Ericsson Annual Report 2011

FY2011 Annual Report · Ericsson

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SHAPING THE
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Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone +46 10 719 0000
www.ericsson.com

Printed on Maxi Offset and Artic Matt Wind – chlorine free
paper that meets international environmental standards
EN/LZT 138 0622 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2012

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Annual Report 2011

COVERXEN_v19.indd 1

07/03/2012 10:19

With everything connected,
our World changes.

126

157

Starting with voice, telecommunication began by connecting places. It let homes and
businesses communicate better, making lives easier. Later, mobile telephony untied all those
possibilities from a fixed place.

Now, the same has happened to broadband. It too has gone mobile, meaning greater

efficiency, more freedom, and more fun too.

In the future, we see a world where everything that can benefit from being connected is
connected. That means all people in all places – but it means connecting things as well. Today,
this includes power meters and emergency services vehicles. Eventually, it could be anything
and everything.

This will transform individual lives. It will revolutionize individual businesses. But more than

that, it will have a profound impact on our entire society, changing the whole world for good.

There’s a long way to go. But that just means more potential – for us and for our customers.

Everyone is part of the networked society. Our role is to make it possible.

INTROXTOCXEN_v56.indd 1

29/02/2012 12:31

2011
at a glance

SaleS increaSed by 12%
to SeK 226.9 (203.3) billion

net income of
SeK 12.6 (11.2) billion

Strong financial poSition
with a net caSh of
SeK 39.5 (51.3) billion

earningS per Share (diluted)
of SeK 3.77 (3.46)

mobile broadband buildout
and expanSion in all regionS

70 new or renewed
managed ServiceS contractS

increaSed intereSt in
operationS and buSineSS
Support SyStemS

announced diveStment of
Sony ericSSon joint venture

acquiSition of telcordia
to Strengthen ericSSon
in oSS/bSS

contents

Annual Report 2011

103

117

124

125

127

152

158

160

Letter from the CEO

Our Operations

– The Market

– Our Business

– How We Stay Ahead

– Operator Portfolio

2011 Highlights

Five-Year Summary

Share Information

Letter from the Chairman

Board of Directors’ Report*

Consolidated Financial Statements*

Notes to the Consolidated Financial Statements*

Parent Company Financial Statements*

Notes to the Parent Company Financial Statements*

Risk Factors*

Auditors’ Report

Forward-Looking Statements
Corporate Governance Report 2011

Remuneration Report

Glossary, Financial Terminology and Exchange Rates

Shareholder Information

* Chapters covered by the Auditors’ Report, constituting the legal annual report.

Annual Publications

The Annual Report describes Ericsson’s financial and operational performance

during 2011. This publication includes a Corporate Governance Report.

Ericsson issues a separate Sustainability and Corporate Responsibility Report.

Find our Annual Report online: www.ericsson.com/annualreport2011

INTROXTOCXEN_v56.indd 1

29/02/2012 12:31

Ericsson Annual Report 2011

LETTER FROM THE CEO

Letter from HANS VeStBerG

Dear shareholders,

The world is entering a new communications era. Technology
is enabling us to interact, innovate and share knowledge in
entirely new ways – creating a dynamic shift in mindset. At
Ericsson, we are just beginning to explore the possibilities of
what we call the networked society.

At its foundation, three forces must come together: mobility,

broadband and the cloud. When these combine, you can get
access to anything, anytime, anywhere. But the networked
society is about much more than what the individual can
achieve. Eventually, everything that benefits from being
connected will be connected – and this will fundamentally
change our world. It is amazing what is happening around us,
global mobile broadband subscriptions grew by 60% to reach
a total of almost 1 billion at year-end. We forecast almost
5 billion mobile broadband subscriptions by 2016.

At the same time, the data consumed by smartphone
users is surging. Across all devices, mobile data traffic is
expected to grow 10 times between 2011 and 2016. Increasing
subscription numbers and traffic levels drive increased
complexity in networks. In turn this puts further demand on our
ability to deliver cutting-edge solutions and to understand our
customers’ needs.

Prime driver and thought leader

I believe that Ericsson has the necessary assets and strengths
to be the prime driver and thought leader in the networked
society. Our key assets are technology and services leadership,
as well as global presence and scale.

We focus on early involvement in creating new technologies,

strong contributions to standardization work and development
of intellectual property rights. We pioneered the development
of digital AXE switching, GSM, WCDMA/HSPA and LTE, resulting
in 30,000 granted patents. In 2011, we increased our investment
in R&D to further strengthen our technology leadership and we
currently have more than 22,000 employees in R&D.

Today, customers in more than 180 countries use our
solutions and services. In 2010, we started delivery of our
multi-standard radio base station RBS 6000. We have carried
out the quickest product ramp-up in our history and by the end
of 2011 the RBS 6000 accounted for almost all our radio base
station deliveries. This gives us significant scale advantages.

Our services offering covers all areas within the operational

scope of a telecom operator. We have 56,000 services
professionals around the globe and we manage networks that
serve more than 900 million subscribers. We estimate our
market share in telecom services at over 10%, making us the
leader in this market.

Sustainability and Corporate Responsibility

We continue to be strongly committed to Sustainability and
Corporate Responsibility. We remain focused on our ambitious
targets, including our carbon footprint intensity reduction goals.
Over the last decade we have increased 3G/4G radio base
station energy efficiency by over 85%. The result is that despite
the growing bandwidth demands of the networked society, we
are able to keep the energy consumption per subscriber at a low
and constant level.

We see an increasing interest from customers to drive energy
efficiency in their networks, and to use broadband to shape the
low carbon economy of the future.

Such diverse events during 2011 as the Arab Spring and the
publication of the UN guidelines on Business and Human Rights,
show the increasing importance and relevance of human rights in
our business. Our policies remain strong and we are committed to
high levels of governance standards wherever we do business in
the world. We will continue to give people in all parts of the world
access to communications, improving quality of life. Our separate
Sustainability and Corporate Responsibility Report will provide
additional information on these topics.

LETTER FROM THE CEO | Ericsson Annual Report 2011

CEOXResultsXEN_v43.indd 2

29/02/2012 12:41

Leading ICT player

We are a leading Information and Communications Technology (ICT) player.
Many people are surprised when they discover that we are the world’s
fifth largest software company. The vast majority of our R&D engineers are
engaged in software development.

Our long-term ambitions are to grow faster than the market, deliver the
industry’s best-in-class margins, grow earnings in joint ventures and generate
strong cash conversion. The Annual General Meeting approved the transformation
of these ambitions into clear targets in the Executive Performance Stock Plan.
We have identified three growth levers. The first is portfolio momentum

in mobile broadband, managed services and operations and business
support systems (OSS/BSS). The second is to gain market share. The third is
mergers, acquisitions and partnering.

In 2011, we grew revenues by 12% to SEK 227 billion and sales for
comparable units, adjusted for currency effects, increased by 19%. Early
internal market data indicates that we increased market share in mobile
network equipment by 6 percentage points to 38%. This makes us the world
leader, twice as big as the second largest player. We gained market share
through our strategy to capture footprint when networks are modernized in
Europe, by preserving our relationships with the most successful operators
and by gaining market share with new customers. During the year, we
announced the acquisition of Telcordia, a leading player in OSS and BSS.
We also announced the divestment to Sony Corporation of our share in the
50/50 joint venture Sony Ericsson. The transaction is a logical strategic step
that makes it possible for us to focus on enabling connectivity for all devices,
handsets and beyond.

fINANCIAL
reSULtS IN SHort

NET SALES AND NET INCOME

SEK billion

250

200

187.8

150

22.1

100

208.9

206.5

203.3

226.9

12.6

11.2

11.7

4.1

2007

2008

2009

2010

2011

Net sales

Net income

SEK billion
NET SALES
250
SEK 226.9 (203.3) billion, +12%
200
OPERATING MARGIN 1)
SEK
22.1
150
7.53
8
9.6% (12.0%)

206.5

187.8

208.9

203.3

7
100
NET INCOME
6
11.7
4.80
SEK 12.6 (11.2) billion, +12%
50
5

4.1

4.24

11.2

226.9

12.6

4.72

NET CASH 2)
2.87
2007
2009
SEK 39.5 (51.3) billion

2008

1.85

2.50

2.00

2010
2.25

2.50

2011

Net sales

Net income

EARNINGS PER SHARE (non-IFRS) 3)
2007
2008
AND DIVIDEND 4)

2010

2009

2011

EPS (non-IFRS) 3)

Dividend 4)

4
0
3

Gross margin declined due to a changed business mix with more coverage

SEK

projects, modernization projects in Europe, and a higher share of services
sales. Net income increased to SEK 12.6 billion. Our JVs had a tough 2011
and both reported losses. Ericsson has a strong financial position with a net
cash position of SEK 39.5 billion.

Solid industry fundamentals

We carefully monitor the potential impact from increased economic
uncertainties around the world. Short-term, we expect operators to continue
to be cautious with spending, reflecting factors such as macroeconomic and
political uncertainty.

With the move towards the networked society, we remain confident that
the fundamentals for longer-term positive development in the industry remain
solid. With strong customer relationships and one of the world’s largest
and best pools of industry talent, we believe Ericsson is well positioned to
continue to drive and to benefit from this development.

7.53

4.24

4.80

4.72

2.50

2.87

1.85

2.00

2.25

2.50

2007

2008

2009

2010

2011

EPS (non-IFRS) 3)

Dividend 4)

EPS (non-IFRS) 3)
SEK 4.72 (4.80), –2%

DIVIDEND 4)
SEK 2.50 (2.25), +11%

Hans Vestberg
President and CEO

1) Excl. share in earnings of JVs. For 2011 incl. restructuring

charges and for 2010 excl. restructuring charges.

2) Cash and cash equivalents plus short-term investments
less interest-bearing liabilities and post-employment
benefits.

3) EPS, diluted, excl. amortizations and write-downs of

acquired intangible assets, SEK.

4) Dividend for 2011 as proposed by the Board of Directors.

Ericsson Annual Report 2011

CEOXResultsXEN_v43.indd 3

29/02/2012 12:41

THE MARKET

Telecom trends

Everything is going mobile. This evolution is driven by video,
cloud-based services, the internet and machine-to-machine
(M2M) connectivity. It changes how consumers behave and
how they leverage mobility to communicate and to improve
their daily lives, through existing and new services. Users now
demand connectivity anywhere and anytime.

Enterprises are also beginning to exploit the new opportunities

provided by mobility, both to improve efficiency, such as by
streamlining processes, and to find new business models.
Important driving forces are new, more affordable

smartphones, and the many new connected devices on the
market. The total number of mobile subscriptions globally
(excluding M2M) reached approximately 6 billion at year end
2011, of which close to 1 billion were for mobile broadband.
Approximately 30% of all handsets sold during 2011 were
smartphones compared to around 20% for 2010. Out of the
installed base of subscriptions worldwide only around 10%
use smartphones.

Globally, the average mobile PC user currently generates

about 2 Gbytes of data per month, while a high-traffic
smartphone user generates approximately 500 Mbytes per
month. Usage has been increasing over time. With all these
devices and 24/7 connectivity, we expect global mobile data
traffic to grow tenfold by the end of 2016.

Operators are capitalizing on this changing market, enabling
users and machines to leverage connectivity in new ways. During
2011 various operators started to introduce tiered pricing, to
provide price plans, such as volume, time or speed-based
plans, which are better aligned to users’ needs. As a result of
that, operators are able to create various business models to
capitalize on different consumer and enterprise segments.

In order to enable these new services, improve user

experience and provide tiered pricing, operators are investing
in and transforming their operations and business support
systems (OSS and BSS). These systems monitor and optimize
network performance for customer relations handling and
subscriber support. OSS/BSS investments also enable
operators to optimize operations and reduce costs.

To accommodate for the increase in data traffic, operators
are putting in new equipment and upgrading their networks for
greater efficiency and better revenue capture. Network capacity
can be increased through additional features, such as software
upgrades, as well as through additional equipment, such as
radio base stations and transmission.

In today’s competitive markets, speed and capacity alone

are not enough to ensure best user experience and provide
differentiation. Quality of service is becoming an important way
for operators to differentiate.

Our customers

Our business is defined by long-term relationships mainly
with large telecom operators around the world. We serve
approximately 400 customers, most of whom are network
operators. Our ten largest customers, of which half are
multinational, account for 44% of net sales. Our customers
operate in a wide range of local economies and are at various
technology stages. They have different business focuses
depending on the maturity of the mobile broadband market.
We set up a new go-to-market model in 2010, with ten

regions which approach customers with solutions and services.
With this, we are moving towards a solutions-led sales
approach, selling the full breadth of the portfolio.

TOTAL nuMbER Of MObILE
subscRIPTIOns

nuMbER Of MObILE bROAdbAnd
subscRIPTIOns

MObILE TRAffIc – dATA And vOIcE

2011–2016
2011–2016
2011–2016
Growth: 30%
Growth: 30%
Growth: 30%

2011–2016
2011–2016
2011–2016
Growth: 5 times
Growth: 5 times
Growth: 5 times

2011–2016
2011–2016
2011–2016
Growth: 10 times
Growth: 10 times
Growth: 10 times

2010
2010
2010

2011
2011
2011

2012
2012
2012

2013
2013
2013

2014
2014
2014

2015
2015
2015

2016
2016
2016

2010
2010
2010

2011
2011
2011

2012
2012
2012

2013
2013
2013

2014
2014
2014

2015
2015
2015

2016
2016
2016

2010
2010
2010

2011
2011
2011

2012
2012
2012

2013
2013
2013

2014
2014
2014

2015
2015
2015

2016
2016
2016

Mobile subscriptions
Mobile subscriptions
Mobile subscriptions

Mobile PCs/tablets
Mobile PCs/tablets
Mobile PCs/tablets

Handheld devices
Handheld devices
Handheld devices

2011: approximately 6 billion mobile subscriptions
2011: approximately 6 billion mobile subscriptions
2011: approximately 6 billion mobile subscriptions
2016: reaching more than 8 billion
2016: reaching more than 8 billion
2016: reaching more than 8 billion

Source: Ericsson estimate, April 2011
Source: Ericsson estimate, April 2011
Source: Ericsson estimate, April 2011

2011: approximately 970 million mobile
2011: approximately 970 million mobile
2011: approximately 970 million mobile
broadband subscriptions
broadband subscriptions
broadband subscriptions
2016: reaching almost 5 billion
2016: reaching almost 5 billion
2016: reaching almost 5 billion

Source: Ericsson estimate, April 2011
Source: Ericsson estimate, April 2011
Source: Ericsson estimate, April 2011

Data: mobile
Data: mobile
Data: mobile
PCs/tablets
PCs/tablets
PCs/tablets

Data: mobile
Data: mobile
Data: mobile
handheld
handheld
handheld

Voice
Voice
Voice

2011: smartphone traffic tripled
2011: smartphone traffic tripled
2011: smartphone traffic tripled

Source: Ericsson estimate, April 2011
Source: Ericsson estimate, April 2011
Source: Ericsson estimate, April 2011

APPROXIMATELY 6 bILLIOn
MObILE subscRIPTIOns
uP >10% 2011

APPROXIMATELY 970 MILLIOn
MObILE bROAdbAnd
subscRIPTIOns, uP 60% In 2011

MObILE dATA TRAffIc
EXPEcTEd TO HAvE
MORE THAn dOubLEd In 2011

OUR OPERATIONS | Ericsson Annual Report 2011

OurXBusinessXEN_v72.indd 4

29/02/2012 12:46

OuR busInEss

OUR BUSINESS

Our mission is to innovate to empower people, business and society. We are a world-leading
provider of network infrastructure, telecom services and multimedia solutions, which in
combination meet a broad range of operator needs. To best reflect our business, we report
five business segments, two of which are the joint ventures Sony Ericsson and ST-Ericsson.

nETWORKs

GLObAL sERvIcEs

MuLTIMEdIA

Segment Networks develops
and delivers mobile and fixed
infrastructure equipment and
software. We are a market leader
in 2G/GSM and 3G/WCDMA
mobile technologies. We now
provide all-IP 4G/LTE networks as
the evolution of mobile broadband.
Our portfolio also includes CDMA
solutions, as well as xDSL, fiber
and microwave transmission.

With more than 56,000 services
professionals globally, we deliver
managed services, consulting and
systems integration, customer
support and network rollout. We
manage complex projects with
advanced IS/IT competence and
multi-vendor experience, using a
mix of local knowledge and global
expertise.

Segment Multimedia develops and
delivers software-based solutions
for operations and business
support systems (OSS and BSS),
real-time, multi-screen and on-
demand TV and consumer and
business applications. Revenue
management, i.e. software based
solutions for charging and billing,
is part of BSS.

nET sALEs
(sHARE Of TOTAL)

sEK 132.4 billion
(58% of total sales)

sEK 83.9 billion
(37% of total sales)

sEK 10.6 billion
(5% of total sales)

MARKET sHARE
EsTIMATEs

38% in mobile network equipment.
Twice the size of the second
largest competitor

More than 10%.
Larger than any of our competitors

Three markets with different
dynamics and players

MARKET POsITIOn

Number 1 in mobile networks

Number 1 in telecom services

Number 1 in real-time
charging & billing

Joint ventures

Our joint ventures focus on enabling superior user devices. Sony Ericsson’s
and ST-Ericsson’s results are reported according to the equity method.

In October 2011, we announced that Sony would acquire Ericsson’s 50%

share in Sony Ericsson. The transaction took place on February 15, 2012.

sOnY ERIcssOn

sT-ERIcssOn

A 50/50 joint venture with Sony
Corporation, Sony Ericsson offers
mobile phones, accessories,
content and applications.

A 50/50 joint venture with
STMicroelectronics, ST-Ericsson
offers wireless platforms and
semiconductors for leading
handset manufacturers.

nET sALEs

EuR 5,212 million

usd 1,650 million

MARKET POsITIOn

10% market share in the Android
smartphone market

Number 3 in thin modems

OurXBusinessXEN_v72.indd 5

29/02/2012 12:46

Ericsson Annual Report 2011 | OUR OPERATIONS

hOW WE STAY AhEAD

HOW WE STAY AHEAD

Principles

We interact with our customers based on the following principles:
> A customer-first perspective: we work hard to understand
operators’ needs, objectives and constraints. This allows us
to function as a partner, sharing our global expertise through
the solutions we deliver.
Innovation: our solutions are forward-looking and future proof.
A scalable portfolio means that we can always offer the right
solutions for the customer, based on market and position,
helping our customers to create new revenue streams.

> Delivering cost-efficiency: we ensure that the solutions we

offer reduce our customers’ operating expenses.

Assets

Throughout our business, we leverage Ericsson’s key
competitive advantages:
> Technology leadership: we always strive to lead, innovate
and set the agenda for the industry. We drive the creation
of interoperable ecosystems. We have 30,000 granted
patents and with over 90 license agreements we are a net
receiver of royalties. We provide superior-performance
networks through a unique combination of hardware and
software design.

> Services leadership: we have 56,000 services professionals
worldwide operating from our ten regional service centers
and four global service centers, using the same processes,
methods and tools. Combining global scale advantages with
local presence is what makes us unique.

> Global presence and scale: we have established

relationships with every major operator in the world and we
are present in more than 180 countries.

BUIlDING COvERAGE – TRANSfORMING NETWORkS

Extensive mobile network coverage forms the building
blocks of operator business. We start by helping customers
to build out coverage. When that is in place, we offer
additional services and solutions that enable expansions and
enhancements of the network.

This means that once operators have built a base of
subscribers, they can differentiate their services, based both
on quality and innovation, to retain competitive positions as
markets develop.

REPlICATING SUCCESS IN SERvICES

We scale our business by replicating successes globally.
This entails working closely with customers to develop new
solutions. Once a successful case is proven we can roll out the
same practice all over the world.

Local competence, with intimate knowledge of the business
environment, works hand-in-hand with global expertise, sharing
common processes, methods and tools. This ensures quality
and efficiency.

Growth levers

We have identified three key levers for growth where we believe
we have strong assets to meet market demand:
> Portfolio momentum: focusing on the areas where we have
the most growth potential. These are mobile broadband,
managed services and OSS and BSS. We expect the
majority of growth to come from portfolio momentum.
> Market share gain: building presence in markets that are

investing more and where we see technology shifts.

> Mergers, acquisitions and partnering: filling portfolio gaps
and entering new growth areas, such as connected devices.

PORTfOlIO MOMENTUM

MARkET ShARE GAIN

MERGERS & ACQUISITIONS
AND PARTNERING

> Mobile broadband

– Strengthened market position in

Increase market share in
technology shift

mobile networks

> Managed services

– 70 new contracts in 2011

> OSS and BSS

– Another 200 million subscribers
served by our charging and
billing systems

– LTE and network modernization
– New radio base station RBS 6000

in almost all deliveries

> fill portfolio gaps

– Telcordia for OSS/BSS

(announced 2011)
> New growth areas

– M2M (Telenor Connexion platform)
– Public safety

(Motorola partnership)
– Mobile cloud accelerator

(Akamai partnership)

OUR OPERATIONS | Ericsson Annual Report 2011

WHYXinvestXEN_v55.indd 6

29/02/2012 13:11

x10

MOBIlE DATA TRAffIC
WIll GROW TENfOlD
BY END Of 2016.

USEr-DrivEn
bUSinESS

In some industries, companies have to persuade their
users to adopt their innovations. for operators, it’s the
other way around.

We understand the complexities involved in mobile

networks. With that expertise, our customers can
continue to satisfy the demands of their users.

WHYXinvestXEN_v55.indd 7

29/02/2012 13:11

Ericsson Annual Report 2011

OpERATOR pORTfOLiO

OPERATOR PORTFOLIO

Our offering is divided into seven solution areas, each of which involves one or
more of our businesses. Many of our contracts involve several solution areas.
For example, services often form an important part of network projects.

MObILE bROAdbAnd

increasing user demands

Mobile broadband now accounts for approximately 15% of all
mobile subscriptions. Mobile data traffic is expected to have
more than doubled in 2011, mainly due to new smartphone
launches and the uptake of apps. PC and tablet users generate
even more data traffic, and total mobile data traffic is estimated
to grow tenfold by end of 2016, mainly driven by video.

Operators need to put certain pre-requisites in place to
ensure they can capitalize on mobile broadband. these include
enhancing network quality, by increasing speed and capacity,
and providing service differentiation.

3G/WCDMA and 4G/LTE

We expect 3G/WCdMa to be the predominant mobile broadband
technology for many years to come. during the year, we
demonstrated a new HsPa world speed record in a commercial
network, at 168Mbps downlink. Operators will be able to take
a stepped approach towards this from 42Mbps, currently the
fastest service offered over commercial networks.

the next technology is ltE, which is in its initial phase. ltE

covers only a few percent of the world’s population today. in
five years’ time, it is expected that ltE will have roughly 35%
population coverage.

The RBS 6000 family

the multi-standard radio base station rBs 6000 supports
GsM/EdGE, WCdMa/HsPa, ltE and CdMa in a single unit. it
offers cost-effective deployment and a future-proof evolution in
capacity and functionality.

the rBs 6000 family now accounts for close to 100% of
our radio base station deliveries. a typical deployment project,
comprising mainly hardware, is followed by an upgrade and

Multi-standard RBS 6000
GSM, WCDMA, LTE, CDMA

>1,000% more capacity
>20% better radio performance
80% lower energy consumption
per subscriber
100% better MtBF*
75% less space needed

Compared to previous generations.

* Mean time Between Failures

expansion phase, which involves mostly software and services.
during 2011 we launched the antenna integrated radio (air), as
part of the rBs 6000 family. this product significantly reduces
integration and installation time as well as energy consumption.

Smart Services Routers

network performance is the key operator differentiator
when it comes to user experience. in 2011, we launched the
ssr 8000 family, a series of smart services routers. they
support delivery of services across fixed and mobile networks
and enable faster introduction of new user services. For
operators, the ssr 8000 family provides a simple, smart and
scalable solution. For users, it means access to advanced
services, with telecom-grade quality from any device anywhere.

Heterogeneous networks (HetNets)

By 2016, densely populated urban areas representing less
than 1% of the Earth’s total land area are expected to generate
around 60% of total mobile traffic. in order to increase network
capacity in these areas, we will build Hetnets. Powerful macro
radio base stations are complemented by smaller radio base
stations (pico and micro) which provide extra capacity for areas
where demand is particularly high.

THE EVOLUTiON TO MOBiLE BROADBAND

END-TO-END LEADERSHip iN MOBiLE BROADBAND

Mobile broadband

HSPA, LTE,
CDMA2000 EV-DO

Mobile internet

GPRS, EDGE, WCDMA

Mobile telephony

GSM, CDMA2000

1990

2000

2010

Our OPEratiOns | Ericsson annual report 2011

Transport via
microwave, fiber,
copper

Core
network
(all-IP)
SSR 8000

Internet

RBS 6000

Multi-standard
radio base station for
GSM, WCDMA/HSPA,
LTE and CDMA

SOLUTIONSXEN_v71.indd 8

29/02/2012 13:04

MAnAgEd sERvIcEs

telecom operators look to reduce costs and manage
complexity. therefore, they review their business models and
look for partners that can take on a broader responsibility.
in managed services agreements, Ericsson handles complex
issues such as convergence, quality and capacity management,
while freeing up operators’ resources to focus more on strategy,
marketing and customer care. We can also help operators to
scale quickly and cost-effectively.

We manage networks with a total of more than 900 million

subscribers, of which 500 million are in network operation
contracts. Winning this business has involved insourcing
employees from operators around the world. this provides us
with a unique insight into the operator mindset.

the networks we manage are typically complex multi-
vendor, multi-technology environments, and over 50% of
the equipment involved is non-Ericsson. Managed services
contracts normally span five to seven years and often involve
operational and process consulting.

We provide efficiency by drawing on our global scale. Our
four global service centers all house global network operation
centers (GnOCs) for remote delivery of network management.
these are based in romania, india, Mexico and China. as an
example, more than 20 European operator networks are run
from the GnOC in romania.

Shared networks and shared capacity

to drive structural efficiencies in the networks, there is an
increasing demand for business models that support shared
networks and capacity between two or more operators.
Managed services play a decisive role in this evolution.

Adjacent sectors

We also address sectors with similar requirements to telecom
operators where we can reuse our assets and expertise. We
constantly look to expand operational synergies by increasing
the scope of our managed services business in each country
where we operate.

OpERATOR pORTfOLiO

OPERATIOns And
busInEss suPPORT sysTEMs

Service differentiation

in order to monetize the increasing amount of data traffic in
their networks, operators are beginning to adopt new business
models with tiered pricing plans. this involves finding more ways
to meet user needs than one-size-fits-all monthly subscriptions.
Operators introduce ‘buckets’ of data – a fixed quantity that
a user can utilize over a certain amount of time – or different
speeds and quality guarantees. these new business models
often require operators to evolve their Oss and Bss solutions.

Operators also seek to manage increasing network
complexity, while retaining efficiency and simplicity in
operational processes, by consolidating their systems. these
Oss and Bss transformation projects are large undertakings
which involve consulting and systems integration alongside the
provision of our software solutions.

Control and monitoring

Ericsson’s operations support systems (Oss) include solutions
for monitoring network performance and the delivery of services
for best user experience. Oss tools are also used in the
planning, building and optimization of networks.

during 2011, Ericsson announced the acquisition of

telcordia, a provider of software and services for Oss and Bss.
this allows us to enhance our capabilities to handle multi-
vendor systems.

provisioning and charging

Our business support systems (Bss) include solutions for
revenue management and customer care. With our convergent
real-time charging solution the user gets one invoice for all
services. Over 1.4 billion subscribers are charged and billed
through Ericsson’s systems.

With our solutions, operators can more efficiently capture

and secure revenue streams. users benefit too, gaining the
ability to start using a new service or device immediately after
signing up, as well as greater control over their spending.

MANAGED SERViCES

Operate

OpERATiONS AND BUSiNESS SUppORT SySTEMS

Strategy

Design

Plan

Build

Field
operations

Network
operations

Business
Support
System

Service
network

Core
network

Transmission

Radio
network

Business Intelligence
User understanding
and insights

Customer
Relationship
Management
Customer support

t
n
e
m
n
o
r
i
v
n
e
T
I
/
S

Service Fulfillment
Making services
available to users

Service Assurance
Ensuring the
quality of services

T
e
e
c
o
m
e
n
v
i
r
o
n
m
e
n
t

Billing and Revenue Management
Charging and billing

Operator responsibility

Ericsson offering

BSS

OSS

Ericsson annual report 2011 | Our OPEratiOns

SOLUTIONSXEN_v71.indd 9

29/02/2012 13:04

OpERATOR pORTfOLiO

cOMMunIcATIOn sERvIcEs

Communication services are the services people use to interact
with each other, such as voice and video calls as well as text
and multimedia messaging. these operator-based services
are provided globally and are based on industry standards,
ensuring interoperability.

users expect their communication services to provide a
seamless, instantaneous experience across all devices and
all subscriptions. this shift requires operators to provide new
functionality and richer offerings.

Enhancing user experience

Voice still accounts for, on average, 65% of operator revenue.
Operators now exploit opportunities to enhance user experience
while reducing costs for voice communication. Our iP Multimedia
subsystem (iMs) makes this possible. services controlled
by iMs are voice (including Hd voice), video calls, the rich
Communication suite (rCs) and messaging.

HD voice

Hd voice significantly improves quality of voice communication
with more natural sound and improved intelligibility. it is
expected to play a key role in ensuring that voice continues to
provide revenue streams for operators of both fixed and mobile
networks.

Voice over LTE

Currently in its trial stage, Voice over ltE (VoltE) will enable
operators to offer voice services over their all-iP ltE networks.
it also brings with it new services such as Hd video and richer
multimedia services.

FIXEd bROAdbAnd
And cOnvERgEncE
strong growth in data traffic drives a need for higher capacity
solutions, based on iP and Ethernet technologies.

Operators compete by evolving their networks to provide
fast internet speeds, reliable high-definition iPtV and video on
demand. We enable this by providing end-to-end broadband
access solutions via high-speed fiber (such as GPOn) and
copper (xdsl).

Convergence and transformation

to reduce cost and enable service bundling, fixed traffic can
be provided over a multiservice network converging telephony,
internet and tV. Our converged networks are iP-based,
providing lower-cost and higher-performance services.

TELEvIsIOn And
MEdIA MAnAgEMEnT

TV is going digital and interactive

in the converging media landscape, broadcast and broadband
are coming together. the number of iPtV subscriptions
worldwide is now more than 50 million. China, France and the
us have particularly high iPtV subscription numbers today. We
believe that the uneven spread of iPtV subscriptions in different
regions is going to continue.

the worldwide digital tV market is growing rapidly.
With a broad suite of open standards-based products, we
offer high-quality solutions for digital tV, HdtV, video on demand,
iPtV, mobile tV, connected home and content management.

High-performance solutions

High-performance video means large amounts of traffic in the
networks. this can be handled with our media distribution
solution for video delivery over iP, combining a content
distribution network with our tV portfolio.

Our iPtV network infrastructure offers a verified end-to-end

solution from video headend to broadband access, optimized
for multi-stream Hd-iPtV and on-demand video services. the
solution also offers support for video to mobile handsets over
HsPa and ltE networks.

Ericsson’s multiscreen tV solution combines the full features
of iPtV, mobile tV and web tV with a common user interface. it
fully integrates fixed line and wireless media for the first time.

Business consulting, systems integration and implementation

ensure a smooth launch of new tV infrastructure and services.

cOnsuMER And
busInEss APPLIcATIOns
in today’s environment, basic services come under pressure from
competition. to secure differentiation and profitability, we help
operators to enhance revenues and subscriber retention. Our
solutions include messaging, service exposure, connectivity to
social media, location-based services, media, brokering, internet
commerce and enterprise applications.

interaction and collaboration

Our Business Communication suite (BCs) is a software-as-a-
service, targeting the enterprise market. it enables the sharing
of voice, data and messaging in a collaborative environment.

Ericsson Money services offers end-to-end mobile financial

services. it enables people to store, transfer and withdraw
money, as well as making payments, via their mobile handsets.

Our multimedia brokering solution facilitates payment
and distribution of content. We act as the interface between
enterprises and multiple mobile operators with consumer data
and services such as sMs.

Our OPEratiOns | Ericsson annual report 2011

SOLUTIONSXEN_v71.indd 10

29/02/2012 13:04

EFFIcIEncy
ALwAys
wIns

Operators are constantly thinking about the
competition. Will the big beat the small? The fast
beat the slow? Who will prevail?

One thing is for sure: efficiency always wins.

That’s where we come in.

20%

MANAGED SERViCES CAN REDUCE
NETWORk OpERATiNG ExpENSES By 20%.

SOLUTIONSXEN_v71.indd 11

29/02/2012 13:04

Ericsson annual report 2011

2011 HIGHLIGHTS

JANUARY-MARCH

JULY-SEPTEMBER

> World speed record on a commercial HSPA network is set, at

168Mbps downlink and 24Mbps in the uplink.

> Ericsson is selected by Telefónica O2 UK to perform network

modernization in the North of the UK.

> Bharti Airtel signs a five-year managed services agreement with
Ericsson to manage and optimize its mobile networks in Africa,
as well as a separate two-year network coverage and upgrade
contract.

> du in the UAE signs a five-year managed services contract with
Ericsson to deliver application development and maintenance
for its IT application landscape.

> Ericsson, Verizon Wireless and Samsung demonstrate Voice

over LTE (VoLTE), a global, interoperable voice solution for LTE
mobile broadband networks.

> The new Antenna Integrated Radio (AIR) product is launched.
It cuts operational costs substantially and ensures a smooth
introduction of new technologies and frequency bands.

> Ericsson announces a new generation IP networking portfolio.

The first product is the Smart Services Router (SSR 8000) family
for fixed and mobile broadband.

> Akamai and Ericsson announce a strategic alliance, focused on

> A consortium of technology companies, of which Ericsson

is a part, wins the bid for all of Nortel’s approximately 6,000
remaining patents and patent applications.

> SoftBank Mobile in Japan chooses Ericsson as sole supplier for

next-generation packet core network (EPC) based on IP.

> Slovak Telekom, part of the Deutsche Telekom Group signs a

five-year fixed line managed-services contract with Ericsson for
field maintenance and network operations.

> MobiFone in Vietnam signs a contract with Ericsson for mobile

video optimization, enabling high-quality video.

> Ericsson announces a contract with Taiwan’s Chunghwa

Telecom to deploy and integrate a new IPTV platform that will
deliver multi-screen interactive multimedia services.

bringing to market mobile cloud acceleration solutions.

> Ericsson announces further investment in competence in the

global service center in India, providing operators with support
and operations of IT services.

> EastLink, Canada selects Ericsson to build a mobile broadband

network for HSPA+.

APRIL-JUNE

OCTOBER-DECEMBER

> Ericsson announces the acquisition of Telenor Connexion’s

M2M technology platform, a solution which will drive the market
for M2M (machine-to-machine).

> Augere awards India’s first 4G/TD-LTE contract to Ericsson. The
agreement includes an end-to-end TD-LTE solution, managed
services and network operations.

> Ericsson signs a multi-year agreement with Rogers, Canada to

deliver an end-to-end LTE network.

> Clearwire in the US selects Ericsson for managed services:
network engineering, operations and maintenance for core,
transmission and access networks.

> Ericsson’s first contract in the gaming industry is awarded

by Mindark. The IMS solution enables live, high-quality voice
communication between players while gaming.

> Ericsson announces the acquisition of Telcordia, a global

provider of OSS/BSS software and services.

> LG U+, the first LTE service provider in Korea, places a contract

with Ericsson to build an ultra-high speed LTE network.

> Ericsson and Open Mobile sign Latin America’s first 4G/LTE
contract in Puerto Rico. The deal also includes managed
services.

> Ericsson and Sony announce that Sony will acquire Ericsson’s

50% stake in Sony Ericsson.

> Bharti Airtel renews and expands its managed services agreement
with Ericsson for its operations in India. Under the five-year
agreement, Ericsson will operate, maintain and provide services
for 2G and 3G in Bharti Airtel’s multi-vendor network in India.

2011 HIGHLIGHTS | Ericsson Annual Report 2011

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FIvE-YEAR SUMMARY

FIVE-YEAR SUMMARY

For definitions of the financial terms used, see Glossary, Financial Terminology and Exchange Rates.

FIvE-YEAR SUMMARY

SEK million

Income statement items
Net sales
Operating income
Financial net
Net income

Year-end position
Total assets
Working capital
Capital employed
Gross cash
Net cash
Property, plant and equipment
Stockholders’ equity
Non-controlling interest
Interest-bearing liabilities and
post-employment benefits

Other information
Earnings per share, basic, SEK
Earnings per share, diluted, SEK
Earnings per share (non-IFRS), SEK
Cash flow from operating activities per share, SEK
Cash dividends per share, SEK
Stockholders’ equity per share, SEK

Number of shares outstanding (in millions)

end of period, basic
average, basic
average, diluted

Additions to property, plant and equipment
Depreciation and write-downs/impairments
of property, plant and equipment
Acquisitions/capitalization of intangible assets
Amortization and write-downs/impairments of
intangible assets
Research and development expenses

as percentage of net sales

Ratios
Operating margin excluding joint ventures
Operating margin
EBITA margin
Cash conversion
Return on equity
Return on capital employed
Equity ratio
Capital turnover
Inventory turnover days
Trade receivables turnover
Payment readiness, SEK million

as percentage of net sales

Statistical data, year-end
Number of employees
of which in Sweden

Export sales from Sweden, SEK million

1) For 2011, as proposed by the Board of Directors.

2011

Change

2010

2009

2008

2007

226,921
17,900
221
12,569

280,349
109,552
186,307
80,542
39,505
10,788
143,105
2,165

12%
9%
–
12%

–1%
4%
2%
–8%
–23%
14%
–1%
29%

203,348
16,455
–672
11,235

281,815
105,488
182,640
87,150
51,295
9,434
145,106
1,679

206,477
5,918
325
4,127

269,809
99,079
181,680
76,724
36,071
9,606
139,870
1,157

208,930
16,252
974
11,667

285,684
99,951
182,439
75,005
34,651
9,995
140,823
1,261

187,780
30,646
83
22,135

245,117
86,327
168,456
57,716
24,312
9,304
134,112
940

41,037

14%

35,855

40,653

40,354

33,404

3.80
3.77
4.72
3.11
2.50 1)

44.57

3,211
3,206
3,233
4,994

3,546
2,748

5,490
32,638
14.4%

9.6%
7.9%
9.9%
40%
8.5%
11.3%
51.8%
1.2
78
3.6
86,570
38.1%

104,525
17,500
116,507

9%
9%
–2%
–63%
11%
–2%

–
–
–
35%

8%
–

–18%
3%
–

–
–
–
–
–
–
–
–
–
–
–11%
–

16%
–2%
16%

3.49
3.46
4.80
8.31
2.25
45.34

3,200
3,197
3,226
3,686

3,296
7,246

6,657
31,558
15.5%

8.7%
8.1%
11.0%
112%
7.8%
9.6%
52.1%
1.1
74
3.2
96,951
47.7%

90,261
17,848
100,070

1.15
1.14
2.87
7.67
2.00
43.79

3,194
3,190
3,212
4,006

3,502
11,413

8,621
33,055
16.0%

6.5%
2.9%
6.7%
117%
2.6%
4.3%
52.3%
1.1
68
2.9
88,960
43.1%

82,493
18,217
94,829

3.54
3.52
4.24
7.54
1.85
44.21

3,185
3,183
3,202
4,133

3,105
1,287

5,568
33,584
16.1%

8.0%
7.8%
9.4%
92%
8.2%
11.3%
49.7%
1.2
68
3.1
84,917
40.6%

6.87
6.84
7.53
6.04
2.50
42.17

3,180
3,178
3,193
4,319

2,914
29,838

5,459
28,842
15.4%

12.5%
16.3%
18.0%
66%
17.2%
20.9%
55.1%
1.2
70
3.4
64,678
34.4%

78,740
20,155
109,254

74,011
19,781
102,486

5YXhighlightsXENX11_v55.indd 13

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Ericsson Annual Report 2011 | FIVE-YEAR SUMMARY

STOCK EXCHANGE TRADING

SHARE INFORMATION

STOck ExcHANgE TRAdINg
The Ericsson Class A and Class B shares are listed on NASDAQ
OMX Stockholm. In the United States, the Class B shares are
listed on NASDAQ New York in the form of American Depositary
Shares (ADS) evidenced by American Depositary Receipts
(ADR) under the symbol ERIC. Each ADS represents one Class
B share.

In 2011, approximately 6 (6) billion Ericsson shares were
traded, of which about 3.4 billion were traded on NASDAQ
OMX Stockholm and about 1.6 billion were traded on NASDAQ
New York. Trading volume in Ericsson shares decreased by
approximately 2% on NASDAQ OMX Stockholm and decreased
by approximately 2% on NASDAQ New York compared to
2010.

(Note: The approximate total volumes include trading on
alternative trading venues such as BATS Europe, Burgundy,
Chi-X Europe.)

THE ERICSSON SHARE

Share listings

NASDAQ OMX Stockholm
NASDAQ New York

Share data

Total number of shares in issue

of which Class A shares
of which Class B shares

Ericsson treasury shares, Class B
Quotient value
Market capitalization, December 31, 2011
GICs (Global Industry Classification)

Ticker codes

NASDAQ OMX Stockholm

NASDAQ New York
Bloomberg NASDAQ OMX Stockholm

Bloomberg NASDAQ
Reuters NASDAQ OMX Stockholm

Reuters NASDAQ

ISIN

ERIC A
ERIC B
ERIC
CUSIP

3,273,351,735
261,755,983
3,011,595,752
62,846,503
SEK 5.00
approx. SEK 230 b.
45201020

ERIC A
ERIC B
ERIC
ERICA SS
ERICB SS
ERIC US
ERICa.ST
ERICb.ST
ERIC.O

SE0000108649
SE0000108656
US2948216088
294821608

CHANGES IN NumbER Of SHARES AND CApITAl STOCK 2007–2011

2007
2008
2008
2008
2009
2009
2010
2011

December 31
June 2, reverse split 1:5
July 23, new issue (Class C shares, later converted to Class B)
December 31
June 8, new issue (Class C shares, later converted to Class B)
December 31
December 31
December 31

SHARE pERfORmANCE INDICATORS

Earnings per share, diluted (SEK) 2)
Earnings per share, diluted non-IFRS (SEK) 3)
Operating income per share (SEK) 4) 5)
Cash flow from operating activities per share (SEK) 4)
Stockholders’ equity per share, basic, end of period (SEK) 6)
P/E ratio
Total shareholder return (%)
Dividend per share (SEK) 7)

1) 2007 restated for reverse split 1:5 in 2008.
2) Calculated on average number of shares outstanding, diluted.
3) EPS, diluted, excluding amortizations and write-downs of acquired intangible assets, SEK.
4) Calculated on average number of shares outstanding, basic.
5) For 2010, 2009 and 2008 excluding restructuring charges.
6) Calculated on number of shares, end of period.
7) For 2011 as proposed by the Board of Directors.
For definitions of the financial terms used, see Glossary, Financial Terminology and Exchange Rates.

Number of shares

Share capital

16,132,258,678
3,226,451,735
19,900,000
3,246,351,735
27,000,000
3,273,351,735
3,273,351,735
3,273,351,735

16,132,258,678
16,132,258,678
99,500,000
16,231,758,678
135,000,000
16,366,758,678
16,366,758,678
16,366,758,678

2011

2010

3.77
4.72
5.58
3.11
44.57
19
–7
2.50

3.46
4.80
7.42
8.31
45.34
22
22
2.25

2009

1.14
2.87
5.80
7.67
43.79
57
15
2.00

2008

3.52
4.24
7.50
7.54
44.21
17
–20
1.85

2007 1)

6.84
7.53
9.64
6.04
42.17
11
–43
2.50

SHARE INFORMATION | Ericsson Annual Report 2011

SHAREXINFOXENX11_v49.indd 14

2012-03-06 11.20

150
75

125
SEK
50
150
100
25
125
75
0
100
50

SEK
25
150

100
SEK

1,000
SEK m.
400
1,200
800
200
1,000
600
0
800
400

600
200

400
0

SEK m.
200
120,000
0

100,000

80,000
SEK m.

120,000
60,000

100,000
SEK m.
40,000
120,000
80,000
20,000
100,000
60,000
0
80,000
40,000

60,000
20,000

40,000
0

20,000

SHARE TRENd

1,200

Class A shares

SEK m.
In 2011, Ericsson’s total market capitalization decreased by about 10% to SEK 230
billion, compared to an increase by 18% reaching SEK 255 billion in 2010. The OMX
Stockholm Index on NASDAQ OMX Stockholm decreased by 17% and the NASDAQ
125
composite index decreased by 2%. The S&P 500 Index remained at the same level as in
2010.
800
SEK m.

Class A shares

100
SEK

1,000

150

SEK

1,200
600

SHARE TuRNOvER AND pRICE TREND, NASDAQ OmX STOCKHOlm

Class A shares

Jan-Dec, 2007

Jan-Dec, 2008

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

SHARE TREND

2.50

2.25

DIvIDEND pER SHARE
SEK

2.50

2.00

1.851.85

2.5

2.0

1.5

1.0

0.5

0.0

2007

2008

2009

2010

20111)

1) For 2011 as proposed by the Board of Directors.

Turnover, SEK million

Price, SEK

OMX Stockholm (indexed to share price)

75
25

50
0

EARNINGS pER SHARE, DIluTED

Jan-Dec, 2007

Jan-Dec, 2008

Jan-Dec, 2009
Class B shares

Jan-Dec, 2010

Jan-Dec, 2011

Turnover, SEK million

Price, SEK

OMX Stockholm (indexed to share price)

Jan-Dec, 2007

Jan-Dec, 2008

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

0
125

Turnover, SEK million

Price, SEK

OMX Stockholm (indexed to share price)

Class B shares

Jan-Dec, 2007

Jan-Dec, 2008

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

150
75

125
SEK
50
150
100
25
125
75
0
100
50

Turnover, SEK million

Price, SEK

OMX Stockholm (indexed to share price)

75
25

Jan-Dec, 2007

Jan-Dec, 2008

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

Turnover, SEK million

Price, SEK

OMX Stockholm (indexed to share price)

50
0

Volumes reflect trading on NASDAQ OMX Stockholm only.

Jan-Dec, 2008

Jan-Dec, 2007

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

SHARE TuRNOvER AND pRICE TREND, uS mARKET

Turnover, SEK million

Price, SEK

OMX Stockholm (indexed to share price)

USD m.

4,200

3,500

2,800

USD m.

4,200
2,100

3,500
USD m.
1,400
4,200
2,800
700
3,500
2,100
0
2,800
1,400

2,100
700

1,400
0

700

ADS

Jan-Dec, 2007

Jan-Dec, 2008

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

Turnover, USD million

Price, USD

S&P 500 (indexed to ADS price)

Volumes reflect trading on NASDAQ New York only.

Jan-Dec, 2007

Jan-Dec, 2008

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

Turnover, USD million

Price, USD

S&P 500 (indexed to ADS price)

USD

16
USD

24
12

20
USD
8
24
16
4
20
12
0
16
8

12
4

8
0

SEK
8

3
5
.
4 7
8
.
6

0
8
.
4

2
7
.
4

7
7
.
3

4
2
.
2 4
5
.
3

6
4
.
7 3
8
.
2

4
1
.
1

2007

2008

2009

2010

2011

Earnings per share,
diluted

Earnings per share,
diluted (non-IFRS) 1)

1) EPS, diluted, excl. amortizations and write-downs of

acquired intangible assets, SEK.

STOCKHOlDERS’ EQuITy
pER SHARE, bASIC

SEK
50

42.17

44.21

43.79

45.34

44.57

2007

2008

2009

2010

2011

Ericsson Annual Report 2011 | SHARE INFORMATION

SHAREXINFOXENX11_v49.indd 15

Jan-Dec, 2007

Jan-Dec, 2008

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

2012-03-06 11.20

Turnover, USD million

Price, USD

S&P 500 (indexed to ADS price)

OffER AND lISTING DETAIlS

OFFER ANd lISTINg dETAIlS

SHARE pRICES ON NASDAQ OmX STOCKHOlm

(SEK)

2011

2010

2009

2008

2007 1)

Class A at last day of
trading
Class A high
(May 16, 2011)
Class A low
(October 4, 2011)
Class B at last day of
trading
Class B high
(May 12, 2011)
Class B low
(October 4, 2011)

69.55

74.00

65.00

59.30

76.80

93.60

88.40

78.80

83.60 148.50

59.05

65.20

55.40

40.60

73.00

70.40

78.15

65.90

58.80

75.90

96.65

90.45

79.60

83.70 149.50

61.70

65.90

55.50

40.60

72.65

1) 2007 restated for reverse split 1:5 in 2008.

SHARE pRICES ON NASDAQ NEw yORK

(uSD)

2011

2010

2009

2008

2007 1)

ADS at last day of trading
ADS high
(May 10, 2011)
ADS low
(October 4, 2011)

10.13

11.53

9.19

7.81

11.68

15.44

12.39

10.92

14.00

21.71

8.83

9.40

6.60

5.49

11.12

1) 2007 restated for reverse split 1:5 in 2008.

principal trading market – NASDAQ OmX
Stockholm – share prices

The table below states the high and low share prices for our
Class A and Class B shares as reported by NASDAQ OMX
Stockholm for the last five years. Trading on the exchange
generally continues until 5:30 p.m. (CET) each business day. In
addition to trading on the exchange there is also trading off the
exchange and on alternative venues during trading hours and
also after 5:30 p.m. (CET).

NASDAQ OMX Stockholm publishes a daily Official
Price List of Shares which includes the volume of recorded
transactions in each listed stock, together with the prices of the
highest and lowest recorded trades of the day. The Official Price
List of Shares reflects price and volume information for trades
completed by the members. The equity securities listed on the
NASDAQ OMX Stockholm Official Price List of Shares currently
comprise the shares of 259 companies.

Host market NASDAQ New york – ADS prices

The table below states the high and low share prices
quoted for our ADSs on NASDAQ New York for the last five
years. The NASDAQ New York quotations represent prices
between dealers, not including retail mark-ups, markdowns
or commissions, and do not necessarily represent actual
transactions.

SHARE pRICES ON NASDAQ OmX STOCKHOlm AND NASDAQ NEw yORK

NASDAQ OmX Stockholm

SEK per Class A share
low
High

NASDAQ New york
SEK per Class b share uSD per ADS 1)
High

High

low

148.50
83.60
78.80
88.40
93.60

78.70
88.40
86.55
77.05
80.05
93.60
91.80
71.50

78.50
70.10
69.95
71.25
71.50
72.00

73.00
40.60
55.40
65.20
59.05

65.20
73.00
69.00
66.95
70.50
73.00
60.50
59.05

60.80
60.50
59.05
62.00
65.60
59.25

149.50
83.70
79.60
90.45
96.65

80.00
90.45
89.35
79.95
83.00
96.65
93.80
72.55

81.40
73.30
72.20
72.55
71.85
71.90

72.65
40.60
55.50
65.90
61.70

65.90
74.15
70.85
68.85
73.25
75.30
63.15
61.70

63.15
63.65
61.70
64.35
64.75
58.15

21.71
14.00
10.92
12.39
15.44

11.33
12.39
12.20
11.71
13.06
15.44
14.82
11.25

12.75
11.51
11.25
10.88
10.54
10.53

11.12
5.49
6.60
9.40
8.83

9.40
9.51
9.62
9.96
10.99
12.06
9.33
8.83

10.08
9.33
8.83
9.16
9.27
8.58

period

Annual high and low
2007 2)
2008
2009
2010
2011
Quarterly high and low
2010 First Quarter
2010 Second Quarter
2010 Third Quarter
2010 Fourth Quarter
2011 First Quarter
2011 Second Quarter
2011 Third Quarter
2011 Fourth Quarter
monthly high and low
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012

1) One ADS = 1 Class B share.
2) 2007 restated for reverse split 1:5 in 2008.

SHARE INFORMATION | Ericsson Annual Report 2011

SHAREXINFOXENX11_v49.indd 16

2012-03-06 11.20

SHAREHOldERS

As of December 31, 2011, the Parent Company had 592,542
shareholders registered at Euroclear Sweden AB (the Central
Securities Depository – CSD), of which 1,320 holders had a
US address. According to information provided by Citibank,
there were 211,822,341 ADSs outstanding as of December 31,
2011, and 4,702 registered holders of such ADSs. A significant
number of Ericsson ADSs are held by banks, broker and/or
nominees for the accounts of their customer. As of January
12, 2012, the total number of bank, broker and/or nominee
accounts holding Ericsson ADSs was 168,430.

According to information known at year-end 2011,

approximately 80% of our Class A and Class B shares were
owned by institutions, Swedish and international.

Our major shareholders do not have different voting rights

than other shareholders holding the same classes of shares.

As far as we know, the Company is not directly or indirectly

owned or controlled by another corporation, by any foreign
government or by any other natural or legal person(s) separately
or jointly.

SHAREHOlDERS

GEOGRApHIC OwNERSHIp bREAKDOwN

Percent of capital

Sweden: 45.51% (45.85%)
United States: 21.40% (24.94%)
United Kingdom: 8.92% (8.17%)
Norway: 3.42% (2.45%)
France 1.34% (1.33%)

Other countries 19.41% (17.26%)

Geographical breakdown of share capital including retail shareholders
and treasury shares.
Source: Capital Precision

THE EXECuTIvE lEADERSHIp TEAm AND bOARD mEmbERS,
OwNERSHIp

Number of
Class A
shares

Number of
Class b
shares

voting
rights,
percent

The Executive Leadership Team
and Board members as a group
(32 persons)

750

3,712,484

0.07

For individual holdings, see Corporate Governance Report.

The table shows the total number of shares in the Parent
Company owned by the Executive Leadership Team and Board
members (including Deputy employee representatives) as a
group as of December 31, 2011.

The following table shows share information, as of December 31, 2011, with respect to our 15 largest shareholders, ranked by voting
rights, as well as percentage of voting rights as of December 31, 2011, 2010 and 2009.

lARGEST SHAREHOlDERS, DECEmbER 31, 2011 AND pERCENTAGE Of vOTING RIGHTS, DECEmbER 31, 2011, 2010 AND 2009

Identity of person or group 1)

Investor AB
AB Industrivärden
Handelsbankens Pensionsstiftelse
Swedbank Robur Fonder AB
AFA Försäkring AB
Blackrock Fund Advisors
Pensionskassan SHB Försäkringsförening
Skandia Liv
AMF Pensionsförsäkring AB
Norges Bank Investment Management
OppenheimerFunds, Inc.
Aberdeen Asset Managers Ltd.
Dodge & Cox, Inc.
Handelsbanken Fonder AB
SEB Investment Management AB
Others
Total

1) Source: Capital Precision.

