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Ericsson — Regulatory Filings 2006
Jul 24, 2006
2911_ffr_2006-07-24_6205dbbe-5eba-45e4-9c0e-19b64eadd2d6.zip
Regulatory Filings
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6-K 1 d6k.htm FORM 6-K FORM 6-K
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
April 21, 2006
LM ERICSSON TELEPHONE COMPANY
(Translation of registrants name into English)
Torshamnsgatan 23, Kista
SE-164 83, 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 July 21, 2006 regarding Ericsson Q2 Report 2006
| ● |
|---|
| July 21, 2006 |
Ericsson reports strong development securing new business
Net sales SEK 44.2 (38.4) b. in the quarter, SEK 83.3 (69.9) b. first six months
Operating income SEK 8.3 (8.3) b. in the quarter, SEK 14.9 (14.9) b. first six months
Operating margin 18.7% in the quarter, 19.6% excl. amortization of Marconi intangible assets
Net income SEK 5.7 (5.8) b. in the quarter, SEK 10.3 (10.5) b. first six months 1 )
Earnings per share SEK 0.36 (0.37) in the quarter, SEK 0.65 (0.66) first six months 1 )
CEO COMMENTS
In the changing industry environment we have leveraged our scale, technology leadership and global presence to advance our leading position in mobile systems as well as in services, says Carl-Henric Svanberg, President and CEO of Ericsson. We have secured a large number of key contracts during the quarter, adding to our strong business momentum. With the Marconi assets as a cornerstone, we are also building a leading position in next-generation converged networks.
The ongoing consolidation in our industry is a natural process, driven by the need for critical mass in R&D, marketing and supply. As market leader our strategy based on organic growth and bolt-on acquisitions remains. With our scale advantage and an organization focused on innovation and operational excellence, we are well positioned to continue to win market share. Our ability to achieve a healthy balance between long-term growth and short-term profitability will be key to success.
The deployment of 3G/HSPA continues, led by North America and countries in Asia, Central and Eastern Europe, Middle East and Africa. HSPA capabilities enable Internet to go mobile and enhance the consumer experience of using high-speed data services. This will also open tremendous opportunities to people living in countries with limited wireline communications.
Telecommunication is an important driver for economic and social development. We have now reached some 2.5 b. mobile subscriptions in the world. Through an intense cost focus throughout the industry, there are continued opportunities for further penetration. The GSM technology has by far the majority of users and, through its superior economies of scale, strongly contributes to making our vision of communication for all a reality, concludes Carl-Henric Svanberg.
FINANCIAL HIGHLIGHTS
Income statement and cash flow
| SEK b. | Second quarter — 2006 | 2005 | Change | First quarter — 2006 | Change | Six-month period — 2006 | 2005 | Change |
|---|---|---|---|---|---|---|---|---|
| Net sales | 44.2 | 38.4 | 15 % | 39.2 | 13 % | 83.3 | 69.9 | 19 % |
| Gross margin | 42.0 % | 45.9 % | | 43.3 % | | 42.6 % | 47.1 % | |
| Operating income | 8.3 | 8.3 | -1 % | 6.6 | 25 % | 14.9 | 14.9 | 0 % |
| Operating margin | 18.7 % | 21.6 % | | 16.9 % | | 17.9 % | 21.3 % | |
| Income after financial items | 8.3 | 8.5 | -2 % | 6.7 | 24 % | 15.0 | 15.2 | -2 % |
| Net income 1 ) | 5.7 | 5.8 | -2 % | 4.6 | 25 % | 10.3 | 10.5 | -2 % |
| Cash flow before financial investing activities | -2.0 | 5.4 | | -16.1 | | -18.0 | -1.1 | |
| Earnings per share, SEK 1 ) | 0.36 | 0.37 | | 0.29 | | 0.65 | 0.66 | |
| Operating margin adj. for. Marconi intangibles | 19.6 % | 21.6 % | | 17.9 % | | 18.8 % | 21.3 % | |
| EPS, adj. for Marconi intangibles | 0.38 | 0.37 | | 0.31 | | 0.68 | 0.66 | |
1) Attributable to stockholders of the parent company, excluding minority interest.
Sales in the quarter were up 15% year-over-year with good performance in basically all areas and with services being especially strong.
Gross margin was 42.0% (45.9%) during the quarter, reflecting the increased proportion of services sales and the integration of the former Marconi operations.
The operating margin increased sequentially from 16.9% to 18.7% (21.6%), primarily due to continued cost rationalization as well as strong performance by Sony Ericsson. Operating margin amounted to 19.6% excluding amortization of intangible assets related to Marconi. Operating income remained unchanged at SEK 8.3 (8.3) b. year-over-year.
The financial net was 0.0 (0.2) b. in the quarter.
Net income in the quarter was SEK 5.7 (5.8) b. and earnings per share were SEK 0.36 (0.37).
Cash flow before financial investing activities was SEK -2.0 (5.4) b. in the quarter, mainly due to a sequential increase of customer financing of SEK 1.5 b. and increased accounts receivable following the completion of several large contracts late in the quarter.
Balance sheet items and other performance indicators
| Six months | Three months | Full year | |
|---|---|---|---|
| SEK b. | 2006 | 2006 | 2005 |
| Net cash | 27.9 | 33.7 | 50.6 |
| Interest-bearing provisions and liabilities | 21.6 | 32.7 | 30.9 |
| Days sales outstanding | 95 | 101 | 81 |
| Inventory turnover | 4.5 | 4.2 | 5.0 |
| Customer financing, net | 4.6 | 3.2 | 4.9 |
| Equity ratio | 53.9 % | 50.2 % | 49.0 % |
Net cash decreased by SEK 5.8 b. to SEK 27.9 (39.3) b. during the quarter, due to the increased receivables and payment of dividend of SEK 7.2 b. for 2005 in April. In the quarter, bond loans of SEK 9.6 b. matured and were repaid. During the quarter, the pension liability decreased by SEK 1.1 b., mainly due to the change in discount rate in the pension liability in Sweden from 3.5% to 4.0%. The equity ratio was 53.9% (44.9%).
Days sales outstanding were 95 days, a sequential decrease of six days. Inventories, including work in progress, were down in the quarter by SEK 0.4 b. to SEK 23.1 (19.3) b. and inventory turnover improved to 4.5 from 4.2 times in the previous quarter.
Deferred tax assets were reduced by SEK 2.1 b. in the quarter, from SEK 16.8 b. at March 31 to SEK 14.6 b., reflecting utilization of tax loss carry forwards.
MARKET AND BUSINESS HIGHLIGHTS
Long-term industry growth drivers remain solid. New technologies and richer services will continue to drive and accelerate traffic in the worlds networks. The number of mobile subscriptions in the world is expected to pass three billion in 2007. The GSM/WCDMA track represents more than 80% of all mobile subscriptions around the world and the vast majority of the growth. New and more innovative solutions and more affordable handsets are expected to continue to expand the market.
Fixed and mobile broadband enable new user applications with rich content and interactivity, such as IPTV, chatting, gaming and music services. IPTV is expected to be a main driver of new traffic in converging networks when triple play becomes a reality. TV services are expected to grow strongly also in mobile networks, driven by users that want instant access to on-demand business, sports and news updates.
WCDMA/HSPA networks are key components in offering users richer services. Currently Ericsson is a supplier to more than 40 HSPA networks under deployment around the world, of which half are in commercial operation. The number of WCDMA subscriptions grew by approximately 13 million to more than 68 million during the quarter. Seven new WCDMA networks were commercially launched during the quarter, bringing the total to 100 WCDMA networks, of which Ericsson is a supplier to 55.
