EX-15.2 6 dex152.htm CONSOLIDATED FINANCIAL STATEMENT OF SONY ERICSSON MOBILE COMMUNICATIONS AB

Exhibit 15.2

Report of Independent Auditors

To the Shareholders of Sony Ericsson Mobile Communications AB

We have audited the accompanying consolidated balance sheets of Sony Ericsson Mobile Communications AB and its subsidiaries as of December 31, 2010 and December 31, 2009 and the related consolidated statements of income and of cash flows for each of the three years in the periods ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sony Ericsson Mobile Communications AB and its subsidiaries at December 31, 2010 and December 31, 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in Sweden.

Accounting principles generally accepted in Sweden vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note C28 to the consolidated financial statements.

/s/ PricewaterhouseCoopers AB

Malmo, Sweden

March 30, 2011

Sony Ericsson Mobile Communications Group

Table of contents

Consolidated Income Statement |  |  | 2 |
Consolidated Balance Sheet |  |  | 3 |
Consolidated Cash Flow |  |  | 4 |
Notes to the Consolidated Financial Statements |  |  | 5 |

20-F 2010 1

Consolidated Income Statements

January 1 - December 31, TEUR |  | Notes |  |  | 2010 |  |  | 2009 |  |  | 2008 |
Net sales |  |  | C2 |  |  |  | 6,293,782 |  |  |  | 6,788,152 |  |  |  | 11,243,840 |
Cost of sales |  |  |  |  |  |  | -4,440,285 |  |  |  | -5,781,797 |  |  |  | -8,749,816 |
GROSS PROFIT |  |  |  |  |  |  | 1,853,497 |  |  |  | 1,006,355 |  |  |  | 2,494,024 |
Selling expenses |  |  |  |  |  |  | -479,150 |  |  |  | -583,412 |  |  |  | -868,700 |
General and Administration expenses |  |  | C24 |  |  |  | -413,474 |  |  |  | -442,543 |  |  |  | -439,710 |
Research and Development expenses |  |  |  |  |  |  | -839,570 |  |  |  | -1,045,784 |  |  |  | -1,319,567 |
Other operating revenues |  |  | C3 |  |  |  | 38,181 |  |  |  | 48,053 |  |  |  | 44,074 |
Other operating expenses |  |  | C3 |  |  |  | — |  |  |  | -523 |  |  |  | -548 |
Share in earnings of joint venture |  |  |  |  |  |  | — |  |  |  | — |  |  |  | -22,649 |
OPERATING INCOME |  |  | C6,C7,C15,C16 C22,C23 |  |  |  | 159,484 |  |  |  | -1,017,854 |  |  |  | -113,077 |
Interest income |  |  | C4 |  |  |  | 17,798 |  |  |  | 21,324 |  |  |  | 101,494 |
Interest expense |  |  | C4 |  |  |  | -29,981 |  |  |  | -46,146 |  |  |  | -71,162 |
NET INCOME BEFORE TAXES |  |  |  |  |  |  | 147,301 |  |  |  | -1,042,676 |  |  |  | -82,745 |
Income taxes for the year |  |  | C5 |  |  |  | -48,326 |  |  |  | 235,569 |  |  |  | 31,138 |
Minority interest |  |  |  |  |  |  | -8,508 |  |  |  | -28,720 |  |  |  | -21,283 |
NET INCOME |  |  |  |  |  |  | 90,468 |  |  |  | -835,827 |  |  |  | -72,890 |

20-F 2010 2

Consolidated Balance Sheets

December 31, TEUR |  | Notes |  |  | 2010 |  |  | 2009 |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Fixed assets |  |  |  |  |  |  |  |  |  |  |  |
Intangible assets |  |  | C6 |  |  |  | 12,211 |  |  |  | 16,607 |
Tangible assets |  |  | C7 |  |  |  | 135,334 |  |  |  | 149,675 |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |
Other non-current assets |  |  | C8 |  |  |  | 655,868 |  |  |  | 610,821 |
Total fixed and financial assets |  |  |  |  |  |  | 803,413 |  |  |  | 777,103 |
Current assets |  |  |  |  |  |  |  |  |  |  |  |
Inventories |  |  | C9 |  |  |  | 460,357 |  |  |  | 358,141 |
Accounts receivable |  |  | C10 |  |  |  | 835,949 |  |  |  | 832,073 |
Other current assets |  |  | C11 |  |  |  | 295,046 |  |  |  | 379,676 |
Other short-term cash investments |  |  | C12 |  |  |  | 276,168 |  |  |  | 524,235 |
Cash and bank |  |  |  |  |  |  | 328,516 |  |  |  | 388,884 |
Total current assets |  |  |  |  |  |  | 2,196,036 |  |  |  | 2,483,009 |
Total assets |  |  |  |  |  |  | 2,999,449 |  |  |  | 3,260,112 |
SHAREHOLDERS’ EQUITY AND LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |
Shareholders’ equity |  |  | C13 |  |  |  |  |  |  |  |  |
Restricted equity |  |  |  |  |  |  |  |  |  |  |  |
Share capital |  |  |  |  |  |  | 100,000 |  |  |  | 100,000 |
Restricted reserves |  |  |  |  |  |  | 467,998 |  |  |  | 442,576 |
Total restricted equity |  |  |  |  |  |  | 567,998 |  |  |  | 542,576 |
Unrestricted equity |  |  |  |  |  |  |  |  |  |  |  |
Non-restricted reserves |  |  |  |  |  |  | -126,741 |  |  |  | 674,291 |
Net income for the year |  |  |  |  |  |  | 90,468 |  |  |  | -835,827 |
Total unrestricted equity |  |  |  |  |  |  | -36,273 |  |  |  | -161,536 |
Total equity |  |  |  |  |  |  | 531,725 |  |  |  | 381,040 |
Minority interest |  |  |  |  |  |  | 42,286 |  |  |  | 47,364 |
Provisions |  |  | C14 |  |  |  | 391,370 |  |  |  | 628,113 |
LIABILITIES |  |  |  |  |  |  |  |  |  |  |  |
Long-term liabilities |  |  |  |  |  |  |  |  |  |  |  |
Post-employment benefits |  |  | C16 |  |  |  | 24,466 |  |  |  | 24,104 |
Liabilities to financial institutions |  |  | C17, C26 |  |  |  | 100,000 |  |  |  | — |
Other long-term liabilities |  |  | C17 |  |  |  | 7,838 |  |  |  | 5,940 |
Total long-term liabilities |  |  |  |  |  |  | 132,304 |  |  |  | 30,044 |
Current liabilities |  |  |  |  |  |  |  |  |  |  |  |
Liabilities to financial institutions |  |  | C26 |  |  |  | 133,081 |  |  |  | 258,273 |
Advances from customers |  |  |  |  |  |  | 2,668 |  |  |  | 2,225 |
Accounts payable |  |  |  |  |  |  | 768,747 |  |  |  | 851,913 |
Income tax liabilities |  |  |  |  |  |  | 51,751 |  |  |  | 19,103 |
Other current liabilities |  |  | C18 |  |  |  | 945,517 |  |  |  | 1,042,037 |
Total current liabilities |  |  |  |  |  |  | 1,901,764 |  |  |  | 2,173,551 |
Total shareholders’ equity and liabilities |  |  |  |  |  |  | 2,999,449 |  |  |  | 3,260,112 |
Assets pledged as collateral |  |  | C19 |  |  |  | 27 |  |  |  | 35,264 |
Contingent liabilities |  |  | C20 |  |  |  | 3,603 |  |  |  | 3,229 |

