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Ericsson — Regulatory Filings 2006
Feb 1, 2006
2911_ffr_2006-02-01_a8163807-7cb3-4c05-bc4a-3b2eb6f3b934.zip
Regulatory Filings
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6-K 1 d6k.htm ERICSSON Q4 2005 AND FULL YEAR 2005 REPORT Ericsson Q4 2005 and Full Year 2005 Report
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
January 31, 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 January 31, 2006, regarding Ericsson Q4 2005 and Full Year 2005 Report.
Fourth quarter report 2005 January 31, 2006
Ericsson reports full year profit before tax of SEK 33.3 billion
Net sales SEK 45.7 (39.4) b. in the quarter, full year SEK 151.8 (132.0) b.
Net income SEK 8.5 (5.6) b. in the quarter, full year SEK 24.3 (17.5) b. 1)
Earnings per share SEK 0.54 (0.35) in the quarter, full year SEK 1.53 (1.11) 1)
CEO COMMENTS
We have concluded another good year with strong sales, earnings and cash flow, says Carl-Henric Svanberg, President and CEO of Ericsson. We also continue to gain market shares thanks to our customers confidence in our technology and people. Operational excellence is proving to be a key competitive advantage and we continue to strive for efficiency gains throughout our operations.
We are inspired by the growth in services and the trust our customers show in our ability to operate and maintain their networks. Operators are rapidly increasing their focus on total cost of ownership and the savings we are able to offer are of obvious value. Through several strategic contract wins we have extended our leadership. Our strong position in both services and infrastructure expands the growth potential of our business.
The strong WCDMA/HSDPA development continues. The higher HSDPA transmission speeds make a dramatic difference to the user experiences and we expect most WCDMA operators to launch HSDPA before year-end 2006. So far we have installed 21 networks with HSDPA capabilities in 17 countries around the world, spearheading the development to mobile broadband.
Convergence and next generation IP networks continue to be key development areas for the industry. The upgrade to fixed and mobile broadband is accelerating traffic in the worlds networks. The acquisition of Marconi is a strategic move to strengthen our position, both in terms of our offering for the growing transmission segment and in the development of next generation networks, concludes Carl-Henric Svanberg.
FINANCIAL HIGHLIGHTS
2004 numbers restated in accordance with IFRS, please see www.ericsson.com/investors/doc/ifrs_statement.pdf. IAS 39 implemented as of January 1, 2005, related to financial instruments.
Income statement and cash flow
| SEK b. | Fourth quarter — 2005 | 2004 | Change | Third quarter — 2005 | Change | Full year — 2005 | 2004 | Change |
|---|---|---|---|---|---|---|---|---|
| Net sales | 45.7 | 39.4 | 16 % | 36.2 | 26 % | 151.8 | 132.0 | 15 % |
| Gross margin % | 44.2 | 45.6 | | 45.2 | | 45.7 | 46.3 | |
| Operating income | 10.4 | 8.9 | 16 % | 7.8 | 33 % | 33.1 | 26.7 | 24 % |
| Operating margin % | 22.7 | 22.7 | | 21.6 | | 21.8 | 20.2 | |
| Income after financial items | 10.1 | 8.7 | 16 % | 8.0 | 26 % | 33.3 | 26.2 | 27 % |
| Net income 1) | 8.5 | 5.6 | 52 % | 5.3 | 60 % | 24.3 | 17.5 | 39 % |
| Earnings per share, SEK 1) | 0.54 | 0.35 | | 0.34 | | 1.53 | 1.11 | |
| Cash flow before financial investing activities incl. pension trust funding | 13.5 | 5.3 | | -1.1 | | 11.3 | 17.7 | |
| Cash flow before financial investing activities | 13.5 | 5.3 | | -1.1 | | 19.6 | 17.7 | |
1) Attributable to stockholders of the parent company, excluding minority interest.
Sales were up 26% sequentially due to seasonality and strong growth in services. For the full year, sales were up 15% with growth across all regions. Compared to the fourth quarter 2004, all market areas were up except for Western Europe, which was slightly down. Currency exchange effects had only an immaterial impact on sales year-over-year.
Gross margin was 44.2% during the quarter, a slight sequential decline, reflecting the increased proportion of services sales. The operating margin increased sequentially from 21.6% to 22.7% due to higher sales combined with less growth in operating expenses. For the full year, operating expenses increased by 5% while sales grew by 15% reflecting our continuous focus on operational excellence.
Net effects of currency exchange differences on operating income compared to the rates one year ago were SEK -0.2 b. in the quarter and SEK -2.9 b. for the full year.
The financial net was negative in the quarter. This is mainly due to increased interest rates with a short-term negative impact on the market value of financial investments.
Net income increased by 39% for the full year and earnings per share increased by 38% for the full year due to higher sales and strong margins with focus on operational excellence. In addition, the tax rate for the full year decreased to 27% compared to an estimated tax rate of approximately 32%, which was reflected in the fourth quarter. This lower tax rate was a result of certain subsidiaries experiencing positive effects on their tax positions.
Cash flow before financial investing activities was SEK 13.5 b. in the fourth quarter. For the full year, cash flow before financial investing activities was SEK 19.6 b. (17.7 b.) reflecting the strong business performance. Including the funding of a pension trust in early 2005, by SEK 8.3 b., cash flow before financial investing activities for 2005 was SEK 11.3 b.
Balance sheet and other performance indicators
| SEK b. | Full year — 2005 | 2004 | Nine months — 2005 |
|---|---|---|---|
| Net cash | 53.4 | 42.9 | 41.3 |
| Interest-bearing provisions and liabilities | 28.1 | 33.6 | 29.3 |
| Days sales outstanding | 81 | 75 | 102 |
| Inventory turnover | 5.0 | 5.7 | 4.5 |
| Net customer financing | 4.9 | 3.6 | 4.5 |
| Equity ratio % | 50.5 | 43.8 | 49.2 |
The financial position remained strong for the year. Net cash increased SEK 10.5 b. to SEK 53.4 (42.9) b., and the equity ratio is 50.5% (43.8%), an increase of 7 percentage points during the twelve-month period.
Days sales outstanding were 81 days, a decrease of 21 days compared to the third quarter. Inventories, including work in progress, were down in the quarter by SEK 0.6 b. to SEK 19.2 (14.0) b. For the full year, inventories, including work in progress, increased by SEK 5.2 b. due to higher business activities.
Deferred tax assets were reduced by SEK 3.5 b. for the full year, reducing the remaining balance from SEK 20.8 b. to SEK 17.3 at year-end.
Cash outlays with regards to restructuring amounted to SEK 1.5 b. for the full year. Of this, SEK 0.3 b. was paid in the fourth quarter.
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MARKET AND BUSINESS HIGHLIGHTS
Long-term industry growth drivers remain solid. Voice and data traffic is increasing steadily as a result of new subscribers, new and improved services and lower tariffs. With increased fixed and mobile broadband capabilities, consumer demands for rich services requiring higher transmission rates can be met. The broadband development fuels the mobile content industry and demand for services such as mobile music, video and mobile TV.
WCDMA/HSDPA continues to gain traction with rollouts and launches in many countries. Ericssons leading WCDMA position was expanded further during the year with key contracts and build-outs across all regions. At the same time, the GSM business continues to develop favorably with all-time-high shipments. Communication is a basic human need and GSM is a cornerstone of making this possible and will continue to develop well, especially in emerging markets. GSM also paves the way for a migration to WCDMA.
Lowering operating expenses is a key target for operators as competition intensifies and as new richer services increase complexity in their operations. As a consequence, there is a growing interest for Ericssons managed services portfolio, which offer considerably lower total network operating costs. Sales growth in professional services has accelerated during the year, especially in systems integration, managed services and hosting.
Regional overview
Western Europe sales were up 5% for the full year but declined by 4% compared to same quarter last year. Operator consolidation is ongoing, which affects operator investments in the near term but at the same time, this accelerates focus on total cost of ownership and also drives a growing demand for managed services. The tariff competition is intense and should generate traffic growth and a need for continued capacity investments. Increasing consumer demand for richer services drives accelerating 3G subscriber uptake and operator upgrades to HSDPA (High Speed Data Packet Access).
Eastern Europe, Middle East and Africa sales grew by 19% for the full year and by 22% compared to the same quarter last year. WCDMA/HSDPA deployments have started in certain parts of the region. Most of Africa and the Middle East are however in the early stages of mobile communications development, with GSM as the prevailing technology. Operator consolidation is ongoing, led by regional as well as international players.
Asia Pacific sales grew by 10% for the full year and by 8% compared to same quarter last year. The China market was slower while preparing for 3G and with declining CDMA demand. The region shows great diversity in maturity of mobile communications, from very advanced mobile broadband services in densely populated areas to rural coverage for basic services. The potential for further subscriber growth is huge and the majority of the worlds next billion mobile subscribers are expected to come from this region.
North America sales grew by 26% for the full year and by 82% compared to same quarter last year. Through their WCDMA/HSDPA rollout, Cingular is driving the market and leading industry development. Operator competition continues on a high level and operators focus on quality and coverage, as well as on the introduction of new services.
Latin America sales grew by 32% for the full year and by 33% compared to same quarter last year. The activity level in Latin America has been high, with continued GSM network rollouts and capacity enhancements to accommodate the strong subscriber growth.