2
Services continues to be a key area as operators seek to lower operating costs and free up time for customer interaction and business development. We have a clear leadership through our early start and presently manage networks with 65 million subscribers and provide around-the-clock support to networks with 725 million subscribers. Through our economies of scale and proven expertise, we are able to offer our customers not only first-class operations but also considerable savings.
Regional overview
Western Europe sales were up by 26% compared to the same quarter last year. Growth is primarily driven by strong services sales and the added Marconi business. Mobile systems sales were flat. The strong tariff competition and falling roaming charges drive traffic growth and increase operators need for network expansions as well as intensify their focus on total cost of ownership.
Central and Eastern Europe, Middle East and Africa sales grew by 24% compared to the same quarter last year. The activity level was especially high in Pakistan, Russia, Saudi Arabia and South Africa. The growth is primarily in GSM, but 3G sales are increasing and during the quarter several contracts for WCDMA/HSPA were received in the region.
Asia Pacific sales grew by 55% compared to the same quarter last year, primarily driven by strong growth in Australia, China, India, Indonesia and Japan. During the quarter, China showed strong increase year-over-year and there is a steady demand and rollout activity. Contracts are however large and completion and invoicing tend to fluctuate between quarters.
North America sales were down 42% year-over-year. Sales were down 17% when adjusted for the extra SEK 2 b. invoicing in the second quarter 2005 related to planned later deliveries. The ongoing HSPA build-out continues according to plan. The 2G build-out also continues, however, operators reductions of excess inventory have short-term effects on our sales. The upcoming spectrum auctions presently affect the market but should stimulate new network rollouts.
Latin America sales declined by 14% compared to the same quarter last year. As expected, operators are investing less after two exceptionally strong rollout years. There is, however, in many markets a continued need for investments in quality and coverage. Planning for 3G has started, and in parallel further CDMA operators investigate the benefits of changing to GSM/WCDMA.
Subscription growth
The growth rate for net mobile subscription additions continues with record levels for the first half of 2006 and with some 200 million in the quarter. At the end of the quarter, worldwide subscription penetration reached 38% with close to 2.5 billion subscriptions in total, of which two billion are GSM. The global number of subscriptions is expected to pass three billion during 2007.
OUTLOOK
All estimates are measured in USD and refer to market growth compared to previous year.
The traffic growth in the worlds mobile networks is expected to continue as a result of both new services and new subscribers. GSM/WCDMA represents over 80% of the total global mobile systems market. It is our primary market and our outlook will therefore be limited to the GSM/WCDMA track.
For 2006 we believe that the GSM/WCDMA track within the global mobile systems market, measured in USD, will show moderate growth compared to 2005.
Our previous outlook included all standards and was: For 2006 we continue to believe that the global mobile systems market, measured in USD, will show moderate growth compared to 2005.
We continue to believe that the addressable market for professional services will show good growth in 2006.
With our technology leadership and global presence we are well positioned to take advantage of the market opportunities.
3
SEGMENT RESULTS
Systems
| SEK b. | Second quarter — 2006 | 2005 | Change | First quarter — 2006 | Change | Six-month period — 2006 | 2005 | Change |
|---|---|---|---|---|---|---|---|---|
| Net sales | 41.4 | 36.1 | 15 % | 36.8 | 13 % | 78.3 | 65.1 | 20 % |
| Mobile Networks | 30.8 | 28.8 | 7 % | 26.7 | 15 % | 57.5 | 52.2 | 10 % |
| Fixed Networks | 2.5 | 1.1 | 122 % | 2.9 | -13 % | 5.4 | 2.2 | 147 % |
| Professional Services | 8.1 | 6.2 | 31 % | 7.2 | 13 % | 15.4 | 10.7 | 43 % |
| Operating income | 7.2 | 8.2 | -11 % | 6.0 | 20 % | 13.3 | 14.4 | -8 % |
| Operating margin | 17 % | 23 % | | 16 % | | 17 % | 22 % | |
Sales of mobile networks were up by 7% compared to the same quarter last year. Adjusted for the extra SEK 2 b. invoicing in the second quarter 2005 related to planned later deliveries, sales of mobile networks increased by 15% in the quarter. The larger proportion of initial network build-outs reflects our strong position in the market.
Sales of fixed networks increased by SEK 1.4 b. year-over-year to SEK 2.5 b., of which Marconi added approximately SEK 2.0 b.
Sales of network rollout and professional services increased 30%, compared to the same quarter last year. During the quarter, strong growth in network rollout continued due to a high proportion of new networks being built. Sales of professional services developed strongly during the quarter and grew 31% compared to the same quarter last year. Approximately SEK 0.5 b. of this is services business related to Marconi.
Other Operations
| SEK b. | Second quarter — 2006 | 2005 | Change | First quarter — 2006 | Change | Six-month period — 2006 | 2005 | Change |
|---|---|---|---|---|---|---|---|---|
| Net sales | 3.2 | 2.7 | 19 % | 2.7 | 18 % | 5.9 | 5.4 | 9 % |
| Operating income | 0.2 | -0.1 | | 0.1 | | 0.3 | 0.0 | |
| Operating margin | 7 % | -4 % | | 2 % | | 5 % | -1 % | |
Cables and Ericsson Mobile Platforms continued to show strong performance. The restructuring of Power Modules is generating the expected results. As previously announced, the defense operations will be sold to Saab AB with closing expected before the end of the third quarter.
SONY ERICSSON MOBILE COMMUNICATIONS
For information on transactions with Sony Ericsson Mobile Communications, please see Financial statements and additional information.
Sony Ericsson Mobile Communications (Sony Ericsson) more than doubled year-on-year income before taxes. Units shipped in the quarter reached 15.7 million, a 33% increase compared to the same period last year, and generated a market share increase both on a year-on-year and sequential basis. Sales for the quarter were EUR 2.272 m., a year-on-year increase of 41%, reflecting a successful product portfolio. Income before taxes was EUR 211 m. in the quarter, a year-on-year increase of 143%. Ericssons share in Sony Ericssons income before tax was SEK 1.0 (0.4) b.
Growth in the global handset market continued to outpace expectations, and Sony Ericsson now forecasts the global market outlook for 2006 to be above 950 million units, up from the previous estimate of above 900 million units.
PARENT COMPANY INFORMATION
Net sales for the six-month period amounted to SEK 0.3 (0.7) b., and income after financial items was SEK 6.6 (5.3) b.
Major changes in the Parent Companys financial position for the period include a decrease of net liabilities (current and non-current receivables and liabilities) to subsidiaries of SEK 14.2 b., largely related to the acquisitions of Marconi assets in the first quarter, repayment of bond loans of SEK 9.6 b. and a payment of dividend for 2005 to shareholders of SEK 7.1 b. in the second quarter, resulting in reduced cash and short-term investments of SEK 32.0 b.
4
In accordance with the conditions of the Stock Purchase Plans and Option Plans for Ericsson employees, 1,849,309 shares from treasury stock were sold or distributed to employees during the second quarter. The holding of treasury stock at June 30, 2006, was 262,234,352 Class B shares.
OTHER INFORMATION
Marconi integration
The integration of the acquired Marconi assets is running according to plan. During the quarter, approximately 1,000 employees have been identified for lay-offs. The remaining 600 will be identified in the third quarter 2006 and provisions will be made for all restructuring costs before year-end. The product portfolio and supply chain integration is on plan with targeted savings by year-end 2007.
Through the restructuring process, service portfolios, softswitch solutions, broadband access and transmission products are being integrated. As a consequence, it will become increasingly difficult to accurately isolate and track the Marconi business. Marconi sales are estimated to be SEK 2.5 b. in the quarter, with an operating loss of approximately SEK 0.2 b. In addition, amortization of intangible assets amounts to SEK 0.4 b.
