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Ericsson — Foreign Filer Report 2003
Oct 30, 2003
2911_ffr_2003-10-30_8f5b8697-bf53-40e7-a5ba-fb38fecf7b58.zip
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6-K 1 d6k.htm THIRD QUARTER REPORT 2003 OCTOBER 30, 2003 Third quarter report 2003 October 30, 2003
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
October 30, 2003
LM ERICSSON TELEPHONE COMPANY
(Translation of registrants name into English)
16483 Stockholm, Sweden
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F x Form 40-F ¨
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes ¨ No x
Announcement of LM Ericsson Telephone company, dated October 30, 2003, regarding third quarter report.
s Third quarter report 2003 October 30, 2003 For the German market: Notification pursuant to Section 15 WpHG
Ericsson reports profit in the third quarter, restructuring excluded
Third quarter summary
Net sales SEK 28.0 b. book-to-bill above 1 for third consecutive quarter
Net income SEK -3.9 b. adjusted income after financial items SEK 1.0 b.
Earnings per share SEK -0.25
Adjusted gross margin 35.9%up 0.8%-points sequentially despite weakening USD
Operating expense run rate SEK 38 b. down SEK 4 b. sequentially
Cash flow before financing SEK 9.1 b. net of financial assets and liabilities SEK 20.5 b.
| SEK b. | Third quarter — 2003 | 2002 | Change | Second quarter — 2003 | Change |
|---|---|---|---|---|---|
| Orders booked, net | 28.1 | 20.5 | 37 % | 28.3 | -1 % |
| Net sales | 28.0 | 33.5 | -16 % | 27.6 | 2 % |
| Adjusted gross margin (%) | 35.9 % | 32.6 % | | 35.1 % | |
| Adjusted operating income | 1.3 | -3.2 | | -0.2 | |
| Adjusted income after financial items | 1.0 | -3.6 | | -0.2 | |
| Net income | -3.9 | -5.0 | | -2.7 | |
| Earnings per share | -0.25 | -0.41 | | -0.17 | |
| Cash flow before financing activities | 9.1 | -2.7 | | 5.1 | |
| Opex run rate, annualized | 38 | 52 | -27 % | 42 | -9 % |
| Number of employees | 53,401 | 71,723 | -26 % | 57,644 | -7 % |
Book-to-bill was above one for the third consecutive quarter. Order bookings decreased sequentially by 1% to SEK 28.1 (20.5) b. Net sales in the third quarter grew 2% sequentially to SEK 28.0 (33.5) b. Currency exchange effects have had a negative impact on sales of 9% year-over-year.
Adjusted gross margin improved sequentially by 0.8 percentage points to 35.9% (32.6%) as a result of ongoing restructuring. Operating expense reductions are well on track, reaching an annualized run rate of SEK 38 (52) b. Adjusted income after financial items was SEK 1.0 (-3.6) b. compared to SEK -0.2 b. in the second quarter. Net currency exchange effects have had a negative impact of SEK 0.9 b. on operating income in the quarter.
Cash flow before financing was SEK 9.1 (-2.7) b. with major contributions from reductions in working capital and customer financing. The financial position was significantly strengthened with a net of financial assets and liabilities of SEK 20.5 b. Payment readiness remains high at SEK 71.4 (66.6) b.
2
CEO COMMENTS
Ericsson is back to profit, which is an important milestone, but a lot still remains to be done before we reach good profitability, says Carl-Henric Svanberg, President and CEO of Ericsson. The cost savings, as well as cash flow and gross margin improvements are the result of dedicated employees with a clear understanding of the need to be in control of our own destiny.
Our direction is clear. We are targeting an operating expenses run rate of SEK 33 b. by Q3 2004 and will continue to focus on cost and operational excellence. We must respond even quicker to customers changing needs and leverage our technology and market leadership. This is the way to secure the profitability and cost advantages attainable by the market leader.
We are well positioned to capture new opportunities and are encouraged by our continued leading position in the market. We have gained a number of key contracts within the rapidly expanding markets for 3G/EDGE and MMS. Our solid 2G GSM position remains an important platform for further business expansion. We also see an increasing interest in our strong service offering where professional services have become a natural extension of our network contracts.
Leadership in this changing industry requires a clear understanding of operator and consumer needs in different markets. The ability to support operators in their launch of new services, changing business models and high quality standards in end-to-end solutions is crucial. A prerequisite is operational excellence in all aspects of our business, concludes Carl-Henric Svanberg.
MARKET VIEW
Applications with rich consumer experience like sending and receiving pictures, downloading music, accessing e-mail and checking news over the mobile phone are gaining momentum. This drives the need for higher capacity and speeds, improved interoperability and higher quality of service in the mobile networks.
New service applications are of interest to the operator not only to drive new business but also to attract and retain high volume voice users, as such users are early adopters of new services. Today there are more than 160 commercially launched MMS installations of which we have 50% market share.
Broadband in fixed networks, with its dramatically improved speed, is growing strongly. Mobility has built its tremendous success on the advantages of convenience and reachability. 3G now combines mobility and broadband capabilities opening obvious new opportunities.
The number of WCDMA subscriptions is accelerating and by the end of the quarter there were 1.7 million subscriptions. The introduction pace mirrors the rollout of GSM, ten years ago. Major operators are now working toward confirmed launch dates. Within the CDMA standard, the number of CDMA2000 users is growing rapidly.
The global number of mobile subscriptions continues to grow on pace to reach close to 2 billion subscriptions during 2008. The growth is particularly strong in China, India and Russia partly driven by tariff reductions. Today, world penetration is only 20% with a total of 1.28 billion subscriptions. Asia-Pacific still only has 12% penetration in mobile subscriptions while Western Europe and North America has 80% and 51% respectively. We expect between 165 and 180 million net additions this year.
3
The industry is recovering. Operators are successfully reducing debt and strengthening their financial position. The gradual shift in focus from financial restructuring to business development leads us to believe that the market is stabilizing and that the dramatic market decline is behind us.
OUTLOOK
We maintain our view that the global mobile systems market, measured in USD, could decline by more than 10% this year compared with 2002. The addressable market for professional services is expected to continue to show good growth.
We expect to maintain our shares of the mobile systems and professional services markets this year. Due to currency exchange effects, our reported sales in SEK will decline more than the overall market, which is estimated in USD. Due to seasonality, sales for the fourth quarter are expected to show significant sequential growth.
We expect the mobile systems market in 2004 to be in line with 2003.
OPERATIONAL REALIGNMENT
The cost of sales projects contributed to an improvement of the adjusted gross margin to 35.9% (32.6%), a sequential increase of 0.8 percentage points from 35.1%. The targeted annualized run rate of operating expenses of SEK 38 b. was achieved one quarter ahead of schedule and was reduced by SEK 4 b. sequentially. The earlier announced reduction targets in cost of sales and operating expenses by the third quarter 2004 remains.
Total restructuring charges were SEK 5.4 b. during the quarter and SEK 12.4 b. year-to-date. Estimated total restructuring costs for 2003 remain at SEK 16.3 b., which concludes the announced restructuring programs. Cash outlays in the quarter were SEK 2.7 b.
During the quarter, headcount was reduced by 4,200, bringing the number of employees to 53,400 (71,700). The previous headcount target remains with total number of employees reaching 47,000 during 2004.
CONSOLIDATED ACCOUNTS
FINANCIAL REVIEW
Income
Both orders and sales were essentially flat compared to the second quarter. The book-to-bill ratio remained above 1.0 for the third consecutive quarter.
Orders booked were SEK 28.1 (20.5) b. Year-over-year orders increased by 37%, largely due to substantial improvement in demand in China and India. Adjusted for currency exchange effects and cancellations in the third quarter 2002 the increase was 16%.
Increased order development in Western Europe compensated for weaker order intake in Central and Eastern Europe. Orders in Asia Pacific were slightly down from the second quarter. The Americas was slightly up mainly due to increased orders booked in Latin America and stable demand in the US.
Sales grew 2% sequentially to SEK 28.0 (33.5) b. but declined 16% year-over-year. Currency adjusted sales were down 7% year-over-year. Sales in Asia Pacific and Latin America increased sequentially with major contributions from China, Japan and Mexico. The increase was offset by lower sales in Europe, while Middle East and Africa sales continued to develop favorably.
Gross margin adjusted for restructuring costs improved for the third consecutive quarter to 35.9% (32.6%), a sequential increase from 35.1%. Continued cost reductions and improved capacity utilization were the main contributors.
4
Adjusted operating expenses were reduced SEK 0.5 b. sequentially to SEK 9.6 (13.7) b. Operating expenses include a SEK 0.5 b. customer financing risk provision. The annualized run rate was SEK 38 (52) b., down from SEK 42 b. in the second quarter.