Number
of Class A
shares

115,018,707
80,708,520
23,648,790
1,501,376
11,423,000
26,316
7,798,000
6,327,567
0
0
0
0
0
0
119,860
15,183,847
261,755,983

Of total
Class A
shares,
percent

43.94
30.83
9.03
0.57
4.36
0.01
2.98
2.42
0.00
0.00
0.00
0.00
0.00
0.00
0.05
5.80
100.00

Number
of Class b
shares

58,709,995
0
0
141,913,401
15,779,975
82,156,094
0
13,372,958
75,600,000
69,572,027
67,628,249
58,953,636
54,067,771
54,063,621
48,162,614
2,271,615,411
3,011,595,752

Of total
Class b
shares,
percent

1.95
0.00
0.00
4.71
0.52
2.73
0.00
0.44
2.51
2.31
2.25
1.96
1.80
1.80
1.60
75.43
100.00

2011
voting
rights,
percent

21.48
14.34
4.20
2.79
2.31
1.46
1.39
1.36
1.34
1.24
1.20
1.05
0.96
0.96
0.88
43.05
100.00

2010
voting
rights,
percent

19.33
13.80
3.52
2.73
0.45
1.44
2.07
2.98
1.34
0.89
1.29
1.01
1.43
1.05
0.99
45.68
100.00

2009
voting
rights,
percent

19.33
13.62
3.52
3.07
0.47
1.81
2.25
3.02
1.30
0.89
1.29
0.71
1.05
0.94
0.89
45.84
100.00

SHAREXINFOXENX11_v49.indd 17

2012-03-06 11.20

Ericsson Annual Report 2011 | SHARE INFORMATION

LETTER FROM THE CHAIRMAN

Letter from Leif Johansson

Dear shareholders,

Thank you for electing me Chairman of the Board of Ericsson.
I have spent my first year here improving my understanding of
Ericsson’s competitive advantages.

With my engineering background and passion for the field, I
thought I had a reasonably good understanding of how a mobile
network operates. Over the past year, I have been fascinated to
realize that the architecture of a mobile system is much deeper
and more complex than I imagined. This is especially true in
areas where mobile systems connect with the internet. Ericsson
has managed to strengthen its leading position in this industry
which proves the Company’s unique technology leadership.
Ericsson is not only a high-tech, skilled software and
engineering company. The Company also has genuine skills
in broader communication systems, processes and of course
services operations. The Board is pleased that Ericsson emerged
from 2011 as a stronger competitor and with its clear vision on
how to be part of and where to take the industry, Ericsson is
positioned to continue to be its global thought leader.

Close to the customer

Over the past year, the Board of Directors has spent time
reviewing Ericsson’s strategy as well as the development of
the industry. Key topics have included how telecom operators’
business models are transforming, with new traffic patterns,
driven by devices such as smartphones and tablets. Another
important topic has been how our organizational structure can
secure that Ericsson always stays close to the customer. A
key competitive advantage for Ericsson is its ability to really
understand and support telecom operators in developing their
business models and optimizing their assets.

The economic environment, and its potential impact on
Ericsson and its customers, has of course also been a part
of our meetings. It is important for the Board of Directors to
follow the contingency plans that the management team has
prepared to be able to adapt quickly to tougher times when
needed. We are confident that such plans are in place and
operating where appropriate.

Divestment of Sony Ericsson

In 2011, we took the decision to divest our 50% share in Sony
Ericsson to Sony Corporation. The transaction is a logical
strategic step that makes it possible for Ericsson to focus on
enabling connectivity for all devices.

The Board of Directors continued to monitor the Company’s

remuneration principles during the year. We believe that
Ericsson has a well-balanced and competitive compensation
structure which rewards performance. At the Annual
General Meeting 2011 the incentive targets for the Executive
Performance Stock Plan were changed. They now relate to

top-line growth as well as operating income and cash flow
performance. This Performance Plan runs for three years, so it
is too early to evaluate it. However, our impression is that the
Plan targets are clear, relevant and have the desired effect of
focusing everyone on the same key goals for Ericsson.

Strong financial position

An essential part of the Board’s responsibilities is to manage
the Company’s financial position. The Company has a strong
balance sheet today and we believe it is appropriate to be fairly
conservative under the present economic conditions. We want
to use cash on hand to further develop the Company, making
investments in own product and business development. In
addition, we will, as before, consider selective acquisitions.
The Company’s dividend policy takes into account last year’s
earnings and balance sheet structure, as well as coming years’
business plans and economic development.

I have greatly enjoyed my first year at Ericsson. I have been

kindly welcomed and I have liked interacting with everyone
at Ericsson. It is never by chance that companies become
successful. I am impressed with the professionalism and
perseverance I have found among Ericsson people and want to
thank all of them for their dedication and hard work.

Leif Johansson
Chairman of the Board

LETTER FROM THE CHAIRMAN | Ericsson Annual Report 2011

CHAIRMANXEN_v43.indd 18

29/02/2012 13:15

BOARD OF DIRECTORS’ REPORT

TARGETS AND PERFORMANCE

COnTEnTS
TARGETS AND PERFORMANCE
VISION AND MISSION
CORE VALUES
TRENDS AND DRIVERS
STRATEGY
BUSINESS FOCUS 2011
COMPETITIVE ASSETS
BUSINESS MIX DYNAMICS
FINANCIAL RESULTS OF OPERATIONS
FINANCIAL POSITION
CASH FLOW
BUSINESS RESULTS – REGIONS
BUSINESS RESULTS – SEGMENTS
SUSTAINABILITY AND
CORPORATE RESPONSIBILITY
CORPORATE GOVERNANCE
RISk MANAGEMENT
LEGAL AND TAX PROCEEDINGS
SOURCING AND SUPPLY
MATERIAL CONTRACTS
PARENT COMPANY
POST-CLOSING EVENTS
BOARD ASSURANCE

19
21
21
21
22
23
24
25
26
28
30
32
34

38
40
40
41
41
41
42
43
43

The non-IFRS financial measures presented herein are not
recognized measures of financial performance under IFRS, but rather
are measures reported to facilitate analysis by indicating Ericsson’s
underlying performance excluding impact from restructuring. Non-
IFRS measures have limitations as analytical tools and should not
be viewed in isolation or as substitutes to the IFRS measures. A
reconciliation of non-IFRS measures with the IFRS results can be
found on page 26.

TARgETS AnD PERFORmAnCE

Ericsson’s overall goal is to create shareholder value.

Management uses four metrics to evaluate the Company’s

long-term ambitions: sales growth faster than the market,
a best-in-class operating margin, growth in joint ventures’
earnings and a strong cash conversion. The Board of Directors
has translated these metrics into three performance criteria
in the Executive Performance Stock Plan, included in the
Company’s Long-Term Variable (LTV) remuneration program.
These performance criteria have also been approved by the
Annual General Meeting.

Long-term ambitions

GROW FASTER THAN THE MARkET

Early internal market data indicates that Ericsson increased its
market share in mobile network equipment by 6 percentage
points to 38% in 2011, reaching twice the market size of
the second largest supplier in this market. This includes the
technologies GSM/EDGE, WCDMA/HSPA, CDMA and LTE.
LTE technology is in an early build-out phase. Ericsson
estimates its market share in LTE at more than 60%. This
makes Ericsson the largest supplier of LTE.

With its CDMA offering, Ericsson has a strong position in
North America, where the Company increased its market share
in 2011.

In telecom services, internal market data indicates that the
Company at least kept its market share of more than 10% and
is larger than any of its competitors in this fragmented market.

BEST-IN-CLASS OPERATING MARGIN

The Company’s operating margin before share in JV earnings
was 9.6% (12.0%). The 2010 number excludes restructuring
charges. In 2010, operating margin was 8.7% before share in JV

REVENUE GROWTH

PROFITABILITY

CAPITAL EFFICIENCY

Percent

–2

–4

11%
11%

12%

–1%
–1%

–2%

SEK billion

Percent

30.6

16.3%

23.9

23.7

18.5

11.4%

11.7%

9.0%

17.9

7.9%

140

120

100

92%
92%

66%

117%

112%
112%

112%

40%

2007

2008

2009

2010

2011

2007

2008

2009

2010

2011

2007

2008

2009

2010

2011

Operating income
including JVs

Operating margin
including JVs

2008–2010, excluding restructuring charges
2007 and 2011 including restructuring charges

Cash conversion

Target

Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

BODX1XEN_v127.indd 19

29/02/2012 15:56

TARGETS AND PERFORMANCE

earnings and including restructuring charges. Based on reported
results for 2011, the operating margin remains the highest among
the Company’s traditional publicly listed telecom competitors.

GROWTH IN JV EARNINGS

Joint ventures’ earnings decreased to SEK –3.8 (–0.7) billion.
The figure for 2011 includes restructuring charges of
SEK 0.6 billion, while 2010 excludes restructuring charges of
SEK 0.5 billion. Ericsson’s share in earnings from Sony Ericsson
was SEK –1.2 (0.9) billion, including restructuring charges in
2011 and excluding restructuring charges in 2010. The share in
earnings in ST-Ericsson was SEK –2.7 (–1.5) billion, including
restructuring charges in 2011 and excluding restructuring
charges in 2010.

Sony Ericsson’s loss related to intense competition, price
erosion, restructuring charges and supply chain issues following
the earthquake and tsunami in Japan. In October 2011,
Ericsson announced the divestment of its 50% share in Sony
Ericsson to Sony Corporation.

ST-Ericsson is in a transitional phase, moving from legacy

products to new products.

STRONG CASH CONVERSION

The cash conversion rate was 40% (112%), negatively
impacted by higher working capital.

Cash conversion is defined as cash flow from operating

activities divided by net income reconciled to cash.

Executive Performance Stock Plan

The Company has a Long-Term Variable (LTV) remuneration
program. The program builds on a common platform, but
consists of three separate plans, targeting all employees,
key contributors and senior managers respectively. The LTV
program is designed to encourage long-term value creation in
alignment with shareholders’ interests.

The aim of the plan for senior managers is to attract, retain

and motivate executives in a competitive market through
performance-based share related incentives and to encourage
the build-up of significant equity stakes. The performance
criteria for senior management, i.e. the Executive Performance
Stock Plan, are revised yearly and approved by the Annual
General Meeting. Performance criteria for the 2012 Executive
Performance Stock Plan will be communicated in the notice to
the Annual General Meeting.

In the 2011 Executive Performance Stock Plan the

performance criteria are:
1. Up to one third of the award will vest if the compound

annual growth rate of consolidated net sales is 4–10% from
2010 to 2013.

2. Up to one third of the award will vest if the compound
annual growth rate of consolidated operating income,
including earnings in joint ventures and restructuring, is
5–15% from 2010 to 2013. Base year 2010 is calculated
excluding restructuring of SEK 6.8 billion.

3. Up to one third of the award will vest if cash conversion is at
or above 70% during each of the years 2011–2013, vesting
one ninth of the total award for each year if the target is
achieved. The target was not reached in 2011.

The Board of Directors will consider the impact of larger
acquisitions, divestments, the creation of joint ventures and any
other significant capital event on the three targets on a
case-by-case basis. This consideration will be made in the
evaluation of the program after it closes.

Working capital targets

Ericsson’s working capital targets are described on pages
28–29. The targets remain for 2012.

SHAREHOLDER VALUE CREATION

Long-term ambition

Executive Performance Stock Plan
targets for 2010–2013

GROW FASTER THAN THE MARKET

Net sales growth
4–10% CAGR

BEST-IN-CLASS MARGINS

GROWTH IN JV EARNINGS

Operating income growth
5–15% CAGR
including JVs
and restructuring*

* base year 2010 excl. restructuring

STRONG CASH CONVERSION

Cash conversion
>70% annually

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

BODX1XEN_v127.indd 20

29/02/2012 15:56

Other performance indicators

Ericsson believes that satisfied customers and motivated
employees are key to success.

CUSTOMER SATISFACTION

Every year, an independent customer satisfaction survey is
performed. In 2011 approximately 10,000 representatives
of Ericsson customers, in different positions around the
world, were polled to assess their satisfaction with Ericsson,
compared to its main competitors. Over the past five years,
Ericsson has maintained a level of excellence. The goal is to
increase this level further.

EMPLOYEE ENGAGEMENT

In order to measure employee engagement, an annual survey is
conducted by an independent company. In 2011, 90% (87%) of
all employees across the world responded to the survey.

In the Employee Engagement Index, Ericsson scored 77,

which is 10% higher than the worldwide average. This is a
globally-recognized benchmark which is used by more than
190 companies with over 7 million respondents. It incorporates
measurements of motivation, satisfaction and commitment.

VISIOn AnD mISSIOn

Ericsson’s vision and mission are the motivation behind
everything the Company does.

Vision

The Company’s vision is to be the prime driver in an all-
communicating world. Ericsson envisions a continued
evolution, from having connected 6 billion people to connecting
50 billion ‘things’. The Company envisions that anything that
can benefit from being connected will be connected, mainly via
mobile broadband.

Mission

The Company’s mission is “Innovating to empower people,
business and society”.

TRENDS AND DRIVERS

CORE VAluES

Respect, professionalism and perseverance are the values
that are the foundation of the Ericsson culture. They guide all
employees in their daily work, how they relate to people and
how they do business.

TREnDS AnD DRIVERS

The general industry trend in 2011 was the focus on high
performance broadband networks. This includes the mobile
broadband business case for customers, meeting increased
user demands and the strong uptake of mobile devices such as
tablets and smartphones.

Prices of smartphones continued to decline and in high
growth markets, smartphones at a retail price of less than USD
100 were introduced. Operators started to look into tiered
pricing and new business models for mobile broadband, as
well as the introduction of cloud-based services. In Europe,
operators started to modernize their mobile networks, while
it became an increasing interest among operators globally
to transform their Operations Support Systems (OSS) and
Business Support Systems (BSS).

When forecasting the market and developing internal plans,

Ericsson looks at a number of parameters. These include:
> High-traffic smartphone subscriptions, as percentage of

total subscriptions

> Average data traffic, measured in Mbytes per subscription

per month

> Mobile broadband subscriptions as percentage of total

mobile subscriptions.
Out of the installed base of subscriptions worldwide only

around 10% use smartphones. With cheaper smartphones
being introduced, this number is expected to grow.

Ericsson estimates that overall mobile data traffic more than
doubled in 2011. Mobile data traffic is expected to grow tenfold
by end of 2016, mainly driven by video.

Traffic per subscriber partly relates to the screen size of
the device. On average, a mobile PC user generates about 2

MOBILE BROADBAND SUBSCRIPTIONS
TO REACH ALMOST 5 BILLION BY END OF 2016

VOICE AND DATA TRAFFIC
TO INCREASE 10 TIMES BY END OF 2016

)

n
o

i
l
l
i

(

s
n
o
i
t
p
i
r
c
s
b
u
S

5,000

4,000

3,000

2,000

1,000

)

B
5
1
0
1

(

s
e
t
y
B
a
t
e
P
y
h
t
n
o
M

5,000

4,000

3,000

2,000

1,000

2008

2009

2010

2011

2012

2013

2014

2015

2016

2008

2009

2010

2011

2012

2013

2014

2015

2016

Mobile PCs/tablets
Handheld devices

* Mobile broadband is defined as CDMA2000 EV-DO,
HSPA, LTE, Mobile WiMAX and TD-SCDMA. M2M
subscriptions not included.

Data: mobile PCs/tablets

Data: mobile handheld

Voice

Source: Ericsson estimate, April 2011

Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

BODX1XEN_v127.indd 21

29/02/2012 15:56

TRENDS AND DRIVERS

Gbytes of data per month, while a high-traffic smartphone user
generates approximately 500 Mbytes per month.

STRATEgY

The coverage of the world’s mobile networks is constantly

increasing as more radio base stations are being deployed.
GSM/EDGE is the technology that by far has the widest reach,
and today covers more than 85% of the world’s population.
WCDMA/HSPA covered about 35% of the population in 2010
and now covers more than 45% of the world’s population.

Further build out of WCDMA/HSPA coverage will be driven

by the availability of affordable smartphones, the surge in
mobile broadband services and faster speeds, as well as
regulators’ requirements to connect unconnected people. By
end of 2016, the Company estimates that 80% of the world’s
population will have WCDMA/HSPA coverage.

The combined 2G and 3G population coverage for CDMA
is estimated to be above 50%. CDMA coverage is expected to
grow slightly, and most large CDMA operators have announced
a migration plan to LTE.

Several major operators have started LTE deployments
but in terms of population coverage LTE has a long way to
go. In five years’ time, it is expected that LTE will have a
population coverage of about 35%. In terms of global operator
investments, WCDMA/HSPA is expected to remain the leading
mobile access technology for many years.

From a geographical perspective, GSM only lacks coverage

in certain rural areas, while there are still large densely
populated areas lacking WCDMA/HSPA coverage.

GSM/EDGE, WCDMA/HSPA and LTE are all expected to
increase both in terms of population and land coverage. LTE is
expected to have an even faster adoption rate than previous
technologies.

By capitalizing on, investing in, developing and combining the
Company’s key competitive assets of technology leadership,
services leadership and global presence and scale, Ericsson
aims to continue to be the prime driver in the evolving telecom
industry and a leading player in the ICT industry.

The installed base of radio access is the foundation for
Ericsson’s business. From the installed base, the Company
believes it can expand the product base to other domains
such as IP, core, OSS and BSS. Over the past ten years, the
Company has built a significant services business, representing
37% of total revenues in 2011.

The services strategy starts with the product base and
product-near services. By being successful in areas such
as managed services (i.e. operators outsourcing network
operations to the Company), consulting and systems
integration, the Company gets yet another entry point to the
market, which is an opportunity to generate more business.

Cost awareness is an everyday component in the Company.

Keeping up with competition from low cost countries has
required Ericsson to focus on operational efficiency in every
part of the business.

Global presence and scale

With business in more than 180 countries, the Company has
a strong global presence. Ericsson does business with all
major operators. Ericsson’s customers have, to a large extent,
multi-country presence. All this, in combination with its leading
market position, gives Ericsson important scale advantages.

The Company has secured a mobile network market share

of 43% in the world’s 100 largest cities. This is important for
future business, since close to 60% of the world’s traffic in
mobile networks is estimated to be generated in metro and
urban areas by 2016.

Ericsson has established common ways of working across
the Company. These include global IT tools, one sales channel
across all segments and global knowledge sharing, which creates
efficiencies and enable quick responses to customer requests.

COVERAGE GROWTH IN WCDMA/HSPA AND LTE

GROWING BY LEVERAGING INSTALLED BASE

100%

80%

Rural

60%

40%

Sub
urban

20%

Urban

e
g
a
r
e
v
o
c
n
o
i
t
a
u
p
o
p
d
l
r
o
W

Metro

World
population
distribution

~92%

>85%

~80%

>45%

~53%~55%

~35%

~5%

SCOPE

Transformation

Managed
Services

Product-near
services

Product

Network
driven

Services
driven

2011 2016

GSM/EDGE

WCDMA/HSPA

LTE

CDMA

Source: Ericsson estimate, December 2011

Radio
Access

TX
IP

Core OSS

BSS DOMAIN

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

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BUSINESS FOCUS 2011

Technology leadership

Services leadership

Key for success in the telecom industry is the delivery of future-
proof, high-quality networks and solutions. The consumer
experience is crucial for any operator. In addition, telecom
operators want suppliers who can guarantee the entire eco-
system, from applications, solutions and networks to handsets
and mobile broadband modules.

To keep its technology leadership, Ericsson invested
SEK 32.6 billion, including restructuring charges, in R&D in
2011. This compares with SEK 29.9 billion in 2010, excluding
restructuring charges. The Company took a strategic decision
to increase R&D spending in 2011 in order to develop its new
family of Smart Services Router (SSR 8000) products, TD-LTE
and a CDMA unit for the radio base station RBS 6000.

Ericsson focuses on optimizing networks and making
them function well under high traffic loads. Every product and
device from any supplier must be optimized for best network
performance.

Most of the Company’s R&D investment is in software

development. With smarter software, algorithms, processes and
designs, Ericsson secures that its networks and solutions have
the industry’s best performance.

By investing in R&D, the Company maintains its position
as the key contributor in the development of open telecom
standards. Ericsson believes it is the strongest holder of essential
patents in the wireless industry. Since these standards are
developed in industry-wide collaboration to ensure multi-vendor
interoperability, patent holders waive their monopolies and
commit to licensing their part of the technology to others wanting
to use it. The Company complies with fair, reasonable and
non-discriminatory licensing (FRAND). This fair return licensing
provides incentive to make further investments in R&D, while
also allowing for new entrants to commercialize the technology
at a reasonable cost. International standards and FRAND
licensing are fundamental for the telecom ecosystem and are a
prerequisite for the global success of mobile communications.
In R&D as well as in other areas, Ericsson has high cost
awareness. Over several years, the Company has developed
common software and hardware stacks as well as common
components and platforms, all of which reduce cost.

Local services competence and highly skilled project leaders
are both prerequisites for success in telecom services.
Ericsson has invested USD 1 billion in processes, methods
and tools in order to secure common global frameworks
and ways of working. Standardization of services, tools
harmonization, centralization of deliveries and high
competence in the delivery organization are all essential in
order to drive quality and profitability.

Employees

Ericsson strives to have the best talent base in the industry. To
achieve this, the Company has four objectives:
> To attract the best talent

Ericsson is strengthening its employer brand, to ensure fast,
effective recruitment processes.

> To have the right talent in the right place

The Company is developing a holistic career and
competence model to help employees understand available
career paths. Ericsson encourages more rotation to allow
employees to take on new challenges.
> To ensure high performance at all times

Ericsson has clear goals and objectives and conveys an
understanding of how each individual can contribute to
reach these goals. Managers and employees alike should
give and receive feedback.

> To maintain a strong leadership bench

Ericsson has clear processes in place to identify talent.
Today’s managers have a responsibility to cultivate
tomorrow’s leaders, and are encouraged to do so.

BuSInESS FOCuS 2011

Portfolio momentum

MEETING DEMAND FOR MOBILE BROADBAND

In 2011, there was a high demand for mobile broadband-related
equipment including packet core, IP routers and microwave-
based backhaul. Ericsson continued its ramp-up of the multi-
standard radio base station RBS 6000. At year-end, the

CITIES EXPECTED TO GENERATE MOST FUTURE
MOBILE TRAFFIC GROWTH

EMPLOYEES BY PROFESSION

e
g
a
r
e
v
o
c

n
o
i
t
a
u
p
o
p
d
l
r
o
W

100%

80%

60%

40%

Rural

Sub
urban

Rural

Sub
urban

Urban

20%

Urban

Metro

Estimated 2016
world population
distribution

% mobile
traffic 2016

60%
30%
1%

of traffic

of world
population

TOTAL
NUMBER OF
EMPLOYEES
104,525

54%

of area

21%

Services
Research and development
Supply
Sales and marketing
General and administration
Other

BODX1XEN_v127.indd 23

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Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

BUSINESS FOCUS 2011

RBS 6000 represented close to 100% of all deliveries of GSM/
WCDMA/LTE radio base stations. This is the quickest product
introduction ever in the Company’s history. The introduction has
been smooth.

In March 2011, Japan was hit by the tragic earthquake and

tsunami. To mitigate effects on the business, Ericsson took
action immediately such as securing component supply from
new sources and re-designing products. By the third quarter,
all remaining supply chain effects had been eliminated and lead
time was back to normal.

MOMENTUM FOR MANAGED SERVICES

Recognizing that quality of service is becoming increasingly
important, operators saw the need to differentiate themselves
from competition by deploying superior, scalable networks
emphasizing better user experience and quality. This also drove
demand for services which target the operational efficiency of
operators, such as managed services.

MOMENTUM IN OSS AND BSS

Operators focused on transforming their BSS solutions,
including customer segmentation models, and ways to handle
data growth and tiered pricing. Many operators started looking
into the transformation of their OSS solutions, although few
have reached the deployment phase.

Market share gain

Early internal market data indicates that Ericsson gained market
share in mobile network equipment by 6 percentage points to
38%, thanks to a combination of winning new customers and
growing existing customers.

In Europe, network modernization is under way. Ericsson
took a strategic decision to increase its market share in Europe
when operators started to look into modernizing their networks,
despite initial pressure on Group margins. The mobile networks
in Europe are the world’s oldest and the reduced power
consumption in modern equipment alone makes it a good
business case for operators to replace old equipment with new.
When operators in Europe deployed 3G some ten years ago,
Ericsson could not afford the customer financing requirements
and lost market share in 3G versus 2G. In the European

network modernization, Ericsson’s strategy in 2011 has been to
win back 3G market share.

Acquisitions, partnerships and divestments

> Telcordia, announced acquisition for USD 1.15 billion in an
all cash consideration, filling portfolio gaps in OSS and BSS

> Akamai, partnership in mobile cloud accelerator
> Sony Ericsson, divestment of the 50% share to Sony
> Telenor Connexion, acquisition of machine-to-machine platform
> Nortel, acquisition of GDNT in China, of patents in

partnership with other companies and acquisition of their
Multi-Service Switch (MSS) business.

Monetizing on the patent portfolio

In the networked society, Ericsson envisions that anything
that benefits from being connected will be connected. In this
scenario, Ericsson foresees new entrants to the connectivity
markets, both from device and equipment manufacturers and
from other industries. Since Ericsson is the strongest holder
of essential patents in the wireless industry, any company that
uses connectivity today requires a license to Ericsson’s patents.

Ericsson has over 90 license agreements and is a net
receiver of royalties. The Company’s portfolio is well-licensed
and gives customers good protection.

COmPETITIVE ASSETS

Global presence and scale as assets

Ericsson has customers in more than 180 countries. Of 104,525
employees across the world, 56,000 are services professionals.
This makes Ericsson a true global player.

Ericsson’s market share in mobile network equipment makes

it twice that of the number two player. This provides scale
advantages.

The Company has a mobile network equipment market

share of 43% in the world’s 100 largest cities.

More than 1.4 billion consumers are charged and billed
through Ericsson’s solutions. In the OSS and BSS market, the
Company is aspiring to a leading position.

MULTI-STANDARD RADIO

IPR REVENUES (NET)

SEK billion

Vendor A:
GSM, WCDMA, LTE

Multi-
standard
radio

Baseband
backhaul
power

Vendor B

Vendor A

Vendor X

M
S
G

A
M
D
C
W

r
e
w
o
p
e
t
i
S

u
a
h
k
c
a
B

6.2

5.0

4.3

4.6

3.2

2007

2008*

2009

2010

2011*

* One-off patent sales included

Difference between IPR revenues and reported license
revenues for 2007–2009 are related to Ericsson Mobile
Platforms’ (EMP) revenues

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

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Technology leadership as an asset

BuSInESS mIX DYnAmICS

BUSINESS MIX DYNAMICS

Ericsson’s gross margin and the amount of capital tied up by
projects vary with project type. Typically, there are two types
of projects: coverage and capacity/expansions. These are to a
high degree related to the mobile networks’ technology cycles,
which are long, normally 10 to 20 years. Coverage projects are
frequent in the initial phases of a technology cycle whereas
capacity/expansion projects typically occur towards the later
stages of a cycle.

The initial phase of a technology cycle includes a higher
degree of coverage buildouts and more rollout services. In
many parts of the world, such as in Europe where networks
are now being modernized, the projects are often of a
turnkey character and civil works are sometimes part of the
commitment. There is more hardware involved resulting in lower
gross margin and a larger tie-up of capital in equipment.

When coverage has been built and traffic in the network
increases, the operator moves into the capacity/expansion
phase. In this phase, capacity is increased, either by
expanding a radio base station with software upgrades to
higher speeds or by adding more sites. In capacity/expansion
projects, the Company sells a larger share of software and
integration services, which yields higher gross margins, and
ties up less capital.

Ericsson is now in a phase when there is more hardware in

the business mix. This is due to the technology cycle where
WCDMA/HSPA, i.e. mobile broadband, is being rolled out. To
a high degree, operators now deploy the new multi-standard
radio base station RBS 6000. This means that a limited amount
of hardware installations will be needed when operators
upgrade to LTE in the future.

Ericsson has more than 22,000 employees in R&D. Measured in
software revenues, Ericsson is the world’s fifth largest software
company. The Company has 30,000 granted patents covering
all generations of mobile technologies. Ericsson believes it has
the industry’s strongest wireless IPR portfolio. In LTE, Ericsson
expects to hold approximately 25% of all essential patents.
IPR revenues were SEK 6.2 (4.6) billion in 2011.

The Company’s unique combination of software and
hardware provides superior performance in live networks.
Measurements in live networks show that Ericsson networks
have higher performance than its competitors. Ericsson’s
software design targets stability and optimized commercial
performance in networks. In radio, The Company’s software is
run on proprietary hardware while in OSS and BSS the software
is largely independent of hardware. In both areas, the strategy
is to make the products configurable and flexible to integrate
with a common platform strategy.

In 2011, Ericsson introduced its new Smart Services Router
(SSR 8000) family. Volume deliveries are expected in 2012. It is
the first router ever to be built on a common platform for fixed
and mobile applications.

Services leadership as an asset

Ericsson estimates its market share in telecom services at over
10%, making the Company the leader in this highly fragmented
market. Of Ericsson’s 56,000 services professionals, some
12,000 are involved in consulting and systems integration. Many
employees have been transferred from telecom operators in
managed services deals over the recent years and represent an
important experience base.

Ericsson provides support to networks that serve more than

two billion subscribers 24/7, and has global service centers in
China, India, Mexico and Romania. The Company also has ten
regional service centers across the world.

In 2011, Ericsson participated in 1,200 major deployment

projects, of which 100 were large and complex turnkey
projects. The Company was also involved in 1,300 consulting
and systems integration projects.

Ericsson has more than 15 years of experience in managed

services and manages networks with 900 million subscribers.

SOFTWARE, HARDWARE AND SERVICES:
SHARE OF TOTAL SALES

BUSINESS MIX IMPACTING GROSS MARGIN

100%

80%

s
e
a
s

a
t
o
T

60%

40%

20%

26%

24%

23%

36%

37%

40%

38%

39%

37%

2009

2010

2011

Software

Hardware

Services

INITIAL PHASE (COVERAGE)

EXPANSION PHASE (CAPACITY)

> Break-in or green field

> Open bidding

> More hardware and rollout

services

> More capital tied up

> Lower margins

> Longer order cycle and projects

> Upgrade, capacity increase and

expansion of installed base

> Shorter order cycle and projects

> More software and integration

services

> Less capital tied up

> Higher margins

Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

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FINANCIAL RESULTS OF OPERATIONS

Financial results oF operations

AbbREvIATEd INCOmE STATEmENT wITh RECONCILIATION IFRS – NON-IFRS mEASURES

SEK billion

Net sales
Cost of sales
Gross income
Gross margin %
Operating expenses
Operating expenses as % of sales
Other operating income and expenses
Operating income before share in earnings
of Jvs and associated companies
Operating margin % before share in earnings
of JVs and associated companies
Share in earnings of JVs and associated
companies
Operating income
Operating margin %
Financial income and expense, net
Taxes
Net income
EPS diluted (SEK)

2011

226.9
–147.2
79.7
35.1%
–59.3
26.1%
1.3

IFRS
2010

203.3
–129.1
74.3
36.5%
–58.6
28.8%
2.0

2009

206.5
–136.3
70.2
34.0%
–60.0
29.0%
3.1

Restructuring charges
2010

2011

2009

–1.2
–1.2

–3.4
–3.4

–4.2
–4.2

–2.0

–3.5

–7.1

–

Non-IFRS measures

2011

2010

2009

226.9
–146.0
80.9
35.7%
–57.3
25.3%
1.3

203.3
–125.7
77.6
38.2%
–55.2
27.1%
2.0

206.5
–132.1
74.4
36.0%
–52.9
25.6%
3.1

21.7

17.6

13.3

–3.2

–6.8

–11.3

24.9

24.4

24.6

9.6%

8.7%

6.5%

11.0%

12.0%

11.9%

–3.8
17.9
7.9%
0.2
–5.6
12.6
3.77

–1.2
16.5
8.1%
–0.7
–4.5
11.2
3.46

–7.4
5.9
2.9%
0.3
–2.1
4.1
1.14

–0.6
–3.7

–0.5
–7.3

–1.3
–12.6

–3.2
21.6
9.5%

–0.7
23.7
11.7%

–6.1
18.5
9.0%

4.72 1)

4.80 1)

2.87 1)

1) EPS, diluted (non-IFRS), excluding amortizations and write-downs of acquired intangible assets, SEK.

The non-IFRS financial measures presented herein are not recognized measures of financial performance under IFRS, but rather are measures used as
supplemental information to the IFRS results. Since there were restructuring costs during 2009 and 2010 with significant impact on reported results and
margins, certain income statement line items excluding restructuring charges, are presented as non-IFRS measures to facilitate analysis by indicating Ericsson’s
underlying performance. Non-IFRS measures have limitations as analytical tools and should not be viewed in isolation or as substitutes to the IFRS measures,
and do not necessarily indicate whether cash flow will be sufficient or available to meet Ericsson’s requirements, and may not be indicative of our historical
operating results, nor are such measures meant to be predictive of future results. Non-IFRS measures for 2011 have also been included to facilitate comparison
with previous years. For more details on the restructuring activities and corresponding charges, please see Note C5 – “Expenses by Nature”.

Sales

2011 was a year with strong sales growth of 12%, driven by
strong demand for mobile broadband along with network rollout
services. Sales were negatively impacted by the strong SEK.
Sales for comparable units, adjusted for currency exchange
rate effects and hedging, increased 19%.

NET SALES, OPERATING INCOmE ANd OPERATING mARGIN
INCLUdING JvS

SEK billion

250

16.3%

200

187.8

150

100

208.9

206.5

203.3

11.4%

11.7%

226.9

9.0%

7.9%

30.6

23.9

18.5

23.7

17.9

2007

2008

2009

2010

2011

Net sales

Operating income*

Operating margin*

* 2008–2010, excluding restructuring charges.
2007 and 2011 including restructuring charges.

In 2011, the Company executed on its strategy to leverage
its strengths in the growth areas mobile broadband, managed
services, OSS and BSS. Due to the technology cycle where
mobile broadband is being rolled out, the business mix shifted to
more coverage projects. Ericsson also implemented its strategy
to capture new market share in the network modernization
projects in Europe, despite their initial lower margins.

In 2011, seven out of ten regions grew. In the year, there
was an impact from slower operator spending after a period of
high investments in capacity, especially in North America and
Russia, as well as political unrest in certain countries. In the last
quarter of the year, the Company also noticed some increased
operator cautiousness due to uncertainties such as economic
development and continued political unrest in certain countries.
In 2011, the share of software sales declined to 23% (24%)
of sales while the portion of hardware increased to 40% (37%).
The increase in hardware is a result of demand for mobile
broadband products. In the short term, the software share
might continue to decrease due to a higher portion of projects
with a lot of hardware. Longer term, the software part should
increase following more expansions and upgrades of networks.

Services sales amounted to 37% (39%) in 2011.

Percent

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

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FINANCIAL RESULTS OF OPERATIONS

Seasonality

The Company’s quarterly sales, income and cash flow from
operations are seasonal in nature, generally lowest in the first
quarter of the year and highest in the fourth quarter. This is mainly
a result of the seasonal purchase patterns of network operators.

ST-Ericsson reported a loss also in 2011. ST-Ericsson is
currently in a shift from legacy to new products. Ericsson’s
share in ST-Ericsson’s income before tax, adjusted to IFRS,
was SEK –2.7 (–1.5) billion. In 2010, the loss amounted to
SEK –1.8 billion including restructuring charges.

mOST RECENT FIvE-yEAR AvERAGE SEASONALITy

Operating income

Sequential change
Share of annual sales

First
quarter

Second
quarter

–21%
23%

8%
24%

Third
quarter
–4%
23%

Fourth
quarter

27%
30%

Operating income was SEK 17.9 (23.7) billion. However,
in 2010, operating income including restructuring charges
amounted to SEK 16.5 billion.

Financial numbers in this section are reported:
for 2011, including restructuring charges
for 2010, excluding restructuring charges.

Gross margin

Gross margin declined to 35.1% (38.2%) due to higher share of
coverage projects, network modernization projects in Europe
and 3G rollouts in India. Gross margin in 2010, including
restructuring charges, amounted to 36.5%.

Operating expenses

To secure continued technology leadership, focus is on
innovation and R&D. R&D expenses amounted to SEK 32.6
(29.9) billion. Spending on R&D as a percentage of sales was
14.4% (14.7%). In 2010, R&D spend including restructuring
charges was SEK 31.6 billion or 15.5% of sales. The increase
in absolute number is a result of planned higher investments
in radio, such as TD-LTE, IP and the acquired LG-Ericsson
operations. In 2012, R&D expenses of SEK 29–31 billion is
estimated. The estimate includes amortizations/write-downs of
intangible assets related to major acquisitions previously made.
However, currency effects may cause this to change.

Selling and administrative expenses represented 11.8%

of sales compared to 12.4% in 2010. The amount was
SEK 26.7 (25.3) billion. In 2010, the amount including restructuring
charges was SEK 27.1 billion, representing 13.3% of sales. In
the year, there were positive effects from efficiency work along
with the strong SEK.

Operating margin before Jvs

Operating margin before share in JV earnings decreased to 9.6%
(12.0%). However, in 2010, operating margin before share in JV
earnings and including restructuring charges amounted to 8.7%.

Share in earnings of Jvs

In 2011, Sony Ericsson reported a loss. The loss reflects intense
competition, price erosion, restructuring charges and supply
chain issues following the earthquake and tsunami in Japan.
Ericsson’s share in Sony Ericsson’s income before tax was
SEK –1.2 (0.9) billion. In 2010, Ericsson’s share amounted to
SEK 0.7 billion including restructuring charges.

Financial net

The financial net was SEK 0.2 (–0.7) billion. The difference is
mainly attributable to a higher interest net of SEK 0.8 billion
compared to 2010.

Taxes

The tax expense for the year was SEK 5.6 (4.5) billion or 30.6%
(28.8%) of income after financial items. The tax rate may vary
between years depending on business and geographic mix.
The tax rate excluding joint ventures and associated companies
was 26.4% (25.7%) due to lower tax rates from the loss-making
joint ventures.

Net income

Net income increased 12% to SEK 12.6 (11.2) billion driven by
higher sales and lower restructuring charges.

Earnings per share, diluted

Earnings per share increased 9% to SEK 3.77 (3.46). Earnings
per share, non-IFRS, decreased –2% to SEK 4.72 (4.80). The
Board of Directors proposes a dividend of SEK 2.50 (2.25). This
represents an increase of 11%.

Restructuring charges

Total restructuring charges were SEK 3.2 (6.8) billion, excluding
joint ventures. Cash outlays that have been provided for were
SEK 3.2 (3.3) billion. At the end of the year, cash outlays of
SEK 1.3 billion remain to be made. In 2012, restructuring
charges of approximately SEK 4 billion are estimated.

Ericsson’s share in Sony Ericsson’s restructuring charges

amounted to SEK 0.4 (0.2) billion. Ericsson’s share in
ST-Ericsson’s restructuring charges was SEK 0.1 (0.3) billion.

RESEARCh ANd dEvELOPmENT PROGRAm

2011

2010

2009

Expenses (SEK billion) 1)
As percent of Net sales
Employees within R&D as of December 31 2) 22,400
Patents 2)
30,000

27.0
29.9
14.4% 14.7% 13.1%
18,300
20,800
25,000
27,000

32.6

1) Excluding restructuring charges for 2009 and 2010.
2) The number of employees and patents are approximate.

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Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

FINANCIAL POSITION

Financial position

CONSOLIdATEd bALANCE ShEET (AbbREvIATEd)

december 31,
SEK billion

ASSETS

Non-current assets, total

of which intangible assets

of which property, plant and equipment

of which financial assets

of which deferred tax assets

Current assets, total

of which inventory

of which trade receivables

of which other receivables/financing
of which short-term investments, cash
and cash equivalents

Total assets

2011

2010

2009

2011

2010

2009

81.5

44.0

10.8

13.7

13.0

83.4

46.8

9.4

14.5

12.7

33.1

64.5

20.7

80.5

280.3

29.9

61.1

20.2

87.2

281.8

EQUITy ANd LIAbILITIES

87.4

Equity

145.3

146.8

141.0

48.2

Non-current liabilities

9.6

15.3

14.3

of which post-employment benefits

of which borrowings

of which other non-current liabilities

22.7

66.4

16.6

76.7

of which provisions

of which current borrowings

of which trade payables
of which other current liabilities

38.1

10.0

23.3

4.8

97.0

6.0

7.8

25.3
58.0

38.3

5.1

27.0

6.2

96.8

9.4

3.8

25.0
58.6

43.3

8.5

30.0

4.8

85.5

12.0

2.1

18.9
52.5

269.8

Total equity and liabilities 1)

280.3

281.8

269.8

198.8

198.4

182.4

Current liabilities

1) Of which interest-bearing liabilities and post-employment benefits SEK 41.0 (35.9) billion.
2) Including loan to ST-Ericsson of SEK 2.8 billion.

Ericsson’s strategy is to maintain a strong balance sheet
including a sufficiently large cash position to ensure the financial
flexibility to operate freely and to capture business opportunities.
This has been particularly important during the past years’
difficult macroeconomic and financial market situation.

By maintaining a strong cash position, the Company can also
maintain an active strategy for strategic mergers and acquisitions.
An important focus area is the monitoring of working capital.
Major efforts have been made during the year in order to reduce
days sales outstanding and inventory turnover days as well
as to increase payable days. The target for payable days was
met, while the other two targets were not achieved. The efforts
to further reduce working capital will continue in 2012 and the
working capital targets are the same as previous years.

In 2011, the dividend was SEK 2.25 per share. The Board

of Directors will propose to the Annual General Meeting
2012 a dividend of SEK 2.50 per share. This represents a
total dividend of approximately SEK 8.2 billion. The proposal
reflects year 2011’s earnings and balance sheet structure, as

well as coming years’ business plans and expected economic
development.

Non-current assets

Intellectual property rights, brands and other intangible assets
decreased to SEK 13.1 (16.7) billion due to amortizations.

Customer financing, current and non-current, decreased

slightly to SEK 4.2 (4.4) billion.

Current assets

Inventory levels increased during the year by SEK 3.2 billion
due to higher sales and increased share of coverage projects.
At year end, inventory was SEK 33.1 (29.9) billion. The higher
inventory level followed a higher level of work in progress in the
regions. The target of inventory turnover days less than 65 days
was not reached and improvement efforts will continue in 2012.
Trade receivables: Days sales outstanding reached 91 (88)

days at year-end. This reflects a higher portion of coverage
projects and higher sales volumes. The Company’s nominal credit

wORKING CAPITAL TARGETS

NET CASh ANd EQUITy RATIO

SEK billion

Percent

102

70
70

106

68
68

8888

120 days

90 days

60 days

30 days

0 days

Days sales
outstanding
Target is less than
90 days

Inventory
turnover days
Target is less than
65 days

Payable days
Target is more than
60 days

55.1%55.1%

49.7%

52.3%

52.1%

51.8%

51.3

39.5

34.7

36.1

24.3

2007

2008

2009

2010

2011

2007

2008

2009

2010

2011

Net cash

Equity ratio

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

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FINANCIAL POSITION

losses have historically been low and continued to be so in 2011.
Net cash decreased to SEK 39.5 (51.3) billion, mainly due to a
negative change in net operating assets, investing and dividend
paid to shareholders. Pension liabilities increased due to lower
discount rate and this impacted net cash negatively. For a more
detailed discussion on changes in cash, see pages 30–31.

Equity

Equity decreased by SEK –1.5 billion to SEK 145.3 (146.8) billion.
Net income was SEK 12.6 (11.2) billion and dividends of
SEK 7.5 (6.7) billion was paid during the year. The equity ratio
was maintained at a healthy level of 52% (52%).

Return on equity increased to 8.5% (7.8%), primarily due to

higher sales and lower restructuring charges.

Return on capital employed (ROCE) was 11.3% (9.6%). In

2010, ROCE excluding restructuring charges was 13.6%.

Non-current liabilities

Post-employment benefits related to defined benefit plans
increased to SEK 10.0 (5.1) billion. In 2011 there was a decrease
in discount rates, and plan assets yielded lower than expected.
Consequently, the Company experienced an increase in the net
pension liability and the funded ratio (plan assets as percentage
of defined benefit obligations) decreased to 77% (89%).

CUSTOmER FINANCE

SEK billion

4.4

4.2

3.1

2.8

3.4

2.8

2.4

2.3

2.0

1.4

2007

2008

2009

2010

2011

Customer finance net

Of which short-term

profile during 2011. Debt of SEK 3.4 billion is maturing in 2012
and SEK 5.4 billion in 2013. The Company also has unutilized
committed credit facilities of USD 2.0 billion available, maturing
in 2014.

Credit ratings at “solid investment grade”

On June 10, 2011, Moody’s upgraded Ericsson’s rating to A3
from Baa1, with a stable outlook. Standard & Poor’s rating at
BBB+ with stable outlook was unchanged.

Current liabilities

Off-balance sheet arrangements

There are currently no material off-balance sheet arrangements
that have, or would be reasonably likely to have, a current
or anticipated effect on the Company’s financial condition,
revenues, expenses, result of operations, liquidity, capital
expenditures or capital resources.

Provisions declined to SEK 6.0 (9.4) billion. SEK 1.3 (3.2) billion
were related to restructuring. The cash outlays of provisions
were SEK 6.0 (7.2) billion. The lower amount of provisions is
mainly due to lower restructuring. In addition, the business
mix with more coverage projects as well as good performance
in both hardware and software for new products introduced
decreased the need for warranty provisions. There is also an
effect of improved project management as well as geographical
mix. Provisions will fluctuate over time, depending on business
mix, market mix and technology shifts.

Payable days was unchanged at 62 (62) days. The target of

payable days of above 60 days was met.

Non-current borrowings decreased to SEK 23.3 (27.0)
billion. No major changes were made in the debt maturity

dEbT mATURITy PROFILE

SEK billion

5.4

3.4

4.0

1.2

4.5

2.0

1.2

2012

2013

2014

2015

2016

2017

2020

Notes and bonds

Financial leases

Loan from the European
Investment Bank

Loan from the Swedish Export
Credit Corporation

Loan from the Swedish Export
Credit Corporation, guaranteed
by the Swedish Export Credit
Guarantee Board

RETURN ON CAPITAL EmPLOyEd

Percent

20.9%

11.3%

9.6%

4.3%

2007

2008

2009

2010

2011

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Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

CASh FLOw

cash Flow

CASh FLOw (AbbREvIATEd) JANUARy-dECEmbER

SEK billion

Net income

Income reconciled to cash

Changes in operating net assets

Cash flow from operating activities

Adjusted operating cash flow 1)

Cash flow from investing activities

of which capital expenditures, sales of PP&E, product development

of which acquisitions/divestments, net

of which short-term investments for cash management purposes and other investing activities

Cash flow before financing activities

Cash flow from financing activities

Cash conversion (Cash flow from operating activities divided by income reconciled to cash)

Gross cash (Cash, cash equivalents and short-term investments)

Net cash (Gross cash less interest-bearing liabilities and post-employment benefits)

1) Cash flow from operations excl. restructuring cash outlays that have been provided for.
2) Including loan to ST-Ericsson of SEK 2.8 billion.

2011

12.6

25.2

–15.2

10.0

13.2

4.5

–6.1

–3.1

13.8

14.5

–6.5

40%

80.5 2)

39.5

2010

11.2

23.7

2.9

26.6

29.8

–12.5

–5.2

–2.8

–4.5

14.0

–5.7

112%

87.2

51.3

2009

4.1

21.0

3.5

24.5

28.7

–37.5

–4.9

–18.1

–14.5

–13.0

–1.7

117%

76.7

36.1

In 2011, gross cash decreased by SEK 6.6 billion to
SEK 80.5 (87.2) billion. The net income reconciled to cash of
SEK 25.2 billion was offset by a change in net operating assets
of SEK –15.2 billion and investing activities of SEK –9.9 billion.
Dividends to shareholders amounted to SEK –7.5 (–6.7) billion.

Net cash decreased to SEK 39.5 (51.3) billion.

(MSS). The Nortel patent portfolio was acquired in partnership
with other industry players.

Cash flow for short-term investments for cash management
purposes and other investing activities was net SEK 13.8 (–4.5)
billion, mainly attributable to changes between short-term
investments and cash and cash equivalents.

Cash flow from operating activities

Capital expenditures

The adjusted operating cash flow was negatively impacted by
higher working capital.

During 2011, cash flow was negatively impacted by a

significant increase in working capital as a result of higher sales
and more projects.

Cash flow from investing activities

Cash outlays for regular investing activities increased to
SEK –6.1 (–5.2) billion.

Annual capital expenditures are normally around two percent of
sales and are expected to remain at this level. This corresponds
to the needs for keeping and maintaining the current
capacity level, including the introduction of new technology
and methods. The expenditures are largely related to test
equipment in R&D units, network operations centers as well as
manufacturing and repair operations.

The Board of Directors reviews the Company’s investment

plans and proposals.

Acquisitions and divestments during the year were net
SEK –3.1 (–2.8) billion, with the major items Nortel’s GDNT
operation in China and Nortel’s Multi-Service Switch business

The Company has sufficient cash and cash generation

capacity to fund expected capital expenditures without external
borrowings in 2012.

CASh FLOw FROm OPERATING ACTIvITIES

SEK billion

24.0

24.5

26.6

19.2

10.0

2007

2008

2009

2010

2011

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

We believe that the Company’s property, plant and

equipment and the facilities the Company occupies are suitable
for its present needs in most locations. As of December 31,
2011, no material land, buildings, machinery or equipment were
pledged as collateral for outstanding indebtedness.

CAPITAL EXPENdITURES 2007–2011

SEK billion

2011

2010

2009

2008

2007

Capital expenditures

of which in Sweden

5.0

1.7

3.7

1.4

4.0

1.3

4.1

1.6

4.3

1.3

as percent of net sales

2.2%

1.8%

1.9%

2.0%

2.3%

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CASh FLOw

Cash flow from financing activities

Restricted cash

Cash flow from financing activities was SEK –6.5 billion.
Dividends paid were SEK –7.5 (–6.7) billion and other financing
activities net amounted to SEK 1.0 billion.

Cash balances in certain countries with restrictions on transfers
of funds to the Parent Company as cash dividends, loans or
advances amounted to SEK 13.9 (10.8) billion.

Cash conversion

Cash conversion was 40% (112%), below the target of 70%.
Over the years 2008–2010, cash conversion was above target.
The cash conversion in 2011 was negatively impacted by higher
working capital.

In this context all countries with currency restrictions are
included. In most cases the currency is nonconvertible and flow
of funds in a foreign currency requires approval by a central
bank or similar. Out of the total amount, China, India, Korea,
Brazil and Indonesia are the top five countries accounting for
SEK 9.6 billion.

ChANGE IN GROSS CASh 2011

Operating cash flow 10.0 b

Investing activities –9.9 b1)

Financing activities –6.5 b

FX on cash
–0.2 b

25.2

–12.0

–3.2

–5.0

–6.5
–4.9

–7.5

87.2

Adjusted cash flow SEK 13.2

1.0

–0.2

80.5

Change in gross cash SEK –6.6 bILLION

SEK billion

120

110

100

Gross cash
opening
balance

Net income
reconciled
to cash

Change net
operating
assets excl.
restructuring

Restructuring

Capex

Acquisitions,
divestments
and other

Dividend

Other
financing
activities

FX on cash

Gross cash
closing
balance

1) As disclosed under Financial Terminology, Gross Cash is defined as cash, cash equivalents and short-term investments. Cash as presented in the balance

sheet and related notes includes cash, cash equivalents and short-term investments of a maturity less than three months. Due to different treatment of cash
in the above table and related foreign currency impact, the amounts differ from those in other presentations of cash flows.

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Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

BUSINESS RESULTS – REGIONS

SALES PER REGION AND SEGMENT 2011 AND 2010

SEK billion

North America
Latin America
Northern Europe and Central Asia
Western and Central Europe
Mediterranean
Middle East
Sub-Saharan Africa
India
China and North East Asia
South East Asia and Oceania
Other*
Total
Share of total

Networks

Global Services

Multimedia

Percent
change

–5%
25%
34%
–7%
1%
4%
63%
19%
63%
–3%
53%
17%

2011

28.9
11.5
9.7
7.8
10.7
7.4
5.9
6.1
27.8
7.6
9.1
132.4
58%

Percent
change

5%
23%
17%
–2%
11%
4%
–26%
13%
19%
–14%
–132%
5%

2011

18.6
9.5
5.0
10.3
11.8
6.8
3.4
3.1
9.9
5.6
–0.2
83.9
37%

2011

1.3
1.0
0.5
1.0
1.3
1.2
0.9
0.5
0.5
0.7
1.7
10.6
5%

Percent
change

Total
2011

Percent
change

7%
5%
–20%
–7%
–5%
–13%
–12%
–25%
–5%
26%
57%
1%

48.8
22.0
15.2
19.0
23.8
15.5
10.2
9.8
38.2
13.9
10.6
226.9
100%

–1%
23%
25%
–4%
5%
2%
11%
13%
47%
–7%
41%
12%

* Other includes sales of e.g. mobile broadband modules, cables, power modules as well as licensing and IPR. Mobile broadband modules are sold directly by business unit Networks
to PC/netbook manufacturers. A central IPR unit manages sales of licenses to equipment vendors or others who wish to use Ericsson’s patented technology. TV solutions are sold
both through other equipment vendors as resellers and directly by business unit Multimedia to cable TV operators.

Regional development

LATIN AMERIcA

The regions are the Company’s primary sales channels. Ericsson
reports ten regions, mirroring the internal geographical organization.

NORTh AMERIcA

North America is the world’s most developed region in terms
of smartphone penetration and mobile data usage. Operators
are continuing the implementation of tiered pricing to capitalize
on changing user behavior. Half of the net additions of
subscriptions in the second half of 2011 came from connected
devices or machine to machine communication. Through the
year multiple LTE network buildouts have been initiated and
launched in both the US and Canada, and Ericsson is a leading
supplier to these projects.

The networks business developed slower in the second

half of 2011 after a period of high operator investments in
network capacity. Operators’ focus on cash flow management
and operator consolidation also had a negative impact. This
was to a large degree offset by a positive uptake in services
and multimedia.

There is a push for mobile broadband in Latin America, driven
by consumer demand for 3G services. Smartphone penetration
is still low, but is expected to grow as these handsets become
more affordable.

Operators show an increasing interest in network performance
and Ericsson is taking part in OSS/BSS transformation projects in
managed services deals, including network sharing arrangements.

NORThERN EUROPE AND cENTRAL ASIA

The Nordics are mature and advanced markets with strong 3G
coverage and LTE commercially available in all countries. Nordic
operators are increasingly shifting their business models towards
network sharing and the outsourcing of network operations.

Deployment of 3G networks started later in the eastern part
of the region. Here, operators are focusing on providing coverage
and quality in the networks. Mobile broadband is growing rapidly
in the region. Many consolidation activities, of both operators and
networks, are taking place. In the latter half of the year, network
sales slowed, especially in Russia, following strong operator
investments in network capacity and coverage.

SALES IN NETwORKS, GLOBAL SERvIcES AND MULTIMEDIA 2011 PER REGION

SEK billion

NORTh AMERIcA

LATIN AMERIcA

NORThERN EUROPE
AND cENTRAL ASIA

wESTERN AND
cENTRAL EUROPE

MEDITERRANEAN

11.5

9.5

28.9

18.6

1.3

10.3

7.8

9.7

1.0

5.0

0.5

1.0

11.8

10.7

7.4

6.8

5.9

3.4

6.1

3.1

27.8

9.9

7.6

5.6

0.5

0.7

1.3

1.2

0.9

Networks

Global Services

Multimedia

Networks

Global Services

Multimedia

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

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wESTERN AND cENTRAL EUROPE

Modernization of networks accelerated across the region in
2011. Operator focus is on replacing old 2G/3G equipment
with modern, more efficient multi-standard radio base stations.
Interest in LTE is limited, with certain countries still to allocate
spectrum for this.

