Annual Report 2010 NOTES TO ThE CONSOliDATED FiNANCiAl STATEmENTS | 75
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.
PENSION COSTS fOR DEfINED CONTRIBUTION PLANS AND DEfINED BENEfIT PLANS
2010
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
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
1) See cost details in table below.
Sweden
UK Euro zone
US
Other
Total
1,037
762
1,799
1,686
674
2,360
1,607
625
2,232
95
153
248
73
66
139
40
156
196
433
159
592
385
202
587
345
179
524
244
30
274
124
49
173
114
35
149
192
–14
178
185
144
329
72
33
105
2,001
1,090
3,091
7.1%
2,453
1,135
3,588
8.7%
2,178
1,028
3,206
8.3%
COST DETAILS fOR DEfINED BENEfIT PLANS RECOGNIZED IN THE INCOME STATEMENT
Sweden
UK Euro zone
US
Other
Total
2010
Current service cost
interest cost
Expected return on plan assets
Past service cost
Curtailments, settlements and other
Total
2009
Current service cost
interest cost
Expected return on plan assets
Past service cost
Curtailments, settlements and other
Total
2008
Current service cost
interest cost
Expected return on plan assets
Past service cost
Curtailments, settlements and other
Total
631
643
–511
–
–1
762
594
590
–366
–
–144
674
539
549
–431
–
–32
625
161
314
–322
–
–
153
205
284
–270
–
–153
66
186
299
–310
–
–19
156
129
182
–141
33
–44
159
138
194
–125
5
–10
202
141
160
–143
11
10
179
32
159
–130
–
–31
30
35
171
–156
–
–1
49
29
142
–137
–
1
35
140
172
–253
9
–82
–14
131
155
–208
25
41
144
122
133
–201
8
–29
33
1,093
1,470
–1,357
42
–158
1,090
1,103
1,394
–1,125
30
–267
1,135
1,017
1,283
–1,222
19
–69
1,028
76 | NOTES TO ThE CONSOliDATED FiNANCiAl STATEmENTS Ericsson Annual Report 2010
C17XEN_v38.indd 76
2011-02-25 14.53
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.
CHANGE IN THE DEfINED BENEfIT OBLIGATION
NOTE C17
2010
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
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
1) Business combinations in 2010 are related to the acquisition of lG-Nortel and Pride Spa.
Sweden
UK Euro zone
US
Other
Total
16,150
631
643
–
–159
–2,285
–
–1
–
1
–
14,980
–
14,866
594
590
–
–107
351
–
–144
–
–
–
16,150
–
5,688
161
314
11
–99
–157
–
–
–
–20
–461
5,437
–
4,867
205
284
14
–108
543
–
–153
–
–13
49
5,688
–
3,840
129
182
4
–82
–569
–14
–30
74
95
–466
3,163
–
3,557
138
194
4
–90
204
–
–14
–
74
–227
3,840
–
2,781
32
159
–
–169
46
–
–38
–
30
–148
2,693
594
2,789
35
171
–
–172
143
–
–
–
26
–211
2,781
631
2,258
140
172
5
–194
104
–104
–93
148
8
–7
2,437
–
1,931
131
155
12
–142
–120
–1
–
–13
40
265
2,258
–
30,717
1,093
1,470
20
–703
–2,861
–118
–162
222
114
–1,082
28,710
594
28,010
1,103
1,394
30
–619
1,121
–1
–311
–13
127
–124
30,717
631
fUNDED STATUS
The funded ratio, defined as total plan assets in relation to the total defined
benefit obligation (DBO), was 88.6 percent in 2010, compared to 75.5
percent in 2009.
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.
vALUE Of THE DEfINED BENEfIT OBLIGATION
2010
DBO, closing balance
Of which partially or fully funded
Of which unfunded
2009
DBO, closing balance
Of which partially or fully funded
Of which unfunded
Sweden
UK Euro zone
US
Other
Total
14,980
14,527
453
16,150
15,660
490
5,437
5,437
–
5,688
5,688
–
3,163
2,086
1,077
3,840
2,659
1,181
2,693
2,072
621
2,781
2,119
662
2,437
1,998
439
2,258
1,813
445
28,710
26,120
2,590
30,717
27,939
2,778
C17XEN_v38.indd 77
2011-02-25 14.53
Ericsson Annual Report 2010 NOTES TO ThE CONSOliDATED FiNANCiAl STATEmENTS | 77
NOTE C17
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.
CHANGE IN THE PLAN ASSETS
2010
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
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
1) Business combinations in 2010 are related to the acquisition of lG-Nortel.
Refunds from or reductions in future contributions to plan assets are
recognized if they are available and firmly decided.
ACTUAL RETURN ON PLAN ASSETS
2010
2009
ASSET ALLOCATION
2010
Equities
interest-bearing securities
Other
Total
Of which Ericsson securities
2009
Equities
interest-bearing securities
Other
Total
Of which Ericsson securities
Equity instruments amount to 36 (35) percent of the total assets, interest
bearing instruments amount to 57 (59) percent of the total assets, and other
instruments amount to 7 (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.
78 | NOTES TO ThE CONSOliDATED FiNANCiAl STATEmENTS Ericsson Annual Report 2010
Sweden
UK Euro zone
US
Other
Total
10,927
511
222
729
–
–
–
–
–
–
12,389
8,181
366
1,076
1,305
–
–
–
–
–1
–
10,927
5,336
322
265
343
11
–119
–
–
–
–467
5,691
4,407
270
342
387
14
–122
–
–
–
38
5,336
2,406
141
105
173
3
–43
–
–
53
–324
2,514
2,330
125
–136
213
4
–75
–
–1
90
–144
2,406
1,974
130
103
58
–
–103
–
–
–
–114
2,048
2,289
156
–253
49
–
–115
–
–
–
–152
1,974
2,563
253
–42
93
5
–119
–104
164
–4
–16
2,793
1,830
208
162
122
12
–125
–
–11
–2
367
2,563
23,206
1,357
653
1,396
19
–384
–104
164
49
–921
25,435
19,037
1,125
1,191
2,076
30
–437
–
–12
87
109
23,206
Sweden
UK Euro zone
733
1,441
587
612
246
–10
US
233
–97
Other
211
370
Total
2,010
2,316
Sweden
UK Euro zone
US
Other
Total
4,326
7,508
555
12,389
–
3,824
7,103
–
10,927
–
2,028
3,207
456
5,691
–
1,825
2,801
710
5,336
–
1,277
970
267
2,514
–
1,094
1,051
261
2,406
–
1,134
870
44
2,048
–
1,069
741
164
1,974
–
458
1,837
498
2,793
–
394
1,747
422
2,563
–
9,223
14,392
1,820
25,435
–
8,063
13,586
1,557
23,206
–
C17XEN_v38.indd 78
2011-02-25 14.53
Section five: Actuarial Gains and Losses Reported Directly in Other Comprehensive Income
ACTUARIAL GAINS AND LOSSES REPORTED DIRECTLy IN OTHER
COMPREHENSIvE INCOME
MULTI-yEAR SUMMARy
2010
2009
2008
2007
2006
NOTE C17
Cumulative gain/loss (–/+) at beginning of year
Recognized gain/loss (–/+) during the year
Translation difference
Cumulative gain/loss (–/+) at end of year
2010
2009
5,326
–3,514
37
1,849
5,402
–70
–6
5,326
Since January 1, 2006, Ericsson applies immediate recognition of actuarial
gains and losses directly in the statement of Other Comprehensive income.
Actuarial gains and losses may arise from either a change in actuarial
assumptions or in deviations between estimated and actual outcome.
Actuarial gains/losses (–/+) related to iFRiC 14 “The limit on a Defined
Benefit Asset, minimum Funding Requirements and their interaction”, had
an effect on other comprehensive income amounting to SEK 29 million in
2010 (SEK 662 million in 2009). For further details, see Note C12, “Financial
Assets, Non-Current”.
Section Six: Actuarial Assumptions
ACTUARIAL ASSUMPTIONS
2010
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
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
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.
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.
Plan assets
DBO
Deficit/Surplus (–/+)
25,435
28,710
–3,275
23,206
30,717
–7,511
19,037
28,010
–8,973
20,236
25,226
–4,990
18,395
24,612
–6,217
Actuarial gains and losses (–/+)
Experience-based
adjustments of
pension obligations
Experience-based
adjustments of plan
assets
–653
177
310
57
–76
232
–1,191
2,952
59
–358
Sweden
UK
Euro zone 1)
US 1)
Other 1)
4.80%
4.55%
3.25%
2.00%
n/a
21
24
4.00%
4.55%
3.25%
2.00%
n/a
21
24
5.40%
6.00%
4.50%
3.50%
n/a
22
24
5.60%
6.00%
4.90%
3.60%
n/a
21
24
5.59%
6.27%
2.91%
2.00%
n/a
22
25
5.26%
6.31%
2.92%
2.17%
n/a
22
25
5.73%
7.00%
4.50%
2.50%
9.00%
18
20
5.89%
7.00%
4.50%
2.50%
9.00%
18
20
8.55%
9.91%
5.70%
3.50%
n/a
19
22
8.91%
9.34%
6.77%
3.80%
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:
SENSITIvITy ANALySIS fOR MEDICAL BENEfIT SCHEMES
Net periodic post-employment medical cost
Accumulated post-employment benefit obligation
for medical costs
3
54
–3
–46
1 percent
increase
1 percent
decrease
C17XEN_v38.indd 79
2011-02-25 14.53
Ericsson Annual Report 2010 NOTES TO ThE CONSOliDATED FiNANCiAl STATEmENTS | 79
NOTE C17
Section Seven: Information on issues affecting the
Net Pension Liability for the year
SwEDEN
in 2010, The Swedish defined benefit obligation has been calculated using
a discount rate based on yields of covered bonds, which is higher than a
discount rate based on yields of government bonds. The Swedish covered
bonds are considered high quality bonds, mainly AAA-rated, as they are
secured with assets, and the market for covered bonds is considered deep
and liquid, thereby meeting iAS19 requirements.
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. Alecta’s collective funding ratio was 146 in
2010 (141 in 2009).
80 | NOTES TO ThE CONSOliDATED FiNANCiAl STATEmENTS Ericsson Annual Report 2010
C17XEN_v38.indd 80
2011-02-25 14.53
C18 Provisions
PROVISIONS
2010
Opening balance
Additions
Reversal of excess amounts
Negative effect on Income Statement
Cash out/Utilization
Balances regarding divested/acquired businesses
Reclassification
Translation differences
Closing balance
2009
Opening balance
Additions
Reversal of excess amounts
Negative effect on Income Statement
Cash out/Utilization
Balances regarding divested/acquired businesses
Reclassification
Translation differences
Closing balance
Provisions will fluctuate over time depending on business mix, market mix
as well as technology shifts. 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 2010, new or additional provisions amounting to SEK 6.7 billion
were made, and SEK 1.9 billion were reversed. The actual cash outlays for
2010 was SEK 7.2 billion compared with the estimated SEK 8 billion. The
expected cash outlays in 2011 is approximately SEK 8 billion.
Of the total provisions, SEK 353 (461) million are classified as non-
current. For more information, see Note C1, “Significant Accounting
Policies” and Note C2, “Critical Accounting Estimates and Judgments”.
Warranty provisions
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 cash
outlays for 2010 was SEK 1.5 billion and in line with the expected SEK 2
billion. Provisions amounting to SEK 1.7 billion were made and due to more
favorable outcomes in certain cases reversals of SEK 0.3 billion were made.
The cash outlays of warranty provisions during year 2011 is estimated to
approximately SEK 2 billion.
NOTe C18
Warranty
Restruc turing
Project related
Other
Total
2,533
1,743
–297
–1,466
182
–182
–44
2,469
1,931
2,141
–171
–1,427
96
19
–56
2,533
4,299
2,640
–335
–3,261
–
176
–289
3,230
3,830
4,920
–210
–4,248
–
146
–139
4,299
1,694
1,285
–353
–1,547
28
62
–64
1,105
3,794
1,952
–451
–3,459
–
–128
–14
1,694
3,905
1,046
–869
–880
–
–200
–62
2,940
4,795
2,129
–915
–1,595
16
–595
70
3,905
12,431
6,714
–1,854
4,860
–7,154
210
–144
–459
9,744
14,350
11,142
–1,747
9,395
–10,729
112
–558
–139
12,431
Restructuring provisions
The cost reduction program initiated in the first quarter 2009 was completed
by the second quarter 2010. The total restructuring charges for the
program was SEK 15.5 billion of which SEK 6.9 billion were provided for as
restructuring provisions. In the second half of the year the cost reduction
continued and primarily relates to continuous efficiency activities in service
delivery and development, transformation in managed services contracts
and product rationalization. In 2010 SEK 2.6 billion (4.9) in provision were
made. The cash outlays were 3.3 billion (4.2) for the full year and SEK 0.7
billion were related to restructuring programs before 2009. The cash outlay
for 2011 is estimated to approximately SEK 3 billion.
Project related provisions
Project provisions relate to estimated losses on onerous contracts,
including probable contractual penalties. The cash outlays of project related
provisions were SEK 1.5 billion and in line with the estimated SEK 1 billion.
Provisions amounting to SEK 1.3 billion were made and SEK 0.4 billion were
reversed due to a more favorable outcome than expected. The cash outlays
for 2011 is estimated to be approximately SEK 1 billion.
Other provisions
Other provisions include provisions for tax issues, litigations, supplier claims,
and other. The cash outlays was SEK 0.9 billion in 2010 compared to the
estimate of SEK 2 billion. During 2010, new provisions amounting to SEK
1.0 billion were made and SEK 0.9 billion were reversed during the year
due to a more favorable outcome. For 2011, the estimated cash outlays is
approximately SEK 2 billion.
C18XEN_v25.indd 81
2011-02-25 14.56
Ericsson Annual Report 2010 NOTES TO ThE CONSOlIDATED FINANCIAl STATEMENTS | 81
NOTE C19
C19 Interest-BearIng
LIaBILItIes
As of December 31, 2010, Ericsson’s outstanding interest-bearing liabilities
were SEK 30.8 (32.1) 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
1) Including notes and bond loans of SEK 0 (0) million.
swaps, resulting in a weighted average interest rate of 2.65 (2.88) percent
at December 31, 2010. These bonds are revalued based on changes in
benchmark interest rates according to the fair value hedge methodology
stipulated in IAS 39.
2010
2009
On December 23, 2010, the USD 625 million bilateral loan with Swedish
760
3,048
3,808
20,646
6,309
26,955
30,763
684
1,440
2,124
23,801
6,195
29,996
32,120
Export Credit Corporation (SEK) was renegotiated to reduce interest
expense and to prolong the maturity profile. USD 325 million was amortized.
The remaining USD 300 million will mature in 2016 according to the original
plan. At the same time a new bilateral bond of USD 170 million was issued
with maturity 2020. Consequently gross cash was reduced by USD 155
million. The new bond is not guaranteed by EKN (The Swedish Export Credit
Guarantee Board).
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.
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
NOTES AND BOND LOANS
Nominal
amount
Coupon
Currency
Book value
(SEK m.)
Maturity
date
(yy-mm-dd)
Unrealized
hedge gain/
loss (incl. in
book value)
450
1,000
2,000
375
500
600
300
170
2.420%
5.100%
2.200%
1.314%
5.380%
5.000%
3.35281%
2.69281%
SEK
SEK
SEK
EUR
EUR
EUR
USD
USD
450
1,035
2,000
3,383
5,059 1)
5,521 1)
2,041
1,157
20,646
12-12-07 2)
12-06-29
12-06-29 3)
14-06-27 4)
17-06-27
13-06-24
16-06-23
20-12-23 6)
5)
–35
–571
–129
–735
Issued–maturing
2004–2012
2007–2012
2007–2012
2007–2014
2007–2017
2009–2013
2009–2016
2010–2020
Total
1) Interest rate swaps are designated as fair value hedges.
2) Next contractual repricing date 2011-06-03 (semi annual).
3) Next contractual repricing date 2011-03-25 (quarterly).
4) Next contractual repricing date 2011-03-24 (quarterly).
5) Next contractual repricing date 2011-03-21 (quarterly).
6) Next contractual repricing date 2011-03-18 (quarterly).
82 | NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C19XEN_v22.indd 82
2011-02-25 14.56
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 financial flexibility and independence to operate and manage
variations in working capital needs as well as to capitalize on business
opportunities.
Ericsson’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 the Company secure funding
of operations at a reasonable cost of capital. Regular borrowings are
complemented with committed credit facilities to give additional flexibility to
manage unforeseen funding needs. Ericsson strive to finance growth, normal
capital expenditures and dividends to shareholders by generating sufficient
positive cash flows from operating activities.
Ericsson’s 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
2010
2009
147
52
112
51.3
141
52
117
36.1
baa1 Baa1
bbb+ 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
>
> Market price risk in own and other equity instruments.
Liquidity and refinancing risk
note C20
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.
>
>
> Reported cash flows.
The comparability of our results between periods.
The carrying value of assets and liabilities.
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
exposure
currency
translation
exposure
transaction
exposure
net
exposure
net
expo sure,
percent
of total
net sales
USD
EUR
CNY
JPY
INR
GBP
BRL
SEK
Other
pre-hedge total
Hedge
total net sales
net cost
USD
SEK
EUR
CNY
INR
BRL
JPY
GBP
Other
pre-hedge total
Hedge
total net cost
operating income
46.6
27.4
13.5
8.8
8.3
7.8
5.9
41.7
42.2
202.2
–45.9
–32.8
–25.8
–12.8
–9.0
–5.9
–8.4
–7.5
–37.9
–186.0
40.8
10.5
–0.3
0.6
–1.1
–1.5
–0.2
–37.6
–11.2
0.0
–14.7
–15.3
–4.5
1.1
3.6
0.7
4.3
6.8
18.0
0.0
43%
19%
6%
5%
4%
3%
3%
2%
15%
100%
33%
26%
16%
6%
3%
3%
2%
0%
11%
100%
87.4
37.9
13.2
9.4
7.2
6.3
5.7
4.1
31.0
202.2
1.1
203.3
–60.6
–48.1
–30.3
–11.7
–5.4
–5.2
–4.1
–0.7
–19.9
–186.0
–0.8
–186.8
16.5
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.
C20XC23XEN_v56.indd 83
2011-02-27 15.45
Ericsson Annual Report 2010 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 83
note C20
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 and costs, 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
subsidiaries’ 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, 2010, outstanding foreign exchange derivatives
hedging transaction exposures had a net market value of SEK 0.6 (0.3)
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.
Cash flow hedges
The purpose of hedging forecasted revenues and costs 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 2010 were negative, SEK 3.7 billion, including hedging gain of
SEK 0.4 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 51.3 (36.1) billion at the end of
2010, consisting of cash, cash equivalents and short-term investments of
SEK 87.2 (76.7) billion and interest-bearing liabilities and post-employment
benefits of SEK 35.9 (40.7) 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
84 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
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 million given a confidence level of 99 percent
and a 1-day horizon.
As of December 31, 2010, 97 (88) percent of Ericsson’s interest-bearing
liabilities and 90 (61) 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.
outstandinG derivatives 1)
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
asset
2010
liability
asset
2009
liability
581
1,086
580
945
2
–
–
1,528
662
–
6
76
544
184
705
1,515
862
505
21
–
–
910
90
84
3
1,613 2) 1,666 3)
–
3
28
96
–
–
61
118
34
87
329 2)
28
49
175
685
937 3)
–
845
500
423
44
–
–
967
–
62
–
40
151
40
58
289
–
1) Some of the derivatives with short maturities are recognized in the balance sheet as
non-current due to hedge accounting.
2) Of which SEK 902 million is reported as non-current liabilities.
3) Of which SEK 843 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 2010 was for the interest rate mandate
SEK 20.3 (14.3) million and for the transaction exposure mandate SEK 9.8
(13.9) million. No VaR-limits were exceeded during 2010.
C20XC23XEN_v56.indd 84
2011-02-27 15.45
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, government bonds, 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 2010, neither on external investments nor on
derivative positions.
At December 31, 2010, the credit risk in financial cash instruments
was equal to the instruments’ carrying value. Credit exposure in derivative
instruments was SEK 3.0 (2.6) billion.
liquidity risk
Liquidity risk is that Ericsson is unable to meet its short-term payment
obligations due to insufficient or illiquid cash reserves.
Ericsson minimizes the liquidity risk by maintaining a sufficient net
cash position. This is managed 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 C32,
“Contractual obligations”. The current cash position is deemed to satisfy all
short-term liquidity requirements.
During 2010, cash and bank and short-term investments increased by
SEK 10.5 billion to SEK 87.2 billion. The increase was mainly due to positive
operating cash flow.
Cash, Cash equivalents and short-term investments
(seK billion)
Bank Deposits
type of issuer/
counterpart
Governments
Banks
Corporations
Mortgage
institutes
2010
2009
remaining time to maturity
< 3
months
29.4
< 1
year
0.1
1–5
years
–
>5
years
–
–
1.5
–
–
30.9
31.8
9.3
–
–
–
9.4
2.6
23.5
4.0
–
15.3
42.8
34.4
2.9
–
–
1.2
4.1
7.9
total
29.5
35.7
5.5
–
16.5
87.2
76.7
The instruments are either classified as held for trading or as assets
available for sale with maturity less than one year and therefore short-term
investments. 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)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
total
0.8
–
–
–
–
–
–
–
–
–
0.8
–
3.5
5.4
3.4
–
2.0
4.5
–
–
1.2
20.0
–
0.9
–
–
4.1
–
–
–
–
–
5.0
note C20
total
0.8
4.4
5.4
3.4
4.1
2.0
4.5
–
–
1.2
25.8
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 1)
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)
Indian Commercial Paper program
(INR million)
amount
utilized unutilized
5,000
3,003
1,997
1,500
5,000
2,000
–
–
–
1,500
5,000
2,000
5,000
3,200
1,800
1) There are no financial covenants related to these programs.