Subscriber growth
During 2005, 35 new WCDMA networks were commercially launched, bringing the total to 91. Ericsson is a supplier to 49 of these networks. The number of WCDMA subscriptions is accelerating and grew by approximately 13 million to more than 47 million during the quarter and have nearly tripled from 16 million at the beginning of 2005.
Net mobile subscription additions were some 450 million in 2005. At year-end, worldwide subscription penetration reached 34% with close to 2.2 billion subscriptions in total, of which more than 1.7 billion are GSM. The strong subscriber additions continue and the global number of
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subscriptions is expected to pass three billion before 2010. Approximately 50 million new fixed broadband subscriptions were added during the year.
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. For 2006 we continue to believe that the global mobile systems market, measured in USD, will show moderate growth compared to 2005.
We also continue to believe that the addressable market for professional services will continue to show good growth in 2006.
With our technology leadership and global presence we are well positioned to take advantage of the market opportunities.
SEGMENT RESULTS
2004 numbers restated in accordance with IFRS, please see www.ericsson.com/investors/doc/ifrs_statement.pdf. IAS 39 implemented as of January 1, 2005, related to financial instruments.
Systems
| SEK b. | Fourth quarter — 2005 | 2004 | Change | Third quarter — 2005 | Change | Full year — 2005 | 2004 | Change |
|---|---|---|---|---|---|---|---|---|
| Net sales | 43.0 | 36.8 | 17 % | 33.9 | 27 % | 142.1 | 122.9 | 16 % |
| Mobile networks | 33.6 | 29.1 | 16 % | 26.8 | 26 % | 112.6 | 98.2 | 15 % |
| Fixed networks | 1.3 | 1.5 | -16 % | 1.1 | 12 % | 4.6 | 4.6 | |
| Professional services | 8.1 | 6.2 | 31 % | 6.0 | 34 % | 24.9 | 20.1 | 24 % |
| Operating income | 9.4 | 7.9 | | 7.1 | | 30.9 | 23.2 | |
| Operating margin % | 22 | 21 | | 21 | | 22 | 19 | |
Sales in Mobile Networks grew by 15% for the year and 16% compared to same quarter last year. In the evolution from GSM to WCDMA, most customers are deploying networks that combine GSM and WCDMA. Of radio access sales, 47% was WCDMA/EDGE related in the quarter. The strong subscriber additions continue and support the growth in mobile networks sales.
Global Services sales (i.e. network rollout plus professional services) increased close to 38% compared to same quarter last year and 29% for the full year. Sales of professional services developed strongly during the quarter and grew 31% compared to same quarter last year and 24% for the full year. Supporting this growth, the number of employees within the services area was expanded by 1,100 in the quarter.
Other Operations
| SEK b. | Fourth quarter — 2005 | 2004 | Change | Third quarter — 2005 | Change | Full year — 2005 | 2004 | Change |
|---|---|---|---|---|---|---|---|---|
| Net sales | 3.0 | 3.3 | -9 % | 2.5 | 20 % | 10.9 | 11.4 | -4 % |
| Operating income | 0.2 | 0.5 | | 0.1 | | 0.3 | 1.3 | |
| Operating margin % | 7 | 14 | | 5 | | 3 | 11 | |
Operating margin within Other operations was negatively affected by approximately SEK 0.2 b. due to one-off payments for patent dispute settlement.
Both Ericsson Mobile Platforms and Ericsson Network Technologies (Cables) showed good growth while other units showed decreasing sales.
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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) reported a record year in 2005 with 51.2 million units shipped, up 21% for the full year. Sales increased by 11% to EUR 7.3 b. Net income for 2005 was EUR 356 million which represents an increase of EUR 40 million compared to the previous year. Ericssons share in Sony Ericssons income before tax was SEK 2.3 b. for the full year, compared to SEK 2.1 b. in 2004.
The fourth quarter was a record quarter in terms of volumes, sales and net income for Sony Ericsson. The second half of 2005 was particularly strong due to the success of hit model phones in both the imaging and music product categories. A highlight of Sony Ericssons year was the global success of Walkman branded music phones such as the W800, W600, W550 and the W900. Since the first Walkman branded phone was launched in volume in August, Sony Ericsson has shipped 3 million Walkman branded units.
ERICSSON BUSINESS AND TECHNOLOGY MILESTONES 2005
GSM/WCDMA
The success of GSM continues, adding both additional subscribers and coverage across the world, particularly in emerging markets. GSM/WCDMA has become the prevailing mobile standard with over 80% of all subscribers in the world.
New GSM customers and expansion contracts were announced in countries such as Argentina, Bangladesh, China, Colombia, Costa Rica, Ethiopia, India, Indonesia, Pakistan, Russia, Serbia, Sri Lanka, Turkey, Ukraine, Uruguay and Vietnam as well as the supply of T-Mobiles new GSM network in Germany.
Ericssons technology leadership was demonstrated by new and expansion WCDMA contracts announced with BITE Group, Cellcom, Connex, EMT, Far EasTone, Finnet, H3G in UK, Maxis, Pannon GSM, Partner, Polska Telefonica Cyfrowa, Svenska UMTS-N, TDC, Telstra, T-Mobile Hungary, T-Mobile Slovakia, General Dynamics, Vibo Telecom and Vodafone Fiji.
Next generation networks
By year-end, Ericssons HSDPA solution was installed in 21 networks in 17 countries. Ericsson started the year off by setting a world record in high-speed data downloads (HSDPA) with 11 Mbps over the air. Ericsson and 3 Scandinavia also demonstrated 1.5 Mbps enhanced uplink (HSUPA) in a live WCDMA system.
Ericsson signed 18 IMS system contracts for commercial launch and additionally performed 37 trials based on the IMS standard. The worldwide contracts include GSM/GPRS, WCDMA, CDMA2000 and wireline implementations.
Ericssons softswitch solutions are handling traffic in 60 commercially deployed networks worldwide. In 2005, Ericsson announced agreements for mobile and fixed softswitches with Al Madar, AMX, BTs 21st Century, Celtel, Maltacom, Mobtel, iiNet, ONI, REACH, SunCom Wireless, Telecom Egypt, TeliaSonera International Carrier, VimpelCom and Vodafone Fiji.
Ericssons competitive high performance IP-based broadband solutions are gaining momentum with contracts announced in Australia, Denmark, Greece, Hungary, Malaysia, Northern Latin America, Norway, Philippines, Sweden, UK and Vietnam. Ericsson has won agreements for delivery of two million next generation IP broadband access lines, representing approximately a 15% share of this fast growing market.
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Services
2005 was a breakthrough year for managed services for operations and for hosting. Announced contracts include BASE, Bharti, EMT, GrameenPhone, H3G (Sweden, Norway, Denmark), H3G Italy, H3G UK, ICE, M1, Maxis, Nawras, ONI, SeaMobile, Sonaecom, Sun Cellular, Telemar/Oi, Vivo, Vodafone Fiji and Warid Telecom. The contracts with H3G in Italy and UK are the largest in the industry to date and are further evidence of Ericssons leading position in this field. The latter contract also included supply of infrastructure.
Major integration projects during the year include the nationwide merger and migration of Cingulars mobile network and service delivery platform and taking the role as prime integrator of the multi-vendor IMS solution for Sprint. Announced systems integration and service delivery platform contracts include Telstra (Australia) and Taiwan Cellular Corporation.
Other business highlights
Ericsson Mobile Platforms (EMP) has reached a number of milestones during the year including: 30 WCDMA/GPRS models launched based on Ericssons mobile platforms, Ericsson technology used in more than 15 million of the worlds WCDMA handsets and EMP was first to complete seamless handover between EDGE and WCDMA. During the year EMP announced new customers Arima and SAGEM. Earlier announced customers include Amoi, Bellwave, Flextronics, HTC, LG Electronics, Lite-On, NEC, Sharp, Sony Ericsson and TCL Mobile.
Ericsson launched the worlds first interactive mobile TV solution together with NRK in Norway.
Ericssons push e-mail solution (Ericsson Mobile Organizer, EMO) was officially chosen by Idea Cellular, MobileCom, Sun Cellular, Telemar/Oi and Wataniya Telecom.
PARENT COMPANY INFORMATION
Net sales for the year amounted to SEK 1.1 (2.6) b. and income after financial items was SEK 14.0 (7.4) b. Profits from disposal of shares to a subsidiary have affected income positively by SEK 6.7 b.
Major changes in the Parent Companys financial position for the year include increased short- and long-term receivables from subsidiaries of SEK 11.3 b., increased investments in subsidiaries of SEK 4.2 b. and decreased other current receivables of SEK 4.5. At year-end, cash and short-term cash investments amounted to SEK 75.0 (71.7) b.
In accordance with the conditions of the Stock Purchase Plans and Option Plans for Ericsson employees, 7,202,621 shares from treasury stock were sold or distributed to employees during the fourth quarter. The holding of treasury stock at December 31, 2005, was 268,065,241 Class B shares.
DIVIDEND PROPOSAL
The Board of Directors will propose to the Annual General Meeting a dividend of SEK 0.45 per share and Thursday, April 13, 2006, as record day for payment of dividend.
ANNUAL REPORT
The annual report will be made available to shareholders at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, approximately two weeks prior to the Annual General Meeting 2006.
ANNUAL GENERAL MEETING OF SHAREHOLDERS
The Annual General Meeting of shareholders will be held on April 10, 2006, 15.00 (CET) in Stockholm Globe Arena.