Penetration of mobile broadband is high, with some
operators’ smartphone shipments representing more than
half of their totals. Data revenues are growing and represent
over 40% with some operators. There is also high interest in
managed services and network sharing.

MEDITERRANEAN

This region has seen an impact from weak economies as well
as political unrest in Northern Africa. The uptake of mobile
broadband is mixed, with the strongest growth in the south
west parts of the region. Here, operators are implementing a
range of tiered pricing models.

Mobile data usage is high in the Mediterranean area, due

to the low availability of fixed broadband. Most operators’
investments are for 3G coverage and in the second half of the
year, network modernization projects took off.

MIDDLE EAST

The Middle East was impacted by political unrest in several
countries and by delays in license auctions. As a consequence,
some operators have postponed their infrastructure
investments and increased their focus on efficiencies.

The region has lower penetration rates, mobile broadband
adoption and mobile data usage than the world average. The
crucial driver for increasing these parameters is the affordability
of smartphones.

Rollouts of LTE have started in some parts of the region.

SUB-SAhARAN AfRIcA

Mobile penetration continues to increase rapidly in Africa.
Operator focus is still on 2G coverage and capacity buildouts,
although some operators are building 3G coverage.

With smartphones in the region set to become cheaper,
operators are focusing on creating efficiency in their networks
to allow them to capitalize on future uptake.

BUSINESS RESULTS – REGIONS

Inflation and competition are also driving operators’ need

for increased efficiency. This leads them to focus on power
consumption reductions and managed services solutions. There
is also a need for operators to harmonize policy frameworks to
increase data take-up.

INDIA

Initial 3G rollouts reached a temporary peak in 2011. The
Indian market is fragmented and in the near future a telecom
policy reform is expected which might make operator
consolidation easier.

Besides the need for affordable smartphones, availability of
dual SIM card phones is a key component in driving mobile data
uptake. The Indian market is highly competitive, which drives
operator interest in managed services and network sharing.

chINA AND NORTh EAST ASIA

China’s operators have focused on building 2G capacity with
GPRS/EDGE to meet the increase in mobile data traffic from
smartphones. In 2011, large scale trials for TD-LTE took place
with China Mobile.

In Korea and Japan, 3G capacity and LTE coverage rollouts

are ongoing, driven by high smartphone penetration, mobile
broadband adoption and mobile data usage. In Korea, three
LTE networks are live, and Ericsson is a supplier to all of them.

SOUTh EAST ASIA AND OcEANIA

Parts of this region, such as Australia and Singapore, have
high penetration rates, adoption and usage. In these areas,
LTE is also starting to emerge. Indonesia is moving towards
3G, however take-up is hampered by the affordability of
devices. 3G auctions are yet to take place in some markets.
Coverage projects, where old equipment is replaced with new,
are underway across most markets, as operators build for
data growth and seek operating cost efficiencies. The decline
in network sales is due to reduced 2G business in Vietnam.
The services business declined due to a concluded managed
services contract in Australia.

SALES IN NETwORKS, GLOBAL SERvIcES AND MULTIMEDIA 2011 PER REGION

SEK billion

MIDDLE EAST

SUB-SAhARAN AfRIcA

INDIA

chINA AND
NORTh-EAST ASIA

SOUTh-EAST ASIA
AND OcEANIA

7.4

6.8

1.2

5.9

3.4

0.9

6.1

3.1

27.8

9.9

0.5

7.6

5.6

0.7

Networks

Global Services

Multimedia

Networks

Global Services

Multimedia

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Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

28.9

11.5

9.5

9.7

18.6

10.3

7.8

11.8

10.7

5.0

1.3

1.0

0.5

1.0

1.3

BUSINESS RESULTS – SEGMENTS

NETwORKS

Sales

Networks sales increased 17% to SEK 132.4 billion, negatively
impacted by a strong SEK in 2011. The increase was an effect
of continued high sales in mobile broadband-related equipment
including packet core, IP routers and microwave-based
backhaul. Demand was especially strong in regions China and
North East Asia and North America.

The year was characterized by high volumes of mobile
broadband equipment and ramp-up of the multi-standard
radio base station RBS 6000. The product introduction of the
RBS 6000 has been the quickest and most successful in the
Company’s history. At the end of the year, the first RBS 6000
with CDMA functionality was shipped. The RBS 6000 accounts
for close to 100% of all deliveries of GSM/WCDMA/LTE radio
base stations. In the fourth quarter, shipping of the IP Edge
router, the Smart Services Router SSR 8000 family, and the
Antenna Integrated Radio unit (AIR) also commenced.

In 2010, Ericsson acquired Nortel’s CDMA business in order

to strengthen its position in North America. Ericsson is now
established as the leader in this market. CDMA sales increased
slightly in 2011. At the end of the year the Company saw the
expected decline in CDMA sales and subsequent rapid shift to
LTE. The CDMA acquisition has created substantial value for
the Company.

In March, the earthquake and tsunami in Japan caused
temporary delays in the supply chain, but by the third quarter
lead times were back to normal.

Profitability

Operating margin decreased to 13% (15%). The margin was
negatively impacted by planned R&D investments to accelerate
technology leadership. Operating margin in 2010 was 11%
including restructuring charges.

hIGhLIGhTS IN 2011

Increased market share
in mobile network
equipment by
6 percentage points to
38% (estimated)

> Market share of more
than 60% in LTE

> Smart Services Router
family introduced.
Volume deliveries
expected in 2012

NETwORKS SALES
ShARE Of TOTAL 2011

Net sales (SEK billion and percent)

132.4

58%

Networks

Global Services

Multimedia

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

cost structure

In the Networks segment, cost of sales is quite large and to a
large part variable. To reduce variable cost, the Company works
with product rationalization and product substitution. R&D is a
significant cost item and for this reason it is important to focus
on R&D effectiveness and efficiency. It is essential to ensure
global platforms and common components across the whole
portfolio. To maximize the outcome of R&D investment, the
Company also seeks to give R&D sites clear accountability and
the same IS/IT environment.

The networks business

Sales to network operators are normally based on multi-year
frame agreements after an initial open tender. During the frame
agreement, software, equipment, services and spare parts are
called off according to price lists.

Prior to the introduction of the multi-standard radio base
station RBS 6000, operators could have co-siting, with one
supplier for GSM and another for WCDMA. Today, a multi-
standard approach means that all technologies are supported
by one radio base station. Any supplier has to be equally
capable of all technologies. R&D investments and scale are
therefore essential for a supplier to stay competitive. The
footprint of multi-standard radio access network increases
opportunities for additional network business, e.g. backhaul
and core networks. Following radio and core footprint is a
significant software sales opportunity based on capacity,
functionality and new features.

competitors

In the networks segment, Ericsson competes mainly with
telecommunication equipment suppliers such as Alcatel-Lucent,
Cisco, Huawei, Juniper, Nokia Siemens Networks, Samsung
and ZTE. The Company also competes with local and regional
manufacturers and providers of telecommunications equipment.

NETwORKS PROfITABILITy

20%

15%

10%

18%

16%

15%

14%

13%

EBITA margin 3)

Operating margin

2009 1)

2010 1)

2011 2)

1) excluding restructuring charges
2) including restructuring charges
3) EBITA: Earnings before interest, tax, amortizations
and write-downs of acquired intangibles

BODX3XEN_v92.indd 34

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GLOBAL SERvIcES

Sales

Global Services sales increased 5% to SEK 83.9 (80.1) billion,
driven by network rollout, consulting and systems integration.

Professional Services sales were SEK 58.8 billion, up 1% from
2010. Currency adjusted sales of Professional Services increased
7%. The increase is mainly a result of increased sales of consulting
and systems integration. Managed Services sales decreased
by –1% to SEK 21.0 billion. Currency adjusted sales increased
7%. The growth reflects the 70 (54) signed managed services
contracts, of which 32 (26) were extensions or expansions. More
than 60% of Professional Services sales were recurring.

Network Rollout sales amounted to SEK 25.1 (21.6) billion, an
increase of 16%, driven by high volumes of network modernization.

Profitability

Global Services’ operating margin decreased to 7% (11%).The
margin was negatively impacted by a loss in Network Rollout.
Operating margin in 2010 was 8% including restructuring

charges.

Operating margin for Professional Services amounted to

13% (15%). Operating margin in 2010 was 11% including
restructuring charges.

Operating margin for Network Rollout amounted to –8%

(1%), due to high activity levels related to network modernization
projects in Europe and 3G rollouts in India. Operating margin in
2010 was 0% including restructuring charges.

cost structure

In the services segment, almost all cost resides in cost of sales
and the majority of the cost is related to employee costs. A
few years ago, the cost of sales base was to a higher degree
variable. With the increasing share of managed services, the
portion of fixed costs has increased, which makes it important
to find scale by winning more deals in the same geographical
area. Another measure to keep cost down is to establish a
one-to-many delivery model. The development of global tools,
methods and processes are also crucial in order to secure
efficiencies and knowledge sharing.

hIGhLIGhTS IN 2011

> More than 2 billion

subscribers in networks
for which Ericsson
provides support

> Over 900 million

subscriber in networks
managed by Ericsson

> 500 million subscribers
in network operation
contracts

GLOBAL SERvIcES SALES
ShARE Of TOTAL 2011

Net sales (SEK billion and percent)

37%

83.9

Networks

Global Services

Multimedia

BUSINESS RESULTS – SEGMENTS

In managed services, Ericsson often insources employees

from the customer. In the transition period, restructuring
costs are taken, e.g. for replacement of IS/IT systems and
migration of employees into new systems and premises. In the
transformation phase, following the transition, synergies are
carried through.

The services business

Ericsson’s offering covers all areas within an operator’s
operational scope. The Company’s service offering includes
consulting, systems integration, managed services, network
deployment and integration, education and support services.
Ericsson provides services for both mobile and fixed telecom
networks as well as for IT and broadcast networks and in some
cases for adjacent industries such as the utilities industry. Most
often operators turn to Ericsson for support in a certain part of
their operations. Contracts for managed services and customer
support are typically for five to seven years. Payments with
regularity provide a lower rate of working capital. Consulting
and systems integration contracts are shorter and paid after
fulfillment of contract.

In managed services deals the contracts are normally split
into fixed and variables, where the variables are a smaller part.
The invoicing is based on fulfillment of certain key performance
indicators and projects. When an operator explores the
possibility of a managed services deal, the financial strength of
the supplier is a prerequisite.

Network rollout includes coverage and modernization
projects with a large part of third-party sourcing, making it a
lower-margin business.

The Company rolls out its own equipment, but also has high

multi-vendor skills in all other parts of the services business.

competitors

Competition in services includes the traditional telecommunication
equipment suppliers. The Company also competes with
companies such as Accenture, HP, IBM, Oracle, Tata Consultancy
Services and Tech Mahindra. Among the competition is also a
large number of smaller but specialized companies operating on
a local or regional basis.

GLOBAL SERvIcES PROfITABILITy

20%

15%

10%

–5%

–10%

17 16

–1

Global
Services

EBITA margin 3)
Professional
Services

–8

Network
Rollout

Global
Services

Operating margin
Professional
Services

Network
Rollout

–8

2009 1)

2010 1)

2011 2)

1) excluding restructuring charges
2) including restructuring charges
3) EBITA: Earnings before interest, tax, amortizations

and write-downs of acquired intangibles

Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

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Telcordia acquisition

In 2011, Ericsson announced the acquisition of Telcordia, a
global leader in the development of software and services
for OSS/BSS. The price was USD 1.15 billion in an all cash
transaction, on a cash and debt-free basis. The acquisition is
expected to be accretive to Ericsson’s earnings per share within
twelve months. Telcordia has approximately 2,600 employees.
During its last fiscal year, ended January 31, 2011, Telcordia
generated revenues of USD 739 million. Telcordia’s revenues
will be split between segments Multimedia and Global Services
according to portfolio mix. With the acquisition, Ericsson
aspires to a leading position in the OSS and BSS market.

competitors

In the multimedia segment, Ericsson competes in rather
fragmented markets with many local players. Competitors vary
depending on the solution being offered. In the OSS and BSS
market, they include many of the traditional telecommunication
equipment suppliers as well as IT suppliers, such as Amdocs,
Comverse and Oracle. Competition in the TV business includes
Harmonic and Thompson.

BUSINESS RESULTS – SEGMENTS

MULTIMEDIA

Sales

Multimedia sales increased 1% to SEK 10.6 (10.5) billion,
negatively impacted by political unrest in the Middle East and
weak development in India.

Profitability

Operating margin was –5% (–4%). Restructuring charges had
no material impact on profitability.

cost structure

In the multimedia segment, cost of sales is low and the majority
is variable, due to the fact that third party hardware is used,
on which the Company implements its software. Multimedia is
a software business with a high degree of fixed R&D cost for
software development.

The OSS and BSS business

The OSS/BSS business is divided into two different sales types:

TRANSfORMATION SALES

Simplification and consolidation of processes, operations,
systems and platforms. Key components are software
solutions, consulting and systems integration. Typically these
projects last for 18–36 months. The software part represents
25–40% of the contract value and the rest is consulting and
systems integration.

PRODUcT SALES

Product sales is mainly expansions and upgrades, e.g.
upgrading from Ericsson Charging System version 4 to 5. Key
components are software solutions and systems integration.
Typically these projects last for 1–12 months. The software
part represents 70–90% of the contract value and the rest is
systems integration.

hIGhLIGhTS IN 2011

> 13 new contracts
signed for mobile
broadband charging

> World’s largest IPTV
upgrade in Taiwan

> 11 new customers for
convergent charging
and billing

MULTIMEDIA SALES
ShARE Of TOTAL 2011

Net sales (SEK billion and percent)

10.6

Networks

Global Services

Multimedia

MULTIMEDIA PROfITABILITy

15%

12%

–3%

–6%

14%

EBITA margin 3)

–4%

–5%

Operating margin

2009 1)

2010 1)

2011 2)

1) excluding restructuring charges
2) including restructuring charges
3) EBITA: Earnings before interest, tax, amortizations
and write-downs of acquired intangibles

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

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SONy ERIcSSON

ST-ERIcSSON

BUSINESS RESULTS – SEGMENTS

Sony Ericsson is a 50/50 joint venture between Sony
Corporation and Ericsson, established in 2001. Sony Ericsson
is accounted for according to the equity method. In October
2011, it was announced that Sony Corporation would acquire
Ericsson’s 50% share in Sony Ericsson. As part of the deal,
Sony and Ericsson will also enter into a broad IP cross-licensing
agreement and create a wireless connectivity initiative to drive
connectivity across multiple platforms. The transaction is a
logical strategic step that makes it possible for Ericsson to
focus on enabling connectivity for all devices.

Sony Ericsson will become a wholly-owned subsidiary of Sony
and integrated into Sony’s broad platform of network-connected
consumer electronics products. The agreed cash consideration
for the transaction is a EUR 1.05 billion cash payment.

Sony Ericsson’s units shipped in 2011 decreased by –20%
to 34.4 (43.1) million while the average selling price increased
by 4% to EUR 152 (146). Sales decreased by –17% to
EUR 5.2 (6.3) billion.

In 2011, Sony Ericsson had a market share of 10% in the
smartphone market, measured in units, and 10% measured
in value.

Gross margin decreased during the year to 28% (29%)

attributed to product and geographic mix. Income before taxes,
including restructuring charges, was EUR –0.24 (0.15) billion.
Income decreased during the year due to declining gross
margin and increased operating expenses. The result includes
restructuring charges of EUR 93 million. Ericsson’s share in
Sony Ericsson’s income before taxes was SEK –1.2 (0.7) billion.
Sony Ericsson’s primary competitors include Apple, HTC,

LG, Motorola, Nokia, RIM and Samsung.

ST-Ericsson is a 50/50 joint venture between STMicroelectronics
and Ericsson, established in February, 2009. ST-Ericsson is
accounted for according to the equity method.

At the end of 2011, ST-Ericsson was still in a shift from

legacy to new products. Though its path to success is
challenging, ST-Ericsson is, when entering 2012, continuing to
focus on securing the successful execution and delivery of its
new products to customers while lowering its break-even point.
The changes in the business environment at a large customer

during 2011 reduced demand for legacy products and delayed
the ramp-up of new products with that customer. In the light
of the business environment at the end of 2011, ST-Ericsson’s
CEO is reviewing the company’s strategic plan and financial
prospects. Ericsson, together with its partner STMicroelectronics,
is firmly committed to supporting ST-Ericsson in the transition
to turn-over to sustainable profitability and cash generation.
As a result of the strategic review, Ericsson may consider
additional actions to solidify and accelerate ST-Ericsson’s
path to profitability. In such an event, or in case of a significant
worsening of business prospects, the value of ST-Ericsson for
Ericsson could decrease to a value significantly lower than the
current carrying amount of ST-Ericsson on Ericsson’s books
and Ericsson might be required to take an impairment charge.
Sales in 2011 declined –28% to USD 1.7 (2.3) billion. The
operating loss for the year, adjusted for restructuring costs,
was USD –0.7 (–0.4) billion. ST-Ericsson reports in US-GAAP.
Ericsson’s share in ST-Ericsson’s income before taxes, adjusted
to IFRS, was SEK –2.7 (–1.8) billion. Adjustments for IFRS
compliance mainly consist of capitalization of R&D expenses for
hardware development. The Company’s net financial position
was USD –798 (–82) million at year-end. At the end of the year,
ST-Ericsson had utilized USD 800 million of a short-term credit
facility granted on a 50/50 basis by the parent companies.

In December 2011, a new President and CEO of

ST-Ericsson was appointed.

ST-Ericsson’s major competitor is Qualcomm. The market
is growing in complexity as several new operating systems for
handsets and other devices have been launched, e.g. Google’s
Android, Microsoft’s Windows phone and Samsung’s Bada.

SONy ERIcSSON NET SALES AND
ADjUSTED INcOME BEfORE TAXES

ST-ERIcSSON NET SALES AND
ADjUSTED OPERATING INcOME

Euro million

14,000

12,916

12,000

10,000

8,000

6,000

4,000

2,000

–2,000

11,244

6,788

6,294

5,212

1,574

–878

189

–150

2007

2008

2009

2010

2011

Net sales
Income before
taxes excl.
restructuring
charges

USD million

3,000

2,500

2,000

1,500

1,000

500

–500

–1,000

2,524

2,293

1,650

–369

–436

–732

Net sales
Operating income
adjusted for amortization of
acquired intangibles and
restructuring charges

2009

2010

2011

All figures in accordance with
reported adjusted US GAAP figures

Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

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SUSTAINABILITY AND
CORPORATE RESPONSIBILITY

SUSTAINABILITY AND CORPORATE RESPONSIBILITY

The Company has implemented strong social, environmental
and ethical standards supporting risk management and
value creation. This commitment generates positive business
impacts, which in turn benefit society.

Ericsson’s approach to Sustainability and Corporate

Responsibility (CR) is integrated into its core business
operations and in its relationship with stakeholders. The Board
of Directors considers these aspects in governance decision-
making. Group level policies and directives ensure consistency
across global operations.

Ericsson publishes an annual Sustainability and Corporate

Responsibility Report which provides additional information.

Responsible business practices

Since 2000, Ericsson has actively supported the UN Global
Compact, and endorses its ten principles regarding human and
labor rights, anti-corruption and environmental protection. The
Ericsson Group Management System includes policies and
directives that cover responsible business practices, such as
the Code of Business Ethics, Code of Conduct (CoC), anti-
corruption and environmental management. It is reinforced
by training, workshops and monitoring, including a global
assessment program run by an external assurance provider
where CR criteria represent some 20% of areas assessed.

Supply chain

Suppliers must comply with Ericsson’s CoC. Approximately 170
employees, covering all regions, are trained as supplier CoC
auditors. The Company performs regular audits and works with
suppliers to ensure measurable and continuous improvements.
Findings are followed up to ensure that improvements are
made. Training for suppliers is available in 13 languages. To
effectively address the issue of conflict minerals, Ericsson
participates in the Global e-Sustainability Initiative (GeSI) work
on conflict minerals, and takes other active measures in its
sourcing and product management processes.

Reducing environmental impact

Energy use for products in operation remains the Company’s
most significant environmental impact. Ericsson works
proactively with its customers to encourage network and site
energy optimization, through innovative products, software,
solutions and advisory services. Processes and controls are
in place to ensure compliance with relevant product-related
environmental, customer and regulatory requirements. The
Company works actively to reduce its own environmental
impact, with a focus on Design for Environment, which includes
product energy efficiency and materials management, as well
as facilities management, travel reduction and logistics.

Product take-back and recycling

Ericsson Ecology Management is a program to take responsibility
for products at the end of their life and is offered to all customers
globally free of charge, not only in markets where legislated.
During 2011, Ericsson worked actively to help build
up e-waste capabilities in Africa, through a public private
partnership in Ghana. This was done with the Raw Materials
Group and the Ghana Environmental Protection Agency and
was financed by the Nordic Development Fund. The goal is to
establish local recycling capabilities and transform the current
informal e-waste recycling yards into a formal business. This will
help to reduce negative environmental and health impacts while
also alleviating poverty.

Radio waves and health

Ericsson provides public information on radio waves and
health, and supports independent research to further increase
knowledge in this area. Ericsson has co-sponsored over 90
studies related to electromagnetic fields, radio waves and
health since 1996. Independent expert groups and public health
authorities, including the World Health Organization, have
reviewed the total amount of research and have consistently
concluded that the balance of evidence does not demonstrate

SUPPLIER CODE OF CONDUCT AUDITS AND ASSESSMENTS

ERICSSON LIFE-CYCLE ASSESSMENT CARBON FOOTPRINT 2011

600

500

400

300

200

100

2007

2008

2009

2010

2011

Auditors

Number of audits

Number of assessments

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

e
2
O
C
s
e
n
n
o
t
M

–5

~24

0.84

~–0.3

Supply
Chain

Ericsson own
Activities

Operator
activities

Products
in Operation

End-of-Life
Treatment

Activities in 2011

Future (lifetime) operation of products
delivered in 2011

Direct emissions (Ericsson own Activities)
Indirect emissions (all other life-cycle emissions)

~ = approximately

BODX4XEN_v96.indd 38

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any health effects associated with radio wave exposure from
either mobile phones or radio base stations.

Ericsson is co-sponsoring the Swedish part of the COSMOS

study, which is conducted in five countries. The study aims to
carry out long term health monitoring of more than 200,000 people
to identify if there are any health issues linked to long term mobile
phone use. To assure scientific independence there is a firewall in
place between the industrial sponsors and the researchers.

Climate change

ICT represents about 2% of global CO2 emissions, but can
potentially offset a significant portion of the remaining 98%
from other industries. Ericsson takes active measures to ensure
that its own carbon footprint intensity will be continuously
reduced. A five year target which aims to reduce the carbon
emission intensities by 40% was set in 2008. The target
comprises two focus areas: Ericsson’s own activities and the
life-cycle impacts of products in operation (see graph).
> A 6% reduction in direct emission intensity from own

activities was achieved during 2011. Despite delivering
higher volumes, Ericsson still achieved the target of 70%
surface transport by weight. Business travel is roughly the
same per employee.

> A 3% reduction was achieved in indirect emission intensity
from products in operation. While the reduction was lower
this year compared to last, Ericsson is well on track to meet
its five year target.

> Ericsson has increased 3G/4G energy efficiency by

85% over the last decade, while continuing to meet the
bandwidth demands of the networked society, and without
increasing energy consumption per subscriber.

Ericsson’s sustainability strategy focuses on the role broadband
can play in helping to offset global CO2 emissions, 70% of
which are attributed to cities. Ericsson works on sustainable
city solutions and is engaged in global climate policy. Ericsson’s
CEO leads the Climate Change Working Group of the Broadband
Commission. Ericsson also co-chairs the Policy Group in GeSI,
and helped launch its Low Carbon Cities benchmark.

SUSTAINABILITY AND
CORPORATE RESPONSIBILITY

Meeting the UN Millennium Development Goals

Mobile connectivity fuels economic growth, which is vital for
billions of people living at the base of the economic pyramid.
Ericsson is committed to using its technology and competence
to help achieve the Millennium Development Goals (MDGs).
Ericsson launched the Technology for Good program in 2011. It
focuses on applying the Company’s expertise, global presence
and scale to find market-based solutions that empower people,
business and society to help shape a more sustainable world.

Connect to Learn

In 2011, Ericsson and its partners, The Earth Institute at Columbia
University and Millennium Promise, celebrated one year of progress
for Connect To Learn, a global initiative focused on improving
quality of and access to secondary education. Some 5,000
students now have access to education in schools throughout
Millennium Villages and cities in Africa. An innovative cloud
computing solution, PC as a Service, dramatically reduces the
cost of access. The initiative has been extended to Latin America.

Ericsson Response™

Ericsson Response is a global Ericsson employee volunteer
initiative which rapidly deploys communication solutions
and provides telecommunications experts to assist disaster
relief operations. Ericsson Response partners with many UN
and humanitarian organizations. In 2011, Ericsson Response
missions included the ‘One UN’ initiative in Tanzania, in
collaboration with the World Food Programme. A partnership
with operator SingTel was also announced to provide emergency
communications services to support disaster relief efforts in
South and Southeast Asia through Ericsson Response.

Reporting according to GRI 3.0

Full key performance data is available at www.ericsson.com
and has achieved an A+ rating according to the Global
Reporting Initiative (GRI). The performance data has been
externally assured, and the application level has been checked
by a third party.

CARBON FOOTPRINT INTENSITY TARGET

POwER CONSUMPTION PER UNIT OUTPUT POwER

100%

80%

60%

40%

20%

)

E
T
L
/
G
4

–
A
M
D
C
W
G
3

(

t
t
a
W
F
R

r
e
p
s
t
t
a
W

%
6
–

1
1
0
2
T
L
U
S
E
R

%
3
–

1
1
0
2
T
L
U
S
E
R

%
0
4
–
T
E
G
R
A
T

2008
Baseline

2009

2010

2011

2012

2013

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Ericsson own Activities

Products in Operation

3G/WCDMA (RBS 3000 and RBS 6000)

4G/LTE (RBS 6000)

Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

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CORPORATE GOVERNANCE

CORPORATE gOvERNANCE

In accordance with the Annual Accounts Act (1995:1554
Chapter 6, Section 6 and 8), a separate Corporate Governance
Report, including an Internal Control section, has been prepared.

Continued compliance with the
Swedish Corporate Governance Code

Ericsson applies the Swedish Corporate Governance Code
and is committed to complying with best-practice corporate
governance standards on a global level wherever possible. This
includes continued compliance with the corporate governance
provisions expressed by the Code, without deviations.

An ethical business

Ericsson’s Code of Business Ethics summarizes the Group’s
fundamental policies and directives governing its relationships
internally, with its stakeholders and with others. It also sets out
how the Group works to achieve and maintain its high ethical
standards. There have been no amendments or waivers to
Ericsson’s Code of Business Ethics for any Director, member of
management or other employee.

Board of Directors 2011/2012

The Annual General Meeting on April 13, 2011, elected Leif
Johansson new Chairman of the Board, replacing Michael
Treschow. Roxanne S. Austin, Sir Peter L. Bonfield, Börje Ekholm,
Ulf J. Johansson, Sverker Martin-Löf, Nancy McKinstry, Anders
Nyrén, Carl-Henric Svanberg, Hans Vestberg and Michelangelo
Volpi were re-elected and Jacob Wallenberg was elected new
member of the Board. Pehr Claesson, Jan Hedlund and Karin
Åberg were appointed employee representatives with Kristina
Davidsson, Karin Lennartsson and Roger Svensson as deputies.

Management

Hans Vestberg is President and CEO of the Group since
January 1, 2010. The President and CEO is supported by the
Group management, consisting of the Executive Leadership
Team (ELT). The ELT, in addition to the President and CEO,
consists of heads of Group functions, heads of business units
and two of the heads of Ericsson’s regions. Up until December
21, 2011, the Chief Brand Officer was part of ELT.

A management system is in place to ensure that the
business is well-controlled and has the ability to fulfill the
objectives of major stakeholders within established risk limits.
The system also monitors internal control and compliance with
applicable laws, listing requirements and governance codes.

Remuneration

Fees to the members of the Board of Directors and the
remuneration to Group management (the Executive Leadership
Team, ELT), as well as the 2011 guidelines for remuneration to
Group management, are reported in Notes to the Consolidated
Financial Statements – Note C28, “Information Regarding
Members of the Board of Directors, the Group management
and Employees”.

As of December 31, 2011, there were no loans outstanding
from and no guarantees issued to or assumed by Ericsson for
the benefit of any member of the Board of Directors or senior
management.

The Board of Directors’ proposal for guidelines
for remuneration to Group management

The Board of Directors proposes that the current guidelines
for remuneration to the Group management (ELT) remain
unchanged for the period up to the 2013 Annual General
Meeting.

Details of how Ericsson delivers on these guidelines and

policy, including information on previously decided long-
term variable remuneration that has not yet become due for
payment, can be found in Note C28, “Information regarding
Members of the Board of Directors, the Group management
and Employees”.

RISK MANAgEMENT

Risks are broadly categorized into operational and financial
risks. Ericsson’s risk management is based on the following
principles, which apply universally across all business activities
and risk types:
> Risk management is an integrated part of the Ericsson

Group Management System

> Each operational unit is accountable for owning and

managing its risks according to policies, directives and
process tools. Decisions are made or escalated according
to defined delegation of authority. Financial risks are
coordinated through Group Function Finance.

> Risks are dealt with during the strategy process, the annual
planning and target setting, the continuous monitoring
through monthly and quarterly steering group meetings and
during operational processes by transaction (customer bid/
contract, acquisition, investment and product development
projects). They are subject to various controls such as
decision tollgates and approvals.

A central security unit coordinates management of certain risks,
such as business interruption, information security and physical
security. The Crisis Management Council deals with events of
serious nature.

For information on risks that could impact the fulfillment of
the targets and form the basis for mitigating activities, see the
other sections of the Board of Directors’ Report, Notes C2,
“Critical Accounting Estimates and Judgments”, C14, “Trade
receivables and customer finance”, C19, “Interest-bearing
liabilities”, C20, “Financial risk management and financial
instruments” and the chapter Risk Factors.

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

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MATERIAL CONTRACTS

LEgAL AND TAx PROCEEDINgS

SOURCINg AND SUPPLY

Together with most of the mobile communications industry,
Ericsson was sued in two class action lawsuits in the US in which
plaintiffs alleged that adverse health effects could be associated
with mobile phone usage. The cases were pending in federal
court in Pennsylvania and the Superior Court of the District of
Columbia. In the Pennsylvania case, the federal district court
dismissed the plaintiffs’ claims as preempted by federal law. The
Third Circuit Court of Appeals subsequently affirmed this ruling,
and in October 2011, the Supreme Court declined to consider
the case. The plaintiff has no further right of appeal, and as a
result, the Pennsylvania case is officially closed.

In the District of Columbia case, the plaintiff dismissed
Ericsson from the case with prejudice in February 2011 shortly
after an opinion by the D.C. Court of Appeals made it clear that
the plaintiff did not have standing to sue Ericsson under the
D.C. consumer protection statute.

In January 2011, a US company SynQor filed a patent

infringement lawsuit against Ericsson Inc. alleging that Ericsson
infringes five US patents related to bus converters. In February
2011, SynQor filed a motion for preliminary injunction seeking
to prevent Ericsson from manufacturing, using, selling, and
offering for sale in the US and/or importing into the US
certain unregulated and semi-regulated bus converters and
any Ericsson products that contain those bus converters. In
May 2011, Ericsson and SynQor entered into a confidential
settlement agreement that resulted in mutual releases and a
dismissal with prejudice of all claims asserted by the parties
against each other in the litigation.

Ericsson’s hardware, accounting for approximately 40% of total
sales, largely consists of electronics, such as circuit boards,
radio frequency (RF) modules and antennas. For manufacturing,
the Company purchases customized and standardized
components and services from several global providers as
well as from local and regional suppliers. Certain types of
components, such as power modules and cables, are produced
in-house.

The production of electronic modules and sub-assemblies
is mostly outsourced to manufacturing services companies, of
which the vast majority is in low-cost countries. Production of
radio base stations is largely done in-house and on-demand.
This consists of assembling and testing modules and integrating
them into units such as complete radio base stations and mobile
switching centers. Final assembly and testing are concentrated
to a few sites. Ericsson has 17 manufacturing sites in Brazil,
China, Estonia, Italy, India and Sweden.

A number of suppliers design and manufacture highly
specialized and customized components. The Company
generally attempts to negotiate global supply agreements with
its primary suppliers. All Ericsson suppliers are required to
comply with the Code of Conduct.

Where possible, Ericsson relies on alternative supply
sources and seeks to avoid single source supply situations.
A need to switch to an alternative supplier may require
allocation of additional resources to ensure that technical
standards and other requirements are met. This process could
take some time to complete.

In May 2011, Ericsson settled a US patent infringement

Variations in market prices for raw materials generally have a

limited effect on total cost of goods sold.

MATERIAL CONTRACTS

Material contractual obligations are outlined in Note C31
“Contractual obligations”. These are primarily related to
operating leases for office and production facilities, purchase
contracts for outsourced manufacturing, R&D and IT
operations, and the purchase of components for the Company’s
own manufacturing.

Ericsson is party to certain agreements, which include
provisions that may take effect or be altered or invalidated
by a change in control of the Company as a result of a public
takeover offer. However, none of the agreements currently in
effect would entail any material consequence to Ericsson due to
a change in control of the Company.

lawsuit brought by an Australian company, QPSX Developments
PTY Ltd. The lawsuit had been pending since April 2007 and
involved Asynchronous Transfer Mode (ATM) technology.
Ericsson considers this matter closed.

In July 2011, a US company TruePosition sued

Ericsson, Qualcomm, Alcatel-Lucent (ALU), the European
Telecommunications Standards Institute (ETSI) and the Third
Generation Partnership Project (3GPP) for purported federal
antitrust violations. The complaint alleges that Ericsson,
Qualcomm and ALU illegally conspired to block the adoption
of TruePosition’s proprietary technology into the new mobile
positioning standards for LTE, while at the same time ensuring
that their own technology was included into the new standards. In
October 2011, the defendants filed motions to dismiss the case.
The Swedish fiscal authorities disallowed deductions for
sales commission payments via external service companies
to sales agents in certain countries. The decision covering the
fiscal year 1999 was appealed. In December 2006, the County
Administrative Court in Stockholm rendered a judgment in favor
of the fiscal authorities. The Administrative Court of Appeal in
Stockholm affirmed the County Administrative Court’s judgment.
The judgment was appealed to the Administrative Supreme Court.
In February 2011 the Administrative Supreme Court revoked the
County Administrative Court’s judgment and ruled in Ericsson’s
favor, thus allowing deductions for sales commission payments.

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Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

PARENT COMPANY

Proposed disposition of earnings

The Board of Directors proposes that a dividend of SEK 2.50
(2.25) per share be paid to shareholders duly registered on the
record date May 8, 2012, and that the Parent Company shall
retain the remaining part of non-restricted equity.

The Class B treasury shares held by the Parent Company
are not entitled to receive a dividend. Assuming that no treasury
shares remain on the record date, the Board of Directors
proposes that earnings be distributed as follows:

Amount to be paid to the shareholders SEK 8,183,379,338
Amount to be retained
by the Parent Company

SEK 32,536,021,737

Total non-restricted equity
of the Parent Company

SEK 40,719,401,075

As a basis for its dividend proposal, the Board of Directors has
made an assessment in accordance with Chapter 18, Section 4
of the Swedish Companies Act of the Parent Company’s and
the Group’s need for financial resources as well as the Parent
Company’s and the Group’s liquidity, financial position in other
respects and long-term ability to meet their commitments. The
Group reports an equity ratio of 52% (52%) and a net cash
amount of SEK 39.5 (51.3) billion.

The Board of Directors has also considered the Parent

Company’s result and financial position and the Group’s position
in general. In this respect, the Board of Directors has taken into
account known commitments that may have an impact on the
financial positions of the Parent Company and its subsidiaries.
The proposed dividend does not limit the Group’s ability

to make investments or raise funds, and it is the Board of
Directors’ assessment that the proposed dividend is well-
balanced considering the nature, scope and risks of the
business activities as well as the capital requirements for the
Parent Company and the Group as well as coming years’
business plans and economic development.

The Parent Company business consists mainly of corporate
management, holding company functions and internal banking
activities. It also handles customer credit management,
performed on a commission basis by Ericsson Credit AB.

The Parent Company has 6 (6) branch offices. In total, the

Group has 70 (68) branch and representative offices.

Financial information

Income after financial items was SEK 4.4 (7.8) billion. The
Parent Company had no sales in 2011 or 2010 to subsidiaries,
while 31% (45%) of total purchases of goods and services were
from such companies.

Major changes in the Parent Company’s financial position for

the year included:

Increased current and non-current receivables from
subsidiaries of SEK 2.7 billion

> Decreased other current receivables of SEK 1.7 billion
> Decreased cash, cash equivalents and short-term

investments of SEK 14.5 billion

> Decreased current and non-current liabilities to subsidiaries

of SEK 7.8 billion
Increased other current liabilities of SEK 2.4 billion.

At year end, cash, cash equivalents and short-term investments
amounted to SEK 56.1 (70.6) billion.

Share information

As per December 31, 2011, the total number of shares in
issue was 3,273,351,735, of which 261,755,983 were Class A
shares, each carrying one vote, and 3,011,595,752 Class B
shares, each carrying one tenth of one vote. The two largest
shareholders at year end were Investor and Industrivärden
holding 21.48% and 14.34% respectively of the voting rights in
the Parent Company.

Both classes of shares have the same rights of participation

in the net assets and earnings.

In accordance with the conditions of the Long-Term

Variable Remuneration Program (LTV) for Ericsson employees,
10,242,012 treasury shares were sold or distributed to
employees in 2011. The quotient value of these shares was
SEK 51.2 million, representing less than 1% of capital stock,
and compensation received amounted to SEK 122.9 million.
The holding of treasury stock at December 31, 2011 was
62,846,503 Class B shares. The quotient value of these shares
is SEK 314.2 million, representing 1.9% of capital stock, and
the related acquisition cost amounts to SEK 535.0 million.

BOARD OF DIRECTORS’ REPORT | Ericsson Annual Report 2011

BODX4XEN_v96.indd 42

29/02/2012 16:11

POST-CLOSINg EvENTS

On January 12, 2012, Ericsson announced the closing of the
acquisition of all the shares in Telcordia, a global leader in the
development of software and services for OSS/BSS, for USD
1.15 billion in an all cash transaction, on a cash and debt-
free basis. Balances to facilitate a Purchase Price Allocation
have not yet been established. Approximately 2,600 skilled
employees have joined Ericsson. This acquisition consolidates
Ericsson’s position as a leading player in the operations support
systems and business support systems (OSS/BSS) market
with a key position in service fulfillment, assurance, network
optimization and real-time charging.

On January 14, 2012, as per the trust’s funding

requirements, the Company made an employer contribution
payment of SEK 900 million to the Swedish pension trust fund.
On January 20, 2012, Ulf Ewaldsson was appointed Senior

Vice President, Chief Technology Officer, Head of Group
function Technology and Portfolio Management, effective as of
February 1.

In February 2012, Airvana Networks Solutions Inc., a State

of Delaware, US corporation (“Airvana”), filed a complaint
against Ericsson Inc. and Ericsson AB in the Supreme Court of
the State of New York, US, alleging that Ericsson has violated
key contract terms and misappropriated Airvana trade secrets
and proprietary information. Airvana is seeking damages
of USD 330 million and to enjoin Ericsson from developing,
deploying or commercializing Ericsson products allegedly
based on Airvana’s proprietary technology.

BOARD ASSURANCE

On February 16, 2012, Ericsson announced that the
Company, on February 15, 2012, completed the divestment
of its 50% stake in Sony Ericsson Mobile Communications
AB. The divestment was originally jointly announced by Sony
Corporation and Ericsson on October 27, 2011. The deal
includes a broad IP cross-licensing agreement. Sony Ericsson
is now a wholly-owned subsidiary of Sony. The agreed cash
consideration for the transaction is EUR 1.05 billion.

The divestment has resulted in a gain of approximately
SEK 7.5 billion, to be recognized in the first quarter of 2012 and
reported under Other operating income and expenses.

BOARD ASSURANCE

The Board of Directors and the President declare that the
consolidated financial statements have been prepared in
accordance with IFRS, as adopted by the EU, and give a fair
view of the Group’s financial position and results of operations.
The financial statements of the Parent Company have been
prepared in accordance with generally accepted accounting
principles in Sweden and give a fair view of the Parent
Company’s financial position and results of operations.

The Board of Directors’ Report for the Ericsson Group and
the Parent Company provides a fair view of the development
of the Group’s and the Parent Company’s operations, financial
position and results of operations and describes material
risks and uncertainties facing the Parent Company and the
companies included in the Group.

Stockholm February 24, 2012
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Sverker Martin-Löf
Deputy Chairman

Roxanne S. Austin
Member of the Board

Ulf J. Johansson
Member of the Board

Leif Johansson
Chairman

Sir Peter L. Bonfield
Member of the Board

Nancy McKinstry
Member of the Board

Jacob wallenberg
Deputy Chairman

Börje Ekholm
Member of the Board

Anders Nyrén
Member of the Board

Carl-Henric Svanberg
Member of the Board

Hans Vestberg
President, CEO and member of the Board

Michelangelo Volpi
Member of the Board

Pehr Claesson
Member of the Board

Jan Hedlund
Member of the Board

Karin Åberg
Member of the Board

BODX4XEN_v96.indd 43

29/02/2012 16:11

Ericsson Annual Report 2011 | BOARD OF DIRECTORS’ REPORT

50 billion connecTed

deVices by 2020. 50BILLION

EXTENDING
OUR REACH

To build the networked society, our innovations need to
be offered more widely than to operators alone.

We are finding new ways to extend our reach. Today

we also address sectors like utilities and TV & media.

Ericsson Annual Report 2011

ToCXBRAND_v33.indd 44

2012-03-01 09.07

conTenTs

CONsOLIDATED FINANCIAL
sTATEmENTs AND NOTEs
TO THE CONsOLIDATED FINANCIAL
sTATEmENTs

CONTENTs

consolidated Financial statements
Consolidated Income Statement and Statement
of Comprehensive Income ....................................................46

Consolidated Balance Sheet .................................................47

Consolidated Statement of Cash Flows ................................48

Consolidated Statement of Changes in Equity .....................49

notes to the consolidated Financial statements
C1 Significant Accounting Policies .....................................50

C2 Critical Accounting Estimates and Judgments .............57

C3 Segment Information .....................................................59

C4 Net Sales .......................................................................62

C5 Expenses by Nature ......................................................62

C6 Other Operating Income and Expenses ........................62

C7 Financial Income and Expenses ...................................63

C8 Taxes .............................................................................63

C9 Earnings per Share ........................................................64

C10 Intangible Assets ...........................................................65

C11 Property, Plant and Equipment .....................................67

C12 Financial Assets, Non-Current ......................................68

C13 Inventories .....................................................................69

C14 Trade Receivables and Customer Finance ...................70

C15 Other Current Receivables ............................................71

C16 Equity and Other Comprehensive Income ....................72

C17 Post-Employment Benefits ...........................................76

C18 Provisions ......................................................................81

C19 Interest-Bearing Liabilities ............................................82

C20 Financial Risk Management and Financial

Instruments ...................................................................83

C21 Other Current Liabilities ................................................86

C22 Trade Payables ..............................................................86

C23 Assets Pledged as Collateral ........................................86

C24 Contingent Liabilities.....................................................86

C25 Statement of Cash Flows ..............................................87

C26 Business Combinations ................................................87

C27 Leasing ..........................................................................89

C28 Information Regarding Members of the Board of

Directors, the Group Management and Employees ......90

C29 Related Party Transactions ...........................................95

C30 Fees to Auditors ............................................................96

C31 Contractual Obligations ................................................96

C32 Events after the Balance Sheet Date ............................96

Ericsson Annual Report 2011 | CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ToCXBRAND_v33.indd 45

2012-03-01 09.07

CONSOLIDATED INCOME STATEMENT AND
STATEMENT Of COMprEhENSIvE INCOME

Consolidated inCome statement
and statement
of Comprehensive inCome

CONSOLIDATED INCOME STATEMENT

January–December, SEK million

Net sales
Cost of sales
Gross income
Gross margin (%)

Research and development expenses
Selling and administrative expenses
Operating expenses

Other operating income and expenses
Operating income before shares in earnings
of joint ventures and associated companies
Operating margin before shares in earnings
of joint ventures and associated companies (%)

Share in earnings of joint ventures and associated companies
Operating income

Financial income
Financial expenses
Income after financial items

Taxes
Net income

Net income attributable to:

Stockholders of the Parent Company
Non-controlling interest

Other information

Average number of shares, basic (million)
Earnings per share attributable to stockholders of the Parent Company, basic (SEK) 1)
Earnings per share attributable to stockholders of the Parent Company, diluted (SEK) 1)

1) Based on Net income attributable to stockholders of the Parent Company.

CONSOLIDATED STATEMENT Of COMprEhENSIvE INCOME

January–December, SEK million

Net income
Other comprehensive income
Actuarial gains and losses, and the effect of the asset ceiling,
related to pensions
Revaluation of other investments in shares and participations

Fair value remeasurement

Cash Flow hedges

Gains/losses arising during the period
Reclassification adjustments for gains/losses included in profit or loss
Adjustments for amounts transferred to initial carrying amount of hedged items

Changes in cumulative translation adjustments
Share of other comprehensive income of joint ventures and associated companies
Tax on items relating to components of Other comprehensive income
Total other comprehensive income
Total comprehensive income

Total Comprehensive Income attributable to:

Stockholders of the Parent Company
Non-controlling interest

CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

Notes

C3, C4

2011

2010

2009

226,921
–147,200
79,721
35.1%

–32,638
–26,683
–59,321

203,348
–129,094
74,254
36.5%

–31,558
–27,072
–58,630

206,477
–136,278
70,199
34.0%

–33,055
–26,908
–59,963

1,278

2,003

3,082

21,678

17,627

13,318

9.6%

–3,778
17,900

2,882
–2,661
18,121

–5,552
12,569

12,194
375

3,206
3.80
3.77

8.7%

–1,172
16,455

1,047
–1,719
15,783

–4,548
11,235

11,146
89

3,197
3.49
3.46

6.5%

–7,400
5,918

1,874
–1,549
6,243

–2,116
4,127

3,672
455

3,190
1.15
1.14

C12

C7
C7

C9
C9
C9

Notes

2011

12,569

2010

11,235

2009

4,127

C16

C16
C16
C16
C16
C16
C16

–6,963

3,892

–633

–

–2

996
–2,028
–
–964
–262
2,158
–7,063
5,506

5,081
425

966
–238
–136
–3,259
–434
–1,120
–322
10,913

10,814
99

665
3,850
–1,029
–1,067
–259
–1,040
485
4,612

4,211
401

CONSXISXENX11_v14.indd 46

2012-02-28 13.17

CoNSolIDAtED BAlANCE SHEEt

Consolidated BalanCe sheet

December 31, SEK million

ASSEtS
Non-current assets
Intangible assets

Capitalized development expenses
Goodwill
Intellectual property rights, brands and other intangible assets

Notes

2011

2010

C10

3,523
27,438
13,083

3,010
27,151
16,658

Property, plant and equipment

C11, C26, C27

10,788

9,434

Financial assets

Equity in joint ventures and associated companies
Other investments in shares and participations
Customer finance, non-current
Other financial assets, non-current
Deferred tax assets

Current assets
Inventories

Trade receivables
Customer finance, current
Other current receivables

Short-term investments
Cash and cash equivalents

totAl ASSEtS

EQUItY AND lIABIlItIES
Equity
Stockholders’ equity
Non-controlling interest in equity of subsidiaries

Non-current liabilities
Post-employment benefits
Provisions, non-current
Deferred tax liabilities
Borrowings, non-current
Other non-current liabilities

Current liabilities
Provisions, current
Borrowings, current
Trade payables
Other current liabilities

C12
C12
C12
C12
C8

C13

C14
C14
C15

C20
C25

5,965
2,199
1,400
4,117
13,020
81,533

9,803
219
1,281
3,079
12,737
83,372

33,070

29,897

64,522
2,845
17,837

41,866
38,676
198,816

61,127
3,123
17,146

56,286
30,864
198,443

280,349

281,815

C16
C16

143,105
2,165
145,270

145,106
1,679
146,785

C17
C18
C8
C19, C20

C18
C19, C20
C22
C21

10,016
280
2,250
23,256
2,248
38,050

5,985
7,765
25,309
57,970
97,029

5,092
353
2,571
26,955
3,296
38,267

9,391
3,808
24,959
58,605
96,763

totAl EQUItY AND lIABIlItIES 1)

1) Of which interest-bearing liabilities and post-employment benefits SEK 41,037 (35,855) million.

280,349

281,815

CONSXBSXENX11_v11.indd 47

2012-02-28 13.21

Ericsson Annual Report 2011 | CONSOLIDATED FINANCIAL STATEMENTS

CONSOlIDatED StatEMENt OF CaSH FlOWS

Consolidated statement
of Cash flows

January–December, SEK million

Operating activities
Net income
Adjustments to reconcile net income to cash

Changes in operating net assets
Inventories
Customer finance, current and non-current
Trade receivables
Trade payables
Provisions and post-employment benefits
Other operating assets and liabilities, net

Notes

2011

2010

2009

C25

12,569
12,613
25,182

–3,243
74
–1,700
–1,648
–5,695
–2,988
–15,200

11,235
12,490
23,725

–7,917
–2,125
4,406
5,964
–2,739
5,269
2,858

4,127
16,856
20,983

5,207
598
7,668
–3,522
–2,950
–3,508
3,493

Cash flow from operating activities

9,982

26,583

24,476

Investing activities
Investments in property, plant and equipment
Sales of property, plant and equipment
Acquisitions of subsidiaries and other operations
Divestments of subsidiaries and other operations
Product development
Other investing activities
Short-term investments
Cash flow from investing activities

C11

C25, C26
C25, C26
C10

–4,994
386
–3,181
53
–1,515
–900
14,692
4,541

–3,686
124
–3,286
454
–1,644
–1,487
–3,016
–12,541

–4,006
534
–19,321
1,239
–1,443
2,606
–17,071
–37,462

Cash flow before financing activities

14,523

14,042

–12,986

Financing activities
Proceeds from issuance of borrowings
Repayment of borrowings
Sale of own stock and options exercised
Dividends paid
Other financing activities
Cash flow from financing activities

Effect of exchange rate changes on cash

Net change in cash

2,076
–1,259
92
–7,455
52
–6,494

2,580
–1,449
51
–6,677
–175
–5,670

14,153
–9,804
69
–6,318
199
–1,701

–217

–306

–328

7,812

8,066

–15,015

Cash and cash equivalents, beginning of period

30,864

22,798

37,813

Cash and cash equivalents, end of period

C25

38,676

30,864

22,798

CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

CONSXCFXENX11_v16.indd 48

2012-02-28 13.23

CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY

Consolidated statement
of Changes in equity

Notes

C16

January 1, 2011
Total comprehensive income
Transactions with owners
Sale of own shares
Stock Purchase Plans
Dividends paid
Transactions with non-controlling interest
December 31, 2011

January 1, 2010
Total comprehensive income
Transactions with owners
Sale of own shares
Stock Purchase Plans
Dividends paid
Transactions with non-controlling interest
December 31, 2010

January 1, 2009
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Repurchase of own shares
Stock Purchase and Stock Option Plans
Dividends paid
Transactions with non-controlling interest
December 31, 2009

Capital
stock

Additional
paid in capital

Retained
earnings

Stockholders’
equity

Non-controlling
interest (NCI)

16,367
–

–
–
–
–
16,367

16,367
–

–
–
–
–
16,367

16,232
–

135
–
–
–
–
–
16,367

24,731
–

–
–
–
–
24,731

24,731
–

–
–
–
–
24,731

24,731
–

–
–
–
–
–
–
24,731

104,008
5,081

92
413
–7,207
–380
102,007

98,772
10,814

52
762
–6,391
–
104,008

99,860
4,211

–
75
–135
658
–5,897
–
98,772

145,106
5,081

92
413
–7,207
–380
143,105

139,870
10,814

52
762
–6,391
–
145,106

140,823
4,211

135
75
–135
658
–5,897
–
139,870

1,679
425

–
–
–248
309
2,165

1,157
99

–
–
–286
708
1,679

1,261
401

–
–
–
–
–421
–84
1,157

Total
equity

146,785
5,506

92
413
–7,455
–71
145,270

141,027
10,913

52
762
–6,677
708
146,785

142,084
4,612

135
75
–135
658
–6,318
–84
141,027

CONSXEQUITYXENX11_v18.indd 49

2012-02-28 13.24

Ericsson Annual Report 2011 | CONSOLIDATED FINANCIAL STATEMENTS

Note c1

C1 SignifiCant aCCounting
PoliCieS

Introduction

The consolidated financial statements comprise Telefonaktiebolaget LM
Ericsson, the Parent Company, and its subsidiaries (“the Company”) and
the Company’s interests in joint ventures and associated companies. The
Parent Company is domiciled in Sweden at Torshamnsgatan 23, SE-164 83
Stockholm.

The consolidated financial statements for the year ended December
31, 2011, have been prepared in accordance with International Financial
Reporting Standards (IFRS) as endorsed by the EU and RFR 1 “Additional
rules for Group Accounting”, related interpretations issued by the Swedish
Financial Reporting Board (Rådet för finansiell rapportering), and the
Swedish Annual Accounts Act. For the financial reporting of 2011, the
Company has applied IFRS as issued by the IASB (IFRS effective as
per December 31, 2011) and without any early application. There is no
difference between IFRS effective as per December 31, 2011, and IFRS
as endorsed by the EU, nor is RFR 1 related interpretations issued by the
Swedish Financial Reporting Board (Rådet för Finansiell Rapportering) or the
Swedish Annual Accounts Act in conflict with IFRS.

The financial statements were approved by the Board of Directors on
February 24, 2012. The balance sheets and income statements are subject
to approval by the annual meeting of shareholders.

New standards, amendments of standards and interpretations, effective

as from January 1, 2011:

Improvements to IFRSs (Issued by the IASB in May 2010).
>
> Amendment to IFRIC 14,‘IAS 19 – The limit on a defined benefit

assets, minimum funding requirements and their interaction’. Removes
unintended consequences arising from the treatment of pre-payments
where there is a minimum funding requirement. Results in pre-payments
of contributions in certain circumstances being recognized as an asset
rather than an expense.
IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’.
Clarifies the requirements of IFRSs when an entity renegotiates the
terms of a financial liability with its creditor and the creditor agrees
to accept the entity’s shares or other equity instruments to settle the
financial liability fully or partially.
IAS 24, ‘Related party disclosures’ (revised 2009). Amends the
definition of a related party and modifies certain related-party disclosure
requirements for government-related entities.

> Amendment to IAS 32, ‘Financial instruments: Presentation –

Classification of rights issues’. Amended to allow rights, options
or warrants to acquire a fixed number of the entity’s own equity
instruments for a fixed amount of any currency to be classified as equity
instruments provided the entity offers the rights, options or warrants
pro rata to all of its existing owners of the same class of its own non-
derivative equity instruments.