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 1.1
billion. For further information about valuation principles, please see Note
C1, “Significant accounting policies”.
finanCial instruments Carried at other than fair value 1)
seK billion
Current maturities of
non-current borrowings
Notes and bonds
Other borrowings non-current
total
Carrying amount
2009
2010
fair value
2010
2009
0.8
20.6
5.1
26.5
0.7
23.8
4.8
29.3
0.8
20.5
5.0
26.3
0.7
22.8
4.0
27.5
1) Excluding finance leases reported in Note C27, “Leasing”.
Financial instruments excluded from the tables, such as trade receivables
and payables, are carried at amortized cost which is deemed to be equal
to fair value. When a market price is not readily available and there is
insignificant interest rate exposure affecting the value, the carrying value is
considered to represent a reasonable estimate of fair value.
Ericsson Annual Report 2010 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 85
C20XC23XEN_v56.indd 85
2011-02-27 15.45
note C20–C23
note C20
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
finanCial instruments, CarryinG amounts
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 Group
Management and Employees”.
Customer
finance
C14
trade
receiv-
ables
C14
short-
term
invest-
ments
Cash
equiva-
lents
borrow-
ings
C19
trade
payables
C22
other
financial
assets
C12
other
current
receiv-
ables
C15
other
current
liabilities
C21
other
non-
current
liabilities
2010
2009
–
4.4
–
–
4.4
–
61.1
–
–
61.1
56.3
–
–
–
56.3
1.5
2.1
–
–
3.6
–
–
–
–
–
–
–30.8
–30.8
–25.0
–25.0
–
2.7
–
–
2.7
3.0
–
–
–
3.0
–1.0
–
–
–
–1.0
–0.9
–
–
–
–0.9
58.9
70.3
–
–55.8
73.4
56.0
73.7
–
–51.0
78.7
seK billion
Assets at fair value
through profit or loss
Loans and receivables
Available for sale assets
Financial liabilities at
amortized cost
total
C21 otheR CuRRent
liabilities
C22 tRade Payables
other Current liabilities
trade payables
Income tax liabilities
Advances from customers
Liabilities to associated companies
and joint ventures
Accrued interest
Accrued expenses, of which
Employee related
Supplier related
Other 1)
Deferred revenues
Derivatives with a negative value 2)
Other 3)
total
2010
2,228
5,946
115
349
31,463
10,063
12,273
9,127
11,415
1,039
6,050
58,605
2009
1,890
4,903
152
378
29,957
10,137
10,769
9,051
8,267
1,255
5,727
52,529
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 and other payroll deductions,
and liabilities for goods received where invoice is not yet received.
Payables to associated
companies and joint ventures
Other
total
2010
2009
157
24,802
24,959
1,186
17,678
18,864
C23 assets Pledged
as CollateRal
assets pledGed as Collateral
Chattel mortgages
Bank deposits
total
2010
191
467
658
2009
167
383
550
86 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C20XC23XEN_v56.indd 86
2011-02-27 15.45
C24 Contingent LiabiLities
coNtINGeNt LIABILItIeS
contingent liabilities
total
2010
875
875
2009
1,245
1,245
contingent liabilities assumed by Ericsson include guarantees of loans to
other companies of sEK 25 (76) million. Ericsson has sEK 413 (542) 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 191 (52) million as
of december 31, 2010. maturity date for major part of the issued guarantees
occurs in 2019 at latest.
sony Ericsson mobile communications AB (sEmc) has been granted
term loans and credit facilities of sEK 3,157 million, of which sEK 2,106
million were utilized as of december 31, 2010. the parent companies of
Ericsson and sony corporation have issued guarantees for these term
loans and credit facilities on a 50/50 basis, without joint responsibility.
thus Ericsson’s guaranteed amount is maximum sEK 1,579 million
excluding interest. As of december 31, 2010, Ericsson’s part of the
outstanding amount is sEK 1,037 million excluding accrued interest of sEK
16 million. maturity dates for the issued guarantees are 2011 (sEK
1,128 million) and 2012 (sEK 451 million). see also note c30, “Related
Party transactions”.
C25 statement of Cash
fLows
interest paid in 2010 was sEK 977 million (sEK 772 million in 2009, sEK
1,689 million in 2008) and interest received was sEK 1,083 million (sEK
1,900 million in 2009, sEK 2,375 million in 2008). taxes paid, including
withholding tax, were sEK 4,808 million (sEK 4,427 million in 2009, sEK
4,274 million in 2008).
cash and cash equivalents includes cash of sEK 27,231 million (sEK
18,372 million in 2009) and temporary investments of sEK 3,633 million
(sEK 4,426 million in 2009). 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 10,836 million (sEK 8,907 million in
2009, sEK 8,197 million in 2008).
Note c24–c25
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
2010
2009
2008
3,299
3,550
3,108
–3
3,296
–48
3,502
–3
3,105
664
647
1,726
4,999
5,663
3,562
4,209
3,280
5,006
49
157
562
945
6,657
4,255
8,621
–
5,568
9,953
351
12,123
–1,011
8,673
1,032
119
70
3,863
1,357
6,013
291
–237
947
–910
571
–1,210
1,669
12,490
16,856
14,318
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
oPeRAtIoNS
Acquisitions
Divestments
2010
cash flow from business combinations 1)
total
2009
cash flow from business combinations 1)
capital contribution to joint venture
total
2008
cash flow from business combinations 1)
other investments
total
1) see also note c26, “Business combinations”.
–3,286
–3,286
–9,633
–9,688
–19,321
–74
–
–74
454
454
1,239
–
1,239
654
1,256
1,910
C24XC25XEN_v37.indd 87
2011-02-25 15.57
Ericsson Annual Report 2010 notEs to thE consolidAtEd finAnciAl stAtEmEnts | 87
notE c26
C26 Business ComBinations
Acquisitions and divestments
Acquisitions
Acquisitions 2008–2010
Cash
total consideration
2010
3,789
3,789
2009
9,633
9,633
Acquisition-related costs
67 1)
–
net asset acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Investments in associates
Other assets
Provision, incl. post-employment
benefits
Other liabilities
total identifiable net assets
non-controlling interest
Goodwill
570
205
3,825
138
2,506
–390
–3,573
3,281
–748
1,256
3,789
5
297
5,832
–
1,235
–
–1,270
6,099
–
3,534
9,633
2008
74
74
–
–
–
–209
–
887
–
278
956
–
–882
74
1) Acquisition-related costs are included in Selling and administrative expenses in the
consolidated income statement.
In 2010, Ericsson made acquisitions with a cash flow effect amounting to
SEK 3,286 (9,633) million, primarily:
incode: On September 7, 2010, the Company announced that it had
entered into an asset purchase agreement to acquire certain assets
of inCode’s Strategy and Technology Group, a premier professional
services firm providing strategic business and consulting services
to leading North American telecommunications clients. inCode is
consolidated by the Company as of September 30 2010. The purchase
price was USD 12 million on a cash and debt free basis. The acquisition
includes certain assets of inCode’s Strategy and Technology Group,
including contracts, technology and intellectual property, and about 45
employees throughout the US and Canada.
LG-nortel: On April 21, 2010, the Company announced that it had
entered into a share purchase agreement to acquire Nortel’s majority
shareholding (50 percent + 1 share) in LG-Nortel, the joint venture of
LG Electronics and Nortel Networks. In 2009, LG-Nortel generated
approximately USD 650 million of sales. The purchase price was
USD 234 million on a cash and debt free basis. The acquisition has
significantly expanded the Company’s footprint in the Korean market
and provided well established sales channel and strong R&D capability
in the country. Furthermore, the acquisition provided the Company with
an industrial base and the ability to build new customer relationships.
Part of the acquisition costs is recognized as goodwill due to the
competence acquired. The non-controlling interest is measured at the
non-controlling interest’s share of the acquiree’s net assets. Net Sales
for acquired LG-Nortel business amounted to approximately SEK 2,322
million for the period July 1 – December 31, 2010. If LG-Nortel had
been consolidated from January 1, 2010, the sales had amounted to
approximately SEK 3,820 million. The acquired LG-Nortel business had
a positive impact on the result. Approximately 1,300 employees were
transferred. LG-Nortel is consolidated by the Company as of June 30,
2010, and is included in segment Networks. The new name of the joint
venture is LG-Ericsson. Transaction costs for the acquisition amounted
to SEK 24 million.
>
>
>
> nortel GsM: On November 25, 2009, the Company announced it had
entered to acquire certain assets of the Carrier Networks division of
Nortel relating to Nortel’s GSM business in the US and Canada. Nortel
GSM was consolidated by the Company as of March 31, 2010. The
acquisition further strengthens the Company’s ability to serve North
Americas leading wireless operators. The purchase was structured as
an asset sale at a cash purchase price of USD 79 million on a cash
and debt free basis. Approximately 350 employees were transferred
to Ericsson. Transaction costs for the acquisition amounted to SEK 22
million
> optimi: On December 22, 2010, the Company announced the
acquisition of Optimi Corporation, a US-Spanish telecommunications
vendor providing products and services within the networks optimization
and management sector to leading clients in telecommunications. The
purchase price was USD 99 million on a cash and debt free basis.
Approximately 200 highly skilled professionals and a complete portfolio
of services and tools were transferred to the Company. Optimi is
consolidated by the Company as of December 31.
> Pride: On January 12, 2010, the Company announced it had acquired
all shares in Italian Pride Spa, a consulting and systems integration
company, operating in Italy. The purchase price was EUR 66 million
on a cash and debt free basis. The aim was to further strengthen the
Company’s offering in the systems integration and consultancy field.
Pride employs about 1,000 employees. Goodwill is related to business
footprint and critical mass in Systems Integration. Pride is consolidated
by the Company as of January 29, 2010.
The preliminary purchase price allocation made in 2009 related to Nortel
CDMA were finalized 2010 with the following effects: An increase in
inventory of SEK 114 million, a decrease in other assets of SEK 191 million,
an increase of other liabilities of SEK 67 million, an increase of intangible
assets of SEK 281 MSEK and a decrease in goodwill of SEK 137 million.
noRtEL cDMA businEss (2009)
net assets acquired
intangible assets
Intellectual property rights
Customer relationships
Goodwill
other assets and liabilities
book
value
Fair value
adjustments Fair value
–
–
–
4,979
811
2,957
Inventory
Property, plant and equipment
Other assets
Other liabilities
187
261
392
–1,242
total purchase price
Less:
Cash and cash equivalents
–
cash flow effect
–
–
–
–
–
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.
4,979
811
2,957
187
261
392
–1,242
8,345
–
8,345
88 | NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C26XEN_v54.indd 88
2011-02-25 15.59
notE c26
Divestments in 2009 refer mainly to TEMS with a gain amounting to SEK 777
million and a cash flow effect of SEK 926 million.
DiVEstMEnts
DiVEstMEnts 2008–2010
cash
net assets disposed of
Property, plant and equipment
Other assets
Other liabilities
Net gains from divestments
Less Cash and cash equivalents
cash flow effect
2010
454
21
372
–183
210
357
–113
454
2009
1,239
5
586
–38
553
780
–94
1,239
2008
654
3
1,005
–456
552
296
–194
654
tEMs businEss (2009)
net assets disposed of
Property, plant and equipment
Other assets
Other liabilities
Net gains from divestments
Less:
Cash and cash equivalents
cash flow effect
In 2010, the Company made divestments with a cash flow effect amounting
to SEK 454 (1,239) million.
>
Ericsson Federal inc. (EFi): On January 3, 2011, the Company
announced the completion of the sale of 100 percent of the shares
in EFI to Tailwind Capital, a private equity firm focused on growing
companies. EFI was consolidated by the Company until the sale in the
end of December 2010. The sale resulted in a gain amounting to SEK
216 million and a cash flow effect of SEK 360 million.
Acquisitions 2008–2010
company
Optimi
inCode
LG-Nortel
Pride
Description
A US-Spanish telecommunications vendor providing products and services within the networks optimization
and management sector with around 200 employees.
An asset purchase agreement of certain assets with around 45 employees. A premier professional services
firm providing strategic business and consulting services.
Nortel’s majority shareholding (50 percent + 1 share) in LG-Nortel with around 1,300 employees.
Italian consulting and systems integration company with around 1,000 employees.
Nortel GSM
An asset purchase agreement of the Carrier Networks division of Nortel relating to GSM business.
Nortel
Elcoteq
Bizitek
Mobeon
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.
DiVEstMEnts 2008–2010
company
Description
EFI
TEMS
Enterprise
Sale of Ericsson Federal Inc. (EFI).
Tools for air interface monitoring and radio network planning.
PBX solutions business.
2009
5
276
–38
243
777
94
926
Date of
announcement
Dec 22, 2010
Sep 7, 2010
Apr 21, 2010
Jan 12, 2010
Nov 25, 2009
Nov 13, 2009
June 17, 2009
May 28, 2009
Mar 31, 2008
Date of
announcement
Jan 3, 2011
Mar 23, 2009
May 1, 2008
C26XEN_v54.indd 89
2011-02-25 15.59
Ericsson Annual Report 2010 NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS | 89
nOTe C27–C28
C27 Leasing
Leasing with the Company as lessee
Assets under finance leases, recorded as property, plant and equipment,
consist of:
FinanCe Leases
acquisition costs
Real estate
Machinery
accumulated depreciation
Real estate
Machinery
accumulated impairment losses
Real estate
net carrying value
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, 2010, future minimum payment receivables were
distributed as follows:
FUTURe MiniMUM PaYMenT ReCeiVaBLes
2010
2009
1,846
3
1,849
–687
–3
–690
–54
1,105
1,942
4
1,946
–662
–4
–666
–49
1,231
2011
2012
2013
2014
2015
2016 and later
Total
Unearned financial income
Uncollectible lease payments
net investments in financial leases
Finance
leases
Operating
leases
–
–
–
–
–
–
–
–
–
–
52
13
13
13
13
38
142
n/a
n/a
n/a
Leasing income in 2010 was SEK 94 (181) million.
C28 Tax assessmenT
VaLues in sweden
TaX assessMenT VaLUes in sWeDen
Land and land improvements
Buildings
Total
2010
65
295
360
2009
58
265
323
As of December 31, 2010, future minimum lease payment obligations for
leases were distributed as follows:
FUTURe MiniMUM Lease PaYMenT OBLiGaTiOns FOR Leases
Finance
leases
Operating
leases
2011
2012
2013
2014
2015
2016 and later
Total
Future finance charges 1)
Present value of finance lease liabilities
1) Average effective interest rate on lease payables is 5.87 percent.
155
153
151
230
131
997
1,817
–568
1,249
3,097
2,586
1,754
1,203
722
2,216
11,578
n/a
11,578
Expenses in 2010 for leasing of assets were SEK 3,675 (3,839) million, of
which variable expenses were SEK 51 (0) million. The leasing contracts vary
in length from 1 to 18 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.
90 | NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C27XC28XEN_v17.indd 90
2011-02-25 16.00
C29 InformatIon
regardIng members
of the board of dIreCtors,
the groUP management
and emPloyees
note c29
Contents
RemuneRation to the BoaRD
of DiRectoRs
RemuneRation to the GRoup
manaGement
LonG-teRm VaRiaBLe RemuneRation
empLoyee numBeRs, waGes
anD saLaRies
91
92
93
96
Remuneration to the Board of Directors
RemuneRation to memBeRs of the BoaRD of DiRectoRs
number of
synthetic
shares/portion
of Board fee
Board fees
Value at grant
date of
synthetic
shares
allocated 2010
a
number of
previously
allocated
synthetic
shares
net change
in value of
allocated
synthetic
shares 1)
B
committee
fees
total
fees paid
total
remuneration
in cash 2)
2010
c
(a+B+c)
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
Hans Vestberg
Michelangelo Volpi
3,750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
–
750,000
32,856/75%
2,190/25%
0/0%
6,571/75%
2,190/25%
6,571/75%
6,571/75%
4,380/50%
0/0%
4,380/50%
–
4,380/50%
Employee Representatives
Monica Bergström
Pehr Claesson
Kristina Davidsson
Anna Guldstrand
Jan Hedlund
Karin Lennartsson
Karin Åberg
total
4,500
15,000
15,000
15,000
15,000
10,500
15,000
11,340,000
–
–
–
–
–
–
–
70,089
2,812,474
187,464
–
562,478
187,464
562,478
562,478
374,928
–
374,928
–
374,928
–
–
–
–
–
–
–
5,999,618
79,070.80
5,270.80
–
15,813.60
5,270.80
15,813.60
15,813.60
13,097.60
–
–
–
–
–
–
–
–
–
–
–
150,150.80
948,927
63,256
–
189,779
63,256
189,779
189,779
167,534
–
–32,631
–
–32,631
–
–
–
–
–
–
–
1,747,048
250,000
125,000
–
250,000
250,000
125,000
350,000
125,000
125,000
–
–
–
1,359,509 3)
687,500
750,000
437,500
812,500
312,500
615,357 3)
500,000
875,000
375,000
–
375,000
–
–
–
–
–
–
–
1,600,000
4,500
15,000
15,000
15,000
15,000
10,500
15,000
7,189,866
5,120,910
938,220
750,000
1,189,756
1,063,220
1,064,756
1,367,613
1,042,462
875,000
717,297
–
717,297
4,500
15,000
15,000
15,000
15,000
10,500
15,000
14,936,533 4)
1) The difference in value as of December 31, 2010, compared to December 31, 2009 (for synthetic shares allocated 2008 and 2009), and compared to grant date 2010 (for synthetic shares
allocated 2010). The value of synthetic shares allocated in 2008 and 2009 includes respectively SEK 1.85 and SEK 2.00 per share in compensation for dividends resolved by the Annual
General Meetings 2009 and 2010.
2) Committee fee and cash portion of the Board fee.
3) Including an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced through a limited liability company.
4) Excluding social security charges in the amount of SEK 3,077,266
comments to the table
>
>
The Chairman of the Board was entitled to a Board fee of
SEK 3,750,000 and a fee of 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.
> According to new rules it has been possible for Board members fulfilling
certain criteria to invoice the amount of the Board and Committee
fee. The Board member is allowed to add to the invoice an amount
corresponding to social charges. The social charges thus included in the
Ericsson Annual Report 2010 NoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS | 91
C29XEN_v99.indd 91
2011-02-25 16.02
note c29
>
invoiced amount are not higher than the general payroll tax that would
otherwise have been paid by the Company. The entire amount, e.g. the
cash portion of the Board fee and the committee fee, including social
charges, constitutes the invoiced Board fee
The Annual General Meeting 2010 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 2010: SEK 85.60. The number of synthetic shares is rounded down to
the nearest whole number of shares.
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 2015.
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 and 2010.
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, 2010 the total
number of synthetic shares under the programs is 220,239.80 and the
total accounted debt is SEK 17,649,112.
Remuneration to the Group management
RemuneRation costs
The total remuneration to the President and CEo and to other members of
the Group management, hereafter presented as the Executive Leadership
Team (ELT) 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 2010, see the approved
guidelines in section “2010 Remuneration Policy”.
RemuneRation costs incuRReD DuRinG 2010 foR the pResiDent anD ceo anD otheR memBeRs of executiVe
LeaDeRship team
seK
Salary
Provisions for annual variable remuneration
earned 2010 to be paid 2011
Long-term variable remuneration provision
Pension costs
other benefits
Social charges and taxes
total
the president
12 573 789
6 737 556
1 253 262
5 586 760
80 962
7 842 186
34 074 515
other members
of eLt
84 697 698
26 592 809
6 467 584
24 994 073
4 142 484
30 246 918
177 141 565
total 2010
97 271 487
33 330 365
7 720 846
30 580 833
4 223 446
38 089 103
211 216 080
total 2009
61 653 309
21 364 557
3 172 351
47 573 897
2 423 437
36 674 431
172 861 982
comments to the table
> As of January 1, 2010, Hans Vestberg was appointed President and
CEo.
>
> During 2010, there were two Executive Vice Presidents, appointed by the
Board of Directors. None of them has acted as deputy to the President
and CEo during the year. The Executive Vice Presidents are included in
the group “other members of ELT”.
The group “other members of ELT” comprises the following persons:
Jan Frykhammar, Johan Wibergh, Jan Wäreby, Magnus Mandersson,
Cesare Avenia, Carl olof Blomqvist, Håkan Eriksson, Douglas Gilstrap,
Henry Sténson, Marita Hellberg (up to June 30), Torbjörn Possne (up to
September 30), Rima Qureshi (from February 1), Mats H. olsson (from
February 8), Angel Ruiz (from February 8) and Bina Chaurasia (from
November 15).
Included in “salary” for the President and CEo is vacation pay and a
one-off cost of SEK 2 million in connection with changing the terms and
conditions of the President and CEo’s long-term variable remuneration
arrangements 2010.