Sale of defense business
As announced on June 12, 2006, Ericsson has agreed to sell its defense business, Ericsson Microwave Systems AB, and its 40% holding in Saab Ericsson Space to Saab AB. Ericsson will retain the National Security and Public Safety business and parts of the Power Systems business. The retained units have around 300 employees. The retained activities will be reported as part of the Systems segment. The purchase price is SEK 3.8 b. in cash and the agreement involves transfer of approximately 1,250 employees. The estimated value of the current assets and liabilities held for sale amount to approximately SEK 3.0 b. respectively. The transaction is expected to close in September 2006.
As announced on June 12, 2006, the expected capital gain of approximately SEK 3.0 b. is of similar magnitude as the previously announced restructuring costs, mainly related to the Marconi acquisition and the Career Change Offer in Sweden, giving a neutral effect in total on Ericssons income after financial items for 2006.
Recommended public offer in Netwise
As announced on June 5, 2006, Ericsson issued a recommended cash offer of SEK 60 per share to the shareholders and holders of warrants in Netwise AB to transfer all shares in and all warrants issued by Netwise to Ericsson. Netwise B-shares are listed on Nya Marknaden in Sweden. Ericsson and Netwise today have an ongoing cooperation and see further possibilities in combining Netwises cutting-edge IP competence and applications for the enterprise segment with Ericssons global presence.
The acceptance period for the offer runs up to and including August 2, 2006. The estimated date for payment to shareholders is August 27, 2006. The total value of the offer amounts to SEK 300 m. For further information on the offer, please see: www.ericsson.com/investors.
Stockholm, July 21, 2006
Carl-Henric Svanberg
President and CEO
Date for next report: October 19, 2006
REVIEW REPORT
We have reviewed the interim report for the period January 1 to June 30, 2006, for Telefonaktiebolaget LM Ericsson (publ). Management is responsible for the preparation and presentation of this interim financial information in accordance with IAS 34 and the Annual Accounts Act. Our responsibility is to express a conclusion on this interim financial information based on our review.
We conducted our review in accordance with the Standard on Review Engagements SÖG 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by FAR. A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Standards on Auditing in Sweden RS and other generally accepted auditing practices. The procedures performed in a review do not enable us to obtain a level of assurance that would make us aware of all significant matters that might be identified in an audit. Therefore, the conclusion expressed based on a review does not give the same level of assurance as a conclusion expressed based on an audit.
Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not, in all material respects, in accordance with IAS 34 and the Annual Accounts Act.
Stockholm, July 21, 2006
| Bo Hjalmarsson | Peter Clemedtson | Thomas Thiel |
|---|---|---|
| Authorized Public Accountant | Authorized Public Accountant | Authorized Public Accountant |
| PricewaterhouseCoopers AB | PricewaterhouseCoopers AB |
5
EDITORS NOTE
To read the complete report with tables, please go to:
http://www.ericsson.com/investors/financial_reports/2006/6month06-en.pdf
Ericsson invites media, investors and analysts to a press conference at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at 09.00 (CET), July 21.
An analyst and media conference call will begin at 14.00 (CET).
Live audio webcasts of the press conference and conference call as well as supporting slides will be available at www.ericsson.com/press and www.ericsson.com/investors
FOR FURTHER INFORMATION PLEASE CONTACT
Henry Sténson, Senior Vice President,
Communications
Phone: +46 8 719 4044
E-mail: [email protected] or
Investors
Gary Pinkham, Vice President,
Investor Relations
Phone: +46 8 719 0000
E-mail: [email protected]
Susanne Andersson,
Investor Relations
Phone: +46 8 719 4631
E-mail: [email protected]
Glenn Sapadin,
Investor Relations,
North America
E-mail: [email protected]
Media
Åse Lindskog, Director,
Head of Media Relations
E-mail: [email protected]
Ola Rembe, Director,
Media Relations
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
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.
6
FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION
| Page | |
|---|---|
| Financial statements | |
| Consolidated income statement | 8 |
| Consolidated balance sheet | 9 |
| Consolidated statement of cash flows | 10 |
| Consolidated statement of recognized income and expense | 11 |
| Consolidated income statement - isolated quarters | 12 |
| Page | |
| Additional information | |
| Accounting policies | 13 |
| Net sales by segment by quarter | 15 |
| Operating income, operating margin and employees by segment by quarter | 16 |
| Net sales by market area by quarter | 17 |
| External net sales by market area by segment | 18 |
| Top ten markets in sales | 19 |
| Customer financing risk exposure | 19 |
| Transactions with Sony Ericsson Mobile Communications | 19 |
| Other information | 20 |
| Acquisition of assets from Marconi | 21 |
7
ERICSSON
CONSOLIDATED INCOME STATEMENT
| SEK million | Apr - Jun — 2006 | 2005 | Change | Jan - Jun — 2006 | 2005 | Change |
|---|---|---|---|---|---|---|
| Net sales | 44,166 | 38,444 | 15 % | 83,342 | 69,911 | 19 % |
| Cost of sales | -25,598 | -20,797 | -47,817 | -37,010 | ||
| Gross margin | 18,568 | 17,647 | 5 % | 35,525 | 32,901 | 8 % |
| Gross margin % | 42.0 % | 45.9 % | 42.6 % | 47.1 % | ||
| Research and development and other technical expenses | -6,861 | -6,267 | -13,609 | -11,941 | ||
| Selling and administrative expenses | -5,263 | -3,895 | -10,055 | -7,536 | ||
| Operating expenses | -12,124 | -10,162 | -23,664 | -19,477 | ||
| Other operating income | 817 | 425 | 1,327 | 772 | ||
| Share in earnings of JV and associated companies | 992 | 393 | 1,689 | 709 | ||
| Operating income | 8,253 | 8,303 | -1 % | 14,877 | 14,905 | 0 % |
| Operating margin % | 18.7 % | 21.6 % | 17.9 % | 21.3 % | ||
| Financial income | 567 | 881 | 1,089 | 1,594 | ||
| Financial expenses | -529 | -696 | -996 | -1,269 | ||
| Income after financial items | 8,291 | 8,488 | 14,970 | 15,230 | ||
| Taxes | -2,559 | -2,693 | -4,633 | -4,791 | ||
| Net income | 5,732 | 5,795 | -1 % | 10,337 | 10,439 | -1 % |
| of which | ||||||
| Net income attributable to stockholders of the parent company | 5,712 | 5,843 | 10,287 | 10,460 | ||
| Net income attributable to minority interest | 20 | -48 | 50 | -21 | ||
| Other information | ||||||
| Average number of shares, basic (million) | 15,869 | 15,835 | 15,867 | 15,790 | ||
| Earnings per share, basic (SEK) 1) | 0.36 | 0.37 | 0.65 | 0.66 | ||
| Earnings per share, diluted (SEK) 1) | 0.36 | 0.37 | 0.65 | 0.66 |
1) Based on Net income attributable to stockholders of the parent company
8
ERICSSON
CONSOLIDATED BALANCE SHEET
| SEK million | Jun 30 2006 | Mar 31 2006 | Dec 31 1) 2005 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | |||
| Capitalized development expenses | 5,604 | 5,842 | 6,161 |
| Goodwill | 6,958 | 7,334 | 7,362 |
| Other | 15,988 | 15,796 | 939 |
| Property, plant and equipment | 8,401 | 8,069 | 6,966 |
| Financial assets | |||
| Equity in JV and associated companies | 6,229 | 5,671 | 6,313 |
| Other investments in shares and participations | 731 | 701 | 805 |
| Customer financing, non-current | 1,686 | 467 | 1,322 |
| Other financial assets, non-current | 2,022 | 2,404 | 2,796 |
| Deferred tax assets | 14,621 | 16,758 | 18,519 |
| 62,240 | 63,042 | 51,183 | |
| Current assets | |||
| Inventories | 23,105 | 23,503 | 19,208 |
| Financial assets | |||
| Accounts receivable - trade | 46,291 | 44,790 | 41,242 |
| Customer financing, current | 2,926 | 2,687 | 3,624 |
| Other current receivables | 14,826 | 14,817 | 12,574 |
| Short-term investments | 32,905 | 42,605 | 39,767 |
| Cash and cash equivalents | 16,646 | 23,749 | 41,738 |
| 136,699 | 152,151 | 158,153 | |
| Total assets | 198,939 | 215,193 | 209,336 |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Stockholders equity | 106,377 | 107,064 | 101,622 |
| Minority interest in equity of consolidated subsidiaries | 893 | 943 | 850 |
| 107,270 | 108,007 | 102,472 | |
| Non-current liabilities | |||
| Post-employment benefits | 5,603 | 6,683 | 5,891 |
| Other provisions, non-current | 669 | 776 | 904 |
| Deferred tax liabilities | 255 | 101 | 391 |
| Borrowings, non-current | 13,412 | 14,131 | 14,185 |
| Other non-current liabilities | 3,094 | 2,882 | 2,740 |
| 23,033 | 24,573 | 24,111 | |
| Current liabilities | |||
| Other provisions, current | 13,476 | 16,063 | 17,764 |
| Borrowings, current | 2,616 | 11,842 | 10,784 |
| Accounts payable | 16,138 | 14,438 | 12,584 |
| Other current liabilities | 36,406 | 40,270 | 41,621 |
| 68,636 | 82,613 | 82,753 | |
| Total equity and liabilities | 198,939 | 215,193 | 209,336 |
| Of which interest-bearing provisions and liabilities | 21,631 | 32,656 | 30,860 |
| Net cash | 27,920 | 33,698 | 50,645 |
| Assets pledged as collateral | 499 | 546 | 549 |
| Contingent liabilities | 1,491 | 1,532 | 1,708 |
1) Ericsson has adopted the new option in IAS 19 as from January 1, 2006. Earlier periods have been restated accordingly.