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ACQUISITION OF MARCONIS TELECOMMUNICATIONS BUSINESS
On October 25, 2005, Ericsson announced the intention to acquire strategic parts of Marconis telecommunications business for SEK 16.8 b. in cash. The acquisition strengthens Ericssons position in the accelerating transmission segment and expands Ericssons platform for leadership in next generation converging networks. As fixed and mobile services converge, Ericssons customers will benefit from the acquisition.
Marconi shareholder and relevant regulatory approvals have been obtained and closing took place on January 23, 2006, with the exception of a few smaller subsidiaries.
Ericsson has acquired assets expected to generate 2005 sales of approximately SEK 14.0 b. (GBP 1.0 b.). The acquired businesses had net tangible assets of approximately SEK 1.4 b. (GBP 0.1 b.) as of September 30, 2005. The acquisition cost will mainly be allocated to intellectual property rights (patents, brands, trade marks, etc), which are expected to be tax deductible. The acquired Marconi businesses are expected to have a neutral effect on earnings per share in 2006 and contribute positively to earnings per share from 2007.
The integration process is developing according to plan. The head of the integration process is reporting to the President and CEO of Ericsson. Marconi products and solutions are planned to be fully integrated into Ericssons portfolio. Under the transaction approximately 6,660 employees have been transferred to Ericsson in January 2006.
CHANGE IN ACCOUNTING PRINCIPLES FOR PENSIONS 2006
Effective January 2006, Ericsson will adopt the new option in IAS 19, Employee benefits, on how to recognize actuarial gains and losses. The currently used method to recognize actuarial gains and losses - to the extent that they fall outside the 10%-corridor - is that they are amortized over the average remaining service time of plan participants. Instead, all actuarial gains and losses will effective January 1, 2006, be recognized directly to equity, net of deferred tax, in the period they occur. The amount recognized in equity will be disclosed and reconciled in a statement of changes in equity, Statement of recognized income and expense. Earlier reporting-periods will be restated accordingly. The adoption of the new option will increase provision for post-employment benefits with net SEK 3.5 b., and will affect equity by approximately SEK 2.5 b.
Stockholm, January 31, 2006
Carl-Henric Svanberg
President and CEO
Date for next report: April 21, 2006
AUDITORS REPORT
We have reviewed the interim report for the twelve-month period ended December 31, 2005, 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 interim report does not comply with the requirements for interim reports in the Annual Accounts Act and IAS 34.
Stockholm, January 31, 2006
| Bo Hjalmarsson | Peter Clemedtson | Thomas Thiel |
|---|---|---|
| Authorized Public Accountant | Authorized Public Accountant | Authorized Public Accountant |
| PricewaterhouseCoopers AB | PricewaterhouseCoopers AB |
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EDITORS NOTE
To read the complete report with tables please go to: http://www.ericsson.com/investors/financial_reports/2005/12month05-en.pdf
Ericsson invites the media, investors and analysts to a press conference at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at 09.00 (CET), January 31.
An analyst and media conference call will begin at 14.00 (CET).
Live audio webcast 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, | Glenn Sapadin, Investor Relations, |
|---|---|
| Communications | North America |
| Phone: +46 8 719 4044 | Phone: +1 212 843 8435; |
| E-mail: [email protected] or [email protected] | E-mail: [email protected] |
| Media | |
| Investors | Åse Lindskog, Director, |
| Gary Pinkham, Vice President, | Head of Media Relations |
| Investor Relations | Phone: +46 8 719 9725, +46 730 244 872; |
| Phone: +46 8 719 0000; | E-mail: [email protected] |
| E-mail: [email protected] | |
| Ola Rembe, Director, | |
| Susanne Andersson, Investor Relations | Media Relations |
| Phone: +46 8 719 4631; | Phone: +46 8 719 9727, +46 730 244 873; |
| E-mail: [email protected] | 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.
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| FINANCIAL STATEMENTS AND ADDITIONAL INFORMATION | |
|---|---|
| Financial statements | Page |
| Consolidated income statement | 10 |
| Consolidated balance sheet | 11 |
| Consolidated statement of cash flows | 12 |
| Changes in equity | 13 |
| Consolidated income statement - isolated quarters | 14 |
| Additional information | Page |
| Accounting policies, Ericsson adoption of IAS/IFRS in 2005 | 15 |
| Net sales by segment by quarter | 19 |
| Operating income, operating margin and employees by segment by quarter | 20 |
| Net sales by market area by quarter | 21 |
| External net sales by market area by segment | 22 |
| Top ten markets in sales | 23 |
| Customer financing risk exposure | 23 |
| Transactions with Sony Ericsson Mobile Communications | 23 |
| Other information | 24 |
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ERICSSON
CONSOLIDATED INCOME STATEMENT
| SEK million | Oct - Dec — 2005 | 2004 | Change | Jan - Dec — 2005 | 2004 | Change |
|---|---|---|---|---|---|---|
| Net sales | 45,665 | 39,430 | 16 % | 151,821 | 131,972 | 15 % |
| Cost of sales | -25,497 | -21,451 | -82,369 | -70,864 | ||
| Gross margin | 20,168 | 17,979 | 12 % | 69,452 | 61,108 | 14 % |
| Gross margin % | 44.2 % | 45.6 % | 45.7 % | 46.3 % | ||
| Research and development and other technical expenses | -6,378 | -6,804 | -24,454 | -23,421 | ||
| Selling and administrative expenses | -5,332 | -4,002 | -16,800 | -15,921 | ||
| Operating expenses | -11,710 | -10,806 | -41,254 | -39,342 | ||
| Other operating income | 883 | 1,150 | 2,491 | 2,617 | ||
| Share in earnings of JV and associated companies | 1,013 | 610 | 2,395 | 2,323 | ||
| Operating income | 10,354 | 8,933 | 16 % | 33,084 | 26,706 | 24 % |
| Operating margin % | 22.7 % | 22.7 % | 21.8 % | 20.2 % | ||
| Financial income | 362 | 656 | 2,653 | 3,541 | ||
| Financial expenses | -643 | -876 | -2,402 | -4,081 | ||
| Income after financial items | 10,073 | 8,713 | 33,335 | 26,166 | ||
| Taxes | -1,435 | -2,984 | -8,875 | -8,330 | ||
| Net income | 8,638 | 5,729 | 51 % | 24,460 | 17,836 | 37 % |
| of which | ||||||
| Net income attributable to stockholders of the parent company | 8,541 | 5,618 | 24,315 | 17,539 | ||
| Net income attributable to minority interest | 97 | 111 | 145 | 297 | ||
| Other information | ||||||
| Average number of shares, basic (million) | 15,859 | 15,832 | 15,843 | 15,829 | ||
| Earnings per share, basic (SEK) 1) | 0.54 | 0.35 | 1.53 | 1.11 | ||
| Earnings per share, diluted (SEK) 1) | 0.54 | 0.35 | 1.53 | 1.11 | ||
| Reconciliation of Net income from Swedish GAAP to IFRS | ||||||
| Net income, Swedish GAAP | 5,977 | 19,024 | ||||
| Reclassification of minority interest | 111 | 297 | ||||
| Reversal of amortization of goodwill | 111 | 475 | ||||
| Stock Option Plans | -8 | -45 | ||||
| Amortization of capitalized development costs | -642 | -2,660 | ||||
| Taxes | 180 | 745 | ||||
| Net income, IFRS | 5,729 | 17,836 |
1) Based on Net income attributable to stockholders of the parent company
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ERICSSON
CONSOLIDATED BALANCE SHEET
| SEK million | Dec 31 2005 | Sep 30 2005 | Dec 31 2004 | Jan 1 2005 |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets (Fixed) | ||||
| Intangible assets | ||||
| Capitalized development expenses | 6,161 | 6,462 | 8,091 | 8,091 |
| Goodwill | 7,362 | 7,183 | 5,766 | 5,766 |
| Other | 939 | 1,115 | 748 | 748 |
| Property, plant and equipment (tangible assets) | 6,966 | 6,439 | 5,845 | 5,845 |
| Financial assets | ||||
| Equity in JV and associated companies | 6,313 | 5,487 | 4,155 | 4,155 |
| Other investments in shares and participations | 805 | 794 | 543 | 954 |
| Customer financing, non-current (long-term) | 1,322 | 1,349 | 2,150 | 2,150 |
| Other financial assets, non-current (long-term) 1) | 3,514 | 2,264 | 1,236 | 2,173 |
| Deferred tax assets | 17,294 | 16,897 | 20,766 | 20,689 |
| 50,676 | 47,990 | 49,300 | 50,571 | |
| Current assets | ||||
| Inventories | 19,208 | 19,775 | 14,003 | 14,003 |
| Financial assets | ||||
| Accounts receivable - trade | 41,242 | 41,339 | 32,644 | 31,688 |
| Customer financing, current (short-term) | 3,624 | 3,109 | 1,446 | 1,446 |
| Other current receivables | 12,574 | 12,637 | 12,239 | 15,814 |
| Short-term investments | 39,767 | 47,474 | 46,142 | 46,142 |
| Cash and cash equivalents | 41,738 | 23,112 | 30,412 | 30,412 |
| 158,153 | 147,446 | 136,886 | 139,505 | |
| Total assets | 208,829 | 195,436 | 186,186 | 190,076 |
| EQUITY AND LIABILITIES | ||||
| Equity | ||||
| Stockholders Equity | 104,677 | 95,465 | 80,445 | 81,934 |
| Minority interest in equity of consolidated subsidiaries | 850 | 781 | 1,057 | 1,057 |
| 105,527 | 96,246 | 81,502 | 82,991 | |
| Non-current liabilities (Long-term) | ||||
| Post-employment benefits (pensions) 1) | 3,125 | 1,899 | 10,087 | 10,087 |
| Other provisions, non-current (long-term) | 904 | 1,042 | 1,146 | 1,146 |
| Deferred tax liabilities 2) | 391 | 478 | 421 | 870 |
| Borrowings, non-current 3) | 14,185 | 14,148 | 21,837 | 22,774 |
| Other non-current liabilities (long-term) | 2,740 | 2,580 | 1,856 | 1,856 |
| 21,345 | 20,147 | 35,347 | 36,733 | |
| Current liabilities | ||||
| Other provisions, current | 17,764 | 21,336 | 23,632 | 23,632 |
| Borrowings, current (interest-bearing) | 10,784 | 13,205 | 1,719 | 1,719 |
| Accounts payable | 12,584 | 11,702 | 10,988 | 10,782 |
| Other current liabilities | 40,825 | 32,800 | 32,998 | 34,219 |
| 81,957 | 79,043 | 69,337 | 70,352 | |
| Total Equity and liabilities | 208,829 | 195,436 | 186,186 | 190,076 |
| Of which interest-bearing provisions and liabilities | 28,094 | 29,252 | 33,643 | 34,580 |
| Net cash | 53,411 | 41,334 | 42,911 | 41,974 |
| Assets pledged as collateral 4) | 549 | 907 | 7,985 | 7,985 |
| Contingent liabilities | 1,708 | 1,584 | 1,014 | 1,014 |
1) Pensions is reported gross at Post-employment benefits and Other financial assets, non-current.