The ELT has a significantly different composition compared to 2009, with
more diversity as to nationalities, gender and experience, both on local
contracts as well as expatriate contracts. To be able to attract and retain,
decisions on long-term compensation commitments have been made
>
>
>
>
>
during 2010, cost for these commitments are included in salary for other
members of ELT. For 2009 there were no such commitments.
The salary stated in the table for other members of the ELT includes
vacation pay paid during 2010 as well as other contracted compensation
which were paid during 2010 or provisioned for 2010. Deferred salary,
earned 2010 to be paid 12 months or later after period end amounts to
SEK 6,097,404.
“Long-term variable remuneration provisions” refers to the
compensation costs during 2010 for all outstanding share-based plans.
For a description of compensation cost, including accounting treatment,
see Note C1, “Significant Accounting Policies”, section Share-based
compensation to employees and the Board of Directors.
For the President and CEo and other members of ELT 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.
> Ericsson’s commitments for benefit based pensions per December 31,
2010, under IAS 19 amounted to SEK 5,177,173 for the President and
CEo which includes ITP plan and temporary disability and survivor’s
pension. For other members of ELT the Company’s commitments
amounted to SEK 45,368,650 of which SEK 35,087,673 refers to the
92 | NoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C29XEN_v99.indd 92
2011-02-25 16.02
note c29
>
ITP plan and the remaining SEK 10,280,977 to temporary disability and
survivor’s pensions.
For previous Presidents and CEos, the Company has made provisions
for defined benefit pension plans in connection with their active service
periods within the Company.
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.
outstanDinG matchinG RiGhts
as per December 31, 2010
number of class B shares
the president
other members
of eLt
Stock Purchase Plans 2007, 2008,
2009 and 2010 and Executive
Performance Stock Plans 2008,
2009 and 2010
142,373
687,562
comments to the table
>
>
>
For the definition of matching rights, see description in section “Long-
term variable remuneration”.
The number of matching rights is based on maximum performance
matching under Executive Performance Stock Plans, 2008, 2009 and
2010 for all members of ELT during 2010.
2007 award lapsed for the Performance Stock Plan, so for 2007 only
the matching under the Stock Purchase Plan is included in outstanding
matching rights.
> During 2010, the President and CEo received 2,314 matching shares
and other members of ELT 17,093 matching shares.
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
>
> 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.
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 2010 plan employees
are able to save up to 7.5 percent (President and CEo 10 percent) of gross
fixed salary (President and CEo gross fixed salary and annual variable
remuneration) for purchase of Class B contribution shares at market price
on the NASDAQ oMX Stockholm or ADS’s (American Depositary Share) 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 ADS’s free of consideration.
Employees in 94 countries participate in the plans.
The table below shows the contribution periods and participation details
for ongoing plans as of December 31, 2010.
appropriate but not excessive.
stocK puRchase pLans
> 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:
> 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
plan
Stock Purchase
plan 2007
Stock Purchase
plan 2008
Stock Purchase
plan 2009
Stock Purchase
plan 2010
contribution
period
August 2007
– July 2008
August 2008
– July 2009
August 2009
– July 2010
August 2010
– July 2011
number of
participants
at launch
take-up rate
– percent of
all employees
19,000
19,000
18,000
22,000
26%
25%
25%
27%
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 (2010: 7,201 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.
Ericsson Annual Report 2010 NoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS | 93
C29XEN_v99.indd 93
2011-02-25 16.02
note c29
executiVe peRfoRmance stocK pLans
plan
Executive Performance Stock Plan 2007
5)
Executive Performance Stock Plan 2008
Executive Performance Stock Plan 2009
Executive Performance Stock Plan 2010
Base year
target average annual
eps 1)
8.83
eps growth range 2)
5% to 15%
4.43
2.90
1.14
5% to 15%
5% to 15%
5% to 15%
matching share
vesting range 3)
maximum opportunity
as percentage
of fixed salary 4)
0.67 to 4
1 to 6
1.33 to 8
0.67 to 4
1 to 6
1.33 to 8
0.67 to 4
1 to 6
1.33 to 8
0.67 to 4
1 to 6
1.5 to 9
30%
45%
72%
30%
45%
72%
30%
45%
72%
30%
45%
162%
1) Sum of four quarters up to June 30 of plan years, up to and including 2009. For 2010 plan the sum of 4 quarters up to December 31, 2010.
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 9 matching shares.
4) At full investment, full vesting and constant share price. Excludes Stock Purchase Plan matching.
5) The 2007 Executive Performance Stock Plan did not vest. All awards have also lapsed for the matching share vesting range 1.33 to 8 shares for the 2008 and 2009 plans following the only
participant, the former President and CEo, leaving the Company.
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 ELT, 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 (2010: 264 executives) are
offered to participate in the plan. The President and CEo is allowed to invest
up to 10 percent of fixed salary and Short-Term Variable Remuneration
in contribution shares and may obtain up to nine 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 shows all Executive Performance Stock Plans as per
December 31, 2010.
94 | NoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C29XEN_v99.indd 94
2011-02-25 16.02
originally
designated 1)
outstanding
beginning
of 2010
awarded
during 2010
exercised/
matched
during 2010
forfeited/
expired
during 2010
outstanding
end of 2010
note c29
compensation
costs charged
during 2010
(mseK)
a
6.4
9.7
B
3.3
8.6
16.5
11.3
c
–
–
–
22.4
2.5
7.6
19.4
74.4
–
25.7
3.0
10.6
D
e
f=B+c-D-e
G
2.7
1.4
0.1
0.1
–
4.3
0.6
0.1
–
18 3)
7.1 2)
130 3)
0.2
11.0 2)
247 3)
0.1
–
1.0
9.9 2)
351 3)
3.0 2)
31.0
11 3)
757 4)
shaRes foR aLL pLans
plan (million shares)
2006 Stock Purchase Plan, Key
Contributor Retention Plan and
Executive Performance Stock
Plans
2007 Stock Purchase Plan, Key
Contributor Retention Plan and
Executive Performance Stock
Plans
2008 Stock Purchase Plan, Key
Contributor Retention Plan and
Executive Performance Stock
Plans
2009 Stock Purchase Plan, Key
Contributor Retention Plan and
Executive Performance Stock
Plans
2010 Stock Purchase Plan, Key
Contributor Retention Plan and
Executive Performance Stock
Plans
total
1) Adjusted for rights offering and reverse split when applicable.
2) Presuming maximum performance matching under the Executive Performance Stock Plans. The 2006 and 2007 plans have lapsed.
3) 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 2010 was: February 15 SEK 64.47, May 15 SEK 75.26, August 15 SEK 67.44 and November 15 SEK 62.57.
4) Total compensation costs charged during 2009: SEK 529 million, 2008: SEK 572 million.
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 matching
of shares. During 2010, 669,700 shares were sold at an average price of
SEK 77.09. Sale of shares is recognized directly in equity.
If, as of December 31, 2010, 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 50 million Class B shares would
be transferred, corresponding to 1.5 percent of the total number of shares
outstanding, 3,200 million. As of December 31, 2010, 73 million Class B
shares were held as treasury stock.
The table above shows how shares (representing matching rights
but excluding shares for social security expenses) 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
reverse split where applicable; (B) the number of originally designated shares
that were outstanding at the beginning of 2010; (C) the number of shares
awards that were granted during 2010; (D) the number of shares matched
during 2010; (E) the number of shares forfeited by participants or expired
under the plan rules during 2010; (F) the balance left as outstanding at the
end of 2010, having added new awards to the shares outstanding at the
beginning of the year and deducted the shares related to awards matched,
forfeited and expired. The final column (G) shows the compensation costs
charged to the accounts during 2010 for each plan, calculated as fair value
in SEK.
For a description of compensation cost, including accounting treatment,
see Note C1, “Significant Accounting Policies”, section Share-based
compensation to employees and the Board of Directors.
C29XEN_v99.indd 95
2011-02-25 16.02
Ericsson Annual Report 2010 NoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS | 95
note c29
employee numbers, wages and salaries
empLoyee moVements
empLoyee numBeRs
aVeRaGe numBeR of empLoyees
men women
2010
total
men women
2009
total
11,005
5,326
2,770 13,775
6,654
1,328
9,366
5,876
2,358
1,254
11,724
7,130
15,227
5,821 21,048 16,271
6,082 22,353
Head count at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees
2010
2009
90,261
10,066
17,834
978
82,493
9,147
12,900
693
empLoyee waGes anD saLaRies
waGes anD saLaRies anD sociaL secuRity expenses
9,338
9,034
3,544
1,331
5,783
1,817
2,670 11,704
4,012
1,690
6,618
11,155 10,003
7,956
3,541
1,716
3,818
468
359
835
2,021 12,024
2,403 10,359
3,969
2,128
4,188
428
412
370
Wages and salaries
Social security expenses
Of which pension costs
2010
2009
43,390
13,793
3,091
41,247
13,630
3,588
6,867
2,948
9,815
4,897
2,113
7,010
Amounts related to the President and CEo and the Group Management
Team are included.
North America
Latin America
Northern Europe &
Central Asia 1) 2)
Western & Central
Europe 2)
Mediterranean 2)
Middle East
Sub Saharan Africa
India
China & North East
Asia
South East Asia &
oceania
total
1) Of which
Sweden
2) Of which EU
3,976
5,475
71,431 20,394 91,825 67,599 18,761 86,360
5,354
1,378
1,320
4,155
13,066
32,045
4,355 17,421 13,930
4,591 18,521
9,843 41,888 32,970 10,055 43,025
numBeR of empLoyees at yeaR enD
2010
2009
employees by region
North America
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub Saharan Africa
India
China & North East Asia
South East Asia & oceania
total
1) Of which Sweden
2) Of which EU
13,498
7,181
21,425
10,818
10,795
3,982
1,626
6,710
9,807
4,419
90,261
17,848
40,743
empLoyees By GenDeR anD aGe at yeaR enD 2010
Under 25 years old
26–35 years old
36–45 years old
46–55 years old
over 55 years old
percent of total
female
male
1,385
6,976
7,317
3,264
908
22%
3,911
24,369
26,135
12,668
3,328
78%
11,222
6,055
21,993
11,622
9,509
3,744
2,104
4,184
6,894
5,166
82,493
18,217
41,396
percent
of total
6%
35%
37%
18%
5%
100%
numBeR of empLoyees ReLateD to cost of saLes
anD opeRatinG expenses
Cost of sales
operating expenses
total
2010
2009
2008
45,628
44,633
90,261
41,521
40,972
82,493
35,717
43,023
78,740
waGes anD saLaRies peR ReGion
North America 3)
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub Saharan Africa
India
China & North East Asia
South East Asia & oceania
total
1) Of which Sweden
2) Of which EU
3) Of which the United States
2010
10,236
2,269
11,464
6,153
5,053
1,680
849
881
2,923
1,882
43,390
10,086
21,858
8,098
2009
6,358
2,181
11,918
7,063
5,619
1,865
974
674
2,393
2,202
41,247
10,324
23,734
4,928
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
2010
289
43
29
BoaRD memBeRs, pResiDents anD GRoup manaGement
By GenDeR at yeaR enD
2010
females
males females
2009
315
42
34
2009
males
parent company
Board members and President
Group Management
subsidiaries
Board members and Presidents
33%
14%
67%
86%
38%
8%
62%
92%
10%
90%
10%
90%
96 | NoTES To THE CoNSoLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C29XEN_v99.indd 96
2011-02-25 16.02
NOTE C30
Major transactions are as follows:
>> Sales. Ericsson provides ST-Ericsson with services in the areas of R&D,
HR, IT and facilities.
>> Purchases. Major part of Ericsson’s purchases from ST-Ericsson
consists of chipsets and R&D services.
>> Dividends. Both owners of ST-Ericsson receive dividends, when so
decided by the board of directors. During 2010 Ericsson received no
dividends from ST-Ericsson.
ST-ERICSSON
Related party transactions
Sales
Purchases
Ericsson’s share of dividends
Related party balances
Receivables
Liabilities
2010
2009
403
629
–
53
48
740
624
–
244
365
ST-Ericsson has been granted a revolving credit facility of USD 200
million, which is equally shared by Ericsson and STMicroelectronics. As of
December 31, 2010, the amount drawn on the facility was SEK 1,030 million.
Each parent lent SEK 515 million.
Ericsson does not have any contingent liabilities, assets pledged as
collateral or guarantees towards 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.
Major transactions are as follows:
>> Sales. Ericsson sells telecommunication equipment to Ericsson Nikola
>>
Tesla d.d.
License revenues. Ericsson receives license revenues for Ericsson
Nikola Tesla d.d.’s usage of trademarks.
>> Purchases. Ericsson purchases development resources from Ericsson
Nikola Tesla d.d.
>> Dividends. Ericsson received dividends from Ericsson Nikola Tesla d.d.
during 2010.
ERICSSON NIKOLA TESLA D.D.
Related party transactions
Sales
License revenues
Purchases
Ericsson’s share of dividends
Related party balances
Receivables
Liabilities
2010
2009
2008
563
2
566
104
120
75
654
7
569
66
93
70
1,020
9
547
227
85
58
Ericsson does not have any contingent liabilities, assets pledged as
collateral or guarantees toward Ericsson Nikola Tesla d.d.
C30>Related>PaRty>
tRansaCtions
During 2010, 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”. For information
regarding transactions with senior management, see Note 29, “Information
Regarding Members of the Board of Directors, the Group Management and
Employees”.
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. Both owners of SEMC, Sony Corporation and
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. Ericsson purchases mobile phones from SEMC to support
contracts with a number of customers for mobile systems which also
include limited quantities of phones.
>> Dividends. Both owners of SEMC receive dividends, when so decided
by the board of directors. During 2010 Ericsson received no dividends
from SEMC.
SONY ERICSSON MOBILE COMMUNICATIONS
Related party transactions
License revenues
Purchases
Ericsson’s share of dividends
Related party balances
Receivables
Liabilities
2010
2009
2008
1,255
61
–
258
8
1,746
164
–
369
14
5,856
261
3,627
1,002
176
SEMC has been granted term loans and credit facilities of SEK 3,157
million, of which SEK 2,106 million were utilized as of December 31, 2010.
The parent companies of Ericsson and Sony Corporation have issued
guarantees for these term loans and credit facilities on a 50/50 basis,
without joint responsibility. Thus Ericsson’s guaranteed amount is maximum
SEK 1,579 million excluding interest. As of December 31, 2010, Ericsson’s
part of the outstanding amount is SEK 1,037 million excluding accrued
interest of SEK 16 million. Maturity dates for the issued guarantees are
2011 (SEK 1,128 million) and 2012 (SEK 451 million). See also Note C24,
“Contingent Liabilities”.
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.
C30XEN_v22.indd 97
2011-02-25 16.03
Ericsson Annual Report 2010 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | 97
NOTE C31–C32
C31 Fees to auditors
FEES TO AUDITORS
2010
Audit fees
Audit related fees
Tax services fees
Other fees
Total
2009
Audit fees 1)
Audit related fees 1)
Tax services fees
Other fees 1)
Total
2008
Audit fees 1)
Audit related fees 1)
Tax services fees
Other fees 1)
Total
1) Allocation of fees to auditors is based on the requirements in the Swedish Annual
Accounts Act. 2008 and 2009 figures are restated for comparability.
During the period 2008–2010, in addition to audit services, PwC provided
certain audit related services, tax and other services to the Company.
The audit related services include quarterly reviews, SAS 70 reviews and
services in connection with issuing of certificates and opinions. The tax
services include general expatriate services and corporate tax compliance
work. Other services include consultation on financial accounting, services
related to acquisitions, operational effectiveness and assessments of
internal control.
Audit fees to other auditors largely consist of local statutory audits for
minor companies.
C32 ContraCtual
obligations
PwC
Others
Total
CONTRACTUAL OBLIGATIONS 2010
79
17
16
7
119
88
18
16
3
125
88
15
14
2
119
5
1
2
2
10
3
–
2
2
7
4
–
2
5
11
84
18
18
9
129
91
18
18
5
132
92
15
16
7
130
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
3–5
years
1–3
years
>5
years
8.1
1.0
2.2
1.8
–
–
10.7
0.3
4.3
0.4
–
–
7.9
0.4
1.9
0.2
–
–
–
15.7
–
10.4
–
13.1
Total
2010
28.3
1.8
11.5
2.4
7.7
25.0
3.3
80.0
1.6
0.1
3.1
0.0
7.7
25.0
3.3
40.8
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.
98 | NOTES TO ThE CONSOLIDATED FINANCIAL STATEMENTS Ericsson Annual Report 2010
C31XC33XEN_v28.indd 98
2011-02-25 16.04
Parent ComPany InCome Statement anD
Statement of other ComPrehenSIve InCome
Parent Company Income
Statement And statement
of comprehensive income
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
P2
P3
P4
P4
P15
P15
P5
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 Statement of ComPrehenSIve InCome
years ended December 31, SeK million
notes
net income
other comprehensive income
Cash Flow hedges
Gains/losses arising during the period
Amounts transferred to initial carrying amount of hedged items
Tax on items relating to components of OCI
total other comprehensive income
total comprehensive income
2010
2009 1)
2008
33
–29
4
–1,370
–1,586
–2,956
3,118
166
7,474
–829
6,811
–100
–
–100
–117
6,594
2010
6,594
136
–136
–
–
6,594
300
–21
279
–1,399
–1,738
–3,137
2,977
119
9,358
–1,396
8,081
417
485
902
–804
8,179
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
2009
8,179
2008
17,227
612
–1,385
204
–569
7,610
773
–
–204
569
17,796
PCXISXEN_v20.indd 99
2011-02-25 16.05
Ericsson Annual Report 2010 PARENT COmPANy FINANCIAl STATEmENTS | 99
PArENT ComPANy BAlANCE ShEET
Parent Company
Balance Sheet
December 31, SEK million
Notes
2010
2009
ASSETS
Fixed assets
Intangible assets
Tangible assets
Financial assets
Investments
Subsidiaries
Joint ventures and associated companies
Other investments
Receivables from subsidiaries
Customer finance, non-current
Deferred tax assets
Other financial assets, non-current
Current assets
Inventories
Receivables
Trade receivables
Customer finance, current
Receivables from subsidiaries
Current income taxes
Other current receivables
Short-term investments
Cash and cash equivalents
ToTAl ASSETS
P6
P7, P26
1,046
527
2,219
527
P8, P9
P8, P9
P8
P8, P12
P8, P11
P5
P8
P10
P11
P11
P12
P13
P19
P19
77,566
13,066
84
6,666
1,027
302
302
100,586
75,540
13,066
10
10,316
846
387
1,179
104,090
57
61
36
1,479
15,385
355
4,299
56,148
15,439
93,198
42
590
20,035
360
2,677
53,926
8,477
86,168
193,784
190,258
100 | PaRenT COmPany FInanCIal STaTemenTS ericsson annual Report 2010
PCXBSXEN_v17.indd 100
2011-02-25 16.07
Parent ComPany BalanCe Sheet (Continued)
PArENT ComPANy BAlANCE ShEET
December 31, SEK million
Notes
2010
2009
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
P14
16,367
20
31,472
47,859
36,380
6,594
42,974
90,833
16,367
20
31,472
47,859
33,774
8,179
41,953
89,812
P15
1,015
915
P16
P17
P18
P18
P12
P18
P21
P12
P20
389
571
960
20,646
4,000
26,862
1,334
52,842
–
399
45,956
1,779
48,134
372
697
1,069
23,801
4,000
28,966
244
57,011
–
335
39,135
1,981
41,451
ToTAl SToCKholDErS’ EQUITy, ProVISIoNS AND lIABIlITIES
193,784
190,258
assets pledged as collateral
Contingent liabilities
P22
P23
658
13,783
550
13,072
PCXBSXEN_v17.indd 101
2011-02-25 16.07
ericsson annual Report 2010 PaRenT COmPany FInanCIal STaTemenTS | 101
ParENt COmPaNY StatEmENt
OF CaSh FlOwS
Parent Company
Statement of Cash Flows
Years ended December 31, SEK million
Operating activities
Net income
Adjustments to reconcile net income to cash
Changes in operating net assets
Inventories
Customer finance, current and non-current
Trade receivables
Trade payables
Provisions and pensions
Other operating assets and liabilities, net
Notes
2010
2009
2008
P24
6,594
1,288
7,882
4
–1,070
283
331
–109
1,954
1,393
8,179
–3,831
4,348
17,227
5,146
22,373
20
193
261
–132
–4
–685
-347
4
–478
–464
16
–49
2,252
1,281
Cash flow from operating activities
9,275
4,001
23,654
Investing activities
Investments in tangible assets
Sales of tangible 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
–160
9
–2,178
42
8,973
–287
–2,940
3,459
–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
Cash flow before financing activities
12,734
–13,677
19,903
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
Cash and cash equivalents, beginning of period
3,503
–
–1,055
–
–6,391
–209
–310
-4,462
4,755
11,532
–8,910
68
–5,897
–1,363
–
185
–470
4,000
–3,119
89
–7,954
–7,582
–7
–15,043
–1,310
–79
629
6,962
–13,571
5,489
8,477
22,048
16,559
Cash and cash equivalents, end of period
P19
15,439
8,477
22,048
From 2008, the effect from remeasurement in cash and other adjustments to reconcile net income to cash have been included. From 2009, Short-term investments with remaining maturity
greater than three months have been moved to Investing activities from cash and short-term investments, and 2008 have been restated accordingly.