20-F 2010 3

Consolidated Cash Flow

January 1 - December 31, TEUR |  | Notes |  |  | 2010 |  |  | 2009 |  |  | 2008 |
OPERATING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  |  |  |  |  |  | 90,468 |  |  |  | -835,827 |  |  |  | -72,890 |
Depreciation |  |  |  |  |  |  | 76,452 |  |  |  | 105,760 |  |  |  | 117,687 |
Adjustment to reconcile net income to cash |  |  | C21 |  |  |  | -231,527 |  |  |  | -217,828 |  |  |  | 18,928 |
|  |  |  |  |  |  | -64,607 |  |  |  | -947,895 |  |  |  | 63,725 |
Change in inventories |  |  |  |  |  |  | -75,724 |  |  |  | 171,563 |  |  |  | -93,186 |
Change in accounts receivable |  |  |  |  |  |  | 56,990 |  |  |  | 812,827 |  |  |  | 240,778 |
Change in other receivables |  |  |  |  |  |  | 98,095 |  |  |  | 226,105 |  |  |  | -233,863 |
Change in accounts payable |  |  |  |  |  |  | -142,732 |  |  |  | -133,490 |  |  |  | -273,593 |
Change in other liabilities |  |  |  |  |  |  | -119,227 |  |  |  | -456,846 |  |  |  | 26,721 |
Cash flow from operating activities |  |  |  |  |  |  | -247,205 |  |  |  | -327,736 |  |  |  | -269,418 |
INVESTING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments in intangible assets |  |  |  |  |  |  | -4,685 |  |  |  | -4,247 |  |  |  | -9,964 |
Sales of intangible assets |  |  |  |  |  |  | 144 |  |  |  | 164 |  |  |  | 2,607 |
Investments in tangible assets |  |  |  |  |  |  | -57,059 |  |  |  | -54,379 |  |  |  | -126,583 |
Sales of tangible assets |  |  |  |  |  |  | 22,142 |  |  |  | 6,975 |  |  |  | 5,391 |
Net investments in joint venture |  |  |  |  |  |  | — |  |  |  | — |  |  |  | -9,428 |
Sales/Amortization of other financial assets |  |  |  |  |  |  | — |  |  |  | — |  |  |  | 111,532 |
Change in temporary investments |  |  |  |  |  |  | 35,000 |  |  |  | -35,000 |  |  |  | — |
Cash flow from investing activities |  |  |  |  |  |  | -4,458 |  |  |  | -86,487 |  |  |  | -26,445 |
FINANCING ACTIVITIES |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Borrowing |  |  |  |  |  |  | 560,463 |  |  |  | 260,428 |  |  |  | 53,271 |
Repayment of debt |  |  |  |  |  |  | -597,683 |  |  |  | -53,919 |  |  |  | — |
Dividend to minority |  |  |  |  |  |  | -22,693 |  |  |  | -35,603 |  |  |  | -37,117 |
Dividend paid |  |  |  |  |  |  | — |  |  |  | — |  |  |  | -770,000 |
Cash flow from financing activities |  |  |  |  |  |  | -59,913 |  |  |  | 170,906 |  |  |  | -753,846 |
Net change in cash |  |  |  |  |  |  | -311,576 |  |  |  | -243,317 |  |  |  | -1,049,708 |
Cash, beginning of period |  |  |  |  |  |  | 878,119 |  |  |  | 1,124,877 |  |  |  | 2,155,236 |
Translation difference in Cash |  |  |  |  |  |  | 38,141 |  |  |  | -3,441 |  |  |  | 19,349 |
Cash, end of period |  |  |  |  |  |  | 604,684 |  |  |  | 878,119 |  |  |  | 1,124,877 |

20-F 2010 4

Notes to the Consolidated Financial Statements

Contents

C1. Accounting Principles |  |  | 6 |
C2. Net sales by market area |  |  | 10 |
C3. Other operating revenues and other operating expenses |  |  | 10 |
C4. Financial income and expenses |  |  | 10 |
C5. Taxes |  |  | 10 |
C6. Intangible assets |  |  | 11 |
C7. Tangible assets |  |  | 12 |
C8. Other non-current assets |  |  | 13 |
C9. Inventory |  |  | 13 |
C10. Accounts receivable |  |  | 14 |
C11. Other current assets |  |  | 14 |
C12. Short term cash investments |  |  | 14 |
C13. Shareholders’ equity |  |  | 14 |
C14. Provisions |  |  | 15 |
C15. Restructuring costs |  |  | 15 |
C16. Post-employment benefits |  |  | 15 |
C17. Long-term liabilities |  |  | 16 |
C18. Other current liabilities |  |  | 16 |
C19. Assets pledged as collateral |  |  | 17 |
C20. Contingent liabilities |  |  | 17 |
C21. Adjustments to reconcile net income to cash |  |  | 17 |
C22. Leasing |  |  | 17 |
C23. Wages, salaries and social security expenses |  |  | 18 |
C24. Fees to auditors |  |  | 19 |
C25. Financial risks |  |  | 19 |
C26. Liabilities to financial institutions |  |  | 20 |
C27. Group companies |  |  | 21 |
C28. Reconciliation to accounting principles generally accepted in the United States |  |  | 21 |

20-F 2010 5

C1. Accounting Principles

The consolidated financial statements of Sony Ericsson Mobile Communications AB are prepared in accordance with accounting principles generally accepted in Sweden, applying the Swedish Annual Accounts Act (ÅRL), the Swedish Accounting Standards Board’s recommendations (Bokföringsnämnden, BFN) and the Recommendation of the Swedish Financial Accounting Standards Council, RR 29 Remunerations to employees. The accounting principles are unchanged since last year. Figures in parentheses in the disclosures refer to 2009.

As a result of the restructuring programmes launched in 2008 and 2009, all facilities are now managed by a centralized administrative function, leading to that from 2010 all facility cost has been reported as General and Administration expenses. The comparative figures have been restated to reflect this change, i.e. a move from Selling expenses and Research and Development expenses to General and Administration expenses as shown below.

|  | 2009 |  |  | 2008 |
| Before |  |  | After |  |  | Before |  |  | After |
Selling expenses |  |  | -608,447 |  |  |  | -583,412 |  |  |  | -894,808 |  |  |  | -868,700 |
General and Administration expenses |  |  | -355,603 |  |  |  | -442,543 |  |  |  | -354,139 |  |  |  | -439,710 |
Research and Development expenses |  |  | -1,107,689 |  |  |  | -1,045,784 |  |  |  | -1,379,031 |  |  |  | -1,319,567 |
|  |  | -2,071,738 |  |  |  | -2,071,738 |  |  |  | -2,627,978 |  |  |  | -2,627,978 |

Principle of Consolidation

The consolidated financial statements include the accounts of the Parent Company and all subsidiaries in which the company has a voting majority. The intercompany transactions and internal profit have been eliminated. The consolidated financial statements have been prepared in accordance with the purchase method, whereby consolidated stockholders’ equity includes equity earned only after acquisition. Minority interest in net earnings is reported in the consolidated income statement. Minority interest in the equity of subsidiaries is reported as a separate item in the consolidated balance sheet.

Translation of financial statements in foreign currency

Sony Ericsson’s results are presented in EUR which is the reporting currency and the functional currency of the parent company. The group has sales and cost of sales in a large number of currencies. For all companies, including subsidiary

companies, the functional (business) currency is the currency in which the companies primarily generate and expend cash. Their financial statements plus goodwill related to such companies are translated to EUR by translating assets and liabilities at the closing rate on the balance sheet day and income statement items at average exchange rates, during the year, with translation adjustments reported directly in consolidated equity.

Revenue recognition

Sales revenue is recorded upon the delivery of products according to contractual terms and represents amounts realized, excluding value-added tax, and is net of goods expected to be returned, trade discounts and allowances. Sales revenue is recognized with reference to all significant contractual terms when the product has been delivered, when the revenue amount is fixed or determinable and when collection is reasonably assured.

Accruals for sales bonuses and similar items such as quarterly and yearly bonuses, quality bonus, co-op advertising and stock protection are shown as deductions from gross sales to arrive at net sales.

For product and equipment sales, revenue recognition generally does not occur until the products or equipment have been shipped, risk of loss has transferred to the customer, and objective evidence exists that customer acceptance provisions, if any, have been met. The Company records revenue when allowances for discounts, price protection, returns and customer incentives can be reliably estimated. Recorded revenues are reduced by these allowances. The Company bases its estimates on historical experience taking into consideration the type of products sold, the type of customer, and the type of transaction specific in each arrangement.

Costs related to shipping and handlings are included in cost of sales in the Consolidated Income Statement.

Research and development costs

Research and development costs are charged to expenses as incurred. Expenses related to the third party (including joint venture) development of new platforms for mobile phones are capitalized as other non-current asset and are amortized when the platforms are put into commercial use. Such costs are capitalized as intangible assets when technological feasibility has been

20-F 2010 6

established and when future economic benefits can be demonstrated.

Hedge accounting

The Group applies hedge accounting, by electing the fair value option in accordance with the Swedish Annual Accounts Act 4:14, for financial instruments intended to hedge foreign currency exposures having a future impact on results.

At the point in time at which the contract is established, the relationship between the hedging instrument and the hedged item is documented, as well as the purpose of this risk management and the strategy for taking various hedging measures. The company also documents its assessment, both when the contract is entered into and on an ongoing basis, as to whether the derivative used in the hedging transaction is effective in counteracting changes in fair value or income statement effects, in terms of the hedged items in question.

The hedging is designed in such a manner as to ensure, to the greatest degree possible, its effectiveness. The changes in fair value for those derivative instruments which do not meet the conditions for hedge accounting are reported directly in the income statement.