2) Deferred tax liabilities amounted to 67 MSEK per March 2005 and 416 MSEK per June 2005.
3) Borrowings - non current, formerly reported as Notes and bond loans and Liabilities to financial institutions.
4) The major part of the decrease in assets pledged as collateral is attributable to the funding of the Swedish Pension Trust
11
ERICSSON
CONSOLIDATED STATEMENT OF CASH FLOWS
| Years ended December 31, SEK million | Oct - Dec — 2005 | 2004 | Jan - Dec — 2005 | 2004 |
|---|---|---|---|---|
| Net income attributable to stockholders of the parent company | 8,541 | 5,618 | 24,315 | 17,539 |
| Adjustments to reconcile net income to cash | 2,741 | 3,275 | 10,845 | 10,490 |
| 11,282 | 8,893 | 35,160 | 28,029 | |
| Operating net assets | ||||
| Inventories | 480 | 2,051 | -3,668 | -3,432 |
| Customer financing, current and non-current | -472 | -850 | -641 | -65 |
| Accounts receivable | 475 | -2,436 | -5,874 | -1,403 |
| Other | 3,298 | -1,371 | -8,308 | -650 |
| Cash flow from operating activities | 15,063 | 6,287 | 16,669 | 22,479 |
| Investing activities | ||||
| Product development | -426 | -354 | -1,174 | -1,146 |
| Other investing activities | -1,133 | -598 | -4,170 | -3,642 |
| Cash flow from investing activities | -1,559 | -952 | -5,344 | -4,788 |
| Cash flow before financial investing activities | 13,504 | 5,335 | 11,325 | 17,691 |
| Short-term investments | 7,707 | -16,836 | 6,375 | -26,050 |
| Cash flow from investing activities | 6,148 | -17,788 | 1,031 | -30,838 |
| Cash flow before financing activities | 21,211 | -11,501 | 17,700 | -8,359 |
| Dividends paid | -44 | -140 | -4,133 | -292 |
| Sale/repurchase of own stock | 24 | 6 | 117 | 15 |
| Other financing activities | -2,847 | -1,225 | -2,070 | -14,281 |
| Cash flow from financing activities | -2,867 | -1,359 | -6,086 | -14,558 |
| Effect of exchange rate changes on cash | 282 | -30 | -288 | 214 |
| Net change in cash | 18,626 | -12,890 | 11,326 | -22,703 |
| Cash and cash equivalents, beginning of period | 23,112 | 43,302 | 30,412 | 53,115 |
| Cash and cash equivalents, end of period | 41,738 | 30,412 | 41,738 | 30,412 |
12
CHANGES IN EQUITY
| SEK million | Jan - Dec 2005 — Stock- holders Equity | Minority interest | Total Equity | Jan - Dec 2004 — Stock- holders Equity | Minority interest | Total Equity |
|---|---|---|---|---|---|---|
| Opening balance | 80,445 | 1,057 | 81,502 | 63,820 | 2,299 | 66,119 |
| Adjustment for IAS 39 | 1,489 | | 1,489 | | | |
| Opening balance in accordance with new accounting principle | 81,934 | 1,057 | 82,991 | 63,820 | 2,299 | 66,119 |
| Stock issue, net | | 17 | 17 | | | |
| Sale of own shares | 117 | | 117 | 15 | | 15 |
| Stock Purchase and Stock Option Plans | 242 | | 242 | 204 | | 204 |
| Dividends paid | -3,959 | -174 | -4,133 | | -292 | -292 |
| Business combinations | | -342 | -342 | | -1,182 | -1,182 |
| Changes in cumulative translation effects due to changes in foreign currency exchange rates | 4,037 | 147 | 4,184 | -1,135 | -65 | -1,200 |
| Changes in hedge reserve | -1,859 | | -1,859 | | | |
| Revaluation of other investments in shares and participations | -150 | | -150 | | | |
| Adjustment of cost for stock issue 2002 | | | | 2 | | 2 |
| Net income | 24,315 | 145 | 24,460 | 17,539 | 297 | 17,836 |
| Closing balance | 104,677 | 850 | 105,527 | 80,445 | 1,057 | 81,502 |
| Reconciliation of Equity Dec 31, 2005 from Swedish GAAP to IFRS | ||||||
| Closing balance, Swedish GAAP | 77,299 | |||||
| Reclassification of minority interest | 1,057 | |||||
| Capitalization of development costs | 2,699 | |||||
| Goodwill | 447 | |||||
| Closing balance, IFRS | 81,502 | |||||
| Reconciliation of Equity Dec 31, 2004 according to IFRS and Jan 1, 2005 including IAS 39 | ||||||
| Closing balance, IFRS | 81,502 | |||||
| Hedge Reserve | 1,155 | |||||
| Revaluation of other investments | 334 | |||||
| Opening balance Jan 1, 2005 | 82,991 |
13
ERICSSON
CONSOLIDATED INCOME STATEMENT - ISOLATED QUARTERS
| SEK million | 2005 — Q4 | Q3 | Q2 | Q1 | 2004 — Q4 | Q3 | Q2 | Q1 |
|---|---|---|---|---|---|---|---|---|
| Net sales | 45,665 | 36,245 | 38,444 | 31,467 | 39,430 | 31,836 | 32,595 | 28,111 |
| Cost of sales | -25,497 | -19,862 | -20,797 | -16,213 | -21,451 | -16,849 | -17,020 | -15,544 |
| Gross margin | 20,168 | 16,383 | 17,647 | 15,254 | 17,979 | 14,987 | 15,575 | 12,567 |
| Gross margin % | 44.2 % | 45.2 % | 45.9 % | 48.5 % | 45.6 % | 47.1 % | 47.8 % | 44.7 % |
| Research and development and other technical expenses | -6,378 | -6,135 | -6,267 | -5,674 | -6,804 | -5,876 | -5,291 | -5,450 |
| Selling and administrative expenses | -5,332 | -3,932 | -3,895 | -3,641 | -4,002 | -3,669 | -4,384 | -3,866 |
| Operating expenses | -11,710 | -10,067 | -10,162 | -9,315 | -10,806 | -9,545 | -9,675 | -9,316 |
| Other operating income | 883 | 836 | 425 | 347 | 1,150 | 492 | 811 | 164 |
| Share in earnings of JV and assoc. companies | 1,013 | 673 | 393 | 316 | 610 | 656 | 539 | 518 |
| Operating income | 10,354 | 7,825 | 8,303 | 6,602 | 8,933 | 6,590 | 7,250 | 3,933 |
| Operating margin % | 22.7 % | 21.6 % | 21.6 % | 21.0 % | 22.7 % | 20.7 % | 22.2 % | 14.0 % |
| Financial income | 362 | 697 | 881 | 713 | 656 | 966 | 987 | 932 |
| Financial expenses | -643 | -490 | -696 | -573 | -876 | -1,163 | -909 | -1,133 |
| Income after financial items | 10,073 | 8,032 | 8,488 | 6,742 | 8,713 | 6,393 | 7,328 | 3,732 |
| Taxes | -1,435 | -2,649 | -2,693 | -2,098 | -2,984 | -2,008 | -2,286 | -1,052 |
| Net income | 8,638 | 5,383 | 5,795 | 4,644 | 5,729 | 4,385 | 5,042 | 2,680 |
| of which | ||||||||
| Net income attributable to stockholders of the parent company | 8,541 | 5,314 | 5,843 | 4,617 | 5,618 | 4,349 | 4,969 | 2,603 |
| Net income attributable to minority interest | 97 | 69 | -48 | 27 | 111 | 36 | 73 | 77 |
| Other information | ||||||||
| Average number of shares, basic (million) | 15,859 | 15,845 | 15,835 | 15,756 | 15,832 | 15,830 | 15,829 | 15,749 |
| Earnings per share, basic (SEK) 1) | 0.54 | 0.34 | 0.37 | 0.29 | 0.35 | 0.27 | 0.31 | 0.16 |
| Earnings per share, diluted (SEK) 1) | 0.54 | 0.33 | 0.37 | 0.29 | 0.35 | 0.27 | 0.31 | 0.16 |
| Reconciliation of net income from Swedish GAAP to IFRS | ||||||||
| Net income, Swedish GAAP | 5,977 | 4,764 | 5,290 | 2,993 | ||||
| Reclassification of minority interest | 111 | 36 | 73 | 77 | ||||
| Reversal of amortization of goodwill | 111 | 137 | 113 | 114 | ||||
| Stock Option Plans | -8 | -12 | -12 | -13 | ||||
| Amortization of capitalized development costs | -642 | -750 | -586 | -682 | ||||
| Taxes | 180 | 210 | 164 | 191 | ||||
| Net income, IFRS | 5,729 | 4,385 | 5,042 | 2,680 |
1) Based on Net income attributable to stockholders of the parent company
14
Accounting policies, Ericsson adoption of IAS/IFRS in 2005
This interim report is in accordance with IAS 34. In June 2002, the EUs Council of Ministers adopted the so-called IAS 2005 regulation. From year 2005, all exchange-listed companies within EU shall prepare and issue Consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS), formerly known as International Accounting Standards (IAS). 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 Standards Interpretation Committee (SIC) and International Financial Reporting Standards Committee (IFRIC).