102 | PARENT COmPANy FINANCIAL STATEmENTS Ericsson Annual Report 2010
PCXCFXEN_v22.indd 102
2011-02-25 16.08
PaReNT COmPaNy STaTemeNT OF
ChaNgeS iN STOCkhOlDeRS’ equiTy
Parent Company
Statement of Changes
in Stockholders’ Equity
Capital
stock
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
Other
retained
earnings
Non-
restricted
equity
January 1, 2010
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock Purchase Plans
Repurchase of own shares
Contribution from/to (–) subsidiary
companies
Tax on contributions
Dividends paid
December 31, 2010
January 1, 2009
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock Purchase and Stock Option Plans
Repurchase of own shares
Contribution from/to (–) subsidiary
companies
Tax on contributions
Dividends paid
December 31, 2009
16,367
–
–
–
–
–
–
–
–
–
16,367
16,232
–
–
135
–
–
–
–
–
–
16,367
20
–
–
–
–
–
–
–
–
–
20
20
–
–
–
–
–
–
–
–
–
20
31,472
–
–
–
–
–
–
–
–
–
31,472
31,472
–
–
–
–
–
–
–
–
–
31,472
47,859
–
–
–
–
–
–
–
–
–
47,859
47,724
–
–
135
–
–
–
–
–
–
47,859
100
–
–
–
–
–
–
–
–
–
100
100
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
569
–569
–
–
–
–
–
–
–
–
–
41,853
6,594
–
–
52
8
–
1,029
–271
–6,391
42,874
41,285
8,179
–
–
75
139
–135
–2,403
610
–5,897
41,853
41,953
6,594
–
–
52
8
–
1,029
–271
–6,391
42,974
41,954
7,610
–
–
75
139
–135
–2,403
610
–5,897
41,953
Total
89,812
6,594
–
–
52
8
–
1,029
–271
–6,391
90,833
89,678
7,610
–
135
75
139
–135
–2,403
610
–5,897
89,812
PCXEQUITYXEN_v22.indd 103
2011-02-25 16.09
Ericsson Annual Report 2010 PAREnT COmPAny FinAnCiAl STATEmEnTS | 103
contents
notes to the Parent Company
Financial statements
Contents
P1
Significant accounting PolicieS........................................................................................................................................................................................................................ 105
P2
Segment information...................................................................................................................................................................................................................................................... 105
P3 other oPerating income and exPenSeS...................................................................................................................................................................................................... 105
P4
financial income and exPenSeS........................................................................................................................................................................................................................... 106
P5
taxeS.................................................................................................................................................................................................................................................................................................... 106
P6
intangible aSSetS................................................................................................................................................................................................................................................................. 106
P7
tangible aSSetS....................................................................................................................................................................................................................................................................... 107
P8
financial aSSetS.................................................................................................................................................................................................................................................................... 108
P9
inveStmentS................................................................................................................................................................................................................................................................................ 109
P10
inventorieS................................................................................................................................................................................................................................................................................... 110
P11 trade receivableS and cuStomer finance.............................................................................................................................................................................................. 110
P12 receivableS and liabilitieS – SubSidiary comPanieS..................................................................................................................................................................... 111
P13 other current receivableS...................................................................................................................................................................................................................................... 112
P14 StockholderS’ equity..................................................................................................................................................................................................................................................... 112
P15 untaxed reServeS................................................................................................................................................................................................................................................................. 113
P16 PenSionS........................................................................................................................................................................................................................................................................................... 113
P17 other ProviSionS................................................................................................................................................................................................................................................................... 114
P18
intereSt-bearing liabilitieS...................................................................................................................................................................................................................................... 114
P19 financial riSk management and financial inStrumentS......................................................................................................................................................... 115
P20 other current liabilitieS............................................................................................................................................................................................................................................ 116
P21 trade PayableS......................................................................................................................................................................................................................................................................... 116
P22 aSSetS Pledged aS collateral............................................................................................................................................................................................................................. 116
P23 contingent liabilitieS...................................................................................................................................................................................................................................................... 116
P24 Statement of caSh flowS............................................................................................................................................................................................................................................ 117
P25 leaSing............................................................................................................................................................................................................................................................................................... 117
P26 tax aSSeSSment valueS in Sweden..................................................................................................................................................................................................................... 117
P27
information regarding emPloyeeS.................................................................................................................................................................................................................. 117
P28 related Party tranSactionS................................................................................................................................................................................................................................... 118
P29 feeS to auditorS..................................................................................................................................................................................................................................................................... 118
104 | noteS to the Parent comPany financial StatementS ericsson annual report 2010
P1XP7XEN_v42.indd 104
2011-02-25 16.10
P1 sIgnIFICant aCCountIng
PolICIes
the financial statements of the Parent company, telefonaktiebolaget lm
ericsson, have been prepared in accordance with rfr 2 “reporting in
separate financial statements”. rfr 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.
the main deviations between accounting policies adopted for the group
and accounting policies for the Parent company are:
subsidiaries,.associated.companies.and.joint.
ventures.
the investments are accounted for according to the acquisition cost method.
investments are carried at cost and only dividends are accounted for in the
income statement. an impairment test is performed annually and write-
downs are made when permanent decline in value is established.
contributions to/from subsidiaries and shareholders’ contributions
are accounted for according to ufr 2 issued by the Swedish financial
reporting board. contributions to/from Swedish subsidiaries are
reported directly in equity, net of taxes, as these transactions are aimed
at reducing Swedish taxes. Shareholders’ contributions increase the
Parent company’s investments.
classification.and.measurement.of.financial.
instruments
iaS 39 financial instruments: recognition and measurement is adopted,
except regarding financial guarantees where the exception allowed in rfr 2
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, iaS 19 shall be adopted regarding supplementary disclosures
when applicable.
note.P1–P3
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.
Business.combinations
transaction costs attributable to the acquisition are included in the cost
of acquisition in the parent company statements compared to group
Statements where these costs are expenses as incurred.
critical.accounting.estimates.and.judgments
See notes to the consolidated financial Statements – note c2, “critical
accounting estimates and Judgments”. major critical accounting estimates
and judgments applicable to the Parent company include “trade and
customer finance receivables” and “acquired intellectual property rights and
other intangible assets, excluding goodwill”.
P2 segment InFormatIon
net.sales
north america
Of which the United States
latin america
northern europe & central asia 1) 2)
western & central europe 2)
mediterranean 2)
middle east
Sub-Saharan africa
india
china & north east asia
Of which China
South east asia & oceania
other
total
1) Of which Sweden
2) Of which EU
2010
2009
2008
–
–
33
–
–
–
–
–
–
–
–
–
–
33
–
–
99
–7
47
–56
12
31
–
–
–
167
38
–
–
300
–56
–13
2,192
–
37
1,506
97
–
–
–
–
1,254
50
–
–
5,086
1,506
1,603
Parent company net sales in 2010 relate to business segment networks.
(Parent company net sales in 2009 and 2008 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
otHeR.oPeRatInG.IncoMe.anD.eXPenses
license revenues and other
operating revenues
Subsidiary companies
other
net gains/losses (–) on sales of
tangible assets
total
2010
2009
2008
2,305
815
–2
3,118
2,433
532
12
2,977
2,407
659
–1
3,065
P1XP7XEN_v42.indd 105
2011-02-25 16.10
ericsson annual report 2010 noteS to the Parent comPany financial StatementS | 105
note.P4–P6
note.P4–P6
P4 FInanCIal InCome
and exPenses
a reconciliation between actual tax expense for the year and the theoretical
tax expense that would arise when applying the statutory tax rate in
Sweden, 26.3 percent (starting from January 1, 2009), on income before
taxes shown in the the table below.
2010
2009
2008
ReconcIlIatIon.oF.actUal.IncoMe.taX.Rate.to.tHe.actUal.
IncoMe.taX.Rate
6,369
8
5,732
1,087
14,465
676
104
–
66
1
3,854
–
26
–
807
221
746
7,474
386
2,086
9,358
1,233
3,096
24,131
tax rate in Sweden (26.3%)
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
actual.tax.cost.(–)
2010
2009
2008
–1,765
–2,363
–5,309
–15
–91
–47
–77
–21
–83
1,776
1,828
5,630
–22
–145
–1,968
–
–117
–
–804
18
–1,733
Deferred.tax.balances
tax effects of temporary differences have resulted in deferred tax assets
as follows:
–
–27
–
DeFeRReD.taX.assets
–82
–551
–7,027
deferred tax assets
2010
302
2009
387
–
–1
–
deferred tax assets refer mainly to costs related to customer finance and
provisions for restructuring costs.
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
–95
–612
–40
–829
6,645
–150
–630
–37
–1,396
7,962
–1,068
–1,655
–41
–9,791
14,340
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:
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 (–)
related to temporary differences
taxes
2010
2009
2008
271
–288
–610
–250
–1,155
–250
–15
–47
–21
–85
–117
103
–804
–307
–1,733
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
accumulated.impairment.losses
opening balance
impairment losses
closing.balance
net.carrying.value
2010
2009
3,888
–
3,888
–1,669
–228
–
–1,897
–
–945
–945
1,046
3,888
–
3,888
–1,284
–385
–
–1,669
–
–
–
2,219
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. the write-down (impairment charge)
of Sek 945 million is a consequence of the restructuring program decision
to phase out certain products.
106 | noteS to the Parent comPany financial StatementS ericsson annual report 2010
P1XP7XEN_v42.indd 106
2011-02-25 16.10
P7 tangIble assets
tanGIBle.assets
2010
accumulated.acquisition.costs
opening balance
additions
Sales/disposals
reclassifications
closing.balance
accumulated.depreciation
opening balance
depreciation
Sales/disposals
closing.balance
net.carrying.value
2009
accumulated.acquisition.costs
opening balance
additions
Sales/disposals
reclassifications
closing.balance
accumulated.depreciation
opening balance
depreciation
Sales/disposals
closing.balance
net.carrying.value
note.P7
note.P7
total
1,130
161
–50
–
1,241
–603
–149
38
–714
527
1,266
122
–258
–
1,130
–571
–193
161
–603
527
land.and
buildings
other
.equipment.
and.installations
construction.
in.process.and
advance.payments
13
–
–
–
13
–
–
–
–
13
13
–
–
–
13
–
–
–
–
13
1,050
26
–50
76
1,102
–603
–149
38
–714
388
1,113
22
–258
173
1,050
–571
–193
161
–603
447
67
135
–
–76
126
–
–
–
–
126
140
100
–
–173
67
–
–
–
–
67
P1XP7XEN_v42.indd 107
2011-02-25 16.10
ericsson annual report 2010 noteS to the Parent comPany financial StatementS | 107
note p8
P8 Financial assets
Investments In subsIdIary companIes, joInt ventures and assocIated companIes
Opening balance
Acquisitions and stock issues
Shareholders’ contribution
Write-downs
Disposals
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
subsidiary companies
2009
2010
joint ventures
2009
2010
75,540
2,083
25
–82
–
–
77,566
74,571
1,480
508
–551
–461
–7
75,540
12,736
–
–
–
–
–
12,736
4,136
8,384
209
–
–
7
12,736
associated
companies
2009
330
–
–
–
–
–
330
2010
330
–
–
–
–
–
330
other
investments in shares
and participations
2009
2010
receivables
from subsidiaries,
non-current
2009
2010
customer finance,
non-current 1)
2010
2009
other financial
assets, non-current
2009
2010
19
81
–7
–
–
93
–9
–
–
–
–9
84
19
–
–
–
–
19
–8
–1
–
–
–9
10
10,316
651
–55
–4,212
–34
6,666
–
–
–
–
–
6,666
15,781
–
–1
–5,464
–
10,316
–
–
–
–
–
10, 316
1,093
406
–136
–241
–49
1,073
–247
–
197
4
–46
1,027
974
363
–84
–111
–49
1 093
–64
–208
22
3
–247
846
1,179
4
–38
–843
–
302
–
–
–
–
–
302
3,030
178
–2,029
–
–
1,179
–
–
–
–
–
1,179
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.
108 | NOTeS TO The PAReNT cOmPANy FiNANciAl STATemeNTS ericsson Annual Report 2010
P8XP12XEN_v51.indd 108
2011-02-25 16.12
note p9
note p9
P9 investments
The following listing shows certain shareholdings owned directly and
indirectly by the Parent company as of December 31, 2010. 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
subsidiary companies
i
i
i
ii
iii
ericsson AB
ericsson Shared Services AB
Netwise AB
AB Aulis
ericsson credit AB
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
ericsson Television AS
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 india Global Services PVT. ltd
lG-ericsson ltd.
ericsson (malaysia) Sdn. Bhd.
ericsson Telecommunications Pte. ltd.
ericsson South Africa PTy. ltd
ericsson Taiwan ltd.
ericsson (Thailand) ltd.
Other countries (the rest of the world)
total
i
i
i
ii
i
i
ii
i
ii
i
ii
i
i
ii
ii
i
i
ii
i
i
i
i
i
i
i
i
i
i
joint ventures and associated companies
i
ii
iii
i
Sony ericsson mobile communications AB 556615-6658
ST-ericsson SA
ST-ericsson AT SA
ericsson Nikola Tesla d.d.
total
Austria
Denmark
Finland
France
Germany
hungary
ireland
italy
The Netherlands
Norway
Norway
Russia
Switzerland
United Kingdom
United States
Argentina
mexico
Australia
china
china
india
india
Korea
malaysia
Singapore
South Africa
Taiwan
Thailand
Sweden
Switzerland
Switzerland
croatia
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
100
50
70
100
100
80
49 3)
–
50
50
51
49
50
361
2
14
5
–
4
90
13
26
20
1,301
2
23
222
75
161
5
–
328
–
2,830
41
n/a
–
20
2
65
725
389
100
2
2
10
240
90
–
–
50
436
5
65
–
20,731
2,216
306
6
5
2,083
115
216
196
524
4,227
120
15
3,151
3,200
114
1,788
5
–
4,094
428
29,006
178
1,550
61
100
2
475
147
65
1,943
4
1
108
20
17
349
77,566
4,136
8,325
275
330
13,066
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.
P8XP12XEN_v51.indd 109
2011-02-25 16.12
ericsson Annual Report 2010 NOTeS TO The PAReNT cOmPANy FiNANciAl STATemeNTS | 109
note p9–p11
note p9–p11
shares owned by subsIdIary companIes
type company
reg. no.
domicile
percentage
of ownership
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 1)
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 Services inc.
Drutt corporation inc.
Optimi corporation
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
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
Key to type of company
I Manufacturing, distribution and development companies
II Holding companies
P10 inventories
1) disclosures pursuant to section 264b of the German commercial code (handelsgesetzbuch – hGb)
Applying Section 264b hGB, lhS holding Gmbh & co. KG, lhS communication Gmbh & co. KG and lhS
Telekommunikation Gmbh & co. KG, all located in Frankfurt am main/Germany, are exempted from the obligation to
prepare, have audited and disclose financial statements and a management report in accordance with the legal
requirements being applicable for German corporations.
2010
2009
movements In allowances for ImpaIrment
Opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference
closing balance
trade receivables
2009
2010
customer finance
2009
2010
37
–
–
–10
–3
24
2
38
–
–
–3
37
393
–
–87
–206
–7
93
94
355
–12
–20
–24
393
Finished products and goods for resale
inventories
57
57
61
61
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 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
2010
2009
57
–24
33
3
36
2,599
–93
2,506
70
–37
33
9
42
1,829
–393
1,436
110 | NOTeS TO The PAReNT cOmPANy FiNANciAl STATemeNTS ericsson Annual Report 2010
P8XP12XEN_v51.indd 110
2011-02-25 16.12
note p11–p12
note p11–p12
aGInG analysIs as per december 31, 2010
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, 2009
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
of which
neither
impaired
nor 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
16
–
3
2,020
–
–
–
–
516
–54
4
–
–
24
–
13
–
–
–
–
1
–1
–
18
–18
23
–23
–
21
–21
of which
neither
impaired
nor 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
12
–
5
709
–
–
–
–
1,043
–317
18
–
4
1
–
3
–
–
–
–
1
–1
–
20
–20
36
–36
–
56
–56
amount
57
–24
3
2,599
–93
amount
70
–37
9
1,829
–393
outstandInG customer fInance
On-balance sheet customer finance
Financial guarantees for third parties
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
2010
2,599
212
2,811
34
–1,353
1,492
2,506
1,479
1,104
2009
1,829
135
1,964
18
–382
1,600
1,436
590
762
During 2010 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 3,808 million, the amount
of the assets that the Parent company continues to recognize is SeK 190
million, and the carrying amount of the associated liabilities is SeK 190
million. maturity date for major part of the issued guarantees occurs in 2019
the latest.
P12 receivables and
liabilities – subsidiary
comPanies
receIvables and lIabIlItIes – subsIdIary companIes
total
2010
payment due by period
>5
1–5
< 1
years
years
year
total
2009
6,666
4
613
6,049
10,316
882
14,503
15,385
882
14,503
15,385
26,862
–
828
45,128
45,956
828
45,128
45,956
–
–
–
–
–
–
–
–
–
2,358
17,677
20,035
26,862
28,966
–
–
–
560
38,575
39,135
non-current
receivables 1)
Financial receivables
current receivables
Trade receivables
Financial receivables
total
non-current
liabilities 1)
Financial liabilities
current liabilities
Trade payables
Financial liabilities
total
1) including non interest-bearing receivables and liabilities, net, amounting to
SeK –20,196 million in 2010 (SeK –18,650 million in 2009).
P8XP12XEN_v51.indd 111
2011-02-25 16.12
ericsson Annual Report 2010 NOTeS TO The PAReNT cOmPANy FiNANciAl STATemeNTS | 111
Note p13–p14
P13 other current
receivableS
other CurreNt reCeivables
Receivables from associated
companies and joint ventures
Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other
total
ChaNges iN stoCkholders’ equity 2010
P14 StockholderS’ equity
Capital stock 2010
Capital stock at December 31, 2010, consisted of the following:
2010
2009
Capital stoCk
69
590
246
3,038
356
4,299
88
430
125
1,762
272
2,677
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).
2010
January 1, 2010
Net income
other comprehensive income
Cash flow hedges
Gains/losses arising during the period
Amounts transferred to initial carrying
amount of hedged items
Tax on items relating to components of OCI
total other comprehensive income
total comprehensive income
transactions with owners
Stock issue
Sale of own shares
Stock Purchase Plans
Repurchase of own shares
Contribution from/to (–) subsidiary
companies
Tax on contributions
Dividends paid
Capital
stock
16,367
–
–
–
–
–
–
–
–
–
–
–
december 31, 2010
16,367
ChaNges iN stoCkholders’ equity 2009
Capital
stock
16,232
–
–
–
–
–
–
135
–
–
–
2009
January 1, 2009
Net income
other comprehensive income
Cash flow hedges
Gains/losses arising during the period
Amounts transferred to initial carrying
amount of hedged items
Tax on items relating to components of OCI
total other comprehensive income
total comprehensive income
transactions with owners
Stock issue
Sale of own shares
Stock Purchase and Stock Option plans
Repurchase of own shares
Contribution from/to (–) subsidiary
companies
Tax on contributions
Dividends paid
december 31, 2009
revalua-
tion
reserve
statutory
reserve
total
restricted
equity
disposi-
tion
reserve
Fair
value
reserves
other
retained
earnings
Non-
restricted
equity
total
20
–
31,472
–
47,859
–
100
–
–
–
41,853
6,594
41,953
6,594
89,812
6,594
–
–
–
–
–
–
–
–
–
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31,472
47,859
100
136
–136
–
–
–
–
–
–
–
–
–
–
136
136
–
–
–
6,594
–
52
8
–
–136
–
–
6,594
–
52
8
–
–136
–
–
6,594
–
52
8
–
1,029
–271
–6,391
42,874
1,029
–271
–6,391
42,974
1,029
–271
–6,391
90,833
revalua-
tion
reserve
statutory
reserve
total
restricted
equity
disposi-
tion
reserve
Fair
value
reserves
other
retained
earnings
Non-
restricted
equity
total
20
–
31,472
–
47,724
–
100
–
569
–
41,285
8,179
41,954
8,179
89,678
8,179
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
135
–
–
–
–
–
–
–
–
–
–
–
–
612
–
612
612
–1,385
204
–569
–569
–
–
–
–
–
–
–
–
–
8,179
–
75
139
–135
–2,403
610
–5,897
41,853
–1,385
204
–569
7,610
–
75
139
–135
–2,403
610
–5,897
41,953
–1,385
204
–569
7,610
135
75
139
–135
–2,403
610
–5,897
89,812
–
16,367
–
20
–
31,472
–
47,859
–
100
112 | NOTES TO ThE PARENT COmPANy FINANCIAl STATEmENTS Ericsson Annual Report 2010
P13XP23XEN_v65.indd 112
2011-02-25 16.17
plaN assets alloCatioN
Equities
Interest-bearing securities
Fixed income
Other
total
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
Estimated pension payments for 2011 are SEK 49 million.
total peNsioN Cost aNd iNCome reCogNized
iN the iNCome statemeNt
defined benefit obligations
Costs excluding interest and taxes
Interest cost
Credit insurance premium
total cost defined benefit plans
excluding taxes
defined contribution plans
Pension insurance premium
total cost defined contribution plans
excluding taxes
Return on plan assets
total pension cost, net excluding taxes
Note p15–p16
Note p15–p16
2010
2009
249
-
433
32
714
–
224
416
-
–
640
–
2010
2009
372
–31
98
–44
–102
96
–
389
403
–23
63
–42
–87
58
–
372
2010
2009
54
44
–2
96
96
96
–5
187
28
35
2
65
107
107
–29
143
Of the total pension cost SEK 149 million (SEK 137 million in 2009) is
included in operating expenses and SEK 38 million (SEK 6 million in 2009) in
the financial net.