The net effect on equity per December 31, 2005 was SEK -3,055 million.
9
ERICSSON
CONSOLIDATED STATEMENT OF CASH FLOWS
| SEK million | Apr - Jun — 2006 | 2005 | Jan - Jun — 2006 | Jan - Dec — 2005 | 2005 |
|---|---|---|---|---|---|
| Net income attributable to stockholders of the parent company | 5,712 | 5,843 | 10,287 | 10,460 | 24,315 |
| Adjustments to reconcile net income to cash | 2,658 | 2,239 | 5,908 | 4,428 | 10,845 |
| 8,370 | 8,082 | 16,195 | 14,888 | 35,160 | |
| Operating net assets | |||||
| Inventories | -433 | -105 | -2,903 | -3,604 | -3,668 |
| Customer financing, current and non-current | -1,586 | 267 | 246 | -179 | -641 |
| Accounts receivable | -3,269 | -1,699 | -4,505 | -3,441 | -5,874 |
| Other | -2,849 | 565 | -6,394 | -6,324 | -8,308 |
| Cash flow from operating activities | 233 | 7,110 | 2,639 | 1,340 | 16,669 |
| Investing activities | |||||
| Product development | -412 | -152 | -770 | -455 | -1,174 |
| Other investing activities | -1,808 | -1,545 | -19,914 | -2,005 | -4,170 |
| Cash flow from operating investing activities | -2,220 | -1,697 | -20,684 | -2,460 | -5,344 |
| Cash flow before financial investing activities | -1,987 | 5,413 | -18,045 | -1,120 | 11,325 |
| Short-term investments | 9,700 | -6,877 | 6,862 | -9,721 | 6,375 |
| Cash flow from investing activities | 7,480 | -8,574 | -13,822 | -12,181 | 1,031 |
| Cash flow before financing activities | 7,713 | -1,464 | -11,183 | -10,841 | 17,700 |
| Dividends paid | -7,154 | -3,976 | -7,160 | -3,976 | -4,133 |
| Sale/repurchase of own stock | 7 | 15 | 14 | 19 | 117 |
| Other financing activities | -8,154 | -663 | -7,263 | 925 | -2,070 |
| Cash flow from financing activities | -15,301 | -4,624 | -14,409 | -3,032 | -6,086 |
| Effect of exchange rate changes on cash | 485 | -120 | 500 | -199 | -288 |
| Net change in cash | -7,103 | -6,208 | -25,092 | -14,072 | 11,326 |
| Cash and cash equivalents, beginning of period | 23,749 | 22,548 | 41,738 | 30,412 | 30,412 |
| Cash and cash equivalents, end of period | 16,646 | 16,340 | 16,646 | 16,340 | 41,738 |
10
CONSOLIDATED STATEMENT OF RECOGNIZED INCOME AND EXPENSE
| SEK million | Jan-Jun 2006 — Stock- holders equity | Minority interest | Total equity | Jan-Dec 2005 — Stock- holders equity | Minority interest | Total equity | Jan-Jun 2005 — Stock- holders equity | Minority interest | Total equity |
|---|---|---|---|---|---|---|---|---|---|
| Actuarial gains and losses related to post-employment benefits including payroll tax | 1,557 | | 1,557 | -3,221 | | -3,221 | -2,750 | | -2,750 |
| Revaluation of other investments in shares and participations | |||||||||
| Fair value remeasurement taken to equity | -3 | | -3 | -3 | | -3 | -6 | | -6 |
| Transferred to income statement at sale | | | | -147 | | -147 | -147 | | -147 |
| Cash flow hedges: | |||||||||
| Fair value remeasurement of derivatives taken to equity | 2,422 | | 2,422 | -3,961 | | -3,961 | -3,125 | | -3,125 |
| Transferred to income statement for the period | 120 | | 120 | 1,404 | | 1,404 | -411 | | -411 |
| Transferred to balance sheet for the period | 99 | | 99 | | | | | | |
| Changes in cumulative translation effects due to changes in foreign currency exchange rates | -1,519 | -62 | -1,581 | 4,118 | 147 | 4,265 | 3,641 | 122 | 3,763 |
| Tax on items taken directly to or transferred from equity | -1,293 | | -1,293 | 1,523 | | 1,523 | 1,901 | | 1,901 |
| Total transactions taken to equity | 1,383 | -62 | 1,321 | -287 | 147 | -140 | -897 | 122 | -775 |
| Net income | 10,287 | 50 | 10,337 | 24,315 | 145 | 24,460 | 10,460 | -21 | 10,439 |
| Total income and expenses recognized for the period | 11,670 | -12 | 11,658 | 24,028 | 292 | 24,320 | 9,563 | 101 | 9,664 |
| Other changes in equity: | |||||||||
| Sale of own shares | 14 | | 14 | 117 | | 117 | 19 | | 19 |
| Stock Purchase and Stock Option Plans | 212 | | 212 | 242 | | 242 | 90 | | 90 |
| Dividends paid | -7,141 | -19 | -7,160 | -3,959 | -174 | -4,133 | -3,959 | -17 | -3,976 |
| Stock issue, net | | 15 | 15 | | 17 | 17 | | 10 | 10 |
| Business combinations | | 59 | 59 | | -342 | -342 | | -293 | -293 |
11
ERICSSON
CONSOLIDATED INCOME STATEMENT - ISOLATED QUARTERS
| SEK million | 2006 — Q2 | Q1 | 2005 — Q4 | Q3 | Q2 | Q1 |
|---|---|---|---|---|---|---|
| Net sales | 44,166 | 39,176 | 45,665 | 36,245 | 38,444 | 31,467 |
| Cost of sales | -25,598 | -22,219 | -25,497 | -19,862 | -20,797 | -16,213 |
| Gross margin | 18,568 | 16,957 | 20,168 | 16,383 | 17,647 | 15,254 |
| Gross margin % | 42.0 % | 43.3 % | 44.2 % | 45.2 % | 45.9 % | 48.5 % |
| Research and development and other technical expenses | -6,861 | -6,748 | -6,378 | -6,135 | -6,267 | -5,674 |
| Selling and administrative expenses | -5,263 | -4,792 | -5,332 | -3,932 | -3,895 | -3,641 |
| Operating expenses | -12,124 | -11,540 | -11,710 | -10,067 | -10,162 | -9,315 |
| Other operating income | 817 | 510 | 883 | 836 | 425 | 347 |
| Share in earnings of JV and assoc. companies | 992 | 697 | 1,013 | 673 | 393 | 316 |
| Operating income | 8,253 | 6,624 | 10,354 | 7,825 | 8,303 | 6,602 |
| Operating margin % | 18.7 % | 16.9 % | 22.7 % | 21.6 % | 21.6 % | 21.0 % |
| Financial income | 567 | 522 | 362 | 697 | 881 | 713 |
| Financial expenses | -529 | -467 | -643 | -490 | -696 | -573 |
| Income after financial items | 8,291 | 6,679 | 10,073 | 8,032 | 8,488 | 6,742 |
| Taxes | -2,559 | -2,074 | -1,435 | -2,649 | -2,693 | -2,098 |
| Net income | 5,732 | 4,605 | 8,638 | 5,383 | 5,795 | 4,644 |
| of which | ||||||
| Net income attributable to stockholders of the parent company | 5,712 | 4,575 | 8,541 | 5,314 | 5,843 | 4,617 |
| Net income attributable to minority interest | 20 | 30 | 97 | 69 | -48 | 27 |