Adjusted operating income was SEK 1.3 (-3.2) b. compared to SEK -0.2 b. the previous quarter. Adjusted income after financial items was SEK 1.0 (-3.6) b. compared to SEK -0.2 b. in the second quarter. Net effects of currency exchange differences on operating income compared to rates one year ago were SEK -0.9 b. in the quarter and SEK -1.5 b. year-to-date. Excluding effects from currency hedging contracts this effect would have been SEK -2.2 b. year-to-date.
Net income was SEK -3.9 (-5.0) b. for the quarter. Financial expenses increased somewhat during the quarter due to increased interest rates tied to our credit rating.
Earnings per share were SEK -0.25 (-0.41).
Balance sheet and financing
The financial position improved significantly as the net of financial assets and debt increased sequentially from SEK 11.0 b. to SEK 20.5 (3.8) b. Cash improved by SEK 7.2 b. sequentially.
Days sales outstanding (DSO) for trade receivables were 93 (109), a decrease by eight days sequentially. Inventory turnover was more than 5.7 (4.3) turns.
Customer financing risk exposure remained unchanged at SEK 11.8 (24.9) b. in the quarter. Customer financing credits on balance sheet were reduced sequentially from SEK 10.0 b. to SEK 4.3 (12.7) b., largely due to payments received from credits sold in the second quarter, including the France Telecom bonds. Certain credit commitments expired unutilized, reducing the balance of outstanding commitments from SEK 11.0 in the second quarter to SEK 6.7 (14.0) b.
A credit facility of USD 1 b. scheduled to expire in 2004 was extended to 2007.
The equity ratio was 34.5% (36.0%) compared to 36.0% at the end of the previous quarter.
Cash flow
Cash flow before financing activities improved significantly sequentially and amounted to SEK 9.1 (-2.7) b. of which net payments received for customer financing credits contributed with SEK 5.3 b. Cash flow from investing activities was SEK -0.8 b. net.
Payment readiness increased sequentially by SEK 2.6 b. to SEK 71.4 (66.6) b. Payment readiness is expected to remain at approximately SEK 70 b. at year-end, including repayments of approximately SEK 2.2 b. of debt scheduled for the fourth quarter.
SEGMENT RESULTS
SYSTEMS
| SEK b. | Third quarter — 2003 | 2002 | Change | Second quarter — 2003 | Change |
|---|---|---|---|---|---|
| Orders booked | 26.5 | 17.9 | 48 % | 26.3 | 1 % |
| Mobile Networks | 21.5 | 12.4 | 73 % | 20.0 | 7 % |
| Fixed Networks | 1.5 | 1.8 | -14 % | 1.7 | -12 % |
| Professional Services | 3.5 | 3.7 | -7 % | 4.6 | -24 % |
| Net sales | 25.9 | 30.6 | -15 % | 25.2 | 3 % |
| Mobile Networks | 19.8 | 23.9 | -17 % | 18.9 | 5 % |
| Fixed Networks | 1.7 | 2.4 | -30 % | 2.2 | -23 % |
| Professional Services | 4.4 | 4.3 | 2 % | 4.1 | 8 % |
| Adjusted operating income | 1.2 | -1.1 | | 0.6 | |
| Adjusted operating margin (%) | 5 % | -4 % | | 2 % | |
5
Systems orders grew sequentially to SEK 26.5 (17.9) b. Orders for Mobile Networks increased by 7%, mainly driven by 3G orders, WCDMA as well as CDMA2000.
Systems sales increased 3% sequentially to SEK 25.9 (30.6) b., with encouraging strong performance in professional services. The GSM/WCDMA track decreased by 4% sequentially and was down 9% year-over-year, adjusted for currency exchange effects. The WCDMA equipment and associated network rollout services share of total Mobile Network sales remained stable.
Sales of Professional Services increased by 8% sequentially to SEK 4.4 (4.3) b., and now represents 17% of total Systems sales. Adjusted for currency exchange effects year-over-year growth was 12%.
Benefits of the restructuring programs contributed to the increase of adjusted operating income to SEK 1.2 (-1.1) b.
OTHER OPERATIONS
| SEK b. | Third quarter — 2003 | 2002 | Change | Second quarter — 2003 | Change |
|---|---|---|---|---|---|
| Orders booked | 2.0 | 3.1 | -35 % | 2.3 | -13 % |
| Orders booked less divestitures | 2.0 | 2.4 | -17 % | 2.3 | -13 % |
| Net sales | 2.5 | 3.4 | -26 % | 2.5 | 0 % |
| Net sales less divestitures | 2.5 | 2.6 | -4 % | 2.5 | 0 % |
| Adjusted operating income | 0.1 | -1.2 | | -0.3 | |
| Adjusted operating income less divestitures | 0.1 | -0.7 | | -0.3 | |
| Adjusted operating margin (%) | 5 % | -35 % | | -14 % | |
| Adjusted operating margin less divestitures (%) | 5 % | -27 % | | -14 % | |
Orders booked for comparable units, excluding divested operations, declined 17% year-over-year and 13% sequentially.
Sales for comparable units were flat year-over-year as well as sequentially. Adjusted operating income improved sequentially partly due to some positive one-time effects.
PHONES
The operating results of Sony Ericsson Mobile Communications (SEMC) improved in the quarter. Ericssons share in earnings was SEK 0.2 (-0.6) b., compared to SEK -0.2 b. in the second quarter. This improvement was due to positive market acceptance of new imaging phones, supply chain improvements and increased operating efficiency. Year-over-year, GSM unit shipments increased 73% and shipments to the Japanese market increased 130%, primarily driven by high demand for imaging phones.
SEMC expects to be profitable for the second half of 2003. Volume and sales are expected to grow during the fourth quarter but due to an increased proportion of lower priced models in the product mix the current level of profitability may not be sustained in the next quarter.
6
RELATED PARTY TRANSACTIONS
Transactions with Sony Ericsson Mobile Communications (SEMC)
| SEK m. | Third quarter 2003 | Third quarter 2002 |
|---|---|---|
| Sales to SEMC | 989 | 1,684 |
| Royalty from SEMC | 145 | 61 |
| Purchases from SEMC | 590 | 1,049 |
| Receivables from SEMC | 249 | 361 |
| Liabilities to SEMC | 495 | 1,046 |
PARENT COMPANY INFORMATION
Net sales for the nine-month period amounted to SEK 1.3 (1.2) b. and income after financial items, excluding restructuring costs, was SEK 3.5 (0.3) b.
Major changes in the companys financial position for the nine-month period were increased current and long-term commercial and financial receivables from subsidiaries of SEK 23.2 b., which were financed primarily through increased internal borrowings of SEK 26.6 b. At the end of the quarter, cash and short-term cash investments amounted to SEK 65.3 (59.3) b.
In accordance with the conditions of the 2001 Stock Purchase Plan for Ericsson employees, 2,010,687 shares from treasury stock were sold or distributed to employees during the third quarter. The holding of treasury stock at September 30, 2003 was 307,542,178 Class B shares.
Stockholm, October 30, 2003
Carl-Henric Svanberg
President and CEO
Date for next report: February 6, 2004
AUDITORS REPORT
We have reviewed the report for the nine-month period ended September 30, 2003, for Telefonaktiebolaget LM Ericsson (publ.). We conducted our review in accordance with the recommendation issued by FAR. A review is limited primarily to enquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.
Based on our review, nothing has come to our attention that causes us to believe that the third quarter report does not comply with the requirements for interim reports in the Annual Accounts Act.
Stockholm, October 30, 2003
| Carl-Eric Bohlin | Bo Hjalmarsson | Thomas Thiel |
|---|---|---|
| Authorized Public Accountant | Authorized Public Accountant | Authorized Public Accountant |
| PricewaterhouseCoopers AB | PricewaterhouseCoopers AB |
7
Safe Harbor Statement of Ericsson under the Private Securities Litigation Reform Act of 1995;
All statements made or incorporated by reference in this release, other than statements or characterizations of historical facts, are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections about our industry, managements beliefs and certain assumptions made by us. Forward-looking statements can often be identified by words such as anticipates, expects, intends, plans, predicts, believes, seeks, estimates, may, will, should, would, potential, continue, and variations or negatives of these words, and include, among others, statements regarding: (i) strategies, outlook and growth prospects; (ii) positioning to deliver future plans and to realize potential for future growth; (iii) liquidity and capital resources and expenditure, and our credit ratings; (iv) growth in demand for our products and services; (v) our joint venture activities; (vi) economic outlook and industry trends; (vii) developments of our markets; (viii) the impact of regulatory initiatives; (ix) research and development expenditures; (x) the strength of our competitors; (xi) future cost savings; and (xii) plans to launch new products and services.
In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date hereof and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference for Ericsson include, but are not limited to: (i) material adverse changes in the markets in which we operate or in global economic conditions; (ii) increased product and price competition; (iii) further reductions in capital expenditure by network operators; (iv) the cost of technological innovation and increased expenditure to improve quality of service; (v) significant changes in market share for our principal products and services; (vi) foreign exchange rate fluctuations; and (vii) the successful implementation of our business and operational initiatives.