As from 2005, Ericsson issues Consolidated Financial Statements prepared in accordance with IFRSs as adopted by the EU. The Annual Report for 2005 as well as Interim Reports includes one comparison year, 2004, which is restated in accordance with IFRS. As a result, January 1, 2004, is the date of transition to IFRS for Ericsson. The two standards IAS 32 and 39 are adopted as from January 1, 2005 as allowed by IFRS 1 First-time Adoption of International Financial Reporting Standards. An opening balance per January 1, 2005, including the effects of IAS 32 and 39 have been prepared. IAS 39 has been amended during 2005, which was endorsed in December by EU. According to this amendment, forecasted internal transactions can be designated as cash flow hedges of foreign exchange risk. Ericsson has chosen to partly designate and report hedges of forecasted transactions in accordance with this amendment.
Comparison and information about effects
The rules for first-time adoption of IFRS are set out in IFRS 1. IFRS 1 requires one comparative year to be presented and an opening IFRS balance sheet at the date of transition to IFRS to be prepared. The transition date for Ericsson is January 1, 2004.
In general, the accounting policies applied in the opening balance shall comply with each IFRS effective at the reporting date. Some exceptions from full retrospective application are granted, however. When preparing the IFRS opening balance, the following optional exceptions from full retrospective application of IFRS accounting policies will be applied:
Business combinations (IFRS 3): no restatement of business combinations prior to 2004 is made. IFRS 3 is applied prospectively from January 1, 2004.
Property, plant and equipment (IAS 16): prior revaluations are treated as deemed cost and no restatement made.
Employee Benefits (IAS 19): adoption of IAS 19 is not considered a transition effect since the Swedish standard RR 29 was implemented from January 1, 2004. RR 29 is, in almost every aspect, similar to IAS 19. Accumulated actuarial gains and losses for defined benefit plans were recognized in full in the pension liability and equity at transition date.
IAS 32 and 39 are applied from January 1, 2005, only and no restate of comparative information is necessary. Financial assets, liabilities and derivatives are accounted for in accordance with IAS 32 and 39 as from January 1, 2005.
Ericsson has until the end of 2004 prepared its consolidated financial statements in accordance with Swedish GAAP, which in recent years have been adapted to IAS/IFRS to a high degree. This, together with the optional exceptions described above, limits the effects of the adoption of IFRS to the following most significant elements:
Retrospective capitalization of development costs and amortization of such costs (IAS 38)
The cessation of goodwill amortizations (IFRS 3 and IAS 38)
15
The fair value of outstanding employee share options (IFRS 2) and recognition as expense for such share-based employee compensation in the income statement
The inclusion of financial instruments at fair value on the balance sheet (IAS 39) and recycling of gains and losses on cash flow hedges through equity (from January 1, 2005).
Employee benefits are already reported according to IAS 19 since the implementation of RR 29 as of January 1, 2004.
IAS 38 Intangible assets
When adopting the Swedish accounting standard RR 15 Intangible assets in 2002, the standard was implemented prospectively, i.e. no restatement was allowed, whereas IAS 38 Intangible assets was implemented retrospectively. The capitalization according to Swedish GAAP during 20022004 was the same as per IFRS. Retrospective application under IFRS lead to an increase in the opening balance of intangible assets as of January 1, 2004, due to capitalized development costs related to periods prior to 2002, and increased amortizations on such assets during 2004 and onwards. The opening balance for 2004 was equal to the closing balance according to US GAAP per December 31, 2003, since capitalization of development costs has been made for US GAAP purposes historically. Due to the restatement to IFRS, intangible assets increased by SEK 6,408 million, deferred tax assets decreased by SEK 1,794 million and equity increased by SEK 4,614 million respectively. As a result amortization for 2004 increased by SEK 2,660 million under IFRS.
IFRS 3 Business combinations including goodwill
Rules applying to reporting of business combinations (IFRS 3) have resulted in changes in reporting of acquisitions of companies. A more detailed purchase price allocation is to be made, in which fair value is also assigned to acquire intangible assets, such as customer relations, brands and patents. Goodwill arises when the purchase price exceeds the fair value of acquired net assets. Goodwill arising from acquisitions is no longer amortized but instead subject to impairment review; at least annually and when there are indicators that the carrying value may not be recoverable.
In Ericssons reporting during 2005, acquisitions carried out in 2004 has been accounted for in accordance with the new rules. As allowed by IFRS 1, no adjustments for acquisitions prior to the transition date, January 1, 2004 were made. The value of goodwill has been frozen at January 1, 2004, and amortization reported under Swedish GAAP for 2004 has been reversed in the IFRS restatements for 2004.
For Ericsson, the new standard has resulted in an increase in reported operating profit for 2004 of SEK 475 million. No difference in reported net income attributable to stockholders of the parent company has arisen as a result of acquisitions carried out in 2004.
IFRS 2 Share-based Payment
As allowed by IFRS 1, Ericsson has chosen not to apply IFRS 2 and URA 46 IFRS 2 and accounting for social security costs, to equity instruments granted before November 7, 2002. For one employee option program, granted after November 7, 2002, and not yet vested by January 1, 2005, Ericsson recognizes a charge to income representing the fair value at grant date of the outstanding employee options. The fair value of the options was calculated using an option-pricing model. The total costs are recognized during the vesting period (3 years). The impact on operating profit was a charge of SEK 45 million in 2004.
For other programs there are no material differences.
16
IAS 32 and 39 Financial Instruments and Hedging
IAS 32 and 39 are standards that deal with disclosure, presentation, recognition and measurement of financial instruments. These standards are applied from January 1, 2005.
A major effect is that derivatives are recognized at fair value on the balance sheet. Subsequent changes in fair value of derivatives are recognized in the income statement, unless the derivative is a hedging instrument in (i) a cash flow hedge or (ii) a hedge of a net investment in a foreign operation. In those cases, the effective portion of fair value changes of the derivative will be recognized in equity until the hedged transaction affects the income statement, at which moment the accumulated deferred amount in equity is recycled to the income statement. For derivatives assigned as (iii) fair value hedges, fair value changes on both the derivative and the hedged item, attributable to the hedged risk, will be recognized in the income statement and offset each other to the extent the hedge is effective.
The opening balance January 1, 2005, was affected by SEK 3,556 million in assets, SEK 1,952 million in liabilities and SEK 1,155 million in equity net of deferred tax as a result of accounting for derivatives at fair value.
Other investments in shares and participations are classified as available-for-sale in accordance with IAS 39 and will thus be reported at fair value. For investments in quoted companies, fair values are determined based on share prices at the balance sheet date and for non-quoted investments, fair values are estimated.
The effect in the opening balance January 1, 2005, was an increase of SEK 411 million in assets and an increase of SEK 334 million in the equity, net of deferred tax.
IAS 19 Employee Benefits
Ericsson reports pensions and similar benefits according to IFRS (IAS 19), which is similar to RR 29 that was implemented from January 1, 2004. The effect of adoption of IAS 19 is therefore not considered a transition effect. Actuarial gains and losses were recognized in the opening balance January 1, 2004.
Reclassification of provisions
In accordance with IAS 1 Presentation of Financial Statements, provisions need to be presented as both current and non-current. A liability shall be classified as current when it satisfies any of the following criteria: a) it is expected to be settled in the entitys normal operating cycle; (b) it is held primarily for the purpose of being traded; (c) it is due to be settled within twelve months after the balance sheet date; or (d) the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. All other liabilities shall be classified as non-current. Accordingly, Ericsson has reclassified provisions in the balance sheet to current and non-current liabilities under IFRS. The operating cycle for Ericsson is approximately 24 months.
17
Impact of IFRS on the Statement of Cash Flows
According to IAS 7 Cash Flow, Ericsson defines cash and cash equivalents to include only short-term highly liquid investments with remaining maturity at acquisition date of three months or less. Under Swedish praxis, a broader interpretation was earlier made, where also readily marketable securities designated for liquidity management purposes only and with a low risk for value changes and with a maturity exceeding three months were included. The restated statements of cash flow for 2004 and the opening balance for the Ericsson group according to IAS 7 has therefore reflected cash and cash equivalents that are different to those previously reported under Swedish GAAP.