| Other information | ||||||
| Average number of shares, basic (million) | 15,869 | 15,866 | 15,859 | 15,845 | 15,835 | 15,756 |
| Earnings per share, basic (SEK) 1) | 0.36 | 0.29 | 0.54 | 0.34 | 0.37 | 0.29 |
| Earnings per share, diluted (SEK) 1) | 0.36 | 0.29 | 0.54 | 0.33 | 0.37 | 0.29 |
1) Based on Net income attributable to stockholders of the parent company
12
Accounting policies
This interim report is prepared in accordance with IAS 34. The term IFRS used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASBs Standards Interpretation Committee (SIC) and International Financial Reporting Interpretations Committee (IFRIC). In this interim report we have adopted the following amendments and interpretations effective as from January 1, 2006. These amendments and interpretations have been endorsed by the EU, except for one amendment to IAS 21. That amendment is commented below under IAS 21.
IAS 19 Employee Benefits
As from January 1, 2006, Ericsson has adopted the new allowed alternative in IAS 19, Employee Benefits, on how to recognize actuarial gains and losses. The previous method to recognize actuarial gains and losses to the extent that they fell outside the 10 percent corridor was that they were amortized over the average remaining service time of plan participants. Instead, as from January 1, 2006, all actuarial gains and losses are recognized directly in equity, net of deferred tax, in the period they occur. Earlier reporting periods have been restated accordingly. The adoption of this new alternative has increased the provision for post-employment benefits with SEK 3.5 billion, accruals for social security with SEK 0.8 billion and has affected equity by SEK 3.1 billion net of tax as per January 1, 2006. The impact on reported equity as per January 1, 2005, is SEK 0,7 billion.
IAS 39 Financial instruments: Recognition and Measurement
Three amendments have been issued by the IASB, effective as from January 1, 2006, with earlier application encouraged.
The amendments relate to:
Cash Flow Hedges of Forecast Intra group Transactions that permits the foreign currency risk of a highly probable intra group forecast transaction to qualify as the hedged item in a cash flow hedge. Ericsson adopted his amendment 2005.
Fair Value Option that restricts the use of the option to designate any financial asset or any financial liability to be measured at fair value through profit and loss. The company carries loans and receivables, deposits and borrowing at amortized cost, except for specific issued bonds where the carrying value is adjusted as a result of the application of fair value hedge accounting. This amendment has therefore not had a any impact on the financial position or result for 2005 and is not expected to have any impact for 2006.
Financial guarantee contracts that requires financial guarantee contracts to be recognized, initially at fair value and subsequently at the higher of (i) the amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and (ii) the amount initially recognized less any cumulative amortization. This amendment has not had a significant impact on the financial position or result.
IAS 21 The Effects of Changes in Foreign Exchange Rates
IAS 21 has been amended in relation to the accounting treatment of Net Investments in a Foreign Operation. A monetary item that forms part of a company investment in a foreign operation should not be dependent on the currency of the monetary item. Also, the accounting should not depend on which entity within the group that conducts a transaction with the foreign operation. It is only the second amendment that is endorsed by the EU as of March 31, 2006. These amendments have not had a significant impact on the financial position or result.
IFRIC 4 Determining whether an Arrangement contains a Lease
This interpretation has not had a significant impact on the financial position and result.
13
IFRIC 6 Liabilities arising from Participating in a Specific Market Waste of Electric and Electronic Equipment
This amendment has not had a significant impact on the financial position or result.
Parent Company information
The Parent Company reports according to RR 32 Reporting in separate financial statements. RR 32 requires the Parent Company to use similar accounting principles as for the Group, i.e. IFRS to the extent allowed by RR 32.
14
NET SALES BY SEGMENT BY QUARTER
SEK million
| Isolated quarters | 2006 — Q2 | Q1 | 2005 — Q4 | Q3 | Q2 | Q1 |
|---|---|---|---|---|---|---|
| Systems | 41,435 | 36,821 | 43,020 | 33,939 | 36,138 | 29,002 |
| - Mobile networks | 30,782 | 26,763 | 33,664 | 26,763 | 28,770 | 23,450 |
| - Fixed networks | 2,506 | 2,868 | 1,270 | 1,137 | 1,130 | 1,048 |
| Total Network equipment | 33,288 | 29,631 | 34,934 | 27,900 | 29,900 | 24,498 |
| - Of which network rollout | 4,637 | 5,119 | 5,451 | 3,579 | 3,595 | 2,748 |
| Professional Services | 8,147 | 7,190 | 8,086 | 6,039 | 6,238 | 4,504 |
| Other Operations | 3,189 | 2,694 | 3,012 | 2,502 | 2,670 | 2,712 |
| Less: Intersegment sales | -458 | -339 | -367 | -196 | -364 | -247 |
| Total | 44,166 | 39,176 | 45,665 | 36,245 | 38,444 | 31,467 |
| 2006 | 2005 | |||||
| Sequential change (%) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Systems | 13 % | -14 % | 27 % | -6 % | 25 % | -21 % |
| - Mobile networks | 15 % | -21 % | 26 % | -7 % | 23 % | -19 % |
| - Fixed networks | -13 % | 126 % | 12 % | 1 % | 8 % | -31 % |
| Total Network equipment | 12 % | -15 % | 25 % | -7 % | 22 % | -20 % |
| - Of which network rollout | -9 % | -6 % | 52 % | 0 % | 31 % | -24 % |
| Professional Services | 13 % | -11 % | 34 % | -3 % | 38 % | -27 % |