None of the new or amended standards and interpretations have had any
significant impact on the financial result or position of the Company.

For information on “New standards and interpretations not yet adopted”

please see page 56.

Basis of presentation

The financial statements are presented in millions of Swedish Krona (SEK).
They are prepared on a historical cost basis, except for certain financial
assets and liabilities that are stated at fair value: derivative financial
instruments, financial instruments held for trading, financial instruments
classified as available-for-sale and plan assets related to defined benefit
pension plans.

Basis of consolidation

The consolidated financial statements are prepared in accordance with the
purchase method. Accordingly, consolidated stockholders’ equity includes
equity in subsidiaries, joint ventures and associated companies earned only
after their acquisition.

Subsidiaries are all companies in which Ericsson has an ownership
interest, directly or indirectly, including effective potential voting rights,
has the power to govern the financial and operating policies generally
associated with ownership of more than one half of the voting rights or
in which Ericsson by agreement has control. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date that control commences until the date that control ceases.

Intra-group balances and any unrealized income and expense

arising from intra-group transactions are fully eliminated in preparing the
consolidated financial statements. Unrealized losses are eliminated in
the same way as unrealized gains, but only to the extent that there is no
evidence of impairment.

Business combinations

At the acquisition of a business, the cost of the acquisition, being the
purchase price, is measured as the fair value of the assets given, and
liabilities incurred or assumed at the date of exchange, including any cost
related to contingent consideration. Transaction costs attributable to the
acquisition are expensed as incurred. The acquisition cost is allocated to
acquired assets, liabilities and contingent liabilities based upon appraisals
made, including assets and liabilities that were not recognized on the
acquired entity’s balance sheet, for example intangible assets such as
customer relations, brands, patents and financial liabilities. Goodwill arises
when the purchase price exceeds the fair value of recognizable acquired net
assets. In acquisitions with non-controlling interest full or partial goodwill
can be recognized. Final amounts are established within one year after the
transaction date at the latest.

In case there is a put option for non-controlling interest in a subsidiary a

corresponding financial liability is recognized.

Non-controlling interest

The Company treats transactions with non-controlling interests as
transactions with equity owners of the Company. For purchases from non-
controlling interests, the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidiary
is recorded in equity. Gains or losses on disposals to non-controlling
interests are also recorded in equity.

When the Company ceases to have control, any retained interest

in the entity is remeasured to its fair value, with the change in carrying
amount recognized in profit or loss. The fair value is the initial carrying
amount for the purposes of subsequently accounting for the retained
interest in an associate, joint venture or financial asset. In addition, any
amounts previously recognized in other comprehensive income in respect
of that entity are accounted for as if the Company had directly disposed
of the related assets or liabilities. This may mean that amounts previously
recognized in other comprehensive income are reclassified to profit or loss.

At acquisition, there is a choice on an acquisition-by-acquisition basis to

measure the non-controlling interest in the acquiree either at fair value or at
the non-controlling interest’s proportionate share of the acquiree’s net assets.

Joint ventures and associated companies

Both joint ventures and associated companies are accounted for in
accordance with the equity method. Under the equity method, the
investment in an associate or joint venture is initially recognized at cost and
the carrying amount is increased or decreased to recognize the investor’s
share of the profit or loss of the investee after the date of acquisition.
JVs are ownership interests where a joint influence is obtained through
agreement.

Investments in associated companies, i.e. when the Company has

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C1XC3XENX11_v89.indd 50

2012-03-06 11.23

significant influence and the power to participate in the financial and
operating policy decisions of the associated company, but is not control or
joint control over those policies. Normally this is the case when voting stock
interest, including effective potential voting rights, is at least 20% but not
more than 50%.

Ericsson’s share of income before taxes is reported in item “Share in
earnings of joint ventures and associated companies”, included in Operating
Income. This is due to that these interests are held for operating rather than
investing or financial purposes. Ericsson’s share of income taxes related
to joint ventures and associated companies is reported under the line item
Taxes in the income statement.

Unrealized gains on transactions between the Company and its
associated companies and joint ventures are eliminated to the extent of
the Company’s interest in these entities. Unrealized losses are also
eliminated unless the transaction provides evidence of an impairment of the
asset transferred.

Shares in earnings of joint ventures and associated companies included

in consolidated equity which are undistributed are reported in Retained
earnings in the balance sheet.

Impairment testing as well as recognition or reversal of impairment

of investments in each joint venture is performed in the same manner as
for intangible assets other than goodwill. The entire carrying amount of
each investment, including goodwill, is tested as a single asset. See also
description under “Intangible assets other than goodwill” below.

If the ownership interest in an associate is reduced but significant
influence is retained, only a proportionate share of the amounts previously
recognized in other comprehensive income are reclassified to profit or loss
where appropriate.

In Note C2, “Critical Accounting Estimates and Judgments”, a further
disclosure is presented in relation to (i) key sources of estimation uncertainty
and (ii) the decision made in relation to accounting policies applied.

Foreign currency remeasurement and translation

Items included in the financial statements of each entity of the Company are
measured using the currency of the primary economic environment in which
the entity operates (‘the functional currency’). The consolidated financial
statements are presented in Swedish Krona (SEK), which is the Parent
Company’s functional and presentation currency.

traNsactIoNs aNd BalaNces

Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at period-end exchange rates
of monetary assets and liabilities denominated in foreign currencies
are recognized in the income statement, unless deferred in Other
Comprehensive Income (OCI) under the hedge accounting practices as
described below.

Changes in the fair value of monetary securities denominated in foreign

Note c1

> All resulting net exchange differences are recognized as a separate

component of OCI.

On consolidation, exchange differences arising from the translation of the
net investment in foreign operations, and of borrowings and other currency
instruments designated as hedges of such investments, are accounted for
in OCI. When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in OCI are recognized in the income
statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a
foreign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.

There is no significant impact due to a currency of a hyperinflationary

economy.

statement of cash flows

The statement of cash flow is prepared in accordance with the indirect
method. Cash flows in foreign subsidiaries are translated at the average
exchange rate during the period. Payments for subsidiaries acquired or
divested are reported as cash flow from investing activities, net of cash and
cash equivalents acquired or disposed of, respectively.

Cash and cash equivalents consist of cash, bank, and short-term
investments that are highly liquid monetary financial instruments with a
remaining maturity of three months or less at the date of acquisition.

revenue recognition

BackGrouNd

The Company offers a comprehensive portfolio of telecommunication
and data communication systems, professional services, and multimedia
solutions. Products, both hardware and software as well as services are in
general standardized. The impact of this is that any acceptance terms are
normally only formal requirements. In Note C3, ”Segment information”, the
Company offer is disclosed more in detail as per operating segment.

The Company’s products and services are generally sold under delivery-
type or multi-year recurring services contracts. The delivery type contracts
often have content from more than one segment.

accouNtING treatmeNt

Sales are based on fair values of consideration received and recorded net of
value added taxes, goods returned and estimated trade discounts. Revenue
is recognized when risks and rewards have been transferred to the customer,
with reference to all significant contractual terms when:

The product or service has been delivered
The revenue amount is fixed or determinable

>
>
> Customer has received and activation has been made of separately sold

software

> Collection is reasonably assured.

currency classified as available-for-sale are analyzed between translation
differences resulting from changes in the amortized cost of the security and
other changes in the carrying amount of the security. Translation differences
related to changes in the amortized cost are recognized in profit or loss, and
other changes in the carrying amount are recognized in OCI.

Estimation of contractual performance criteria impact the timing and
amounts of revenue recognized and may therefore defer revenue recognition
until the performance criteria are met. The profitability of contracts is
periodically assessed, and provisions for any estimated losses are made
immediately when losses are probable.

Translation differences on non-monetary financial assets and liabilities

Allocation and/or timing criteria specific per type of contract are:

are reported as part of the fair value gain or loss.

> Delivery-type contracts. These contracts relate to delivery, installation,

Group companies

The results and financial position of all the group entities that have a
functional currency different from the presentation currency are translated
into the presentation currency as follows:
> Assets and liabilities for each balance sheet presented are translated at

the closing rate at the date of that balance sheet
Income and expenses for each income statement are translated at
average exchange rates

integration of products and providing of related services, normally under
multiple elements contracts. Under multiple elements contracts the
accounting is based on that the revenue recognition criteria are applied
to the separately identifiable components of the contract. Revenue,
including the impact of any discount or rebate, is allocated to each
element based on relative fair values. Networks, Global Services and
Multimedia have contracts that relate to this type of contracts.

> Contracts for services. Relate to multi-year service contracts such as
support – and managed service contracts and other types of recurring

Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

C1XC3XENX11_v89.indd 51

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Note c1

services. Revenue is recognized when the services have been provided,
generally pro rata over the contract period. Global Services has
contracts that relate to this type of contracts.

> Contracts generating license fees from third parties for the use of the
Company’s technology or intellectual property rights, not being a part
of another product. Revenue is normally recognized based on sales of
products sold to the customer/licensee. Networks and Multimedia have
contracts that relate to this type of contracts.

For sales between consolidated companies, associated companies, joint
ventures and segments, the Company applies arm’s length pricing.

earnings per share

Basic earnings per share are calculated by dividing net income attributable
to stockholders of the Parent Company by the weighted average number
of shares outstanding (total number of shares less treasury stock) during
the year.

Diluted earnings per share are calculated by dividing net income
attributable to stockholders of the Parent Company, when appropriate
adjusted by the sum of the weighted average number of ordinary shares
outstanding and dilutive potential ordinary shares. Potential ordinary shares
are treated as dilutive when, and only when, their conversion to ordinary
shares would decrease earnings per share.

Stock options and rights to matching shares are considered dilutive
when the actual fulfillment of any performance conditions as of the reporting
date would give a right to ordinary shares. Furthermore, stock options are
considered dilutive only when the exercise price is lower than the period’s
average share price.

Financial assets

Financial assets are recognized when the Company becomes a party to the
contractual provisions of the instrument. Regular purchases and sales of
financial assets are recognized on the settlement date.

Financial assets are derecognized when the rights to receive cash
flows from the investments have expired or have been transferred and the
Company has transferred substantially all risks and rewards of ownership.
Separate assets or liabilities are recognized if any rights and obligations are
created or retained in the transfer.

The Company classifies its financial assets in the following categories: at
fair value through profit or loss, loans and receivables, and available for sale.
The classification depends on the purpose for which the financial assets
were acquired. Management determines the classification of its financial
assets at initial recognition.

Financial assets are initially recognized at fair value plus transaction
costs for all financial assets not carried at fair value through profit or loss.
Financial assets carried at fair value through profit or loss are initially
recognized at fair value, and transaction costs are expensed in the
income statement.

The fair values of quoted financial investments and derivatives are based

on quoted market prices or rates. If official rates or market prices are not
available, fair values are calculated by discounting the expected future cash
flows at prevailing interest rates. Valuations of Foreign exchange options
and Interest Rate Guarantees (IRG) are made by using a Black-Scholes
formula. Inputs to the valuations are market prices for implied volatility,
foreign exchange and interest rates.

FINaNcIal assets at FaIr value throuGh proFIt or loss

Financial assets at fair value through profit or loss are financial assets
held for trading. A financial asset is classified in this category if acquired
principally for the purpose of selling or repurchasing in the near term.

Derivatives are classified as held for trading, unless they are designated

as hedges. Assets in this category are classified as current assets.

Gains or losses arising from changes in the fair values of the “financial
assets at fair value through profit or loss”-category (excluding derivatives)
are presented in the income statement within Financial income in the period
in which they arise. Derivatives are presented in the income statement
either as cost of sales, other operating income, financial income or financial
expense, depending on the intent with the transaction.

loaNs aNd receIvaBles

Receivables, including those that relate to customer financing, are
subsequently measured at amortized cost using the effective interest rate
method, less allowances for impairment charges. Trade receivables include
amounts due from customers. The balance represents amounts billed to
customer as well as amounts where risk and rewards have been transferred
to the customer but the invoice has not yet been issued.

Collectability of the receivables is assessed for purposes of initial

revenue recognition.

avaIlaBle-For-sale FINaNcIal assets

Available-for-sale financial assets are non-derivatives that are either
designated in this category or not classified in any of the other categories.
They are included in non-current assets unless management intends to
dispose of the investment within 12 months of the balance sheet date.

Dividends on available-for-sale equity instruments are recognized in the
income statement as part of financial income when the Company’s right to
receive payments is established.

Changes in the fair value of monetary securities denominated in a foreign
currency and classified as available-for-sale are analyzed between translation
differences resulting from changes in amortized cost of the security and other
changes in the carrying amount of the security. The translation differences
on monetary securities are recognized in profit or loss; translation differences
on non-monetary securities are recognized in OCI. Changes in the fair value
of monetary and non-monetary securities classified as available-for-sale are
recognized in OCI. When securities classified as available-for-sale are sold
or impaired, the accumulated fair value adjustments previously recognized in
OCI are included in the income statement.

ImpaIrmeNt

At each balance sheet date, the Company assesses whether there is
objective evidence that a financial asset or a group of financial assets is
impaired. In the case of equity securities classified as available-for-sale, a
significant or prolonged decline in the fair value of the security below its
cost is considered as an evidence that the security is impaired. If any such
evidence exists for available-for-sale financial assets, the cumulative loss –
measured as the difference between the acquisition cost and the current fair
value, less any impairment loss on that financial asset previously recognized
in profit or loss – is removed from OCI and recognized in the income
statement. Impairment losses recognized in the income statement on equity
instruments are not reversed through the income statement.

An assessment of impairment of receivables is performed when there is
objective evidence that the Company will not be able to collect all amounts
due according to the original terms of the receivable. Significant financial
difficulties of the debtor, probability that the debtor will enter bankruptcy
or financial reorganization, and default or delinquency in payments are
considered indicators that the trade receivable is impaired. The amount of
the allowance is the difference between the asset’s carrying amount and
the present value of estimated future cash flows, discounted at the original
effective interest rate. The carrying amount of the asset is reduced through
the use of an allowance account, and the amount of the loss is recognized
in the income statement within selling expenses. When a trade receivable
is finally established as uncollectible, it is written off against the allowance
account for trade receivables. Subsequent recoveries of amounts previously
written off are credited to selling expenses in the income statement.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

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Financial liabilities

Financial liabilities are recognized when the Company becomes bound to
the contractual obligations of the instrument.

Financial liabilities are derecognized when they are extinguished,
i.e. when the obligation specified in the contract is discharged, cancelled
or expires.

BorrowINGs

Borrowings are initially recognized at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortized cost; any
difference between the proceeds (net of transaction costs) and the
redemption value is recognized in the income statement over the period of
the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Company
has an unconditional right to defer settlement of the liability for at least 12
months after the balance sheet date.

trade payaBles

Trade payables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method.

derIvatIves at FaIr value throuGh proFIt or loss

Certain derivative instruments do not qualify for hedge accounting and are
accounted for at fair value through profit or loss. Changes in the fair value
of these derivative instruments that do not qualify for hedge accounting
are recognized immediately in the income statement either as cost of sales,
other operating income, financial income or financial expense, depending on
the intent of the transaction.

derivative financial instruments and hedging
activities

Derivatives are initially recognized at fair value at trade date and
subsequently re-measured at fair value. The method of recognizing the
resulting gain or loss depends on whether the derivative is designated as
a hedging instrument, and if so, the nature of the item being hedged. The
Company designates certain derivatives as either:
a) Fair value hedge: a hedge of the fair value of recognized liabilities
b) cash flow hedge: a hedge of a particular risk associated with a highly

probable forecast transaction; or

c) Net investment hedge: a hedge of a net investment in a foreign operation.

At the inception of the hedge, the Company documents the relationship
between hedging instruments and hedged items, as well as its risk
management objectives and strategy for undertaking various hedging
transactions. The Company also documents its assessment, both at hedge
inception and on an ongoing basis, of whether the derivatives that are used
in hedging transactions are highly effective in offsetting changes in fair
values or cash flows of the hedged items.

The fair values of various derivative instruments used for hedging

purposes are disclosed in Note C20, “Financial Risk Management and
Financial Instruments”. Movements in the hedging reserve in OCI are shown
in Note C16, “Equity and Other Comprehensive Income”.

The fair value of a hedging derivative is classified as a non-current asset

or liability when the remaining maturity of the hedged item is more than 12
months, and as a current asset or liability when the remaining maturity of
the hedged item is less than 12 months. Trading derivatives are classified as
current assets or liabilities.

FaIr value hedGes

Changes in the fair value of derivatives that are designated and qualify as
fair value hedges are recorded in the income statement, together with any
changes in the fair value of the hedged asset or liability that are attributable

Note c1

to the hedged risk. The Company only applies fair value hedge accounting
for hedging fixed interest risk on borrowings. Both gains and losses relating
to the interest rate swaps hedging fixed rate borrowings and the changes in
the fair value of the hedged fixed rate borrowings attributable to interest rate
risk are recognized in the income statement within Financial expenses. If the
hedge no longer meets the criteria for hedge accounting, the adjustment to
the carrying amount of a hedged item for which the effective interest method
is used is amortized to the income statement over the remaining period to
maturity.

cash Flow hedGes

The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges is recognized in OCI. The gain
or loss relating to an ineffective portion is recognized immediately in the
income statement within financial income or expense.

Amounts deferred in OCI are recycled in the income statement in the

periods when the hedged item affects profit or loss (for example, when
the forecast sale that is hedged takes place), either in Net Sales or Cost
of Sales. When the forecast transaction that is hedged results in the
recognition of a non-financial asset (for example, inventory or fixed assets),
the gains and losses previously deferred in OCI are transferred from OCI and
included in the initial measurement of the cost of the asset. The deferred
amounts are ultimately recognized in Cost of Sales in case of inventory or in
Depreciation in case of fixed assets. When a hedging instrument expires or
is sold, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss which at that time remains in OCI is recognized
in the income statement when the forecast transaction is ultimately
recognized. When a forecast transaction is no longer expected to occur, the
cumulative gain or loss that was reported in OCI is immediately transferred
to the income statement within financial income or expense.

Net INvestmeNt hedGes

Hedges of net investments in foreign operations are accounted for similarly
to cash flow hedges. Any gain or loss on the hedging instrument relating
to the effective portion of the hedge is recognized in OCI. A gain or loss
relating to an ineffective portion is recognized immediately in the income
statement within financial income or expense. Gains and losses deferred
in OCI are included in the income statement when the foreign operation is
partially disposed of or sold.

Financial guarantees

Financial guarantee contracts are initially recognized at fair value (i.e.
usually the fee received). Subsequently, these contracts are measured at the
higher of:

The amount determined as the best estimate of the net expenditure
required to settle the obligation according to the guarantee contract
The recognized contractual fee less cumulative amortization when
amortized over the guarantee period, using the straight-line-method.

The best estimate of the net expenditure comprises future fees and cash
flows from subrogation rights.

Inventories

Inventories are measured at the lower of cost or net realizable value on a
first-in, first-out (FIFO) basis.

Risks of obsolescence have been measured by estimating market
value based on future customer demand and changes in technology and
customer acceptance of new products.

A significant part of Inventories is Contract work in Progress(CWIP).
Recognition and de recognition of CWIP relates to the Company´s revenue
recognition principles meaning that costs incurred under a customer
contract are recognized as CWIP. When revenue is recognized CWIP is
derecognized and is instead recognized as Cost of Sales.

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Note c1

Intangible assets

GoodwIll

INtaNGIBle assets other thaN GoodwIll

Intangible assets other than goodwill comprise capitalized development
expenses and acquired intangible assets, such as patents, customer
relations, trademarks and software. At initial recognition, capitalized
development expenses are stated at cost while acquired intangible assets
related to business combinations are stated at fair value. Subsequent to
initial recognition, both capitalized development expenses and acquired
intangible assets are stated at initially recognized amounts less accumulated
amortization and any impairment. Amortization and any impairment losses
are included in Research and development expenses, mainly for capitalized
development expenses and patents, in Selling and administrative expenses,
mainly for customer relations and brands, and in Cost of sales.

Costs incurred for development of products to be sold, leased or
otherwise marketed or intended for internal use are capitalized as from
when technological and economical feasibility has been established until
the product is available for sale or use. These capitalized expenses are
mainly generated internally and include direct labor and directly attributable
overhead. Amortization of capitalized development expenses begins when
the product is available for general release. Amortization is made on a
product or platform basis according to the straight-line method over
periods not exceeding five years. Research and development expenses
directly related to orders from customers are accounted for as a part of Cost
of sales. Other research and development expenses are charged to income
as incurred.

Amortization of acquired intangible assets, such as patents, customer

relations, brands and software, is made according to the straight-line
method over their estimated useful lives, not exceeding ten years. However,
if the economic benefit related to an item of intangible assets is front-end
loaded the amortization method reflects this. Thus, the amortization for
such an item is amortized on a digressive curve basis and the asset value
decreases with higher amounts in the beginning of the useful life compared
to the end.

The Company has not recognized any intangible assets with indefinite

useful life other than goodwill.

Impairment tests are performed whenever there is an indication of
possible impairment. However, intangible assets not yet available for use
are tested annually. An impairment loss is recognized if the carrying amount
of an asset or its cash-generating unit exceeds its recoverable amount. The
recoverable amount is the higher of the value in use and the fair value less
costs to sell. In assessing value in use, the estimated future cash flows after
tax are discounted to their present value using an after-tax discount rate
that reflects current market assessments of the time value of money and the
risks specific to the asset. Application of after tax amounts in calculation,
both in relation to cash flows and discount rate is applied due to that
available models for calculating discount rate include a tax component. The
after tax discounting, applied by the Company is not materially different
from a discounting based on before-tax future cash flows and before-tax
discount rates, as required by IFRS.

Corporate assets have been allocated to cash-generating units in
relation to each unit’s proportion of total net sales. The amount related to
corporate assets is not significant. Impairment losses recognized in prior
periods are assessed at each reporting date for any indications that the
loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the recoverable
amounts and if the recoverable amount is higher than the carrying value.
An impairment loss is reversed only to the extent that the asset’s carrying
amount after reversal does not exceed the carrying amount, net of
amortization, which would have been reported if no impairment loss had
been recognized.

As from the acquisition date, goodwill acquired in a business combination
is allocated to each cash-generating unit (CGU) of the Company expected
to benefit from the synergies of the combination. Ericsson’s five operating
segments have been identified as CGUs. Goodwill is assigned to four of
them, Networks, Professional Services, Multimedia and ST-Ericsson.

An annual impairment test for the CGUs to which goodwill has been
allocated is performed in the fourth quarter, or when there is an indication
of impairment. Impairment testing as well as recognition of impairment of
goodwill is performed in the same manner as for intangible assets other
than goodwill, see description under “Intangible assets other than goodwill”
above. An impairment loss in respect of goodwill is not reversed.

Additional disclosure is required in relation to goodwill impairment

testing, see Note C2, “Critical Accounting Estimates and Judgments”, below
and in Note C10, “Intangible Assets”.

property, plant and equipment

Property, plant and equipment consist of real estate, machinery and other
technical assets, other equipment, tools and installation and construction
in process and advance payment , they are stated at cost less accumulated
depreciation and any impairment losses.

Depreciation is charged to income, generally on a straight-line basis,
over the estimated useful life of each component of an item of property,
plant and equipment, including buildings. Estimated useful lives are, in
general, 25–50 years for real estate and 3–10 years for machinery and
equipment. Depreciation and any impairment charges are included in Cost
of sales, Research and development or Selling and administrative expenses.

The Company recognizes in the carrying amount of an item of property,
plant and equipment the cost of replacing a component and derecognizes
the residual value of the replaced component.

Impairment testing as well as recognition or reversal of impairment
of property, plant and equipment is performed in the same manner as for
intangible assets other than goodwill, see description under “Intangible
assets other than goodwill” above.

Gains and losses on disposals are determined by comparing the
proceeds less cost to sell with the carrying amount and are recognized
within Other operating income and expenses in the income statement.

leasing

leasING wheN the compaNy Is the lessee

Leases on terms in which the Company assumes substantially all the risks
and rewards of ownership are classified as finance leases. 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 type of asset, although the
depreciation period must not exceed the lease term.

Other leases are operating leases, and the leased assets under such

contracts are not recognized on the balance sheet. Costs under operating
leases are recognized in the income statement on a straight-line basis
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.

leasING wheN the compaNy Is the lessor

Leasing contracts with the Company as lessor are classified as finance
leases when the majority of risks and rewards are transferred to the lessee,
and otherwise as operating leases. Under a finance lease, a receivable
is recognized at an amount equal to the net investment in the lease and
revenue is recognized in accordance with the revenue recognition principles.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

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Note c1

Under operating leases the equipment Is recorded as property, plant and

equipment and revenue as well as depreciation is recognized on a straight-
line basis over the lease term.

a contract is anticipated and possible to estimate reliably. These contract
loss estimates include any probable penalties to a customer under a loss
contract.

Income taxes

Income taxes in the consolidated financial statements include both current
and deferred taxes. Income taxes are reported in the income statement
unless the underlying item is reported directly in equity or OCI. For those
items, the related income tax is also reported directly in equity or OCI. A
current tax liability or asset is recognized for the estimated taxes payable or
refundable for the current year or prior years.

Deferred tax is recognized for temporary differences between the
book values of assets and liabilities and their tax values and for tax loss
carry forwards. A deferred tax asset is recognized only to the extent that
it is probable that future taxable profits will be available against which
the deductible temporary differences and tax loss carry forwards can be
utilized. In the recognition of income taxes, the Company offsets current
tax receivables against current tax liabilities and deferred tax assets against
deferred tax liabilities in the balance sheet, when the Company has a legal
right to offset these items and the intention to do so. Deferred tax is not
recognized for the following temporary differences: goodwill not deductible
for tax purposes, for the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit, and for differences related to
investments in subsidiaries when it is probable that the temporary difference
will not reverse in the foreseeable future.

Deferred tax is 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 or OCI, in which case the
adjustment is also recognized in equity or OCI.

The measurement of deferred tax assets involves judgment regarding
the deductibility of costs not yet subject to taxation and estimates regarding
sufficient future taxable income to enable utilization of unused tax losses in
different tax jurisdictions. All deferred tax assets are subject to annual review
of probable utilization. The largest amounts of tax loss carry forwards relate
to Sweden, with indefinite period of utilization.

provisions and contingent liabilities

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. When the effect of the time value of money is material,
discounting is made of estimated outflows. However, the actual outflows as
a result of the obligations may differ from such estimates.

The provisions are mainly related to warranty commitments,

restructuring, customer projects and other obligations, such as unresolved
income tax and value added tax issues, claims or obligations as a result
of patent infringement and other litigations, supplier claims and customer
finance guarantees.

Product warranty commitments consider probabilities of all material
quality issues based on historical performance for established products and
expected performance for new products, estimates of repair cost per unit,
and volumes sold still under warranty up to the reporting date.

A restructuring obligation is considered to have arisen when the
Company has a detailed formal plan for the restructuring (approved by
management), which has been communicated in such a way that a valid
expectation has been raised among those affected.

Project related provisions include estimated losses on onerous contracts,

contractual penalties and undertakings. For losses on customer contracts,
a provision equal to the total estimated loss is recorded when a loss from

Other provisions include provisions for unresolved tax issues, litigations,

supplier claims, customer finance and other provisions. The Company
provides for estimated future settlements related to patent infringements
based on the probable outcome of each infringement. The actual outcome
or actual cost of settling an individual infringement may vary from the
Company’s estimate.

The Company estimates the outcome of any potential patent

infringement made known to the Company through assertion and through
the Company’s own monitoring of patent-related cases in the relevant
legal systems. To the extent that the Company makes the judgment that an
identified potential infringement will more likely than not result in an outflow
of resources, the Company records a provision based on the Company’s
best estimate of the expenditure required to settle with the counterpart.

In the ordinary course of business, the Company is subject to

proceedings, lawsuits and other unresolved claims, including proceedings
under laws and government regulations and other matters. These matters are
often resolved over a long period of time. The Company regularly assesses
the likelihood of any adverse judgments in or outcomes of these matters, as
well as potential ranges of possible losses. Provisions are recognized when it
is probable that an obligation has arisen and the amount can be reasonably
estimated based on a detailed analysis of each individual issue.

Certain present obligations are not recognized as provisions as it is not
probable that an economic outflow will be required to settle the obligation
or the amount of the obligation cannot be measured with sufficient reliability.
Such obligations are reported as contingent liabilities. For further detailed
information, see Note C24, “Contingent liabilities”.

post-employment benefits

Pensions and other post-employment benefits are classified as either
defined contribution plans or defined benefit plans. Under a defined
contribution plan, the Company’s only obligation is to pay a fixed amount
to a separate entity (a pension trust fund) with no obligation to pay further
contributions if the fund does not hold sufficient assets to pay all employee
benefits. The related actuarial and investment risks fall on the employee.
The expenditures for defined contribution plans are recognized as expenses
during the period when the employee provides service.
Under a defined benefit plan, it is the Company’s obligation to provide
agreed benefits to current and former employees. The related actuarial and
investment risks fall on the Company.

The present value of the defined benefit obligations for current
and former employees is calculated using the Projected Unit Credit
Method. The discount rate for each country is determined by reference to
market yields on high-quality corporate bonds that have maturity dates
approximating the terms of the Company’s obligations. In countries where
there is no deep market in such bonds, the market yields on government
bonds are used. The calculations are based upon actuarial assumptions,
assessed on a quarterly basis, and are as a minimum prepared annually.
Actuarial assumptions are the Company’s best estimate of the variables
that determine the cost of providing the benefits. When using actuarial
assumptions, it is possible that the actual results will differ from the
estimated results or that the actuarial assumptions will change from one
period to another. These differences are reported as actuarial gains and
losses. They are for example caused by unexpectedly high or low rates of
employee turnover, changed life expectancy, salary changes, changes in
the discount rate and differences between actual and expected return on
plan assets. Actuarial gains and losses are recognized in OCI in the period in
which they occur. The Company’s net liability for each defined benefit plan
consists of the present value of pension commitments less the fair value of
plan assets and is recognized net on the balance sheet. When the result is

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Note c1

a net benefit to the Company, the recognized asset is limited to the total of
any cumulative past service cost and the present value of any future refunds
from the plan or reductions in future contributions to the plan.

The net of return on plan assets and interest on pension liabilities is
reported as financial income or expense, while the current service cost and
any other items in the annual pension cost are reported as operating income
or expense.

Payroll taxes related to actuarial gains and losses are included in

determining actuarial gains and losses.

share-based compensation to employees
and the Board of directors
Share-based compensation is related to remuneration to all employees,
including key management personnel and the Board of Directors.

Under IFRS, a company shall recognize compensation costs for share-

based compensation programs based on a measure of the value to the
company of services received under the plans.

This value is based on the fair value of, for example free shares at grant

date, measured as stock price as per each investment date. The value at
grant date is charged to the income statement as any other remuneration
over the service period. For example, value at grant date is 90. Given the
normal service period of three years within Ericsson, 30 are charged per
year during the service period.

The amount charged to the income statement is reversed in equity each

time of the income statement charge.

The reason for this accounting principle of IFRS is that compensation

cost is a cost with no direct cash flow impact. The purpose of share-
based accounting according to IFRS (IFRS 2) is to present an impact of
share-based programs, being part of the total remuneration, in the income
statement.

compeNsatIoN to employees

stock purchase plans

For stock purchase plans, compensation costs are recognized during
the vesting period, based on the fair value of the Ericsson share at the
employee’s investment date. The fair value is based upon the share
price at investment date, adjusted for the fact that no dividends will be
received on matching shares prior to matching and other features that
are non-vesting conditions. The employee pays a price equal to the share
price at investment date for the investment shares. The investment date
is considered as the grant date. In the balance sheet, the corresponding
amounts are accounted for as equity. Vesting conditions are non-market
based and affect the number of shares that Ericsson will match. Other
features of a share-based payment are non-vesting conditions. These
features would need to be included in the grant date fair value for
transactions with employees and others providing similar services. In the
period when an employee takes a refund of previously made contributions
(and stops making further contributions) all remaining compensation
expense is recognized. Non-vesting conditions would not impact the
number of awards expected to vest or valuation thereof subsequent to
grant date. When calculating the compensation costs for shares under
performance-based matching programs, the Company at each reporting
date assesses the probability that the performance targets are met.
Compensation expenses are based on estimates of the number of shares
that will match at the end of the vesting period. When shares are matched,
social security charges are to be paid in certain countries on the value
of the employee benefit. The employee benefit is generally based on the
market value of the shares at the matching date. During the vesting period,
estimated amounts for such social security charges are expensed and
accrued.

compeNsatIoN to the Board oF dIrectors

During 2008, the Parent Company introduced a share-based compensation
program as a part of the remuneration to the Board of Directors. The
program gives non-employed Directors elected by the General Meeting
of Shareholders a right to receive part of their remuneration as a future
payment of an amount which corresponds to the market value of a share of
class B in the Parent Company at the time of payment, as further disclosed
in Note C28, “Information Regarding Members of the Board of Directors,
the Group Management and Employees”. The cost for cash settlements is
measured and recognized based on the estimated costs for the program
on a pro rata basis during the service period, being one year. The estimated
costs are remeasured during and at the end of the service period.

segment reporting

An operating segment is a component of a company whose operating
results are regularly reviewed by the Company’s chief operating decision
maker, (CODM), to make decisions about resources to be allocated to
the segment and assess its performance. Within the Company, the Group
Management Team is defined as the CODM function.

The segment presentation, as per each segment is based on the

Company’s accounting policies as disclosed in this note. The arm’s length
principle is applied in transactions between the segments.

The Company’s segment disclosure about geographical areas is based

on in which country transfer of risks and rewards occur.

New standards and interpretations
not yet adopted
A number of issued new standards, amendments to standards and
interpretations are not yet effective for the year ended December 31,
2011, and have not been applied in preparing these consolidated financial
statements.

Below is a list of standards/interpretations that have been issued, except

for amendments related to IFRS 1, ‘First time adoption of International
Financial Reporting Standards’ and are effective for the periods starting as
from January 1, 2012.
> amendment to Ias 12, ‘Income taxes’, on deferred tax.

IAS 12, ‘Income taxes’, currently requires an entity to measure the
deferred tax relating to an asset depending on whether the entity
expects to recover the carrying amount of the asset through use or sale.
It can be difficult and subjective to assess whether recovery will be
through use or through sale when the asset is measured using the fair
value model in IAS 40, ‘Investment property’. This amendment therefore
introduces an exception to the existing principle for the measurement of
deferred tax assets or liabilities arising on investment property measured
at fair value.
As a result of the amendments, SIC 21, ‘Income taxes – recovery of
revalued non-depreciable assets’, will no longer apply to investment
properties carried at fair value. The amendments also incorporate into
IAS 12 the remaining guidance previously contained in SIC 21, which is
withdrawn.

> amendments to IFrs 7,‘Financial instruments: disclosures on

derecognition’, This amendment will promote transparency in the
reporting of transfer transactions and improve users’ understanding
of the risk exposures relating to transfers of financial assets and the
effect of those risks on an entity’s financial position, particularly those
involving securitization of financial assets. Earlier application subject to
EU endorsement is permitted.

These amendments effective as from January 1, 2012, are not expected to
have a significant impact on the Company’s financial result or position.

Below is a list of standards/interpretations that have been issued, except

for amendments related to IFRS 1, ‘First time adoption of International
Financial Reporting Standards’ and are effective for the periods starting as
from January 1, 2013 (except IFRS 9).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C1XC3XENX11_v89.indd 56

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> amendment to Ias 1, ‘Financial statement presentation’, regarding

other comprehensive income.

> amendment to Ias 19,‘employee benefits’, These amendments

eliminate the corridor approach and calculate finance costs on a net
funding basis. The Company implemented the immediate recognition
of remeasurements in the other comprehensive income in 2006, and
therefore the transition to the revised IAS19 applicable starting January
1, 2013 will not have a significant effect on the present obligation. The
main issues to address will be the implementation of the net interest
cost/gain, which integrates the interest cost and expected return on
assets to be based on a common discount rate. The Company will
also need to address the taxes to be incorporated into the defined
benefit obligation and plan assets, as well as the additional disclosure
requirements on financial and demographic assumptions, sensitivity
analysis, duration and multi-employer plans.”
IFrs 9, ‘Financial instruments’, IFRS 9 is the first standard issued as
part of a wider project to replace IAS 39. IFRS 9 retains but simplifies the
mixed measurement model and establishes two primary measurement
categories for financial assets: amortized cost and fair value.
IFrs 10, ‘consolidated financial statements’, Builds on existing
principles by identifying the concept of control as the determining factor
in whether an entity should be included within the consolidated financial
statement of the parent company. The standard provides additional
guidance to assist in the determination of control where this is difficult
to assess. This standard is estimated to have a limited impact on the
Company. However, the accounting treatment in relation to any new
future business or customer contract models might be impacted by
IFRS 10.
IFrs 11, ‘Joint arrangements’, IFRS 11 is a more realistic reflection
of joint arrangements by focusing on the rights and obligations of
the arrangement rather than its legal form. There are two types of
joint arrangement: joint operations and joint ventures. Proportional
consolidation of joint ventures is no longer allowed. The Company does
not use the proportionate consolidation method.
IFrs 12, ‘disclosures of interests in other entities’, IFRS 12 includes
the disclosure requirements for all forms of interests in other entities,
including joint arrangements, associates, special purpose vehicles and
other off balance sheet vehicles.
IFrs 13, ‘Fair value measurement’, IFRS 13 does not extend the use of
fair value accounting but provide guidance on how it should be applied
where its use is already required or permitted by other standards within
IFRS.
Ias 27 (revised 2011), ‘separate financial statements’, IAS 27 (revised
2011) includes the provisions on separate financial statements that are
left after the control provisions of IAS 27 have been included in the new
IFRS 10. (see IFRS 10)
Ias 28 (revised 2011), ‘associates and joint ventures’, IAS 28 (revised
2011) includes the requirements for joint ventures, as well as associates,
to be equity accounted following the issue of IFRS 11. (see IFRS 10).

These amendments effective as from January 1, 2013, are not expected to
have a significant impact on the Company’s financial result or position.

IFRS 9 is applicable as from January1, 2015. The EU has not endorsed

IAS 12, IFRS 9, 10, 11, 12 or 13, IAS 19, IAS 27 (rev), IAS 28 (rev) or IAS 1
(amended).

C2 CritiCal aCCounting
eStimateS and JudgmentS

The preparation of financial statements and application of accounting
standards often involve management’s judgment and the use of estimates
and assumptions deemed to be reasonable at the time they are made.
However, other results may be derived with different judgments or using
different assumptions or estimates, and events may occur that could require
a material adjustment to the carrying amount of the asset or liability affected.

Notes c1–c2

Following are the most important accounting policies subject to such
judgments and the key sources of estimation uncertainty that the Company
believes could have the most significant impact on the reported results and
financial position.

The information in this note is grouped as per:

> Key sources of estimation uncertainty.
>

Judgments management has made in the process of applying the
Company’s accounting policies.

revenue recognition
Key sources of estimation uncertainty
Examples of estimates of total contract revenue and cost that are necessary
are the assessing of customer possibility to reach conditional purchase
volumes triggering contractual discounts to be given to the customer, the
impact on the Company revenue in relation to performance criteria and
whether any loss provisions shall be made.

Judgments made in relation to accounting policies applied

Parts of the Company’s sales are generated from large and complex
customer contracts. Managerial judgment is applied regarding, among other
aspects, conformance with acceptance criteria and if transfer of risks and
rewards to the buyer has taken place to determine if revenue and costs
should be recognized in the current period, degree of completion and the
customer credit standing to assess whether payment is likely or not to justify
revenue recognition.

trade and customer finance receivables

Key sources of estimation uncertainty

The Company monitors the financial stability of its customers and the
environment in which they operate to make estimates regarding the
likelihood that the individual receivables will be paid. Total allowances for
estimated losses as of December 31, 2011, were SEK 1.0 (1.1) billion or
1.4% (1.6%) of gross trade and customer finance receivables.

Credit risks for outstanding customer finance credits are regularly
assessed as well, and allowances are recorded for estimated losses.

Inventory valuation

Key sources of estimation uncertainty

Inventories are valued at the lower of cost and net realizable value.
Estimates are required in relation to forecasted sales volumes and
inventory balances. In situations where excess inventory balances are
identified, estimates of net realizable values for the excess volumes are
made. Inventory allowances for estimated losses as of December 31, 2011,
amounted to SEK 3.3 (3.1) billion or 9% (10%) of gross inventory.

Investments in joint ventures and
associated companies
Key sources of estimation uncertainty

Impairment testing of total carrying value of each item of “Equity in joint
ventures and associated companies” is performed after initial recognition,
whenever there is an indication of impairment. Information regarding
information used for impairment tests is provided by respective joint
venture and associated company. Negative deviations in actual cash flows
compared to estimated cash flows as well as new estimates that indicate
lower future cash flows might result in recognition of impairment charges.
An impairment in a JV or associated company may not always affect the
Company in the same way depending on accounting standard used, initial
recognition of assets and liabilities or other differences.

At December 31, 2011, the amount of joint ventures and associated

companies amounted to SEK 6.0 (9.8) billion.

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c2

assets held for sale

Judgments made in relation to accounting policies applied

Whether an asset is held for sale requires management´s judgments. If an
asset is held for sale it must also be evaluated as from which date.

On February 15, 2012 the sale of Sony Ericsson Mobile to Sony was
closed. The sale was announced on October 27, 2011. This investment was
accounted for under the equity method. Under this method the Company’s
share of the profit or loss of an investee is recognized by the Company. It
has been determined that the use of the quarterly financial statements
issued by Sony Ericsson Mobile results in the most relevant and reliable
share of the profit or losses of the investee.

Subsequent to the date of the announcement Sony Ericsson Mobile
issued financial statements as of Dec 31, 2011. Consequently, the equity
method has been applied for the full year, including the period subsequent
to the announcement. The Company’s share of the losses of Sony Ericsson
Mobile for the 12 months period ended December 31, 2011 amounts to
SEK –1.1 billion. This has resulted in a carrying value of the investment
amounting to SEK 1.4 billion as of December 31, 2011. The divestment
has resulted in a gain of approximately SEK 7.5 billion, to be recognized in
the first quarter of 2012 and reported under Other operating income and
expenses.

deferred taxes

Key sources of estimation uncertainty

Deferred tax assets and liabilities, are recognized for temporary differences
and for tax loss carry-forwards. Deferred tax is recognized net of valuation
allowances. The valuation of temporary differences and tax loss carry-
forwards, is based on management’s estimates of future taxable profits in
different tax jurisdictions against which the temporary differences and loss
carry-forwards may be utilized.

At December 31, 2011, the amount of acquired intellectual property

rights and other intangible assets amounted to SEK 40.5 (43.8) billion,
including goodwill of SEK 27.4 (27.2) billion. An impairment charge of SEK
0.0 (0.9) billion was recognized as a part of the restructuring program. Under
this program decisions were taken to phase out certain products. The
impairment charge relates to balances for these products. The Company
has also recognized goodwill in ST-Ericsson of SEK 1.3 (1.3) billion, as
disclosed in Note C12, “Financial Assets, Non-Current”.

Judgments made in relation to accounting policies applied

At initial recognition and subsequent remeasurement, management
judgments are made, both for key assumptions and regarding impairment
indicators. In the purchase price allocation made for each acquisition, the
purchase price shall be assigned to the identifiable assets, liabilities and
contingent liabilities based on fair values for these assets. Any remaining
excess value is reported as goodwill. This allocation requires management
judgment as well as the definition of cash generating units for impairment
testing purposes. Other judgments might result in significantly different
results and financial position in the future.

provisions

warraNty provIsIoNs

Key sources of estimation uncertainty

Provisions for product warranties are based on current volumes of products
sold still under warranty and on historic quality rates for mature products as
well as estimates and assumptions on future quality rates for new products
and estimates of costs to remedy the various qualitative issues that might
occur. Total provisions for product warranties as of December 31, 2011,
amounted to SEK 1.8 (2.5) billion.

The largest amounts of tax loss carry-forwards are reported in Sweden,

provIsIoNs other thaN warraNty provIsIoNs

with an indefinite period of utilization (i.e. with no expiry date). For further
detailed information, please refer to Note C8, “Taxes”.

At December 31, 2011, the value of deferred tax assets amounted
to SEK 13.0 (12.7) billion. The deferred tax assets related to loss carry-
forwards are reported as non-current assets.

accounting for income-, value added- and other
taxes

Key sources of estimation uncertainty

Accounting for these items is based upon evaluation of income-, value
added- and other tax rules in all jurisdictions where we perform activities.
The total complexity of rules related to taxes and the accounting for these
require management’s involvement in judgments regarding classification of
transactions and in estimates of probable outcomes of claimed deductions
and/or disputes.

acquired intellectual property rights and other
intangible assets, including goodwill

Key sources of estimation uncertainty

At initial recognition, future cash flows are estimated, to ensure that the
initial carrying values do not exceed the expected discounted cash flows for
the items of this type of assets. After initial recognition, impairment testing
is performed whenever there is an indication of impairment, except for
goodwill for which impairment testing is performed at least once per year.
Negative deviations in actual cash flows compared to estimated cash flows
as well as new estimates that indicate lower future cash flows might result
in recognition of impairment charges. One source of uncertainty related to
future cash flows is long-term movements in exchange rates.

For further discussion on goodwill, see Note C1, “Significant Accounting

Policies” and Note C10, “Intangible Assets”. Estimates related to acquired
intangible assets are based on similar assumptions and risks as for goodwill.

Key sources of estimation uncertainty

Provisions, other than warranty provisions, mainly comprise amounts related
to contractual obligations and penalties to customers and estimated losses
on customer contracts, restructuring, risks associated with patent and
other litigations, supplier or subcontractor claims and/or disputes, as well
as provisions for unresolved income tax and value added tax issues. The
estimates related to the amounts of provisions for penalties, claims or losses
receive special attention from the management. At December 31, 2011,
provisions other than warranty commitments amounted to SEK 4.4 (7.3)
billion. For further detailed information, see Note C18, “Provisions”.

Judgments made in relation to accounting policies applied

Whether a present obligation is probable or not requires judgment. The
nature and type of risks for these provisions differ and management’s
judgment is applied regarding the nature and extent of obligations in
deciding if an outflow of resources is probable or not.

contingent liabilities

Key sources of estimation uncertainty

As disclosed under ‘Provisions other than warranty provisions’ there are
uncertainties in the estimated amounts. The same type of uncertainty exists
for contingent liabilities.

Judgments made in relation to accounting policies

As disclosed under Note C1, “Significant Accounting Policies” a potential
obligation that is not probable to result in an economic outflow is classified
as a contingent liability, with no impact on the Company’s financial
statements. Should, however, an obligation in a later period be deemed to
be probable, then a provision shall be recognized, impacting the financial
statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C1XC3XENX11_v89.indd 58

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pension and other post-employment benefits

Key sources of estimation uncertainty

Accounting for the costs of defined benefit pension plans and other
applicable post-employment benefits is based on actuarial valuations,
relying on key estimates for discount rates, expected return on plan assets,
future salary increases, employee turnover rates and mortality tables. The
discount rate assumptions are based on rates for high-quality fixed-income
investments with durations as close as possible to the Company’s pension
plans. Expected returns on plan assets consider long-term historical returns,
allocation of assets and estimates of future long-term investment returns.
At December 31, 2011, defined benefit obligations for pensions and other
post-employment benefits amounted to SEK 36.4 (28.7) billion and fair value
of plan assets to SEK 28.0 (25.4) billion. For more information on estimates
and assumptions, see Note C17, “Post-Employment Benefits”.

Financial instruments, hedge accounting
and foreign exchange risks

Key sources of estimation uncertainty

Foreign exchange risk in highly probable sales and purchases in future
periods are hedged using foreign exchange derivative instruments
designated as cash-flow hedges. Forecasts are based on estimations
of future transactions. A forecast is therefore per definition uncertain to
some degree.

Judgments made in relation to accounting policies applied

Establishing highly probable sales and purchases volumes involve gathering
and evaluating sales and purchases estimates for future periods as well
as analyzing actual outcome versus estimates on a regular basis in order
to fulfill effectiveness testing requirements for hedge accounting. Changes in
estimates of sales and purchases might result in that hedge accounting
is discontinued.

For further information regarding risks in financial instruments, see Note

C20, “Financial Risk Management and Financial Instruments”.

C3 Segment information
operating segments

When determining Ericsson’s operating segments, consideration has been
given to which markets and what type of customers the products and
services aim to attract as well as the distribution channels they are sold
through. Commonality regarding technology, research and development
has also been taken into account. To best reflect the business focus and to
facilitate comparability with peers, five operating segments are reported:
> Networks
> Global Services
> Multimedia
> Sony Ericsson
> ST-Ericsson

Networks delivers products and solutions for mobile and fixed broadband
access, core networks, and transmission. The offering includes:
> Radio access solutions that interconnect with devices such as mobile
phones, tablets and PCs, supporting all major standardized mobile
technologies.
Fixed access solutions for both fiber and copper, such as GPON and
xDSL, increasing customers’ ability to modernize fixed networks to
enable IP-based services with high bandwidth.
IP core network solutions (switching, routing and control) include
softswitches, IP infrastructure for edge and core routing, IP Multimedia
Subsystem (IMS) and media gateways.
Transmission/backhaul: microwave (MINI-LINK) and optical transmission
solutions for mobile and fixed networks.

> Operations Support Systems (OSS), supporting operators’ management

Notes c2–c3

of existing networks as well as introduction of new network architectures,
technologies and services. OSS includes tools for configuration,
performance monitoring, security management, inventory management
and software upgrades.

Global services delivers managed services, consulting and systems
integration, customer support and network rollout services. The offering
includes:
> Managed services, comprising solutions for network design and

planning, network operations (the management of day-to-day operations
of customer networks), field operations and site maintenance, network
sharing solutions as well as shared solutions such as hosting of
platforms and applications.

> Consulting and Systems integration: technology and operational
consulting, integration of multi-vendor equipment, design and
integration of new solutions and handling of technology change and
transformation programs, learning services and optimization services
ensuring the best possible user experience. Industry-specific solutions
for vertical industries are also included.
Product-related Services: network rollout services, customer support
and network optimization services (optimization for performance and
energy).

multimedia provides enablers and applications for operators. The offering
includes:
> Operations Support Systems: provisioning, device management and

mediation solutions.

> Business Support Systems: revenue management (prepaid, post-paid,

convergent charging and billing) and customer care solutions.
TV solutions: a suite of open, standards-based products that
provide high-quality digital TV including IPTV, HDTV and interactive
TV applications: the offering includes a complete IPTV network
infrastructure solution optimized for multi-stream HD-IPTV: video
compression, on-demand solutions, content management systems,
advertising and interactive TV applications for operators, service
providers, advertisers and content providers.

> Consumer and business applications: solutions include service

exposure, messaging, social media connectivity and location-based
services. Enterprise market solutions include converged business
communication solutions such as the Ericsson Business Communication
Suite (BCS).

> M-Commerce solutions: including brokering solutions that facilitate

payment and distribution of content, and Ericsson Money Services for
end-to-end mobile financial services.

sony ericsson, the joint venture delivers innovative and feature-rich
mobile phones and accessories. In October 2011, Ericsson announced the
divestment to Sony Corporation of its share in the 50/50 joint venture.

st-ericsson, the joint venture develops semiconductors and wireless
platforms for GSM, EDGE, WCDMA, HSPA, TD-SCDMA and LTE to
handset manufacturers, as well as to mobile operators and other device
manufacturers.

Sony Ericsson and ST-Ericsson’s results are reported according to the
equity method under “Share in earnings of joint ventures and associated
companies” in the income statement.

unallocated

Some revenues, costs, assets and liabilities are not identified as part of any
operating segment and are therefore not allocated. Examples of such items
are costs for corporate staff, IT costs and general marketing costs.

regions

The Regions are the Company’s primary sales channel. The Company
operates worldwide and reports its operations divided into ten regions.

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c3

Other includes sales of for example embedded modules, cables, power
modules as well as licensing and IPR.
> North America
Latin America
>
> Northern Europe & Central Asia
> Western and Central Europe
> Mediterranean
> Middle East
> Sub-Saharan Africa
>
> China & North East Asia
> South East Asia & Oceania
> Other

India

major customers

The Company does not have any customer for which revenues from
transactions have exceeded 10% of the Company’s total revenues for the
years 2011, 2010 or 2009.

We derive most of the sales from large, multi-year agreements with

a limited number of significant customers. Out of a customer base of
approximately 400, mainly network operators, the 10 largest customers
account for 44% (46%) of net sales. The largest customer accounted for
approximately 7% (8%) of sales in 2011. For more information, see Risk
Factors, “Market, Technology and Business Risks”.