Future foreign currency exposures are hedged primarily by forward cover agreements but also via currency options. The effective portion of changes in the fair value of hedging instruments is recognized in equity. Any gain or loss relating to the ineffective portion is recognized in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods in which the hedged item affects profit or loss, for example, when the forecasted sale which is hedged takes place.

Intangible and tangible fixed assets

Intangible and tangible fixed assets are stated at cost less accumulated depreciation and impairment losses as well as write-ups. Annual depreciation is reported as plan depreciation, generally using the straight line method with estimated useful lives ranging from 3 years up to 10 years for machineries and equipments. Intangible assets are amortized over a period ranging from 3 years up to 5 years or based on the contract’s economic reality. Land improvements are amortized over 20 years. The costs of computer software developed or obtained for internal use are capitalized as intangible assets when technological feasibility has been

established and when future economic benefits can be demonstrated.

Tooling

Tooling owned by Sony Ericsson but used in its manufacturing partners operations is capitalized and amortized over the useful life of the tools.

Financial assets

Financial assets that are intended for long-term holding are accounted at acquisition value and impairment is made if a permanent decrease in the value can be stated. These assets include strategic long-term investments in private companies over which Sony Ericsson does not have the ability to exercise significant influence.

Joint venture

Investments in joint ventures, where Sony Ericsson has significant influence, are recognized in the consolidated financial statements in accordance with the equity method. Sony Ericsson’s share of income before taxes is reported in item “Share in earnings of joint venture” included in Operating income. Taxes are included in item “Income taxes for the year”.

Impairment test of assets

Impairment tests are performed whenever there is an indication of possible impairment. An impairment loss is determined based on the amount by which the carrying value exceeds the fair value of those assets.

Leases

Leases on terms in which Sony Ericsson assumes substantially all the risks and rewards of ownership are classified as finance leases, i.e. the leased object is recognized as a non-current asset and the future obligations for lease payments are recognized as current and non-current liabilities in the Balance Sheet. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset, although the depreciation period would not exceed the lease term.

Leasing agreements which are not classified as financial leases are classified as operational leases, and the leased assets under such contracts are not recognized in the balance sheet.

20-F 2010 7

Costs under operating leases are recognized in the Income Statement on a straight-line base over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Sony Ericsson has not identified any material financial leases for the reported periods.

Income tax

Reported income tax includes tax, which is to be paid or received, regarding the current year, adjustments concerning the previous years’ current taxes and changes in deferred taxes.

All income tax liabilities and receivables are valued at their nominal amount according to the tax regulations and are measured at the tax rate that is expected to be applied to the temporary differences when they reverse, based on the tax laws that have been enacted or substantively enacted by the reporting date. An adjustment of deferred tax asset/liability balances due to a change in the tax rate is recognized in the income statement unless it relates to a temporary difference earlier recognized directly in equity, in which case the adjustment is also recognized in equity.

In the case of items reported in the income statement, the related tax effects are also reported in the income statement. The tax effects of items that are accounted for directly against equity are also reported directly against equity.

Deferred tax is calculated according to the balance sheet method on all temporary differences arising between the reported value and the tax value of the assets and liabilities.

Receivables

Receivables with maturities greater than 12 months after balance sheet date are reported as fixed assets, and other receivables as current assets. Receivables are reported in the amounts at which they are expected to be received, on the basis of individual assessment.

Accounts Receivable

Accounts receivable are reported as current assets in the amounts at which they are expected to be received net of individual bad debt assessment.

Inventories

Inventories, which include the cost of materials, labor and overhead, are measured at the lower of cost or net realizable value on a first-in, first-out (FIFO) basis. Risk of obsolescence has been measured by estimating market value based on future customer demand and customer acceptance of new products.

Borrowings

Borrowings are reported initially at fair value, net of transaction costs incurred. If the reported amount differs from the amount to be repaid at maturity date, then the difference is allocated as interest expense or interest income over the tenor of the loan. In this manner, the initial amount reported agrees, at maturity date, with the amount to be repaid.

Financial liabilities first cease to be reported when they have been settled on the basis of repayment or when repayment has been waived.

All transactions are reported on settlement date.

Provisions

Provisions are made when there are legal or constructive obligations as a result of past events and when it is probable that an outflow of resources will be required to settle the obligations and the amounts can be reliably estimated. However, the actual outflow as a result of the obligation may differ from such estimate.

Warranty provisions include provisions for faulty products based on estimated return rates and costs. The best estimate is based on sales, contractual warranty periods and historical failure data of products sold.

Post-employment benefits

The Group has both defined benefit and defined contribution plans.

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions. The contributions are recognized as employee benefit expenses when they are due.

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee or former employee will receive on

20-F 2010 8

retirement, usually dependent on one or more factors such as age, years of service and compensation. The Group is responsible for the fulfillment of the pension obligation.

The schemes are both funded and unfunded.

The liability or receivable recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, unrecognized actuarial gains and losses and unrecognized past service cost.

Independent actuaries using the Projected Unit Credit Method calculate the defined benefit obligations and expenses annually. This method indicates that past-service costs are amortized on a straight-line basis over the vesting period. The present value of the defined benefit obligation is determined by discontinuing the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses, arising from experience adjustments and changes in actuarial assumptions, to the extent theses exceed 10% of the pension obligations’ present value or the fair value of plan assets are charged or credited to income over the employees’ expected average remaining period of service.

The principle described above for defined benefit plans is applied in the consolidated financial statements. The Parent Company has pension commitments in Sweden for white collar workers secured through an insurance solution with the insurance company Alecta. According to a statement issued by the Swedish Financial Reporting Board (UFR 3), this constitutes a multi-employer plan and should be accounted for as a defined benefit plan, as prescribed in RR 29 and UFR 6. Alecta cannot, however, provide the information required for the accounting of a defined benefit plan, as described in UFR 6. The Alecta plan is therefore accounted for as a defined contribution plan as prescribed in UFR6.

Contingent liabilities

The Group records a Contingent liability when there is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or

more uncertain future events not wholly within the control of the entity. Contingent liabilities are also reported when there is a present obligation that arises from past events but is not recognized, because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability.

Statement of Cash Flow

Foreign subsidiaries’ transactions are translated at the average exchange rate during the period. Subsidiaries purchased and/or sold, net of cash acquired/sold, are reported as cash flow from investment activities and do not affect reported cash flow from operations. Cash and cash equivalents consist of cash and bank and short term cash investments with a maturity less than three months. Bank deposits with an initial maturity over three months are not included in cash and cash equivalents. The statement of Cash Flow for 2008, 2009 and 2010 complies with International Accounting Standards (IAS) No. 7.

Related party transactions

Transactions and balances related to Sony and Ericsson are classified as external items.

Disposition of earnings

Each year the Board of Directors assesses the parent company and the group’s results and financial position in order to determine the appropriate disposition of earnings. This disposition, including any payment of dividends, is based on a number of factors including: the latest profit and loss account, the parent company’s equity, the parent company’s and the group’s cash flows, the equity ratio and liquidity of the parent company and the group after the proposed dividend in relation to the industry standards in which the parent company and the group conducts its business, and both the parent company’s and the group’s ability to fulfill both their short and long-term obligations. The Board of Directors resolved that the accumulated deficit, EUR -121,810,460, whereof Net income for the year EUR 143,430,034, will be carried forward.

20-F 2010 9

C2. Net sales by market area

|  | 2010 |  |  | 2009 |  |  | 2008 |
Europe, Middle East & Africa |  |  | 3,218,638 |  |  |  | 3,744,278 |  |  |  | 5,965,838 |
Americas |  |  | 851,203 |  |  |  | 849,577 |  |  |  | 2,565,969 |
Asia Pacific |  |  | 2,223,941 |  |  |  | 2,194,297 |  |  |  | 2,712,033 |
Total |  |  | 6,293,782 |  |  |  | 6,788,152 |  |  |  | 11,243,840 |

C3. Other operating revenues and other operating expenses

|  | 2010 |  |  | 2009 |  |  | 2008 |
Other operating revenues |  |  |  |  |  |  |  |  |  |  |  |
Gains on sales of intangible and tangible assets |  |  | 4,731 |  |  |  | 146 |  |  |  | 548 |
Gains on sales of financial assets |  |  | — |  |  |  | — |  |  |  | 19,621 |
Commissions, license fees and other operating revenues |  |  | 33,450 |  |  |  | 47,907 |  |  |  | 23,905 |
Total other operating revenues |  |  | 38,181 |  |  |  | 48,053 |  |  |  | 44,074 |
Other operating expenses |  |  |  |  |  |  |  |  |  |  |  |
Losses on sales of intangible and tangible assets |  |  | — |  |  |  | -523 |  |  |  | -548 |
Total other operating expenses |  |  | — |  |  |  | -523 |  |  |  | -548 |

Gains on sales of financial assets refer to sale of shares in Symbian Software Ltd during 2008.