| Other Operations | 18 % | -11 % | 20 % | -6 % | -2 % | -18 % |
| Less: Intersegment sales | 35 % | -8 % | 87 % | -46 % | 47 % | -63 % |
| Total | 13 % | -14 % | 26 % | -6 % | 22 % | -20 % |
| 2006 | 2005 | |||||
| Year over year change (%) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Systems | 15 % | 27 % | 17 % | 15 % | 19 % | 11 % |
| - Mobile networks | 7 % | 14 % | 16 % | 13 % | 19 % | 11 % |
| - Fixed networks | 122 % | 174 % | -16 % | 11 % | 0 % | 17 % |
| Total Network equipment | 11 % | 21 % | 14 % | 13 % | 18 % | 11 % |
| - Of which network rollout | 29 % | 86 % | 51 % | 35 % | 44 % | 25 % |
| Professional Services | 31 % | 60 % | 31 % | 25 % | 25 % | 9 % |
| Other Operations | 19 % | -1 % | -9 % | -12 % | -5 % | 11 % |
| Less: Intersegment sales | 26 % | 37 % | -46 % | -68 % | -38 % | -43 % |
| Total | 15 % | 24 % | 16 % | 14 % | 18 % | 12 % |
| 2006 | 2005 | |||||
| Year to Date | 0606 | 0603 | 0512 | 0509 | 0506 | 0503 |
| Systems | 78,256 | 36,821 | 142,099 | 99,079 | 65,140 | 29,002 |
| - Mobile networks | 57,545 | 26,763 | 112,647 | 78,983 | 52,220 | 23,450 |
| - Fixed networks | 5,374 | 2,868 | 4,585 | 3,315 | 2,178 | 1,048 |
| Total Network equipment | 62,919 | 29,631 | 117,232 | 82,298 | 54,398 | 24,498 |
| - Of which network rollout | 9,756 | 5,119 | 15,373 | 9,922 | 6,343 | 2,748 |
| Professional Services | 15,337 | 7,190 | 24,867 | 16,781 | 10,742 | 4,504 |
| Other Operations | 5,883 | 2,694 | 10,896 | 7,884 | 5,382 | 2,712 |
| Less: Intersegment sales | -797 | -339 | -1,174 | -807 | -611 | -247 |
| Total | 83,342 | 39,176 | 151,821 | 106,156 | 69,911 | 31,467 |
| 2006 | 2005 | |||||
| YTD year over year change (%) | 0606 | 0603 | 0512 | 0509 | 0506 | 0503 |
| Systems | 20 % | 27 % | 16 % | 15 % | 15 % | 11 % |
| - Mobile networks | 10 % | 14 % | 15 % | 14 % | 15 % | 11 % |
| - Fixed networks | 147 % | 174 % | 0 % | 9 % | 8 % | 17 % |
| Total Network equipment | 16 % | 21 % | 14 % | 14 % | 15 % | 11 % |
| - Of which network rollout | 54 % | 86 % | 40 % | 35 % | 35 % | 25 % |
| Professional Services | 43 % | 60 % | 24 % | 20 % | 18 % | 9 % |
| Other Operations | 9 % | -1 % | -4 % | -2 % | 2 % | 11 % |
| Less: Intersegment sales | 30 % | 37 % | -49 % | -51 % | -40 % | -43 % |
| Total | 19 % | 24 % | 15 % | 15 % | 15 % | 12 % |
15
OPERATING INCOME, OPERATING MARGIN AND EMPLOYEES
BY SEGMENT BY QUARTER
SEK million
OPERATING INCOME AND MARGIN
| Isolated quarters | 2006 — Q2 | Q1 | 2005 — Q4 | Q3 | Q2 | Q1 |
|---|---|---|---|---|---|---|
| Systems | 7,237 | 6,033 | 9,391 | 7,122 | 8,155 | 6,217 |
| Phones | 945 | 665 | 933 | 653 | 371 | 300 |
| Other Operations | 221 | 54 | 212 | 119 | -94 | 46 |
| Unallocated 1) | -150 | -128 | -182 | -69 | -129 | 39 |
| Total | 8,253 | 6,624 | 10,354 | 7,825 | 8,303 | 6,602 |
| 2006 | 2005 | |||||
| As percentage of net sales | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Systems | 17 % | 16 % | 22 % | 21 % | 23 % | 21 % |
| Phones 2) | | | | | | |
| Other Operations | 7 % | 2 % | 7 % | 5 % | -4 % | 2 % |
| Total | 19 % | 17 % | 23 % | 22 % | 22 % | 21 % |
| 2006 | 2005 | |||||
| Year to date | 0606 | 0603 | 0512 | 0509 | 0506 | 0503 |
| Systems | 13,270 | 6,033 | 30,885 | 21,494 | 14,372 | 6,217 |
| Phones | 1,610 | 665 | 2,257 | 1,324 | 671 | 300 |
| Other Operations | 275 | 54 | 283 | 71 | -48 | 46 |
| Unallocated 1) | -278 | -128 | -341 | -159 | -90 | 39 |
| Total | 14,877 | 6,624 | 33,084 | 22,730 | 14,905 | 6,602 |
| 2006 | 2005 | |||||
| As percentage of net sales | 0606 | 0603 | 0512 | 0509 | 0506 | 0503 |
| Systems | 17 % | 16 % | 22 % | 22 % | 22 % | 21 % |
| Phones 2) | | | | | | |
| Other Operations | 5 % | 2 % | 3 % | 1 % | -1 % | 2 % |
| Total | 18 % | 17 % | 22 % | 21 % | 21 % | 21 % |
1) Unallocated consists mainly of costs for corporate staffs and non-operational capital gains and losses
2) Calculation not applicable
NUMBER OF EMPLOYEES
| Year to date | 2006 — 0606 | 0603 | 2005 — 0512 | 0509 | 0506 | 0503 |
|---|---|---|---|---|---|---|
| Systems | 57,779 | 57,554 | 50,107 | 48,839 | 47,955 | 46,338 |
| Other Operations | 6,013 | 5,699 | 5,948 | 5,748 | 5,683 | 5,587 |
| Total | 63,792 | 63,253 | 56,055 | 54,587 | 53,638 | 51,925 |
| Of which Sweden | 21 129 | 21 108 | 21 178 | 21 238 | 21 358 | 21 175 |
| 2006 | 2005 | |||||
| Change in percent | 0606 | 0603 | 0512 | 0509 | 0506 | 0503 |
| Systems | 20 % | 24 % | 10 % | 9 % | 6 % | 2 % |
| Other Operations | 6 % | 2 % | 18 % | 9 % | 2 % | 3 % |
| Total | 19 % | 22 % | 11 % | 9 % | 6 % | 3 % |
| Of which Sweden | -1 % | 0 % | -1 % | -3 % | -5 % | -7 % |
16
NET SALES BY MARKET AREA BY QUARTER
SEK million
| Isolated quarters | 2006 — Q2 | Q1 | 2005 — Q4 | Q3 | Q2 | Q1 |
|---|---|---|---|---|---|---|
| Western Europe | 12,485 | 11,247 | 12,522 | 9,555 | 9,902 | 9,961 |
| Central and Eastern Europe, Middle East & Africa | 12,908 | 10,466 | 12,458 | 9,404 | 10,376 | 8,672 |
| North America | 3,726 | 5,281 | 5,109 | 4,500 | 6,475 | 3,348 |
| Latin America | 3,819 | 3,652 | 5,980 | 5,115 | 4,429 | 3,551 |
| Asia Pacific | 11,228 | 8,530 | 9,595 | 7,671 | 7,262 | 5,935 |
| Total | 44,166 | 39,176 | 45,664 | 36,245 | 38,444 | 31,467 |
| Of which Sweden | 1,641 | 1,391 | 1,741 | 1,304 | 1,571 | 1,494 |
| Of which EU | 13,755 | 11,901 | 13,744 | 10,409 | 10,528 | 10,607 |
| 2006 | 2005 | |||||
| Sequential change (%) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Western Europe | 11 % | -10 % | 31 % | -4 % | -1 % | -24 % |
| Central and Eastern Europe, Middle East & Africa | 23 % | -16 % | 32 % | -9 % | 20 % | -14 % |
| North America | -29 % | 3 % | 14 % | -31 % | 93 % | 20 % |
| Latin America | 5 % | -39 % | 17 % | 15 % | 25 % | -21 % |
| Asia Pacific | 32 % | -11 % | 25 % | 6 % | 22 % | -34 % |