A glossary of all technical terms is available at: http://www.ericsson.com/about and in the Annual Report.
To read the full report, please go to: http://www.ericsson.com/investors/9month03-en.pdf
FOR FURTHER INFORMATION PLEASE CONTACT
Henry Sténson, Senior Vice President, Communications
Phone: +46 8 719 4044; E-mail: [email protected]
Investors
Gary Pinkham, Vice President, Investor Relations
Phone: +46 8 719 0000; E-mail: [email protected]
Lotta Lundin, Investor Relations
Phone: +46 8 719 6553; E-mail: [email protected]
Glenn Sapadin, Investor Relations
Phone: +1 212 843 8435; E-mail: [email protected]
Media
Pia Gideon, Vice President, Market and External Communications
Phone: +46 8 719 2864, +46 70 519 8903; E-mail: [email protected]
Åse Lindskog, Director, Media Relations
Phone: +46 8 719 9725, +46 730 244 872; E-mail: [email protected]
Ola Rembe, Director, Media Relations
Phone: +46 8 719 9727, +46 730 244 873; E-mail: [email protected]
Telefonaktiebolaget LM Ericsson (publ)
Org. number: 556016-0680
Torshamnsgatan 23
SE-164 83 Stockholm
Phone: +46 8 719 00 00
www.ericsson.com
8
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
| Financial Statements | Page |
|---|---|
| Consolidated income statement | 9 |
| Consolidated balance sheet | 10 |
| Consolidated statement of cash flows | 11 |
| Changes in stockholders equity | 12 |
| Consolidated income statement isolated quarters | 13 |
| Additional Information | Page |
| Accounting policies and reporting | 14 |
| Orders booked by segment by quarter | 15 |
| Net sales by segment by quarter | 16 |
| Adjusted operating income, operating margin and employees by segment by quarter | 17 |
| Orders booked by market area by quarter | 18 |
| Net sales by market area by quarter | 19 |
| External orders booked by market area by segment | 20 |
| External net sales by market area by segment | 20 |
| Top ten markets in orders and sales | 21 |
| Customer financing risk exposure | 21 |
| Trend of net sales and operating expenses | 21 |
| Other information | 22 |
9
ERICSSON
CONSOLIDATED INCOME STATEMENT
| SEK million | Jul Sep — 2003 | 2002 1) | Change | Jan Sep — 2003 | 2002 1) | Change |
|---|---|---|---|---|---|---|
| Net sales | 28,039 | 33,513 | -16 % | 81,511 | 109,024 | -25 % |
| Cost of sales | -19,084 | -24,241 | -21 % | -56,957 | -75,963 | -25 % |
| Gross margin | 8,955 | 9,272 | 24,554 | 33,061 | ||
| Research and development and other technical expenses | -6,846 | -8,168 | -16 % | -19,827 | -22,353 | -11 % |
| Selling expenses | -3,354 | -5,153 | -35 % | -10,888 | -16,375 | -34 % |
| Administrative expenses | -3,423 | -2,229 | 54 % | -7,069 | -7,492 | -6 % |
| Operating expenses | -13,623 | -15,550 | -37,784 | -46,220 | ||
| Other operating revenues and costs | 431 | 230 | 540 | 1,268 | ||
| Share in earnings of JV and associated companies | 247 | -629 | -860 | -1,209 | ||
| Operating income | -3,990 | -6,677 | -13,550 | -13,100 | ||
| Financial income | 741 | 569 | 30 % | 2,755 | 2,098 | 31 % |
| Financial expenses | -1,064 | -991 | 7 % | -3,138 | -3,883 | -19 % |
| Income after financial items | -4,313 | -7,099 | -13,933 | -14,885 | ||
| Taxes | 400 | 2,108 | 3,067 | 4,457 | ||
| Minority interest | -33 | -6 | -120 | -256 | ||
| Net income | -3,946 | -4,997 | -10,986 | -10,684 | ||
| 1) In compliance with RR 9, figures are restated to report minority interest net of tax. As a consequence, and in | ||||||
| line with the statutory format for income statements, we now cease to report a subtotal Income before taxes. | ||||||
| Other Information | ||||||
| Average number of shares, basic (million) | 15,822 | 11,458 | ||||
| Earnings per share, basic (SEK) | -0.25 | -0.41 | -0.69 | -0.93 | ||
| Earnings per share, diluted (SEK) | -0.25 | -0.41 | -0.69 | -0.93 | ||
| NOTE 1 | ||||||
| Items affecting comparability | ||||||
| Non-operational capital gains/losses, net | -10 | 118 | -15 | 217 | ||
| Restructuring costs, net | -5,449 | -4,209 | -12,441 | -5,691 | ||
| Capitalization of development expenses, net | 182 | 641 | 1,208 | 2,556 | ||
| Total | -5,277 | -3,450 | -11,248 | -2,918 | ||
| of which in | ||||||
| Cost of sales | -1,111 | -1,669 | -4,020 | -2,107 | ||
| Operating expenses | -3,994 | -1,899 | -6,623 | -1,258 | ||
| Other operating revenues and costs | -172 | 118 | -340 | 217 | ||
| Share in earnings of JV and associated companies / phones | | | -265 | 230 | ||
| NOTE 2 | ||||||
| Key measurements, excluding items affecting comparability | ||||||
| Net Sales | 28,039 | 33,513 | 81,511 | 109,024 | ||
| Adjusted gross margin | 10,066 | 10,941 | 28,574 | 35,168 | ||
| as percentage of net sales | 35.9 % | 32.6 % | 35.1 % | 32.3 % | ||
| Adjusted operating expenses | -9,629 | -13,651 | -31,161 | -44,962 | ||
| as percentage of net sales | 34.3 % | 40.7 % | 38.2 % | 41.2 % | ||
| Adjusted other operating revenues and costs | 603 | 112 | 880 | 1,051 | ||
| Share in earnings of JV and assoc. companies | 247 | -629 | -595 | -1,439 | ||
| Adjusted operating income | 1,287 | -3,227 | -2,302 | -10,182 | ||
| Adjusted operating margin (%) | 4.6 % | -9.6 % | -2.8 % | -9.3 % | ||
| Adjusted income after financial items | 964 | -3,649 | -2,685 | -11,967 |
10
ERICSSON
CONSOLIDATED BALANCE SHEET
| SEK million | Sep 30 2003 | Dec 31 2002 1) | Sep 30 2002 1 ) |
|---|---|---|---|
| ASSETS | |||
| Fixed assets | |||
| Intangible assets | |||
| Capitalized development expenses | 4,408 | 3,200 | 2,556 |
| Goodwill | 6,231 | 8,603 | 8,440 |
| Other | 716 | 806 | 1,710 |
| Tangible assets | 6,400 | 9,964 | 12,436 |
| Financial assets | |||
| Equity in JV and associated companies | 2,662 | 1,835 | 1,978 |
| Other investments | 548 | 2,243 | 2,252 |
| Long-term customer financing | 3,041 | 12,283 | 11,194 |
| Deferred tax assets | 28,875 | 26,047 | 26,266 |
| Other long-term receivables | 1,802 | 2,132 | 3,298 |
| 54,683 | 67,113 | 70,130 | |
| Current assets | |||
| Inventories | 11,381 | 13,419 | 20,595 |
| Receivables | |||
| Accounts receivabletrade | 29,047 | 37,384 | 41,757 |
| Short-term customer financing | 1,296 | 1,680 | 1,516 |
| Other receivables | 17,161 | 23,303 | 30,205 |
| Short-term cash investments, cash and bank | 69,552 | 66,214 | 74,394 |
| 128,437 | 142,000 | 168,467 | |
| Total assets | 183,120 | 209,113 | 238,597 |
| STOCKHOLDERS EQUITY, PROVISIONS AND LIABILITIES | |||
| Stockholders equity | 60,860 | 73,607 | 82,839 |
| Minority interest in equity of consolidated subsidiaries | 2,239 | 2,469 | 2,947 |
| Provisions | |||
| Pensions | 11,581 | 10,997 | 10,846 |
| Other provisions | 23,470 | 21,357 | 21,391 |
| 35,051 | 32,354 | 32,237 | |
| Long-term liabilities | 28,124 | 37,066 | 37,935 |
| Current liabilities | |||
| Interest-bearing liabilities | 10,448 | 14,321 | 22,608 |
| Accounts payable | 8,568 | 12,469 | 13,834 |
| Other current liabilities | 37,830 | 36,827 | 46,197 |
| 56,846 | 63,617 | 82,639 | |
| Total stockholders equity, provisions and liabilities | 183,120 | 209,113 | 238,597 |
| Of which interest-bearing provisions and liabilities | 49,018 | 61,463 | 70,579 |
| Net debt | -20,534 | -4,751 | -3,815 |
| Assets pledged as collateral | 7,631 | 2,800 | 3,499 |
| Contingent liabilities | 3,003 | 3,116 | 8,044 |
1) Restated for change in accounting principle regarding financial instruments (RR 27), and with all deferred tax assets reported as long-term.