C4. Financial income and expenses

|  | 2010 |  |  | 2009 |  |  | 2008 |
Interest income and similar profit items |  |  |  |  |  |  |  |  |  |  |  |
Interest income external |  |  | 13,498 |  |  |  | 16,909 |  |  |  | 80,962 |
Foreign exchange gains |  |  | 1,824 |  |  |  | 2,363 |  |  |  | 18,055 |
Other financial income |  |  | 2,477 |  |  |  | 2,052 |  |  |  | 2,476 |
Total |  |  | 17,798 |  |  |  | 21,324 |  |  |  | 101,494 |
Interest expense and similar loss items |  |  |  |  |  |  |  |  |  |  |  |
Interest expenses external |  |  | -25,820 |  |  |  | -36,264 |  |  |  | -46,287 |
Foreign exchange losses |  |  | -1,935 |  |  |  | -2,954 |  |  |  | -17,474 |
Other financial expenses |  |  | -2,226 |  |  |  | -6,929 |  |  |  | -7,402 |
Total |  |  | -29,981 |  |  |  | -46,146 |  |  |  | -71,162 |
Financial Net |  |  | -12,183 |  |  |  | -24,822 |  |  |  | 30,332 |

C5. Taxes

Income statement

The following items are included in income taxes for the year:

Income tax for the year |  | 2010 |  |  | 2009 |  |  | 2008 |
Current income taxes for the period |  |  | -79,657 |  |  |  | -32,075 |  |  |  | -82,275 |
Deferred tax income/ (-expense) related to temporary differences and tax loss carry forwards |  |  | 31,331 |  |  |  | 267,645 |  |  |  | 113,413 |
Income taxes for the period |  |  | -48,326 |  |  |  | 235,569 |  |  |  | 31,138 |

20-F 2010 10

A reconciliation between actual tax income (-expense) for the year and the theoretical tax income (-expense) that would arise when applying statutory tax rate in Sweden, 26.3 % (2008: 28 %) on income before taxes is shown in the table:

|  | 2010 |  |  | 2009 |  |  | 2008 |
Income before taxes |  |  | 147,301 |  |  |  | -1,042,676 |  |  |  | -82,745 |
Tax rate in Sweden, 26,3 % (2008: 28 %) |  |  | -38,740 |  |  |  | 273,653 |  |  |  | 23,169 |
Effect of foreign tax rates |  |  | -10,974 |  |  |  | -8,938 |  |  |  | 1,993 |
Current income taxes related to prior years |  |  | -79 |  |  |  | -7,640 |  |  |  | 9,321 |
Tax effect of expenses that are non deductible for tax purpose |  |  | -12,336 |  |  |  | -16,942 |  |  |  | -21,684 |
Tax effect of income that are non-taxable for tax purpose |  |  | 13,024 |  |  |  | 3,619 |  |  |  | 12,319 |
Tax effect of changes in tax rates |  |  | 779 |  |  |  | -7,923 |  |  |  | 162 |
Change in valuation allowance |  |  | — |  |  |  | -260 |  |  |  | 5,858 |
Income taxes for the year |  |  | -48,326 |  |  |  | 235,569 |  |  |  | 31,138 |

Balance sheet

Tax effect of temporary differences, including tax loss carry forward, has resulted in deferred tax assets as follows:

|  | 2010 |  |  | 2009 |
Deferred tax assets |  |  | 628,687 |  |  |  | 573,251 |

Deferred tax assets relate to temporary differences due to certain provisions such as warranty and scrap liabilities and tax losses carry forwards. Deferred tax assets are amounts recognized in countries where we expect to be able to generate corresponding taxable income in the future to benefit from tax reductions.

TEUR 460,650 (TEUR 419,546) of the deferred tax assets refers to tax loss carry-forwards and has been tested against future earning capacity. TEUR 453,168 of the tax loss carry-forwards are related to countries with long or indefinite periods of utilization, mainly Sweden, Brazil and the US. The deferred tax assets are valued at the full amount.

C6. Intangible assets

2010 |  | Licenses, software trademarks and similar rights |  |  | Patents |  |  | Total |
Accumulated acquisition costs |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | 130,979 |  |  |  | 3,978 |  |  |  | 134,957 |
Acquisitions |  |  | 4,685 |  |  |  | — |  |  |  | 4,685 |
Sales/disposals |  |  | -32,866 |  |  |  | — |  |  |  | -32,866 |
Translation difference for the year |  |  | 8,446 |  |  |  | — |  |  |  | 8,446 |
Closing balance December 31 |  |  | 111,244 |  |  |  | 3,978 |  |  |  | 115,222 |
Accumulated depreciation |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | -114,372 |  |  |  | -3,978 |  |  |  | -118,350 |
Depreciation |  |  | -10,248 |  |  |  | — |  |  |  | -10,248 |
Sales/disposals |  |  | 32,722 |  |  |  | — |  |  |  | 32,722 |
Translation difference for the year |  |  | -7,135 |  |  |  | — |  |  |  | -7,135 |
Closing balance December 31 |  |  | -99,033 |  |  |  | -3,978 |  |  |  | -103,011 |
Net carrying value |  |  | 12,211 |  |  |  | — |  |  |  | 12,211 |

20-F 2010 11

2009 |  | Licenses, software trademarks and similar rights |  |  | Patents |  |  | Total |
Accumulated acquisition costs |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | 132,133 |  |  |  | 3,978 |  |  |  | 136,111 |
Acquisitions |  |  | 4,247 |  |  |  | — |  |  |  | 4,247 |
Sales/disposals |  |  | -3,978 |  |  |  | — |  |  |  | -3,978 |
Translation difference for the year |  |  | -1,423 |  |  |  | — |  |  |  | -1,423 |
Closing balance December 31 |  |  | 130,979 |  |  |  | 3,978 |  |  |  | 134,957 |
Accumulated depreciation |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | -101,739 |  |  |  | -2,993 |  |  |  | -104,732 |
Depreciation |  |  | -17,619 |  |  |  | -985 |  |  |  | -18,604 |
Sales/disposals |  |  | 3,814 |  |  |  | — |  |  |  | 3,814 |
Translation difference for the year |  |  | 1,172 |  |  |  | — |  |  |  | 1,172 |
Closing balance December 31 |  |  | -114,372 |  |  |  | -3,978 |  |  |  | -118,350 |
Net carrying value |  |  | 16,607 |  |  |  | — |  |  |  | 16,607 |

C7. Tangible assets

2010 |  | Land and buildings |  |  | Machinery |  |  | Other equipment |  |  | Total |
Accumulated acquisition costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | 53,911 |  |  |  | 149,756 |  |  |  | 399,631 |  |  |  | 603,298 |
Acquisitions |  |  | 7,045 |  |  |  | 11,816 |  |  |  | 38,198 |  |  |  | 57,059 |
Sales/disposals |  |  | -8,392 |  |  |  | -29,530 |  |  |  | -54,555 |  |  |  | -92,477 |
Translation difference for the year |  |  | 4,861 |  |  |  | 11,938 |  |  |  | 48,935 |  |  |  | 65,734 |
Closing balance December 31 |  |  | 57,425 |  |  |  | 143,980 |  |  |  | 432,209 |  |  |  | 633,614 |
Accumulated depreciation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | -14,290 |  |  |  | -94,395 |  |  |  | -322,829 |  |  |  | -431,514 |
Depreciation |  |  | -6,977 |  |  |  | -18,696 |  |  |  | -40,531 |  |  |  | -66,204 |
Sales/disposals |  |  | 4,690 |  |  |  | 25,518 |  |  |  | 40,926 |  |  |  | 71,134 |
Translation difference for the year |  |  | -1,374 |  |  |  | -8,906 |  |  |  | -42,270 |  |  |  | -52,550 |
Closing balance December 31 |  |  | -17,952 |  |  |  | -96,480 |  |  |  | -364,704 |  |  |  | -479,136 |
Accumulated revaluations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | -10,139 |  |  |  | -8,846 |  |  |  | -3,124 |  |  |  | -22,109 |
Write down |  |  | — |  |  |  | -2,180 |  |  |  | -399 |  |  |  | -2,578 |
Sales/disposal |  |  | — |  |  |  | 3,742 |  |  |  | 191 |  |  |  | 3,933 |
Translation difference for the year |  |  | -912 |  |  |  | 2,532 |  |  |  | -10 |  |  |  | 1,609 |
Closing balance December 31 |  |  | -11,051 |  |  |  | -4,752 |  |  |  | -3,342 |  |  |  | -19,145 |
Net carrying value |  |  | 28,423 |  |  |  | 42,748 |  |  |  | 64,163 |  |  |  | 135,334 |