P15 untaxed reServeS
uNtaxed reserves
2010
accumulated depreciation
in excess of plan
Intangible assets
Tangible assets
Total accumulated depre-
ciation in excess of plan
total untaxed reserves
Jan 1
additions/
withdrawals (–)
dec 31
875
40
915
915
56
44
100
100
931
84
1,015
1,015
Change in depreciation in excess of plan of intangible assets relates mainly
to marconi and Redback trademarks. Deferred tax liability on untaxed
reserves, not accounted for in deferred taxes, amounts to SEK 267 million
(SEK 241 million in 2009).
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
institute. Pension obligations are calculated annually, on the balance
sheet date, based on actuarial assumptions.
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
2010
2009
618
–714
–96
389
96
389
582
–640
–58
372
58
372
1) This FPG/PRI obligation is covered by the Swedish law on safeguarding of pension
commitments.
The defined benefit obligations are calculated based on the actual salary
levels at year-end and based on a discount rate of 3.7 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 2010 an additional transfer of SEK 31 million was made.
The Parent Company utilizes no assets held by the pension trust. Return
on plan assets for 2010 is 17.4 percent (16.5 percent).
P13XP23XEN_v65.indd 113
2011-02-25 16.17
Ericsson Annual Report 2010 NOTES TO ThE PARENT COmPANy FINANCIAl STATEmENTS | 113
Note p17–p18
Note p17–p18
P17 other ProviSionS
other provisioNs
2010
Opening balance
Additions
Reversal of excess amounts
Utilization/Cash out
Reclassification
Closing balance
2009
Opening balance
Additions
Reversal of excess amounts
Utilization/Cash out
Reclassification
Closing balance
Warranty
commitments
restruc-
turing
Customer
finance
–
–
–
–
–
–
1
–
–
–1
–
–
349
70
–9
–92
–
318
109
297
–7
–50
–
349
95
2
–6
–
–
91
162
–
–16
–51
–
95
other
253
–
–13
–78
–
162
384
295
–303
–123
–
253
total other
provisions 1)
697
72
–28
–170
–
571
656
592
–326
–225
–
697
1) Of which SEK 203 million (SEK 230 million in 2009) are expected to be utilized within one year.
P18 intereSt-bearing
liabilitieS
As per December 31, 2010, the Parent Company’s outstanding interest-
bearing liabilities, excluding liabilities to subsidiaries, were SEK 24.6 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
2010
2009
–
–
–
–
20,646
4,000
24,646
24,646
23,801
4,000
27,801
27,801
Nominal
amount
450
1,000
2,000
375
500
600
300
170
Coupon
Currency
book value
(sek million)
maturity date
(yy-mm-dd)
unrealized hedge
gain/loss (incl. in
book value)
2.420%
5.100%
2.200%
1.314%
5.380%
5.000%
3.35281%
2.69281%
SEK
SEK
SEK
EUR
EUR
EUR
USD
USD
450
1,035
2,000
3,383
5,059 1)
5,521 1)
2,041
1,157
20,646
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)
20-12-23 6)
–35
–571
–129
–735
issued-maturing
2004–2012
2007–2012
2007–2012
2007–2014
2007–2017
2009–2013
2009–2016
2010–2020
total
1) Interest rate swaps are designated as fair value hedges.
2) Next contractual repricing date 2011-06-03 (semi annual).
3) Next contractual repricing date 2011-03-25 (quarterly).
4) Next contractual repricing date 2011-03-24 (quarterly).
5) Next contractual repricing date 2011-03-21 (quarterly).
6) Next contractual repricing date 2011-03-18 (quarterly).
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 2.65 (2.88) percent at December 31, 2010.
These bonds are revalued based on changes in benchmark interest rates
according to the fair value hedge methodology stipulated in IAS 39.
114 | NOTES TO ThE PARENT COmPANy FINANCIAl STATEmENTS Ericsson Annual Report 2010
P13XP23XEN_v65.indd 114
2011-02-25 16.17
On December 23, 2010, the USD 625 million bilateral loan with Swedish
Export Credit Corporation (SEK) was renegotiated to reduce interest
expense and to prolong the maturity profile. USD 325 million was amortized.
The remaining USD 300 million will mature in 2016 according to the original
plan. At the same time a new bilateral bond of USD 170 million was issued
with maturity 2020. Consequently gross cash was reduced by USD 155
million. The new bond is not guaranteed by EKN (The Swedish Export Credit
Guarantee Board).
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.
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
asset
2010
liability
asset
2009
liability
Note p18–p19
Note p18–p19
Cash, Cash equivaleNts aNd short-term iNvestmeNts
sek billion
Bank deposits
type of issuer/
counterpart
Governments
Banks
Corporations
mortgage institutes
total
remaining time to maturity
> 5
years
1–5
years
< 1
year
< 3
months
2010
2009
13.9
–
–
–
13.9
6.9
–
1.5
–
–
15.4
9.3
–
–
–
9.3
23.5
4.0
–
15.3
42.8
2.9
–
–
1.2
4.1
35.7
5.5
–
16.5
71.6
36.9
3.1
0.2
15.3
62.4
The instruments are classified as held for trading and are therefore short-
term investments.
During 2010, cash, cash equivalents and short-term investments
increased by SEK 9.2 billion to SEK 71.6 billion.
repaymeNt sChedule oF loNg-term borroWiNgs
Nominal amount
sek billion
Current maturities
of long-term debt
borrowings
(non-current)
2011
2012
2013
2014
2015
2016 and later
total
–
–
–
–
–
–
–
–
3.5
5.4
3.4
4.0
7.7
24.0
total
–
3.5
5.4
3.4
4.0
7.7
24.0
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
600
1,031
606
531
Debt financing is mainly carried out through borrowing in the Swedish and
international debt capital markets.
945
10
–
–
1,556 1)
1,291
27
–
–
2,350 2)3)
1,039
134
84
3
1,866 4)
–
6
76
544
184
705
–
28
61
118
34
87
–
–
28
49
175
685
817
44
–
–
1,392
–
–
40
151
40
58
1,515
329
3)
937 4)
289
862
–
845
–
FuNdiNg programs 1)
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)
amount
utilized
unused
5,000
3,003
1,997
1,500
5,000
2,000
–
–
–
1,500
5,000
2,000
1) There are no financial covenants related to these programs.
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”.
1) Of which internal counterparts SEK 33 million.
2) Of which internal counterparts SEK 817 million.
3) Of which SEK 902 million is reported as non-current liabilities for 2010.
4) Of which SEK 843 million is reported as non-current assets for 2009
P13XP23XEN_v65.indd 115
2011-02-25 16.17
Ericsson Annual Report 2010 NOTES TO ThE PARENT COmPANy FINANCIAl STATEmENTS | 115
Note p19–p23
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
had a net gain of SEK 0.3 billion. For further information about valuation
principles, see Notes to the Consolidated Financial Statements – Note C1,
“Significant Accounting Policies”.
FiNaNCial iNstrumeNts CarryiNg amouNt
trade
receiv-
ables
p11
short-term
invest-
ments
receiv-
ables and
liabili ties
subsidia-
ries p12
borrow-
ings
p18
trade
payables
p21
Financial
assets
p8
other
current
receiv-
ables
p13
other
current
liabilities
p20
other
non-
current
liabilities
–
2.5
–
–
2.5
57.6
–
–
–
57.6
–0.8
22.0
–
–72.0
–50.8
–
–
–
–
–
–
–24.6
–24.6
–0.4
–0.4
–
–
–
–
–
3.0
0.1
–
–
3.1
–1.0
–
–
–
–1.0
–0.9
–
–
–
–0.9
sek billion
Assets at fair value
through profit or loss
loans and receivables
Available for sale assets
Financial liabilities at
amortized cost
total
FiNaNCial iNstrumeNts Carried at other thaN Fair value
P21 trade PayableS
sek billion
Current maturities of
long-term borrowings
Borrowings non-current
total
Carrying amount
2009
2010
Fair value
2009
2010
trade payables
–
24.6
24.6
–
27.8
27.8
–
24.5
24.5
–
26.0
26.0
Trade payables excluding associated
companies and joint ventures
total
2010
2009
58.0
24.6
–
–97.0
–14.5
56.7
31.8
–
–95.7
–9.7
2010
2009
399
399
335
335
Financial instruments excluded from the tables, such as trade receivables
and payables, are carried at amortized cost which is deemed to be equal
to fair value. When a market price is not readily available and there is
insignificant interest rate exposure affecting the value, the carrying value is
considered to represent a reasonable estimate of a fair value.
P20 other current
liabilitieS
other CurreNt liabilities
Accrued interest
Accrued expenses, of which
Employee related
Other
Deferred revenues
Derivatives with a negative value
Other current liabilities
total
2010
320
362
294
68
12
960
125
1,779
2009
341
327
283
44
23
1,143
147
1,981
All trade payables fall due within 90 days.
P22 aSSetS Pledged
aS collateral
assets pledged as Collateral
Bank deposits
total
2010
658
658
2009
550
550
The major item in bank deposits is the internal bank’s clearing and
settlement commitments of SEK 467 million (SEK 383 million in 2009)
P23 contingent liabilitieS
CoNtiNgeNt liabilities
Total contingent liabilities
2010
2009
13,783
13,072
Contingent liabilities include pension commitments of SEK 11,004 million
(SEK 10,797 million in 2009) and guarantees for Sony Ericsson mobile
Communications AB’s borrowing from financial institutions of SEK 1,053
million (SEK 779 million in 2009).
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 2010 was
SEK 19,691 million (SEK 18,001 million in 2009). Potential payments due
under these bonds are related to Ericsson’s performance under applicable
contracts.
For information about financial guarantees, see Note P11, “Trade
Receivables and Customer Finance”
116 | NOTES TO ThE PARENT COmPANy FINANCIAl STATEmENTS Ericsson Annual Report 2010
P13XP23XEN_v65.indd 116
2011-02-25 16.17
note P24–P27
P24 Statement of CaSh
flowS
P26 tax aSSeSSment
ValueS in Sweden
Interest paid in 2010 was SEK 657 million (SEK 508 million in 2009 and SEK
2,376 million in 2008) and interest received was SEK 816 million (SEK 2,083
million in 2009 and SEK 3,520 million in 2008). Income taxes paid were SEK
269 million (SEK 341 million in 2009 and SEK 370 million in 2008).
Adjustments to reconcile net income to cAsh
tAx Assessment vAlues in sweden
Land and land improvements
total
2010
2009
8
8
8
8
tangible assets
Depreciation
total
intangible assets
Amortization
Impairment losses
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
2010
2009
2008
149
149
228
945
1,173
1, 322
–152
193
193
385
–
385
578
463
127
127
385
–
385
512
1,363
50
–521
5,545
100
–
86
–902
–1,254
–2,195
478
–5
–2,747
1,288
–3,831
5,146
P25 leaSing
leasing with the Parent company as lessee
P27 information
regarding emPloyeeS
AverAge number oF emPloyees
Northern Europe &
Central Asia 1) 2)
middle East
total
1) Of which Sweden
2) Of which EU
men women
198
121
319
198
198
148
14
162
148
148
2010
total
346
135
481
346
346
men women
194
108
302
194
194
147
15
162
147
147
2009
total
341
123
464
341
341
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)
2010
2009
1%
2%
1%
1%
1%
0%
2%
1%
1%
1%
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.
At December 31, 2010, future payment obligations for leases were
distributed as follows:
remuneration
wAges And sAlAries And sociAl security exPenses
Future PAyment obligAtions For leAses
2011
2012
2013
2014
2015
2016 and later
total
operating
leases
927
826
605
650
299
1,045
4,352
leasing with the Parent company as lessor
At December 31, 2010, future minimum payment receivables were
distributed as follows:
Future minimum PAyment receivAbles
2011
2012
2013
2014
2015
2016 and later
total
operating
leases
15
2
1
1
1
1
21
The operating lease income is mainly income from sublease of real estate.
See Notes to the Consolidated Financial Statements – Note C27, “Leasing”.
Wages and salaries
Social security expenses
Of which pension costs
wAges And sAlAries Per geogrAPhicAl AreA
Northern Europe & Central Asia 1) 2)
middle East
total
1) Of which Sweden
2) Of which EU
2010
2009
518
384
210
480
421
174
2010
2009
409
109
518
409
409
380
100
480
380
380
Remuneration in foreign currency has been translated to SEK at average exchange rates
for the year.
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 Group
management and Employees”.
long-term variable remuneration
the stock PurchAse PlAn
Compensation costs for all employees of the Parent Company amounted to
SEK 8.0 million in 2010 (SEK 9.1 million in 2009).
Ericsson Annual Report 2010 NOTES TO ThE PARENT COmPANy FINANCIAL STATEmENTS | 117
P24XP30XEN_v55.indd 117
2011-02-25 16.19
st-ericsson
related party transactions
License revenues
Dividends
related party balances
Receivables
2010
2009
–
–
3
–
–
–
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, the Group management and
Employees”.
P29 feeS to auditorS
Fees to Auditors
2010
Audit fees
Audit related fees
Tax services fees
Other fees
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
Pwc
19
12
1
3
35
23
12
2
1
38
23
11
1
1
36
2010
2009
Allocation of fees to auditors is based on the requirements in the Swedish Annual
Accounts Act. 2008 and 2009 figures are restated for comparability.
2
104
–
7
66
3
During the period 2008–2010, in addition to audit services, PwC provided
certain audit related services, tax and other services to the Parent Company.
The audit related services include quarterly reviews, SAS 70 reviews and
services in connection with issuing of certificates and opinions. The tax
services include general expatriate services and corporate tax compliance
work. Other services include consultation on financial accounting, services
related to acquisitions, operational effectiveness and assessments of
internal control.
note P27–P30
note P28–P29
P28 related Party
tranSaCtionS
During 2010, 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, 2010, the Parent Company´s share of the outstanding
principle and accrued interest, in the total amount of SEK 1,053 million, has
been reported as a contingent liability in the Parent Company.
sony ericsson mobile communicAtions
related party transactions
License revenues
Dividends
related party balances
Receivables
2010
2009
296
–
69
293
–
90
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.
ericsson nikolA teslA d.d.
related party transactions
License revenues
Dividends
related party balances
Payables
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’ wireless business. It is an industry leader
in design, development and the creation of cutting-edge mobile platforms
and wireless semiconductors.
The Parent Company holds 49.99 percent of shares in ST-Ericsson SA
and 51 percent in ST-Ericsson AT SA, both in Switzerland.
ST-Ericsson has been granted a revolving credit facility of USD 200
million which is equally shared by LmE and STmicroelectronics. As per
December, 2010, the amount drawn on the facility was SEK 1,030 million,
SEK 515 million lent per parent. The Parent Company’s accrued interest
towards ST-Ericsson amounted of SEK 1.7 million.
The Parent Company does not have any contingent liabilities, assets
pledged as collateral or guarantees toward ST-Ericsson.
118 | NOTES TO ThE PARENT COmPANy FINANCIAL STATEmENTS Ericsson Annual Report 2010
P24XP30XEN_v55.indd 118
2011-02-25 16.19
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.
some of the risk factors we are exposed to may exacerbate
in an adverse condition in the financial market. 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 an 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.
Market, technology
and business risks
contents
Market, technology and
business risks
regulatory, coMpliance and
corporate governance risks
risks associated with owning
ericsson shares
119
123
124
>> 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 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.
Ericsson Annual Report 2010 Risk fActoRs | 119
RISKXFACTORSXEN_v20.indd 119
2011-02-26 14.30
Market, technology
and business risks
we depend on growth and the success
of new services
vendor consolidation may lead to a new
competitive landscape
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. Also, if operators experience a decline
in ARPU or profitability despite the introduction of new non-
voice services, their willingness for further investments will be
reduced and thus adversely affect our business.
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.
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.
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.
120 | Risk fActoRs Ericsson Annual Report 2010
RISKXFACTORSXEN_v20.indd 120
2011-02-26 14.30
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.
Market, technology
and business risks
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.
product or service quality issues
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.
Ericsson Annual Report 2010 Risk fActoRs | 121
RISKXFACTORSXEN_v20.indd 121
2011-02-26 14.30
Market, technology
and business risks
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.
litigations
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
122 | Risk fActoRs Ericsson Annual Report 2010
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 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 systems and
communications networks are susceptible to disruption due to
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 R&D,
production, network operation centers, logistic centers and
shared services centers, where business interruptions could
cause material damage and costs. transport of goods from
suppliers, and to customers, could also be hampered for the
reasons stated above. 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
RISKXFACTORSXEN_v20.indd 122
2011-02-26 14.30
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.
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 180 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.
regulatory, coMpliance and
corporate governance risks
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 corporate Governance code
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 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
Ericsson Annual Report 2010 Risk fActoRs | 123
RISKXFACTORSXEN_v20.indd 123
2011-02-26 14.30
regulatory, coMpliance and
corporate governance risks
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
>> 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 and new platforms such as the RBs 6000 (multi-
standard radio base station) platform
>> 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.
our share price has been and may continue
to be volatile
currency fluctuations may adversely affect share
value or value of dividends
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
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,
124 | Risk fActoRs Ericsson Annual Report 2010
RISKXFACTORSXEN_v20.indd 124
2011-02-26 14.30
Auditors’ report
Auditors’ report
to the Annual General Meeting of the shareholders
of telefonaktiebolaget LM ericsson (publ),
organization number 556016-0680
We have audited the annual accounts, the consolidated
accounts, the accounting records and the administration
of the Board of directors and the president and CEo of
telefonaktiebolaget LM Ericsson (publ) for the year 2010.
(the Company’s annual accounts are included in the printed
version on pages 17–124). the Board of directors and the
president and CEo are responsible for these accounts and the
administration of the Company as well as for the application of
the Annual Accounts Act when preparing the annual accounts
and the application of international financial reporting standards
iFRss as adopted by the Eu and the Annual Accounts Act
when preparing the consolidated accounts. our responsibility is
to express an opinion on the annual accounts, the consolidated
accounts and the administration based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards in sweden. those standards
require that we plan and perform the audit to obtain reasonable
assurance that the annual accounts and the consolidated
accounts are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the accounts. An audit also includes
assessing the accounting principles used and their application
by the Board of directors and the president and CEo and
significant estimates made by the Board of directors and
the president and CEo when preparing the annual accounts
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 in order to
be able to determine the liability, if any, to the Company of any
Board Member or the president and CEo. We also examined
whether any Board Member or the president and CEo has,
in any other way, acted in contravention of the Companies
Act, the Annual Accounts Act or the Articles of Association.
We believe that our audit provides a reasonable basis for our
opinion set out below.
the annual accounts have been prepared in accordance
with the Annual Accounts Act and give a true and fair view of
the Company’s financial position and results of operations in
accordance with generally accepted accounting principles in
sweden. the consolidated accounts have been prepared in
accordance with international financial reporting standards,
iFRss, as adopted by the Eu and the Annual Accounts Act
and give a true and fair view of the group’s financial position
and results of operations. the Board of directors’ report is
consistent with the other parts of the annual accounts and the
consolidated accounts.
We recommend to the annual general meeting of share
holders that the income statements and balance sheets of the
parent Company and the Group be adopted, that the profit
of the parent Company be dealt with in accordance with the
proposal in the Board of directors’ report and that the members
of the Board of directors and the president and CEo be
discharged from liability for the financial year.
stockholm, February 21, 2011
peter Clemedtson
Authorized public Accountant
pricewaterhouseCoopers AB
AUDITXEN_v8.indd 125
2011-02-26 14.35
Ericsson Annual Report 2010 AuditoRs’ REpoRt | 125
Forward-looking statements
Forward-looking>statements
>>
>>
>>
>>
>>
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 the 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.
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 chapter “Board of directors’ report” 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,
>>
126 | Forward-looking statements ericsson annual report 2010
FLSXEN_v6.indd 126
2011-02-26 14.37
business drivers 2009
contents
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 2010
can be found in note C29. the
auditors’ opinion on how we have
followed our policy during 2010 is
posted on the website.
remuneratIon report
contents
introduction
the remuneration committee
remuneration 2010
total remuneration
remuneration of the board of directors
127
127
128
130
132
IntroductIon
this report outlines how the remuneration policy is implemented throughout
Ericsson in line with corporate governance best practice, with specific references
to Group management. to begin with, the work of the Remuneration Committee
2010 and the remuneration policy are explained, followed by descriptions of plans
and approaches. this report also includes information on how the remuneration
programs have been evaluated and conclusions from that. more details of the
remuneration of Group 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, the Group management and
employees” (“note C29”).
the remuneratIon commIttee
the Remuneration Committee advises the Board of Directors on an ongoing
basis on the remuneration of the Group management, hereafter referred to as the
Executive Leadership team (ELt). 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.