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ERICSSON
CONSOLIDATED STATEMENT OF CASH FLOWS
| SEK million | JulSep — 2003 | 2002 1) | JanSep — 2003 | 2002 1) | JanDec — 2002 |
|---|---|---|---|---|---|
| Net income | -3,946 | -4,996 | -10,986 | -10,683 | -19,013 |
| Adjustments to reconcile net income to cash | 455 | -136 | 2,227 | -4,551 | -1,832 |
| -3,491 | -5,132 | -8,759 | -15,234 | -20,845 | |
| Changes in operating net assets | |||||
| Inventories | 1,106 | 2,695 | 2,038 | 1,700 | 8,599 |
| Customer financing, short-term and long-term | 5,273 | -451 | 8,220 | 700 | -2,140 |
| Accounts receivable | 882 | 3,944 | 7,680 | 10,518 | 9,839 |
| Other | 6,150 | -5,269 | 9,006 | -8,411 | -5,541 |
| Cash flow from operating activities | 9,920 | -4,213 | 18,185 | -10,727 | -10,088 |
| Product development | -458 | -662 | -1,731 | -2,659 | -3,442 |
| Other investing activities | -357 | 2,152 | -1,556 | 4,647 | 6,426 |
| Cash flow from investing activities | -815 | 1,490 | -3,287 | 1,988 | 2,984 |
| Cash flow before financing activities | 9,105 | -2,723 | 14,898 | -8,739 | -7,104 |
| Dividends paid | -192 | -409 | -209 | -432 | -645 |
| Other equity transactions | 3 | 28,957 | 5 | 28,957 | 28,942 |
| Other financing activities | -1,453 | 1,219 | -10,988 | -12,751 | -22,700 |
| Cash flow from financing activities | -1,642 | 29,767 | -11,192 | 15,774 | 5,597 |
| Effect of exchange rate changes on cash | -269 | -201 | -368 | -1,566 | -1,203 |
| Net change in cash | 7,194 | 26,843 | 3,338 | 5,470 | -2,710 |
| Cash and cash equivalents, beginning of period | 62,358 | 47,551 | 66,214 | 68,924 | 68,924 |
| Cash and cash equivalents, end of period | 69,552 | 74,394 | 69,552 | 74,394 | 66,214 |
1) Capitalization of development expenses, previously reported in Adjustments to reconcile net income to cash, are as from Q4 2002 included in Investing activities. Figures for 2002 are restated.
12
CHANGES IN STOCKHOLDERS EQUITY
| SEK million | Jan-Sep 2003 | Jan-Dec 2002 | Jan-Sep 2002 |
|---|---|---|---|
| Opening balance | 73,607 | 68,587 | 68,587 |
| Stock issue, net | 158 | 28,940 | 28,958 |
| Sale of own shares | 5 | 2 | |
| Stock Purchase Plan | 125 | 12 | |
| Conversion of debentures | | | |
| Repurchase of own stock | -158 | | |
| Dividends paid | | | |
| Changes in cumulative translation effects due to changes in foreign currency exchange rates | -1,891 | -4,921 | -4,022 |
| Net income | -10,986 | -19,013 | -10,684 |
| Other changes | | | |
| Closing balance | 60,860 | 73,607 | 82,839 |
13
ERICSSON
CONSOLIDATED INCOME STATEMENT ISOLATED QUARTERS
| SEK million | 2002 1) — 0203 | 0206 | 0209 | 0212 | 2002 1) — Q1 | Q2 | Q3 | Q4 |
|---|---|---|---|---|---|---|---|---|
| Net sales | 36,966 | 75,511 | 109,024 | 145,773 | 36,966 | 38,545 | 33,513 | 36,749 |
| Cost of sales | -25,253 | -51,722 | -75,963 | -104,224 | -25,253 | -26,469 | -24,241 | -28,261 |
| Gross margin | 11,713 | 23,789 | 33,061 | 41,549 | 11,713 | 12,076 | 9,272 | 8,488 |
| Research and development and other technical expenses | -7,624 | -14,185 | -22,353 | -30,510 | -7,624 | -6,561 | -8,168 | -8,157 |
| Selling expenses | -5,592 | -11,222 | -16,375 | -21,896 | -5,592 | -5,630 | -5,153 | -5,521 |
| Administrative expenses | -2,552 | -5,263 | -7,492 | -9,995 | -2,552 | -2,711 | -2,229 | -2,503 |
| Operating expenses | -15,768 | -30,670 | -46,220 | -62,401 | -15,768 | -14,902 | -15,550 | -16,181 |
| Other operating revenues and costs | 771 | 1,038 | 1,268 | 773 | 771 | 267 | 230 | -495 |
| Share in earnings of JV and assoc. companies | -56 | -580 | -1,209 | -1,220 | -56 | -524 | -629 | -11 |
| Operating income | -3,340 | -6,423 | -13,100 | -21,299 | -3,340 | -3,083 | -6,677 | -8,199 |
| Financial income | 889 | 1,529 | 2,098 | 4,253 | 889 | 640 | 569 | 2,155 |
| Financial expenses | -1,682 | -2,892 | -3,883 | -5,789 | -1,682 | -1,210 | -991 | -1,906 |
| Income after financial items | -4,133 | -7,786 | -14,885 | -22,835 | -4,133 | -3,653 | -7,099 | -7,950 |
| Taxes | 1,233 | 2,349 | 4,457 | 4,165 | 1,233 | 1,116 | 2,108 | -292 |
| Minority interest | -68 | -250 | -256 | -343 | -68 | -182 | -6 | -87 |
| Net income | -2,968 | -5,687 | -10,684 | -19,013 | -2,968 | -2,719 | -4,997 | -8,329 |
| 1) In compliance with RR 9, figures are restated to report minority interest | ||||||||
| net of tax. As a consequence, and in line with the statutory format for income statements, we now cease to report a subtotal Income before taxes. | ||||||||
| Other Information | ||||||||
| Average number of shares, basic (million) | 10,950 | 10,950 | 11,458 | 12,573 | ||||
| Earnings per share, basic (SEK) | -0.27 | -0.52 | -0.93 | -1.51 | -0.27 | -0.25 | -0.41 | -0.58 |
| Earnings per share, diluted (SEK) | -0.27 | -0.52 | -0.93 | -1.51 | -0.27 | -0.25 | -0.41 | -0.58 |
| NOTE 1 | ||||||||
| Items affecting comparability | ||||||||
| Non-operational capital gains/losses, net | 102 | 99 | 217 | -42 | 102 | -3 | 118 | -259 |
| Restructuring costs, net | | -1,482 | -5,691 | -11,962 | | -1,482 | -4,209 | -6,271 |
| Capitalization of development expenses, net | 1,005 | 1,915 | 2,556 | 3,200 | 1,005 | 910 | 641 | 644 |
| Total | 1,107 | 532 | -2,918 | -8,804 | 1,107 | -575 | -3,450 | -5,886 |
| -of which in | ||||||||
| Cost of sales | | -438 | -2,107 | -5,589 | | -438 | -1,669 | -3,482 |
| Operating expenses | 1,005 | 641 | -1,258 | -3,092 | 1,005 | -364 | -1,899 | -1,834 |
| Other operating revenues and costs | 102 | 99 | 217 | -353 | 102 | -3 | 118 | -570 |
| Share in earnings of JV and associated companies / phones | | 230 | 230 | 230 | | 230 | | |
| NOTE 2 | ||||||||
| Key measurements, excluding items affecting comparability | ||||||||
| Net sales | 36,966 | 75,511 | 109,024 | 145,773 | 36,966 | 38,545 | 33,513 | 36,749 |
| Adjusted gross margin | 11,713 | 24,227 | 35,168 | 47,138 | 11,713 | 12,514 | 10,941 | 11,970 |
| as percentage of net sales | 31.7 % | 32.1 % | 32.3 % | 32.3 % | 31.7 % | 32.5 % | 32.6 % | 32.6 % |
| Adjusted operating expenses | -16,773 | -31,311 | -44,962 | -59,309 | -16,773 | -14,538 | -13,651 | -14,347 |
| as percentage of net sales | 45.4 % | 41.5 % | 41.2 % | 40.7 % | 45.4 % | 37.7 % | 40.7 % | 39.0 % |
| Adjusted other operating revenues and costs | 669 | 939 | 1,051 | 1,126 | 669 | 270 | 112 | 75 |
| Share in earnings of JV and assoc. companies | -56 | -810 | -1,439 | -1,450 | -56 | -754 | -629 | -11 |
| Adjusted operating income | -4,447 | -6,955 | -10,182 | -12,495 | -4,447 | -2,508 | -3,227 | -2,313 |
| Adjusted operating margin (%) | -12.0 % | -9.2 % | -9.3 % | -8.6 % | -12.0 % | -6.5 % | -9.6 % | -6.3 % |
| Adjusted income after financial items | -5,240 | -8,318 | -11,967 | -14,031 | -5,240 | -3,078 | -3,649 | -2,064 |
14
ACCOUNTING POLICIES AND REPORTING
Interim reports are prepared in accordance with RR 20 Interim Financial Reporting.