20-F 2010 12

2009 |  | Land and buildings |  |  | Machinery |  |  | Other equipment |  |  | Total |
Accumulated acquisition costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | 55,616 |  |  |  | 145,550 |  |  |  | 384,764 |  |  |  | 585,930 |
Acquisitions |  |  | 2,780 |  |  |  | 10,910 |  |  |  | 40,689 |  |  |  | 54,379 |
Sales/disposals |  |  | -3,799 |  |  |  | -3,550 |  |  |  | -18,728 |  |  |  | -26,077 |
Translation difference for the year |  |  | -686 |  |  |  | -3,154 |  |  |  | -7,094 |  |  |  | -10,934 |
Closing balance December 31 |  |  | 53,911 |  |  |  | 149,756 |  |  |  | 399,631 |  |  |  | 603,298 |
Accumulated depreciation |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | -11,358 |  |  |  | -74,740 |  |  |  | -284,763 |  |  |  | -370,861 |
Depreciation |  |  | -5,057 |  |  |  | -23,288 |  |  |  | -58,811 |  |  |  | -87,156 |
Sales/disposals |  |  | 1,905 |  |  |  | 1,507 |  |  |  | 14,574 |  |  |  | 17,986 |
Translation difference for the year |  |  | 220 |  |  |  | 2,126 |  |  |  | 6,171 |  |  |  | 8,517 |
Closing balance December 31 |  |  | -14,290 |  |  |  | -94,395 |  |  |  | -322,829 |  |  |  | -431,514 |
Accumulated revaluations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Opening balance January 1 |  |  | — |  |  |  | -5,177 |  |  |  | -745 |  |  |  | -5,922 |
Write down |  |  | -10,434 |  |  |  | -4,005 |  |  |  | -2,937 |  |  |  | -17,376 |
Sales/disposal |  |  | — |  |  |  | 244 |  |  |  | 565 |  |  |  | 809 |
Translation difference for the year |  |  | 295 |  |  |  | 92 |  |  |  | -7 |  |  |  | 380 |
Closing balance December 31 |  |  | -10,139 |  |  |  | -8,846 |  |  |  | -3,124 |  |  |  | -22,109 |
Net carrying value |  |  | 29,482 |  |  |  | 46,515 |  |  |  | 73,678 |  |  |  | 149,675 |

C8. Other non-current assets

|  | 2010 |  |  | 2009 |
Deferred tax assets |  |  | 628,687 |  |  |  | 573,251 |
Other non-current assets |  |  | 27,181 |  |  |  | 37,570 |
Total |  |  | 655,868 |  |  |  | 610,821 |

The main part of other non-current assets is prepaid licenses.

C9. Inventory

|  | 2010 |  |  | 2009 |
Raw material and manufacturing work in process |  |  | 230,610 |  |  |  | 225,457 |
Finished products and goods for resale |  |  | 229,747 |  |  |  | 132,684 |
Inventories, net |  |  | 460,357 |  |  |  | 358,141 |

Reported amounts are net of obsolescence reserves by TEUR 64,219 (TEUR 35,838).

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C10. Accounts receivable

|  | 2010 |  |  | 2009 |
Commercial receivables |  |  | 857,245 |  |  |  | 865,572 |
Provision for doubtful debts |  |  | -21,296 |  |  |  | -33,499 |
Total |  |  | 835,949 |  |  |  | 832,073 |

Provisions for doubtful debts have been estimated based on commercial risk evaluations and existing credit insurance agreements have been considered.

C11. Other current assets

|  | 2010 |  |  | 2009 |
Prepaid expenses |  |  | 54,323 |  |  |  | 52,695 |
Current tax assets |  |  | 44,579 |  |  |  | 55,197 |
Prepaid tooling |  |  | 5,675 |  |  |  | 16,683 |
VAT receivables |  |  | 72,042 |  |  |  | 73,799 |
Other receivables |  |  | 118,427 |  |  |  | 181,302 |
Total |  |  | 295,046 |  |  |  | 379,676 |

C12. Short term cash investments

|  | 2010 |  |  | 2009 |
Net book value |  |  | 276,168 |  |  |  | 524,235 |
Market value |  |  | 276,168 |  |  |  | 524,235 |

Short term cash investments are held in money-market funds and bank deposits. In 2009 a bank deposit of 35 MEUR, used as cash-collateral, was not included in cash equivalents.

C13. Shareholders’ equity

|  | Share capital |  |  | Restricted reserves |  |  | Non- restricted reserves and net profit/loss for the year |  |  | Total shareholders’ equity |
Shareholder’s equity December 31, 2008 |  |  | 100,000 |  |  |  | 445,363 |  |  |  | 671,585 |  |  |  | 1,216,948 |
Changes in cumulative translation adjustments |  |  | — |  |  |  | -2,821 |  |  |  | 1,686 |  |  |  | -1,135 |
Fair value reserve |  |  | — |  |  |  | — |  |  |  | 1,054 |  |  |  | 1,054 |
Transfer between non-restricted and restricted reserves |  |  | — |  |  |  | 34 |  |  |  | -34 |  |  |  | — |
Net loss for the year |  |  | — |  |  |  | — |  |  |  | -835,827 |  |  |  | -835,827 |
Shareholder’s equity December 31, 2009 |  |  | 100,000 |  |  |  | 442,576 |  |  |  | -161,536 |  |  |  | 381,040 |
Changes in cumulative translation adjustments |  |  | — |  |  |  | 25,266 |  |  |  | 26,514 |  |  |  | 51,780 |
Fair value reserve |  |  | — |  |  |  | — |  |  |  | 8,437 |  |  |  | 8,437 |
Transfer between non-restricted and restricted reserves |  |  | — |  |  |  | 156 |  |  |  | -156 |  |  |  | — |
Net income for the year |  |  | — |  |  |  | — |  |  |  | 90,468 |  |  |  | 90,468 |
Shareholder’s equity December 31, 2010 |  |  | 100,000 |  |  |  | 467,998 |  |  |  | -36,273 |  |  |  | 531,725 |

Share capital consists of 100,000,200 shares at a quota value of EUR 1 per share.

Cumulative translation adjustments have been distributed among unrestricted and restricted stockholder’s equity.

The fair value reserve is related to the effective portion of changes in the fair value of hedging instruments that is recognized in equity. Amounts accumulated in equity are recycled in the income statement in the periods in which the

20-F 2010 14

hedged item affects profit or loss, for example, when the forecasted sale which is hedged takes place. The closing balance for fair value reserve after taxes is TEUR 12,403 (TEUR 3,966) and is part of non-restricted reserves.

The transfer between non-restricted and restricted reserves is in accordance with the proposals of the respective companies’ boards of directors. In evaluating the consolidated financial position, it should be noted that earnings in foreign companies may be subject to taxation when transferred to Sweden and, in some instances, such transfer of earnings may be limited by currency restrictions.

C14. Provisions

|  | 2010 |  |  | 2009 |
Warranty commitments |  |  | 268,206 |  |  |  | 390,090 |
Restructuring expenses |  |  | 70,957 |  |  |  | 176,814 |
Other provisions |  |  | 52,207 |  |  |  | 61,209 |
Total |  |  | 391,370 |  |  |  | 628,113 |

Warranty commitments include provisions for faulty products based on estimated return rates and costs. The best estimate is based on sales, contractual warranty periods and historical failure data of products sold.

C15. Restructuring costs

|  | 2010 |  |  | 2009 |  |  | 2008 |
Cost of sales |  |  | -31,842 |  |  |  | -39,285 |  |  |  | -74,986 |
Selling expenses |  |  | -3,025 |  |  |  | -16,198 |  |  |  | -15,951 |
Administration expenses |  |  | -13,761 |  |  |  | -24,890 |  |  |  | -12,582 |
Research and development expenses |  |  | 6,542 |  |  |  | -83,903 |  |  |  | -62,349 |
Results from shares in Joint venture |  |  | — |  |  |  | — |  |  |  | -8,664 |
Total |  |  | -42,086 |  |  |  | -164,276 |  |  |  | -174,532 |
where of; |  |  |  |  |  |  |  |  |  |  |  |
Write down of assets |  |  | -1,597 |  |  |  | -26,325 |  |  |  | -23,575 |
Redundancy expenses |  |  | -2,777 |  |  |  | -87,947 |  |  |  | -60,532 |
Rental agreements |  |  | -6,317 |  |  |  | -16,933 |  |  |  | -15,998 |
Supplier related expenses |  |  | -18,833 |  |  |  | -31,168 |  |  |  | -68,166 |
Other |  |  | -12,562 |  |  |  | -1,903 |  |  |  | -6,261 |
Total |  |  | -42,086 |  |  |  | -164,276 |  |  |  | -174,532 |

The restructuring costs are related to cost saving programmes announced and launched during 2008 and 2009.