Parent Company information
The Parent Company has adopted RR 32 Reporting in separate financial statements as from January 1, 2005. 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. The adoption of RR 32 has not had any effect on the reported profit or loss for 2004 or for the six month period ended June 30, 2005. As allowed by the transition rules in RR 32, the Parent Company has decided to adopt IAS 39 Financial instruments Recognition and Measurement, to the extent allowed by the Annual Accounts Act as from January 1, 2006. The most significant impact of this is expected to be the recognition of derivatives financial instruments at fair value on the balance sheet.
18
NET SALES BY SEGMENT BY QUARTER
SEK million
| Isolated quarters | 2005 — Q4 | Q3 | Q2 | Q1 | 2004 — Q4 | Q3 | Q2 | Q1 |
|---|---|---|---|---|---|---|---|---|
| Systems | 43,020 | 33,939 | 36,138 | 29,002 | 36,798 | 29,627 | 30,380 | 26,092 |
| - Mobile Networks | 33,664 | 26,763 | 28,770 | 23,450 | 29,096 | 23,773 | 24,241 | 21,081 |
| - Fixed Networks | 1,270 | 1,137 | 1,130 | 1,048 | 1,519 | 1,027 | 1,129 | 896 |
| Total Network Equipment | 34,934 | 27,900 | 29,900 | 24,498 | 30,615 | 24,800 | 25,370 | 21,977 |
| - Of which Network Rollout | 5,451 | 3,579 | 3,595 | 2,748 | 3,621 | 2,648 | 2,490 | 2,205 |
| Professional Services | 8,086 | 6,039 | 6,238 | 4,504 | 6,183 | 4,827 | 5,010 | 4,115 |
| Other Operations | 3,012 | 2,502 | 2,670 | 2,712 | 3,306 | 2,828 | 2,806 | 2,449 |
| Less: Intersegment Sales | -367 | -196 | -364 | -247 | -674 | -619 | -591 | -430 |
| Total | 45,665 | 36,245 | 38,444 | 31,467 | 39,430 | 31,836 | 32,595 | 28,111 |
| Sequential change | 2005 | 2004 | ||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
| Systems | 27 % | -6 % | 25 % | -21 % | 24 % | -2 % | 16 % | -22 % |
| - Mobile Networks | 26 % | -7 % | 23 % | -19 % | 22 % | -2 % | 15 % | -18 % |
| - Fixed Networks | 12 % | 1 % | 8 % | -31 % | 48 % | -9 % | 26 % | -60 % |
| Total Network Equipment | 25 % | -7 % | 22 % | -20 % | 23 % | -2 % | 15 % | -21 % |
| - Of which Network Rollout | 52 % | 0 % | 31 % | -24 % | 37 % | 6 % | 13 % | -31 % |
| Professional Services | 34 % | -3 % | 38 % | -27 % | 28 % | -4 % | 22 % | -28 % |
| Other Operations | 20 % | -6 % | -2 % | -18 % | 17 % | 1 % | 15 % | -23 % |
| Less: Intersegment Sales | 87 % | -46 % | 47 % | -63 % | 9 % | 5 % | 37 % | -17 % |
| Total | 26 % | -6 % | 22 % | -20 % | 24 % | -2 % | 16 % | -22 % |
| Year over year change | 2005 | 2004 | ||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
| Systems | 17 % | 15 % | 19 % | 11 % | 10 % | 14 % | 20 % | 9 % |
| - Mobile Networks | 16 % | 13 % | 19 % | 11 % | 14 % | 20 % | 28 % | 19 % |
| - Fixed Networks | -16 % | 11 % | 0 % | 17 % | -32 % | -39 % | -48 % | -53 % |
| Total Network Equipment | 14 % | 13 % | 18 % | 11 % | 10 % | 15 % | 20 % | 12 % |
| - Of which Network Rollout | 51 % | 35 % | 44 % | 25 % | 13 % | -5 % | -2 % | -14 % |
| Professional Services | 31 % | 25 % | 25 % | 9 % | 8 % | 9 % | 22 % | -7 % |
| Other Operations | -9 % | -12 % | -5 % | 11 % | 4 % | 13 % | 11 % | 4 % |
| Less: Intersegment Sales | -46 % | -68 % | -38 % | -43 % | 29 % | 65 % | 308 % | -8 % |
| Total | 16 % | 14 % | 18 % | 12 % | 9 % | 14 % | 18 % | 9 % |
| Year to Date | 2005 | 2004 | ||||||
| 0512 | 0509 | 0506 | 0503 | 0412 | 0409 | 0406 | 0403 | |
| Systems | 142,099 | 99,079 | 65,140 | 29,002 | 122,897 | 86,099 | 56,472 | 26,092 |
| - Mobile Networks | 112,647 | 78,983 | 52,220 | 23,450 | 98,191 | 69,095 | 45,322 | 21,081 |
| - Fixed Networks | 4,585 | 3,315 | 2,178 | 1,048 | 4,571 | 3,052 | 2,025 | 896 |
| Total Network Equipment | 117,232 | 82,298 | 54,398 | 24,498 | 102,762 | 72,147 | 47,347 | 21,977 |
| - Of which Network Rollout | 15,373 | 9,922 | 6,343 | 2,748 | 10,964 | 7,343 | 4,695 | 2,205 |
| Professional Services | 24,867 | 16,781 | 10,742 | 4,504 | 20,135 | 13,952 | 9,125 | 4,115 |
| Other Operations | 10,896 | 7,884 | 5,382 | 2,712 | 11,389 | 8,083 | 5,255 | 2,449 |
| Less: Intersegment Sales | -1,174 | -807 | -611 | -247 | -2,314 | -1,640 | -1,021 | -430 |
| Total | 151,821 | 106,156 | 69,911 | 31,467 | 131,972 | 92,542 | 60,706 | 28,111 |
| YTD year over year change | 2005 | 2004 | ||||||
| 0512 | 0509 | 0506 | 0503 | 0412 | 0409 | 0406 | 0403 | |
| Systems | 16 % | 15 % | 15 % | 11 % | 13 % | 15 % | 15 % | 9 % |
| - Mobile Networks | 15 % | 14 % | 15 % | 11 % | 20 % | 22 % | 24 % | 19 % |
| - Fixed Networks | 0 % | 9 % | 8 % | 17 % | -43 % | -47 % | -50 % | -53 % |
| Total Network Equipment | 14 % | 14 % | 15 % | 11 % | 14 % | 16 % | 16 % | 12 % |
| - Of which Network Rollout | 40 % | 35 % | 35 % | 25 % | -1 % | -7 % | -8 % | -14 % |
| Professional Services | 24 % | 20 % | 18 % | 9 % | 8 % | 8 % | 7 % | -7 % |
| Other Operations | -4 % | -2 % | 2 % | 11 % | 8 % | 9 % | 7 % | 4 % |
| Less: Intersegment Sales | -49 % | -51 % | -40 % | -43 % | 54 % | 66 % | 67 % | -8 % |
| Total | 15 % | 15 % | 15 % | 12 % | 12 % | 14 % | 14 % | 9 % |
19
OPERATING INCOME, OPERATING MARGIN AND EMPLOYEES BY SEGMENT BY QUARTER
SEK million
OPERATING INCOME AND MARGIN
| Isolated quarters | 2005 — Q4 | Q3 | Q2 | Q1 | 2004 — Q4 | Q3 | Q2 | Q1 |
|---|---|---|---|---|---|---|---|---|
| Systems | 9,391 | 7,122 | 8,155 | 6,217 | 7,897 | 5,858 | 5,940 | 3,492 |
| Phones | 933 | 653 | 371 | 300 | 578 | 605 | 525 | 435 |
| Other Operations | 212 | 119 | -94 | 46 | 470 | 248 | 558 | 22 |
| Unallocated 1) | -182 | -69 | -129 | 39 | -12 | -121 | 227 | -16 |
| Total | 10,354 | 7,825 | 8,303 | 6,602 | 8,933 | 6,590 | 7,250 | 3,933 |
| As percentage of net sales | 2005 | 2004 | ||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
| Systems | 22 % | 21 % | 23 % | 21 % | 21 % | 20 % | 20 % | 13 % |
| Phones 2) | | | | | | | | |
| Other Operations | 7 % | 5 % | -4 % | 2 % | 14 % | 9 % | 20 % | 1 % |
| Total | 23 % | 22 % | 22 % | 21 % | 23 % | 21 % | 22 % | 14 % |
| Year to date | 2005 | 2004 | ||||||
| 0512 | 0509 | 0506 | 0503 | 0412 | 0409 | 0406 | 0403 | |
| Systems | 30,885 | 21,494 | 14,372 | 6,217 | 23,187 | 15,290 | 9,432 | 3,492 |
| Phones | 2,257 | 1,324 | 671 | 300 | 2,143 | 1,565 | 960 | 435 |
| Other Operations | 283 | 71 | -48 | 46 | 1,298 | 828 | 580 | 22 |
| Unallocated 1) | -341 | -159 | -90 | 39 | 78 | 90 | 211 | -16 |
| Total | 33,084 | 22,730 | 14,905 | 6,602 | 26,706 | 17,773 | 11,183 | 3,933 |
| As percentage of net sales | 2005 | 2004 | ||||||
| 0512 | 0509 | 0506 | 0503 | 0412 | 0409 | 0406 | 0403 | |