Networks

131,596
799
132,395

Global
services

83,854
30
83,884

17,295
13%

5,544
7%

multi-
media

sony
ericsson

st-
ericsson

total
segments

unallo-
cated

elimi-
nations 1)

10,629
13
10,642

–504
–5%

46,866
126
46,992

–1,854
–4%

9,232
1,461
10,693

–5,461
–51%

282,177
2,429
284,606

15,020
5%

–
–
–

–56,098
–1,587
–57,685

–501

3,381

operatING seGmeNts

2011

Segment sales
Inter-segment sales
Net sales

operating income
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income

other segment items
Share in earnings of joint ventures
and associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses from divestments

87
–4,192
–2,783
–50
12
–1,600
–6

28
–481
–532
–23
–
–1,363
–

4
–792
–184
–12
1
–143
–

–1,199
–1
–647
–
–
–838
–

–2,730
–867
–823
–283
–
–280
–

–3,810
–6,333
–4,969
–368
13
–4,224
–6

32
–
–
–
–
–78
164

–
868
1,470
283
–
1,118
–

Group

226,079
842
226,921

17,900
8%
2,882
–2,661
18,121
–5,552
12,569

–3,778
–5,465
–3,499
–85
13
–3,184
158

1) All segment sales are presented, but as Sony Ericsson and ST-Ericsson sales are accounted for in accordance with the equity method, their sales are eliminated in the Eliminations column.

operatING seGmeNts

2010

Segment sales
Inter-segment sales
Net sales

operating income
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income

Networks

111,459
1,249
112,708

12,481
11%

–64
–4,554
–2,600
–675
9
–3,915
154

Global
services

multi-
media

sony
ericsson

st-
ericsson

total
segments

unallo-
cated

elimi-
nations 1)

80,117
6
80,123

6,513
8%

–17
–303
–555
–276
2
–2,675
53

10,504
13
10,517

60,118
60
60,178

13,116
3,403
16,519

275,314
4,731
280,045

–
–
–

–73,234
–3,463
–76,697

–643
–6%

1,523
3%

–3,527
–21%

16,347
6%

–805
–

913
–

–2
–806
–144
–52
1
–207
92

664
–25
–731
–
–
–402
–

–1,763
–930
–1,022
–61
–
–536
–

–1,182
–6,618
–5,052
–1,064
12
–7,735
299

10
–
–
–
–
–17
59

–
955
1,753
61
–
938
–

Group

202,080
1,268
203,348

16,455
8%
1,047
–1,719
15,783
–4,548
11,235

–1,172
–5,663
–3,299
–1,003
12
–6,814
358

1) All segment sales are presented, but as Sony Ericsson and ST-Ericsson sales are accounted for in accordance with the equity method, their sales are eliminated in the Eliminations column.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C1XC3XENX11_v89.indd 60

2012-03-06 11.23

Note c3

Group

205,373
1,104
206,477

5,918
3%
1,874
–1,549
6,243
–2,116
4,127

–7,400
–4,209
–3,550
–4,413
49
–11,259
843

operatING seGmeNts

2009

Networks 1)

services 1) multi media

Global

sony
ericsson

st-
ericsson

total

segments unallo cated

elimi-
nations 2)

Segment sales
Inter-segment sales
Net sales

113,339
746
114,085

79,038
82
79,120

12,996
276
13,272

71,984
164
72,148

7,598 3)
7%

6,271 4)
8%

655
5%

–10,820
–15%

13,535
5,731
19,266

–2,615
–14%

290,892
6,999
297,891

–
–
–

–85,519
–5,895
–91,414

1,089
0%

–855
–

5,684
–

operating income
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income

37
–2,673
–2,768
–4,333 3)
38
–8,358 3)

33
–574
–627
–
9
–2,434

777 4)

–1
–910
–155
–80
2
–385
41

–5,693
–165
–1,124
–
–
–1,754
–

–1,762
–828
–997
–46
–
–890
47

–7,386
–5,150
–5,671
–4,459
49
–13,821
875

–14
–
–
–
–
–82
–32

–
941
2,121
46
–
2,644
–

1) Amounts for 2009 have been restated to be consistent with the segment allocation method applied as from 2010.
2) All segment sales are presented, but as Sony Ericsson and ST-Ericsson sales are accounted for in accordance with the equity method, their sales are eliminated in the Eliminations column.
3) Including impairment losses related to restructuring activities of SEK 4.3 billion.
4) In Q2 2009, the TEMS business was divested, resulting in a capital gain of SEK 0.8 billion.

reGIoNs

North America

Of which the United States

Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean
Middle East
Sub-Saharan Africa
India
China & North East Asia

Of which China

South East Asia & Oceania
Other 1) 2)
total

1) Of which Sweden
2) Of which EU

Net sales

Non-current assets 3)

2011

2010

2009

48,785
46,519
21,982
15,225
19,030
23,807
15,461
10,163
9,762
38,209
17,546
13,870
10,627
226,921
3,882
43,960

49,473
46,104
17,882
12,171
19,868
22,628
15,099
9,194
8,626
25,965
14,633
14,902
7,540
203,348
4,237
43,707

23,912
21,538
20,025
11,981
22,459
25,161
18,250
15,341
15,262
25,960
18,455
20,849
7,277
206,477
4,096
49,313

2011

6,296
6,020
2,268
41,008
5,097
1,395
42
79
355
3,939
1,496
318
–
60,797
40,415
44,786

2010

7,251
6,977
1,998
42,112
8,629
1,523
84
51
262
3,795
1,013
351
–
66,056
41,683
46,563

2009

8,359
8,100
2,066
44,091
11,713
1,352
115
49
225
988
903
417
–
69,375
43,574
49,158

3) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.

For employee information, see Note C28, “Information Regarding Members of the Board of Directors, the Group Management and Employees”.

C1XC3XENX11_v89.indd 61

2012-03-06 11.23

Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes c4–c6

C4 Net SaleS

Net sales

Sales of products and network rollout services
Of which:

Delivery-type contracts
Construction-type contracts

Professional Services sales
License revenues
Net sales
Export sales from Sweden

C5 expeNSeS by Nature

expeNses by Nature

Goods and services
Employee remuneration
Amortization and depreciation
Impairments and obsolescence allowances, net of reversals
Financial expenses
Taxes
expenses incurred
Inventory changes 1)
Additions to Capitalized development
expenses charged to the Income statement

1) The inventory changes are based on changes of gross inventory values prior to obsolescence allowances.

Total restructuring charges in 2011 were SEK 3.2 (6.8) b.
Restructuring charges are included in the expenses presented above.

restructurINg charges by fuNctIoN

Cost of sales
R&D expenses
Selling and administrative expenses
total restructuring charges

C6 Other OperatiNg iNCOme aNd expeNSeS

other operatINg INcome aNd expeNses

Gains on sales of intangible assets and PP&E
Losses on sales of intangible assets and PP&E
Gains on sales of investments and operations
Losses on sales of investments and operations
Capital gains/losses, net
Other operating revenues
total other operating income and expenses

2011

2010

2009

161,882

140,222

145,873

161,882
–
58,834
6,205
226,921
116,507

140,156
66
58,529
4,597
203,348
100,070

144,908
965
56,123
4,481
206,477
94,829

2011

2010

2009

142,221
58,905
8,964
1,363
2,661
5,552
219,666
3,417
1,515
214,734

130,725
57,183
8,962
966
1,719
4,548
204,103
8,465
1,647
193,991

124,627
54,877
7,759
5,637
1,549
2,116
196,565
–4,784
1,443
199,906

2011

1,231
561
1,392
3,184

2011

65
–64
210
–52
159
1,119
1,278

2010

3,354
1,682
1,778
6,814

2009

4,180
6,045
1,034
11,259

2010

301
–422
577
–219
237
1,766
2,003

2009

193
–126
962
–119
910
2,172
3,082

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C4XC6XENX11_v28.indd 62

2012-02-28 13.30

Notes c7–c8

C7 FinanCial inCome and expenses

FINaNcIaL INcome aNd exPeNses

Contractual interest on financial assets

Of which on financial assets at fair value through profit or loss

Contractual interest on financial liabilities
Net gain/loss on:

Instruments at fair value through profit or loss 1)

Of which included in fair value hedge relationships

Loans and receivables
Liabilities at amortized cost

Other financial income and expenses
total

Financial
income

2011
Financial
expenses

Financial
income

2010
Financial
expenses

Financial
income

2009
Financial
expenses

1,940
1,381
–

1,062
–
-132
–
12
2,882

–
–
–1,706

–591
–175
–
–105
–259
–2,661

811
304
–

295
–
–68
–
9
1,047

–
–
–1,315

–206
151
–
–4
–194
–1,719

1,287
814
–

635
–
–53
–
5
1,874

–
–
–1,616

155
155
–
–2
–86
–1,549

1) Excluding net gain from operating assets and liabilities, SEK 51 million (net gain of SEK 1,528 million in 2010, net gain of SEK 2,247 million in 2009), reported as Cost of Sales.

C8 Taxes

The Company’s tax expense for 2011 was SEK 5,552 (4,548) million or
30.6% (28.8%) of income after financial items. The tax rate may vary
between years depending on business and geographical mix. The effective
tax rate excluding joint ventures and associated companies was 26.4%
(25.7%) mainly due to lower statutory tax rates for the joint ventures and that
they reported losses.

INcome taxes recogNIzed IN the INcome statemeNt

Current income taxes for the year
Current income taxes related
to prior years
Deferred tax income/expense (–)
Sub total
Share of taxes in joint ventures
and associated companies
tax expense

2011

2010

2009

–4,642

–4,635

–4,605

283
–1,433
–5,792

240
–5,552

–35
307
–4,363

–185
–4,548

441
661
–3,503

1,387
–2,116

A reconciliation between reported tax expense for the year and the
theoretical tax expense that would arise when applying statutory tax rate in
Sweden, 26.3%, on the consolidated income before taxes, is shown in the
table below.

recoNcILIatIoN oF sWedIsh INcome tax rate
WIth eFFectIVe tax rate

Expected tax expense at Swedish
tax rate 26.3%
Effect of foreign tax rates

Of which joint ventures and associated
companies

Current income taxes related to prior years
Recognition/remeasurement of tax loss
carry-forwards
Recognition/remeasurement of deductible
temporary differences
Tax effect of non-deductible expenses
Tax effect of non-taxable income
Tax effect of changes in tax rates
tax expense

2011

2010

2009

–4,767
–1,126

–4,150
–405

–1,643
–812

–754
283

–467
–35

–550
441

224

–257

81
–768
521
–
–5,552

172
–830
880
77
–4,548

267
–1,155
630
148
–2,116

33.9%

Effective tax rate

30.6%

28.8%

deferred tax balances

Deferred tax assets and liabilities are derived from the balance sheet items
as shown in the table below.

tax eFFects oF temPorarY dIFFereNces
aNd tax Loss carrY-ForWards

deferred
tax assets

deferred

tax liabilities Net balance

2011
Intangible assets and property,
plant and equipment
Current assets
Post-employment benefits
Provisions
Other
Loss carry-forwards
Deferred tax assets/liabilities
Netting of assets/liabilities
deferred tax balances, net

2010
Intangible assets and property,
plant and equipment
Current assets
Post-employment benefits
Provisions
Other
Loss carry-forwards
Deferred tax assets/liabilities
Netting of assets/liabilities
deferred tax balances, net

968
3,193
2,233
1,441
3,423
3,258
14,516
–1,496
13,020

543
3,398
1,163
2,019
3,989
3,537
14,649
–1,912
12,737

2,941
100
618
23
64
–
3,746
–1,496
2,250

3,725
110
636
12
–
–
4,483
–1,912
2,571

10,770

10,166

C7XC9XENX11_v41.indd 63

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes c8–c9

chaNges IN deFerred taxes, Net

Opening balance, net
Recognized in net income
Recognized in other comprehensive income
Acquisitions/disposals of subsidiaries
Currency translation differences
closing balance, net

2011

10,166
–1,433
2,158
53
–174
10,770

2010

12,057
307
–1,120
–606
–472
10,166

Tax effects reported directly in Other Comprehensive Income amount to
SEK 2,158 (–1,120) million, of which actuarial gains and losses related to
pensions SEK 1,809 (–836) million, cash flow hedges SEK 350 (–183) million
and deferred tax on gains/losses on hedges on investments in foreign
entities SEK –1 (–101) million.

Deferred tax assets are only recognized in countries where the Company
expects to be able to generate corresponding taxable income in the future to
benefit from tax reductions.

Significant tax loss carry-forwards are related to countries with long
or indefinite periods of utilization, mainly Sweden and Germany. Of the
total SEK 3,258 million recognized deferred tax assets related to tax loss
carry-forwards, SEK 2,218 million relates to Sweden with indefinite periods
of utilization. Due to the Company’s strong current financial position and
taxable income during 2011, Ericsson has been able to utilize part of its
tax loss carry-forwards during the year and in addition to this been able to
recognize part of earlier not recognized loss carry-forwards. The assessment
is that Ericsson will be able to generate sufficient income in the coming
years to also utilize the remaining part of the recognized amounts.

INVestmeNts IN subsIdIarIes

Due to losses in certain subsidiaries, the book value of certain investments
in those subsidiaries are less than the tax value of these investments. Since
deferred tax assets have been reported with respect also to losses in these

C9 earnings per share

earNINgs Per share 2009–2011

basic
Net income attributable to stockholders of the Parent Company (SEK million)
Average number of shares outstanding, basic (millions)
earnings per share, basic (seK)

diluted
Net income attributable to stockholders of the Parent Company (SEK million)
Average number of shares outstanding, basic (millions)
Dilutive effect for stock purchase plans
Average number of shares
outstanding, diluted (millions)
earnings per share, diluted (seK)

companies, and due to the uncertainty as to which deductions can be
realized in the future, no additional deferred tax assets are reported.

tax Loss carrY-ForWards

Deferred tax assets regarding tax loss carry-forwards are reported to the
extent that realization of the related tax benefit through future taxable profits
is probable also when considering the period during which these can be
utilized, as described below.

As of December 31, 2011, the recognized tax loss carry-forwards
amounted to SEK 12,657 (13,030) million. The tax value of these tax loss
carry-forwards is reported as an asset.

The final years in which the recognized loss carry-forwards can be

utilized are shown in the following table.

tax Loss carrY-ForWards Year oF exPIratIoN

Year of expiration

2012
2013
2014
2015
2016
2017 or later
total

tax loss
carry-forwards

tax
value

37
239
372
233
391
11,385
12,657

9
67
105
66
112
2,899
3,258

Tax loss carry-forwards of Sony Ericsson and ST-Ericsson are not included,
as they are recognized in accordance with the equity method.

In addition to the table above there are loss carry-forwards of SEK 7,375
million at a tax value of SEK 1,502 million that have not been recognized due
to judgments of the possibility to be used against future taxable profits in the
respective jurisdictions. These loss carry-forwards have an expiration date in
excess of five years.

2011

2010

2009

12,194
3,206
3.80

12,194
3,206
27

3,233
3.77

11,146
3,197
3.49

11,146
3,197
29

3,226
3.46

3,672
3,190
1.15

3,672
3,190
22

3,212
1.14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C7XC9XENX11_v41.indd 64

2012-02-28 13.32

Note c10

C10 IntangIble assets

INtANGIBLe ASSetS 2011

capitalized development expenses

Goodwill

Intellectual property rights (IPR), trade
marks and other intangible assets

For internal use

to be
marketed

Acquired
costs

Internal
costs

total

trademarks,
customer
rel ation ships
and similar
rights

Patents and
acquired
R&D

6,610
1,515

–
–
–
8,125

–2,526
–661
–
–
–3,187

–1,714
–7
–1,721
3,217

2,213
–

–
–
–
2,213

–1,775
–200
–
–
–1,975

–55
–
–55
183

1,478
–

–
–
–
1,478

–1,184
–134
–
–
–1,318

–37
–
–37
123

10,301
1,515

–
–
–
11,816

–5,485
–995
–
–
–6,480

–1,806
–7
–1,813
3,523

27,151
–

260
–2
46
27,455

–
–
1
–
1

–
–18
–18
27,438

13,582
237

382
–20
7
14,188

–3,937
–1,538
15
–42
–5,502

–
–
–
8,686

25,330
354

–
–20
25
25,689

–13,103
–2,932
13
–56
–16,078

–5,214
–
–5,214
4,397

total

38,912
591

382
–40
32
39,877

–17,040
–4,470
28
–98
–21,580

–5,214
–
–5,214
13,083

cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired
businesses 1)
Sales/disposals
Translation difference
closing balance
Accumulated amortization
Opening balance
Amortization
Sales/disposals
Translation difference
closing balance
Accumulated impairment losses
Opening balance
Impairment losses
closing balance
Net carrying value

1) For more information on acquired businesses, see Note C26, “Business Combinations”.

INtANGIBLe ASSetS 2010

capitalized development expenses

Goodwill

Intellectual property rights (IPR), trade
marks and other intangible assets

For internal use

to be
marketed

Acquired
costs

Internal
costs

total

trademarks,
customer
rel ation ships
and similar
rights

Patents and
acquired
R&D

5,221
1,389

–
–
–
6,610

–2,104
–422
–
–
–2,526

–1,665
–49
–1,714
2,370

2,060
153

–
–
–
2,213

–1,630
–145
–
–
–1,775

–55
–
–55
383

1,376
102

–
–
–
1,478

–1,087
–97
–
–
–1,184

–37
–
–37
257

8,657
1,644

–
–
–
10,301

–4,821
–664
–
–
–5,485

–1,757
–49
–1,806
3,010

27,375
–

1,256
–
–1,480
27,151

–
–
–
–
–

–
–
–
27,151

10,624
521

2,800
–
–363
13,582

–2,639
–1,450
–
152
–3,937

–
–
–
9,645

24,898
–

1,025
–55
–538
25,330

–9,875
–3,549
27
294
–13,103

–4,269
–945
–5,214
7,013

total

35,522
521

3,825
–55
–901
38,912

–12,514
–4,999
27
446
–17,040

–4,269
–945
–5,214
16,658

1) For more information on acquired businesses, see Note C26, “Business Combinations”.
2) The write-down (impairment charge) of SEK 0.9 billion is a consequence of the restructuring program decision to phase out certain products.

C10XENX11_v27.indd 65

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c10

The goodwill is allocated to the operating segments Networks SEK 16.7
(16.5) billion, Global Services SEK 4.1 (4.1) billion and Multimedia
SEK 6.6 (6.6) billion.

The recoverable amounts for cash-generating units are established
as the present value of expected future cash flows. Estimation of future
cash flows includes assumptions mainly for the following key financial
parameters:
> Sales growth
> Development of operating income (based on operating margin or cost of

goods sold and operating expenses relative to sales)

The demand for multimedia solutions is driven by the opportunities for
new types of service offerings enabled by IP technology and high-speed
broadband. There is strong IPTV subscriber growth, rapid growth in digital
viewing and on-demand services. The development and build out of
Mobile Broadband networks and increasing number of mobile broadband
subscriptions drives growth in service introduction and traffic. This puts
high demand on implementation and systems integration services as well
as charging and payment systems. The Business Support Systems’ growth
is driven by introduction of new services, new business models and price
plans.

> Development of working capital and capital expenditure requirements.

The demand for professional services is also driven by an increasing

The assumptions regarding industry specific market drivers and market
growth are approved by group management and each operating segment’s
management. These assumptions are based on industry sources as input to
the projections made within the Company for the development 2012–2016
for key industry parameters:

The number of global mobile subscriptions is estimated to grow from
around 6.8 billion by the end of 2012 to around 8.4 billion by the
end of 2016. Of these, almost 5 billion will be a mobile broadband
subscriptions. Some hundred millions of these mobile broadband
subscriptions (approximately 600 million 2016) will use mobile PC/
tablets, but the vast majority, around 4.1 billion, will use mobile phones
to access the internet.
Fixed broadband subscriptions will grow from around 600 million by the
end of 2012 to around 740 million in 2016. Fixed broadband includes
Fiber, Cable and xDSL

> Mobile traffic volume is estimated to increase (around 10 times

2011–2016, around 6 times 2012–2016), while the fixed Internet traffic
is estimated to increase (around 4 times 2011–2016, around 3 times
2012–2016), however from a much larger base.

> Mobile PC includes USB dongles and embedded modules for

CDMA2000 EV-DO, HSPA, LTE, Mobile WiMax and TDSCDMA and
can also be used for fixed applications. Mobile Broadband includes
CDMA2000 EV-DO, HSPA, LTE, Mobile WiMax and TDSCDMA. It
includes handsets, USB dongles and embedded modules. The vast
majority is handsets.

business and technology complexity. Therefore, operators review their
business models and look for vendor partners that can take on a broader
responsibility, including outsourcing of network operations.

The assumptions are also based upon information gathered in the
Company’s long-term strategy process, including assessments of new
technology, the Company’s competitive position and new types of business
and customers, driven by the continued integration of telecom, data and
media industries.

The impairment testing is based on specific estimates for the first five
years and with a reduction of nominal annual growth rate to an average GDP
growth of 3% (3%) per year thereafter. The impairment tests for goodwill did
not result in any impairment.

A number of sensitivity tests have been made, for example applying
lower levels of revenue and operating income. Also when applying these
estimates no goodwill impairment is indicated.

An after-tax discount rate of 8% (8%) has for all cash generating units

been applied for the discounting of projected after-tax cash flows. The
assumptions for 2010 are disclosed in Note C10, “Intangible Assets” in the
Annual Report of 2010.

The Company’s discounting is based on after-tax future cash flows and

after-tax discount rates. This discounting is not materially different from a
discounting based on before-tax future cash flows and before-tax discount
rates, as required by IFRS.

In Note C1, “Significant Accounting Policies”, and Note C2, “Critical

Accounting Estimates and Judgments”, further disclosures are given
regarding goodwill impairment testing.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C10XENX11_v27.indd 66

2012-02-28 13.34

C11 ProPerty, Plant and equiPment

PRoPeRtY, PLANt AND eQUIPMeNt 2011

cost
Opening balance

Additions
Balances regarding divested/acquired businesses
Sales/disposals
Reclassifications
Translation difference
closing balance

Accumulated depreciation
Opening balance
Depreciation
Balances regarding divested businesses
Sales/disposals
Reclassifications
Translation difference
closing balance

Accumulated impairment losses
Opening balance
Impairment losses
Reversals of impairment losses
Sales/disposals
Translation difference
closing balance
Net carrying value

Real estate

Machinery and
other technical
assets

other equipment,
tools and
installations

construction in
progress and
advance payments

4,238

265
146
–147
142
–3
4,641

–1,869
–415
–
74
36
9
–2,165

–43
–
–
–
–
–43
2,433

5,004

400
37
–354
169
–21
5,235

–3,377
–571
–
435
–4
32
–3,485

–95
–48
–
–
–5
–148
1,602

18,576

1,910
75
–952
1,116
–62
20,663

–13,695
–2,513
1
1,085
–32
60
–15,094

–119
–12
13
1
–1
–118
5,451

814

2,419
–
–524
–1,427
20
1,302

–
–
–
–
–
_
–

–
–
–
–
–
–
1,302

Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2011, amounted to SEK 226 (303) million.
The reversal of impairment losses have been reported under Cost of sales.

PRoPeRtY, PLANt AND eQUIPMeNt 2010

cost
Opening balance

Additions
Balances regarding divested/acquired businesses
Sales/disposals
Reclassifications
Translation difference
closing balance

Accumulated depreciation
Opening balance
Depreciation
Balances regarding divested businesses
Sales/disposals
Reclassifications
Translation difference
closing balance

Accumulated impairment losses
Opening balance
Impairment losses
Reversals of impairment losses
Sales/disposals
Translation difference
closing balance
Net carrying value

Real estate

Machinery and
other technical
assets

other equipment,
tools and
installations

construction in
progress and
advance payments

4,217

283
14
–102
87
–261
4,238

–1,692
–361
–2
60
4
122
–1,869

–45
–
–
–
2
–43
2,326

5,298

411
4
–543
190
–356
5,004

–3,557
–629
–3
553
9
250
–3,377

–91
–6
–
–
2
–95
1,532

18,087

1,480
473
–1,449
817
–832
18,576

–13,058
–2,309
–297
1,384
–13
598
–13,695

–131
–3
12
–
3
–119
4,762

578

1,512
–5
–148
–1,094
–29
814

–
–
–
–
–
–
–

–
–
–
–
–
–
814

Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2010, amounted to SEK 303 (236) million.
The reversal of impairment losses have been reported under Cost of sales.

Note c11

total

28,632

4,994
258
–1,977
–
–66
31,841

–18,941
–3,499
1
1,594
–
101
–20,744

–257
–60
13
1
–6
–309
10,788

total

28,180

3,686
486
–2,242
–
–1,478
28,632

–18,307
–3,299
–302
1,997
–
970
–18,941

–267
–9
12
–
7
–257
9,434

C11XENX11_v17.indd 67

2012-02-28 13.53

Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c12

C12 FinanCial assets, non-Current

equity iN joiNt veNtures aNd associated compaNies

Opening balance
Share in earnings
Taxes
Translation difference
Change in hedge reserve
Pensions
Dividends
Contributions to joint ventures and associated companies
Reclassification
closing balance

1) Including goodwill for ST-Ericsson of SEK 1.3 (1.3) billion.
2) Goodwill, net, amounts to SEK 13.5 (16.0) million.

joint ventures

associated companies

2011

8,648
–3,929
241
–126
4
–175
–
–
–

2010

10,317
–1,099
–181
–391
22
–20
–
–
–

4,663 1)

8,648 1)

2011

2010

1,155
151
–1
66
–
–
–177
109
–1
1,302 2)

1,261
–73
–4
–47
–
–
–119
138
–1
1,155 2)

total

2011

9,803
–3,778
240
–60
4
–175
–177
109
–1
5,965

total

2010

11,578
–1,172
–185
–438
22
–20
–119
138
–1
9,803

ericssoN’s share of assets, liabilities aNd iNcome iN joiNt
veNture soNy ericssoN mobile commuNicatioNs ab

ericssoN’s share of assets, liabilities aNd iNcome
iN joiNt veNture st-ericssoN

2011

2010

2009

2011

2010

2009

Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Net sales
Income after financial items
Income taxes
Net income
Net income attributable to:

Stockholders of the Parent Company
Non-controlling interest
Assets pledged as collateral
Contingent liabilities

5,040
8,745
285
12,172
1,328
23,496
–1,095
85
–1,010

–1,114
104
1
37

3,622
9,904
592
10,533
2,401
30,089
705
–231
474

433
41
–
16

4,003
12,790
130
14,675
1,988
36,074
–5,540
1,252
–4,288

–4,441
153
182
17

Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Net sales
Income after financial items
Income taxes
Net income
Net income attributable to:

Stockholders of the Parent Company
Non-controlling interest
Assets pledged as collateral
Contingent liabilities

6,855
1,514
397
4,695
3,277
5,346
–2,730
156
–2,574

–2,574
–
3
–

6,673
2,249
214
2,519
6,189
8,260
–1,762
50
–1,712

–1,713
1
3
–

7,238
3,856
129
2,691
8,274
9,633
–1,762
136
–1,626

–1,626
–
–
6

ericssoN’s share of assets, liabilities aNd iNcome iN
associated compaNy ericssoN Nikola tesla d.d. 1)

2011

2010

2009

Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Net sales
Income after financial items
Income taxes
Net income
Net income attributable to:

Stockholders of the Parent Company
Non-controlling interest
Assets pledged as collateral
Contingent liabilities

1) Ericsson’s share is 49.07%.

113
574
1
197
489
693
13
3
16

16
–
4
80

92
749
2
209
630
784
17
–1
16

16
–
4
43

311
754
3
240
822
994
90
1
91

91
–
5
151

All three companies apply IFRS in the reporting to Ericsson as issued by
IASB.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C12XC13XENX11_v43.indd 68

2012-02-28 14.00

other fiNaNcial assets, NoN-curreNt

cost
Opening balance
Additions
Business combinations
Disposals/repayments/deductions
Change in value in funded pension plans 1)
Revaluation
Translation difference
closing balance

accumulated impairment losses/allowances
Opening balance
Impairment losses/allowance
Disposals/repayments/deductions
Translation difference
closing balance
Net carrying value

Notes c12–c13

other investments
in shares and
participations
2010

2011

customer finance,
non-current
2010

2011

derivatives,
non-current
2010

2011

other
financial assets,
non-current
2010

2011

1,607
1,930
–
–68
–
–
107
3,576

–1,388
–54
63
2
–1,377
2,199

1,660
114
–33
–
–
–
–134
1,607

–1,404
–75
–26
117
–1,388
219

1,474
1,875
–
–1,699
–
–
11
1,661

–193
–91
19
4
–261
1,400

1,232
3,562
–
–3,322
–
–
2
1,474

–402
2
206
1
–193
1,281

–
–
–
–
–
816
–
816

–
–
–
–
–
816

843
–
–
–
–
–843
–
–

–
–
–
–
–
–

4,382
422
–
–97
42
–
–116
4,633

–1,303
–47
–
18
–1,332
3,301

3,197
683
–
–35
726
–
–189
4,382

–1,463
–7
–
167
–1,303
3,079

1) This amount includes asset ceiling. For further information, see Note C17, “Post-employment benefits”.

C13 inventories

iNveNtories

movemeNts iN obsolesceNce allowaNces

Raw materials, components, consumables
and manufacturing work in progress
Finished products and goods for resale
Contract work in progress
inventories, net

2011

2010

8,772
13,525
10,773
33,070

8,509
11,894
9,494
29,897

Contract work in progress includes amounts related to delivery-type
contracts, service contracts and construction-type contracts with ongoing
work in progress.

Reported amounts are net of obsolescence allowances of SEK 3,343

(3,090) million.

The increase in inventories during 2011 is related to increased sales and

increased share of coverage projects.

Opening balance
Additions, net
Utilization
Translation difference
Balances regarding acquired/
divested businesses
closing balance

2011

3,090
918
–683
18

–
3,343

2010

2,961
250
–165
–46

90
3,090

2009

3,493
562
–1,297
2

201
2,961

The amount of inventories recognized as expense and included in Cost of
sales was SEK 60,544 (47,415) million.

C12XC13XENX11_v43.indd 69

2012-02-28 14.00

Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c14

C14 Trade reCeivables and CusTomer FinanCe

tRADe ReceIVAbLeS AND cUStoMeR FINANce

Trade receivables excluding associated companies and joint ventures
Allowances for impairment
Trade receivables, net
Trade receivables related to associated companies and joint ventures
trade receivables, total

Customer finance
Allowances for impairment
customer finance, net
Of which short term

2011

64,740
–567
64,173
349
64,522

4,671
–426
4,245
2,845

2010

61,609
–766
60,843
284
61,127

4,725
–321
4,404
3,123

Credit commitments for customer finance

8,569

3,282

Days Sales Outstanding (DSO) were 91 (88) in December 2011.

MoVeMeNtS IN ALLoWANceS FoR IMPAIRMeNt

Opening balance
Additions
Utilization
Reversal of excess amounts
Reclassification
Translation difference
Balances regarding acquired/divested business
closing balance

AgINg ANALySIS AS PeR DeceMbeR 31

2011
Neither impaired nor past due
Impaired, not past due
Past due in less than 90 days
Past due in 90 days or more
Past due in less than 90 days and impaired
Past due in 90 days or more and impaired
total

2010
Neither impaired nor past due
Impaired, not past due
Past due in less than 90 days
Past due in 90 days or more
Past due in less than 90 days and impaired
Past due in 90 days or more and impaired
total

credit risk

trade receivables

2011

766
198
–266
–43
–69
–19
–
567

2010

924
282
–285
–169
33
–19
–
766

2009

1,471
388
–583
–312
10
–43
–7
924

customer finance
2011

2010

321
162
–31
–27
–
1
–
426

772
25
–87
–359
–
–30
–
321

2009

326
595
–67
–37
–
–45
–
772

trade receivables
excluding associated
companies
and joint ventures

Allowances for
impairment of
receivables

customer finance

Allowances for
impairment of customer
finance

56,480
184
4,126
1,072
850
2,028
64,740

54,510
52
2,227
1,500
418
2,902
61,609

–
–16
–
–
–50
–501
–567

–
–16
–
–
–90
–660
–766

3,369
763
238
45
41
215
4,671

3,804
528
62
85
18
228
4,725

–
–176
–
–
–35
–215
–426

–
–75
–
–
–18
–228
–321

Credit risk is divided into three categories: credit risk in trade receivables,
customer finance risk and financial credit risk (see Note C20, “Financial Risk
Management and Financial Instruments”).

credit risk in trade receivables

Credit risk in trade receivables is governed by a policy applicable for all legal
entities in the Company. The purpose of the policy is to:
> Avoid credit losses through establishing internal standard credit approval

routines in all the Company’s legal entities

> Ensure monitoring and risk mitigation of defaulting accounts, i.e. events

of non-payment and/or delayed payments from customers

> Ensure efficient credit management within the Company and thereby

improve Days Sales Outstanding and Cash Flow

– Ensure payment terms are commercially justifiable

> Define escalation path and approval process for payment terms and

customer credit limits.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C14XC15XENX11_v41.indd 70

2012-02-28 14.02

The credit worthiness of all customers is regularly assessed and a credit
limit is set. Through credit management system functionality, credit checks
are performed every time a sales order or an invoice is generated in the
source system. This is based on the credit risk set on the customer. Credit
blocks appear if the credit limit set on customer is exceeded or if past
due receivables are higher than permitted levels. Release of a credit block
requires authorization.

Letters of credits are used as a method for securing payments from
customers operating in emerging markets, in particular in markets with
unstable political and/or economic environment. By having banks confirming
the letters of credit, the political and commercial credit risk exposures to the
Company are mitigated.

Trade receivables amounted to SEK 64,740 (61,609) million as of

December 31, 2011. Provisions for expected losses are regularly assessed
and amounted to SEK 567 (766) million as of December 31, 2011. The
Company’s nominal credit losses have, however, historically been low.
The amounts of trade receivables closely follow the distribution of the
Company’s sales and do not include any major concentrations of credit risk
by customer or by geography. The five largest customers represent 30%
(29%) of the total trade receivables.

customer finance credit risk

All major commitments to finance customers are made only after the
approval by the Finance Committee of the Board of Directors according to
the established credit approval process.

Prior to the approval of new facilities reported as customer finance, an

internal credit risk assessment is conducted in order to assess the credit
rating of each transaction (for political and commercial risk). The credit risk
analysis is made by using an assessment tool, where the political risk rating
is identical to the rating used by all Export Credit Agencies within the OECD.
The commercial risk is assessed by analyzing a large number of parameters,
which may affect the level of the future commercial credit risk exposure. The
output from the assessment tool for the credit rating also include an internal
pricing of the risk. This is expressed as a risk margin per annum over funding
cost. The reference pricing for political and commercial risk, on which the
tool is based, is reviewed using information from Export Credit Agencies and
prevailing pricing in the bank loan market for structured financed deals. The
objective is that the internally set risk margin shall reflect the assessed risk
and that the pricing is as close as possible to the current market pricing. A
reassessment of the credit rating for each customer finance facility is made
on a regular basis.

Risk provisions related to customer finance risk exposures are only
made upon events which occur after the financing arrangement has become
effective and which are expected to have a significant adverse impact on the
borrower’s ability and/or willingness to service the outstanding debt. These
events can be political (normally outside the control of the borrower) or
commercial, e.g. a borrower’s deteriorated creditworthiness.

As of December 31, 2011, the Company’s total outstanding exposure
related to customer finance was SEK 4,671 (4,725) million. As of December
31, 2011, the Company also had unutilized customer finance commitments
of SEK 8,569 (3,282) million. During 2011 the Company transferred certain
customer finance assets to third parties, and continues to recognize a part of
such assets corresponding to the extent of its continuing involvement. The
total carrying amount of the original assets transferred is SEK 194 (3,808)
million, the amount of the assets that the Company continues to recognize is
SEK 10 (190) million, and the carrying amount of the associated liabilities is
SEK 0 (190) million. Customer finance is arranged for infrastructure projects
in different geographic markets and for a large number of customers.
As of December 31, 2011, there were a total of 80 (74) customer finance
arrangements originated by or guaranteed by the Company. The five largest
facilities represented 41% (44%) of the total credit exposure.

NoteS c14–c15

totAL oUtStANDINg cUStoMeR FINANce exPoSURe PeR RegIoN
AS oF DeceMbeR 31

Percent

2011

2010

North America
Latin America
Northern Europe & Central Asia
Western & Central Europe
Mediterranean
Middle East
Sub-Saharan Africa
India
China & North East Asia
South East Asia and Oceania
Other
total

1
4
8
1
11
24
29
14
7
1
–
100

2
9
3
1
5
30
36
–
13
1
–
100

The effect of risk provisions and reversals for customer finance affecting the
income statement amounted to a net negative impact of SEK 114 million
compared to a positive impact of SEK 331 million in 2010. Credit losses
amounted to SEK 62 (87) million.

Security arrangements for customer finance facilities normally include

pledges of equipment, pledges of certain assets belonging to the borrower
and pledges of shares in the operating company. Restructuring efforts for
cases of troubled debt may lead to temporary holdings of equity interests.
If available, third-party risk coverage is as a rule arranged. “Third-party risk
coverage” means that a financial payment guarantee covering the credit
risk has been issued by a bank, an export credit agency or other financial
institution. A credit risk transfer under a sub participation arrangement with a
bank can also be arranged. In this case the entire credit risk and the funding
is taken care of by the bank for the part that they cover. A credit risk cover
from a third party may also be issued by an insurance company. During
2011, the Company has not taken possession of any collateral it holds as
security or called on any other credit enhancement.

Information about guarantees related to customer finance is included in
Note C24, “Contingent Liabilities”, and information about leasing is included
in Note C27, “Leasing”.

The table below summarizes the Company’s outstanding customer

finance as of December 31, 2011 and 2010.

oUtStANDINg cUStoMeR FINANce

Total customer finance
Accrued interest
Less third-party risk coverage
Ericsson’s risk exposure

C15 oTher CurrenT
reCeivables

otHeR cURReNt ReceIVAbLeS

Prepaid expenses
Accrued revenues
Advance payments to suppliers
Derivatives with a positive value 1)
Taxes
Other
total

2011

4,671
68
–480
4,259

2010

4,725
69
–1,409
3,385

2011

2,056
2,486
1,697
2,003
5,633
3,962
17,837

2010

2,369
1,850
881
3,042
5,439
3,565
17,146

1) See also Note C20, “Financial Risk Management and Financial Instruments”.

C14XC15XENX11_v41.indd 71

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c16

C16 Equity and OthEr
COmprEhEnsivE inCOmE
capital stock 2011

Additional paid in capital

Capital stock at December 31, 2011, consisted of the following:

Relates to payments made by owners and includes share premiums paid.

cAPItAL StocK

Parent company

Class A shares
Class B shares
total

Number
of shares

capital stock
(SeK million)

261,755,983
3,011,595,752
3,273,351,735

1,309
15,058
16,367

Retained earnings

Retained earnings, including net income for the year, comprise the earned
profits of the Parent Company and its share of net income in subsidiaries,
joint ventures and associated companies. Retained earnings are comprised
of:

The capital stock of the Parent Company is divided into two classes: Class
A shares (quota value SEK 5.00) and Class B shares (quota value SEK 5.00).
Both classes have the same rights of participation in the net assets and
earnings. Class A shares, however, are entitled to one vote per share while
Class B shares are entitled to one tenth of one vote per share.

At December 31, 2011, the total number of treasury shares was
62,846,503 (73,088,516 in 2010 and 78,978,533 in 2009) Class B shares.
Ericsson did not repurchase shares in 2011 in relation to the Stock Purchase
Plan.

RemeASuRemeNtS ReLAteD to PoSt-emPLoYmeNt

beNefItS

Actuarial gains and losses resulting from experience-based events and
changes in actuarial assumptions, fluctuations of the effect of the asset
ceiling, and adjustments related to the Swedish special payroll taxes.

RevALuAtIoN of otheR INveStmeNtS IN ShAReS AND

PARtIcIPAtIoNS

RecoNcILIAtIoN of NumbeR of ShAReS

Number
of shares

capital stock
(SeK million

The fair value reserve comprises the cumulative net change in the fair value
of available-for-sale financial assets.

Number of shares Jan 1, 2011
Number of shares Dec 31, 2011

3,273,351,735
3,273,351,735

16,367
16,367

For further information about number of shares, see chapter Share
Information.

cASh fLow heDgeS

The cash flow hedge reserve comprises the effective portion of the
cumulative net change in the fair value of cash-flow-hedging instruments
related to hedged transactions that have not yet occurred.

Dividend proposal

The Board of Directors will propose to the Annual General Meeting 2012 a
dividend of SEK 2.50 per share (SEK 2.25 in 2011 and SEK 2.00 in 2010).

cumuLAtIve tRANSLAtIoN ADjuStmeNtS

The cumulative translation adjustments comprises all foreign currency
differences arising from the translation of the financial statements of
foreign operations and changes regarding revaluation of excess value in
local currency as well as from the translation of liabilities that hedge the
Company’s net investment in foreign subsidiaries.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C16XENX11_v37.indd 72

2012-02-28 14.03

Note c16

eQuItY AND otheR comPReheNSIve INcome 2011

2011

january 1, 2011
Net income

Group
Joint ventures and associated companies

other comprehensive income
Remeasurements related to post-employment benefits

Group
Joint ventures and associated companies

Cash flow hedges

Gains/losses arising during the year

Group
Joint ventures and associated companies
Reclassification adjustments for gains/losses
included in profit or loss

Changes in cumulative translation adjustments

Group
Joint ventures and associated companies
Tax on items relating to components of OCI 3)
total other comprehensive income

total comprehensive income

transactions with owners
Sale of own shares
Stock Purchase Plan

Group
Joint ventures and associated companies

Dividends paid
Transactions with non-controlling interest
December 31, 2011

capital stock

Addi tional
paid in
capital

Retained
earnings

Stock holders’
equity

Non-control-
ling interest
(NcI)

total equity

16,367

24,731

104,008

145,106

1,679

146,785

–
–

–

–
–
–
–

–

–
–

–

–
–
–
–

–

–
–
–
–
16,367

–
–
–
–
24,731

15,727
–3,533

–6,963
–212

996
11

15,727
–3,533

–6,963
–212

996
11

–2,028 1)

–2,028

–1,014 2)
–61
2,158 4)
–7,113

5,081

413
–
–7,207
–380
102,007

–1,014
–61
2,158
–7,113

5,081

413
–

–7,207 5)
–380
143,105

375
–

16,102
–3,533

–
–

–

50
–
–
50

425

–

–
–
–248
309
2,165

–6,963
–212

996
11

–2,028

–964
–61
2,158
–7,063

5,506

413
–
–7,455
–71
145,270

1) SEK –1,663 million is recognized in Net Sales, SEK –742 million is recognized in Cost of Sales and SEK 376 million is recognized in R&D expenses.
2) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK 46 million (SEK –1,480 million in 2010, SEK –1,015 million in 2009),
gain/loss from hedging activities of foreign entities, SEK 9 million (SEK 385 in 2010, SEK 586 million in 2009), and realized gain/losses net from sold/liquidated companies SEK 192 million
(SEK 140 million in 2010, SEK 10 million in 2009).

3) For further disclosures, see Note C8, “Taxes”.
4) Deferred tax on gains/losses on hedges on investments in foreign entities and post-employment benefits.
5) Dividends paid per share amounted to SEK 2.25 (SEK 2.00 in 2010 and SEK 1.85 in 2009).

C16XENX11_v37.indd 73

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c16

eQuItY AND otheR comPReheNSIve INcome 2010

2010

january 1, 2010
Net income

Group
Joint ventures and associated companies

other comprehensive income
Remeasurements related to post-employment benefits

Group
Joint ventures and associated companies

Revaluation of other investments in shares
and participations

Fair value remeasurement

Group
Joint ventures and associated companies

Cash flow hedges

Gains/losses arising during the year

Group
Joint ventures and associated companies
Reclassification adjustments for gains/losses
included in profit or loss
Adjustments for amounts transferred to initial
carrying amount of hedged items

Changes in cumulative translation adjustments

Group
Joint ventures and associated companies

Tax on items relating to components of OCI
total other comprehensive income

total comprehensive income

transactions with owners
Sale of own shares
Stock Purchase Plan

Group
Joint ventures and associated companies

Dividends paid
Transactions with non-controlling interest
December 31, 2010

capital stock

Addi tional
paid in
capital

Retained
earnings

Stock holders’
equity

Non-control-
ling interest
(NcI)

total equity

16,367

24,731

98,772

139,870

1,157

141,027

12,503
–1,357

89
–

12,592
–1,357

–
–

–

–
–
–
–

–

–
–

–

–
–
–
–

–

3,892
–27

7
–

966
31

-238

–136

–3,269
–438
–1,120
–332

10,814

7
–

966
31

–238

–136

–3,269
–438
–1,120
–332

10,814

–
–

–

10
–
–
10

–

–
–
–
–
16,367

–
–
–
–
24,731

762
–
–6,391
–
104,008

762
–
–6,391
–
145,106

–
–
–286
708
1,679

3,892
–27

7
–

966
31

–238

–136

–3,259
–438
–1,120
–322

10,913

762
–
–6,677
708
146,785

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C16XENX11_v37.indd 74

2012-02-28 14.03

Note c16

eQuItY AND otheR comPReheNSIve INcome 2009

2009

january 1, 2009
Net income

Group
Joint ventures and associated companies

other comprehensive income
Remeasurements related to post-employment benefits

Group
Joint ventures and associated companies

Revaluation of other investments in shares
and participations

Fair value remeasurement

Group
Joint ventures and associated companies

Cash flow hedges

Gains/losses arising during the year

Group
Joint ventures and associated companies
Reclassification adjustments for gains/losses
included in profit or loss
Adjustments for amounts transferred to initial
carrying amount of hedged items

Changes in cumulative translation adjustments

Group
Joint ventures and associated companies

Tax on items relating to components of OCI
total other comprehensive income
total comprehensive income
transactions with owners
Stock issue
Sale of own shares
Repurchase of own shares
Stock Purchase and Stock Option Plans

Group
Joint ventures and associated companies

Dividends paid
Transactions with non-controlling interest
December 31, 2009

capital stock

Addi tional
paid in
capital

Retained
earnings

Stock holders’
equity

Non-
controlling
interest (NcI)

total equity

16,232

24,731

99,860

140,823

1,261

142,084

–
–

–

–
–
–
–
–

135
–
–

–
–
–
–
16,367

–
–

–

–
–
–
–
–

–
–
–

–
–
–
–
24,731

9,685
–6,013

455
–

10,140
–6,013

–633
28

–2
–

665
7

–2
–

665
7

3,850

–1,029

–1,013
–294
–1,040
539
4,211

–
75
–135

658
–
–5,897
–
98,772

–1,013
–294
–1,040
539
4,211

135
75
–135

658
–
–5,897
–
139,870

–
–

–

–54
–
–
–54
401

–
–
–

–
–
–421
–84
1,157

–633
28

–2
–

665
7

3,850

–1,029

–1,067
–294
–1,040
485
4,612

135
75
–135

658
–
–6,318
–84
141,027

C16XENX11_v37.indd 75

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c17

C17 Post-EmPloymEnt
BEnEfits

Ericsson sponsors a number of post-employment benefit plans throughout
the Company, which are in line with market practice in each country. The
year 2011 was characterized by the overall decrease in discount rates and
an increase in life expectancy. Consequently, the Company experienced an
overall increase in the net pension liability, and an actuarial loss.

Amount recognized in the consolidated balance sheet

AMoUNt RecoGNIZeD IN tHe coNSoLIDAteD BALANce SHeet

2011
Defined benefit obligation (DBO) 1)
Fair value of plan assets 2)
Deficit/Surplus (+/–)
Unrecognized past service costs
Closing balance
Plans with net surplus excluding asset ceiling 3)
Provision for post-employment benefits 4)

2010
Defined benefit obligation (DBO) 1)
Fair value of plan assets 2)
Deficit/Surplus (+/–)
Unrecognized past service costs
Closing balance
Plans with net surplus excluding asset ceiling 3)
Provision for post-employment benefits 4)

ContEnts
AMoUNt RecoGNIZeD IN tHe
coNSoLIDAteD BALANce SHeet

totAL PeNSIoN exPeNSeS RecoGNIZeD
IN tHe INcoMe StAteMeNt

cHANGe IN tHe DefINeD BeNefIt
oBLIGAtIoN (DBo)

cHANGe IN tHe PLAN ASSetS

ActUARIAL GAINS AND LoSSeS
RePoRteD DIRectLy IN otHeR
coMPReHeNSIve INcoMe

ActUARIAL ASSUMPtIoNS

INfoRMAtIoN oN ISSUeS AffectING tHe
Net PeNSIoN LIABILIty foR tHe yeAR

Sweden

eurozone

other

total

20,643
13,490
7,153
–
7,153
–
7,153

14,980
12,389
2,591
–
2,591
–
2,591

6,307
6,750
–443
–
–443
584
141

5,437
5,691
–254
–
–254
290
36

3,687
2,665
1,022
–
1,022
369
1,391

3,163
2,514
649
5
654
643
1,297

3,133
2,337
796
–
796
–
796

2,693
2,048
645
–
645
–
645

2,605
2,777
–172
–47
–219
754
535

2,437
2,793
–356
–60
–416
939
523

36,375
28,019
8,356
–47
8,309
1,707
10,016

28,710
25,435
3,275
–55
3,220
1,872
5,092

1) For details on DBO, please refer to section “Change in the Defined Benefit Obligation, DBO” of this note.
2) For details on plan assets, please refer to section “Change in the Plan Assets” of this note.
3) Plans with a net surplus, i.e. where plan assets exceed DBO, are reported as Other financial assets, non-current, see Note C12, “Financial Assets”. Asset ceiling amounted to SEK 483

(691) million.

4) Plans with net liabilities are reported in the balance sheet as Post-employment benefits, non-current.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C17XC18XENX11_v56.indd 76

2012-03-06 11.26

Note c17

total pension expenses recognized in the income statement

The expenses for post-employment benefits within Ericsson are
distributed between defined contribution plans and defined benefit
plans, with a trend toward defined contribution plans.

PeNSIoN coStS foR DefINeD coNtRIBUtIoN PLANS AND DefINeD BeNefIt PLANS

2011
Pension cost for defined contribution plans
Pension cost for defined benefit plans 1)
total
Total pension cost expressed as a percentage of wages and salaries
2010
Pension cost for defined contribution plans
Pension cost for defined benefit plans 1)
total
Total pension cost expressed as a percentage of wages and salaries
2009
Pension cost for defined contribution plans
Pension cost for defined benefit plans 1)
total
Total pension cost expressed as a percentage of wages and salaries

1) See cost details in table below.

Sweden

eurozone

other

total

2,039
621
2,660

1,037
762
1,799

1,686
674
2,360

72
–86
–14

95
153
248

73
66
139

386
124
510

433
159
592

385
202
587

360
42
402

244
30
274

124
49
173

185
146
331

192
–14
178

185
144
329

3,042
847
3,889
8.9%

2,001
1,090
3,091
7.1%

2,453
1,135
3,588
8.7%

coSt DetAILS foR DefINeD BeNefIt PLANS RecoGNIZeD IN tHe INcoMe StAteMeNt

Sweden

eurozone

other

total

2011
Current service cost
Interest cost
Expected return on plan assets
Past service cost
Curtailments, settlements and other
total

2010
Current service cost
Interest cost
Expected return on plan assets
Past service cost
Curtailments, settlements and other
total

2009
Current service cost
Interest cost
Expected return on plan assets
Past service cost
Curtailments, settlements and other
total

547
714
–558
6
–88
621

631
643
–511
–
–1
762

594
590
–366
–
–144
674

114
293
–339
4
–158
–86

161
314
–322
–
–
153

205
284
–270
–
–153
66

113
168
–135
6
–28
124

129
182
–141
33
–44
159

138
194
–125
5
–10
202

26
151
–135
–
–
42

32
159
–130
–
–31
30

35
171
–156
–
–1
49

157
169
–243
9
54
146

140
172
–253
9
–82
–14

131
155
–208
25
41
144

957
1,495
–1,410
25
–220
847

1,093
1,470
–1,357
42
–158
1,090

1,103
1,394
–1,125
30
–267
1,135

C17XC18XENX11_v56.indd 77

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c17

The following sections focus on the defined benefit plans.

change in the defined benefit obligation (DBo)

The DBO is the gross pension liability.

cHANGe IN tHe DefINeD BeNefIt oBLIGAtIoN

2011
Opening balance
Current service cost
Interest cost
Employee contributions
Pension payments
Actuarial gain/loss (–/+)
Curtailments
Business combinations
Other
Translation difference
closing balance

Of which medical benefit schemes

2010
Opening balance
Current service cost
Interest cost
Employee contributions
Pension payments
Actuarial gain/loss (–/+)
Settlements
Curtailments
Business combinations 1)
Other
Translation difference
closing balance

Of which medical benefit schemes

1) Business combinations in 2010 are related to the acquisition of LG-Nortel and Pride Spa.

fUNDeD StAtUS

The funded ratio, defined as total plan assets in relation to the total DBO,
was 77.0% in 2011, compared to 88.6% in 2010.

The following table summarizes the value of the DBO per geographical
area based on whether there are plan assets wholly or partially funding each
pension plan.

vALUe of tHe DefINeD BeNefIt oBLIGAtIoN

2011
DBO, closing balance

Of which partially or fully funded
Of which unfunded

2010
DBO, closing balance

Of which partially or fully funded
Of which unfunded

Sweden

eurozone

other

total

14,980
547
714
–
–220
4,705
–88
–
5
–
20,643
–

16,150
631
643
–
–159
–2,285
–
–1
–
1
–
14,980
–

5,437
114
293
11
–141
651
–158
–
–10
110
6,307
–

5,688
161
314
11
–99
–157
–
–
–
–20
–461
5,437
–

3,163
113
168
4
–87
379
–25
2
11
–41
3,687
–

3,840
129
182
4
–82
–569
–14
–30
74
95
–466
3,163
–

2,693
26
151
–
–149
329
–
–
22
61
3,133
658

2,781
32
159
–
–169
46
–
–38
–
30
–148
2,693
594

2,437
157
169
1
–144
120
–
–
15
–150
2,605
–

2,258
140
172
5
–194
104
–104
–93
148
8
–7
2,437
–

28,710
957
1,495
16
–741
6,184
–271
2
43
–20
36,375
658

30,717
1,093
1,470
20
–703
–2,861
–118
–162
222
114
–1,082
28,710
594

Sweden

eurozone

other

total

20,643
20,118
525

14,980
14,527
453

6,307
6,307
–

5,437
5,437
–

3,687
2,540
1,147

3,163
2,086
1,077

3,133
2,447
686

2,693
2,072
621

2,605
2,118
487

2,437
1,998
439

36,375
33,530
2,845

28,710
26,120
2,590

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C17XC18XENX11_v56.indd 78

2012-03-06 11.26

Note c17

Sweden

eurozone

other

total

12,389
558
–358
1,086
–
–185
–
–
13,490

10,927
511
222
729
–
–
–
–
–
–
12,389

5,691
339
473
272
11
–141
–14
119
6,750

5,336
322
265
343
11
–119
–
–
–
–467
5,691

2,514
135
–36
125
4
–46
–1
–30
2,665

2,406
141
105
173
3
–43
–
–
53
–324
2,514

2,048
135
155
54
–
–98
–
43
2,337

1,974
130
103
58
–
–103
–
–
–
–114
2,048

2,793
243
–84
125
1
–102
–4
–195
2,777

2,563
253
–42
93
5
–119
–104
164
–4
–16
2,793

25,435
1,410
150
1,662
16
–572
–19
–63
28,019

23,206
1,357
653
1,396
19
–384
–104
164
49
–921
25,435

Sweden

eurozone

200
733

812
587

99
246

289
233

other

160
211

total

1,560
2,010

Sweden

eurozone

other

total

4,503
8,239
748
13,490
–

4,326
7,508
555
12,389
–

1,666
4,245
839
6,750
–

2,028
3,207
456
5,691
–

1,348
1,020
297
2,665
–

1,277
970
267
2,514
–

1,062
1,210
65
2,337
–

1,134
870
44
2,048
–

356
1,846
575
2,777
–

458
1,837
498
2,793
–

8,935
16,560
2,524
28,019
–

9,223
14,392
1,820
25,435
–

change in the plan assets

A majority of pension plans have assets managed by local Pension
Trust funds, whose sole purpose is to secure the future pension
payments to the employees.

cHANGe IN tHe PLAN ASSetS

2011
Opening balance
Expected return on plan assets
Actuarial gain/loss (+/–)
Employer contributions
Employee contributions
Pension payments
Other
Translation difference
closing balance

2010
Opening balance
Expected return on plan assets
Actuarial gain/loss (+/–)
Employer contributions
Employee contributions
Pension payments
Settlements
Business combinations 1)
Other
Translation difference
closing balance

1) Business combinations in 2010 are related to the acquisition of LG-Nortel.

Refunds from or reductions in future contributions to plan assets are
recognized if they are available and firmly decided.

ActUAL RetURN oN PLAN ASSetS

2011
2010

ASSet ALLocAtIoN

2011
Equities
Interest-bearing securities
Other
total

Of which Ericsson securities

2010
Equities
Interest-bearing securities
Other
total

Of which Ericsson securities

Equity instruments amount to 32% (36%) of the total assets, interest bearing
instruments amount to 59% (57%) of the total assets, and other instruments
amount to 9% (7%) of the total assets.

The contributions to the defined benefit plans for the upcoming year
will be based on the development of the financial markets as well as on
the growth of the pension liability, and how these developments affect
the target funding ratio of the Company. On January 14, 2012, as per the
trust’s funding requirements, the Company made an employer contribution
payment of SEK 900 million to the Swedish pension trust fund.

C17XC18XENX11_v56.indd 79

2012-03-06 11.26

Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c17

Actuarial gains and losses reported directly in other comprehensive income

Since January 1, 2006, Ericsson applies immediate recognition of actuarial
gains and losses directly in the statement of Other Comprehensive Income.
Actuarial gains and losses may arise from either a change in actuarial
assumptions or in deviations between estimated and actual outcome.