C16. Post-employment benefits

Sony Ericsson participates in local pension plans in countries in which we operate. There are principally two types of pension plans:

• |  | Defined contribution plans, where the Company’s only obligation is to pay fixed pension premiums into a separate entity (a fund or insurance company) on behalf of the employee. No provision for pensions is recognized in the balance sheet other than accruals for premium pensions earned, but not yet paid.

• |  | Defined benefit plans, where the Company’s undertaking is to provide pension benefits that the employees will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

20-F 2010 15

In Sony Ericsson most of the companies have defined contribution plans and therefore no pension provisions on the balance sheet. The subsidiaries in Japan, Netherlands, Germany and Mexico have defined benefit plans. In Sweden, the total pension benefits are accounted as defined contribution plans, even though the Financial Accounting Standards Council’s interpretations committee defined the ITP pension plan, financed through insurance with Alecta as a defined benefit plan. Alecta can, however, not provide the information required for the accounting of a defined benefit plan.

Pension costs

2010 |  | Sweden |  |  | Netherlands |  |  | Japan |  |  | Other |  |  | Total |
Pension cost Defined Benefit Plan |  |  | — |  |  |  | -4,360 |  |  |  | 9,176 |  |  |  | 168 |  |  |  | 4,984 |
Pension cost Defined Contribution Plan |  |  | 29,289 |  |  |  | — |  |  |  | — |  |  |  | 11,626 |  |  |  | 40,915 |
Total |  |  | 29,289 |  |  |  | -4,360 |  |  |  | 9,176 |  |  |  | 11,794 |  |  |  | 45,899 |
2009 |  | Sweden |  |  | Netherlands |  |  | Japan |  |  | Other |  |  | Total |
Pension cost Defined Benefit Plan |  |  | — |  |  |  | 337 |  |  |  | 6,473 |  |  |  | 564 |  |  |  | 7,374 |
Pension cost Defined Contribution Plan |  |  | 28,562 |  |  |  | — |  |  |  | — |  |  |  | 9,052 |  |  |  | 37,614 |
Total |  |  | 28,562 |  |  |  | 337 |  |  |  | 6,473 |  |  |  | 9,616 |  |  |  | 44,988 |
Provisions for post-employment benefits |
2010 |  | Sweden |  |  | Netherlands |  |  | Japan |  |  | Other |  |  | Total |
Provision for post employee benefits |  |  | — |  |  |  | 883 |  |  |  | 19,301 |  |  |  | 3,294 |  |  |  | 23,478 |
Other employee benefits |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 988 |  |  |  | 988 |
Total |  |  | — |  |  |  | 883 |  |  |  | 19,301 |  |  |  | 4,282 |  |  |  | 24,466 |
2009 |  | Sweden |  |  | Netherlands |  |  | Japan |  |  | Other |  |  | Total |
Provision for post employee benefits |  |  | — |  |  |  | 5,243 |  |  |  | 14,639 |  |  |  | 3,359 |  |  |  | 23,241 |
Other employee benefits |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 863 |  |  |  | 863 |
Total |  |  | — |  |  |  | 5,243 |  |  |  | 14,639 |  |  |  | 4,222 |  |  |  | 24,104 |

C17. Long-term liabilities

Maturity dates for the group long-term liabilities, TEUR 107,838 (TEUR 5,940), are within 1-5 years.

C18. Other current liabilities

|  | 2010 |  |  | 2009 |
Accrued personnel related expenses |  |  | 112,849 |  |  |  | 114,274 |
Accrued sales related expenses |  |  | 485,634 |  |  |  | 590,308 |
Other accrued expenses |  |  | 182,624 |  |  |  | 197,466 |
Other short term liabilities |  |  | 164,410 |  |  |  | 139,989 |
Total |  |  | 945,517 |  |  |  | 1,042,037 |

Accrued sales related expenses include sales bonuses, such as quarterly and yearly bonuses, quality bonus, co-op and stock protection.

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C19. Assets pledged as collateral

|  | 2010 |  |  | 2009 |
Liabilities to financial institutions |  |  |  |  |  |  |  |
Bank deposits |  |  | — |  |  |  | 35,000 |
Other |  |  | 27 |  |  |  | 264 |
Total |  |  | 27 |  |  |  | 35,264 |

The bank deposit in 2009 was made in order for a bank guarantee to be issued.

C20. Contingent liabilities

|  | 2010 |  |  | 2009 |
Other contingent liabilities |  |  | 3,603 |  |  |  | 3,229 |
Total |  |  | 3,603 |  |  |  | 3,229 |

Other contingent liabilities mainly include guarantees for loans.

C21. Adjustments to reconcile net income to cash

|  | 2010 |  |  | 2009 |  |  | 2008 |
Deferred tax income |  |  | -31,331 |  |  |  | -267,645 |  |  |  | -113,414 |
Minority interest |  |  | 8,508 |  |  |  | 28,720 |  |  |  | 21,283 |
Interest |  |  | 2,102 |  |  |  | 960 |  |  |  | 9 |
Tax |  |  | 41,255 |  |  |  | -35,737 |  |  |  | -65,185 |
Change in provisions (note C14 & C16) |  |  | -256,612 |  |  |  | 32,747 |  |  |  | 151,660 |
Revaluation of share in Joint venture |  |  | — |  |  |  | — |  |  |  | 22,649 |
Write-down on non-current assets |  |  | 2,578 |  |  |  | 17,376 |  |  |  | 5,497 |
Gains and losses on disposal of non-current assets |  |  | -4,731 |  |  |  | 376 |  |  |  | -19,621 |
Other |  |  | 6,704 |  |  |  | 5,375 |  |  |  | 16,050 |
Total |  |  | -231,527 |  |  |  | -217,828 |  |  |  | 18,928 |

C22. Leasing

|  | 2010 |  |  | 2009 |  |  | 2008 |
Leasing costs |  |  | 65,416 |  |  |  | 72,868 |  |  |  | 63,185 |

Future payments for operating leases and rents

2011 |  |  | 50,565 |
2012 |  |  | 48,755 |
2013 |  |  | 43,345 |
2014 |  |  | 31,886 |
2015 |  |  | 29,149 |
2016 and future |  |  | 37,323 |

The purpose of leases mainly refers to rents and office equipment.

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C23. Wages, salaries and social security expenses

Wages and salaries

|  | 2010 |  |  | 2009 |  |  | 2008 |
Wages and salaries |  |  | 432,718 |  |  |  | 532,905 |  |  |  | 589,248 |
Social security expenses |  |  | 124,898 |  |  |  | 133,504 |  |  |  | 171,105 |
Of which pension costs |  |  | 45,899 |  |  |  | 44,988 |  |  |  | 52,038 |
Of which |  |  |  |  |  |  |  |  |  |  |  |
CO compensation |  |  | 1,571 |  |  |  | 1,433 |  |  |  | 908 |
CO pension costs |  |  | 263 |  |  |  | 115 |  |  |  | 46 |
bonus & similar to CO |  |  | 761 |  |  |  | 42 |  |  |  | 1,020 |

Severance pay

For the President and the Corporate Management the following applies:

Severance payments are not payable if an employee resigns voluntarily, or if the employment is terminated as a result of flagrant disregard of responsibilities. An exception to this is if the notice of termination given by the employee is due directly to significant structural changes or other events that affect the content of work or the condition of the position. In such an instance, the notice is treated as if it were given by the Company and severance payments are made to the individual. Upon termination of employment, severance pay amounting to one years’ salary is normally paid. The severance payments will be paid out during agreed severance period.

Pension

Sony Ericsson’s policy regarding pension is to follow the competitive practice in the home country of the executive. There are different supplementary pension plans for the President and the Corporate Management. As major pension arrangements, the total pension base salary consists of the annual base salary and the target pay out according to the short term incentive plan. The company pays to the capital insurance company on salary portions in excess of 20 base amounts (one base amount = SEK 42,400) a percentage of the executive’s total pension based salary, between 25 and 35 percent per year, depending on the age of the executive.

Long term incentive

Sony Ericsson has a long term incentive program for certain employees. The calculation of the long term incentives is based on the performance of the Group and payments for the units allocated are vested in three years. The size of the units is approved by the Shareholders’ Remuneration Advisory Group.