| Systems | 22 % | 22 % | 22 % | 21 % | 19 % | 18 % | 17 % | 13 % |
| Phones 2) | | | | | | | | |
| Other Operations | 3 % | 1 % | -1 % | 2 % | 11 % | 10 % | 11 % | 1 % |
| Total | 22 % | 21 % | 21 % | 21 % | 20 % | 19 % | 18 % | 14 % |
| 1) Unallocated consists mainly of costs for corporate staffs and | ||||||||
| non-operational gains and losses 2) Calculation not applicable NUMBER OF EMPLOYEES | ||||||||
| Year to date | 2005 | 2004 | ||||||
| 0512 | 0509 | 0506 | 0503 | 0412 | 0409 | 0406 | 0403 | |
| Systems | 50,107 | 48,839 | 47,955 | 46,338 | 45,500 | 44,998 | 45,108 | 45,209 |
| Other Operations | 5,948 | 5,748 | 5,683 | 5,587 | 5,034 | 5,260 | 5,568 | 5,440 |
| Total | 56,055 | 54,587 | 53,638 | 51,925 | 50,534 | 50,258 | 50,676 | 50,649 |
| Of which Sweden | 21,178 | 21,238 | 21,358 | 21,175 | 21,296 | 21,842 | 22,427 | 22,702 |
| Change in percent | 2005 | 2004 | ||||||
| 0512 | 0509 | 0506 | 0503 | 0412 | 0409 | 0406 | 0403 | |
| Systems | 10 % | 9 % | 6 % | 2 % | 1 % | -4 % | -11 % | -16 % |
| Other Operations | 18 % | 9 % | 2 % | 3 % | -18 % | -18 % | -18 % | -23 % |
| Total | 11 % | 9 % | 6 % | 3 % | -2 % | -6 % | -12 % | -17 % |
| Of which Sweden | -1 % | -3 % | -5 % | -7 % | -13 % | -13 % | -19 % | -22 % |
20
NET SALES BY MARKET AREA BY QUARTER
SEK million
| Isolated quarters | 2005 — Q4 | Q3 | Q2 | Q1 | 2004 — Q4 | Q3 | Q2 | Q1 |
|---|---|---|---|---|---|---|---|---|
| Western Europe 1,2) | 12,522 | 9,555 | 9,902 | 9,961 | 13,091 | 9,783 | 9,272 | 7,876 |
| Eastern Europe, Middle East & Africa 2) | 12,274 | 9,170 | 9,965 | 8,539 | 10,028 | 8,464 | 7,847 | 7,110 |
| North America | 5,109 | 4,500 | 6,475 | 3,348 | 2,800 | 3,328 | 4,939 | 4,404 |
| Latin America | 5,980 | 5,115 | 4,429 | 3,551 | 4,491 | 3,665 | 3,455 | 2,867 |
| Asia Pacific | 9,780 | 7,905 | 7,673 | 6,068 | 9,020 | 6,596 | 7,082 | 5,854 |
| Total | 45,665 | 36,245 | 38,444 | 31,467 | 39,430 | 31,836 | 32,595 | 28,111 |
| 1) Of which Sweden | 1,741 | 1,304 | 1,571 | 1,494 | 1,839 | 1,457 | 1,543 | 1,341 |
| 2) Of which EU, restated due to new members since April 1, 2004 | 13,744 | 10,409 | 10,528 | 10,607 | 14,002 | 10,053 | 10,144 | 8,167 |
| Sequential change | 2005 | 2004 | ||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
| Western Europe 1,2) | 31 % | -4 % | -1 % | -24 % | 34 % | 6 % | 18 % | -31 % |
| Eastern Europe, Middle East & Africa 2) | 34 % | -8 % | 17 % | -15 % | 18 % | 8 % | 10 % | -14 % |
| North America | 14 % | -31 % | 93 % | 20 % | -16 % | -33 % | 12 % | -15 % |
| Latin America | 17 % | 15 % | 25 % | -21 % | 23 % | 6 % | 21 % | -13 % |
| Asia Pacific | 24 % | 3 % | 26 % | -33 % | 37 % | -7 % | 21 % | -28 % |
| Total | 26 % | -6 % | 22 % | -20 % | 24 % | -2 % | 16 % | -22 % |
| 1) Of which Sweden | 34 % | -17 % | 5 % | -19 % | 26 % | -6 % | 15 % | -19 % |
| 2) Of which EU, restated due to new members since April 1, 2004 | 32 % | -1 % | -1 % | -24 % | 39 % | -1 % | 24 % | -33 % |
| Year over year change | 2005 | 2004 | ||||||
| Q4 | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | |
| Western Europe 1,2) | -4 % | -2 % | 7 % | 26 % | 15 % | 23 % | 8 % | -4 % |
| Eastern Europe, Middle East & Africa 2) | 22 % | 8 % | 27 % | 20 % | 22 % | 36 % | 21 % | 23 % |
| North America | 82 % | 35 % | 31 % | -24 % | -46 % | -22 % | 17 % | 12 % |
| Latin America | 33 % | 40 % | 28 % | 24 % | 36 % | 38 % | 57 % | 63 % |
| Asia Pacific | 8 % | 20 % | 8 % | 4 % | 11 % | -5 % | 16 % | -5 % |
| Total | 16 % | 14 % | 18 % | 12 % | 9 % | 14 % | 18 % | 9 % |
| 1) Of which Sweden | -5 % | -11 % | 2 % | 11 % | 11 % | 6 % | 7 % | -4 % |
| 2) Of which EU, restated due to new members since April 1, 2004 | -2 % | 4 % | 4 % | 30 % | 15 % | 18 % | 15 % | -5 % |
| Year to date | 2005 | 2004 | ||||||
| 0512 | 0509 | 0506 | 0503 | 0412 | 0409 | 0406 | 0403 | |
| Western Europe 1,2) | 41,940 | 29,418 | 19,863 | 9,961 | 40,022 | 26,931 | 17,148 | 7,876 |
| Eastern Europe, Middle East & Africa 2) | 39,948 | 27,674 | 18,504 | 8,539 | 33,449 | 23,421 | 14,957 | 7,110 |
| North America | 19,432 | 14,323 | 9,823 | 3,348 | 15,471 | 12,671 | 9,343 | 4,404 |
| Latin America | 19,075 | 13,095 | 7,980 | 3,551 | 14,478 | 9,987 | 6,322 | 2,867 |
| Asia Pacific | 31,426 | 21,646 | 13,741 | 6,068 | 28,552 | 19,532 | 12,936 | 5,854 |
| Total | 151,821 | 106,156 | 69,911 | 31,467 | 131,972 | 92,542 | 60,706 | 28,111 |
| 1) Of which Sweden | 6,110 | 4,369 | 3,065 | 1,494 | 6,180 | 4,341 | 2,884 | 1,341 |
| 2) Of which EU, restated due to new members since April 1, 2004 | 45,288 | 31,544 | 21,135 | 10,607 | 42,366 | 28,364 | 18,311 | 8,167 |
| YTD year over year change | 2005 | 2004 | ||||||
| 0512 | 0509 | 0506 | 0503 | 0412 | 0409 | 0406 | 0403 | |
| Western Europe 1,2) | 5 % | 9 % | 16 % | 26 % | 11 % | 9 % | 2 % | -4 % |
| Eastern Europe, Middle East & Africa 2) | 19 % | 18 % | 24 % | 20 % | 25 % | 27 % | 22 % | 23 % |
| North America | 26 % | 13 % | 5 % | -24 % | -12 % | 2 % | 15 % | 12 % |
| Latin America | 32 % | 31 % | 26 % | 24 % | 46 % | 51 % | 60 % | 63 % |
| Asia Pacific | 10 % | 11 % | 6 % | 4 % | 4 % | 1 % | 5 % | -5 % |
| Total | 15 % | 15 % | 15 % | 12 % | 12 % | 14 % | 14 % | 9 % |
| 1) Of which Sweden | -1 % | 1 % | 6 % | 11 % | 5 % | 3 % | 2 % | -4 % |
| 2) Of which EU, restated due to new members since April 1, 2004 | 7 % | 11 % | 15 % | 30 % | 11 % | 9 % | 5 % | -5 % |
21
EXTERNAL NET SALES BY MARKET AREA BY SEGMENT
SEK million
Isolated Q4
| Oct - Dec 2005 | Systems | Share of Systems | Other | Share of Other | Total | Share of Total |
|---|---|---|---|---|---|---|
| Western Europe | 10,678 | 25 % | 1,844 | 68 % | 12,522 | 27 % |
| Eastern Europe, Middle East & Africa | 11,986 | 28 % | 288 | 11 % | 12,274 | 27 % |
| North America | 4,902 | 11 % | 207 | 8 % | 5,109 | 11 % |
| Latin America | 5,917 | 14 % | 63 | 2 % | 5,980 | 13 % |
| Asia Pacific | 9,495 | 22 % | 285 | 11 % | 9,780 | 22 % |
| Total | 42,978 | 100 % | 2,687 | 100 % | 45,665 | 100 % |
| Share of Total | 94 % | 6 % | 100 % | |||
| Oct - Dec 2004 | Systems | Share of Systems | Other | Share of Other | Total | Share Total |
| Western Europe | 11,282 | 31 % | 1,809 | 59 % | 13,091 | 33 % |
| Eastern Europe, Middle East & Africa | 9,404 | 26 % | 624 | 21 % | 10,028 | 26 % |
| North America | 2,590 | 7 % | 210 | 7 % | 2,800 | 7 % |
| Latin America | 4,404 | 12 % | 87 | 3 % | 4,491 | 11 % |
| Asia Pacific | 8,702 | 24 % | 318 | 10 % | 9,020 | 23 % |
| Total | 36,382 | 100 % | 3,048 | 100 % | 39,430 | 100 % |