CHANGED ACCOUNTING POLICIES AND REPORTING IN 2003
From January 1, 2003, Ericsson has adopted the following new recommendations issued by the Swedish Financial Accounting Standards Council (Redovisningsrådet):
Presentation of financial statements (RR22)
Investment property (RR24)
Segment reporting (RR25)
Events after the balance sheet date (RR26)
Financial instruments: Disclosure and presentation (RR27)
Accounting for government grants (RR28)
These changes have no impact on reported Net Income or Earnings Per Share. The presentation of certain items in the income statement will change and we will no longer report minority interests before tax and Income Before Tax. Instead, we will report Income after financial items and Net Income after deduction of Taxes and Minority interests. Minority interests will be reported net of taxes.
The presentation of the Balance Sheet will not change, however, the reported amounts of certain items will be affected.
RR22 requires compliance with all recommendations issued by the Swedish Financial Accounting Standards Council.
Prior to 2003, Ericsson deviated from the recommendations in two aspects:
In deviation from RR1:00, Consolidated Financial Statements, minority interests were divided in two items; share in income before taxes and share in taxes. From January 1, 2003, in accordance with RR1:00, we will report minority interest net of taxes.
In deviation from RR9, Income tax, deferred tax assets were prior to 2003 reported as both current and long-term. From January 1, 2003, all deferred taxes are reported as long term in accordance with RR9.
The new recommendation RR25, Segment reporting, has been adopted from January 1, 2003. As a consequence, we have reviewed our segments and decided to transfer internal service units from segment Other Operations to segment Systems, since the major part of the services are provided to Systems. This will reduce orders and sales previously reported in Other Operations and also reduce the amounts of eliminations of inter-segment sales. Employees in such service units will be transferred from Other Operations to Systems.
RR27 introduces changed rules for netting of assets and liabilities. The effect is that certain receivables for which the credit risks have been transferred to third parties can no longer be reported net without a formal three-party agreement. The amount for trade receivables and short-term borrowings will be affected.
15
ORDERS BOOKED BY SEGMENT BY QUARTER
SEK million
| Isolated quarters | 2002 1) — Q1 | Q2 | Q3 | Q4 | 2003 — Q1 | Q2 | Q3 |
|---|---|---|---|---|---|---|---|
| Systems | 37,701 | 31,197 | 17,938 | 28,505 | 24,996 | 26,336 | 26,518 |
| Mobile Networks | 29,344 | 22,900 | 12,439 | 20,865 | 17,475 | 20,020 | 21,508 |
| Fixed Networks | 2,693 | 2,952 | 1,751 | 1,909 | 1,990 | 1,724 | 1,513 |
| Total Network Equipment | 32,037 | 25,852 | 14,190 | 22,774 | 19,465 | 21,744 | 23,021 |
| Of which Network Rollout | 4,703 | 3,939 | 1,411 | 4,020 | 2,542 | 2,000 | 2,025 |
| Professional Services | 5,664 | 5,345 | 3,748 | 5,731 | 5,531 | 4,592 | 3,497 |
| Other Operations | 4,889 | 4,833 | 3,102 | 2,560 | 2,587 | 2,312 | 1,963 |
| Less: Intersegment Orders | -697 | -765 | -510 | -402 | -523 | -300 | -353 |
| Total | 41,893 | 35,265 | 20,530 | 30,663 | 27,060 | 28,348 | 28,128 |
| 2002 1) | 2003 | ||||||
| Sequential change | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Systems | -17 % | -43 % | 59 % | -12 % | 5 % | 1 % | |
| Mobile Networks | -22 % | -46 % | 68 % | -16 % | 15 % | 7 % | |
| Fixed Networks | 10 % | -41 % | 9 % | 4 % | -13 % | -12 % | |
| Total Network Equipment | -19 % | -45 % | 60 % | -15 % | 12 % | 6 % | |
| Of which Network Rollout | -16 % | -64 % | 185 % | -37 % | -21 % | 1 % | |
| Professional Services | -6 % | -30 % | 53 % | -3 % | -17 % | -24 % | |
| Other Operations | -1 % | -36 % | -17 % | 1 % | -11 % | -15 % | |
| Less: Intersegment Orders | 10 % | -33 % | -21 % | 30 % | -43 % | 18 % | |
| Total | -16 % | -42 % | 49 % | -12 % | 5 % | -1 % | |
| 2003 | |||||||
| Year over year change | Q1 | Q2 | Q3 | ||||
| Systems | -34 % | -16 % | 48 % | ||||
| Mobile Networks | -40 % | -13 % | 73 % | ||||
| Fixed Networks | -26 % | -42 % | -14 % | ||||
| Total Network Equipment | -39 % | -16 % | 62 % | ||||
| Of which Network Rollout | -46 % | -49 % | 44 % | ||||
| Professional Services | -2 % | -14 % | -7 % | ||||
| Other Operations | -47 % | -52 % | -37 % | ||||
| Less: Intersegment Orders | -25 % | -61 % | -31 % | ||||
| Total | -35 % | -20 % | 37 % | ||||
| 2002 1 ) | 2003 | ||||||
| Year to Date | 0203 | 0206 | 0209 | 0212 | 0303 | 0306 | 0309 |
| Systems | 37,701 | 68,898 | 86,836 | 115,341 | 24,996 | 51,332 | 77,850 |
| Mobile Networks | 29,344 | 52,245 | 64,684 | 85,549 | 17,475 | 37,495 | 59,003 |
| Fixed Networks | 2,693 | 5,645 | 7,396 | 9,305 | 1,990 | 3,714 | 5,227 |
| Total Network Equipment | 32,037 | 57,890 | 72,080 | 94,854 | 19,465 | 41,209 | 64,230 |
| Of which Network Rollout | 4,703 | 8,642 | 10,053 | 14,073 | 2,542 | 4,542 | 6,567 |
| Professional Services | 5,664 | 11,008 | 14,756 | 20,487 | 5,531 | 10,123 | 13,620 |
| Other Operations | 4,889 | 9,722 | 12,824 | 15,384 | 2,587 | 4,899 | 6,862 |
| Less: Intersegment Orders | -697 | -1,462 | -1,972 | -2,374 | -523 | -823 | -1,176 |
| Total | 41,893 | 77,158 | 97,688 | 128,351 | 27,060 | 55,408 | 83,536 |
| 2003 | |||||||
| YTD year over year change | 0303 | 0306 | 0309 | ||||
| Systems | -34 % | -25 % | -10 % | ||||
| Mobile Networks | -40 % | -28 % | -9 % | ||||
| Fixed Networks | -26 % | -34 % | -29 % | ||||
| Total Network Equipment | -39 % | -29 % | -11 % | ||||
| Of which Network Rollout | -46 % | -47 % | -35 % | ||||
| Professional Services | -2 % | -8 % | -8 % | ||||
| Other Operations | -47 % | -50 % | -46 % | ||||
| Less: Intersegment Orders | -25 % | -44 % | -40 % | ||||
| Total | -35 % | -28 % | -14 % |
1) Year 2002 restated to present Other Operations and Intersegment Orders excluding internal service operations
16
NET SALES BY SEGMENT BY QUARTER
SEK million
| Isolated quarters | 2002 1) — Q1 | Q2 | Q3 | Q4 | 2003 — Q1 | Q2 | Q3 |
|---|---|---|---|---|---|---|---|
| Systems | 33,323 | 34,781 | 30,612 | 33,239 | 23,961 | 25,224 | 25,907 |
| Mobile Networks | 25,552 | 26,971 | 23,923 | 24,657 | 17,643 | 18,949 | 19,826 |
| Fixed Networks | 3,287 | 2,983 | 2,380 | 3,049 | 1,898 | 2,177 | 1,670 |