Wages and salaries by geographical area

|  | 2010 |  |  | 2009 |  |  | 2008 |
Europe * and Middle East & Africa |  |  | 224,685 |  |  |  | 307,351 |  |  |  | 365,751 |
Americas |  |  | 56,152 |  |  |  | 81,241 |  |  |  | 88,642 |
Asia Pacific |  |  | 151,881 |  |  |  | 144,313 |  |  |  | 134,855 |
Total |  |  | 432,718 |  |  |  | 532,905 |  |  |  | 589,248 |
* Of which Sweden |  |  | 165,460 |  |  |  | 228,174 |  |  |  | 258,487 |
* Of which EU excl. Sweden |  |  | 52,491 |  |  |  | 70,571 |  |  |  | 96,166 |

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Number of employees

|  | 2010 |  |  | 2009 |  |  | 2008 |
|  | Men |  |  | Women |  |  | Men |  |  | Women |  |  | Men |  |  | Women |
Europe * and Middle East & Africa |  |  | 2,600 |  |  |  | 1,025 |  |  |  | 3,067 |  |  |  | 1,234 |  |  |  | 3,319 |  |  |  | 1,395 |
Americas |  |  | 413 |  |  |  | 140 |  |  |  | 547 |  |  |  | 180 |  |  |  | 677 |  |  |  | 223 |
Asia Pacific |  |  | 2,780 |  |  |  | 2,201 |  |  |  | 2,985 |  |  |  | 2,252 |  |  |  | 3,018 |  |  |  | 2,271 |
Total |  |  | 5,793 |  |  |  | 3,366 |  |  |  | 6,599 |  |  |  | 3,665 |  |  |  | 7,015 |  |  |  | 3,890 |
* Of which Sweden |  |  | 2,147 |  |  |  | 791 |  |  |  | 2,438 |  |  |  | 930 |  |  |  | 2,573 |  |  |  | 1,030 |
* Of which EU excl. Sweden |  |  | 289 |  |  |  | 143 |  |  |  | 425 |  |  |  | 184 |  |  |  | 654 |  |  |  | 299 |

Distribution of female/male for the Board of Directors and other persons in leading positions

|  | 2010 |  |  | 2009 |  |  | 2008 |
|  | Number on balance day |  |  | whereof men |  |  | Number on balance day |  |  | whereof men |  |  | Number on balance day |  |  | whereof men |
Consolidated (including subsidiaries) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Members of the board |  |  | 87 |  |  |  | 96.6 | % |  |  | 95 |  |  |  | 97.9 | % |  |  | 94 |  |  |  | 97.8 | %
Presidents and Executive Vice presidents |  |  | 15 |  |  |  | 100.0 | % |  |  | 15 |  |  |  | 100.0 | % |  |  | 14 |  |  |  | 100.0 | %

C24. Fees to auditors

|  | 2010 |  |  | 2009 |  |  | 2008 |
PricewaterhouseCoopers |  |  |  |  |  |  |  |  |  |  |  |
Audit fees |  |  | 1,668 |  |  |  | 1,427 |  |  |  | 1,609 |
Fees for audit services besides the audit assignment |  |  | 182 |  |  |  | 416 |  |  |  | 756 |
Fees for tax services |  |  | 102 |  |  |  | 267 |  |  |  | — |
Total |  |  | 1,952 |  |  |  | 2,110 |  |  |  | 2,365 |

The amount for audit fees to other than PricewaterhouseCoopers is TEUR 212 (TEUR 117).

C25. Financial risks

Foreign exchange risk - Transaction exposure

Sony Ericsson’s results are presented in EUR; the company’s hedging is based on EUR being the risk free currency. The group has sales and cost of sales in a large number of currencies. The main part of the net exposure is concentrated to the main holding company. The group’s currency exposure is hedged up to 8 months. The group’s net exposure is to approximately 80% made up of USD, JPY, GBP and SEK. The currency exposure is primarily hedged with forward contracts. The market value of derivatives not being used to revalue balance sheet items by December 31, 2010 was EUR 13.7 millions, all of these derivatives were forward contracts.

Foreign exchange risk - Translation exposure

All equity in the group’s companies is translated in accordance with the “current method” hence the translation exposure is taken directly to equity in the balance sheet. This type of currency exposure is not hedged.

20-F 2010 19

Interest rate risk

Sony Ericsson’s interest rate risk is primarily derived from cash and short term deposits, other balance sheet items are to a very small extent affected by shifts in the interest rate. Cash and short-term deposits amount to EUR 605 million at year end 2010, with an investment horizon shorter than twelve months. Short term borrowing amounted to EUR 130 million.

Credit Risk

Credit risk is divided into two categories; credit risk in trade receivables and financial credit risk.

Credit risk in Trade receivables

The value of outstanding trade receivables was at year end EUR 836 million. Provisions for expected losses at year end were EUR 21.3 million. 54% of the trade receivables are towards countries with a country risk in the interval “negligible to moderate”. Approximately 54% of Sony Ericsson’s outstanding AR is insured against non-payment by the customer.

Financial credit risk

Financial instruments carry an element of risk in that counterparts may be unable to fulfill their payment obligations. These exposures arise in the investments of cash and cash equivalents and from derivative positions with positive unrealized result against banks and other counterparties. Sony Ericsson mitigates a major part of these risks by investing cash in governmental risk with high rating. Part of the liquidity is also deposited with a few chosen banks with the highest possible short-term rating. How much to be invested with each fund and bank is regulated in policy.

Liquidity risk

The liquidity risk is that Sony Ericsson is unable to meet its short term payment obligations due to insufficient or illiquid cash reserves. At year end Sony Ericsson had a net cash position of EUR 375 million invested in liquid funds and short deposits with banks. In addition to cash in the balance sheet, there is an undrawn committed credit facility of EUR 120 million maturing 2011 in place as a liquidity reserve.

C26. Liabilities to financial institutions

|  | 2010 |  |  | 2009 |
Liabilities to financial institutions, non-current |  |  | 100,000 |  |  |  | — |
Liabilities to financial institutions, current |  |  | 133,081 |  |  |  | 258,273 |
|  |  | 233,081 |  |  |  | 258,273 |

The external borrowing decreased during the year by Euro 28 million (excluding accrued interest) with an outstanding debt at the end December of Euro 230 million. The cash flow from operating activities for 2010 was negative Euro 247 million, mainly due to payments related to the transformation programme.

In 2009, Sony Ericsson secured external funding of Euro 458 million, of which Euro 258 million is utilised at the balance sheet date. The facilities are including a two-year committed back-up facility of Euro 200 million, which was not utilised as of December 31, 2009. The parent companies guaranteed Euro 350 million of the bank facilities on a 50/50 basis. The utilized facilities had an initial maturity of 12 to 13 months and were drawn in August to October 2009.

As mentioned above, parts of the external funding were raised through support from the parent companies. Raising the funding without support from the parents would not have resulted in conditions that would have had a material impact on the income statement.

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In the beginning of the first quarter 2011 a mix of loan maturing and new facilities increased the net funding capacity with EUR 100 million. Sony Ericsson utilized existing facilities and borrowed EUR 450 million (including loans). Existing facilities and loans mature during 2011-12.

C27. Group companies

Company |  | Domicile |  | Percentage of ownership |
Sony Ericsson Mobile Communications AB |  | Sweden |  |  |  |
Beijing SE Potevio Mobile Communications Company Ltd. (BMC) |  | China |  |  | 51 | %
Beijing Suohong Electronics Co. Ltd., (BSE) |  | China |  |  | 100 | %
LLC Sony Ericsson Mobile Communications Rus |  | Russia |  |  | 100 | %
Sony Ericsson Hungary Mobile Communications Ltd. |  | Hungary |  |  | 100 | %
Sony Ericsson Mobile Communications S.A. de C.V. |  | Mexico |  |  | 100 | %
Sony Ericsson Mobile Communications (China) Co., Ltd. |  | China |  |  | 100 | %
Sony Ericsson Mobile Communications (India) Private Limited |  | India |  |  | 100 | %
Sony Ericsson Mobile Communications (Thailand) Co., Limited |  | Thailand |  |  | 100 | %
Sony Ericsson Mobile Communications (USA) Inc. |  | US |  |  | 100 | %
Sony Ericsson Mobile Communications do Brazil Ltd. |  | Brazil |  |  | 100 | %
Sony Ericsson Mobile Communications Hellas S.A. |  | Greece |  |  | 100 | %
Sony Ericsson Mobile Communications Iberia, S.L. |  | Spain |  |  | 100 | %
Sony Ericsson Mobile Communications International AB |  | Sweden |  |  | 100 | %
Sony Ericsson Mobile Communications Japan Inc. |  | Japan |  |  | 100 | %
Sony Ericsson Mobile Communications Management Ltd |  | UK |  |  | 100 | %
Sony Ericsson Mobile Communications Nigeria Limited |  | Nigeria |  |  | 100 | %
Sony Ericsson Mobile Communications S.p.A., Italy |  | Italy |  |  | 100 | %
Sony Ericsson Servicios Moviles, S.A. de C.V |  | Mexico |  |  | 100 | %

C28. Reconciliation to accounting principles generally accepted in the United States

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Sweden for unlisted companies, applying the Swedish Annual Accounts Act (ÅRL), the Swedish Accounting Standards Board’s (Bokföringsnämnden, BFN) recommendations and the Recommendation of the Swedish Financial Accounting Standards Council, (RR29), Remunerations to employees, which differs in certain significant respects from the generally accepted accounting principles in the United States (“US GAAP”). Sony Ericsson Mobile Communications has reconciled its net income / loss and equity under Swedish GAAP to the accounting principles according to generally accepted principles in the United States.