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. All the members are non-executive
directors, independent (except for the employee representative) as required by
the Swedish Corporate Governance Code 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
REMUNXEN_v58.indd 127
2011-02-26 16.36
Ericsson Annual Report 2010 REmunERAtion REpoRt | 127
the remuneration committee
remuneration report
annual cycle of the remuneration committee’s work
AuGuSt–oCtoBER
> 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
con struction and design of individual elements
mAY–JuLY
> Review of appropriateness of targets
Q4
Nov
Dec
Jan
Q1
Feb
Oct
Sep
Annual cycle of
the Remuneration
Committee’s work
Mar
Apr
Aug
Q3
Jul
Jun
May
Q2
noVEmBER–FEBRuARY
> Salary review for Executive Leadership team (ELt) 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
> mARCH–ApRiL
> Annual General meeting of shareholders
other services to the Company during 2010. 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 responsibilities can be
found on the Ericsson website (www.ericsson.com). these
responsibilities, together with the remuneration policy, are
reviewed and evaluated 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 Group management remuneration is, in
accordance with Swedish law, brought to shareholders
annually for approval.
remuneratIon 2010
the Remuneration Committee met nine times during the
year. the winter meetings focused on following-up results
from the 2009 variable remuneration programs and preparing
proposals to shareholders for the 2010 Annual General meeting
(AGm). During winter and spring the committee considered
the new Regional organization and new members in the
Executive Leadership team (ELt). in the fall the work began
with a review of the remuneration strategy with focus on the
Long-term Variable remuneration, the Short-term Variable
remuneration plans and levels of fixed compensation. Feedback
from meetings with investors, market analysis and global
trend analyses served as input to the remuneration strategy
discussion. As is illustrated above, the Committee has also
considered market trends, existing and potential remuneration
risks, target setting, its working arrangements and corporate
governance.
evaluation of remuneration policy and plans
the Remuneration Committee has supported the Board with
the review and evaluation of the remuneration policy and
practice. As described later in this report, all remuneration
elements and levels are evaluated through benchmarking
against market data provided by external sources. Analyses of
market data, as well as of attrition data, show that Ericsson is in
general competitive in local markets and that total remuneration
is appropriate but not excessive.
the remuneration policy is evaluated annually in light of the
long-term strategy and the Remuneration Committee’s overview
of total remuneration and each individual remuneration element.
the Committee has concluded and the Board has decided that
the remuneration policy remains valid and right for Ericsson and
should not be materially changed for 2011.
Evaluation through employee surveys show that the
common understanding of Ericsson’s remuneration policy could
128 | REmunERAtion REpoRt Ericsson Annual Report 2010
REMUNXEN_v58.indd 128
2011-02-26 16.36
be improved. to enhance the understanding of how Ericsson
translates remuneration principles and policy into practice, a
Remuneration website has been launched in January 2011.
this is a training program containing e-learning and training
targeted at line managers to support more informed decisions
and better communication to the wider employee population.
Extensive analyses of local market data for each position
in the Executive Leadership team have been conducted and
decisions on budget and increases for ELt have been taken
by Remuneration Committee. the work is also reviewed by the
independent advisor to the Committee.
the evaluation of Long-term Variable remuneration plans
concluded that the objectives of the Stock purchase plan to
promote “one Ericsson” and align the interests of employees
with those of shareholders have been successful. the
participation rate has increased from 25 percent to 27 percent
over the year. the evaluation conducted also confirms that the
Key Contributor Retention plan meets the purpose to retain
our key employees, the voluntary attrition rate among Key
Contributors being about two thirds compared to total number
of employees.
A survey of Ericsson’s managers in January 2011 verified
that over half of managers think the Long-term Variable and
business drivers 2009
remuneration 2010
remuneration report
Short-term Variable remuneration plans are “effective” or “very
effective” in meeting the purpose of the plans.
this confirms earlier third-party research that has shown
that the Long-term Variable plans drive the right values and
enhance retention. the plans remain competitive by Swedish
standards. the participation rate among Key Contributors
remains high compared with international benchmarks.
However, the evaluation has also shown that the Executive
performance Stock plan has had limited success in terms
of meeting the purpose of rewarding long-term financial
performance. the performance target has proved to be more
binary than anticipated, where the 2004 program vested in
full and the programs for 2005, 2006 and 2007 did not vest.
Extensive work has been conducted to define how the plan
should be developed and this has identified the need to secure
clear targets that are more aligned with strategy and value
creation. Based on this, the Board has evaluated targets and
target levels to identify those that best support the long-term
strategy and value creation of the company and will propose
these targets for the 2011 Executive performance Stock plan to
the AGm.
summaries of 2010 short- and lonG-term variable remuneration
what we call it
what is it?
what is the objective?
who participates?
how is it earned?
short-term: remuneration delivered over 12 months or less
Fixed salary
Fixed remuneration paid at
set times
Short-term Variable
remuneration (StV)
A variable plan that is
measured and paid over a
single year
Attract and retain employees,
delivering part of annual
remuneration in a predictable
format
Align employees with clear
and relevant targets,
providing an earnings
opportunity in return for
performance and flexible cost
All employees
managers, including
Executive Leadership team
Local and Sales incentive
plans
tailored versions of the StV As for StV, tailored for local
most employees
long-term: remuneration delivered over 3 years or more
Stock purchase plan (Spp)
All-employee stock-based
plan
Key Contributor Retention
plan (KC)
Share-based plan for
selected individuals
Executive performance
Stock plan (EpSp)
Share-based plan for senior
executives
or business requirements,
such as sales
Reinforce a “one Ericsson”
and align employees’
interests with those of
shareholders
Recognize, retain and
motivate key contributors for
performance, critical skills
and potential
Remuneration for long-term
commitment and earnings
performance
All employees are eligible
up to 10 percent of
employees
Senior executives, including
Executive Leadership team
market appropriate levels set
according 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
Get up to 4, 6 or, for CEo, 9
further matching shares to
the Spp one for long-term
performance.
REMUNXEN_v58.indd 129
2011-02-26 16.36
Ericsson Annual Report 2010 REmunERAtion REpoRt | 129
total remuneration
business drivers 2009
remuneration report
fixed salary, short-term
and lonG-term variable
remuneration as percent of
total tarGet remuneration
100
80
60
40
20
0
CEO
Average ELT
excl. CEO
Target Long-Term Variable 2010
Short-Term Variable Target 2010
Fixed salary 2010
1,0
0,8
0,6
0,4
0,2
0,0
short-term variable
remuneration payouts and
tarGet levels
Max
Target
2006
2007
2008
2009
2010
CEO
Average Ericsson Leadership Team
excluding CEO
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 remuneration plus fixed salary. We then add
target long-term variable remuneration to get total target remuneration and, finally,
pension and other benefits to arrive at the total package.
For the ELt, 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.
the remuneration costs for the CEo and the ELt are reported in note C29.
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, the
ELt 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.
variable remuneration
At Ericsson we strongly believe that, where possible, we should encourage
variable compensation as integral part of total target remuneration approach.
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.
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 the ELt, 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. 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
130 | REmunERAtion REpoRt Ericsson Annual Report 2010
REMUNXEN_v58.indd 130
2011-02-26 16.36
short-term variable remuneration structure
short-term variable remuneration
as percentage of fixed salary
maximum
level
target
level
actual paid
for 2010
remuneration report
total remuneration
percentage of short-term variable
remuneration opportunity
Group financial
targets
unit/functional
financial targets
non-financial
targets
CEo 2010
CEo 2011
Average ELt 2010 1)
Average ELt 2011 1)
40%
40%
31%
34%
80%
80%
62%
68%
64%
–
46%
–
90%
90%
73%
61%
0%
0%
16%
23%
10%
10%
11%
16%
1) Excludes CEo – differences in target and maximum levels from year to year are due to changes in the composition of the ELt.
the performance year and has the authority to revise them
should they cease to be relevant, stretching and/or enhance
shareholder value.
During 2010, approximately 75,000 employees participated
in short-term variable plans. of these 8,000 were in the global
Short-term Variable remuneration plan (“StV”) for management,
including the ELt, and 4,000 were in the global Sales incentive
plan (“Sip”). Local plans vary in design according to local
competitive practice but typically mirror the StV.
the chart on page 130 illustrates how payouts to the ELt
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 AGm.
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 2010, 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 10 percent ) of
gross fixed salary (CEo, gross fixed salary and annual variable
remuneration) for purchase of Class B shares at market price on
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 2010 the number of participants was
in excess of 22,000 or approximately 27 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 long-term financial performance and provide market
competitive remuneration. Senior executives, including the
ELt, 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. Since 2010, the CEo may obtain up
to nine performance matching shares in addition to the Stock
purchase plan matching share for each contribution share.
the Remuneration Committee has been satisfied that the
use of an EpS performance target has been an appropriate
measure to date. However, following its evaluation, the
Remuneration Committee and the Board have decided to
propose to the 2011 AGm a new set of performance measures
for the 2011 Executive performance Stock plan.
REMUNXEN_v58.indd 131
2011-02-26 16.36
Ericsson Annual Report 2010 REmunERAtion REpoRt | 131
total remuneration
remuneration report
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.
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 the ELt 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 ELt members normally 60 years. the pensionable
salary for ELt members on local contract in Sweden consists
of the annual fixed salary including vacation pay and the target
value of the Short-term Variable remuneration. For members
of the ELt who are not employed in Sweden, local market
competitive pension arrangements apply.
other benefits, such as company car and medical insurance,
are also set to be competitive in the local market. ELt members
may not receive loans from the Company.
ELt members locally employed in Sweden 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. For other ELt members different
notice period and severance pay agreement apply, however
no agreements exceeds the notice period of 6 months or the
severance pay of 18 months.
remuneratIon of the
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.
132 | REmunERAtion REpoRt Ericsson Annual Report 2010
REMUNXEN_v58.indd 132
2011-02-26 16.36
Corporate governanCe
report 2010
ConTenTs
Contents
RegulaTion and CoMplianCe
shaReholdeRs
geneRal MeeTing of shaReholdeRs
noMinaTion CoMMiTTee
BoaRd of diReCToRs
CoMMiTTees of The BoaRd of diReCToRs
ReMuneRaTion To BoaRd MeMBeRs
MeMBeRs of The BoaRd of diReCToRs
CoMpany ManageMenT
MeMBeRs of The exeCuTive leadeRship TeaM
audiToRs
inTeRnal ConTRol oveR finanCial RepoRTing 2010
audiToR’s RepoRT on The CoRpoRaTe
goveRnanCe RepoRT
134
135
136
137
138
140
143
144
148
151
154
154
157
Corporate governance is not only about efficient and reliable controls and
procedures. We believe that adherence to a strong ethos of ethical business
practice by all people in our organization – starting at the top and permeating to
all employees – is essential to maintaining a sound and reliable corporate
governance structure.
As Chairman of the Board it lies at the core of my responsibilities to ensure that
the Board work is conducted in an optimal manner and in line with the principles
and processes in the work procedure of the Board of Directors. It is crucial that
the Board is at all times well informed in order to efficiently and in a constructive
manner promote open and meaningful debates on important issues. The Board
work is constantly scrutinized and improved to ensure that the Board has the best
possible basis for its resolutions.
The Board has two key roles: firstly to be a good supporter to the Company
management, and, secondly, to exercise a critical review and raise difficult
questions. These two roles must be well-balanced. It is crucial to ensure that the
Board and the executive management at all times have an open and straight-
forward dialogue.
Good corporate governance is the basis for building robust corporate culture.
It will further promote sustainable business practice which in turn generates
shareholder value.
Michael Treschow
Chairman of the Board of Directors
Highlights
of 2010
> Hans Vestberg (President &
CEO) and Michelangelo Volpi
were elected new Board
members
> New organization – 23 Market
Units became 10 Regions
> Four new members joined the
Executive Leadership Team
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. It defines the
decision-making systems and structure
through which owners directly or
indirectly control a company.
This Corporate Governance
Report is rendered as a separate
report added to the Annual Report
in accordance with the Annual
Accounts Act (1995:1554 Chapter
6, Section 6) and the Swedish
Corporate Governance Code.
The report has been reviewed by
Ericsson’s auditor in accordance
with the Annual Accounts Act and
a separate report from the auditor
is appended hereto.
CGRXPARTX1XEN_v68.indd 133
2011-02-26 15.09
Ericsson Annual Report 2010 coRpoRAtE govERnAncE REpoRt 2010 | 133
Business dRiveRs 2009
RegulaTion and CoMplianCe
CODE OF
BUSINESS
ETHICS
The Code of Business Ethics
can be found at www.ericsson.
com/article/code-of-business-
ethics_429026570_c
Information on the Ericsson website does not form
part of this Report.
regulation and ComplianCe
external rules
As a Swedish public limited liability company with securities quoted on NASDAQ
OMX Stockholm as well as on NASDAQ New York, 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 Corporate Governance Code (the “Code”) which is found on the
website of the Swedish Corporate Governance Board who administrates the
Code (www.corporategovernanceboard.se)
> NASDAQ New York Stock Market Rules – including applicable NASDAQ
New York corporate governance requirements, subject to certain exemptions
principally reflecting mandatory Swedish legal requirements
> Applicable requirements of the US Securities and Exchange Commission.
internal rules
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.
The Board of Directors has also included internal rules in its work procedure.
Compliance with the swedish Corporate governance Code
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 Code. Ericsson has not
deviated from any of the provisions of the Code.
Compliance with applicable stock exchange rules
There has been no infringement of applicable stock exchange rules and Ericsson
has complied with good stock market practice.
Code of Business ethics
Ericsson’s Code of Business Ethics sets out how the Group achieves and
maintains its high ethical standards. It summarizes the Group’s fundamental
policies and directives.
The ethical code has been translated into 25 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 process, Ericsson strives to ensure that high ethical standards are
continuously upheld. All employees have an individual responsibility to ensure that
business practice adheres to the rules of the Code of Business Ethics.
134 | coRpoRAtE govERnAncE REpoRt 2010 Ericsson Annual Report 2010
CGRXPARTX1XEN_v68.indd 134
2011-02-26 15.09
Business dRiveRs 2009
shaReholdeRs
oWneRship peRCenTage
(voTing RighTs)
X%
X
%
0
8
,
3
1
1 %
1
%
19,33
5
3
%
Swedish institutions. 60.90%,
of which:
– Investor: 19.33%
– Industrivärden: 19.39%
Foreign investors: 28.07%
Retail Swedish investors: 7.40%
Other: 3.63%
Source: Capital Precision
sHareHolders
ownership structure
As of December 31, 2010 Telefonaktiebolaget LM Ericsson (the “Parent
Company”), had 630,592 shareholders (according to the share register kept by
Euroclear Sweden AB). Institutions, both Swedish and international, own almost
78 percent of the shares. The largest shareholders are Industrivärden, holding
19.39 percent of the votes (together with Handelsbankens Pensionsstiftelse and
Pensionskassan SHB Försäkringsförening) and Investor, holding 19.33 percent of
the votes.
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.
More information on Ericsson’s shareholders can be found in the chapter
“Share Information” in the Annual Report.
shares and voting rights
The share capital of the Parent Company 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. They also carry equal rights in terms of dividends.
The Parent Company may also issue Class C shares in order to create treasury
stock to hedge variable remuneration programs resolved by the General Meeting.
The Class C shares are converted into Class B shares before they are transferred
to participants of the variable remuneration programs.
The members of the Board of Directors and the Executive Leadership Team
have the same voting rights on shares as other shareholders.
goveRnanCe sTRuCTuRe
Shareholders’ Meeting
Annual General Meeting/
Extraordinary General Meeting
Unions
Board of Directors
12 Directors elected by the Shareholders’ Meeting
3 Directors and 3 Deputies appointed by the Unions
Audit
Committee
Finance
Committee
Remuneration
Committee
Nomination
Committee
External
Auditor
President and CEO
Management
CGRXPARTX1XEN_v68.indd 135
2011-02-26 15.09
Ericsson Annual Report 2010 coRpoRAtE govERnAncE REpoRt 2010 | 135
in writing with the Company at any time.
The auditor is always present at the AGM.
ericsson’s annual general Meeting 2010
1,836 shareholders attended the AGM held on April 13, 2010,
including shareholders represented by proxy, representing
approximately 62 percent of the votes.
The meeting was also attended by the Board of Directors,
members of the Executive Leadership Team and the external
auditor.
Decisions of the AGM 2010 included:
> Payment of a dividend of SEK 2.00 per share for 2009
> 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
> Election of Hans Vestberg and Michelangelo Volpi as new
members of the Board of Directors
> Board of Directors’ fees to remain unchanged:
– Chairman: SEK 3,750,000
– Other non-employed Board members: SEK 750,000 each
– Chairman of the Audit Committee: SEK 350,000
– Other non-employed members of the Audit Committee:
SEK 250,000 each
– Chairmen and other non-employed members of the
Finance and Remuneration committees: SEK 125,000 each
> Approval for part of the Directors’ fees to be paid in the form
of synthetic shares
> Approval of the remuneration policy for senior management
Implementation of a Long-Term Variable Remuneration
Program.
>
The minutes of the AGM 2010 are available at:
www.ericsson.com/res/investors/docs/2010/agm/101119_
minutes_agm.pdf. (Information on the Ericsson website does
not form part of this Report).
Business dRiveRs 2009
geneRal MeeTing of shaReholdeRs
general meeting
of sHareHolders
decision making at general Meetings
The decision-making rights of Ericsson’s shareholders are
exercised at General Meetings. Most resolutions at General
Meetings are passed by a simple majority. However, the
Swedish Companies Act requires qualified majorities in certain
cases, for example:
> Amending the articles of association
> The resolution to transfer own shares to employees
participating in employee share plans
The annual general Meeting
of shareholders
The Annual General Meeting (AGM) 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. Only named shareholders registered
in the share register have voting rights. Nominee-registered
shareholders who wish to vote may request to be entered into
the share register by the record date for the AGM.
The AGM is held in Swedish and is simultaneously
interpreted into English. All documentation provided by the
Company is available in both Swedish and English.
The AGM gives shareholders the opportunity to raise
questions relating to the operations of the Group. Ericsson
always strives to ensure that the members of the Board
of Directors and the Group management (the Executive
Leadership Team) are present to answer such questions.
Shareholders and other interested parties may also correspond
annual general
meeting 2011
Ericsson’s Annual General Meeting 2011 will take place
on April 13, at the Annex to the Ericsson Globe Arena in
Stockholm.
Shareholders who wish to have a matter considered at
the AGM should 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
136 | coRpoRAtE govERnAncE REpoRt 2010 Ericsson Annual Report 2010
CGRXPARTX1XEN_v68.indd 136
2011-02-26 15.09
Business dRiveRs 2009
noMinaTion CoMMiTTee
Work of the nomination Committee
for the agM 2011
The Nomination Committee starts its work by going through
a checklist of all its duties according to the Code and its
procedure resolved by the AGM. It also sets a time plan for
its work ahead. As understanding of Ericsson’s business
is paramount to the members of the Committee, both the
Chairman of the Board and the President and CEO have
presented their views to the Committee on the Company’s
position and strategy.
The Committee has also been thoroughly informed of the
results of the evaluation of the Board work and procedures,
including the performance of the Chairman of the Board. From
this basis the Committee is able to make assessments on the
competence and experience required by the Board members.
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 auditors and audit
fees. Following the Chairman of the Boards’ announcement
of his intention to resign from the Board, one main focus for
the Nomination Committee this year has been to nominate a
successor. As of February 21, 2011 the Nomination Committee
has held 8 meetings.
Shareholders may submit proposals to the Nomination
Committee at any time, but should do so in due time
before the AGM to ensure that they are considered
by the Committee. Further information is available on
Ericsson’s website.
HoW to Contact the
nomination Committee
Telefonaktiebolaget LM Ericsson
The Nomination Committee
c/o General Counsel’s Office
SE-164 83 Stockholm, Sweden
nomination.committee@ericsson.com
nomination Committee
A Nomination Committee was elected by the AGM for the
first time in 2001. Since then, each AGM has appointed a
Nomination Committee, or resolved on the procedure for
appointing the Nomination Committee.
The AGM 2010 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 AGM was held
> The Chairman of the Board of Directors.
However, as described in the procedure for appointing
members, the Nomination Committee may include additional
members following a request by a shareholder. The 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
In addition to the Chairman of the Board of Directors,
the current Nomination Committee consists of the four
representatives appointed by the four shareholders with the
largest voting power as of April 30, 2010:
> Jacob Wallenberg (Investor AB, Chairman of the Nomination
Committeee)
> Carl-Olof By (AB Industrivärden, Svenska Handelsbankens
Pensionsstiftelse and Pensionskassan SHB
Försäkringsförening)
> Caroline af Ugglas (Livförsäkringsaktiebolaget Skandia)
> Marianne Nilsson (Swedbank Robur Fonder).
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.
However, the main task of the Committee remains to propose
candidates for election to the Board of Directors. In doing this,
the Committee must not only orientate itself on the Company’s
strategy and future challenges to be able to assess the
competence and experience that is required by the Board, but
also consider all applicable rules on the independence of the
Board of Directors.
It also prepares remuneration proposals for resolution by the
AGM for:
> Non-employed Directors elected by the AGM
> The auditor
> Members of the Nomination Committee.
To date, the Committee has not proposed that it should be paid
any fees. When proposing auditors, the Nomination Committee
selects candidates in cooperation with the Audit Committee of
the Board.
The Committee also proposes a candidate for election of the
Chairman of General Meetings.