MULtI-yeAR SUMMARy

2011

2010

2009

2008

2007

Plan assets
DBO
Deficit/Surplus (–/+)

28,019
36,375
–8,356

25,435
28,710
–3,275

23,206
30,717
–7,511

19,037
28,010
–8,973

20,236
25,226
–4,990

Actuarial gains and losses (–/+)
Experience-based
adjustments of
pension obligations
Experience-based
adjustments of plan
assets

–463

–150

177

310

–76

–653

–1,191

2,952

Actuarial assumptions

fINANcIAL AND DeMoGRAPHIc ActUARIAL ASSUMPtIoNS

2011
Discount rate
Expected return on plan assets for the year
Future salary increases
Inflation
Health care cost inflation, current year
Life expectancy after age 65 in years, males
Life expectancy after age 65 in years, females

2010
Discount rate
Expected return on plan assets for the year
Future salary increases
Inflation
Health care cost inflation, current year
Life expectancy after age 65 in years, males
Life expectancy after age 65 in years, females

ActUARIAL GAINS AND LoSSeS RePoRteD DIRectLy IN otHeR
coMPReHeNSIve INcoMe

Cumulative gain/loss (–/+) at beginning of year
Recognized gain/loss (–/+) during the year
Translation difference
Cumulative gain/loss (–/+) at end of year

2011

2010

1,849
6,034
28
7,911

5,326
–3,514
37
1,849

totAL ReMeASUReMeNtS IN otHeR coMPReHeNSIve INcoMe
ReLAteD to PoSt-eMPLoyMeNt BeNefItS

Actuarial gains and losses (+/–)
The effect of asset ceiling
Swedish special payroll taxes
total Group
Actuarial gains and losses for joint ventures and
associated companies

2011

2010

–6,034
208
–1,137
–6,963

3,514
–29
407
3,892

–212

–27

Sweden

eurozone 1)

US 1)

other 1)

3.50%
4.55%
3.25%
2.00%
n/a
22
24

4.80%
4.55%
3.25%
2.00%
n/a
21
24

4.70%
5.90%
4.10%
3.10%
n/a
22
25

5.40%
6.00%
4.50%
3.50%
n/a
22
24

5.25%
5.32%
2.91%
2.00%
n/a
22
24

5.59%
6.27%
2.91%
2.00%
n/a
22
25

5.23%
7.00%
4.50%
2.50%
9.00%
19
21

5.73%
7.00%
4.50%
2.50%
9.00%
18
20

8.18%
9.27%
6.07%
3.43%
n/a
19
22

8.55%
9.91%
5.70%
3.50%
n/a
19
22

1) Weighted average for disclosure purposes only. Land specific assumptions were used for each actuarial calculation.

> Actuarial assumptions are assessed on a quarterly basis.
>

The discount rate for each country is determined by reference to market
yields on high-quality corporate bonds. In countries where there is no
deep market in such bonds, the market yields on government bonds are
used.
The overall expected long-term return on plan assets is a weighted
average of each asset category’s expected rate of return. The expected
return on interest-bearing investments is set in line with each country’s
market yield. Expected return on equities is derived from each country’s
risk free rate with the addition of a risk premium.

> Salary increases are partially affected by fluctuations in inflation rate.
The net periodic pension cost and the present value of the DBO for
>
current and former employees are calculated using the Projected Unit
Credit (PUC) actuarial cost method, where the objective is to spread
the cost of each employee’s benefits over the period that the employee
works for the Company.

SeNSItIvIty ANALySIS foR MeDIcAL BeNefIt ScHeMeS

The effect (in SEK million) of a one percent change in the assumed trend rate
of medical cost would have the following effect:

SeNSItIvIty ANALySIS foR MeDIcAL BeNefIt ScHeMeS

Net periodic post-employment medical cost
Accumulated post-employment benefit obligation
for medical costs

–3

–53

1%
increase

1%
decrease

Information on issues affecting the Net Pension
Liability for the year

SweDeN

The defined benefit obligation has been calculated using a discount rate
based on yields of covered bonds, which is higher than a discount rate
based on yields of government bonds. The Swedish covered bonds are
considered high-quality bonds, mainly AAA-rated, as they are secured with
assets, and the market for covered bonds is considered deep and liquid,
thereby meeting IAS19 requirements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C17XC18XENX11_v56.indd 80

2012-03-06 11.26

As before, Ericsson has secured the disability and survivors’ pension

part of the ITP Plan through an insurance solution with the insurance
company Alecta. Although this part of the plan is classified as a multi-
employer defined benefit plan, it is not possible to get sufficient information
to apply defined benefit accounting, and therefore, it has been accounted
for as a defined contribution plan.

Alecta has a collective funding ratio which is a buffer for its insurance

commitments to protect against fluctuations in investment return and
insurance risks. Alecta’s target ratio is 140% and reflects the fair value of

Alecta’s plan assets as a percentage of plan commitments, then measured
in accordance with Alecta’s actuarial assumptions, which are different from
those in IAS 19. Alecta’s collective funding ratio was 113% (146%).

Contingent liabilities include the Company’s mutual responsibility as
a credit insured company of PRI Pensionsgaranti in Sweden. This mutual
responsibility can only be imposed in case PRI Pensionsgaranti has
consumed all of their assets, and it amounts to a maximum of 2% of the
company’s pension liability in Sweden.

NoteS c17–c18

C18 Provisions

PRovISIoNS

2011
Opening balance
Additions
Reversal of excess amounts

Negative effect on Income Statement

Cash out/utilization
Balances regarding divested/acquired businesses
Reclassification
Translation differences
closing balance

2010
Opening balance
Additions
Reversal of excess amounts

Negative effect on Income Statement

Cash out/utilization
Balances regarding divested/acquired businesses
Reclassification
Translation differences
closing balance

warranty

Restruc turing Project-related

other

total

2,469
1,433
–440

–1,527
21
–
–68
1,888

2,533
1,743
–297

–1,466
182
–182
–44
2,469

3,230
1,806
–407

–3,223
–
–48
–31
1,327

4,299
2,640
–335

–3,261
–
176
–289
3,230

1,105
563
–164

–662
–
–111
–13
718

1,694
1,285
–353

–1,547
28
62
–64
1,105

2,940
1,005
–908

–575
2
–87
–45
2,332

3,905
1,046
–869

–880
–
–200
–62
2,940

9,744
4,807
–1,919
2,888
–5,987
23
–246
–157
6,265

12,431
6,714
–1,854
4,860
–7,154
210
–144
–459
9,744

Provisions will fluctuate over time depending on business mix, market
mix and technology shifts. Risk assessment in the ongoing business is
performed monthly to identify the need for new additions and reversals.
Management uses its best judgment to estimate provisions based on this
assessment. In certain circumstances, provisions are no longer required due
to more favo rable outcomes than anticipated, which affect the provisions
balance as a reversal. In other cases the outcome can be negative, and if so,
a charge is recorded in the income statement.

For 2011, new or additional provisions amounting to SEK 4.8 billion
were made, and SEK 1.9 billion were reversed. The actual cash outlays for
2011 was SEK 6.0 billion compared with the estimated SEK 8 billion. The
main part of the total cash out for 2011 is restructuring provisions of SEK
3.2 billion. The expected total cash outlays in 2012 is approximately SEK 3.5
billion.

Of the total provisions, SEK 280 (353) million are classified as non-

current. For more information, see Note C1, “Significant Accounting
Policies” and Note C2, “Critical Accounting Estimates and Judgments”.

The cash outlays of warranty provisions during year 2012 are estimated to
approximately SEK 1 billion.

Restructuring provisions

In 2011 SEK 1.8 billion (2.6) in provision were made. The cash outlays
were 3.2 billion (3.3) for the full year and SEK 1.9 billion were related to
restructuring programs before 2011. The cash outlay for 2012 are estimated
to approximately SEK 1 billion.

Project related provisions

Project provisions relate to estimated losses on onerous contracts,
including probable contractual penalties. The cash outlays of project related
provisions were SEK 0.7 billion and in line with the estimated SEK 1 billion.
Provisions amounting to SEK 0.6 billion were made and SEK 0.2 billion were
reversed due to a more favorable outcome than expected. The cash outlays
for 2012 are estimated to be approximately SEK 0.5 billion.

warranty provisions

other provisions

Warranty provisions are based on historic quality rates for established
products as well as estimates regarding quality rates for new products
and costs to remedy the various types of faults predicted. The actual cash
outlays for 2011 were SEK 1.5 billion and in line with the expected SEK 2
billion. Provisions amounting to SEK 1.4 billion were made and due to more
favorable outcomes in certain cases reversals of SEK 0.4 billion were made.

Other provisions include provisions for tax issues, litigations, supplier claims,
and other. The cash outlays were SEK 0.6 billion in 2011 compared to the
estimate of SEK 2 billion. During 2011, new provisions amounting to SEK
1.0 billion were made and SEK 0.9 billion were reversed during the year
due to a more favorable outcome. For 2012, the estimated cash outlays are
approximately SEK 1 billion.

C17XC18XENX11_v56.indd 81

2012-03-06 11.26

Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c19

C19 Interest-BearIng
LIaBILItIes

As of December 31, 2011, Ericsson’s outstanding interest-bearing liabilities
were SEK 31.0 (30.8) billion.

INteReSt-BeARING LIABILItIeS

Borrowings, current
Current part of non-current borrowings 1)
Other current borrowings
total current borrowings
Borrowings, non-current
Notes and bond loans
Other borrowings, non-current
total non-current interest-bearing liabilities
total interest-bearing liabilities

1) Including notes and bond loans of SEK 3,461 (0) million.

2011

2010

4,314
3,451
7,765

17,197
6,059
23,256
31,021

760
3,048
3,808

20,646
6,309
26,955
30,763

All outstanding notes and bond loans are issued by the Parent Company
under its Euro Medium-Term Note (EMTN) program. Bonds issued at a fixed
interest rate are normally swapped to a floating interest rate using interest

rate swaps leaving a maximum of 50% of outstanding loans at fixed interest
rates. It resulted in weighted average interest rate of 4.21% (2.65%). These
bonds are revalued based on changes in benchmark interest rates according
to the fair value hedge methodology stipulated in IAS 39.

In 2008 Ericsson signed a seven-year loan of SEK 4.0 billion with
the European Investment Bank (EIB). The loan supports Ericsson’s R&D
activities to develop the next generation of mobile broadband technology at
sites in Kista, Gothenburg and Linköping in Sweden.

NoteS AND BoND LoANS

Issued–maturing

2004–2012
2007–2012
2007–2012
2007–2014
2007–2017
2009–2013
2009–2016
2010–2020
total

Nominal
amount

450
1,000
2,000
375
500
600
300
170

coupon

currency

Book value
(SeK m.)

3.305%
5.100%
2.885%
1.704%
5.380%
5.000%
3.62125%
2.96125%

SEK
SEK
SEK
EUR
EUR
EUR
USD
USD

450
1,011
2,000
3,345
5,161 1)
5,450 1)
2,069
1,172
20,658

Maturity date

December 7, 2012 2)

June 29, 2012
June 29, 2012 3)
June 14, 2014 4)
June 27, 2017
June 24, 2013
June 23, 2016 5)
December 23, 2020 6)

Unrealized hedge
gain/loss (included
in book value)

–
–11
–
–
–719
–109
–
–
–839

1) Interest rate swaps are designated as fair value hedges.
2) Next contractual repricing date June 7, 2012 (semi-annual).
3) Next contractual repricing date March 29, 2012 (quarterly).
4) Next contractual repricing date March 27, 2012 (quarterly).
5) Next contractual repricing date March 23, 2012 (quarterly).
6) Next contractual repricing date March 23, 2012 (quarterly).

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C19XEN_v24.indd 82

2012-02-28 14.06

C20 FinanCial Risk
ManageMent and
FinanCial instRuMents

Ericsson’s financial risk management is governed by a policy approved by
the Board of Directors. The Finance Committee of the Board of Directors is
responsible for overseeing the capital structure and financial management of
the Company and approving certain matters (such as investments, customer
finance commitments, guarantees and borrowing) and is continuously
monitoring the exposure to financial risks.

Ericsson defines its managed capital as the total Company equity. For
Ericsson, a robust financial position with a strong equity ratio, investment
grade rating, low leverage and ample liquidity is deemed important. This
provides financial flexibility and independence to operate and manage
variations in working capital needs as well as to capitalize on business
opportunities.

Ericsson’s overall capital structure should support the financial targets:
to grow faster than the market, deliver best-in-class margins and generate
a healthy cash flow. The capital structure is managed by balancing equity,
debt financing and liquidity in such a way that the Company secure funding
of operations at a reasonable cost of capital. Regular borrowings are
complemented with committed credit facilities to give additional flexibility to
manage unforeseen funding needs. Ericsson strive to finance growth, normal
capital expenditures and dividends to shareholders by generating sufficient
positive cash flows from operating activities.

Ericsson’s capital objectives are:

> An equity ratio above 40%
> A cash conversion rate above 70%
>
>

To maintain a positive net cash position
To maintain a solid investment grade rating by Moody’s and Standard &
Poor’s.

capital objectives related iNformatioN

Capital (SEK billion)
Equity ratio (percent)
Cash conversion rate (percent)
Positive net cash (SEK billion)
credit rating
Moody’s
Standard & Poor’s

2011

2010

145
52
40
39.5

147
52
112
51.3

a3 Baa1
bbb+ BBB+

Ericsson has a treasury function with the principal role to ensure that
appropriate financing is in place through loans and committed credit
facilities, to actively manage the Company’s liquidity as well as financial
assets and liabilities, and to manage and control financial risk exposures in
a manner consistent with underlying business risks and financial policies.
Hedging activities, cash management and insurance management are
largely centralized to the treasury function in Stockholm.

Ericsson also has a customer finance function with the main objective to

find suitable third-party financing solutions for customers and to minimize
recourse to Ericsson. To the extent customer loans are not provided directly
by banks, the Parent Company provides or guarantees vendor credits. The
customer finance function monitors the exposure from outstanding vendor
credits and credit commitments.
Ericsson classifies financial risks as:

Foreign exchange risk
Interest rate risk

>
>
> Credit risk
>
> Market price risk in own and other equity instruments.

Liquidity and refinancing risk

The Board of Directors has established risk limits for defined exposures to
foreign exchange and interest rate risks as well as to political risks in certain
countries.

Note c20

For further information about accounting policies, see Note C1,

“Significant Accounting Policies”.

foreign exchange risk

Ericsson is a global company with sales mainly outside Sweden. Revenues
and costs are to a large extent in currencies other than SEK and therefore
the financial results of the Company are impacted by currency fluctuations.
Ericsson reports the financial accounts in SEK and movements in

exchange rates between currencies will affect:
> Specific line items such as Net sales and Operating income.
>
>
> Reported cash flows.

The comparability of our results between periods.
The carrying value of assets and liabilities.

Net sales and Operating Income are affected by changes in foreign
exchange rates from two different kinds of exposures, translation exposure
and transaction exposure. In the Operating Income we are primarily exposed
to transaction exposure which is partially addressed by hedging.

curreNcy exposure, seK billioN

exposure
currency

translation
exposure

transaction
exposure

Net
exposure

Net
expo sure,
percent
of total

Net sales
SEK
USD
EUR
CNY
JPY
INR
BRL
GBP
Other
pre-hedge total
Hedge
total Net sales
Net cost
SEK
USD
EUR
CNY
JPY
INR
BRL
GBP
Other
pre-hedge total
Hedge
total Net cost
operating income

44.5
46.8
29.3
17.3
13.7
9.4
7.8
6.8
49.6

–40.4
–47.4
–27.5
–15.9
–13.1
–7.5
–7.4
–6.2
–43.9

–42.7
39.8
13.6
–0.3
0.7
–
–0.2
–2.0
–8.9

–29.2
–19.3
–0.4
1.7
9.0
3.9
1.3
1.3
31.7

1%
38%
19%
8%
6%
4%
3%
2%
19%
100%

33%
32%
13%
7%
2%
2%
3%
2%
6%
100%

1.8
86.6
42.9
17.0
14.4
9.4
7.6
4.8
40.7
225.2
1.7
226.9

–69.6
–66.7
–27.9
–14.2
–4.1
–3.6
–6.1
–4.9
–12.2
–209.3
0.3
–209.0
17.9

traNslatioN exposure
Translation exposure relates to Sales and Cost of Sales in foreign entities
when translated into SEK upon consolidation. These exposures can not
be addressed by hedging, but as the Income Statement is translated using
average rate (average rate gives a good approximation), the impact of
volatility in foreign currency rates is reduced.

traNsactioN exposure

Transaction exposure relates to Sales and Cost of sales in non-reporting
currencies in individual group companies. Foreign exchange risk is as far
as possible concentrated to Swedish group companies, primarily Ericsson
AB. Sales to foreign subsidiaries are normally denominated in the functional
currency of the customers and are normally denominated in USD or other
foreign currency. In order to limit the exposure toward exchange rate

C20XC24XENX11_v81.indd 83

2012-03-06 11.29

Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c20

fluctuations on future revenues and costs, committed and forecasted future
sales and purchases in major currencies are hedged with 7% of 12 month
forecast monthly. This corresponds to approximately 5–6 months of an
average forecast.

When managing the interest rate exposure, Ericsson uses derivative
instruments, such as interest rate swaps. Derivative instruments used for
converting fixed rate debt into floating rate debt are designated as fair
value hedges.

According to Company policy, transaction exposure in subsidiaries’
balance sheets (i.e. trade receivables and payables and customer finance
receivables) should be fully hedged, except for non-tradable currencies.
Foreign exchange exposures in balance sheet items are hedged through
offsetting balances or derivatives.

As of December 31, 2011, outstanding foreign exchange derivatives
hedging transaction exposures had a net market value of SEK –0.5 (0.6)
billion. The market value is partly deferred in the hedge reserve in OCI to
offset the gains/losses on hedged future sales in foreign currency.

cash flow hedges

The purpose of hedging forecasted revenues and costs is to reduce
volatility in the income statement. Hedging is done by selling or buying
foreign currencies against the functional currency of the hedging entity using
FX forwards.

Hedging is done based on a rolling 12-month exposure forecast.
Ericsson uses a layered hedging approach, where the closest quarters are
hedged to a higher degree than later quarters. Each consecutive quarter
is hereby hedged on several occasions and is covered by an aggregate of
hedging contracts initiated at various points in time, which supports the
objective of reducing volatility in the income statement from changes in
foreign exchange rates.

traNslatioN exposure iN Net assets

Ericsson has many subsidiaries operating outside Sweden with other
functional currencies than SEK. The results and net assets of such
companies are exposed to exchange rate fluctuations, which affect the
consolidated income statement and balance sheet when translated to SEK.
Translation risk related to forecasted results from foreign operations can not
be hedged, but net assets can be addressed by hedging.

Translation exposure in foreign subsidiaries is hedged according to the

following policy established by the Board of Directors:

Translation risk related to net assets in foreign subsidiaries is hedged up

to 20% in selected companies. The translation differences reported in OCI
during 2011 were negative, SEK 1.0 billion, including hedging loss of SEK
0.0 billion.

interest rate risk

Ericsson is exposed to interest rate risk through market value fluctuations in
certain balance sheet items and through changes in interest revenues and
expenses. The net cash position was SEK 39.5 (51.3) billion at the end of
2011, consisting of cash, cash equivalents and short-term investments of
SEK 80.5 (87.2) billion and interest-bearing liabilities and post-employment
benefits of SEK 41.0 (35.9) billion.

Ericsson manages the interest rate risk by (i) matching fixed and floating

interest rates in interest-bearing balance sheet items and (ii) avoiding
significant fixed interest rate exposure in Ericsson’s net cash position. The
policy is that interest-bearing assets shall have an average interest duration
between 10 and 14 months, taking derivative instruments into consideration.
Interest-bearing liabilities do not have a duration target as the duration
of the fixed rate portion will be determined by markets conditions when
liabilities are issued, Group Treasury has a mandate to deviate from the
asset management benchmark given by the Board and take FX positions up
to an aggregated risk of VaR SEK 45 million given a confidence level of 99%
and a 1-day horizon. Previously this was divided into two mandates, one
20, to leave selected transaction exposures in subsidiaries’ balance sheets
unhedged, and another 30, to deviate from asset management benchmark
and take FX positions.

As of December 31, 2011, 86% (97%) of Ericsson’s interest-bearing
liabilities and 77% (90%) of Ericsson’s interest-bearing assets had floating
interest rates, i.e. interest periods of less than 12 months.

fair value hedges

The purpose of fair value hedges is to hedge the variability in the fair value of
fixed-rate debt (issued bonds) from changes in the relevant benchmark yield
curve for its entire term by converting fixed interest payments to a floating
rate (e.g. STIBOR or LIBOR) by using interest rate swaps (IRS). The credit
risk/spread is not hedged.

The fixed leg of the IRS is matched against the cash flows of the hedged
bond. Hereby the fixed-rate bond/debt is converted into a floating-rate debt
in accordance with the policy.

outstaNdiNg derivatives 1)

fair value

currency derivatives
Maturity within 3 months
Maturity between 3 and 12
months
Maturity 1 to 3 years
total currency derivatives

Of which designated in cash
flow hedge relations
Of which designated in net
investment hedge relations

interest rate derivatives
Maturity within 3 months
Maturity between 3
and 12 months
Maturity 1 to 3 years
Maturity 3 to 5 years
Maturity more than 5 years
Total interest rate derivatives
Of which designated in fair
value hedge relations

asset

2011
liability

2010
liability

asset

557

881

581

1,086

364
–
921

393
–
1,274

945
2
1,528

505
21
1,613 2)

333

638

662

–

324
380
416
778
1,898 3)

–

367
618
815
161
1,966

–

76
544
184
705
1,515

–

61
118
34
87
329 2)

1,002

–

862

–

1) Some of the derivatives hedging non-current liabilities are recognized in the balance

sheet as non-current derivatives due to hedge accounting.
2) Of which SEK 902 million is reported as non-current liabilities.
3) Of which SEK 816 million is reported as non-current assets.

sensitivity analysis
Ericsson uses the VaR methodology to measure foreign exchange and
interest rate risks in portfolios managed by Treasury. This statistical method
expresses the maximum potential loss that can arise with a certain degree
of probability during a certain period of time. For the VaR measurement,
Ericsson has chosen a probability level of 99% and a 1-day time horizon.
The daily VaR measurement uses market volatilities and correlations based
on historical daily data (one year).

The average VaR calculated for 2011 was SEK 20.6 million for the
combined mandates. For 2010, the interest rate mandate was SEK 20.3
million and the transaction exposure mandate was SEK 9.8 million. No VaR-
limits were exceeded during 2011.

financial credit risk

Financial instruments carry an element of risk in that counterparts may
be unable to fulfill their payment obligations. This exposure arises in the
investments in cash, cash equivalents, short-term Investments and from
derivative positions with positive unrealized results against banks and
other counterparties.

Ericsson mitigates these risks by investing cash primarily in well-rated

securities such as treasury bills, government bonds, commercial papers,
and mortgage covered bonds with short-term ratings of at least A-1/P-1
and long-term ratings of AAA. Separate credit limits are assigned to each

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C20XC24XENX11_v81.indd 84

2012-03-06 11.29

counterpart in order to minimize risk concentration. We have had no
sub-prime exposure in our investments. All derivative transactions are
covered by ISDA netting agreements to reduce the credit risk. No credit
losses were incurred during 2011, neither on external investments nor on
derivative positions.

At December 31, 2011, the credit risk in financial cash instruments
was equal to the instruments’ carrying value. Credit exposure in derivative
instruments was SEK 2.8 (3.0) billion.

liquidity risk

Liquidity risk is that Ericsson is unable to meet its short-term payment
obligations due to insufficient or illiquid cash reserves.

Ericsson minimizes the liquidity risk by maintaining a sufficient net
cash position. This is managed through centralized cash management,
investments in highly liquid interest-bearing securities, and by having
sufficient committed credit lines in place to meet potential funding needs.
For information about contractual obligations, please see Note C31,
“Contractual obligations”. The current cash position is deemed to satisfy all
short-term liquidity requirements.

During 2011, cash and bank and short-term investments decreased by

SEK 6.7 billion to SEK 80.5 billion.

cash, cash equivaleNts aNd short-term iNvestmeNts

(seK billion)

Bank Deposits
type of issuer/
counterpart
Governments
Corporations 1)
Mortgage
institutes
2011
2010

remaining time to maturity

< 3
months

33.7

< 1
year

0.2

1–5
years

–

>5
years

–

6.3
4.7

–
44.7
30.9

3.8
–

–
4.0
9.4

13.2
–

16.6
29.8
42.8

1.7
–

0.3
2.0
4.1

total

33.9

25.0
4.7

16.9
80.5
87.2

1) Of which SEK 2.8 billion relates to ST-Ericsson.

The instruments are either classified as held for trading or as assets
available for sale with maturity less than one year and therefore short-term
investments. Cash, Cash Equivalents and short-term investments are mainly
held in SEK unless off-set by EUR-funding.

refiNaNciNg risK

Refinancing risk is the risk that Ericsson is unable to refinance outstanding
debt at reasonable terms and conditions, or at all, at a given point in time.

repaymeNt schedule of NoN-curreNt borrowiNgs 1)

Nominal
amount
(seK billion)

current
maturities
of long- term
debt

Notes
and bonds
(non-current)

liabilities
to financial
institutions
(non-current)

2012
2013

2014
2015
2016
2017
2018
2019
2020
total

3.4
–

–
–
–
–
–
–
–
3.4

–
5.4

3.3
–
2.1
4.4
–
–
1.2
16.4

–
–

–
4.0
–
–
–
–
–
4.0

total

3.4
5.4

3.3
4.0
2.1
4.4
–
–
1.2
23.8

1) Excluding finance leases reported in Note C27, “Leasing”.

Debt financing is mainly carried out through borrowing in the Swedish and
international debt capital markets.

Note c20

Bank financing is used for certain subsidiary funding and to obtain

committed credit facilities.

fuNdiNg programs 1)

Euro Medium-Term Note program
(USD million)
Long-term Committed Credit facility
(USD million)
Indian Commercial Paper program
(INR million)

amount

utilized unutilized

5,000

2,878

2,122

2,000

5,000

–

2,000

5,000

1) There are no financial covenants related to these programs.

In June 2011 Ericsson was upgraded by Moody’s from Baa1 to A3 (stable).
Standard & Poor’s kept the BBB+ credit rating with stable outlook. Both
credit ratings are considered to be solid investment grade.

financial instruments carried
at other than fair value

The fair value of the majority of the Company’s financial instruments are
determined based on quoted market prices or rates. In the following tables,
carrying amounts and fair values of financial instruments that are carried
in the financial statements at other than fair values are presented. Assets
valued at fair value through profit or loss showed a net gain of SEK 0.7
billion. For further information about valuation principles, please see Note
C1, “Significant accounting policies”.

fiNaNcial iNstrumeNts carried at other thaN fair value 1)

seK billion

Current part of
non-current borrowings
Notes and bonds
Other borrowings non-current
total

book value
2010

2011

fair value

2011

2010

4.3
17.2
4.9
26.4

0.8
20.6
5.1
26.5

4.3
17.1
4.9
26.3

0.8
20.5
5.0
26.3

1) Excluding finance leases reported in Note C27, “Leasing”.

Financial instruments excluded from the tables, such as trade receivables
and payables, are carried at amortized cost which is deemed to be equal
to fair value. When a market price is not readily available and there is
insignificant interest rate exposure affecting the value, the carrying value is
considered to represent a reasonable estimate of fair value.

market price risk in own shares and other listed
equity investments

risK related to our owN share price

Ericsson is exposed to the development of its own share price through
stock purchase plans for employees and synthetic share-based
compensations to the Board of Directors.

stock purchase plans for employees

The obligation to deliver shares under the stock purchase plan is covered
by holding Ericsson Class B shares as treasury stock. A change in the share
price will result in a change in social security charges, which represents
a risk to the income statement. The cash flow exposure is fully hedged
through the holding of Ericsson Class B shares as treasury stock to be sold
to generate funds to cover also social security payments.

synthetic share-based compensations to the board of directors

For these plans, the Company is exposed to risks in relation to own share
price, both in relation to compensation expenses and social security
charges. The obligation to pay compensation amounts under the synthetic
share-based compensations to the Board of Directors is covered by a
liability in the balance sheet.

C20XC24XENX11_v81.indd 85

2012-03-06 11.29

Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Notes c20–c24

For further information about the stock purchase plan and the synthetic

share-based compensations to the Board of Directors, please see note
C28, “Information Regarding Members of the Board of Directors, the Group
Management and Employees”.

fiNaNcial iNstrumeNts, booK value

seK billion

Note
Assets at fair value
through profit or loss
Loans and receivables
Available for sale assets
Financial liabilities at
amortized cost
total

customer
finance

trade
receiv-
ables

C14

short-
term
invest-
ments

cash
equiva-
lents

borrow-
ings

trade
payables

other
financial
assets

other
current
receiv-
ables

other
current
liabilities

other
non-
current
liabilities

2011

2010

C19

C22

C12

C15

C21

–
4.2
–

–
4.2

–
64.5
–

–
64.5

38.8
3.1
–

–
41.9

5.0
4.1
–

–
9.1

–
–
–

–31.0
–31.0

–25.3
–25.3

0.8
3.3
–

–
4.1

2.0
–
–

–
2.0

–3.2
–
–

–
–3.2

–
–
–

–
–

43.4
79.2
–

58.9
70.3
–

–56.3
66.3

–55.8
73.4

C21 otheR CuRRent
liabilities

C23 assets Pledged
as CollateRal

other curreNt liabilities

assets pledged as collateral

Income tax liabilities
Advances from customers
Liabilities to associated companies
and joint ventures
Accrued interest
Accrued expenses, of which

Employee related
Supplier related
Other 1)

Deferred revenues
Derivatives with a negative value 2)
Other 3)
total

2011

2,691
3,942

119
351
32,652
11,314
11,621
9,717
8,722
3,240
6,253
57,970

2010

2,228
5,946

115
349
31,463
10,063
12,273
9,127
11,415
1,039
6,050
58,605

1) Major balance relates to accrued expenses for customer projects.
2) See Note C20, “Financial Risk Management and Financial Instruments”.
3) Includes items such as VAT and withholding tax payables and other payroll deductions,

and liabilities for goods received where invoice is not yet received.

C22 tRade Payables

trade payables

Payables to associated
companies and joint ventures
Other
total

2011

2010

102
25,207
25,309

157
24,802
24,959

Chattel mortgages
Bank deposits
total

2011

185
267
452

2010

191
467
658

C24 Contingent liabilities

coNtiNgeNt liabilities

Contingent liabilities
total

2011

609
609

2010

875
875

Contingent liabilities assumed by Ericsson include guarantees of loans to
other companies of SEK 25 (25) million. Ericsson has SEK 111 (413) million
issued to guarantee the performance of a third party. All ongoing legal and
tax proceedings have been evaluated, their potential economic outflows and
probability estimated and necessary provisions made. In Note C2, “Critical
Accounting Estimates and Judgments”, a further disclosure is presented in
relation to (i) key sources of estimation uncertainty and (ii) the decision made
in relation to accounting policies applied.

Financial guarantees for third party amounted to SEK 449 (191) million as
of December 31, 2011. Maturity date for major part of the issued guarantees
occurs in 2021 at latest.

On February 16, 2012, Ericsson announced that the Company, on

February 15, 2012, completed the divestment of its 50% stake in Sony
Ericsson Mobile Communications AB. The divestment was originally jointly
announced by Sony Corporation and Ericsson on October 27, 2011. As
of the date of the sale, Ericsson is no longer a guarantor of term loans or
credit facilities related to Sony Ericsson, see Note C29, “Related Party
Transactions”.

ST-Ericsson has been granted a revolving credit facility which is equally
shared by Ericsson and STMicroelectronics. For additional information, see
Note C29, “Related Party Transactions”.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C20XC24XENX11_v81.indd 86

2012-03-06 11.29

Notes c25–c26

C25 statement
of Cash flows

AcquisitioNs/DivestmeNts of subsiDiAries AND other
operAtioNs

Acquisitions

Divestments

Interest paid in 2011 was SEK 1,422 million (SEK 977 in 2010, SEK 772
million in 2009) and interest received was SEK 2,632 million (SEK 1,083 in
2010, SEK 1,900 million in 2009). Taxes paid, including withholding tax, were
SEK 4,393 million (SEK 4,808 in 2010, SEK 4,427 million in 2009).

Cash and cash equivalents includes cash of SEK 29,471 (27,231)
million and temporary investments of SEK 9,205 (3,633) million. For more
information regarding the disposition of cash and cash equivalents and
unutilized credit commitments, see Note C20, “Financial Risk Management
and Financial Instruments”.

Cash restricted due to currency regulations or other legal restrictions in

certain countries amounted to SEK 13,907 million (SEK 10,836 in 2010, SEK
8,907 million in 2009).

ADJustmeNts to recoNciLe Net iNcome to cAsh

2011

Cash flow from business combinations 1)
Acquisitions/divestments of other
investments
total

2010

Cash flow from business combinations 1)
total

2009

Cash flow from business combinations 1)
Capital contribution to joint venture
total

1) See also Note C26, “Business Combinations”.

–1,232

–1,949
–3,181

–3,286
–3,286

–9,633
–9,688
–19,321

–28

81
53

454
454

1,239
–
1,239

property, plant and equipment

Depreciation
Impairment losses/reversals
of impairments

total
intangible assets
Amortization
Capitalized development expenses
Intellectual Property Rights, brands
and other intangible assets
Total amortization
Impairments
Capitalized development expenses
Intellectual Property Rights, brands
and other intangible assets
total
total depreciation, amortization and
impairment losses on property, plant
and equipment and intangible assets
Taxes
Dividends from joint ventures/
associated companies 1)
Undistributed earnings in joint
ventures/associated companies 1)
Gains/losses on sales of investments
and operations, intangible assets
and PP&E, net 2)
Other non-cash items 2) 3)
total adjustments to reconcile
net income to cash

2011

2010

2009

3,499

3,299

3,550

47
3,546

–3
3,296

–48
3,502

995

664

647

4,470
5,465

4,999
5,663

3,562
4,209

157

18
5,490

945
6,657

4,255
8,621

9,036
1,994

9,953
351

12,123
–1,011

177

119

3,533

1,357

6,013

–159
–1,968

–237
947

–910
571

12,613

12,490

16,856

1) See Note C12, “Financial Assets, Non-Current”.
2) See Note C26, “Business Combinations”.
3) Refers mainly to unrealized foreign exchange, gains/losses on financial instruments.

C26 Business ComBinations
Acquisitions and divestments

AcquisitioNs

AcquisitioNs 2009–2011

Cash
total consideration

2011

1,162
1,162

2010

3,789
3,789

2009

9,633
9,633

Acquisition-related costs

77 1)

67 1)

–

Net asset acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Investments in associates
Other assets
Provision, including post-
employment benefits
Other liabilities
total identifiable net assets

Non-controlling interest
Goodwill

7
259
382
120
140

–23
–37
848

54
260
1,162

570
205
3,825
138
2,506

–390
–3,573
3,281

–748
1,256
3,789

5
297
5,832
–
1,235

–
–1,270
6,099

–
3,534
9,633

1) Acquisition-related costs are included in Selling and administrative expenses in the

consolidated income statement.

In 2011, Ericsson made acquisitions with a negative cash flow effect
amounting to SEK 1,232 (3,286) million, primarily:
> GDNt: On December 1, 2010 the Company announced it acquired

certain assets of the Guangdong Nortel Telecommunication Equipment
Company Ltd (GDNT). The asset deal was completed on May 12. The
acquisition reaffirms our strong commitment to the China market,
enhancing the Company’s existing R&D, manufacturing and services
capabilities in the region. Approximately 1,000 employees, including
550 R&D engineers, were integrated into the Company. The purchase
price was RMB 357 million on a cash and debt free basis. Balances to
facilitate the Purchase Price Allocation are preliminary.

> Nortel multiservice switch business (mss): On September 25, 2010,

the Company announced that it was entering an purchase agreement to
acquire certain assets of Nortel’s MSS. The asset deal was completed
on March 11, 2011. The purchase price was USD 53 million on a cash
and debt free basis. The acquisition has given the Company access to

C25XC27XENX11_v58.indd 87

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c26

a strong product portfolio and installed base in the data segment while
ensuring the supply of the platform for the recently acquired CDMA
and GSM units. Approximately 160 employees were transferred to
the Company. Balances to facilitate the Purchase Price Allocation are
preliminary.

The preliminary purchase price allocations related to acquired businesses
disclosed in 2010 were finalized in 2011 with the following effects:
> optimi: Decreased goodwill by SEK 184 million, increased intangible

assets by SEK 249 million, decreased deferred tax assets with SEK 77
million and increased other assets by SEK 12 million.
LG-Nortel: Increased goodwill by SEK 64 million, decreased intangible
assets by SEK 109 million, decreased deferred tax liabilities by SEK 24
million and decreased non-controlling interest by SEK 21 million.

DivestmeNts

DivestmeNts 2009–2011

cash

Net assets disposed of
Property, plant and equipment
Investments in associates
Other assets
Other liabilities

Net gains from divestments

Less Cash and cash equivalents

cash flow effect

2011

–28

1
10
38
–224
–175

158
–11
–28

2010

454

21
–
372
–183
210

357
–113
454

2009

1,239

5
–
586
–38
553

780
–94
1,239

In 2011, the Company made divestments with a cash flow effect amounting
to SEK –28 (454) million.

Divestments in 2010 mainly refer to Ericsson Federal Inc. (EFI) with a
gain amounting to SEK 216 million and a positive cash flow effect of SEK
360 million. Divestments in 2009 refer mainly to TEMS with a gain amounting
to SEK 777 million and a positive cash flow effect of SEK 926 million.

AcquisitioNs 2009–2011

company

GDNT

Nortel Multiservice Switch
business (MSS)
Optimi

inCode

LG-Nortel
Nortel GSM
Pride
Nortel

Elcoteq
Bizitek

DivestmeNts 2009–2011

Description

An asset purchase agreement of certain assets with around 1,000 employees. Enhances the
Company’s existing R&D, manufacturing and services capabilities in the China region.
An asset purchase agreement to acquire certain assets of Nortel’s MSS.

A US-Spanish telecommunications vendor providing products and services within the networks
optimization and management sector with around 200 employees.
An asset purchase agreement of certain assets with around 45 employees. A premier professional
services firm providing strategic business and consulting services.
Nortel’s majority shareholding (50% + 1 share) in LG-Nortel with around 1,300 employees.
An asset purchase agreement of the Carrier Networks division of Nortel relating to GSM business.
Italian consulting and systems integration company with around 1,000 employees.
An asset purchase agreement of the Carrier networks division of Nortel relating to CDMA and LTE
technology.
Estonian electronics manufacturing service company with around 1,200 employees.
Turkish systems integrator of business support systems with around 116 employees.

company

EFI
TEMS

Description

Sale of Ericsson Federal Inc. (EFI).
Tools for air interface monitoring and radio network planning.

transaction
date

May, 2011

Mar, 2011

Dec, 2010

Sep, 2010

Jun, 2010
Mar, 2010
Jan, 2010
Nov, 2009

Jul, 2009
May, 2009

transaction
date

Dec, 2010
Jun, 2009

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C25XC27XENX11_v58.indd 88

2012-02-28 14.09

Note c27

C27 leasing
Leasing with the company as lessee

Assets under finance leases, recorded as property, plant and equipment,
consist of:

fiNANce LeAses

cost
Real estate
Machinery

Accumulated depreciation
Real estate
Machinery

Accumulated impairment losses
Real estate
Net carrying value

2011

2010

1,856
3
1,859

–725
–3
–728

–42
1,089

1,846
3
1,849

–687
–3
–690

–54
1,105

As of December 31, 2011, future minimum lease payment obligations for
leases were distributed as follows:

Expenses in 2011 for leasing of assets were SEK 3,362 (3,675) million, of
which variable expenses were SEK 7 (51) million. The leasing contracts vary
in length from 1 to 19 years.

The Company’s lease agreements normally do not include any
contingent rents. In the few cases they occur, they relate to charges for
heating linked to the oil price index. Most of the leases of real estate contain
terms of renewal, giving the company the right to prolong the agreement in
question for a predefined period of time. All of the finance leases of facilities
contain purchase options. Only a very limited number of the Company’s
lease agreements contain restrictions on stockholders’ equity or other
means of finance. The major agreement contains a restriction stating that
the Parent Company must maintain a stockholders’ equity of at least SEK
25 billion.

Leases with the company as lessor

Leasing income relates to subleasing of real estate as well as equipment
provided to customers under leasing arrangements. These leasing contracts
vary in length from 1 to 11 years.

At December 31, 2011, future minimum payment receivables were

future miNimum LeAse pAYmeNt obLiGAtioNs for LeAses

distributed as follows:

finance
leases

operating
leases

future miNimum pAYmeNt receivAbLes

2012
2013
2014
2015
2016
2017 and later
total
Future finance charges 1)
Present value of finance lease liabilities
1) Average effective interest rate on lease payables is 5.66%.

158
155
235
133
90
920
1,691
–498
1,193

3,143
2,222
1,506
1,065
784
2,308
11,028
n/a
11,028

2012
2013
2014
2015
2016
2017 and later
total
Unearned financial income
Uncollectible lease payments
Net investments in financial leases

Leasing income in 2011 was SEK 76 (94) million.

finance
leases

operating
leases

36
18
21
23
18
–
116
n/a
n/a
n/a

178
204
210
173
14
25
804
n/a
n/a
n/a

C25XC27XENX11_v58.indd 89

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c28

C28 InformatIon
regardIng members
of the board of dIreCtors,
the groUP management
and emPloyees

Remuneration to the Board of Directors

RemuNeRatioN to memBeRs of the BoaRD of DiRectoRs

Contents
RemuNeRatioN to the BoaRD
of DiRectoRs

RemuNeRatioN to the GRoup
maNaGemeNt

LoNG-teRm VaRiaBLe RemuNeRatioN

empLoyee NumBeRs, waGes
aND saLaRies

Number of
synthetic
shares/portion
of Board fee

Value at grant
date of
synthetic
shares
allocated 2011

Number of
previously
allocated
synthetic
shares

Net change
in value of
allocated
synthetic

shares 1)

committee
fees

total
fees paid

total
remuneration

in cash 2)

2011

(a+B+c)

Board member
Leif Johansson
Sverker Martin-Löf
Jacob Wallenberg
Roxanne S. Austin
Sir Peter L. Bonfield
Börje Ekholm
Ulf J. Johansson
Nancy McKinstry
Anders Nyrén
Carl-Henric Svanberg
Hans Vestberg
Michelangelo Volpi

Employee
Representatives
Pehr Claesson
Anna Guldstrand 4)
Jan Hedlund
Karin Åberg
Kristina Davidsson
Karin Lennartsson
Roger Svensson
total
Total 6)

Board fees

3,750,000
825,000
825,000
825,000
825,000
825,000
825,000
825,000
825,000
825,000
–
825,000

18,000
6,000
16,500
18,000
18,000
18,000
12,000
12,106,500
12,106,500

–
–
206,174
618,705
206,174
618,705
–
412,440
–
412,440
–
–

–
–
–
–
–
–
–
2,474,638
2,474,638

0/0%
0/0%
2,262/25%
6,788/75%
2,262/25%
6,788/75%
0/0%
4,525/50%
0/0%
4,525/50%
–
0/0%

–
–
–
–
–
–
–
27,150
27,150

–
–
–
22,384.60
7,460.80
22,384.60
22,384.60
17,477.60
–
4,380.00
–
4,380.00

–
–
–
–
–
–
–
100,852.20
220,239.80

–
–
–46,929
–218,139
–72,696
–218,139
–77,309
–149,632
–
–117,970
–
–24,090

–
–
–
–
–
–
–
–924,904
–1,337,226

400,000
250,000
175,000
250,000
250,000
175,000
350,000
175,000
175,000
–
–
–

5,453,930 3)
1,075,000
793,750
456,250
868,750
381,250
1,294,968 3)
587,500
1,000,000
412,500
–
825,000

–
–
–
–
–
–
–

18,000
6,000
16,500
18,000
18,000
18,000
12,000
2,200,000 13,255,398
2,200,000 13,255,398

5,453,930
1,075,000
952,995
856,816
1,002,228
781,816
1,217,659
850,308
1,000,000
706,970
–
800,910

18,000
6,000
16,500
18,000
18,000
18,000
12,000

14,805,132 5)
14,392,810 5)

1) The difference in value as of December 31, 2011, compared to December 31, 2010 (for synthetic shares allocated 2008, 2009 and 2010), and compared to grant date 2011 (for synthetic
shares allocated 2011). The value of synthetic shares allocated in 2008, 2009 and 2010 includes respectively SEK 1.85, SEK 2.00 and SEK 2.25 per share in compensation for dividends
resolved by the Annual General Meetings 2009, 2010 and 2011.

2) Committee fee and cash portion of the Board fee.
3) Including an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced through a limited liability company.
4) Resigned as employee representative as of April 13, 2011.
5) Excluding social security charges in the amount of SEK 2,059,523.
6) Including synthetic shares previously allocated to the former Directors Michael Treschow and Marcus Wallenberg.

comments to the table

The Chairman of the Board was entitled to a Board fee of
SEK 3,750,000 and a fee of SEK 200,000 for each Board Committee
on which he served as Chairman.
The other Directors appointed by the Annual General Meeting were
entitled to a fee of SEK 825,000 each. In addition, the Chairman of the
Audit Committee was entitled to a fee of SEK 350,000 and the other
non-employed members of the Audit Committee were entitled to a fee
of SEK 250,000 each. The Chairmen of the Finance and Remuneration
Committees were entitled to a fee of SEK 200,000 each and the
other non-employed members of the Finance and the Remuneration

Committees were entitled to a fee of SEK 175,000 each.

> Members of the Board, who are not employees of the Company, have

not received any remuneration other than the fees and synthetic shares
as above. None of the directors have entered into a service contract
with the Parent Company or any of its subsidiaries, providing for
termination benefits.

> Members and Deputy Members of the Board who are Ericsson

employees received no remuneration or benefits other than their
entitlements as employees. However, a fee of SEK 1,500 per attended
Board meeting was paid to each employee representative on the Board
and their deputies.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C28XENX11_v83.indd 90

2012-02-28 14.11

Note c28

> Board members invoicing the amount of the Board and Committee fee
through a limited liability company may add to the invoice an amount
corresponding to social charges. The social charges thus included in the
invoiced amount are not higher than the general payroll tax that would
otherwise have been paid by the Company. The entire amount, e.g. the
cash portion of the Board fee and the committee fee, including social
charges, constitutes the invoiced Board fee
The Annual General Meeting 2011 resolved that non-employed Directors
may choose to receive the Board fee (i.e. exclusive of committee fee) as
follows: i) 25% of the Board fee in cash and 75% in the form of synthetic
shares, with a value corresponding to 75% of the Board fee at the time
of allocation, ii) 50% in cash and 50% in the form of synthetic shares, or
iii) 75% in cash and 25% in the form of synthetic shares. Directors may
also choose not to participate in the synthetic share program and receive
100% of the Board fee in cash. Committee fees are always paid in cash.
The number of synthetic shares is based on a volume-weighed
average of the market price of Ericsson Class B shares on the NASDAQ
OMX Stockholm exchange during the five trading days immediately
following the publication of Ericsson’s interim report for the first quarter
of 2011: SEK 91.1469. The number of synthetic shares is rounded down
to the nearest whole number of shares.
The synthetic shares are vested during the Directors’ term of office
and the right to receive payment with regard to the allocated synthetic
shares occurs after the publication of the Company’s year-end financial
statement during the fifth year following the Annual General Meeting
which resolved on the synthetic share program, i.e. in 2016.
The amount payable shall be determined based on the volume-
weighed average price for shares of Class B during the five trading
days immediately following the publication of the year-end financial
statement.
Synthetic shares were allocated to members of the Board for the first
time in 2008, on equal terms and conditions as resolved in 2009, 2010
and 2011. Payment based on synthetic shares may thus, under the

main rule, occur for the first time in 2013 with respect to the synthetic
shares allocated in 2008. The value of all outstanding synthetic shares
fluctuates in line with the market value of Ericsson’s Class B share and
may differ from year to year compared to the original value on their
respective grant dates. The change in value of the outstanding synthetic
shares is established each year and affects the total recognized costs
that year. As per December 31, 2011, the total number of synthetic
shares under the programs is 247,389.80, and the total accounted debt
is SEK 18,349,153 (including synthetic shares previously allocated to
the former Directors Michael Treschow and Marcus Wallenberg). In
accordance with the terms and conditions for the synthetic shares, the
time for payment to the former Directors Michael Treschow and Marcus
Wallenberg has been advanced, to occur after the publication of the
year-end financial statement 2012.

Remuneration to the Group management

The Company’s costs for remuneration to the Group management are the
costs recognized in the Income Statement during the fiscal year. These
costs are disclosed under “Remuneration Costs” below.

Costs recognized during a fiscal year in the Income Statement
are not fully paid by the Company at the end of the fiscal year. Such
liabilities (unpaid amounts) that the Company has in relation to the Group
Management are disclosed under “Outstanding Balances”.

RemuNeRatioN costs

The total remuneration to the President and CEO and to other members
of the Group management, consisting of the Executive Leadership Team
(ELT) includes fixed salary, short-term and long-term variable remuneration,
pension and other benefits. These remuneration elements are based on the
guidelines for remuneration and other employment conditions for the ELT
as approved at AGM 2011, see the approved guidelines in section “2011
Remuneration Policy”.

RemuNeRatioN costs foR the pResiDeNt aND ceo aND otheR memBeRs of executiVe LeaDeRship team (eLt)

seK

Salary
Costs for annual variable remuneration earned
2011 to be paid 2012
Long-term variable remuneration provision
Pension costs

Other benefits
Social charges and taxes
total

comments to the table

the president
and ceo 2011

the president
and ceo 2010

other members
of eLt 2011

other members
of eLt 2010

total 2011

total 2010

11,739,341

12,573,789

76,031,733

84,697,698

87,771,074

97,271,487

2,771,134
5,636,050
5,960,566

78,594
7,800,766
33,986,451

6,737,556
1,253,262
5,586,760

80,962
7,842,186
34,074,515

18,460,645
8,916,556
22,154,413

4,944,762
23,529,200
154,037,309

26,592,809
6,467,584
24,994,073

4,142,484
30,246,918
177,141,565

21,231,779
14,552,606
28,114,979

5,023,356
31,329,966
188,023,760

33,330,365
7,720,846
30,580,833

4,223,446
38,089,103
211,216,080

> During 2011, there were three Executive Vice Presidents appointed
by the Board of Directors. None of them has acted as deputy to the
President and CEO during the year. The Executive Vice Presidents are
included in the group “Other members of ELT”.
The group “Other members of ELT” comprises the following persons:
Cesare Avenia (up to December 21), Per Borgklint (from June 7), Bina
Chaurasia, Håkan Eriksson, Jan Frykhammar, Douglas L. Gilstrap, Nina
Macpherson, Magnus Mandersson, Helena Norrman (from May 23),
Mats H. Olsson, Rima Qureshi, Angel Ruiz, Henry Sténson (up to May
23), Johan Wibergh and Jan Wäreby.
The salary stated in the table for the President and CEO and other
members of the ELT includes vacation pay paid during 2011 as well
as other contracted compensation which were paid during 2011 or
provisioned for 2011.
“Long-term variable remuneration provision” refers to the compensation
costs during 2011 for all outstanding share-based plans.
For a description of compensation cost, including accounting treatment,
see Note C1, “Significant Accounting Policies”, section Share-based

compensation to employees and the Board of Directors.
For the President and CEO and other members of ELT employed in
Sweden before 2011 a supplementary plan is applied in addition to
the occupational pension plan for salaried staff on the Swedish labor
market (ITP) with pension from 60 years. These pension plans are not
conditional upon future employment at Ericsson.

outstaNDiNG BaLaNces

The Company has recognized the following liabilities in the Balance Sheet:
> Ericsson’s commitments for benefit based pensions per December 31,

2011 under IAS 19 amounted to SEK 5,083,343 for the President and
CEO which includes ITP plan and temporary disability and survivor’s
pension. For other members of ELT the Company’s commitments
amounted to SEK 32,773,100 of which SEK 26,363,042 refers to the
ITP plan and the remaining SEK 6,410,058 to temporary disability and
survivor’s pensions.
For previous Presidents and CEOs, the Company has made provisions
for defined benefit pension plans in connection with their active service
periods within the Company.

C28XENX11_v83.indd 91

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c28

> Deferred salary, earned 2011 or earlier, to be paid 12 months after period

end or later, amounts to SEK 10,868,040.

outstaNDiNG matchiNG RiGhts

as per December 31, 2011
Number of class B shares

the president
and ceo

other members
of the eLt

Stock Purchase Plans 2008, 2009,
2010 and 2011 and Executive
Performance Stock Plans
2009, 2010 and 2011

comments to the table

324,106

492,645

For the definition of matching rights, see the description in section
“Long-term variable remuneration”.
The number of matching rights for members in ELT 2011 is based on
performance matching under Executive Performance Stock Plans as
follows;
– For 2008, only the matching under the Stock Purchase Plan is

included in outstanding matching rights. The performance matching
lapsed.

– For 2009 and 2010, maximum performance matching is included.
– For 2011, 89% performance matching is included (cash conversion

target for 2011 was not met).

> During 2011, the President and CEO received 5,108 matching shares

and other members of ELT 25,720 matching shares.

2011 RemuNeRatioN poLicy

Remuneration at Ericsson is based on the principles of performance,
competitiveness and fairness. These principles and good practice in
Sweden guide our policy to:
> Attract and retain highly competent, performing and motivated

people that have the ability, experience and skill to deliver on the
Ericsson strategy.

> Encourage behavior consistent with Ericsson’s culture and core values

of professionalism, respect and perseverance.

> All benefits, including pension benefits, follow the competitive practice in
the home country taking total compensation into account. The retirement
age is normally 60 to 65 years of age.

> By way of exception, additional arrangements can be made when
deemed required. Such additional arrangement shall be limited in
time and shall not exceed a period of 36 months and two times the
remuneration that the individual concerned would have received had no
additional arrangement been made.
The mutual notice period may be no more than six months. Upon
termination of employment by the Company, severance pay amounting
to a maximum of 18 months’ fixed salary is paid. Notice of termination
given by the employee due to significant structural changes, or other
events that in a determining manner affect the content of work or the
condition for the position, is equated with notice of termination served
by the Company.

Long-term Variable remuneration

the stocK puRchase pLaN

The Stock Purchase Plan is designed to offer an incentive for all employees
to participate in the Company where practicable, which is consistent with
industry practice and with our ways of working. For the 2011 plan employees
are able to save up to 7.5% (President and CEO 10%) of gross fixed salary
(President and CEO gross fixed salary and annual variable remuneration) for
purchase of Class B contribution shares at market price on the NASDAQ
OMX Stockholm or American Depositary Shares (ADSs) at NASDAQ New
York (contribution shares) during a twelve-month period (contribution
period). If the contribution shares are retained by the employee for three
years after the investment and the employment with the Ericsson Group
continues during that time, the employee’s shares will be matched with a
corresponding number of Class B shares or ADSs free of consideration.
Employees in 96 countries participate in the plans.

