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Ericsson To Take SEK 14.2 Bln Write-down In Q4

Swedish telecom equipment maker Ericsson (ERIC) said Tuesday that it will take a write-down of 14.2 billion Swedish kronor, or $1.8 billion, following the impairment testing of its businesses. The company also expects a non-cash charge of about 1.0 billion kronor due to the recent U.S. tax reform.

Ericsson noted that the impairments and the tax asset revaluation will impact its reported net income in the fourth quarter of 2017, but will have no impact on its cash flow and cash position in the quarter. The company will publish the final numbers in its financial results for the fourth quarter of 2017.

Ericsson said it has completed the impairment testing that was announced in conjunction with its restated financials according to its new segment structure announced on December 8, 2017. The impairment testing resulted in a write-down of 14.2 billion kronor.

The company noted that the impairments will have a negative impact on its fourth-quarter reported operating income, mainly in its Digital Services and Other segments.

Ericsson said that of the 14.2 billion kronor write down, 7.1 billion kronor will be towards impairment of goodwill and intangible assets in the Digital Services segment, while 6.7 billion kronor will be towards impairment of goodwill, intangible assets and fixed assets in "Segment Other".

The company will distribute a write-down of 0.3 billion kronor towards deferred costs related to the termination of certain transformation activities in the Managed Services segment, while impairment of 0.2 billion kronor will be for capitalized development expenses related to technologies that are no longer planned to be used in the Networks segment.

According to Ericsson, the majority of goodwill originates from the investments made by it ten years ago or more, and has limited relevance for the company's business going forward.

In addition, Ericsson noted that the lowering of the U.S. corporate income tax rate from 35 percent to 21 percent, with effect from 1 January 2018, will require a revaluation of U.S. deferred tax assets.

The company currently estimates a non-cash charge to the Group income statement of about 1.0 billion kronor that will impact its income tax expenses.

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