CGRXPARTX1XEN_v68.indd 137
2011-02-26 15.09
Ericsson Annual Report 2010 coRpoRAtE govERnAncE REpoRt 2010 | 137
BoaRd of diReCToRs
Board of direCtors
The Board of Directors is ultimately responsible for the
organization of Ericsson and the management of its operations.
It develops guidelines and instructions for 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 Group. This includes business
development, results, financial position and the liquidity of
the Group.
According to the Articles of Association, the Board of
Directors shall consist of no less than 5 and no more than 12
directors, with no more than 6 deputies. In addition, under
Swedish law, trade unions have the right to appoint three
directors and their deputies to the Board.
Directors will serve from the close of one AGM to the close
of the next, but can serve any number of consecutive terms.
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.
Rules and regulations
Ericsson strictly follows rules and regulations regarding
conflicts of interest. Directors are disqualified from participating
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. Furthermore, 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 12 Directors, including the
Chairman of the Board, elected by the shareholders at the
AGM 2010, for the period until the close of the AGM 2011.
It also includes three employee representatives, each with a
deputy, appointed by the trade unions for the same period of
time. The President and CEO, Hans Vestberg, is the only Board
member who was also a member of Ericsson’s management
during 2010.
Work procedure
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
The Board of Directors and its Committees are subject to
a variety of independence requirements. Ericsson applies
independence rules in applicable Swedish law, the Swedish
Corporate Governance Code, 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 that are contrary to Swedish law.
The composition of the Board of Directors meets all
applicable independence criteria.
The Nomination Committee concluded before the AGM
2010 that, for the purposes of the Code, at least six of the
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, Michael Treschow and Michelangelo Volpi.
138 | coRpoRAtE govERnAncE REpoRt 2010 Ericsson Annual Report 2010
CGRXPARTX1XEN_v68.indd 138
2011-02-26 15.09
BoaRd of diReCToRs
> Third interim Report Meeting and Board evaluation
A Board meeting is held at the end of October to handle the
third-quarter interim report.
The results of the Board evaluation are presented and
discussed by the Board during this meeting.
> Budget and financial outlook Meeting
The last meeting of the calendar year addresses budget
and financial outlook and a further analysis of internal and
external risks.
> full-year financial Results Meeting
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.
> annual Report Meeting
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 from the
committee meetings are distributed to all Directors prior to the
Board meeting.
At each Board meeting the President and CEO reports on
business and market developments as well as the financial
performance of the Company. The Board is regularly informed
of developments in legal and regulatory matters of importance.
structure of the work of the Board of directors
The work of the Board follows a yearly cycle in order to
address each of the duties of the Board appropriately and to
be able to keep strategy, risk assessment and value creation
high on the agenda.
> statutory Meeting
The yearly cycle starts with the statutory Board meeting
which is held in connection with the AGM. At this meeting,
members of each of the three Committees are appointed
and the Board resolves on matters such as signatory power.
> first interim Report Meeting
At the next ordinary meeting, the Board handles the first
interim report for the year.
> Main strategy Meeting
Various strategic issues are addressed in most of the Board
meetings. However, in accordance with the annual cycle
for the strategy process, this Board meeting is in essence
dedicated to short and long-term strategies of the Group.
Following the Board’s input and approval of the overall
strategy, the strategy is cascaded throughout the entire
organization, starting at the Global Leadership Summit with
the top 250 managers in Ericsson.
second interim Report Meeting
In July, the Board convenes to handle the interim report for
the second quarter of the year.
>
> follow-up on strategy & Risk Management Meeting
Following the summer, this meeting addresses particular
strategy matters in further detail and finally confirms the
Group strategy. The meeting also addresses the overall risk
management of the Group.
The BoaRd’s annual WoRk CyCle
Budget and financial outlook meeting
Q4 meeting
– Financial result of the entire year
Q3 meeting
– Q3 Financial report
– Board work evaluation
– Board training
Q4
Nov
Dec
Jan
Q1
Feb
Annual report meeting
– Board signs the annual report
– Board training
Follow-up Strategy & Risk
Management Meeting
Oct
Sep
Aug
Q3
Board
meetings
– annual cycle
Mar
Apr
Statutory meeting (in connection with AGM)
– Appointment of Committee Members
– Authorization to sign for the Company
Jul
Jun
May
Q2
Q1 meeting
– Q1 Financial report
Q2 meeting
– Q2 Financial report
Main Strategy meeting
CGRXPARTX1XEN_v68.indd 139
2011-02-26 15.09
Ericsson Annual Report 2010 coRpoRAtE govERnAncE REpoRt 2010 | 139
BoaRd of diReCToRs
auditor involvement
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 2010, 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
the other 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 evaluations
were thoroughly discussed and an action plan was developed
in order to further improve the work of the Board.
Committees of tHe
Board of direCtors
The Board of Directors has established three Committees:
the Audit Committee, the Finance Committee and the
Remuneration Committee. Members of each Committee
are appointed for one year amongst the Board members
in accordance with the principles set forth in the Swedish
Companies Act and the Code.
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. It 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.
The Board meets with Ericsson’s external auditor at least once
a year to receive and consider the auditor’s observations. The
auditor 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 2010”. 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 held twice a year for all Directors. The sessions
enhance their knowledge of specific operations and issues
as appropriate to ensure that the Board has knowledge and
understanding at the forefront of technical development.
As a rule, the Board receives Sustainability and Corporate
Responsibility training at least once a year.
Key focus areas in Board training 2010 were:
> Radio Technology, including R&D strategy and intellectual
property rights
> Major trends impacting the competitive landscape.
Work of the Board of directors in 2010
Ten Board meetings were held in 2010. For attendance at
Board meetings see the table on page 143. Among the matters
addressed by the Board this year (apart from regular matters in
the annual Board work cycle) were :
> A more consolidated and efficient go-to-market model with
10 Regions instead of 23 Market Units
> A redefined management team, the Executive Leadership
Team, including two regional heads
> Continued effects of the general financial uncertainty in
the market
> The causes and consequences of the general shortage of
components that telecom equipment providers, including
Ericsson, have experienced during the year
> The rollout of the multi-standard radio base station RBS
6000 – Ericsson’s first multi-standard base station.
> A number of acquisitions and divestments, including the
acquisition of Nortel’s stake in the joint venture LG-Nortel.
140 | coRpoRAtE govERnAncE REpoRt 2010 Ericsson Annual Report 2010
CGRXPARTX1XEN_v68.indd 140
2011-02-26 15.09
CoMMiTTees of The
BoaRd of diReCToRs
Alleged violations are investigated by Ericsson’s internal audit
function in conjunction with the relevant Group Function.
Information regarding any incidents are reported to the Audit
Committee. The report includes measures taken, details of the
responsible Group Function and the status of any investigation.
MeMBeRs of The audiT CoMMiTTee
The Audit Committee consists of four Board members
appointed by the Board. In 2010, the Audit Committee
comprised Ulf J. Johansson (Chairman of the Committee),
Roxanne S. Austin, Sir Peter L. Bonfield and Jan Hedlund.
All members are independent from the Company and
senior management, except Jan Hedlund, who is appointed
Board member by the unions pursuant to Swedish mandatory
law. 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,
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.
WoRk of The audiT CoMMiTTee
The Audit Committee held eight meetings in 2010. Directors’
attendance is reflected in the table on page 143. During the
year, the Audit Committee reviewed the scope and results of
external financial audits and the independence of the external
auditor. It also monitored the external audit fees and approved
non-audit services performed by the external auditor.
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 monitored the continued compliance with
the Sarbanes-Oxley Act and the internal control and risk
management process. It has also reviewed certain related-party
transactions in accordance with its established process.
audit Committee
On behalf of the Board, the Audit Committee monitors
the following:
> The scope and correctness of the financial statements
> Compliance with legal and regulatory requirements
Internal control over financial reporting
>
> Risk management.
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. This includes 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
> 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.
When applicable, the Committee is also involved in the
preparatory work of proposing candidates for the election of the
auditor. It also monitors Group transactions and the ongoing
performance and independence of the auditor. This avoids
conflicts of interest.
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.
Also in place are the following:
> A process for reviewing transactions with related parties
> A whistleblower procedure for the reporting of violations
relating to accounting, internal control and auditing matters.
oRganizaTion of The BoaRd WoRk
Board of Directors
15 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
CGRXPARTX1XEN_v68.indd 141
2011-02-26 15.09
Ericsson Annual Report 2010 coRpoRAtE govERnAncE REpoRt 2010 | 141
CoMMiTTees of The
BoaRd of diReCToRs
finance Committee
MeMBeRs of The CoMMiTTees
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
> 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 2010, the Finance Committee
comprised: Marcus Wallenberg (Chairman of the Committee),
Anna Guldstrand, Anders Nyrén and Michael Treschow.
WoRk of The finanCe CoMMiTTee in 2010
The Finance Committee held nine meetings in 2010. Directors’
attendance is reflected in the table on page 143. During the
year the Finance Committee has approved numerous customer
finance and credit facility arrangements with a continued focus
on capital structure, cash flow and cash generating ability. It
has also continuously monitored Ericsson’s financial position
and credit exposure.
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, monitoring and evaluating strategies and
general guidelines for employee remuneration, including
short-term variable remuneration and pension benefits
> Reviewing the results of short-term variable remuneration
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 remuneration
for the following year, for resolution by the Board.
To achieve this, the Committee holds annual remuneration
reviews with Company representatives. These reviews
determine the strategic direction, and align program designs
and pay policies with the business objectives.
142 | coRpoRAtE govERnAncE REpoRt 2010 Ericsson Annual Report 2010
Members of the Committees of the Board of Directors 2010
Audit
Committee
Finance
Committee
Remuneration
Committee
> Ulf J Johansson
(Chairman)
> Roxanne S. Austin
> Sir Peter L. Bonfield
> Jan Hedlund
> Marcus Wallenberg
(Chairman)
> Anna Guldstrand
> Anders Nyrén
> Michael Treschow
> Michael Treschow
(Chairman)
> Börje Ekholm
> Nancy McKinstry
> Karin Åberg
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 2010, 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,
particularly regarding international trends and developments.
WoRk of The ReMuneRaTion CoMMiTTee in 2010
The Remuneration Committee held eight meetings in 2010.
Directors’ attendance is reflected in the table on page 143.
The Committee reviewed and prepared for resolution by the
Board a proposal for the Long-Term Variable Remuneration
Program 2010. This was approved by the AGM 2010. The
Committee further resolved on salaries and short term variable
pay for 2010 for CEO direct reports and prepared for resolution
by the Board remuneration to the President and CEO, Hans
Vestberg. The Committee also prepared a remuneration policy
which was subsequently referred by the Board to the AGM
for approval.
Towards the end of the year, the Committee concluded
its analysis of the current long-term variable remuneration
structure and remuneration policy. The resulting proposals will
be referred to the AGM 2011 for resolution.
For further information on remuneration, fixed and variable
pay, please see Note C29 “Information Regarding Members
of the Board of Directors, the Group management and
Employees” in the Annual Report and the “Remuneration
Report” included the Annual Report.
CGRXPARTX1XEN_v68.indd 142
2011-02-26 15.09
ReMuneRaTion To BoaRd MeMBeRs
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 2010 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 2010, please refer to Notes to the
Consolidated Financial Statements – Note C29 “Information
Regarding Members of the Board of Directors, the Group
Management and Employees” in the Annual Report. The
Annual General Meeting 2010 also approved the Nomination
Committee’s proposal that 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 2010 at www.ericsson.
com/thecompany/investors/general-meetings. (Information on
the Ericsson website does not form part of this document.)
diReCToRs’ aTTendanCe and fees 2010
Board member
Board fees 1)
Committee fees Board
audit Committee
finance Committee
Remuneration Committee
fees resolved by the agM 2010
number of Board/Committee meetings attended
Michael Treschow
Sverker Martin-Löf
Marcus Wallenberg
Roxanne S. Austin
Sir Peter L. Bonfield
Börje Ekholm
Ulf J. Johansson
Nancy McKinstry
Anders Nyrén
Carl-Henric Svanberg
Hans Vestberg
Michelangelo Volpi 2)
Anna Guldstrand
Jan Hedlund
Karin Åberg
Monica Bergström 3)
Pehr Claesson
Kristina Davidsson
Karin Lennartsson 4)
Total number of meetings
3,750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
750,000
–
750,000
15,000 5)
15,000 5)
15,000 5)
4,500 5)
15,000 5)
15,000 5)
10,500 5)
250,000
125,000
250,000
250,000
125,000
350,000
125,000
125,000
10
10
9
7
10
9
10
10
10
8
8
6
10
10
10
3
10
10
7
10
6
8
8
8
8
9
9
9
9
9
1) Non-employed Directors can choose to receive part of their Board fee (exclusive of Committee fees) in the form of synthetic shares.
2) Elected as Board member as of April 13, 2010.
2) Resigned as Deputy employee representative as of April 13, 2010.
3) Deputy employee representative as of April 13, 2010.
5) Employee representative Board members and their deputies are not entitled to a Board fee but a compensation in the amount of SEK 1,500 per attended Board meeting.
8
7
7
8
8
CGRXPARTX1XEN_v68.indd 143
2011-02-26 15.09
Ericsson Annual Report 2010 coRpoRAtE govERnAncE REpoRt 2010 | 143
members of the board of directors
members of the
board of directors
board members elected by the annual General meeting 2010
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, Sweden.
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
experience includes 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.
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, SSAB and
AB Industrivärden.
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: Abbott Laboratories, Teledyne Technologies Inc.
and Target Corporation.
holdings in ericsson 1): 3,000 Class B shares.
Principal work experience and other information: President of Austin Investment
Advisors since 2004. President and CEO of Move Networks Inc. 2009–2010.
President and CEO of DIRECTV 2001–2003. Corporate Senior Vice President and
Chief Financial Officer of Hughes Electronics Corporation 1997–2000, which she
joined in 1993. Previously 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.
michael treschow
marcus Wallenberg
sverker martin-Löf
roxanne s. austin
144 | corporate governance report 2010 ericsson annual report 2010
CGRXPARTX2XEN_v60.indd 144
2011-02-26 15.23
business drivers 2009
members of the board of directors
sir Peter L. bonfield
börje ekholm
ulf J. Johansson
sir Peter L. bonfield (first elected 2002). Member of the Audit Committee.
Born 1944. Honors degree in Engineering, Loughborough University,
Leicestershire, UK.
board chairman: NXP Semiconductors.
deputy chairman: British Quality Foundation.
board member: Mentor Graphics Inc., Sony Corporation, TSMC
and Actis Capital LLP.
holdings in ericsson 1): 4,400 Class B shares.
Principal work experience and other information: CEO and Chairman of the
Executive Committee of British Telecommunications plc. 1996–2002. Chairman
and CEO of ICL plc 1990–1996. Positions with STC plc and Texas Instruments
Inc. Member of the Advisory Boards of New Venture Partners LLP, the Longreach
Group and Apax Partners LLP. Board Mentor of CMi. Senior Advisor, Rothschild,
London. Fellow of the Royal Academy of Engineering.
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 chairman: Royal Institute of Technology, Stockholm.
board member: Investor AB, AB Chalmersinvest, EQT Partners AB, Husqvarna
AB, Lindorff Group AB, the Royal Institute of Technology, Stockholm and Scania.
holdings in ericsson 1): 30,760 Class B shares.
Principal work experience and other information: President and CEO of
Investor AB since 2005. Formerly 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: TiasNimbas Business School.
holdings in ericsson 1): 4,000 Class B shares.
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, the Board of Overseers of
Columbia Business School and the Advisory Board of the Harrington School of
Communication and Media.
CGRXPARTX2XEN_v60.indd 145
2011-02-26 15.23
nancy mcKinstry
ericsson annual report 2010 corporate governance report 2010 | 145
business drivers 2009
members of the board of directors
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: Sandvik AB. Vice Chairman Svenska Handelsbanken.
board member: Svenska Cellulosa Aktiebolaget SCA, AB Industrivärden,
SSAB, AB Volvo, Ernströmgruppen and Stockholm School of Economics.
holdings in ericsson 1): 6,686 Class B shares.
Principal work experience and other information: President and CEO of
Industrivärden since 2001. CFO and EVP of Skanska AB 1997–2001. Director
Capital Markets of Nordbanken 1996–1997. CFO and EVP of Securum AB 1992–
1996. Managing Director of OM International AB 1987–1992. Earlier positions at
STC Scandinavian Trading Co AB and AB Wilhelm Becker.
carl-henric svanberg (first elected 2003)
Born 1952. Master of Science, Linköping Institute of Technology. Bachelor of
Science in Business Administration, University of Uppsala.
board chairman: BP p.l.c.
board member: Melker Schörling AB and University of Uppsala.
holdings in ericsson 1): 3,234,441 Class B shares.
Principal work experience and other information: President and CEO of
Telefonaktiebolaget LM Ericsson 2003-2009. President and CEO of Assa Abloy
AB 1994–2003. Various positions within Securitas AB 1986–1994 and Asea
Brown Boveri (ABB) 1977–1985. Member of the Steering Committee of the Global
Alliance for Information and Communication Technologies and Development
(GAID), the External Advisory Board of the Earth Institute at Columbia University
and the Advisory Board of Harvard Kennedy School. Holds Honorary Doctorates
at Luleå University of Technology and Linköping University and is the recipient of
the King of Sweden’s medal for his contribution to Swedish industry.
hans vestberg (first elected 2010)
Born 1965. Bachelor of Business Administration and Economics,
University of Uppsala.
board chairman: ST-Ericsson and Svenska Handbollförbundet.
board member: Sony Ericsson Mobile Communications AB and Thernlunds AB.
holdings in ericsson 1): 54,368 Class B shares.
Principal work experience and other information: President and CEO as of
January 1, 2010. First Executive Vice President until December 31, 2009. Chief
Financial Officer and Head of Group Function Finance until October 31, 2009.
Previously Executive Vice President and Head of Business Unit Global Services.
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.
michelangelo volpi (first elected 2010)
Born 1966. Bachelor of Science in Mechanical Engineering and Masters in
Manufacturing Systems Engineering from Stanford University, USA. MBA from the
Stanford Graduate School of Business, USA.
board member: None.
holdings in ericsson 1): None.
Principal work experience and other information: Partner at Index Ventures since
July 2009. Previously CEO of Joost Inc.. Employed by Cisco from 1994-2007 in
positions including Senior Vice President & General Manager of the Routing and
Service Provider Technology Group and Chief Strategy Officer. Has also worked
for Hewlett Packard in the optoelectronics division.
anders nyrén
carl-henric svanberg
hans vestberg
michelangelo volpi
146 | corporate governance report 2010 ericsson annual report 2010
CGRXPARTX2XEN_v60.indd 146
2011-02-26 15.23
business drivers 2009
members of the board of directors
members of the
board of directors
board members and deputies appointed by the unions
Jan hedlund (first appointed 1994)
Employee representative, Member of the Audit Committee
Born 1946. Appointed by the IF Metall union.
holdings in ericsson 1): 964 Class B shares.
Employed since 1982. Previously working with model production
mechanics within Business Unit Networks and currently working full
time as union representative.
anna Guldstrand (first appointed 2004)
Employee representative, Member of the Finance Committee
Born 1964. Appointed by the union The Swedish Association of
Graduate Engineers.
holdings in ericsson 1): 1,667 Class B shares.
Employed since 1996. Working as knowledge manager within Business
Unit Global Services.
Karin Åberg (first appointed 2007)
Employee representative, Member of the Remuneration Committee
Born 1959. Appointed by the union Unionen.
holdings in ericsson 1): 1,900 Class B shares.
Employed since 1995. Working as Service Engineer within Business
Unit Global Services.
Kristina davidsson (first appointed 2006)
Deputy employee representative
Born 1955. Appointed by the IF Metall union.
holdings in ericsson 1): 1,146 Class B shares.
Employed since 1995. Previously working as repairman within Business
Unit Networks and currently working full time as union representative.
Pehr claesson (first appointed 2008)
Deputy employee representative
Born 1966. Appointed by the union The Swedish Association of Graduate
Engineers.
holdings in ericsson 1): 619 Class B shares
Employed since 1997. Working with marketing and communication for
Consulting and Systems Integration within Business Unit Global Services.
Karin Lennartsson (first appointed 2010)
Deputy employee representative
Born 1957. Appointed by the Unionen union.
holdings in ericsson 1): 328 Class B shares.
Employed since 1976. Working as Process Expert within Group Function Finance
– Process and Quality.
Hans Vestberg was the only Director who held an operational management position
at Ericsson in 2010. No Director has been elected pursuant to an arrangement or
understanding with any major shareholder, customer, supplier or other person.
Jan hedlund
anna Guldstrand
Karin Åberg
Kristina davidsson
Pehr claesson
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.
Karin Lennartsson
ericsson annual report 2010 corporate governance report 2010 | 147
CGRXPARTX2XEN_v60.indd 147
2011-02-26 15.23
business drivers 2009
comPany manaGement
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, called the Executive
Leadership Team (ELT). In addition to the President and
CEO, the ELT consists of heads of Group functions, heads of
business units, two regional heads and the Chief Brand Officer.