The table below shows the contribution periods and participation details

for ongoing plans as of December 31, 2011.

> Ensure fairness in reward by delivering total remuneration that is

stocK puRchase pLaNs

appropriate but not excessive.

> Ensure a total compensation mix of fixed and variable remuneration and
benefits that reflects the Company’s principles and is competitive where
Ericsson competes for talent.

> Encourage variable remuneration which, first, aligns employees with

clear and relevant targets, second, reinforces performance and, third,
enables flexible remuneration costs.

> Ensure that all variable remuneration plans have maximum award and

vesting limits.

> Encourage employees to deliver sustained performance and build up a
personal shareholding in Ericsson, aligning the interests of shareholders
and employees.

> Communicate clearly to both employees and shareholders how Ericsson

translates remuneration principles and policy into practice.

Group Management

For Group Management consisting of the Executive Leadership Team,
including the President and CEO, in the following referred to as the “Group
Management”, total remuneration consists of fixed salary, short and long-
term variable remuneration, pension and other benefits. Furthermore, the
following guidelines apply for Group Management:
> Variable remuneration is through cash and stock-based programs

awarded against specific business targets derived from the long-term
business plan approved by the Board of Directors. Targets may include
financial targets at either corporate or unit level, operational targets,
employee motivation targets and customer satisfaction targets.
> With the current composition of Group Management, the Company’s
cost during 2011 for the variable remuneration of Group Management
can, at a constant share price, amount to between 0 and 150% of the
aggregate fixed salary cost, all excluding social security costs.

plan

Stock Purchase
plan 2008
Stock Purchase
plan 2009
Stock Purchase
plan 2010
Stock Purchase
plan 2011

contribution
period

August 2008
– July 2009
August 2009
– July 2010
August 2010
– July 2011
August 2011
– July 2012

Number of
participants
at launch

take-up rate
– percent of
eligible
employees

19,000

18,000

22,000

24,000

25%

27%

30%

Participants save each month, beginning with August payroll, towards
quarterly investments. These investments (in November, February, May
and August) are matched on the third anniversary of each such investment,
subject to continued employment, and hence the matching spans over two
financial years and two tax years.

the Key coNtRiButoR ReteNtioN pLaN

The Key Contributor Retention Plan is part of Ericsson’s talent management
strategy and is designed to give recognition for performance, critical skills
and potential as well as encourage retention of key employees. Under the
program, up to 10% of employees (2011: 7,900 employees) are selected
through a nomination process that identifies individuals according to
performance, critical skills and potential. Participants selected obtain one
extra matching share in addition to the ordinary one matching share for
each contribution share purchased under the Stock Purchase Plan during a
twelve-month program period.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C28XENX11_v83.indd 92

2012-02-28 14.11

Note c28

the executiVe peRfoRmaNce stocK pLaN

executiVe peRfoRmaNce stocK pLaNs

The Executive Performance Stock Plan is designed to focus management on
driving earnings and provide competitive remuneration. Senior executives,
including ELT, are selected to obtain up to four or six extra shares
(performance matching shares) in addition to the ordinary one matching
share for each contribution share purchased under the Stock Purchase Plan.
Up to 0.5% of employees (2011: 314 executives) are offered to participate
in the plan. The President and CEO is allowed to invest up to 10% of fixed
salary and Short-Term Variable Remuneration in contribution shares and
may obtain up to nine performance matching shares in addition to the Stock
Purchase Plan matching share for each contribution share. The performance
matching for the 2008 to 2010 plans is subject to the fulfillment of a
performance target of average annual Earnings per Share (EPS)
growth.

The performance targets changed from Earnings Per Share (EPS) targets

to operational targets linked to the business strategy.

The tables to the right shows all Executive Performance Stock Plans as

executive performance stock plan

2011 1)

2010

2009

2008

Base year EPS 2)
Target average annual
EPS growth range 3)
Matching share
vesting range 4)

Maximum opportunity
as percentage of fixed
salary 5)

0.67 to 4
1 to 6
1.5 to 9
30%
45%
162%

1.14
5% to
15%
0.67 to 4
1 to 6
1.5 to 9
30%
45%
162%

2.90
5% to
15%
0.67 to 4
1 to 6
1.33 to 8
30%
45%
72%

4.43
5% to
15%
0.67 to 4
1 to 6
1.33 to 8
30%
45%
72%

1) Targets for Executive Performance Stock Plan 2011 are described in the table below.
2) Sum of four quarters up to June 30 of plan years, up to and including 2009. For 2010

plan the sum of 4 quarters up to December 31, 2010.

3) EPS range found from three-year average EPS of the twelve quarters to the end of the

performance period and corresponding growth targets.

4) Corresponding to EPS range (no Performance Share Plan matching below this range).
Matching shares per contribution share invested in addition to Stock Purchase Plan
matching according to program of up to 4, 6 or 9 matching shares.

5) At full investment, full vesting and constant share price. Excludes Stock Purchase Plan

per December 31, 2011.

matching.

2011 executiVe peRfoRmaNce stocK pLaN taRGets

Base year
value
seK billion

year 1

year 2

year 3

Growth (Net Sales Growth)
Margin (Operating Income
Growth) 1)
Cash Flow (Cash
Conversion)

203.3 Compound annual growth of 4–10%
23.74 Compound annual growth of 5–15%

–

70%

1) Consolidated operating margin excluding restructuring for 2010.

shaRes foR aLL pLaNs

stock purchase plan, Key contributor
Retention plan and executive
performance stock plans

plan (million shares)

Originally designated 1)
Outstanding beginning of 2011
Awarded during 2011
Exercised/matched during 2011
Forfeited/expired during 2011
Outstanding end of 2011 2)
Compensation costs charged during 2011 (MSEK)

A
B
C
D
E
F=B+C–D–E
G

2011

19.4
–
3.4
–
–
3.4

9 3)

2010

2009

2008

2007

total

19.4
3.0
8.0
0.1
0.3
10.6
115 3)

22.4
9.9
–
0.2
0.6
9.1
145 3)

16.5
11.0
–
2.6
2.3
6.1
116 3)

9.7
7.1
–
5.3
1.8
–
28 3)

87.4
31.0
11.4
8.2
5.0
29.2
413 4)

1) Adjusted for rights offering and reverse split when applicable.
2) Presuming maximum performance matching under the Executive Performance Stock Plans. The 2007 and 2008 plans have lapsed.
3) Fair value is calculated as the share price on the investment date, reduced by the net present value of the dividend expectations during the three-year vesting period. Net present value

calculations are based on data from external party. Fair value is also adjusted for participants failing to keep hold of their contribution shares during the vesting period. For shares under the
Executive Performance Stock Plans, the Company presumes maximum performance matching for all ongoing plans when calculating the compensation cost. The 2007 and 2008 plans
have lapsed. Fair value of the Class B share at each investment date during 2011 was: February 15 SEK 73.88, May 15 SEK 87.47, August 15 SEK 65.64 and November 15 SEK 60.76.

4) Total compensation costs charged during 2010: SEK 757 million, 2009: SEK 529 million.

shaRes foR aLL pLaNs

All plans are funded with treasury stock and are equity settled. Treasury
stock for all plans has been issued in directed cash issues of Class C
shares at the quotient value and purchased under a public offering at
the subscription price plus a premium corresponding to the subscribers’
financing costs, and then converted to Class B shares.

For all plans, additional shares have been allocated for financing of
social security expenses. Treasury stock is sold on the NASDAQ OMX
Stockholm to cover social security payments when arising due to matching
of shares. During 2011, 1,240,600 shares were sold at an average price of
SEK 73.96. Sale of shares is recognized directly in equity.

If, as of December 31, 2011, all shares allocated for future matching
under the Stock Purchase Plan were transferred, and shares designated
to cover social security payments were disposed of as a result of the
exercise and the matching, approximately 49 million Class B shares would
be transferred, corresponding to 1.5% of the total number of shares
outstanding, 3,211 million. As of December 31, 2011, 63 million Class B
shares were held as treasury stock.

The table above shows how shares (representing matching rights
but excluding shares for social security expenses) are being used for all
outstanding plans. From up to down the table includes (A) the number of
shares originally approved by the Annual General Meeting, adjusted for
reverse split where applicable; (B) the number of originally designated shares
that were outstanding at the beginning of 2011; (C) the number of shares
awards that were granted during 2011; (D) the number of shares matched
during 2011; (E) the number of shares forfeited by participants or expired
under the plan rules during 2011; and (F) the balance left as outstanding at
the end of 2011, having added new awards to the shares outstanding at the
beginning of the year and deducted the shares related to awards matched,
forfeited and expired. The final column (G) shows the compensation costs
charged to the accounts during 2011 for each plan, calculated as fair value
in SEK.

For a description of compensation cost, including accounting treatment,

see Note C1, “Significant Accounting Policies”, section Share-based
compensation to employees and the Board of Directors.

C28XENX11_v83.indd 93

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note c28

employee numbers, wages and salaries

empLoyee moVemeNts

empLoyee NumBeRs

aVeRaGe NumBeR of empLoyees

women

men

2011
total women

2010
total

men

Head count at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees

2011

2010

104,525
10,571
24,835
901

90,261
10,066
17,834
978

North America
Latin America
Northern Europe &
Central Asia 1) 2)
Western & Central
Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
China & North East
Asia
South East Asia &
Oceania
total

1) Of which
Sweden

2) Of which EU

2,876 12,106 14,982
9,750
7,837
1,913

2,770 11,005 13,775
6,654
5,326
1,328

empLoyee waGes aND saLaRies

5,656 14,927 20,583

5,821 15,227 21,048

waGes aND saLaRies aND sociaL secuRity expeNses

1,663
2,743
634
661
1,613

8,968 10,631
9,077 11,820
4,977
4,343
1,951
1,290
9,912 11,525

1,817
2,670
468
359
835

9,338
9,034
3,544
1,331
5,783

11,155
11,704
4,012
1,690
6,618

3,480

8,839 12,319

2,948

6,867

9,815

1,155

5,354
22,394 80,736 103,130 20,394 71,431 91,825

4,592

3,437

3,976

1,378

Wages and salaries
Social security expenses
Of which pension costs

2011

2010

43,707
15,198
3,888

43,390
13,793
3,091

Amounts related to the President and CEO and the Executive Leadership
Team are included.

RemuNeRatioN to BoaRD memBeRs aND pResiDeNts
iN suBsiDiaRies

4,188 12,881 17,069
9,575 31,667 41,242

4,355 13,066
17,421
9,843 32,045 41,888

Salary and other remuneration

Of which annual variable remuneration

Pension costs

2011

2010

BoaRD memBeRs, pResiDeNts aND GRoup maNaGemeNt
By GeNDeR at yeaR eND

2011

223
22
20

2010

289
43
29

2010
men

67%
86%

women

2011
men women

20%
29%

80%
71%

33%
14%

11%

89%

10%

90%

NumBeR of empLoyees at yeaR-eND

employees by region

North America
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
China & North East Asia
South East Asia & Oceania
total

1) Of which Sweden
2) Of which EU

empLoyees By GeNDeR aND aGe at yeaR-eND 2011

Under 25 years old
25–35 years old
36–45 years old
46–55 years old
Over 55 years old
percent of total

women

men

2,162
8,417
7,754
3,553
919
22%

5,942
29,691
28,306
14,127
3,654
78%

14,801
11,191
20,987
10,806
11,645
4,336
2,283
11,535
12,567
4,374
104,525
17,500
41,596

parent company
Board members and President
Group Management
subsidiaries
Board members and Presidents

13,498
7,181
21,425
10,818
10,795
3,982
1,626
6,710
9,807
4,419
90,261
17,848
40,743

percent
of total

8%
37%
34%
17%
4%
100%

NumBeR of empLoyees ReLateD to cost of saLes
aND opeRatiNG expeNses

Cost of sales
Operating expenses
total

2011

2010

2009

58,800
45,725
104,525

45,628
44,633
90,261

41,521
40,972
82,493

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C28XENX11_v83.indd 94

2012-02-28 14.11

Note c29

development and the creation of cutting-edge mobile platforms and wireless
semiconductors. ST-Ericsson is a key supplier to four of the industry’s top
five handset manufacturers, who together represent about 80% of global
handset shipments, as well as to other leading companies in the industry.
The joint venture is headquartered in Geneva, Switzerland, and employs
approximately 5,800 people.

Major transactions are as follows:

>> Sales: Ericsson provides ST-Ericsson with services in the areas of R&D,

HR, IT and facilities.

>> Purchases: A major part of Ericsson’s purchases from ST-Ericsson

consists of chipsets and R&D services.

>> Dividends: Both owners of ST-Ericsson receive dividends, when so

decided by the board of directors. During 2011 Ericsson received no
dividends from ST-Ericsson.

St-eRIcSSoN

Related party transactions
Sales
Purchases

Related party balances
Receivables
Liabilities

2011

2010

2009

182
781

51
24

403
629

53
48

740
624

244
365

Parents extend internal financing to ST-Ericsson on an ongoing basis to
bridge their needs until a return to profitability and positive cash flow, based
on a 50/50 basis. As of December 31, 2011, the amount drawn was USD
800 million (SEK 5,518 million). Each parent lent USD 400 million (SEK 2,759
million).

Ericsson does not have any contingent liabilities, assets pledged as

collateral or guarantees towards ST-Ericsson.

ericsson Nikola tesla d.d.

Ericsson Nikola Tesla d.d. is a joint stock company for design, sales and
service of telecommunication systems and equipment, and an associated
member of the Ericsson Group. Ericsson Nikola Tesla d.d. is located in
Zagreb, Croatia. Ericsson holds 49.07% of the shares.

Major transactions are as follows:

>> Sales: Ericsson sells telecommunication equipment to Ericsson Nikola

Tesla d.d.
License revenues: Ericsson receives license revenues for Ericsson
Nikola Tesla d.d.’s usage of trademarks.

>> Purchases: Ericsson purchases development resources from Ericsson

Nikola Tesla d.d.

>> Dividends: Ericsson received dividends from Ericsson Nikola Tesla d.d.

during 2011.

eRIcSSoN NIKoLA teSLA D.D.

Related party transactions
Sales
License revenues
Purchases
Ericsson’s share of dividends

Related party balances
Receivables
Liabilities

2011

2010

2009

465
4
595
154

59
76

563
2
566
104

120
75

654
7
569
66

93
70

Ericsson does not have any contingent liabilities, assets pledged as
collateral or guarantees toward Ericsson Nikola Tesla d.d.

C29>Related>PaRty>
tRansaCtions

During 2011, various related party transactions were executed pursuant
to contracts based on terms customary in the industry and negotiated
on an arm’s length basis. For information regarding equity and Ericsson’s
share of assets, liabilities and income in joint ventures and associated
companies, see Note C12, “Financial Assets, Non-Current”. For information
regarding transactions with senior management, see Note C28, “Information
Regarding Members of the Board of Directors, the Group Management and
Employees”.

Sony ericsson Mobile communications AB

In October 2001, Sony Ericsson Mobile Communications AB was
established as a joint venture between Sony Corporation and Ericsson, and
a substantial portion of Ericsson’s handset operations was sold to Sony
Ericsson Mobile Communications AB. The joint venture is headquartered in
Lund, Sweden.

On February 16, 2012, Ericsson announced that the Company, on
February 15, 2012, completed the divestment of its 50% stake in Sony
Ericsson Mobile Communications AB including the broad IP cross-licensing
agreement. The divestment was originally jointly announced by Sony
Corporation and Ericsson on October 27, 2011. This makes Sony Ericsson
a wholly-owned subsidiary of Sony. The agreed cash consideration for the
transaction is EUR 1.05 billion.

As part of the formation of the joint venture, contracts were entered into

between Ericsson and Sony Ericsson.
Major transactions are as follows:
License revenues: Both owners of Sony Ericsson, Sony Corporation
and Ericsson, receive license revenues for Sony Ericsson’s usage of
trademarks and intellectual property rights.

>> Purchases: Ericsson purchases mobile phones from Sony Ericsson to

support contracts with a number of customers for mobile systems which
also include limited quantities of phones.

>> Dividends: Both owners of Sony Ericsson receive dividends, when so
decided by the board of directors. During 2011 Ericsson received no
dividends from Sony Ericsson.

SoNY eRIcSSoN MoBILe coMMUNIcAtIoNS AB

Related party transactions
License revenues
Purchases

Related party balances
Receivables
Liabilities

2011

2010

2009

855
126

27
2

1,255
61

258
8

1,746
164

369
14

Sony Ericsson has been granted term loans and credit facilities of SEK
4,014 million, of which SEK 4,014 million were utilized as of December
31, 2011. The parent companies of Ericsson and Sony Corporation have
issued guarantees for these term loans and credit facilities on a 50/50 basis,
without joint responsibility. Thus Ericsson’s guaranteed amount is maximum
SEK 2,007 million excluding interest. As of December 31, 2011, Ericsson’s
part of the outstanding amount is SEK 2,017 million including accrued
interest of SEK 10 million. Maturity dates for the issued guarantees occurs
in 2012. As of the date of the sale, Ericsson is no longer a guarantor of
term loans or credit facilities related to Sony Ericsson. See also Note C24,
“Contingent Liabilities”.

St-ericsson

ST-Ericsson, the joint venture between Ericsson and STMicroelectronics,
was formed on February 2, 2009, by merging Ericsson Mobile Platforms
with ST-NXP Wireless. The joint venture is equally owned by Ericsson
and STMicroelectronics. ST-Ericsson is an industry leader in the design,

C29XENX11_v37.indd 95

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Ericsson Annual Report 2011 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

C32 events after the
balanCe sheet date

On January 12, 2012 Ericsson announced the closing of the acquisition of all
the shares in Telcordia, a global leader in the development of software and
services for OSS/BSS, for USD 1.15 billion in an all cash transaction, on a
cash and debt-free basis. Balances to facilitate a Purchase Price Allocation
have not yet been established. Approximately 2,600 skilled employees
have joined Ericsson. This acquisition consolidates Ericsson’s position as a
leading player in the operations support systems/business support systems
(OSS/BSS) market with a key position in service fulfillment, assurance,
network optimization and real-time charging.

On January 14, 2012, as per the trust’s funding requirements, the

Company made an employer contribution payment of SEK 900 million to the
Swedish pension trust fund.

In February 2012, Airvana Networks Solutions Inc., a State of Delaware,

U.S.A. corporation (“Airvana”), filed a complaint against Ericsson Inc. and
Ericsson AB in the Supreme Court of the State of New York, U.S.A., alleging
that Ericsson has violated key contract terms and misappropriated Airvana
trade secrets and proprietary information. Airvana is seeking damages
of USD 330 million and to enjoin Ericsson from developing, deploying or
commercializing Ericsson products allegedly based on Airvana’s proprietary
technology.

On February 16, 2012, Ericsson announced that the Company, on
February 15, 2012, completed the divestment of its 50% stake in Sony
Ericsson Mobile Communications AB. The divestment was originally jointly
announced by Sony Corporation and Ericsson on October 27, 2011. The
deal includes a broad IP cross-licensing agreement. Sony Ericsson is now
a wholly-owned subsidiary of Sony. The agreed cash consideration for the
transaction is EUR 1.05 billion.

The divestment has resulted in a gain of approximately SEK 7.5 billion,

to be recognized in the first quarter of 2012 and reported under Other
operating income and expenses.

Notes c30–c32

C30 fees to auditors

Fees to AUDItoRs

2011
Audit fees
Audit related fees
Tax services fees
Other fees
total

2010
Audit fees
Audit related fees
Tax services fees
Other fees
total

2009
Audit fees 1)
Audit related fees 1)
Tax services fees
Other fees 1)
total

Pwc

others

total

77
10
20
16
123

79
17
16
7
119

88
18
16
3
125

9
–
3
–
12

5
1
2
2
10

3
–
2
2
7

86
10
23
16
135

84
18
18
9
129

91
18
18
5
132

1) Allocation of fees to auditors is based on the requirements in the Swedish Annual

Accounts Act. 2009 figures are restated for comparability.

During the period 2009–2011, in addition to audit services, PwC provided
certain audit related services, tax and other services to the Company. The
audit related services include quarterly reviews, ISO audits, SSAE16 reviews
and services in connection with issuing of certificates and opinions. The tax
services include general expatriate services and corporate tax compliance
work. Other services include consultation on financial accounting, services
related to acquisitions, operational effectiveness and assessments of
internal control.

Audit fees to other auditors largely consist of local statutory audits for

minor companies.

C31 ContraCtual
obligations

coNtRActUAL oBLIGAtIoNs 2011

seK billion

Long-term debt 1) 2)
Finance lease obligations 3)
Operating leases 3)
Other non-current liabilities
Purchase obligations 4)
Trade payables
Commitments for customer
financing 5)
total

Payment due by period

<1
year

1–3
years

3–5
years

>5
years

5.4
0.2
3.1
0.1
7.1
25.3

3.0
44.2

10.0
0.4
3.7
0.2
–
–

–
14.3

6.7
0.2
1.8
0.1
–
–

–
8.8

6.0
0.9
2.3
1.8
–
–

–
11.0

total

28.1
1.7
10.9
2.2
7.1
25.3

3.0
78.3

1) Including interest payments.
2) See Note C20, “Financial Risk Management and Financial Instruments”.
3) See Note C27, “Leasing”.
4) The amounts of purchase obligations are gross, before deduction of any related

provisions.

5) See also Note C14, “Trade Receivables and Customer Financing”.

For information about financial guarantees, see Note C24, “Contingent
Liabilities”.

Except for those transactions described in this report, Ericsson has not
been a party to any material contracts over the past three years other than
those entered into during the ordinary course of business.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | Ericsson Annual Report 2011

C30XC32XENX11_v47.indd 96

2012-02-28 14.15

Contents

Parent comPany financial
statements and notes
to the Parent comPany
financial statements

contents
Parent Company Financial statements
Parent Company Income Statement
and Statement of Comprehensive Income ............................98

notes to the Parent Company Financial
statements
P1 Significant Accounting Policies ..................................103

Parent Company Balance Sheet ...........................................99

P2 Segment Information ...................................................103

Parent Company Statement of Cash Flows ........................ 101

P3 Other Operating Income and Expenses ......................103

Parent Company Statement of Changes
in Stockholders’ Equity .......................................................102

P4 Financial Income and Expenses .................................104

P5 Taxes ..........................................................................104

Intangible Assets ........................................................104

P7 Property, Plant and Equipment ...................................105

P8 Financial Assets .........................................................106

Investments ................................................................ 107

P10 Inventories ..................................................................108

P11 Trade Receivables and Customer Finance .................108

P12 Receivables and Liabilities – Subsidiary

Companies .................................................................109

P13 Other Current Receivables ......................................... 110

P14 Equity and Other Comprehensive Income .................. 110

P15 Untaxed Reserves ....................................................... 111

P16 Post-Employment Benefits ........................................ 111

P17 Other Provisions ......................................................... 112

P18 Interest-Bearing Liabilities .......................................... 112

P19 Financial Risk Management and Financial

Instruments ................................................................. 113

P20 Other Current Liabilities ............................................. 114

P21 Trade Payables ............................................................ 114

P22 Assets Pledged as Collateral ..................................... 114

P23 Contingent Liabilities .................................................. 114

P24 Statement of Cash Flows ........................................... 114

P25 Leasing ....................................................................... 115

P26 Information Regarding Employees .............................. 115

P27 Related Party Transactions ......................................... 115

P28 Fees to Auditors ......................................................... 116

P29 Events after the Balance Sheet Date .......................... 116

Ericsson Annual Report 2011 | PARENT COMPANY FINANCIAL STATEMENTS AND NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

PCXISXENX2011_v27.indd 97

2012-02-28 14.16

Parent ComPany InCome statement anD
statement oF ComPrehensIve InCome

Parent comPany income
statement and statement
of comPrehensive income

Parent ComPany InCome statement

years ended December 31, seK million

Net sales
Cost of sales
Gross income

Selling expenses
Administrative expenses
operating expenses

Other operating income and expenses
operating income

Financial income
Financial expenses
Income after financial items

Transfers to (–)/from untaxed reserves

Changes in depreciation in excess of plan
Changes in other untaxed reserves

Taxes
net income

1) Restated for contributions to/from subsidiaries.

notes

P4
P4

P15
P15

Parent ComPany statement oF ComPrehensIve InCome

years ended December 31, seK million

notes

net income
other comprehensive income
Cash Flow hedges

Gains/losses arising during the period
Adjustments for amounts transferred to initial carrying amount of hedged items

Tax on items relating to components of Other comprehensive income
total other comprehensive income
total comprehensive income

2011

2010 1)

2009 1)

–
–
–

33
–29
4

300
–21
279

–609
–1,512
– 2,121

3,184
1,063

8,101
–4,773
4,391

339
–
339

–103
4,627

2011

4,627

203
–
–
203
4,830

–1,370
–1,586
–2,956

–1,399
–1,738
–3,137

3,118
166

2,977
119

9,432
–1,758
7,840

10,032
–4,473
5,678

–100
–
–100

417
485
902

–388
7,352

–194
6,386

2010

2009

7,352

6,386

136
–136
–
–
7,352

612
–1,385
204
–569
5,817

PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

PCXISXENX2011_v27.indd 98

2012-02-28 14.16

Parent ComPany
BalanCe Sheet

December 31, SEK million

Notes

2011

2010

PArENT ComPANy bAlANCE ShEET

ASSETS
Fixed assets
Intangible assets
Tangible assets
Financial assets
Investments

Subsidiaries
Joint ventures and associated companies
Other investments

Receivables from subsidiaries
Customer finance, non-current
Deferred tax assets
Other financial assets, non-current

Current assets
Inventories
Receivables

Trade receivables
Customer finance, current
Receivables from subsidiaries
Current income taxes
Other current receivables
Loans to joint ventures and associated companies

Short-term investments
Cash and cash equivalents

ToTAl ASSETS

P6
P7

1,088
491

1,046
527

P8, P9
P8, P9
P8
P8, P12
P8, P11
P5
P8

P10

P11
P11
P12

P13
P19, P27
P19
P19

79,511
13,066
279
8,017
1,337
250
1,203
105,242

77,566
13,066
84
6,666
1,027
302
302
100,586

51
883
16,733
313
2,588
2,759
38,852
17,288
79,528

36
1,479
15,385
355
4,299
1,030
55,118
15,439
93,198

184,770

193,784

PCXBSXENX2011_v24.indd 99

2012-02-28 14.17

Ericsson Annual Report 2011 | PARENT COMPANY FINANCIAL STATEMENTS

PArENT ComPANy bAlANCE ShEET

Parent ComPany BalanCe Sheet (Continued)

December 31, SEK million

Notes

2011

2010

SToCKholDErS’ EQUITy, ProVISIoNS AND lIAbIlITIES
Stockholders’ equity
Capital stock
Revaluation reserve
Statutory reserve

Restricted equity

Retained earnings
Net income

Other comprehensive income
Non-restricted equity

Untaxed reserves

Provisions
Post-employment benefits
Other provisions

Non-current liabilities
Notes and bond loans
Liabilities to credit institutions
Liabilities to subsidiaries
Other non-current liabilities

Current liabilities
Borrowings, current
Trade payables
Liabilities to subsidiaries
Other current liabilities

P14

16,367
20
31,472
47,859

35,890
4,627
203
40,720
88,579

16,367
20
31,472
47,859

35,622 1)
7,352 1)

–
42,974
90,833

P15

676

1,015

P16
P17

P18
P18
P12

P18
P21
P12
P20

376
275
651

17,197
4,000
26,896
280
48,373

3,461
706
38,139
4,185
46,491

389
571
960

20,646
4,000
26,862
1,334
52,842

–
399
45,956
1,779
48,134

ToTAl SToCKholDErS’ EQUITy, ProVISIoNS AND lIAbIlITIES

184,770

193,784

Assets pledged as collateral
Contingent liabilities

1) Restated for contributions to/from subsidiaries.

P22
P23

452
18,518

658
13,783

100

PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

PCXBSXENX2011_v24.indd 100

2012-02-28 14.17

Parent ComPany
Statement of CaSh flowS

ParENt COmPaNY
StatEmENt OF CaSH FLOWS

Years ended December 31, SEK million

Operating activities
Net income
Adjustments to reconcile net income to cash

Notes

2011

2010

2009

P24

4,627
3,163
7,790

–4
286
35
–133
–309
2,379
2,254

7,352 1)
530 1)

7,882

6,386 1)
–2,038 1)
4,348

4
–1,070
283
331
–109
1,954
1,393

20
193
261
–132
–4
–685
–347

Cash flow from operating activities

10,044

9,275

4,001

Investing activities
Investments in property, plant and equipment
Sales of property, plant and equipment
Investments in shares and other investments
Divestments of shares and other investments
Lending, net
Other investing activities
Short-term investments
Cash flow from investing activities

–148
16
–3,718
7
–3,074
–1,730
16,357
7,710

–160
9
–2,178
42
8,973
–1,317
–1,910
3,459

–124
109
–11,015
1,134
6,663
–9
–14,436
–17,678

Cash flow before financing activities

17,754

12,734

–13,677

Financing activities
Changes in current liabilities to subsidiaries
Proceeds from issuance of borrowings
Repayment of borrowings
Sale of own shares
Dividends paid
Settled contributions from/to (–) subsidiaries
Other financing activities
Cash flow from financing activities

Effect from remeasurement in cash

Net change in cash

–9,361
–
–
92
–7,207
409
288
–15,779

3,503
–
–1,055
–
–6,391
–209
–310
–4,462

4,755
11,532
–8,910
68
–5,897
–1,363
–
185

–126

–1,310

–79

1,849

6,962

–13,571

Cash and cash equivalents, beginning of period

15,439

8,477

22,048

Cash and cash equivalents, end of period

1) Restated for contributions to/from subsidiaries.

P19

17,288

15,439

8,477

PCXCFXENX2011_v25.indd 101

2012-02-28 14.18

Ericsson Annual Report 2011 | PARENT COMPANY FINANCIAL STATEMENTS

101

PaReNT COmPaNy STaTemeNT
OF CHaNGeS IN STOCKHOLDeRS’ eQUITy

Parent ComPany
Statement of ChangeS
in StoCkholderS’ equity

January 1, 2011

Total comprehensive income
Transactions with owners
Sale of own shares
Stock Purchase Plans
Dividends paid
December 31, 2011

January 1, 2010
Total comprehensive income
Transactions with owners
Sale of own shares
Stock Purchase Plans
Dividends paid
December 31, 2010

1) Restated for contributions to/from subsidiaries.

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

Other
retained
earnings

Non-
restricted
equity

16,367

–

–
–
–
16,367

16,367
–

–
–
–
16,367

–

–
–
–
20

20
–

–
–
–
20

31,472

47,859

–

–
–
–
31,472

31,472
–

–
–
–
31,472

–
–
–
47,859

47,859
–

–
–
–
47,859

100

–

–
–
–
100

100
–

–
–
–
100

–

203

–
–
–
203

–
–

–
–
–
–

42,874

4,627

92
31
–7,207
40,417

41,853
7,352

52
8
–6,391
42,874

42,974

4,830

92
31
–7,207
40,720

41,953
7,352

52
8
–6,391
42,974

Total

90,833

4,830

92
31
–7,207
88,579

89,812

7,352 1)

52
8
–6,391
90,833

102

PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

PCXEQUITYXENX2011_v16.indd 102

2012-02-28 14.20

P1 Significant accounting
PolicieS

The financial statements of the Parent Company, Telefonaktiebolaget LM
Ericsson, have been prepared in accordance with the Annual Accounts Act
and RFR 2 “Reporting in separate financial statements”. RFR 2 requires the
Parent Company to use the same accounting principles as for the Group, i.e.
IFRS, to the extent allowed by RFR 2.

The main deviations between accounting policies adopted for the Group

and accounting policies for the Parent Company are:

Subsidiaries, associated companies and joint
ventures

The investments are accounted for according to the acquisition cost method.
Investments are carried at cost and only dividends are accounted for in the
income statement. An impairment test is performed annually and write-
downs are made when permanent decline in value is established.

UFR 2 has been withdrawn by the Swedish Financial Reporting

Board. Contributions to/from subsidiaries and shareholders’ contributions
are accounted for according to RFR 2. Contributions from/to Swedish
subsidiaries are reported as financial income/expense in the income
statement. Comparison years have been restated accordingly.

Shareholders’ contributions increase the Parent Company’s investments.

Classification and measurement of financial
instruments

IAS 39 Financial Instruments: Recognition and Measurement is adopted,
except regarding financial guarantees where the exception allowed in RFR 2
is chosen. Financial guarantees are included in Contingent liabilities.

Leasing

NOteS P1–P3

Business combinations

Transaction costs attributable to the acquisition are included in the cost
of acquisition in the parent company statements compared to Group
Statements where these costs are expenses as incurred.

Critical accounting estimates and judgments
See Notes to the Consolidated Financial Statements – Note C2, “Critical
Accounting Estimates and Judgments”. Major critical accounting estimates
and judgments applicable to the Parent Company include “Trade and
customer finance receivables” and “Acquired intellectual property rights and
other intangible assets, excluding goodwill”.

P2 Segment information

Net SaLeS

North America

Of which the United States

Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
China & North East Asia

Of which China

South East Asia & Oceania
Other
total
1) Of which Sweden
2) Of which EU

2011

2010

2009

–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–

–
–
33
–
–
–
–
–
–
–
–
–
–
33
–
–

99
–7
47
–56
12
31
–
–
–
167
38
–
–
300
–56
–13

The Parent Company has one rental agreement which is accounted for as a
finance lease in the consolidated statements and as an operating lease in
the Parent Company financial statements.

There were no Parent Company net sales during 2011. Parent Company net
sales in 2010 related to business segment Networks and 2009 in Sweden
were mainly related to business segment Multimedia and the remaining part
of net sales were related to business segment Networks.

P3 other oPerating income
and exPenSeS

OtHeR OPeRatING INCOMe aND eXPeNSeS

License revenues and other
operating revenues

Subsidiary companies
Other

Net gains/losses (–) on sales of
tangible assets
total

2011

2010

2009

2,704
479

1
3,184

2,305
815

–2
3,118

2,433
532

12
2,977

Deferred taxes

The accounting of untaxed reserves in the balance sheet results in different
accounting of deferred taxes as compared to the principles applied in the
consolidated statements. Swedish GAAP and tax regulations require a
company to report certain differences between the tax basis and book value
as an untaxed reserve in the balance sheet of the stand-alone financial
statements. Changes to these reserves are reported as an addition to, or
withdrawal from, untaxed reserves in the income statement.

Pensions

Pensions are accounted for in accordance with the recommendation
FAR SRS RedR 4 “Accounting for pension liability and pension cost”
from the Institute for the Accountancy Profession in Sweden. According
to RFR 2, IAS 19 shall be adopted regarding supplementary disclosures
when applicable.

Segment information

Segment information is reported according to requirements in the Swedish
Annual Accounts Act regarding net sales for business segments and
geographical areas.

Borrowing costs

All borrowing costs in relation to qualifying assets are expensed as incurred.

P1XP7XENX2011_v36.indd 103

2012-02-29 17.29

Ericsson Annual Report 2011 | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

103

NOteS P4–P6

P4 financial income
and exPenSeS

A reconciliation between actual tax expense for the year and the theoretical
tax expense that would arise when applying the statutory tax rate in Sweden,
26.3% (starting from January 1, 2009), on income before taxes is shown in
the the table below.

FINaNCIaL INCOMe aND eXPeNSeS

2011

2010

2009

ReCONCILIatION OF aCtUaL INCOMe taX Rate tO tHe aCtUaL
INCOMe taX Rate

5,198
6

6,369
8

5,732
1,087

1,958

674

154
–

104
–

66
1

Tax rate in Sweden (26.3%)
Current income taxes related
to prior years
Tax effect of non-deductible
expenses
Tax effect of non-taxable
income
Tax effect related to write-downs of
investments in subsidiary companies
actual tax cost (–)

Deferred tax balances

2011

2010

2009

–1,244

–2,036

–1,753

–14

–15

–91

–47

–77

1,429

1,776

1,828

–348
–103

–22
–388

–145
–194

–

Tax effects of temporary differences have resulted in deferred tax assets
as follows:

280
2,433
8,101

221
746
9,432

386
2,086
10,032

DeFeRReD taX aSSetS

Deferred tax assets

2011

250

2010

302

–1

–

–27

Deferred tax assets refer mainly to costs related to customer finance and
provisions for restructuring costs.

–1,330

–82

–551

P6 intangible aSSetS

–

–1

PateNtS, LICeNSeS, tRaDeMaRkS aND SIMILaR RIGHtS

Financial Income
Result from participations
in subsidiary companies

Dividends
Net gains on sales
Group contributions

Group contributions to Parent
Company

Result from participations in joint
ventures and associated companies

Dividends
Net gains on sales

Result from other securities and
receivables accounted for as fixed
assets

Net gains on sales

Other interest income and
similar profit/loss items
Subsidiary companies
Other

total
Financial expenses
Losses on sales of participations
in subsidiary companies
Write-down of investments
in subsidiary companies
Write-down of participations
in other companies
Group contributions

Group contributions from Parent
Company

Interest expenses and
similar profit/loss items
Subsidiary companies
Other

Other financial expenses
total
Financial net

–2,008

–929

–3,077

–304
–1,109
–21
–4,773
3,328

–95
–612
–40
–1,758
7,674

–150
–630
–37
–4,473
5,559

Interest expenses on pension liabilities are included in the interest expenses shown
above.

P5 taxeS
Income taxes recognized in the income statement

The following items are included in Taxes:

taXeS

Other current income taxes for the year
Current income taxes related to prior
years
Deferred tax income/expense (–)
related to temporary differences
taxes

2011

–125

2010

–288

2009

–250

–15

–47

–52
–103

–85
–388

103
–194

accumulated acquisition costs
Opening balance
Acquisitions
Sales/disposals
Closing balance
accumulated amortization
Opening balance
Amortization
Sales/disposals
Closing balance
accumulated impairment losses
Opening balance
Impairment losses
Closing balance
Net carrying value

2011

2010

3,888
279
–
4,167

–1,897
–237
–
–2,134

–945
–
–945
1,088

3,888
–
–
3,888

–1,669
–228
–
–1,897

–
–945
–945
1,046

The balances relate mainly to Marconi and Redback trademarks acquired
during 2006 and 2007. During the year there has been an acquisition of
intangible assets related to the Nortel license of SEK 279 million. The useful
life and amortization period for these trademarks has been set to 10 years.

104 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

P1XP7XENX2011_v36.indd 104

2012-02-29 17.29

P7 ProPertY, Plant and eQuiPment

PROPeRtY, PLaNt aND eQUIPMeNt

2011
accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications
Closing balance
accumulated depreciation
Opening balance
Depreciation
Sales/disposals
Closing balance
Net carrying value
2010
accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications
Closing balance
accumulated depreciation
Opening balance
Depreciation
Sales/disposals
Closing balance
Net carrying value

Land and
buildings

Other
equipment
and installations

Construction
in process and
advance payments

13
–
–13
–
–

–
–
–
–
–

13
–
–
–
13

–
–
–
–
13

1,102
32
–71
162
1,225

–714
–168
68
–814
411

1,050
26
–50
76
1,102

–603
–149
38
–714
388

126
116
–
–162
80

–
–
–
–
80

67
135
–
–76
126

–
–
–
–
126

NOte P7

total

1,241
148
–84
–
1,305

–714
–168
68
–814
491

1,130
161
–50
–
1,241

–603
–149
38
–714
527

P1XP7XENX2011_v36.indd 105

2012-02-29 17.29

Ericsson Annual Report 2011 | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

105

note p8

P8 Financial assets

Investments In subsIdIary companIes, joInt ventures and assocIated companIes

Opening balance
Acquisitions and stock issues
Shareholders’ contribution
Repayment of shareholders’ contribution
Write-downs
Disposals
closing balance

other fInancIal assets

subsidiary companies
2010

2011

joint ventures
2010

2011

77,566
3,344
88
–156
–1,330
–1
79,511

75,540
2,083
25
–
–82
–
77,566

12,736
–
–
–
–
–
12,736

associated
companies
2010

330
–
–
–
–
–
330

2011

330
–
–
–
–
–
330

other
investments in shares
and participations
2010
2011

receivables
from subsidiaries,
non-current
2010

2011

customer finance,
non-current
2010

2011

other financial
assets, non-current
2010
2011

accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/deductions
Reclassifications
Translation difference
closing balance

accumulated write-downs/allowances
Opening balance
Write-downs/allowances
Disposals/repayments/deductions
Translation difference
closing balance
net carrying value

93
195
–
–
–
288

–9
–
–
–
–9
279

19
81
–7
–
–
93

–9
–
–
–
–9
84

6,666
93
–
1,253
5
8,017

–
–
–
–
–
8,017

10,316
651
–55
–4,212
–34
6,666

–
–
–
–
–
6,666

1,073
830
–216
–311
3
1,379

–46
–
4
–
–42
1,337

1,093
406
–136
–241
–49
1,073

–247
–
197
4
–46
1,027

302
101
–17
817
–
1,203

–
–
–
–
–
1,203

1,179
4
–38
–843
–
302

–
–
–
–
–
302

106 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

P8XP12XENX2011_v36.indd 106

2012-02-29 17.30

note p9

P9 investments

The following listing shows certain shareholdings owned directly and
indirectly by the Parent Company as of December 31, 2011. A complete
listing of shareholdings, prepared in accordance with the Swedish Annual

Accounts Act and filed with the Swedish Companies Registration Office
(Bolagsverket), may be obtained upon request to: Telefonaktiebolaget LM
Ericsson, External Reporting, SE-164 83 Stockholm, Sweden.

shares owned dIrectly by the parent company

type company

reg. no.

domicile

percentage
of ownership

par value
in local
currency,
million

carrying
value,
seK million

556056-6258
556251-3266
556404-4286
556030-9899
556326-0552

Sweden
Sweden
Sweden
Sweden
Sweden

subsidiary companies
I
I
I
II
III

Ericsson AB
Ericsson Shared Services AB
Netwise AB
AB Aulis
Ericsson Credit AB
Other (Sweden)
Ericsson Austria GmbH
Ericsson Danmark A/S
Oy LM Ericsson Ab
Ericsson Participations France SAS
Ericsson Germany GmbH
Ericsson Hungary Ltd.
LM Ericsson Holdings Ltd.
Ericsson Telecomunicazioni S.p.A.
Ericsson Holding International B.V.
Ericsson A/S
Ericsson Television AS
Ericsson Corporatia AO
Ericsson AG
Ericsson Holding Ltd.
Other (Europe, excluding Sweden)
Ericsson Holding II Inc.
Cía Ericsson S.A.C.I.
Ericsson Canada Inc.
Ericsson Telecom S.A. de C.V.
Other (United States, Latin America)
Teleric Pty Ltd.
Ericsson Ltd.
Ericsson (China) Company Ltd.
Ericsson India Private Ltd.
Ericsson India Global Services PVT. Ltd
LG-Ericsson Ltd.
Ericsson (Malaysia) Sdn. Bhd.
Ericsson Telecommunications Pte. Ltd.
Ericsson South Africa PTY. Ltd
Ericsson Taiwan Ltd.
Ericsson (Thailand) Ltd.
Other countries (the rest of the world)
total

I
I
I
II
I
I
II
I
II
I
II
I
I
II

II
I
I
I

II
I
I
I
I
I
I
I
I
I
I

joint ventures and associated companies
I
II
III
I

Sony Ericsson Mobile Communications AB 556615-6658
ST-Ericsson SA
ST-Ericsson AT SA
Ericsson Nikola Tesla d.d.
total

Austria
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
The Netherlands
Norway
Norway
Russia
Switzerland
United Kingdom

United States
Argentina
Canada
Mexico

Australia
China
China
India
India
Korea
Malaysia
Singapore
South Africa
Taiwan
Thailand

Sweden
Switzerland
Switzerland
Croatia

100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100

95 1)

100
100
–
100
100
100
100
100
50
70
100
100
80
49 2)
–

50
50
51
49

50
361
2
14
5
–
4
90
13
26
–
1,301
2
44
222
75
161
5
–
328
–
–
41
–
n/a
–
20
2
65
725
389
100
2
2
–
240
90
–
–

50
137
–
65
–

20,731
2,216
306
6
5
2,160
65
216
196
524
4,232
120
15
5,857
3,200
114
1,788
5
–
4,094
272
29,006
178
51
1,050
66
100
2
475
147
65
1,944
4
1
108
20
17
155
79,511

4,136
8,325
275
330
13,066

Key to type of company
I Manufacturing, distribution and development companies
II Holding companies
III Finance companies

1) Through subsidiary holdings, total holdings amount to 100% of Cia Ericsson S.A.C.I.
2) Through subsidiary holdings, total holdings amount to 100% of Ericsson (Thailand) Ltd.

P8XP12XENX2011_v36.indd 107

2012-02-29 17.30

Ericsson Annual Report 2011 | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

107

notes p9–p11

shares owned by subsIdIary companIes

type company

reg. no.

domicile

percentage
of ownership

556044-9489

subsidiary companies
II
I
I
I
II
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I

Ericsson Cables Holding AB
Ericsson France SAS
Ericsson Telekommunikation GmbH & Co. KG 1)
LM Ericsson Ltd.
Ericsson Nederland B.V.
Ericsson Telecommunicatie B.V.
Ericsson España S.A.
Ericsson Telekomunikasyon A.S.
Ericsson Ltd.
Ericsson Inc.
Ericsson IP Infrastructure Inc.
Drutt Corporation Inc.
Optimi Corporation
Redback Networks Inc.
Ericsson Telecommunicações S.A.
Ericsson Australia Pty. Ltd.
Ericsson (China) Communications Co. Ltd.
Nanjing Ericsson Panda Communication Co. Ltd.
Ericsson Japan K.K.
Ericsson Communication Solutions Pte Ltd.

Sweden
France
Germany
Ireland
The Netherlands
The Netherlands
Spain
Turkey
United Kingdom
United States
United States
United States
United States
United States
Brazil
Australia
China
China
Japan
Singapore

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100

Key to type of company
I Manufacturing, distribution and development companies
II Holding companies

P10 inventories

1) disclosures pursuant to section 264b of the German commercial code (handelsgesetzbuch – hGb)
Applying Section 264b HGB, LHS Holding GmbH & Co. KG, LHS Communication GmbH & Co. KG and LHS

Telekommunikation GmbH & Co. KG, all located in Frankfurt am Main/Germany, are exempted from the obligation to
prepare, have audited and disclose financial statements and a management report in accordance with the legal
requirements being applicable for German corporations.

2011

2010

movements In allowances for ImpaIrment

Opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference
closing balance

trade receivables
2010

2011

customer finance
2010

2011

24
1
–2
–
–
23

37
–
–
–10
–3
24

93
14
–31
–11
–
65

393
–
–87
–206
–7
93

Finished products and goods for resale
Inventories

61
61

57
57

P11 trade receivables
and customer Finance

Credit risk management is governed on a Group level.

For further information, see Notes to the Consolidated Financial
Statements – Note C14, “Trade Receivables and Customer Finance” and
Note C20, “Financial Risk Management and Financial Instruments”.

trade receIvables and customer fInance

Trade receivables excluding associated
companies and joint ventures
Allowances for impairment
Trade receivables, net
Trade receivables related to associated
companies and joint ventures
trade receivables, total
Customer finance
Allowances for impairment
customer finance, net

2011

2010

71
–23
48

3
51
2,285
–65
2,220

57
–24
33

3
36
2,599
–93
2,506

108 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

P8XP12XENX2011_v36.indd 108

2012-02-29 17.30

aGInG analysIs as per december 31

2011
Neither impaired nor past due
Impaired, not past due
Past due in less than 90 days
Past due in 90 days or more
Past due and impaired in less than 90 days
Past due and impaired in 90 days or more
total

2010
Neither impaired nor past due
Impaired, not past due
Past due in less than 90 days
Past due in 90 days or more
Past due and impaired in less than 90 days
Past due and impaired in 90 days or more
total

outstandInG customer fInance

On-balance sheet customer finance
Financial guarantees for third parties
total customer finance
Accrued interest
Less third-party risk coverage
parent company’s risk exposure
On-balance sheet credits, net carrying value

Of which short term

Credit commitments for customer finance

notes p11–p12

trade receivables
excluding
associated
companies
and joint ventures

allowances for
impairment of
receivables

trade receivables
related to
associated
companies
and joint ventures

customer finance

allowances for
impairment of
customer finance

44
–
2
1
–
24
71

16
–
4
13
1
23
57

–
–
–
–
–
–23
–23

–
–
–
–
–1
–23
–24

3
–
–
–
–
–
3

1,758
238
238
10
37
4
2,285

2,020
516
24
–
18
21
2,599

-
-27
–
–
–34
–4
–65

–
–54
–
–
–18
–21
–93

2011

2,285
422
2,707
26
–469
2,264
2,220
883
669

2010

2,599
212
2,811
34
–1,353
1,492
2,506
1,479
1,104

P12 receivables and
liabilities – subsidiary
comPanies

receIvables and lIabIlItIes – subsIdIary companIes

payment due by period
>5
1–5
< 1
years
years
year

total
2011

total
2010

710

7,302

8,017

6,666

816
15,917
16,733

–

387
37,752
38,139

–
–
–

–

–
–
–

816
15,917
16,733

882
14,503
15,385

26,896

26,862

–
–
–

387
37,752
38,139

828
45,128
45,956

non-current
receivables 1)
Financial receivables
current receivables
Trade receivables
Financial receivables
total
non-current
liabilities 1)
Financial liabilities
current liabilities
Trade payables
Financial liabilities
total

1) Including non interest-bearing receivables and liabilities, net, amounting to
SEK –19,595 million in 2011 (SEK –20,196 million in 2010).

During 2011 the Parent Company transferred certain customer finance
assets to third parties, and continues to recognize a part of such assets
corresponding to the extent of its continuing involvement. The total carrying
amount of the original assets transferred is SEK 194 million, the amount
of the assets that the Parent Company continues to recognize is SEK 10
million, and the carrying amount of the associated liabilities is SEK 0 million.
Maturity date for major part of the issued guarantees occurs in 2021 at the
latest.

P8XP12XENX2011_v36.indd 109

2012-02-29 17.30

Ericsson Annual Report 2011 | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

109

Notes p13–p14

P13 othEr currEnt
rEcEivablEs

other CurreNt reCeivables

P14 Equity and othEr
comPrEhEnsivE incomE
Capital stock 2011

2011

2010

Capital stock at December 31, 2011, consisted of the following:

Receivables from associated
companies and joint ventures
Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other
total

–
425
405
1,517
241
2,588

69
590
246
3,038
356
4,299

Capital stoCk

Class A shares 1)
Class B shares 1)
total

Number
of shares

261,755,983
3,011,595,752
3,273,351,735

Capital
stock

1,309
15,058
16,367

1) Class A shares (quotient value SEK 5.00) and Class B shares (quotient value SEK 5.00).

equity aNd other CompreheNsive iNCome 2011

January 1, 2011
Net income
other comprehensive income
Cash flow hedges

Gains/losses arising during the period

total other comprehensive income
total comprehensive income
transactions with owners
Sale of own shares
Stock Purchase Plans
Dividends paid

Capital
stock

16,367
–

revalua-
tion
reserve

statutory
reserve

total
restricted
equity

disposi-
tion
reserve

Fair
value
reserves

other
retained
earnings

Non-
restricted
equity

20
–

31,472
–

47,859
–

100
–

–
–

42,874
4,627

42,974
4,627

–
–
–

203
203
203

–
–
–

–
–
4,627

92
31
–7,207

203
203
4,830

92
31
–7,207

total

90,833
4,627

203
203
4,830

92
31
–7,207

december 31, 2011

16,367

31,472

47,859

100

203

40,417

40,720

88,579

equity aNd other CompreheNsive iNCome 2010

Capital
stock

16,367
–

revalua-
tion
reserve

statutory
reserve

total
restricted
equity

disposi-
tion
reserve

Fair
value
reserves

other
retained
earnings

Non-
restricted
equity

20
–

31,472
–

47,859
–

100
–

–
–

41,853
7,352

41,953
7,352

total

89,812
7,352

January 1, 2010
Net income
other comprehensive income
Cash flow hedges

Gains/losses arising during the period
Amounts transferred to initial carrying
amount of hedged items

total other comprehensive income
total comprehensive income
transactions with owners
Sale of own shares
Stock Purchase Plans
Dividends paid

–

–
–
–

–

–
–
–

–

–
–
–

–

–
–
–

–

–
–
–

136

–136
–
–

–
–
–

–

136

–
–
7,352

52
8
–6,391

42,874

–136
–
7,352

52
8
–6,391

42,974

–136
–
7,352

52
8
–6,391

90,833

december 31, 2010

16,367

31,472

47,859

100

110 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

P13XP23XENX2011_v70.indd 110

2012-03-06 11.34

Notes p15–p16

2011

2010

167
461
128
756

249
433
32
714

2011

2010

389

–36

–50

–25
–
376

372

–31

–44

–44
38
389

2011

2010

55
43
–1

123

123
–25
195

54
44
–2

96
–5
187

Equities
Interest-bearing securities
Other
total

ChaNge iN the deFiNed beNeFit obligatioN

Opening balance

Payment to pension trust
Pension costs, excluding taxes, related to
defined benefit obligations accounted for
in the income statement

Pension payments

Return on plan assets
Return on plan assets not accounted for
Closing balance provision for pensions

Estimated pension payments for 2012 are SEK 55 million.

total peNsioN Cost aNd iNCome reCogNized
iN the iNCome statemeNt

defined benefit obligations
Costs excluding interest and taxes
Interest cost
Credit insurance premium
total cost defined benefit plans
excluding taxes
defined contribution plans
Pension insurance premium
total cost defined contribution plans
excluding taxes
Return on plan assets
total pension cost, net excluding taxes

Of the total pension cost, SEK 177 million (SEK 149 million in 2010) is
included in operating expenses and SEK 18 million (SEK 38 million in 2010)
in the financial net.

P15 untaxEd rEsErvEs

uNtaxed reserves

plaN assets alloCatioN

2011

accumulated depreciation
in excess of plan
Intangible assets
Tangible assets
Total accumulated depre-
ciation in excess of plan
total untaxed reserves

Jan 1

additions/
withdrawals (–)

dec 31

931
84

1,015
1,015

–262
–77

–339
–339

669
7

676
676

Change in depreciation in excess of plan of intangible assets relates mainly
to Marconi and Redback trademarks. Deferred tax liability on untaxed
reserves, not accounted for in deferred taxes, amounts to SEK 178 million
(SEK 267 million in 2010).

P16 Post-EmPloymEnt
bEnEfits

The Parent Company has two types of pension plans:
> Defined contribution plans: post-employment benefit plans where the
Parent Company pays fixed contributions into separate entities and
has no legal or constructive obligation to pay further contributions if the
entities do not hold sufficient assets to pay all employee benefits relating
to employee service. The expenses for defined contribution plans are
recognized during the period when the employee provides service.
> Defined benefit plans: post-employment benefit plans where the Parent
Company’s undertaking is to provide predetermined benefits that the
employee will receive on or after retirement. The FPG/PRI plan for the
Parent Company is partly funded. FPG is a Swedish credit insurance
company for pension obligations and PRI is a pension registration
institute. Pension obligations are calculated annually, on the balance
sheet date, based on actuarial assumptions.

deFiNed beNeFit obligatioN – amouNt reCogNized iN the
balaNCe sheet

Present value of wholly or partially
funded pension plans 1)
Fair value of plan assets
Unfunded/net surplus(–) of funded pension plans
Present value of unfunded pension plans
Excess from plan assets not accounted for
Closing balance provision for pensions

2011

2010

679
–756
–77
376
77
376

618
–714
–96
389
96
389

1) This FPG/PRI obligation is covered by the Swedish law on safeguarding of pension

commitments.