| Total | 13 % | -14 % | 26 % | -6 % | 22 % | -20 % |
| Of which Sweden | 18 % | -20 % | 34 % | -17 % | 5 % | -19 % |
| Of which EU | 16 % | -13 % | 32 % | -1 % | -1 % | -24 % |
| 2006 | 2005 | |||||
| Year over year change (%) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
| Western Europe | 26 % | 13 % | -4 % | -2 % | 7 % | 26 % |
| Central and Eastern Europe, Middle East & Africa | 24 % | 21 % | 24 % | 11 % | 31 % | 21 % |
| North America | -42 % | 58 % | 82 % | 35 % | 31 % | -24 % |
| Latin America | -14 % | 3 % | 33 % | 40 % | 28 % | 24 % |
| Asia Pacific | 55 % | 44 % | 7 % | 16 % | 3 % | 2 % |
| Total | 15 % | 24 % | 16 % | 14 % | 18 % | 12 % |
| Of which Sweden | 4 % | -7 % | -5 % | -11 % | 2 % | 11 % |
| Of which EU | 31 % | 12 % | -2 % | 4 % | 4 % | 30 % |
| 2006 | 2005 | |||||
| Year to date | 0606A | 0603A | 0512 | 0509 | 0506 | 0503 |
| Western Europe | 23,732 | 11,247 | 41,940 | 29,418 | 19,863 | 9,961 |
| Central and Eastern Europe, Middle East & Africa | 23,374 | 10,466 | 40,911 | 28,452 | 19,048 | 8,672 |
| North America | 9,007 | 5,281 | 19,432 | 14,323 | 9,823 | 3,348 |
| Latin America | 7,471 | 3,652 | 19,075 | 13,095 | 7,980 | 3,551 |
| Asia Pacific | 19,758 | 8,530 | 30,463 | 20,868 | 13,197 | 5,935 |
| Total | 83,342 | 39,176 | 151,821 | 106,156 | 69,911 | 31,467 |
| Of which Sweden | 3,032 | 1,391 | 6,110 | 4,369 | 3,065 | 1,494 |
| Of which EU | 25,656 | 11,901 | 45,288 | 31,544 | 21,135 | 10,607 |
| 2006 | 2005 | |||||
| YTD year over year change (%) | 0606A | 0603A | 0512 | 0509 | 0506 | 0503 |
| Western Europe | 19 % | 13 % | 5 % | 9 % | 16 % | 26 % |
| Central and Eastern Europe, Middle East & Africa | 23 % | 21 % | 22 % | 21 % | 27 % | 22 % |
| North America | -8 % | 58 % | 26 % | 13 % | 5 % | -24 % |
| Latin America | -6 % | 3 % | 32 % | 31 % | 26 % | 24 % |
| Asia Pacific | 50 % | 44 % | 7 % | 7 % | 2 % | 1 % |
| Total | 19 % | 24 % | 15 % | 15 % | 15 % | 12 % |
| Of which Sweden | -1 % | -7 % | -1 % | 1 % | 6 % | 11 % |
| Of which EU | 21 % | 12 % | 7 % | 11 % | 15 % | 30 % |
17
EXTERNAL NET SALES BY MARKET AREA BY SEGMENT
SEK million
| Apr - Jun 2006 | Systems | Share of Systems | Other | Share of Other | Total | Share of Total |
|---|---|---|---|---|---|---|
| Western Europe | 10,729 | 26 % | 1,756 | 62 % | 12,485 | 28 % |
| Central and Eastern Europe, Middle East & Africa | 12,414 | 30 % | 494 | 17 % | 12,908 | 29 % |
| North America | 3,530 | 9 % | 196 | 7 % | 3,726 | 9 % |
| Latin America | 3,773 | 9 % | 46 | 2 % | 3,819 | 9 % |
| Asia Pacific | 10,899 | 26 % | 329 | 12 % | 11,228 | 25 % |
| Total | 41,345 | 100 % | 2,821 | 100 % | 44,166 | 100 % |
| Share of Total | 94 % | 6 % | 100 % | |||
| Apr - Jun 2005 | ||||||
| Western Europe | 8,465 | 23 % | 1,437 | 61 % | 9,902 | 26 % |
| Central and Eastern Europe, Middle East & Africa | 10,095 | 28 % | 282 | 12 % | 10,377 | 27 % |
| North America | 6,302 | 18 % | 173 | 7 % | 6,475 | 17 % |
| Latin America | 4,388 | 12 % | 41 | 2 % | 4,429 | 11 % |
| Asia Pacific | 6,840 | 19 % | 421 | 18 % | 7,261 | 19 % |
| Total | 36,090 | 100 % | 2,354 | 100 % | 38,444 | 100 % |
| Share of Total | 94 % | 6 % | 100 % | |||
| Change | ||||||
| Western Europe | 27 % | 22 % | 26 % | |||
| Central and Eastern Europe, Middle East & Africa | 23 % | 75 % | 24 % | |||
| North America | -44 % | 13 % | -42 % | |||
| Latin America | -14 % | 12 % | -14 % | |||
| Asia Pacific | 59 % | -22 % | 55 % | |||
| Total | 15 % | 20 % | 15 % | |||
| Year to date | ||||||
| Jan - Jun 2006 | ||||||
| Western Europe | 20,421 | 26 % | 3,311 | 63 % | 23,732 | 28 % |
| Central and Eastern Europe, Middle East & Africa | 22,535 | 29 % | 839 | 16 % | 23,374 | 28 % |
| North America | 8,622 | 11 % | 385 | 8 % | 9,007 | 11 % |
| Latin America | 7,366 | 9 % | 105 | 2 % | 7,471 | 9 % |
| Asia Pacific | 19,166 | 25 % | 592 | 11 % | 19,758 | 24 % |
| Total | 78,110 | 100 % | 5,232 | 100 % | 83,342 | 100 % |
| Share of Total | 94 % | 6 % | 100 % | |||
| Jan - Jun 2005 | ||||||
| Western Europe | 16,947 | 26 % | 2,916 | 60 % | 19,863 | 28 % |
| Central and Eastern Europe, Middle East & Africa | 18,390 | 28 % | 659 | 14 % | 19,049 | 27 % |
| North America | 9,527 | 15 % | 296 | 6 % | 9,823 | 14 % |
| Latin America | 7,891 | 12 % | 89 | 2 % | 7,980 | 12 % |
| Asia Pacific | 12,328 | 19 % | 868 | 18 % | 13,196 | 19 % |
| Total | 65,083 | 100 % | 4,828 | 100 % | 69,911 | 100 % |
| Share of Total | 93 % | 7 % | 100 % | |||
| Change | ||||||
| Western Europe | 20 % | 14 % | 19 % | |||
| Central and Eastern Europe, Middle East & Africa | 23 % | 27 % | 23 % | |||
| North America | -9 % | 30 % | -8 % | |||
| Latin America | -7 % | 18 % | -6 % | |||
| Asia Pacific | 55 % | -32 % | 50 % | |||
| Total | 20 % | 8 % | 19 % |
18
TOP 10 MARKETS IN SALES
Jan-Jun 2006
| Sales | YTD Share of total sales | Q2 Share of total sales |
|---|---|---|
| UNITED STATES | 9 % | 7 % |
| CHINA | 7 % | 10 % |
| ITALY | 6 % | 6 % |
| AUSTRALIA | 6 % | 5 % |
| UNITED KINGDOM | 5 % | 5 % |
| SPAIN | 4 % | 4 % |
| SWEDEN | 4 % | 4 % |
| BRAZIL | 4 % | 3 % |
| INDIA | 3 % | 3 % |
| PAKISTAN | 3 % | 2 % |
CUSTOMER FINANCING RISK EXPOSURE
| SEK billion | June 30 2006 | Mar 31 2006 | Dec 31 2005 | Sep 30 2005 | Jun 30 2005 | Mar 31 2005 |
|---|---|---|---|---|---|---|
| On-balance sheet credits | 5.7 | 4.6 | 7 | 6.5 | 6.5 | 6.9 |
| Off-balance sheet credits | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
| Total credits | 5.8 | 4.7 | 7.1 | 6.6 | 6.6 | 7.0 |
| Accrued interest | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 | 0.1 |
| Less third-party risk coverage | -0.2 | -0.2 | -0.2 | -0.5 | -0.1 | -0.3 |