| Total Network Equipment | 28,839 | 29,954 | 26,303 | 27,706 | 19,541 | 21,126 | 21,496 |
| Of which Network Rollout | 4,183 | 3,842 | 2,928 | 3,834 | 2,577 | 2,532 | 2,791 |
| Professional Services | 4,484 | 4,827 | 4,309 | 5,533 | 4,420 | 4,098 | 4,411 |
| Other Operations | 4,327 | 4,554 | 3,430 | 3,890 | 2,363 | 2,534 | 2,508 |
| Less: Intersegment Sales | -684 | -790 | -529 | -380 | -465 | -145 | -376 |
| Total | 36,966 | 38,545 | 33,513 | 36,749 | 25,859 | 27,613 | 28,039 |
| 2002 1) | 2003 | ||||||
| Sequential change | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Systems | 4 % | -12 % | 9 % | -28 % | 5 % | 3 % | |
| Mobile Networks | 6 % | -11 % | 3 % | -28 % | 7 % | 5 % | |
| Fixed Networks | -9 % | -20 % | 28 % | -38 % | 15 % | -23 % | |
| Total Network Equipment | 4 % | -12 % | 5 % | -29 % | 8 % | 2 % | |
| Of which Network Rollout | -8 % | -24 % | 31 % | -33 % | -2 % | 10 % | |
| Professional Services | 8 % | -11 % | 28 % | -20 % | -7 % | 8 % | |
| Other Operations | 5 % | -25 % | 13 % | -39 % | 7 % | -1 % | |
| Less: Intersegment Sales | 15 % | -33 % | -28 % | 22 % | -69 % | 159 % | |
| Total | 4 % | -13 % | 10 % | -30 % | 7 % | 2 % | |
| 2003 | |||||||
| Year over year change | Q1 | Q2 | Q3 | ||||
| Systems | -28 % | -27 % | -15 % | ||||
| Mobile Networks | -31 % | -30 % | -17 % | ||||
| Fixed Networks | -42 % | -27 % | -30 % | ||||
| Total Network Equipment | -32 % | -29 % | -18 % | ||||
| Of which Network Rollout | -38 % | -34 % | -5 % | ||||
| Professional Services | -1 % | -15 % | 2 % | ||||
| Other Operations | -45 % | -44 % | -27 % | ||||
| Less: Intersegment Sales | -32 % | -82 % | -29 % | ||||
| Total | -30 % | -28 % | -16 % | ||||
| 2002 1) | 2003 | ||||||
| Year to Date | 0203 | 0206 | 0209 | 0212 | 0303 | 0306 | 0309 |
| Systems | 33,323 | 68,104 | 98,716 | 131,955 | 23,961 | 49,185 | 75,092 |
| Mobile Networks | 25,552 | 52,523 | 76,446 | 101,103 | 17,643 | 36,592 | 56,418 |
| Fixed Networks | 3,287 | 6,270 | 8,650 | 11,699 | 1,898 | 4,075 | 5,745 |
| Total Network Equipment | 28,839 | 58,793 | 85,096 | 112,802 | 19,541 | 40,667 | 62,163 |
| Of which Network Rollout | 4,183 | 8,025 | 10,953 | 14,786 | 2,577 | 5,109 | 7,900 |
| Professional Services | 4,484 | 9,311 | 13,620 | 19,153 | 4,420 | 8,518 | 12,929 |
| Other Operations | 4,327 | 8,881 | 12,311 | 16,201 | 2,363 | 4,897 | 7,405 |
| Less: Intersegment Sales | -684 | -1,474 | -2,003 | -2,383 | -465 | -610 | -986 |
| Total | 36,966 | 75,511 | 109,024 | 145,773 | 25,859 | 53,472 | 81,511 |
| 2003 | |||||||
| YTD year over year change | 0303 | 0306 | 0309 | ||||
| Systems | -28 % | -28 % | -24 % | ||||
| Mobile Networks | -31 % | -30 % | -26 % | ||||
| Fixed Networks | -42 % | -35 % | -34 % | ||||
| Total Network Equipment | -32 % | -31 % | -27 % | ||||
| Of which Network Rollout | -38 % | -36 % | -28 % | ||||
| Professional Services | -1 % | -9 % | -5 % | ||||
| Other Operations | -45 % | -45 % | -40 % | ||||
| Less: Intersegment Sales | -32 % | -59 % | -51 % | ||||
| Total | -30 % | -29 % | -25 % |
1) Year 2002 restated to present Other Operations and Intersegment Sales excluding internal service operations
17
ADJUSTED OPERATING INCOME, OPERATING MARGIN AND EMPLOYEES BY SEGMENT BY QUARTER
SEK million
| ADJUSTED OPERATING INCOME AND MARGIN | |||||||
|---|---|---|---|---|---|---|---|
| 2002 | 2003 | ||||||
| Year to date | 0203 | 0206 | 0209 | 0212 | 0303 | 0306 | 0309 |
| Systems | -2,799 | -3,495 | -4,604 | -4,907 | -2,097 | -1,523 | -341 |
| Phones | | -442 | -992 | -1,331 | -500 | -683 | -483 |
| Other Operations | -1,343 | -2,318 | -3,477 | -4,715 | -492 | -834 | -699 |
| Unallocated 1) | -305 | -700 | -1,109 | -1,542 | -318 | -549 | -779 |
| Total | -4,447 | -6,955 | -10,182 | -12,495 | -3,407 | -3,589 | -2,302 |
| 2002 | 2003 | ||||||
| As percentage of net sales | 0203 | 0206 | 0209 | 0212 | 0303 | 0306 | 0309 |
| Systems | -8 % | -5 % | -5 % | -4 % | -9 % | -3 % | 0 % |
| Phones 2) | | | | | | | |
| Other Operations | -31 % | -26 % | -28 % | -29 % | -21 % | -17 % | -9 % |
| Total | -12 % | -9 % | -9 % | -9 % | -13 % | -7 % | -3 % |
| 2002 | 2003 | ||||||
| Isolated quarters | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Systems | -2,799 | -696 | -1,109 | -303 | -2,097 | 574 | 1,182 |
| Phones | | -442 | -550 | -339 | -500 | -183 | 200 |
| Other Operations | -1,343 | -975 | -1,159 | -1,238 | -492 | -342 | 135 |
| Unallocated 1) | -305 | -395 | -409 | -433 | -318 | -231 | -230 |
| Total | -4,447 | -2,508 | -3,227 | -2,313 | -3,407 | -182 | 1,287 |
| 2002 | 2003 | ||||||
| As percentage of net sales | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Systems | -8 % | -2 % | -4 % | -1 % | -9 % | 2 % | 5 % |
| Phones 2) | | | | | | | |
| Other Operations | -31 % | -21 % | -34 % | -32 % | -21 % | -13 % | 5 % |
| Total | -12 % | -7 % | -10 % | -6 % | -13 % | -1 % | 5 % |
| 1) Unallocated consists mainly of costs for corporate staffs and non-operational gains and | |||||||
| losses | |||||||
| 2) Calculation not applicable | |||||||
| NUMBER OF EMPLOYEES | |||||||
| 2002 1) | 2003 | ||||||
| 0203 | 0206 | 0209 | 0212 | 0303 | 0306 | 0309 | |
| Systems | 70,957 | 65,899 | 62,543 | 56,590 | 53,532 | 50,510 | 46,669 |
| Other Operations | 10,659 | 9,876 | 8,774 | 7,646 | 7,047 | 6,786 | 6,409 |
| Unallocated | 396 | 446 | 406 | 385 | 361 | 348 | 323 |
| Total | 82,012 | 76,221 | 71,723 | 64,621 | 60,940 | 57,644 | 53,401 |
| Change in percent | 0303 | 0306 | 0309 | ||||
| Systems | -25 % | -23 % | -25 % | ||||
| Other Operations | -34 % | -31 % | -27 % | ||||
| Unallocated | -9 % | -22 % | -20 % | ||||
| Total | -26 % | -24 % | -26 % |
1) Employees with internal service units have been transferred from Other Operations to Systems
18
ORDERS BOOKED BY MARKET AREA BY QUARTER
SEK million
| Isolated quarters | 2002 — Q1 | Q2 | Q3 | Q4 | 2003 — Q1 | Q2 | Q3 |
|---|---|---|---|---|---|---|---|
| Europe, Middle East & Africa* | 19,493 | 17,691 | 9,554 | 18,710 | 14,081 | 14,425 | 14,140 |
| North America | 7,003 | 5,834 | 4,473 | 5,567 | 4,693 | 4,622 | 4,380 |
| Latin America | 4,846 | 3,349 | 1,417 | -37 | 2,621 | 1,669 | 2,245 |
| Asia Pacific | 10,551 | 8,391 | 5,086 | 6,423 | 5,665 | 7,632 | 7,363 |
| Total | 41,893 | 35,265 | 20,530 | 30,663 | 27,060 | 28,348 | 28,128 |
| * Of which Sweden | 2,437 | 2,506 | 1,346 | 1,331 | 1,406 | 1,190 | 967 |
| * Of which EU | 8,877 | 12,439 | 3,844 | 8,843 | 8,805 | 6,643 | 8,054 |