The role of the ELT 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 the executive Leadership team
A Remuneration policy including guidelines on remuneration and
other employment terms for the ELT were approved by the AGM
2010. For further information on fixed and variable remuneration,
see the Remuneration Report and Notes to the Consolidated
Financial Statements – Note C29, “Information Regarding
Members of the Board of Directors, the Group 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 the Company is compliant with applicable laws, listing
requirements and governance codes and fulfills its corporate
social responsibilities.
ericsson GrouP manaGement system
Ericsson is ISO 9001 (quality) and ISO 14001 (environment)
globally certified and ISO 27001 (information security) certified
in selected units. Certification to OHSAS 18001 (health & safety)
is ongoing. 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: corporate culture, objective
setting, 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
strategy, targets and monitoring
Ericsson uses balanced scorecards as tools for translating
strategic objectives into a set of performance indicators for its
operational units. These focus primarily on:
> Market and customer performance
> Competitive position
Internal efficiency
>
> Financial performance
> 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 individual goals to Company goals, follow up progress
and monitor identified risks.
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 Processes
IT
Organization and Resources
148 | corporate governance report 2010 ericsson annual report 2010
CGRXPARTX2XEN_v60.indd 148
2011-02-26 15.23
comPany manaGement
ericsson’s core vaLues
organization and resources
Professionalism
Respect
Perseverance
corporate culture
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 reaching
objectives. Respect, professionalism and 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 policies and directives
Group-wide policies and directives govern how the
organization works. These include 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.
Ericsson is operated in two dimensions:
> Legal entities: more than 200 companies in more than 100
countries
> Operational units: Four business units and ten regions.
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.
risk management
Ericsson’s risk management is integrated with the business
and its operational processes and is a part of the Ericsson
Group Management System to ensure accountability,
effectiveness, efficiency, business continuity and compliance
with corporate governance, legal and other requirements. The
Board of Directors is also actively engaged in the Company’s
risk management. Risks related to set long-term objectives
are discussed and strategies are 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.
Certain transactional risks require specific Board approval,
e.g. acquisitions, management remuneration, borrowing or
customer finance in excess of pre-defined limits.
operational processes and it tools
strateGic and tacticaL risKs
As a market leader, Ericsson tries to utilize the competitive
advantages that are gained through scale and has implemented
common processes and IT tools across all its operational
units. Through management and continuous improvement of
these processes and IT tools, Ericsson reduces costs with
standardized internal controls and performance indicators.
Strategic risks constitute the highest risk to the Company
if not managed properly as they could have a long-term
impact. Ericsson therefore reviews its long-term objectives,
main strategies and business scope on an annual basis and
continuously works on the tactics to reach these objectives and
mitigate any risks identified.
strateGic, tarGet settinG and risK manaGement cycLe
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
Q4
Nov
Dec
Jan
Oct
Sep
New Business
Development
Q1
Group Strategy Development
(five year perspective)
Feb
Mar
Apr
Board Follow-up
Strategy and Risk
Management meeting
Q3
Aug
May
Q2
Jul
Jun
Business Unit & Group
Function Strategy planning
Strategic risk identification and mitigation
Board Main Strategy Meeting
Quarterly risk monitoring
Global Strategy Conference for senior management
CGRXPARTX2XEN_v60.indd 149
2011-02-26 15.23
ericsson annual report 2010 corporate governance report 2010 | 149
comPany manaGement
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. The strategy process in the Company is well
established and involves regions, business units and Group
functions. The strategy is finally summarized and discussed in
a yearly senior management meeting with approximately 250
managers from all parts of the business. By involving all parts
of the business in the process, potential risks are identified
early and mitigating actions can be incorporated in the strategy
and in the annual target process following the finalization of
the strategy.
Technology development, industry and market fundamentals
as well as the development of the economy are key
components in the evaluation of risks related to Ericsson’s
long-term objectives.
The outcome from the strategy process forms the basis for
the annual target process which involves regions, business
units and Group functions. Risks and opportunities linked to
the targets are identified as part of this process together with
actions to mitigate the identified risks. Follow-up of targets,
risks and mitigating actions are reported and discussed
continuously in business unit and region steering groups as well
as being reviewed by the Board of Directors.
The Company has been using the Balanced Scorecard
concept to structure its targets, risks and opportunities for
many years. For 2010 risks and opportunities were identified
and analyzed in the five balanced scorecard perspectives. For
more information on risks related to Ericsson’s business, see
Risk Factors.
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 & business continuity and 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. 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 and a Code of Conduct.
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 PwC, and
ISO/management system audits by Det Norske Veritas, DNV.
Internal audits are performed by the company’s internal audit
function which reports to the Audit Committee. Audits of
suppliers are also conducted in order to secure compliance
with agreed key performance indicators and Ericsson’s
Code of Conduct which is mandatory for suppliers to the
Ericsson Group.
Process to identify and manaGe oPerationaL risKs for reGions and business units
Leadership Team meeting and workshop
Preparations
Establish gross list
Prioritize risks
Assign responsibility
Manage risks
> Group similar risks together
> Rank
> Prioritize
Assign responsibility for
managing each top risk to a
Leadership Team member
Develop mitigation actions
(Leadership Team member)
Secure risk reviews in
connection with performance
reviews
Compile input:
> Business plan/Growth plan
SWOT and risks
> Previously identified risks
> Scorecard and target
descriptions
> Preparatory meeting/
workshop
> BCM for local operation
Consider each scorecard
perspective
Consider risk areas to make
additions to list:
> External environment
(e.g. political risk)
> Customers
> Competitors
> Suppliers/subcontractors
> Internal operations
> Competence
> Contractual conditions
> Product roadmaps
150 | corporate governance report 2010 ericsson annual report 2010
CGRXPARTX2XEN_v60.indd 150
2011-02-26 15.23
business drivers 2009
members of the
eXecutive LeadershiP team
members of the eXecUtiVe Leadership team
c
b
e
h
J
f
i
L
m
a
d
g
K
n
a angel ruiz
b carl olof blomqvist
c douglas L. Gilstrap
d bina chaurasia
e magnus mandersson
f hans vestberg
g Jan Wäreby
h mats h. olsson
i
Jan frykhammar
J rima Qureshi
K cesare avenia
L henry sténson
m Johan Wibergh
n håkan eriksson
CGRXPARTX2XEN_v60.indd 151
2011-02-26 15.23
ericsson annual report 2010 corporate governance report 2010 | 151
business drivers 2009
members of the
eXecutive LeadershiP team
business drivers 2009
a angel ruiz
e magnus mandersson
senior vice President and head of business unit Global
services (since 2010).
Born 1959.
Bachelor of Business Administration, University of Lund.
holdings in ericsson 1): 8,605 Class B shares.
background: Previously Head of Business Unit CDMA,
Head of Market Unit Northern Europe and Global
Customer Account Deutsche Telekom AG.
f hans vestberg
President and ceo (since January 1, 2010).
Born 1965.
Bachelor of Business Administration, University of
Uppsala.
board member: Sony Ericsson Mobile Communications
AB and Thernlunds AB.
chairman: ST-Ericsson and Svenska Handbollförbundet.
holdings in ericsson 1): 54,368 Class B shares.
background: Chief Financial Officer and Head of Group
Function Finance until October 31, 2009. Previously
Executive Vice President and Head of Business Unit
Global Services. 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.
g 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.
holdings in ericsson 1): 47,551 Class B shares.
background: Executive Vice President and Head of Sales
and Marketing for Sony Ericsson Mobile Communications
from 2002-2006.
head of region north america (since 2010).
Born 1956.
Bachelor’s degree in Electrical Engineering from University
of Central Florida and a Master’s degree in Management
Science and Information Systems from Johns Hopkins
University, USA.
holdings in ericsson 1): 21,688 Class B shares.
background: Previously Head of Market Unit North
America. He joined Ericsson in 1990 and has held a variety
of sales and managerial positions within the company,
including heading up the global account teams for
Cingular/SBC/BellSouth (now AT&T). Appointed President
of Ericsson North America in 2001.
b carl olof blomqvist
senior vice President, General counsel and head of
Group function Legal affairs (since 1999).
Born 1951.
Master of Law, LLM, University of Uppsala.
holdings in ericsson 1): 1,216 Class A shares and 38,914
Class B shares.
background: Previously partner of Mannheimer Swartling
law firm.
c douglas L. Gilstrap
senior vice President and head of Group function
strategy (since 2009).
Born 1963.
Bachelor in accounting from the University of Richmond,
Master of Business Administration, Emory University,
Atlanta.
holdings in ericsson 1): 2,643 Class B shares.
background: CFO and Co-Founder of Asia Pacific
Exploration Consolidated (APEC), Has also held various
global managerial positions in different companies within the
telecommunications and IT sector for more than 15 years.
d bina chaurasia
senior vice President and head of Group function
human resources and organization
(since November 2010).
Born 1962.
Holds a Master of Science in Management and Human
Resources from the Ohio State University and a Masters
of Arts in Philosophy from the University of Wisconsin.
holdings in ericsson 1): 11,627 Class B shares.
background: Joined Ericsson from Hewlett Packard,
where she was the Vice President of Global Talent
Management. Has also held senior HR leadership roles at
Gap, Sun Microsystems and PepsiCo/Yum.
152 | corporate governance report 2010 ericsson annual report 2010
CGRXPARTX2XEN_v60.indd 152
2011-02-26 15.23
business drivers 2009
business drivers 2009
members of the
eXecutive LeadershiP team
h mats h. olsson
K cesare avenia
head of region china & north east asia
(since 2010).
Born 1954.
Master of Business Administration from the Stockholm
School of Economics.
holdings in ericsson 1): 43,088 Class B shares.
background: Previously Head of Market Unit Greater
China and has held various positions in Asia for Ericsson.
Appointed President of Ericsson Greater China in 2004,
with overall responsibility for Mainland China, Hong Kong,
Macao and Taiwan.
i
Jan frykhammar
executive vice President and chief financial officer and
head of Group function finance (since 2009).
Born 1965.
Bachelor of Business Administration and Economics,
University of Uppsala.
board member: Sony Ericsson Mobile Communications
AB, ST-Ericsson.
holdings in ericsson 1): 3,650 Class B shares.
background: Previously Senior Vice President and Head
of Business Unit Global Services. 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 for Vodafone.
J rima Qureshi
senior vice President and head of business unit cdma
mobile systems (since 2010).
Born 1965.
Holds a Bachelor’s degree of Information Systems and
a Master’s degree of administration, McGill University,
Montreal, Canada.
holdings in ericsson 1): 2,662 Class B shares
background: Also serves as head of Ericsson Response.
Previously head of the AT&T Improvement Program within
Market Unit North America.
chief brand officer (since 2010).
Born 1950.
Bachelor’s degree of Electronics engineering,
University of Naples, Italy.
board member: Member of the Steering Committee for
Innovation and Technology Services within the Association
of Telecom service providers within Confindustria, the
National Association of Industralists in Italy.
holdings in ericsson 1): 11,618 Class B shares.
background: Previously Head of Market Unit Italy.
L 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 Invest AB.
holdings in ericsson 1): 27,855 Class B shares.
background: Previously Head of SAS Group
Communication.
m Johan Wibergh
executive vice President (since 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): 19,967 Class B shares.
background: President of Ericsson Brazil. Has also been
President of Market Unit Nordic and Baltics,
Vice President and Head of Sales at Business Unit
Global Services.
n håkan eriksson
senior vice President, chief technology officer, head
of Group function technology & Portfolio management
(since 2003) and head of ericsson in silicon valley (since
January 1, 2010).
Born 1961.
Master of Science and Honorary Ph D, Linköping Institute
of Technology.
board member: Vestas.
holdings in ericsson 1): 32,130 Class B shares.
background: Previously Senior Vice President and Head
of Research and Development. Has held various positions
within Ericsson since 1986.
CGRXPARTX2XEN_v60.indd 153
2011-02-26 15.23
ericsson annual report 2010 corporate governance report 2010 | 153
auditors
business drivers 2009
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 have been elected by the shareholders at the Annual
General Meeting for periods of four years. However, according
to a recent change in the Swedish Companies Act, the mandate
period of the Auditors shall be one year, unless the Articles
of Association provides for a longer mandate period up to
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 interim and year-end financial statements to
assess accuracy and completeness of the accounts and
adherence to accounting standards and policies
> 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.
internaL controL oVer
financiaL reporting 2010
This section has been prepared in accordance with the Annual
Accounts Act and the Swedish Corporate Governance Code
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 as well as management’s
assessment of the effectiveness of the controls.
In order to comply with SOX, the Company has implemented
detailed documented controls and testing and reporting
procedures based on 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 2010, the Company has included operations of
acquired entities as well as continued to improve the design
and execution of its financial reporting controls.
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 – enhancing understanding of the economic
drivers and operational performance of the business,
building 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.
154 | corporate governance report 2010 ericsson annual report 2010
CGRXPARTX2XEN_v60.indd 154
2011-02-26 15.23
internaL controL over
financiaL rePortinG 2010
Ericsson’s website (www.ericsson.com/investors) comprises
comprehensive information on the Group, including:
> An archive of annual and interim reports
> On-demand access to recent news
> Copies of presentations given by senior management at
industry conferences.
(Information on the Ericsson website does not form part of
this Report).
disclosure controls and procedures
Ericsson has controls and procedures in place to ensure timely
information disclosure under the US 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.
The Disclosure Committee comprises 15 members
with various expertise. It 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, 2010.
During the period covered by the Annual Report 2010, 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
> A strong corporate culture
> The Company’s organization and mode of operations,
> 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. The management of each reporting
legal entity, region and business unit is supported by a financial
controller function 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 exist
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,
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,
region 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
with well-defined roles and responsibilities and delegations
of authority
controls performed by the Disclosure Committee ensure that all
disclosure requirements are fulfilled.
The Company has implemented controls to ensure that the
ericsson annual report 2010 corporate governance report 2010 | 155
CGRXPARTX2XEN_v60.indd 155
2011-02-26 15.23
internaL controL over
financiaL rePortinG 2010
financial reports are prepared in accordance with its internal
accounting and reporting policies and IFRS as well as with
relevant listing regulations. It maintains detailed documentation
on internal controls related to accounting and financial
reporting. It also keeps records on the monitoring of the
execution and results of such controls. This 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 whistleblower 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 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 regions.
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.
the board of directors
Stockholm, February 21, 2011
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016–0680
156 | corporate governance report 2010 ericsson annual report 2010
CGRXPARTX2XEN_v60.indd 156
2011-02-26 15.23
auditor’s rePort on the corPorate
Governance rePort
aUditor’s report
on the corporate
goVernance report
To the annual meeting of the shareholders in
Telefonaktiebolaget LM Ericsson (publ), corporate identity
number 556016-0680
It is the Board of Directors who is responsible for the
report has been prepared and is consistent with the annual
accounts and the consolidated accounts, we have read the
corporate governance report and assessed its statutory content
based on our knowledge of the company.
corporate governance report for the year 2010 and that it has
been prepared in accordance with the Annual Accounts Act.
As a basis for our opinion that the corporate governance
In our opinion, the corporate governance report has been
prepared and its statutory content is consistent with the annual
accounts and the consolidated accounts.
Stockholm 21 February, 2011
Peter clemedtson
Authorized Public Accountant
PricewaterhouseCoopers AB
CGRXPARTX2XEN_v60.indd 157
2011-02-26 15.23
ericsson annual report 2010 corporate governance report 2010 | 157
GLOSSARY
GLOSSARY
2G
First digital generation of mobile
systems, includes GSM, TDMA, PDC
and cdmaOne.
EDGE
A 3G mobile standard, developed as
an enhancement of GSM. Enables
the transmission of data at speeds
up to 250 kbps.
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.
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.
GDP
Gross domestic product the
total annual cost of all finished
goods and services produced
within a country.
Broadband
Data speeds that are high enough to
allow transmission of multimedia
services with good quality.
GPON
(Gigabit Passive Optical Network)
Used for fiber-optic communication
to the home (FTTH).
Capex
Capital expenditure.
CDMA
(Code division multiple access)
The cdmaOne (2G) and CDMA2000
(3G) mobile communication
standards are both based on CDMA.
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.
Opex
Operating expenses.
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.
WCDMA
(Wideband Code Division Multiple
Access) A 3G mobile communication
standard. WCDMA builds on the
same core network infrastructure
as GSM.
xDSL
Digital Subscriber Line technologies
for broadband multimedia
communications in fixed line
networks. Examples: IP-DSL, ADSL
and VDSL.
HSPA
(High Speed Packet Access)
Enhancement of 3G/WCDMA that
enables mobile broadband.
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.
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.
FTTH
(Fiber-to-the-home) refers to fiber
optic broadband connections to
individual homes.
IPTV
(IP Television) A technology that
delivers digital television via fixed
broadband access.
158 | GLOSSARY, FINANCIAL TERMINOLOGY AND EXCHANGE RATES Ericsson Annual Report 2010
GLOSSXTERMSXEN_v17.indd 158
2011-02-25 21.16
FINANCIAL TERMINOLOGY
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.
EBITA margin
Earnings Before Interest, Taxes,
Amortization and write-downs of
acquired intangibles, as a
percentage of Net Sales.
Equity ratio
Equity, expressed as a percentage
of total assets.
Gross Cash
Cash and cash equivalents plus
short-term investments.
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 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).
FINANCIAL TERMINOLOGY
Stockholders’ equity per share
Stockholders’ equity divided by the
number of shares outstanding at end
of period, basic.
Total Shareholder Return (TSR)
The increase or decrease in share
price during the period plus
dividends paid, expressed as a
percentage of the share price at the
start of the period.
Trade receivables turnover
Net sales divided by average Trade
receivables.
Value at Risk (VaR)
A statistical method that expresses
the maximum potential loss that can
arise with a certain degree of
probability during a certain period
of time.
Working capital
Current assets less current
non-interest-bearing provisions
and liabilities.
EXCHANGE RATES
EXCHANGE RATES USED IN THE CONSOLIDATION
January–December
SEK/EUR
Average rate
Closing rate
SEK/USD
Average rate
Closing rate
2010
9.56
9.02
7.20
6.80
2009
10.63
10.30
7.63
7.18
GLOSSXTERMSXEN_v17.indd 159
2011-02-25 21.16
Ericsson Annual Report 2010 GLOSSARY, FINANCIAL TERMINOLOGY AND EXCHANGE RATES | 159
SHAREHOLDER INFORMATION
Shareholder>InformatIon
FOR PRINTED PUBLICATIONS,
CONTACT:
a printed copy of the annual report is
provided on request.
>> Strömberg distribution
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
telefonaktiebolaget lm ericsson’s shareholders are invited to participate in the
annual General meeting to be held on Wednesday, april 13, 2011, at 3 p.m. at the
annex to the ericsson Globe, Globentorget, 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 thursday, april 7, 2011, and
>> give notice of attendance to the Company at the latest on thursday, april 7,
2011. notice of attendance can be given on ericsson’s website: www.ericsson.
com/investors, by telephone: +46 8 402 90 54 on weekdays between 10 a.m.
and 4 p.m. or by fax: +46 8 402 9256.
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 number and number of assistants.
the meeting will be conducted in Swedish and simultaneously interpreted
WHERE YOU CAN FIND OUT MORE:
into english.
it is our ambition to provide our
shareholder with up to date information
about ericsson and its development.
information is available on ericsson’s
website:
www.ericsson.com
on the website, the annual report is
available as either an online version or as a
pdf document. Previous annual and
Quarterly reports and other relevant
shareholder information can be found on:
www.ericsson.com/investors
By publishing the annual report on the
web, we will not only reduce the cost for
print and distribution, but also the impact
on the environment.
the annual report on form 20-f (filed with
the Securities and exchange Commission,
SeC) is also available
www.ericsson.com/investors
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 thursday, april 7, 2011,
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 tuesday, april 12, 2011. 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 2.25 per share for the year 2010 and that monday,
april 18, 2011 will be the record day for dividend.
Financial information from Ericsson
>> april 27, 2011 (Q1)
interim reports 2011:
>> July 21, 2011 (Q2)
annual report 2011: march, 2012
2010 form 20-f for the US market: march, 2011
>> october 20, 2011 (Q3)
>> January 25, 2012 (Q4)
160 | Shareholder information ericsson annual report 2010
SHAREHOLDXEN_v30.indd 160
26/02/2011 16:46
SHAREHOLDER INFORMATION
CONTACT INFORMATION
Headquarters
torshamnsgatan 23
Kista
Sweden
Registered office
telefonaktiebolaget lm ericsson
Se–164 83 Stockholm
Sweden
Investor Relations
for questions on the Company, please
contact investor relations:
>> 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 headquarters at torshamnsgatan 23 in Kista, Sweden.
UncertaIntIeS>In>the>fUtUre
ERICSSON ANNUAL REPORT 2010:
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.
Project Management:
ericsson investor relations
Design and production:
harleys and Paues media
Photography:
hans Berggren
Reprographics and Printing:
alfaprint aB 2011
SHAREHOLDXEN_v30.indd 161
26/02/2011 16:46
ericsson annual report 2010 Shareholder information | 161
T
A
K
E
T
H
E
W
O
R
L
D
W
T
H
Y
O
U
I
I
E
R
C
S
S
O
N
a
n
n
u
a
l
r
e
p
o
r
t
2
0
1
0
TAKE THE WORLD
WITH YOU
driving mobile broadband
ANNUAL REPORT 2010
Telefonaktiebolaget LM Ericsson
SE-164 83 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 0430 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2011
COVERXEN_v24.indd 1
28/02/2011 10:39