| Ericssons risk exposure | 5.7 | 4.6 | 7.0 | 6.2 | 6.6 | 6.8 |
| On-balance sheet credits, net book value | 4.6 | 3.2 | 4.9 | 4.5 | 4.4 | 4.2 |
| Credit commitments for customer financing | 6.4 | 5.5 | 3.6 | 2.6 | 2.8 | 2.3 |
TRANSACTIONS WITH SONY ERICSSON MOBILE COMMUNICATIONS
| SEK million | Apr - Jun — 2006 | 2005 | Jan - Jun — 2006 |
|---|---|---|---|
| Revenues from Sony Ericsson | 737 | 358 | 1,697 |
| Purchases from Sony Ericsson | 20 | 211 | 83 |
| Receivables from Sony Ericsson | 515 | 202 | 515 |
| Liabilities to Sony Ericsson | 59 | 15 | 59 |
| Dividends from Sony Ericsson | | | 1,160 |
19
ERICSSON
OTHER INFORMATION
| Apr - Jun | Apr - Jun | Jan - Jun | Jan - Jun | Jan - Dec | |
|---|---|---|---|---|---|
| SEK million | 2006 | 2005 | 2006 | 2005 | 2005 |
| Number of shares and earnings per share | |||||
| Number of shares, end of period (million) | 16,132 | 16,132 | 16,132 | 16,132 | 16,132 |
| Number of treasury shares, end of period (million) | 262 | 293 | 262 | 293 | 268 |
| Number of shares outstanding, basic, end of period (million) | 15,870 | 15,839 | 15,870 | 15,839 | 15,864 |
| Numbers of shares outstanding, diluted, end of period (million) | 15,941 | 15,912 | 15,941 | 15,912 | 15,927 |
| Average number of treasury shares (million) | 263 | 297 | 265 | 298 | 289 |
| Average number of shares outstanding, basic (million) | 15,869 | 15,835 | 15,867 | 15,790 | 15,843 |
| Average number of shares outstanding, diluted (million) 1) | 15,939 | 15,908 | 15,938 | 15,863 | 15,907 |
| Earnings per share, basic (SEK) | 0.36 | 0.37 | 0.65 | 0.66 | 1.53 |
| Earnings per share, diluted (SEK) 1) | 0.36 | 0.37 | 0.65 | 0.66 | 1.53 |
| Ratios 2) | |||||
| Equity ratio, percent | | | 53.9 % | 44.9 % | 49.0 % |
| Capital turnover (times) | 1.3 | 1.3 | 1.3 | 1.2 | 1.2 |
| Accounts receivable turnover (times) | 3.9 | 4.2 | 3.8 | 3.9 | 4.1 |
| Inventory turnover (times) | 4.4 | 4.5 | 4.5 | 4.4 | 5.0 |
| Return on equity, percent | 21.3 % | 26.6 % | 19.7 % | 24.8 % | 26.7 % |
| Return on capital employed, percent | 26.2 % | 31.0 % | 24.4 % | 28.0 % | 28.7 % |
| Days Sales Outstanding | | | 95 | 90 | 81 |
| Payment readiness, end of period | | | 54,205 | 66,670 | 78,647 |
| Payment readiness, as percentage of sales | | | 32.5 % | 47.7 % | 51.8 % |
| Exchange rates used in the consolidation | |||||
| SEK / EUR - average rate | | | 9.33 | 9.15 | 9.28 |
| - | |||||
| closing rate | | | 9.24 | 9.42 | 9.42 |
| SEK / USD - average rate | | | 7.60 | 7.11 | 7.45 |
| - | |||||
| closing rate | | | 7.27 | 7.81 | 7.93 |
| Other | |||||
| Additions to property, plant and equipment | 1,372 | 1,005 | 2,071 | 1,500 | 3,365 |
| - Of which in Sweden | 229 | 360 | 499 | 572 | 965 |
| Additions to capitalized development expenses | 412 | 152 | 770 | 455 | 1,174 |
| Capitalization of development expenses, net | -238 | -516 | -556 | -1050 | -1,930 |
| Amortization of development expenses | 650 | 667 | 1,326 | 1,505 | 3,104 |
| Depreciation of property, plant and equipment and amortization of other intangible assets | 1,066 | 746 | 2,387 | 1,398 | 2,598 |
| Total depreciation and amortization | 1,716 | 1,413 | 3,713 | 2,903 | 5,702 |
| Export sales from Sweden | 22,574 | 23,650 | 46,872 | 46,259 | 93,879 |
1) Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share
2) Ratios restated in accordance with new option in IAS 19
20
Acquisition of assets from Marconi
As per January 1, 2006, Ericsson acquired assets of Marconi telecommunication operations. Closing took place on January 23, 2006, except for a few smaller parts of the operations. The main part of the acquisition from Marconi was assets, but Ericsson also acquired shares in some entities. The acquisition of subsidiaries has been accounted for using the purchase method of accounting, as defined in IFRS 3 Business Combinations. As prescribed under this method, Ericsson has allocated the total purchase price, both for acquired assets and companies, to assets acquired and liabilities assumed based on their fair values. The fair values have been determined by applying generally accepted principles and procedures. The planned amortization period for intangible assets is 10 years.
The operating income of operations acquired from Marconi, amounted to SEK -1.2 billion for the first six months of 2006, including SEK -0.8 for amortization of intangible assets. This has been included in the consolidated financial statements for the period January 1 - June 30 2006.
Allocation of purchase consideration
| GBP m. | SEK b. | |
|---|---|---|
| Intangible assets | ||
| Intellectual property rights | 850 | 11.6 |
| Brands | 200 | 2.9 |
| Customer relationships | 52 | 0.7 |
| Goodwill | 0 | 0.0 |
| Subtotal | 1,102 | 15.2 |
| Other assets and liabilities | ||
| Inventory | 139 | 1.9 |
| Property, plant and equipment | 91 | 1.3 |
| Pensions | -59 | -0.8 |
| Other | 132 | 1.8 |
| Subtotal | 303 | 4.2 |
| Total purchase consideration | 1,405 | 19.4 |
The determination of purchase consideration allocation and fair values of assets acquired and liabilities assumed is based on preliminary appraisal; therefore, these values may be subject to minor adjustments.
Cash flow effects
| Total cash purchase consideration | 1,405 | 19.4 |
|---|---|---|
| Less acquired cash and cash equivalents | -128 | -1.8 |
| Net cash outflow from the acquisition | 1,277 | 17.6 |
21
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.
| TELEFONAKTIEBOLAGET LM ERICSSON (PUBL) | |
|---|---|
| By: | /S/ CARL OLOF BLOMQVIST |
| Carl Olof Blomqvist | |
| Senior Vice President and | |
| General councel | |
| By: | /S/ HENRY STÉNSON |
| Henry Sténson | |
| Senior Vice President | |
| Corporate Communications |
Date: July 21, 2006