| 2002 | 2003 | ||||||
| Sequential change | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Europe, Middle East & Africa* | -9 % | -46 % | 96 % | -25 % | 2 % | -2 % | |
| North America | -17 % | -23 % | 24 % | -16 % | -2 % | -5 % | |
| Latin America | -31 % | -58 % | -103 % | -36 % | 35 % | ||
| Asia Pacific | -20 % | -39 % | 26 % | -12 % | 35 % | -4 % | |
| Total | -16 % | -42 % | 49 % | -12 % | 5 % | -1 % | |
| * Of which Sweden | 3 % | -46 % | -1 % | 6 % | -15 % | -19 % | |
| * Of which EU | 40 % | -69 % | 130 % | 0 % | -25 % | 21 % | |
| 2003 | |||||||
| Year over year change | Q1 | Q2 | Q3 | ||||
| Europe, Middle East & Africa* | -28 % | -18 % | 48 % | ||||
| North America | -33 % | -21 % | -2 % | ||||
| Latin America | -46 % | -50 % | 58 % | ||||
| Asia Pacific | -46 % | -9 % | 45 % | ||||
| Total | -35 % | -20 % | 37 % | ||||
| * Of which Sweden | -42 % | -53 % | -28 % | ||||
| * Of which EU | -1 % | -47 % | 110 % | ||||
| 2002 | 2003 | ||||||
| Year to date | 0203 | 0206 | 0209 | 0212 | 0303 | 0306 | 0309 |
| Europe, Middle East & Africa* | 19,493 | 37,184 | 46,738 | 65,448 | 14,081 | 28,506 | 42,646 |
| North America | 7,003 | 12,837 | 17,310 | 22,877 | 4,693 | 9,315 | 13,695 |
| Latin America | 4,846 | 8,195 | 9,612 | 9,575 | 2,621 | 4,290 | 6,535 |
| Asia Pacific | 10,551 | 18,942 | 24,028 | 30,451 | 5,665 | 13,297 | 20,660 |
| Total | 41,893 | 77,158 | 97,688 | 128,351 | 27,060 | 55,408 | 83,536 |
| * Of which Sweden | 2,437 | 4,943 | 6,289 | 7,620 | 1,406 | 2,596 | 3,563 |
| * Of which EU | 8,877 | 21,316 | 25,160 | 34,003 | 8,805 | 15,448 | 23,502 |
| 2003 | |||||||
| YTD year over year change | 0303 | 0306 | 0309 | ||||
| Europe, Middle East & Africa* | -28 % | -23 % | -9 % | ||||
| North America | -33 % | -27 % | -21 % | ||||
| Latin America | -46 % | -48 % | -32 % | ||||
| Asia Pacific | -46 % | -30 % | -14 % | ||||
| Total | -35 % | -28 % | -14 % | ||||
| * Of which Sweden | -42 % | -47 % | -43 % | ||||
| * Of which EU | -1 % | -28 % | -7 % |
19
NET SALES BY MARKET AREA BY QUARTER
SEK million
| Isolated quarters | 2002 — Q1 | Q2 | Q3 | Q4 | 2003 — Q1 | Q2 | Q3 |
|---|---|---|---|---|---|---|---|
| Europe, Middle East & Africa* | 17,606 | 19,060 | 16,772 | 20,686 | 13,983 | 15,083 | 14,144 |
| North America | 4,072 | 6,063 | 6,381 | 6,552 | 3,940 | 4,217 | 4,271 |
| Latin America | 4,311 | 3,105 | 2,866 | 2,394 | 1,764 | 2,197 | 2,663 |
| Asia Pacific | 10,977 | 10,317 | 7,494 | 7,117 | 6,172 | 6,116 | 6,961 |
| Total | 36,966 | 38,545 | 33,513 | 36,749 | 25,859 | 27,613 | 28,039 |
| * Of which Sweden | 1,974 | 2,585 | 1,676 | 2,068 | 1,403 | 1,437 | 1,371 |
| * Of which EU | 10,867 | 11,068 | 9,193 | 12,268 | 7,885 | 8,070 | 7,950 |
| 2002 | 2003 | ||||||
| Sequential change | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Europe, Middle East & Africa* | 8 % | -12 % | 23 % | -32 % | 8 % | -6 % | |
| North America | 49 % | 5 % | 3 % | -40 % | 7 % | 1 % | |
| Latin America | -28 % | -8 % | -16 % | -26 % | 25 % | 21 % | |
| Asia Pacific | -6 % | -27 % | -5 % | -13 % | -1 % | 14 % | |
| Total | 4 % | -13 % | 10 % | -30 % | 7 % | 2 % | |
| * Of which Sweden | 31 % | -35 % | 23 % | -32 % | 2 % | -5 % | |
| * Of which EU | 2 % | -17 % | 33 % | -36 % | 2 % | -1 % | |
| 2003 | |||||||
| Year over year change | Q1 | Q2 | Q3 | ||||
| Europe, Middle East & Africa* | -21 % | -21 % | -16 % | ||||
| North America | -3 % | -30 % | -33 % | ||||
| Latin America | -59 % | -29 % | -7 % | ||||
| Asia Pacific | -44 % | -41 % | -7 % | ||||
| Total | -30 % | -28 % | -16 % | ||||
| * Of which Sweden | -29 % | -44 % | -18 % | ||||
| * Of which EU | -27 % | -27 % | -14 % | ||||
| 2002 | 2003 | ||||||
| Year to date | 0203 | 0206 | 0209 | 0212 | 0303 | 0306 | 0309 |
| Europe, Middle East & Africa* | 17,606 | 36,666 | 53,438 | 74,124 | 13,983 | 29,066 | 43,210 |
| North America | 4,072 | 10,135 | 16,516 | 23,068 | 3,940 | 8,157 | 12,428 |
| Latin America | 4,311 | 7,416 | 10,282 | 12,676 | 1,764 | 3,961 | 6,624 |
| Asia Pacific | 10,977 | 21,294 | 28,788 | 35,905 | 6,172 | 12,288 | 19,249 |
| Total | 36,966 | 75,511 | 109,024 | 145,773 | 25,859 | 53,472 | 81,511 |
| * Of which Sweden | 1,974 | 4,559 | 6,235 | 8,303 | 1,403 | 2,840 | 4,211 |
| * Of which EU | 10,867 | 21,935 | 31,128 | 43,396 | 7,885 | 15,955 | 23,905 |
| 2003 | |||||||
| YTD year over year change | 0303 | 0306 | 0309 | ||||
| Europe, Middle East & Africa* | -21 % | -21 % | -19 % | ||||
| North America | -3 % | -20 % | -25 % | ||||
| Latin America | -59 % | -47 % | -36 % | ||||
| Asia Pacific | -44 % | -42 % | -33 % | ||||
| Total | -30 % | -29 % | -25 % | ||||
| * Of which Sweden | -29 % | -38 % | -32 % | ||||
| * Of which EU | -27 % | -27 % | -23 % |
20
EXTERNAL ORDERS BOOKED BY MARKET AREA BY SEGMENT
SEK million
| JanSep 2003 | Systems | Share of Systems | Other | Share of Other | Total | Share of Total |
|---|---|---|---|---|---|---|
| Europe, Middle East & Africa | 37,857 | 49 % | 4,789 | 76 % | 42,646 | 51 % |
| North America | 13,215 | 17 % | 480 | 8 % | 13,695 | 16 % |
| Latin America | 6,372 | 8 % | 163 | 3 % | 6,535 | 8 % |
| Asia Pacific | 19,849 | 26 % | 811 | 13 % | 20,660 | 25 % |
| Total | 77,293 | 100 % | 6,243 | 100 % | 83,536 | 100 % |
| Share of Total | 93 % | 7 % | 100 % | |||
| JanSep 2002 | Systems | Share of Systems | Other | Share of Other | Total | Share of Total |
| Europe, Middle East & Africa | 37,833 | 45 % | 8,905 | 76 % | 46,738 | 47 % |
| North America | 16,668 | 19 % | 642 | 5 % | 17,310 | 18 % |
| Latin America | 8,955 | 10 % | 657 | 6 % | 9,612 | 10 % |
| Asia Pacific | 22,460 | 26 % | 1,568 | 13 % | 24,028 | 25 % |
| Total | 85,916 | 100 % | 11,772 | 100 % | 97,688 | 100 % |
| Share of Total | 88 % | 12 % | 100 % | |||
| Change | Systems | Other | Total | |||
| Europe, Middle East & Africa | 0 % | -46 % | -9 % | |||
| North America | -21 % | -25 % | -21 % | |||
| Latin America | -29 % | -75 % | -32 % | |||
| Asia Pacific | -12 % | -48 % | -14 % | |||
| Total | -10 % | -47 % | -14 % | |||
| EXTERNAL NET SALES BY MARKET AREA BY SEGMENT | ||||||
| SEK million | ||||||
| JanSep 2003 | Systems | Share of Systems | Other | Share of Other | Total | Share of Total |
| Europe, Middle East & Africa | 37,920 | 50 % | 5,290 | 77 % | 43,210 | 53 % |
| North America | 12,080 | 16 % | 348 | 5 % | 12,428 | 15 % |
| Latin America | 6,384 | 9 % | 240 | 4 % | 6,624 | 8 % |
| Asia Pacific | 18,311 | 25 % | 938 | 14 % | 19,249 | 24 % |