| Share of Total | 92 % | 8 % | 100 % | |||
| Change | Systems | Other | Total | |||
| Western Europe | -5 % | 2 % | -4 % | |||
| Eastern Europe, Middle East & Africa | 27 % | -54 % | 22 % | |||
| North America | 89 % | -1 % | 82 % | |||
| Latin America | 34 % | -28 % | 33 % | |||
| Asia Pacific | 9 % | -10 % | 8 % | |||
| Total | 18 % | -12 % | 16 % | |||
| Year to date | ||||||
| Jan - Dec 2005 | Systems | Share of Systems | Other | Share of Other | Total | Share of Total |
| Western Europe | 35,705 | 25 % | 6,235 | 63 % | 41,940 | 28 % |
| Eastern Europe, Middle East & Africa | 38,781 | 28 % | 1,167 | 12 % | 39,948 | 26 % |
| North America | 18,773 | 13 % | 659 | 7 % | 19,432 | 13 % |
| Latin America | 18,813 | 13 % | 262 | 3 % | 19,075 | 12 % |
| Asia Pacific | 29,914 | 21 % | 1,512 | 15 % | 31,426 | 21 % |
| Total | 141,986 | 100 % | 9,835 | 100 % | 151,821 | 100 % |
| Share of Total | 94 % | 6 % | 100 % | |||
| Jan - Dec 2004 | Systems | Share of Systems | Other | Share of Other | Total | Share Total |
| Western Europe | 33,585 | 28 % | 6,437 | 62 % | 40,022 | 30 % |
| Eastern Europe, Middle East & Africa | 31,932 | 26 % | 1,517 | 14 % | 33,449 | 26 % |
| North America | 14,750 | 12 % | 721 | 7 % | 15,471 | 12 % |
| Latin America | 14,125 | 12 % | 353 | 4 % | 14,478 | 11 % |
| Asia Pacific | 27,157 | 22 % | 1,395 | 13 % | 28,552 | 21 % |
| Total | 121,549 | 100 % | 10,423 | 100 % | 131,972 | 100 % |
| Share of Total | 92 % | 8 % | 100 % | |||
| Change | Systems | Other | Total | |||
| Western Europe | 6 % | -3 % | 5 % | |||
| Eastern Europe, Middle East & Africa | 21 % | -23 % | 19 % | |||
| North America | 27 % | -9 % | 26 % | |||
| Latin America | 33 % | -26 % | 32 % | |||
| Asia Pacific | 10 % | 8 % | 10 % | |||
| Total | 17 % | -6 % | 15 % |
22
TOP 10 MARKETS IN SALES
Jan-Dec 2005
| Sales | YTD Share of total sales | Q4 Share of iso. total sales |
|---|---|---|
| United States | 12 % | 10 % |
| China | 8 % | 10 % |
| Italy | 7 % | 7 % |
| Spain | 5 % | 5 % |
| Brazil | 5 % | 4 % |
| Sweden | 4 % | 4 % |
| Mexico | 4 % | 4 % |
| United Kingdom | 3 % | 3 % |
| Russian Federation | 3 % | 4 % |
| Turkey | 3 % | 3 % |
CUSTOMER FINANCING RISK EXPOSURE
| SEK billion | Dec 31 2005 | Sep 30 2005 | Jun 30 2005 | Mar 31 2005 | Dec 31 2004 | Sep 30 2004 | Jun 30 2004 | Mar 31 2004 |
|---|---|---|---|---|---|---|---|---|
| On-balance sheet credits | 7 | 6.5 | 6.5 | 6.9 | 8.4 | 9.0 | 8.6 | 10.3 |
| Off-balance sheet credits | 0.1 | 0.1 | 0.1 | 0.1 | 0.6 | 1.1 | 1.1 | 1.2 |
| Total credits | 7.1 | 6.6 | 6.6 | 7.0 | 9.0 | 10.1 | 9.7 | 11.5 |
| Accrued interest | 0.1 | 0.1 | 0.1 | 0.1 | 0.2 | 0.2 | 0.2 | 0.1 |
| Less third-party risk coverage | -0.2 | -0.5 | -0.1 | -0.3 | -0.3 | -0.5 | -0.5 | -0.4 |
| Ericssons risk exposure | 7.0 | 6.2 | 6.6 | 6.8 | 8.9 | 9.8 | 9.4 | 11.2 |
| On-balance sheet credits, net value | 5.0 | 4.6 | 4.5 | 4.3 | 3.7 | 3.4 | 3.0 | 3.9 |
| Reclassifications 1) | -0.1 | -0.1 | -0.1 | -0.1 | -0.1 | | | |
| On-balance sheet credits, net book value | 4.9 | 4.5 | 4.4 | 4.2 | 3.6 | 3.4 | 3.0 | 3.9 |
| Credit commitments for customer financing | 3.6 | 2.6 | 2.8 | 2.3 | 2.2 | 2.7 | 3.0 | 3.7 |
1) Reclassification due to consolidation in accordance with URA 20
TRANSACTIONS WITH SONY ERICSSON MOBILE COMMUNICATIONS
| SEK million | Oct - Dec — 2005 | 2004 | Jan - Dec — 2005 | 2004 |
|---|---|---|---|---|
| Sales to Sony Ericsson | 528 | 467 | 1,742 | 1,532 |
| Royalty from Sony Ericsson | 243 | 144 | 654 | 611 |
| Purchases from Sony Ericsson | 138 | 82 | 827 | 547 |
| Receivables from Sony Ericsson | 197 | 142 | 197 | 142 |
| Liabilities to Sony Ericsson | 33 | 16 | 33 | 16 |
23
ERICSSON
OTHER INFORMATION
| SEK million | Oct - Dec 2005 | Oct - Dec 2004 | Jan - Dec 2005 | Jan - Dec 2004 |
|---|---|---|---|---|
| Number of shares and earnings per share | ||||
| Number of shares, end of period (million) | 16,132 | 16,132 | 16,132 | 16,132 |
| Number of treasury shares, end of period (million) | 268 | 300 | 268 | 300 |
| Number of shares outstanding, basic, end of period (million) | 15,864 | 15,832 | 15,864 | 15,832 |
| Numbers of shares outstanding, diluted, end of period (million) | 15,927 | 15,898 | 15,927 | 15,898 |
| Average number of treasury shares (million) | 273 | 300 | 289 | 303 |
| Average number of shares outstanding, basic (million) | 15,859 | 15,832 | 15,843 | 15,829 |
| Average number of shares outstanding, diluted (million) 1) | 15,923 | 15,898 | 15,907 | 15,895 |
| Earnings per share, basic (SEK) | 0.54 | 0.35 | 1.53 | 1.11 |
| Earnings per share, diluted (SEK) 1) | 0.54 | 0.35 | 1.53 | 1.11 |
| Ratios 2) | ||||
| Equity ratio, percent | | | 50.5 % | 43.8 % |
| Capital turnover (times) | 1.4 | 1.4 | 1.2 | 1.2 |
| Accounts receivable turnover (times) | 4.4 | 5.0 | 4.1 | 4.1 |
| Inventory turnover (times) | 5.2 | 5.6 | 5.0 | 5.7 |
| Return on equity, percent | 34.2 % | 28.9 % | 26.2 % | 24.2 % |
| Return on capital employed, percent | 33.1 % | 33.6 % | 28.7 % | 26.4 % |
| Days Sales Outstanding | | | 81 | 75 |
| Payment readiness, end of period | | | 78,647 | 81,447 |
| Payment readiness, as percentage of sales | | | 51.8 % | 61.7 % |
| Exchange rates used in the consolidation | ||||
| SEK / EUR - average rate | | | 9.28 | 9.12 |
| - closing rate | | | 9.42 | 9.00 |
| SEK / USD - average rate | | | 7.45 | 7.33 |
| - closing rate | | | 7.93 | 6.61 |
| Other | ||||
| Additions to property, plant and equipment | 1,091 | 794 | 3,365 | 2,452 |
| - Of which in Sweden | 233 | 408 | 965 | 1,148 |
| Additions to capitalized development expenses | 426 | 354 | 1174 | 1,146 |
| Capitalization of development expenses, net | -301 | -845 | -1,930 | -3,101 |
| Depreciation of property, plant and equipment and other intangible assets | 565 | 532 | 2,598 | 2,757 |
| Amortization of development expenses | 727 | 1,199 | 3,104 | 4,247 |
| Total depreciation and amortization of property, plant and equipment / intangible assets | 1,292 | 1,731 | 5,702 | 7,004 |
| Export sales from Sweden | 24,013 | 22,955 | 93,879 | 86,510 |
1) Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share
2) Ratios restated in accordance with IFRS, excluding IAS 39
24
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 L M E RICSSON (PUBL) | |
|---|---|
| By: | /s/ C ARL O LOF B LOMQVIST |
| Carl Olof Blomqvist | |
| Senior Vice President and | |
| General councel | |
| By: | /s/ H ENRY S TÉNSON |
| Henry Sténson | |
| Senior Vice President | |
| Corporate Communications |
Date: January 31, 2006