The principle differences between Swedish GAAP and US GAAP that affect our net income, as well as our stockholders equity relate to the treatment of business combinations (negative goodwill), synthetic option plan and restructuring costs.

Business combinations - Negative Goodwill

Under both Swedish GAAP and US GAAP, when the fair value of net assets acquired exceeds total purchase price, the Company first assesses whether all acquired assets and assumed liabilities have been properly identified and valued. Under Swedish GAAP, negative goodwill is not subject to amortization and any excess remaining after reassessment is recognized in income statement immediately. During 2004, a negative goodwill amounted to TEUR 3 717 was identified by the Company in connection with the acquisition of Beijing SE Potevio Mobile Communications Co. Ltd (BMC), and it was recognized in income statement by the end of 2004.

20-F 2010 21

Under US GAAP at the time of the acquisition, the Company must first reassess whether all acquired assets and assumed liabilities have been identified and properly valued. If an amount of negative goodwill still results after this reassessment, all acquired assets (including research and development assets) are then subject to pro rata reduction, except for (1) financial assets other than investments accounted for by the equity method, (2) assets to be disposed of by sale, (3) deferred taxes, (4) prepaid assets relating to pension and other postretirement benefit plans, and (5) any other current assets. If all eligible assets are reduced to zero and an amount of negative goodwill still remains, the remaining unallocated negative goodwill must be recognized immediately as an extraordinary gain.

Provision for social security cost on synthetic option plan

Under Swedish GAAP, the Company accrues social security costs for the synthetic option plan during the vesting period. Under US GAAP, no social security cost is recorded until the options are exercised or matching of the options takes place, which increases net income by TEUR 228 in 2009. The synthetic options are all exercised and matched and the remaining difference between Swedish GAAP and US GAAP as of December 31, 2009 was nil.

Restructuring costs

Under Swedish GAAP a provision for severance pay is recognized when a constructive obligation to restructure arises which requires that a detailed formal plan has been communicated to those affected by it. The implementation needs to be planned to begin as soon as possible and to be completed in a timeframe that makes significant changes to the plan unlikely. Under US GAAP provisions for severance pay representing a one-time benefit is recognized over the remaining service period, if extended service period is required, when a company has a detailed formal plan which has been communicated to those affected. If an entity under Swedish GAAP has a contract that is onerous, the present obligation under the contract shall be recognized and measured as a provision. Under US GAAP, costs to terminate a contract before the end of its term should be recognized as a liability and measured at fair value when the entity terminates the contract in accordance with the contract terms or when the premises have been vacated. A liability for costs that will continue to be incurred under a contract for its remaining term without economic benefit to the entity should be recognized and measured at its fair value when the entity ceases to use the right conveyed by the contract. Sony Ericsson has identified a difference between US GAAP and Swedish GAAP of TEUR 3,742 (TEUR 12,874) related to leasehold property that has not yet been terminated or vacated and thus not qualified as provisions in accordance with US GAAP.

Post-employment benefits

To calculate the annual expenses for the defined benefit plans, Sony Ericsson uses the corridor method. The amount recognized in the income statement which is the difference to US GAAP is not material.

Deferred Income Taxes

Deferred tax is calculated on US GAAP adjustments and the US GAAP balance sheet disclosure reflects the gross recognition of deferred tax assets and liabilities.

Non-current and current assets

Swedish GAAP requires deferred tax assets to be classified as non-current assets on the balance sheet. Under US GAAP, deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting. A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to carry forwards, shall be classified according to the expected reversal date of the temporary difference. The balance sheet shows a difference in non-current and current assets between Swedish GAAP and US GAAP which relates to the classification of deferred tax assets.

20-F 2010 22

Adjustment of net income, comprehensive income, equity and balance sheet items

Application of US GAAP as described above would have had the following effects on consolidated net income.

Adjustment of Net Income

|  | 2010 |  |  | 2009 |  |  | 2008 |
Net income per Swedish GAAP |  |  | 90,468 |  |  |  | -835,827 |  |  |  | -72,890 |
US GAAP adjustments before taxes: |  |  |  |  |  |  |  |  |  |  |  |
Business Combination |  |  | — |  |  |  | 763 |  |  |  | 100 |
Synthetic Option Plan |  |  | — |  |  |  | 228 |  |  |  | 1,018 |
Restructuring |  |  | -9,131 |  |  |  | -2,624 |  |  |  | 15,498 |
Tax effect of US GAAP adjustment |  |  | 2,257 |  |  |  | 595 |  |  |  | -4,339 |
Net income in accordance with US GAAP |  |  | 83,594 |  |  |  | -836,865 |  |  |  | -60,613 |

Adjustments of stockholders’ equity

|  | 2010 |  |  | 2009 |
Equity as reported per Swedish GAAP |  |  | 531,725 |  |  |  | 381,040 |
US GAAP adjustments before taxes: |  |  |  |  |  |  |  |
Restructuring |  |  | 3,742 |  |  |  | 12,874 |
Deferred tax effect of US GAAP adjustment |  |  | -880 |  |  |  | -3,292 |
Stockholders’ equity in accordance with US GAAP |  |  | 534,587 |  |  |  | 390,622 |
Minority interest |  |  | 42,286 |  |  |  | 47,364 |
Total equity in accordance with US GAAP |  |  | 576,873 |  |  |  | 437,986 |

Comprehensive income

|  | 2010 |  |  | 2009 |  |  | 2008 |
Net income in accordance with US GAAP |  |  | 83,594 |  |  |  | -836,865 |  |  |  | -60,613 |
Other comprehensive income |  |  |  |  |  |  |  |  |  |  |  |
Gain/loss on cash flow hedges |  |  | 11,373 |  |  |  | 1,409 |  |  |  | 10,191 |
Translation adjustment |  |  | 52,290 |  |  |  | -1,409 |  |  |  | 30,008 |
Deferred tax |  |  | -2,935 |  |  |  | -355 |  |  |  | -2,785 |
Total other comprehensive income |  |  | 60,728 |  |  |  | -355 |  |  |  | 37,414 |
Comprehensive income in accordance with US GAAP |  |  | 144,322 |  |  |  | -837,220 |  |  |  | -23,199 |

Balance sheet items according to Swedish GAAP and US GAAP

|  | Swedish GAAP |  |  | US GAAP |
|  | Dec. 31 2010 |  |  | Dec. 31 2009 |  |  | Dec. 31 2010 |  |  | Dec. 31 2009 |
Non-current assets |  |  | 803,413 |  |  |  | 777,102 |  |  |  | 550,377 |  |  |  | 623,398 |
Current assets |  |  | 2,196,036 |  |  |  | 2,483,010 |  |  |  | 2,448,191 |  |  |  | 2,633,422 |
Total Assets |  |  | 2,999,449 |  |  |  | 3,260,112 |  |  |  | 2,998,569 |  |  |  | 3,256,820 |
Stockholders equity |  |  | 531,725 |  |  |  | 381,041 |  |  |  | 534,587 |  |  |  | 390,623 |
Minority interest |  |  | 42,286 |  |  |  | 47,364 |  |  |  | 42,286 |  |  |  | 47,364 |
Provisions |  |  | 423,673 |  |  |  | 652,214 |  |  |  | 419,931 |  |  |  | 639,340 |
Non-current liabilities |  |  | 100,000 |  |  |  | 5,940 |  |  |  | 100,000 |  |  |  | 5,940 |
Current liabilities |  |  | 1,901,765 |  |  |  | 2,173,553 |  |  |  | 1,901,765 |  |  |  | 2,173,553 |
Total stockholders’ equity and liabilities |  |  | 2,999,449 |  |  |  | 3,260,112 |  |  |  | 2,998,569 |  |  |  | 3,256,820 |

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