| Total | 74,695 | 100 % | 6,816 | 100 % | 81,511 | 100 % |
| Share of Total | 92 % | 8 % | 100 % | |||
| JanSep 2002 | Systems | Share of Systems | Other | Share of Other | Total | Share of Total |
| Europe, Middle East & Africa | 44,962 | 46 % | 8,476 | 76 % | 53,438 | 49 % |
| North America | 15,996 | 16 % | 520 | 5 % | 16,516 | 15 % |
| Latin America | 9,577 | 10 % | 705 | 6 % | 10,282 | 9 % |
| Asia Pacific | 27,304 | 28 % | 1,484 | 13 % | 28,788 | 27 % |
| Total | 97,839 | 100 % | 11,185 | 100 % | 109,024 | 100 % |
| Share of Total | 90 % | 10 % | 100 % | |||
| Change | Systems | Other | Total | |||
| Europe, Middle East & Africa | -16 % | -38 % | -19 % | |||
| North America | -24 % | -33 % | -25 % | |||
| Latin America | -33 % | -66 % | -36 % | |||
| Asia Pacific | -33 % | -37 % | -33 % | |||
| Total | -24 % | -39 % | -25 % |
21
TOP 10 MARKETS IN ORDERS AND SALES
Year to date third quarter 2003
| Orders | Share of total orders | Sales | Share of total sales |
|---|---|---|---|
| United States | 15% | United States | 14% |
| China | 10% | China | 8% |
| Italy | 8% | Italy | 6% |
| Sweden | 4% | Sweden | 5% |
| Spain | 4% | Japan | 4% |
| India | 4% | Spain | 4% |
| Russia | 3% | Saudi Arabia | 3% |
| Brazil | 3% | United Kingdom | 3% |
| United Kingdom | 3% | Russia | 3% |
| Germany | 2% | Australia | 3% |
| CUSTOMER FINANCING RISK EXPOSURE — (SEK billion) | Sep 30 2002 | Dec 31 2002 | Mar 31 2003 | Jun 30 2003 | Sep 30 2003 |
|---|---|---|---|---|---|
| On-balance-sheet credits | 18.9 | 21.1 | 21.1 | 15.6 | 10.4 |
| Off-balance-sheet credits | 6.8 | 1.5 | 1.6 | 1.8 | 1.8 |
| Total credits | 25.7 | 22.6 | 22.7 | 17.4 | 12.2 |
| Less third party risk coverage | -0.8 | -0.8 | -2.6 | -2.6 | -0.4 |
| Ericsson risk exposure | 24.9 | 21.8 | 20.1 | 11.8 | 11.8 |
| On-balance-sheet credits, net book value | 12.7 | 14.0 | 13.6 | 10.0 | 4.3 |
| Off-balance-sheet credits recorded as contingent liabilities | 5.1 | 1.3 | 1.3 | 1.6 | 1.5 |
| Financing commitments | 14.0 | 14.0 | 12.5 | 11.0 | 6.7 |
| TREND OF NET SALES AND OPERATING EXPENSES ISOLATED QUARTERS | |||||||
|---|---|---|---|---|---|---|---|
| 2002 | 2003 | ||||||
| SEK million | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 |
| Net sales | 36,966 | 38,545 | 33,513 | 36,749 | 25,859 | 27,613 | 28,039 |
| R&D and other technical expenses | -8,529 | -7,000 | -6,562 | -7,240 | -6,444 | -5,855 | -4,772 |
| Selling expenses | -5,592 | -5,033 | -4,944 | -4,853 | -3,153 | -2,667 | -3,092 |
| Administrative expenses | -2,652 | -2,505 | -2,145 | -2,254 | -1,808 | -1,605 | -1,765 |
| Capitalization of development expenses, net | 1,005 | 910 | 641 | 644 | 614 | 412 | 182 |
| Operating expenses | -15,768 | -13,628 | -13,010 | -13,703 | -10,791 | -9,715 | -9,447 |
| Operating expenses as percentage of net sales | 42.7 % | 35.4 % | 38.8 % | 37.3 % | 41.7 % | 35.2 % | 33.7 % |
| Restructuring costs | | -1,274 | -2,254 | -2,478 | -1,359 | -2,296 | -4,176 |
| Operating expenses incl. restructuring costs | -15,768 | -14,902 | -15,550 | -16,181 | -12,150 | -12,011 | -13,623 |
| Items as % of net sales | |||||||
| R&D and other technical expenses | 23.1 % | 18.2 % | 19.6 % | 19.7 % | 24.9 % | 21.2 % | 17.0 % |
| Selling expenses | 15.1 % | 13.1 % | 14.8 % | 13.2 % | 12.2 % | 9.7 % | 11.0 % |
| G&A expenses | 7.2 % | 6.5 % | 6.4 % | 6.1 % | 7.0 % | 5.8 % | 6.3 % |
| Adjusted operating expenses, excluding capitalization of development | -16,773 | -14,538 | -13,651 | -14,347 | -11,405 | -10,127 | -9,629 |
| as percentage of net sales | 45.4 % | 37.7 % | 40.7 % | 39.0 % | 44.1 % | 36.7 % | 34.3 % |
22
ERICSSON
OTHER INFORMATION
| SEK million | Jul-Sep 2003 | Jul-Sep 2002 | Jan-Sep 2003 | Jan-Dec 2002 | Jan-Sep 2002 |
|---|---|---|---|---|---|
| Number of shares and earnings per share | |||||
| Number of shares, end of period (million) | | | 16,132 | 15,974 | 15,974 |
| Number of treasury shares, end of period (million) | | | 308 | 154 | 157 |
| Number of shares outstanding, basic, end of period (million) | | | 15,824 | 15,820 | 15,817 |
| Average number of shares, basic (million) 1) | | | 15,822 | 12,573 | 11,458 |
| Average number of treasury shares (million) | | | 248 | 156 | 157 |
| Average number of shares, diluted (million) 1,2) | | | 15,838 | 12,684 | 11,564 |
| Earnings per share, basic (SEK) 1) | -0.25 | -0.41 | -0.69 | -1.51 | -0.93 |
| Earnings per share, diluted (SEK) 1,2) | -0.25 | -0.41 | -0.69 | -1.51 | -0.93 |
| Ratios | |||||
| Equity ratio, percent | | | 34.5 | 36.4 | 36.0 |
| Capital turnover (times) | 1.0 | 0.9 | 0.9 | 1.0 | 0.9 |
| Accounts receivable turnover (times) | 3.7 | 3.1 | 3.3 | 3.0 | 2.9 |
| Inventory turnover (times) | 5.9 | 4.1 | 5.7 | 5.1 | 4.3 |
| Return on equity, percent | -24.9 % | -28.1 % | -21.8 % | -26.7 % | -18.8 % |
| Return on capital employed, percent | -11.2 % | -16.9 % | -11.5 % | -11.3 % | -9.2 % |
| Days Sales Outstanding | | | 93 | 92 | 109 |
| Payment readiness, end of period | | | 71 362 | 66 306 | 66 626 |
| Payment readiness, as percentage of sales | | | 65.7 % | 45.5 % | 45.8 % |
| Exchange rates used in the consolidation | |||||
| SEK / EUR average rate | | | 9.16 | 9.15 | 9.14 |
| closing rate | | | 8.96 | 9.15 | 9.17 |
| SEK / USD average rate | | | 8.25 | 9.72 | 9.93 |
| closing rate | | | 7.66 | 8.78 | 9.28 |
| Other | |||||
| Additions to tangible fixed assets | 386 | 431 | 1,177 | 2,738 | 2,018 |
| Of which in Sweden | 135 | 427 | 399 | 1,195 | 762 |
| Additions to capitalized development expenses | 458 | 662 | 1,731 | 3,442 | 2,659 |
| Depreciation on tangible and other intangible assets | 974 | 999 | 3,630 | 5,231 | 3,661 |
| Goodwill amortization | 496 | 178 | 1,709 | 1,064 | 713 |
| Amortization of development expenses | 276 | 21 | 523 | 242 | 103 |
| Total depreciation and amortization of tangible / intangible assets | 1,746 | 1,198 | 5,862 | 6,537 | 4,477 |
| Orders booked | 28,128 | 20,530 | 83,536 | 128,351 | 97,688 |
| Export sales from Sweden | 16,333 | 19,189 | 50,819 | 86,695 | 65,151 |
1) Adjusted for stock dividend element of stock issue in 2002.
2) Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| T ELEFONAKTIEBOLAGET LM E RICSSON ( PUBL ) | |
|---|---|
| By: | /s/ C ARL O LOF B LOMQVIST |
| Carl Olof Blomqvist Senior Vice President and General councel |
| By: |
|---|
| Henry Sténson Senior Vice President Corporate Communications |
Date: October 30, 2003