The defined benefit obligations are calculated based on the actual salary
levels at year-end and based on a discount rate of 3.8%.

Weighted average life expectancy after the age of 65 is 25 years for

women and 23 years for men.

In 2005, SEK 524 million was transferred into the Swedish pension trust.

From 2009–2011 additional transfers of SEK 94 million have been made.

The Parent Company utilizes no assets held by the pension trust. Return

on plan assets for 2011 was 0.9% (17.4 %).

P13XP23XENX2011_v70.indd 111

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Ericsson Annual Report 2011 | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

111

restruc turing

Customer
finance

318
72
–12
–218
–
160

349
70
–9
–92
318

91
1
–
–2
–3
87

95
2
–6
–
91

other

162
–
–134
–
–
28

253
–
–13
–78
162

total other
provisions 1)

571
73
–146
–220
–3
275

697
72
–28
–170
571

Notes p17–p18

P17 othEr Provisions

other provisioNs

2011
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications
Closing balance
2010

Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Closing balance

1) Of which SEK 113 million (SEK 203 million in 2010) is expected to be utilized within one year.

P18 intErEst-bEaring
liabilitiEs

As per December 31, 2011, the Parent Company’s outstanding interest-
bearing liabilities, excluding liabilities to subsidiaries, were SEK 24.7 billion.

iNterest-beariNg liabilities

borrowings, current
Current part of non-current borrowings 1)
total current borrowings
borrowings, non-current
Notes and bond loans
Liabilities to credit institutions
total non-current interest-bearing liabilities
total interest-bearing liabilities

1) including notes and bond loans of sek 3.461 (0) million.

Notes aNd boNd loaNs

2011

2010

3,461
3,461

17,197
4,000
21,197
24,658

–
–

20,646
4,000
24,646
24,646

issued-maturing

2004–2012
2007–2012
2007–2012
2007–2014
2007–2017
2009–2013
2009–2016
2010–2020
total

Nominal
amount

450
1,000
2,000
375
500
600
300
170

Coupon

Currency

book value
(sek million)

maturity date
(yy-mm-dd)

unrealized hedge
gain/loss (incl. in
book value)

3.305%
5.100%
2.885%
1.704%
5.380%
5.000%
3.62125%
2.96125%

SEK
SEK
SEK
EUR
EUR
EUR
USD
USD

450
1,011
2,000
3,345
5,161 1)
5,450 1)
2,069
1,172
20,658

December 7, 2012 2)

June 29, 2012
June 29, 2012 3)
June 27, 2014 4)
June 27, 2017
June 24, 2013
June 23, 2016 5)
December 23, 2020 6)

–11

–719
–109

–839

1) Interest rate swaps are designated as fair value hedges.
2) Next contractual repricing date 2012-06-07 (semi-annual).
3) Next contractual repricing date 2012-03-29 (quarterly).
4) Next contractual repricing date 2012-03-27 (quarterly).
5) Next contractual repricing date 2012-03-23 (quarterly).
6) Next contractual repricing date 2012-03-23 (quarterly).

All outstanding notes and bond loans are issued under the Euro Medium-
Term Note (EMTN) program. Bonds issued at a fixed interest rate are
normally swapped to a floating interest rate using interest rate swaps leaving
a maximum of 50% of outstanding loans at fixed interest rates. It resulted in
weighted average interest rate of 4.21% (2.65%). These bonds are revalued
based on changes in benchmark interest rates according to the fair value
hedge methodology stipulated in IAS 39.

In 2008 Ericsson signed a seven-year loan of SEK 4.0 billion with the
European Investment Bank. The loan supports Ericsson’s R&D activities
to develop the next generation of mobile broadband technology at sites in
Kista, Gothenburg and Linköping in Sweden.

112 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

P13XP23XENX2011_v70.indd 112

2012-03-06 11.34

P19 financial risk
managEmEnt and
financial instrumEnts

Financial risk management

Ericsson’s financial risk management is governed on a Group level. For
further information see Notes to the Consolidated Financial Statements –
Note C20, “Financial Risk Management and Financial Instruments”.

outstaNdiNg derivatives 1)

Fair value

asset

2011
liability

asset

2010
liability

779

Currency derivatives
Maturity within 3 months
Maturity between 3
and 12 months
427
Maturity 1 to 3 years
1
total currency derivatives 1,207
773

Of which internal
Of which designated in
cash flow hedge relations

879

600

1,031

391
–
1,270
19

945
10
1,556
33

1,291
27
2,350 2)
643

interest rate derivatives
Maturity within 3 months
Maturity between 3
and 12 months
Maturity 1 to 3 years
Maturity 3 to 5 years
Maturity more than 5 years
total interest rate
derivatives

203

–

324
381
416
778

–

367
617
815
161

–

76
544
184
705

–

61
118
34
87

1,899 3)

1,966

1,515

329 2)

Of which designated in
fair value hedge relations 1,002

–

862

–

1) Some of the derivatives hedging non-current liabilities are recognized in the balance

sheet as non-current due to hedge accounting.

2) Of which SEK 902 million is reported as non-current liabilities for 2010.
3) Of which SEK 816 million is reported as non-current assets.

Cash, Cash equivaleNts aNd short-term iNvestmeNts

Note p19

sek billion

Bank deposits
type of issuer/counterpart
Governments
Corporations
Mortgage institutes
total

remaining time to maturity
> 5
years

1–5
years

< 1
year

< 3
months

2011

12.3

–

12.3

6.3
1.9
–
20.5

3.8
–
–
3.8

13.2
–
16.6
29.8

1.7
–
0.3
2.0

25.0
1.9
16.9
56.1

The instruments are classified as held for trading and are therefore short-
term investments.

During 2011, cash, cash equivalents and short-term investments

decreased by SEK 14.5 billion to SEK 56.1 billion.

repaymeNt sChedule oF NoN-CurreNt borrowiNgs

Nominal amount
sek billion

Current maturities
of long-term debt

borrowings
(non-current)

2012
2013
2014
2015
2016
2017 and later
total

3.4
–
–
–
–
–
3.4

–
5.4
3.3
4.0
2.1
5.6
20.4

total

3.4
5.4
3.3
4.0
2.1
5.6
23.8

Debt financing is mainly carried out through borrowing in the Swedish and
international debt capital markets.

FuNdiNg programs 1)

amount

utilized

unused

Euro Medium-Term Note program
(USD million)
Long-Term Committed Credit facility
(USD million)

5,000

2,878

2,122

2,000

–

2,000

1) There are no financial covenants related to these programs.

In June 2011 Ericsson was upgraded by Moody’s from Baa1 to A3.
Standard & Poor’s kept the BBB+ credit rating with stable outlook. Both
credit ratings are considered to be solid investment grade.

Financial instruments carried at other
than fair value

In the following tables, carrying amounts and fair values of financial
instruments that are carried in the financial statements at other than fair
values are presented. Assets valued at fair value through profit and loss
had a net gain of SEK 0.7 billion. For further information about valuation
principles, see Notes to the Consolidated Financial Statements – Note C1,
“Significant Accounting Policies”.

FiNaNCial iNstrumeNts, book value

trade
receiv-
ables
p11

short-term
invest-
ments

receiv-
ables and
liabili ties
subsidia-
ries p12

borrow-
ings
p18

trade
payables
p21

Cash
equivalents

other
current
receiv-
ables
p13

other
current
liabilities
p20

other
non-
current
assets

2011

2010

–

2.2
–

–
2.2

38.9

–

–
38.9

–

24.8
–

–65.0
–40.2

–

–
–

–

–
–

–24.7
–24.7

–0.7
–0.7

5.0

1.9
–

–
6.9

1.5

–
–

–
1.5

–3.2

–
–

–
–3.2

0.8

–
–

–
0.8

43.0

28.9
–

–90.4
–18.5

58.0

24.6
–

–97.0
–14.5

sek billion

Assets at fair value
through profit or loss

Loans and receivables
Available for sale assets
Financial liabilities at
amortized cost
total

P13XP23XENX2011_v70.indd 113

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Ericsson Annual Report 2011 | NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS

113

Notes p19–p24

FiNaNCial iNstrumeNts Carried at other thaN Fair value

sek billion

Current part of
non-current borrowings
Borrowings non-current
total

book value
2010

2011

3.5
21.2
24.7

–
24.6
24.6

Fair value
2010

–
24.5
24.5

2011

3.5
21.1
24.6

Financial instruments excluded from the tables, such as trade receivables
and payables, are carried at amortized cost which is deemed to be equal
to fair value. When a market price is not readily available and there is
insignificant interest rate exposure affecting the value, the book value is
considered to represent a reasonable estimate of a fair value.

P20 othEr currEnt
liabilitiEs

other CurreNt liabilities

Accrued interest
Accrued expenses, of which

Employee related
Other

Deferred revenues
Derivatives with a negative value
Other current liabilities
total

P21 tradE PayablEs

trade payables

Trade payables excluding associated
companies and joint ventures
total

All trade payables fall due within 90 days.

2011

329
416
307
109
10
3,216
214
4,185

2010

320
362
294
68
12
960
125
1,779

2011

2010

706
706

399
399

P22 assEts PlEdgEd
as collatEral

assets pledged as Collateral

Bank deposits
total

2011

452
452

2010

658
658

The major item in bank deposits is the internal bank’s clearing and
settlement commitments of SEK 267 million (SEK 467 million in 2010).

P23 contingEnt liabilitiEs

CoNtiNgeNt liabilities

Total contingent liabilities

2011

2010

18,518

13,783

Contingent liabilities include pension commitments of SEK 14,355 million
(SEK 11,004 million in 2010) and guarantees for Sony Ericsson Mobile
Communications AB’s borrowing from financial institutions of SEK 2,017
million (SEK 1,053 million in 2010). On February 16, 2012, Ericsson
announced that the company on February 15, 2012, completed the
divestment of its 50% stake in Sony Ericsson Mobile Communications AB.
The divestment was originally jointly announced by Sony Corporation and
Ericsson on October 27, 2011. As of the date of the sale, Ericsson is no
longer a guarantor of term loans or credit facilities related to SEMC, see
Note P27, “Related Party Transactions”.

In accordance with standard industry practice, Ericsson enters into

commercial contract guarantees related to contracts for the supply of
telecommunication equipment and services. Total amount for 2011 was
SEK 20,249 million (SEK 19,691 million in 2010). Potential payments due
under these bonds are related to Ericsson’s performance under applicable
contracts.

For information about financial guarantees, see Note P11, “Trade

Receivables and Customer Finance”.

P24 statEmEnt of cash
flows

Interest paid in 2011 was SEK 1,258 million (SEK 657 in 2010 and SEK 508
million in 2009) and interest received was SEK 2,532 million (SEK 816 in
2010 and SEK 2,083 million in 2009). Income taxes received were SEK 147
million (income taxes paid were SEK 269 in 2010 and SEK 341 million in
2009).

adJustmeNts to reCoNCile Net iNCome to Cash

property, plant and equipment
Depreciation
total
intangible assets
Amortization
Impairment losses
total
total depreciation and amortization
on tangible and intangible assets
Taxes
Write-downs and capital gains (–)/
losses on sale of fixed assets,
excluding customer finance, net
Additions to/withdrawals from (–)
untaxed reserves
Unsettled group contributions
Unsettled dividends
Other non-cash items
total adjustments to reconcile net
income to cash

2011

2010

2009

168
168

237
–
237

405
250

149
149

228
945
1,173

1,322
119

193
193

385
–
385

578
–147

1,326

–521

–339
1,979
–70
–388

100
–1,029
–
–32

–902
2,403
–1,254
–2,195

3,163

530

–2,038

114 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS | Ericsson Annual Report 2011

P13XP23XENX2011_v70.indd 114

2012-03-06 11.34

P25 Leasing
Leasing with the parent Company as lessee

At December 31, 2011, future payment obligations for leases were
distributed as follows:

Future paymeNt obLigatioNS For LeaSeS

2012
2013
2014
2015
2016
2017 and later
total

operating
leases

1,047
804
754
430
272
901
4,208

Northern Europe &
Central Asia 1) 2)
Middle East
total
1) Of which Sweden
2) Of which EU

remuneration

NoteS p25–p27

P26 information
regarding emPLoyees

average Number oF empLoyeeS

men Women

197
202
399
197
197

162
31
193
162
162

2011
total

359
233
592
359
359

men Women

198
121
319
198
198

148
14
162
148
148

2010
total

346
135
481
346
346

Leasing with the parent Company as lessor

At December 31, 2011, future minimum payment receivables were
distributed as follows:

Wages and salaries
Social security expenses
Of which pension costs

Future miNimum paymeNt reCeivabLeS

WageS aNd SaLarieS per geographiCaL area

WageS aNd SaLarieS aNd SoCiaL SeCurity expeNSeS

2012
2013
2014
2015
2016
2017 and later
total

operating
leases

19
2
1
1
1
1
25

The operating lease income is mainly income from sublease of real estate.
See Notes to the Consolidated Financial Statements – Note C27, “Leasing”.

2011

2010

580
403
246

518
384
210

2011

2010

417
163
580
417
417

409
109
518
409
409

Northern Europe & Central Asia 1) 2)
Middle East
total
1) Of which Sweden
2) Of which EU

Remuneration in foreign currency has been translated to SEK at average exchange rates
for the year.

remuneration policy and remuneration to the
board of directors and the president and Ceo

See Notes to the Consolidated Financial Statements – Note C28,
“Information Regarding Members of the Board of Directors, the Group
Management and Employees”.

Long-term variable remuneration

the StoCk purChaSe pLaN

Compensation costs for all employees of the Parent Company amounted to
SEK 25.1 million in 2011 (SEK 8.0 million in 2010).

P27 reLated Party
transactions

During 2011, various transactions were executed pursuant to contracts
based on terms customary in the industry and negotiated on an arm’s length
basis.

Sony ericsson mobile Communications ab

In October 2001, Sony Ericsson Mobile Communications AB was organized
as a joint venture between Sony Corporation and Ericsson and a substantial
portion of Ericsson’s handset operations was sold to Sony Ericsson Mobile
Communications AB.
On February 16, 2012, Ericsson announced that the Company, on
February 15, 2012, completed the divestment of its 50% stake in Sony
Ericsson Mobile Communications AB. The divestment was originally jointly
announced by Sony Corporation and Ericsson on October 27, 2011. This

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115

NoteS p27–p29

makes Sony Ericsson a wholly-owned subsidiary of Sony. The agreed cash
consideration for the transaction is EUR 1.05 billion.
As part of the formation of the joint venture, contracts were entered into
between the Parent Company and Sony Ericsson Mobile Communications
AB. For the Parent Company, the major transactions are license revenues
for Sony Ericsson Mobile Communications AB’s usage of trademarks and
patents and received dividends.

Sony Ericsson Mobile Communications AB has been granted a

long-term loan with a maximum amount of SEK 4,014 million. The Parent
Company and Sony Corporation have issued guarantees for this loan on
a 50/50 basis, without joint responsibility. As of December 31, 2011, the
Parent Company´s share of the outstanding principle and accrued interest,
in the total amount of SEK 2,017 million, has been reported as a contingent
liability in the Parent Company. As of the date of the sale, Ericsson is no
longer a guarantor of term loans or credit facilities related to Sony Ericsson.
See also Note P23 “Contingent liabilities”.

SoNy eriCSSoN mobiLe CommuNiCatioNS

related party transactions
License revenues
Dividends
related party balances
Receivables

ericsson Nikola tesla d.d.

2011

2010

179
–

296
–

Ericsson Nikola Tesla d.d. is a joint stock company for design, sales and
service of telecommunications systems and equipment and an associated
member of the Ericsson Group. The Parent Company holds 49.07% of the
shares.

For the Parent Company, the major transactions are license revenues for

Ericsson Nikola Tesla d.d.’s usage of trademarks and received dividends.

eriCSSoN NikoLa teSLa d.d.

related party transactions
License revenues
Dividends
related party balances
Receivables

2011

2010

4
154

2
104

–

The Parent Company does not have any contingent liabilities, assets
pledged as collateral or guarantees toward Ericsson Nikola Tesla d.d.

St-ericsson

ST-Ericsson was formed on February 2, 2009 by merging Ericsson Mobile
Platforms with STMicroelectronics’ wireless business. It is an industry leader
in design, development and the creation of cutting-edge mobile platforms
and wireless semiconductors.

The Parent Company holds 49.99% of shares in ST-Ericsson SA and

51% in ST-Ericsson AT SA, both in Switzerland.

ST-Ericsson has been granted a revolving credit facility of USD 800
million which is equally shared by LME and STMicroelectronics. As per
December, 2011, the amount drawn on the facility was SEK 5,518 million,
SEK 2,759 million lent per parent. The Parent Company’s accrued interest
towards ST-Ericsson amounted to SEK 7.5 million.

The Parent Company does not have any contingent liabilities, assets

pledged as collateral or guarantees towards ST-Ericsson.

St-eriCSSoN

related party transactions
License revenues
Dividends
related party balances
Receivables
Loan

other related parties

2011

2010

–
–

1
2,759

3
1,030

For information regarding the remuneration of management, see Notes
to the Consolidated Financial Statements – Note C28, “Information
Regarding Members of the Board of Directors, the Group Management and
Employees”.

P28 fees to auditors

FeeS to auditorS

2011
Audit fees
Audit-related fees
Tax services fees
Other fees
total

2010
Audit fees
Audit-related fees
Tax services fees
Other fees
total

2009
Audit fees
Audit-related fees
Tax services fees
Other fees
total

pwC

18
8
–
12
38

19
12
1
3
35

23
12
2
1
38

Allocation of fees to auditors is based on the requirements in the Swedish Annual
Accounts Act. 2009 figures are restated for comparability.

During the period 2009–2011, in addition to audit services, PwC provided
certain audit-related services, tax and other services to the Parent Company.
The audit-related services include quarterly reviews, SSAE 16 reviews and
services in connection with the issuing of certificates and opinions. The tax
services include general expatriate services and corporate tax compliance
work. Other services include consultation on financial accounting, services
related to acquisitions, operational effectiveness and assessments of
internal control.

P29 events after the
baLance sheet date

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risk factors

You should carefully consider all the information in
this Annual Report and in particular the risks and
uncertainties outlined below. Based on the information
currently known to us, we believe that the following
information identifies the most significant risk factors
affecting our business. Any of the factors described
below, or any other risk factors discussed elsewhere
in this report, could have a material negative effect
on our business, operational and after-tax results,
financial position, cash flow, liquidity, credit rating,
brand and/or our share price. Additional risks and
uncertainties not presently known to us or that we
currently believe to be immaterial may also materially
adversely affect our business. Furthermore, our
operational results may have a greater variability than
in the past and we may have difficulties in accurately
predicting future developments. See also “Forward-
Looking Statements”.

Market, technology and
Business risks

Challenging global economic conditions may adversely impact the
demand and pricing for our products and services as well as limit
our ability to grow.

Challenging global economic conditions could have adverse, wide-

ranging effects on demand for our products and for the products of

our customers. Adverse global economic conditions could cause

network operators to postpone investments or initiate other cost-

cutting initiatives to improve their financial position. This could result

in significantly reduced expenditures for network infrastructure and

services, in which case our operating results would suffer. If demand

for our products and services were to fall in the future, we could

experience material adverse effects on our revenues, cash flow, capital

employed and value of our assets and we could incur operating losses.

Furthermore, if demand is significantly weaker or more volatile than

expected, our credit rating, borrowing opportunities and costs as well

as the trading price of our shares could be adversely impacted. When

deemed necessary, we undertake specific restructuring or cost saving

initiatives, however, there are no guarantees that such initiatives will be

sufficient, successful or executed in time to deliver any improvements

in our earnings.

Should global economic conditions fail to improve, or worsen, other

business risks we face could intensify and could also negatively impact

the business prospects of operators. Some operators, in particular in

markets with weak currencies, may incur borrowing difficulties and

slower traffic development, which may negatively affect their investment

plans and cause them to purchase less of our products and services.

The potential adverse effects of an economic downturn include:

reduced demand for products and services, resulting in increased
price competition or deferrals of purchases, with lower revenues not
fully compensated through reduced costs;
risks of excess and obsolete inventories and excess manufacturing
capacity;

MARKET, TECHNOLOGY
AND BUSINESS RISKS

contents
MARKET, TECHNOLOGY AND
BUSINESS RISKS

REGULATORY, COMpLIANCE AND
CORpORATE GOvERNANCE RISKS

RISKS ASSOCIATED wITH OwNING
ERICSSON SHARES

117

122

123

risk of financial difficulties or failures among our suppliers;

increased demand for customer finance, difficulties in collection of

accounts receivable and increased risk of counterparty failures;

risk of impairment losses related to our intangible assets as a result

of lower forecasted sales of certain products;
increased difficulties in forecasting sales and financial results as well

as increased volatility in our reported results;

a decline in the value of the assets in our pension plans and/or

increased pension liabilities due to discount rate changes;

end user demand could also be adversely affected by reduced

consumer spending on technology, changed operator pricing,

security breaches and trust issues.

The telecommunications industry fluctuates and is affected by
many factors, including the economic environment, decisions by
operators and other customers regarding their deployment of
technology and their timing of purchases.

The telecommunications industry has experienced downturns in the

past in which operators substantially reduced their capital spending

on new equipment. While we expect the network service provider

equipment market and telecommunications services market to grow

in the coming years, the uncertainty surrounding the global economic

recovery may materially harm actual market conditions. Moreover,

market conditions are subject to substantial fluctuation, and could

vary geographically and across technologies. Even if global conditions

improve, conditions in the specific industry segments in which we

participate may be weaker than in other segments. In that case, the

results of our operations may be adversely affected.

If capital expenditures by service providers and other customers

is weaker than we anticipate, our revenues and profitability may be

adversely affected. The level of demand by service providers and other

customers who buy our products and services can change quickly and

can vary over short periods of time, including from month to month.

Due to the uncertainty and variations in the telecommunications

industry, accurately forecasting revenues, results, and cash flow

remains difficult.

Sales volumes and gross margin levels are affected by the
variation and short order time of our products and services.

Our sales to network operators represent a mix of equipment, software

and services, which normally generate different gross margins. We sell

our own products as well as third party products, which normally have

Ericsson Annual Report 2011 | RISK FACTORS

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MARKET, TECHNOLOGY
AND BUSINESS RISKS

lower margins than our own products. As a consequence, our reported

gross margin in a specific period will be affected by the overall mix

of products and services as well as the relative content of third party

products. Further, network expansions and upgrades have much

we face intense competition from our existing competitors as well
as new entrants, including IT companies entering the
telecommunications market, and this could materially adversely
affect our results.

shorter lead times for delivery than initial network build outs. Orders

The markets in which we operate are highly competitive in terms

for such network expansions and upgrades are normally placed with

of price, functionality, service quality, customization, timing of

short notice by customers, often with less than a month’s notice, and

development, and the introduction of new products and services.

consequently variations in demand are difficult to forecast. As a result,

We face intense competition from significant competitors many of

changes in our product and service mix and the short order time for

which are very large, with substantial technological and financial

certain of our products may affect our ability to accurately forecast

resources and established relationships with operators. Further, certain

sales and margins or detect in advance whether actual results will

competitors, Chinese companies in particular, have become relatively

deviate from market consensus. Short-term variation could have a

stronger in recent years. We may also encounter increased competition

material adverse effect on our business, operating results and financial

from new market entrants, alternative technologies or due to evolving

condition.

we may not be able to properly respond to market trends in the
telecommunications industry, including the ongoing convergence
of the telecom, data and media industries, which may harm our
market position relative to our competitors.

We are affected by market conditions and trends within the

telecommunications industry, including the convergence of the

telecom, data and media industries. Convergence is largely driven

by technological development related to IP-based communications.

This has changed the competitive landscape and affects our objective

setting, risk assessment and strategies. Competitors new to our

business may enter this new business context and negatively impact

our market share in selected areas. If we fail to understand the market

development, or fail to acquire the necessary competences to develop

and market products, services and solutions that are competitive in this

changing market, our business, operating results and financial condition

will suffer.

Our business depends upon the continued growth of mobile
communications and the acceptance of new services. If growth
slows or new services do not succeed, operators’ investment in
networks may slow or stop, harming our business.

industry standards. In particular, we may face competition from large

IT companies entering the telecommunications market who benefit

from economies of scale from being active in several industries. We

cannot assure that we will be able to compete successfully with these

companies. Our competitors may implement new technologies before

we do, offer more attractively priced or enhanced products, services

or solutions, or they may offer other incentives that we do not provide.

Some of our competitors may also have greater resources in certain

business segments or geographic markets than we do. Increased

competition could result in reduced profit margins, loss of market share,
increased research and development costs as well as increased sales

and marketing expenses. Traffic development on cellular networks

could be affected if more traffic is off-loaded to Wi-Fi networks. Further,

alternative services provided over-the-top have profound effects on

operator voice/ SMS revenues with possible reduced capital expenses

consequences.

Additionally, we operate in markets characterized by rapidly

changing technology. This results in continuous price erosion and

increased price competition for our products and services. If our

counter measures, including enhanced products and business models

or cost reductions cannot be achieved or do not occur in a timely

manner, there could be adverse impacts on our operating results and

A substantial portion of our business depends on the continued growth

market share.

of mobile communications in terms of both the number of subscriptions

and usage per subscriber, which in turn drives the continued

deployment and expansion of network systems by our customers. If

vendor consolidation may lead to stronger competitors who are
able to benefit from integration, scale and greater resources.

operators fail to increase the number of subscribers and/or stimulate

Industry convergence and consolidation among equipment and

increased usage, our business and operational results could be

services suppliers could potentially result in stronger competitors

materially adversely affected. Also, if operators fail to monetize new

that are competing as end-to-end suppliers as well as competitors

services, fail to introduce new business models or experience a decline

more specialized in particular areas. Consolidation may also result in

in operator revenues or profitability, their willingness to further invest in

competitors with greater resources than we have or in reduction of our

their network systems may decrease which will reduce their demand for

current scale advantages. This could have a materially adverse effect

our products and services and have an adverse effect on our business,

on our business, operating results, and financial condition.

operational results and financial condition.

Fixed and mobile networks converge and new technologies, such

as IP and broadband, enable operators to deliver a range of new types

of services in both fixed and mobile networks. We are dependent upon

market acceptance of such services and the outcome of regulatory and

standardization activities in this field, such as spectrum allocation. If

delays in standardization, regulation, or market acceptance occur, this

could adversely affect our business, operational results and financial

condition.

A significant portion of our revenue is currently generated from a
limited number of key customers, and operator consolidation may
increase our dependence on key customers.

We derive most of our business from large, multi-year frame

agreements with a limited number of significant customers. Many of

these agreements are opened up on a yearly basis to re-negotiate the

price for our products and services and do not contain committed

purchase volumes. Although no single customer represents more than

7% of our sales in 2011, our ten largest customers accounted for 44%

of our sales in 2011. A loss of or a reduced role with a key customer

could have a significant adverse impact on sales, profit and market

share for an extended period.

In recent years, network operators have undergone significant

consolidation, resulting in a fewer number of operators with activities in

118

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AND BUSINESS RISKS

several countries. This trend is expected to continue, and intra-country

ready in time, or are not successful in the marketplace our sales and

consolidation is likely to accelerate as a result of competitive pressure.

earnings may materially suffer. Additionally, it is common for research

A market with fewer and larger operators will increase our reliance

and development projects to encounter delays due to unforeseen

on key customers and may negatively impact our bargaining position

problems. Delays in production may increase the cost of research

and profit margins. Moreover, if the combined companies operate

and development efforts and put us at a disadvantage against our

in the same geographic market, networks may be shared and less

competition.

network equipment and associated services may be required. Network

investments could be delayed by the consolidation process, which

may include, among others, actions relating to merger or acquisition

we engage in acquisitions and divestments which may be
disruptive and require us to incur significant expenses.

agreements, securing necessary regulatory approvals, or integration

In addition to in-house innovation efforts, we make strategic

of their businesses. Recently, network operators have started to share

acquisitions in order to obtain various benefits such as reduced time-

parts of their network infrastructure through cooperation agreements

to-market, access to technology and competence, increased scale or

rather than legal consolidations, which may adversely affect demand

to broaden our product portfolio or customer base. Future acquisitions

for network equipment. Accordingly, operator consolidation may have a

could result in the incurrence of contingent liabilities and an increase in

material adverse effect on our business, operating results and financial

amortization expenses related to goodwill and other intangible assets,

condition.

we enter into long-term frame agreements with our customers
which include commitments to future price reductions, requiring
us to make constant cost reductions to maintain our gross margin.

Long-term frame agreements with our customers are typically awarded

on a competitive bidding basis. In some cases, such agreements also

include a commitment to future price reductions. In order to maintain

our gross margin with such price reductions, we continuously strive

to reduce the costs of our products through design improvements,

negotiation of better purchase prices from our suppliers, allocation of

more production to low-cost countries and increased productivity in our

own production. However, there can be no assurance that our actions

which could have a material adverse effect upon our business, financial

condition and results of operations. Risks we could face with respect

to acquisitions include:
> difficulties in the integration of the operations, technologies,

products and personnel of the acquired company;

risks of entering markets in which we have no or limited prior

experience;

> potential loss of employees;
> diversion of management’s attention away from other business

concerns; and

expenses of any undisclosed or potential legal liabilities of the

acquired company.

to reduce costs will be sufficient or quick enough to maintain our gross

From time to time we also divest parts of our business to optimize our

margin in such contracts, which may have a material adverse effect on

product portfolio or operations. Any decision to dispose of or otherwise

our operating results.

Growth of our managed services business is difficult to predict,
and requires taking significant contractual risks.

exit businesses may result in the recording of special charges, such as

workforce reduction costs and industry and technology-related write-

offs. We cannot assure that we will be successful in consummating

future acquisitions or divestments on favourable terms or at all. The

Operators increasingly outsource parts of their operations to reduce

risks associated with such acquisitions and divestments could have

cost and focus on new services. To address this opportunity, we offer

a material adverse effect upon our business, financial condition and

operators various services in which we manage their networks. The

results of operations.

growth rate in the managed services market is difficult to forecast and

each new contract carries a risk that transformation and integration of

the operations will not be as fast or smooth as planned. Additionally,

we are a party to joint ventures and partnerships which may not
be successful and expose us to future costs.

early contract margins are generally low and the mix of new and old

We are partners in joint ventures and partnerships. Our partnering

contracts may negatively affect reported results in a given period.

arrangements may fail to perform as expected for various reasons,

Contracts for such services normally cover several years and generate

including an incorrect assessment of our needs or the capabilities

recurring revenues. However, contracts have been, and may in the

or financial stability of our strategic partners. Our ability to work with

future be, terminated or reduced in scope, which has negative impacts

these partners or develop new products and solutions may become

on sales and earnings. While we believe we have a strong position in

constrained, which could harm our competitive position in the market.

the managed services market, competition in this area is increasing,

Additionally, our share of any losses from or commitments to contribute

which may have adverse effects on our future growth and profitability.

additional capital to such partnerships may adversely affect our results

we depend upon the development of new products and
enhancements to our existing products, and the success of our
substantial research and development investments is uncertain.

Rapid technological and market changes in our industry require us to

of operations or financial position.

we rely on a limited number of suppliers of components,
production capacity and R&D and IT services, which exposes us
to supply disruptions and cost increases.

make significant investments in technological innovation. We invest

Our ability to deliver according to market demands and contractual

significantly in new technology, products and solutions. In order for us

commitments depends significantly on obtaining a timely and adequate

to be successful, those technologies, products and solutions must be

supply of materials, components, production capacity and other vital

accepted by relevant standardization bodies and by the industry as a

services on competitive terms. Although we strive to avoid single-

whole. There can be no assurance that our research and development

source supplier solutions, this is not always possible. Accordingly,

efforts will be technically or commercially successful. If we invest

there is a risk that we will be unable to obtain key supplies we need

in the development of technologies, products and solutions that do

to produce our products on commercially reasonable terms, or at all.

not function as expected, are not adopted by the industry, are not

Failure by any of our suppliers could interrupt our product supply or

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119

MARKET, TECHNOLOGY
AND BUSINESS RISKS

operations and significantly limit sales or increase our costs. To find

an alternative supplier or re-design products to replace components

may take significant time which could cause significant delays or

interruptions in the delivery of our products. We have from time to

time experienced interruptions of supply and we may experience such

Our ability to benefit from intellectual property rights (IpR) which
are critical to our business may be limited by changes in
regulation limiting patents, inability to prevent infringement, the
loss of licenses from third parties and Ip infringement claims
brought against us by competitors.

interruptions in the future.

Although we have a large number of patents, there can be no assurance

Furthermore, our procurement of supplies requires us to predict

that they will not be challenged, invalidated, or circumvented, or that

future customer demands. If we fail to anticipate customer demand

any rights granted in relation to our patents will in fact provide us with

properly, an over or under supply of components and production

competitive advantages.

capacity could occur. In many cases, some of our competitors utilize

In 2005, the European Union considered restricting the patentability

the same contract manufacturers and if they have purchased capacity

of software. Although the European Union ultimately rejected this

ahead of us we could be blocked from acquiring the needed products.

proposal, we cannot guarantee that they will not revisit this issue in

This factor could limit our ability to supply our customers or could

the future. We rely on many software patents, and limitations on the

increase costs. At the same time, we commit to certain capacity levels

patentability of software may materially affect our business.

or component quantities, which, if unused, will result in charges for

We utilize a combination of trade secrets, confidentiality policies,

unused capacity or scrapping costs. We are also exposed to financial

nondisclosure and other contractual arrangements in addition to relying

counterpart risks to suppliers where we pay in advance for supplies.

on patent, copyright and trademark laws to protect our intellectual

product or service quality issues could lead to reduced revenue,
gross margins and declining sales to existing customers.

property rights. However, these measures may not be adequate to

prevent or deter infringement or other misappropriation. Moreover, we

may not be able to detect unauthorized use or take appropriate and

Sales contracts normally include warranty undertakings for faulty

timely steps to establish and enforce our proprietary rights. In fact,

products and often include provisions regarding penalties and/or

existing laws of some countries in which we conduct business offer

termination rights in the event of a failure to deliver ordered products
or services on time or with required quality. Although we undertake

only limited protection of intellectual property rights, if at all.

Our solutions may also require us to license technologies from third

a number of quality assurance measures to reduce such risks,

parties. It may be necessary in the future to seek or renew licenses and

product quality or service performance issues may negatively affect

there can be no assurance that they would be available on acceptable

our reputation, results and financial position. If significant warranty

terms, or at all. Moreover, the inclusion in our products of software or

obligations arise due to reliability or quality issues, our operating results

other intellectual property licensed from third parties on a non-exclusive

and financial position could be negatively impacted by costs associated

basis could limit our ability to protect proprietary rights in our products.

with fixing software or hardware defects, high service and warranty

Many key aspects of telecommunications and data network

expenses, high inventory obsolescence expense, delays in collecting

technology are governed by industry-wide standards usable by

accounts receivable or declining sales to existing customers.

all market participants. As the number of market entrants and the

Due to having a majority of our costs in SEK and revenues in other
currencies, our business is exposed to foreign exchange
fluctuations that could negatively impact our revenue, operating
profit and results of operations.

We incur a significant portion of our expenses in SEK. As a result of

our international operations, we generate, and expect to continue

to generate, a significant portion of our revenue in currencies other

than SEK. To the extent we are unable to match revenue received in

foreign currencies with costs paid in the same currency, exchange rate

fluctuations could have a negative impact on our consolidated income

statement, balance sheet and cash flows when foreign currencies are

exchanged or translated to SEK, which increases volatility in reported

results.

complexity of technology increases, the possibility of functional

overlap and inadvertent infringement of intellectual property rights

also increases. Third parties have asserted, and may assert in the

future, claims, directly against us or indirectly against our customers,

alleging infringement of their intellectual property rights. Defending such

claims may be expensive, time-consuming and divert the efforts of our

management and/or technical personnel. As a result of litigation, we

could be required to pay damages and other compensation directly or

to indemnify our customers for such damages and other compensation,

develop non-infringing products/technology or enter into royalty or

licensing agreements. However, we cannot be certain that such licenses

will be available to us on commercially reasonable terms or at all, and

such judgments could have a materially adverse effect on our business.

As market prices are predominantly established in USD or EUR,

we presently have a net revenue exposure in foreign currencies which

means that a stronger SEK exchange rate would generally have a

we are involved in lawsuits and investigations which, if determined
against us, could require us to pay substantial damages, fines
and/or penalties.

negative effect on our reported results. Our attempts to reduce the

In the normal course of our business we are involved in legal

effects of exchange rate fluctuations through a variety of hedging

proceedings. These lawsuits include such matters as commercial

activities may not be sufficient or successful, resulting in an adverse

disputes, claims regarding intellectual property, antitrust, tax and

impact on our results.

120

RISK FACTORS | Ericsson Annual Report 2011

labour disputes. Litigation can be expensive, lengthy and disruptive

to normal business operations. Moreover, the results of complex legal

proceedings are difficult to predict. An unfavourable resolution of a

particular lawsuit could have a material adverse effect on our business,

reputation, operating results, or financial condition.

As a publicly listed company, Ericsson may be exposed to lawsuits

in which plaintiffs allege that the Company or its officers have failed

to comply with securities laws, stock market regulation or other laws,

regulations or requirements. Whether or not there is merit to such

RISKXFACTORSXENX2011_v30.indd 120

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MARKET, TECHNOLOGY
AND BUSINESS RISKS

claims, the time and costs incurred to defend the Company and its

demands may increase. Upon the financial failure of a customer, we

officers and the potential settlement or compensation to the plaintiffs

may experience losses on credit extended and loans made to such

could have significant impact on our reported results and reputation.

customer, losses relating to our commercial risk exposure, and the loss

For additional information regarding certain of the lawsuits in which we

of the customer’s on-going business. If customers fail to meet their

are involved, see “Legal and Tax Proceedings” in the Board of Directors’

obligations to us, we may experience reduced cash flows and losses in

Report.

excess of reserves, which could materially adversely impact our results

Our operations are complex and several critical operations are
centralized in a single location. Any disruption of our operations,
whether due to natural or man made events, may be highly
damaging to the operation of our business.

Our business operations rely on complex operations and

of operations and financial position.

we rely on various capital sources for short-term and long-term
capital for the funding of our business. Should such capital
become unavailable or available in insufficient amounts or
unreasonable terms, our business may materially suffer.

communications networks, which are vulnerable to damage or

If we do not generate sufficient amounts of capital to support

disturbance from a variety of sources. Having outsourced a significant

our operations, service our debt and continue our research and

portion of our IT operations, we depend partly on security and

development and customer finance programs, or if we cannot raise

reliability measures of external companies. Regardless of protection

sufficient amounts of capital at the required times and terms, our

measures, our systems and communications networks are susceptible

business is likely to be adversely affected. Access to funding may

to disruption due to failure, vandalism, computer viruses, security

decrease or become more expensive as a result of our operational and

breaches, natural disasters, power outages and other events. We

financial condition, market conditions, including financial conditions in

also have a concentration of operations on certain sites, including

the Euro-zone, or due to deterioration in our credit rating. There can

R&D, production, network operation centres, and logistic centres and

be no assurance that additional sources of funds that we from time to

shared services centres, where business interruptions could cause

time may need, will be available or available on reasonable terms. If we

material damage and costs. The delivery of goods from suppliers, and

cannot access capital on commercially viable terms, our business could

to customers, could also be hampered for the reasons stated above.

materially suffer.

We cannot provide any assurance that interruptions to our systems and

communications that will have an adverse effect on our operations and

Impairment of Goodwill may negatively impact financial condition.

financial condition will not occur.

An impairment of goodwill or other intangible assets could adversely

Our operations, including our managed services business, are

affect our financial condition or results of operations. We have a

exposed to possible cyber security incidents occurring, such as know

significant amount of goodwill and intangible assets, for example

how and data privacy infringements or leakage, which could have

patents, customer relations, trademarks and software. Goodwill is the

material adverse effects or our business operations, financial condition

only intangible asset the company has recognized to have indefinite

and brand.

we must continue to attract and retain highly qualified employees
to remain competitive.

useful life. Other intangible assets are mainly amortized on a straight-

line basis over their estimated useful lives, but no more than ten

years, and are reviewed for impairment whenever events such as

product discontinuances, product dispositions or other changes in

We believe that our future success largely depends on our continued

circumstances indicate that the carrying amount may not be wholly

ability to hire, develop, motivate and retain engineers and other qualified

recoverable. Those not yet in use are tested for impairment annually.

personnel needed to develop successful new products, support

Historically, we have recognized impairment charges related to

our existing product range and provide services to our customers.

intangible assets mainly due to restructuring. Additional impairment

Competition for skilled personnel and highly qualified managers in the

charges may be incurred in the future that could be significant

telecommunications industry remains intense. We are continuously

due to various reasons, including restructuring actions or adverse

developing our corporate culture, remuneration, promotion and benefits

market conditions that are either specific to us or the broader

policies as well as other measures aimed at empowering our employees

telecommunications industry or more general in nature and that

and reducing employee turnover. However, there are no guarantees

could have an adverse effect on our results of operations or financial

that we will be successful in attracting and retaining employees with

condition.

appropriate skills in the future, and failure in retention and recruiting

Negative deviations in actual cash flows compared to estimated

could have a material adverse effect on our business.

cash flows as well as new estimates that indicate lower future cash

If our customers’ financial conditions decline, we will be exposed
to increased credit and commercial risks.

flows might result in recognition of impairment charges. Estimates

require management judgment as well as the definition of cash

generating units for impairment testing purposes. Other judgments

After completing sales to customers, we may encounter difficulty

might result in significantly different results and financial position in the

collecting accounts receivables and could be exposed to risks

future.

associated with uncollectable accounts receivable. We regularly

assess the credit worthiness of our customers and upon which we

determine a credit limit for customers. Challenging economic conditions

have impacted some of our customers’ ability to pay their accounts

receivables. Although our credit losses have historically been low and

we have policies and procedures for managing customer finance credit

risk we may be unable to avoid future losses on our trade receivables.

We have also experienced demands for customer financing, and in

adverse financial markets or more competitive environments, those

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Ericsson Annual Report 2011 | RISK FACTORS

121

REGULATORY, COMpLIANCE AND
CORpORATE GOvERNANCE RISKS

regulatory, coMpliance
and corporate
governance risks

Our business may suffer as a result of changes in laws or
regulations which could subject us to liability, increase costs, or
reduce product demand.

We must always comply with relevant export control regulations

and sanctions or other trade embargoes in force, not only at the time

of sale but also at the time of delivery. The political situation in parts

of the world, particularly in the Middle East, has lead to an increase of

sanctions imposed by the global community. A universal element of

these sanctions is the financial restrictions with respect to individuals

and/or legal entities, but sanctions can also restrict certain exports

and ultimately lead to a complete trade embargo towards a country.

There is a risk in many of these countries of unexpected changes

Telecommunications is an industry which is subject to regulations.

in regulatory requirements, tariffs and other trade barriers, price or

Changes to these regulations may adversely affect both our customers’

exchange controls, or other governmental policies which could limit our

and our own operations. For example, regulations imposing more

operations and decrease our profitability. Although we seek to comply

stringent, time-consuming or costly planning and zoning requirements

with all such regulations, there can be no assurance that we are, or

or building approvals for radio base stations and other network

will be in the future, compliant with all relevant regulations and such

infrastructure could adversely affect the timing and costs of network

violations, even unintentional violations, could have material adverse

construction or expansion, and ultimately the commercial launch and

effects on our business, operational results and brand.

success of these networks. Similarly, tariff and roaming regulations

There has been a growing concern reported by media and others,

or rules on network neutrality could also affect operators’ ability or

that certain countries may use features of their telecommunications

willingness to invest in network infrastructure, which in turn could

systems violating the human rights. This may adversely affect the

affect the sales of our systems and services. Additionally, delay in radio

telecommunications business and may have a negative impact on our

frequency spectrum allocation, and allocation between different types

brand.

of usage may affect operator spending adversely or force us to develop

As a result of the credit crisis in Europe, concerns persist regarding

new products to be able to compete.

Further, we develop many of our products and services based

the debt burden of certain Eurozone countries and their ability to meet
future financial obligations, the overall stability of the euro and the

on existing regulations and technical standards. Changes to existing

suitability of the euro as a single currency given the diverse economic

regulations and technical standards, or the implementation of new

and political circumstances in individual member states. These and

regulations and technical standards relating to products and services

other concerns could in worst case lead to the re-introduction of

not previously regulated, could adversely affect our development

individual currencies in one or more member states, or, in more extreme

efforts by increasing compliance costs and causing delay. Demand for

circumstances, the possible dissolution of the euro entirely. These

those products and services could also decline. Regulatory changes

potential developments, or market perceptions concerning these

in license fees, environmental, health and safety, privacy and other

and related issues, could adversely affect our operations and have a

regulatory areas may increase costs and restrict our operations or the

material adverse effect on our business, operating results and financial

operations of network operators and service providers. Also indirect

condition.

impacts of such changes and regulatory changes in other fields, such

as pricing regulations, could have an adverse impact on our business

even though the specific regulations may not apply directly to our

we may fail to comply with our corporate governance standards
which could subject us to harm.

products or us. Ericsson may fail or be unable to comply with laws or

We apply mandatory corporate governance laws and regulations

regulations and could experience adverse rulings in enforcement or

and are also committed to several corporate responsibility and

other proceedings, which could have a material adverse impact on our

environmental initiatives. To ensure that our operations are executed in

business operations, financial condition and brand.

accordance with these requirements, our management system includes

Our substantial international operations are subject to
uncertainties which could affect our operating results.

a Code of Business Ethics as well as policies and directives to govern

our processes and operations. While we attempt to monitor and audit

internal compliance with the policies and directives as well as our

We conduct business throughout the world and are subject to the

suppliers’ adherence to our Code of Conduct, we cannot provide any

effects of general global economic conditions as well as conditions

assurances that violations will not occur which could have material

unique to specific countries or regions. We conduct business in

adverse effects on our operations, business results and brand.

more than 180 countries, with a significant proportion of our sales to

emerging markets in the Asia Pacific region, Latin America, Eastern

Europe, the Middle East and Africa.

Our extensive operations are subject to numerous additional

risks, including civil disturbances, economic and political instability,

the imposition of exchange controls, economies which are subject

to significant fluctuations, nationalization of private assets or other

governmental actions affecting the flow of goods and currency, and

difficulty of enforcing agreements and collecting receivables through

local legal systems. Further, in certain markets in which we operate,

there is a risk of protectionist governmental measures implemented

to assist domestic market participants at the expense of foreign

competitors. The implementation of such measures could adversely

affect sales or our ability to purchase critical components.

Failure to comply with environmental, health and safety
regulations in many jurisdictions may expose us to significant
penalties and other sanctions.

We are subject to certain environmental, health and safety laws and

regulations that affect our operations, facilities and products in each

of the jurisdictions in which we operate. While we believe that we are

in compliance with all material laws and regulations related to the

environment, health, and safety, we can provide no assurance that we

have been, are, or will in the future be compliant with these regulations.

If we have failed or fail to comply with these regulations, we could be

subject to significant penalties and other sanctions that could have a

material adverse effect on our business, operating results and financial

condition. Additionally, there is a risk that we may have to incur

expenditures to cover environmental and health liabilities to maintain

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RISK FACTORS | Ericsson Annual Report 2011

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compliance with current or future laws and regulations or to undertake

announcements concerning bankruptcy or investigations into the

any necessary remediation. It is difficult to reasonably estimate the

accounting procedures of ourselves or other telecommunications

future impact of environmental matters, including potential liabilities.

companies; and

This is due to several factors, particularly the length of time often

> our ability to forecast and communicate our future results in a

involved in resolving such matters. Adverse future events, regulations,

manner consistent with investor expectations.

RISKS ASSOCIATED wITH
OwNING ERICSSON SHARES

Currency fluctuations may adversely affect share value or value of
dividends.

Because our shares are quoted in SEK on NASDAQ OMX Stockholm

(our primary stock exchange), but in USD on NASDAQ New York

(ADSs), fluctuations in exchange rates between SEK and USD may

affect the value of our shareholders’ investment. In addition, because

we pay cash dividends in SEK, fluctuations in exchange rates may

affect the value of distributions when converted into other currencies.

An increasing part of the trade in our shares is carried out on alternative

exchanges or markets, which may lead to less accurate share price

information on NASDAQ OMX Stockholm or NASDAQ New York.

or judgments could have a material effect on our business, operating

results and financial condition.

potential health risks related to electromagnetic fields may subject
us to various product liability claims and result in regulatory
changes.

The mobile telecommunications industry is subject to claims that

mobile handsets and other devices that generate electromagnetic

fields expose users to health risks. At present, a substantial number

of scientific studies conducted by various independent research

bodies have indicated that electromagnetic fields, at levels within

the limits prescribed by public health authority safety standards and

recommendations, cause no adverse effects to human health. However,

any perceived risk or new scientific findings of adverse health effects

from mobile communication devices and equipment could adversely

affect us through a reduction in sales or through liability claims.

Although Ericsson’s products are designed to comply with all current

safety standards and recommendations regarding electromagnetic

fields, we cannot guarantee that we or the jointly owned Sony Ericsson

Mobile Communications or ST-Ericsson will not become the subject of

product liability claims or be held liable for such claims or be required to

comply with future regulatory changes that may have an adverse effect

on our business, operating results and financial condition.

risks associated with
owning ericsson shares

Our share price has been and may continue to be volatile,
especially as technology companies, securities and markets as a
whole remain volatile.

Our share price has been volatile due to various factors, including our

operating performance as well as the high volatility in the securities

markets generally and volatility in telecommunications and technology

companies’ securities in particular. Our share price is also likely to be

affected by future developments in our market, our reported financial

results and the expectations of financial analysts, as well as statements

and market speculation regarding our future prospects or the timing or

content of any public communications, including reports of operating

results, by us or our competitors.

Factors other than our financial results that may affect our share

price include, but are not limited to:

a weakening of our brand name or other circumstances with

adverse effects on our reputation;

announcements by our customers, competitors or us regarding

capital spending plans of our customers;

financial difficulties for our customers;

awards of large supply or service contracts;

speculation in the press or investment community about the

business level or growth in the telecommunications market;

technical problems, in particular those relating to the introduction
and viability of new network systems, including LTE/4G and new
platforms such as the RBS 6000 (multi-standard radio base station)
platform;
actual or expected results of ongoing or potential litigation;

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Ericsson Annual Report 2011 | RISK FACTORS

123

Auditors’ report

to the Annual General Meeting of the shareholders
of telefonaktiebolaget LM ericsson (publ),
corporate identity number 556016-0680

report on the annual accounts and consolidated
accounts

We have audited the annual accounts and consolidated accounts of
Telefonaktiebolaget LM Ericsson (publ) for the year 2011. (The annual
accounts and consolidated accounts of the company are included in the
printed version of this document on pages 19–123.)

responsibiLities of the boArd of directors And the

president And ceo for the AnnuAL Accounts And

consoLidAted Accounts

The Board of Directors and the President and CEO are responsible for the
preparation and fair presentation of these annual accounts and consolidated
accounts in accordance with International Financial Reporting Standards,
as adopted by the EU, and the Annual Accounts Act, and for such internal
control as the Board of Directors and the President and CEO determine is
necessary to enable the preparation of annual accounts and consolidated
accounts that are free from material misstatement, whether due to fraud or
error.

Auditor’s responsibiLity

Our responsibility is to express an opinion on these annual accounts and
consolidated accounts based on our audit. We conducted our audit in
accordance with International Standards on Auditing and generally accepted
auditing standards in Sweden. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the annual accounts and consolidated accounts
are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about

the amounts and disclosures in the annual accounts and consolidated
accounts. The procedures selected depend on the auditor’s judgement,
including the assessment of the risks of material misstatement of the
annual accounts and consolidated accounts, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control
relevant to the company’s preparation and fair presentation of the annual
accounts and consolidated accounts in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s internal control.
An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by the Board
of Directors and the President and CEO, as well as evaluating the overall
presentation of the annual accounts and consolidated accounts.

We believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our audit opinion.

opinions

In our opinion, the annual accounts have been prepared in accordance
with the Annual Accounts Act and present fairly, in all material respects,
the financial position of the Parent Company as of 31 December 2011 and
of its financial performance and its cash flows for the year then ended in
accordance with the Annual Accounts Act, and the consolidated accounts

have been prepared in accordance with the Annual Accounts Act and
present fairly, in all material respects, the financial position of the group as
of 31 December 2011 and of their financial performance and cash flows in
accordance with International Financial Reporting Standards, as adopted
by the EU, and the Annual Accounts Act. The statutory administration report
is consistent with the other parts of the annual accounts and consolidated
accounts.

We therefore recommend that the annual meeting of shareholders adopt

the income statement and balance sheet for the parent company and the
group.

report on other legal and regulatory requirements

In addition to our audit of the annual accounts and consolidated accounts,
we have examined the proposed appropriations of the company’s profit or
loss and the administration of the Board of Directors and the President and
CEO of Telefonaktiebolaget LM Ericsson (publ) for the year 2011.

responsibiLities of the boArd of directors And the

president And ceo

The Board of Directors is responsible for the proposal for appropriations of
the company’s profit or loss, and the Board of Directors and the President
and CEO are responsible for administration under the Companies Act.

Auditor’s responsibiLity

Our responsibility is to express an opinion with reasonable assurance on
the proposed appropriations of the company’s profit or loss and on the
administration based on our audit. We conducted the audit in accordance
with generally accepted auditing standards in Sweden.

As a basis for our opinion on the Board of Directors’ proposed

appropriations of the company’s profit or loss, we examined the Board of
Directors’ reasoned statement and a selection of supporting evidence in
order to be able to assess whether the proposal is in accordance with the
Companies Act.

As a basis for our opinion concerning discharge from liability, in
addition to our audit of the annual accounts and consolidated accounts,
we examined significant decisions, actions taken and circumstances of
the company in order to determine whether any member of the Board
of Directors or the President and CEO is liable to the company. We also
examined whether any member of the Board of Directors or the President
and CEO has, in any other way, acted in contravention of the Companies
Act, the Annual Accounts Act or the Articles of Association.

We believe that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.

opinions

We recommend to the annual meeting of shareholders that the profit be
appropriated in accordance with the proposal in the statutory administration
report and that the members of the Board of Directors and the President and
CEO be discharged from liability for the financial year.

Stockholm, February 24, 2012

peter nyllinge
Authorized Public Accountant
PricewaterhouseCoopers AB
Auditor in Charge

Johan engstam
Authorized Public Accountant
PricewaterhouseCoopers AB

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AUDITORS’ REPORT | Ericsson Annual Report 2011

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Forward-looking statements

This Annual Report includes forward-looking statements,
including statements reflecting management’s current views
relating to the growth of the market, future market conditions,
future events and expected operational and financial
performance. The words “believe”, “expect”, “foresee”,
“anticipate”, “assume”, “intend”, “may”, “could”, “plan”,
“estimate”, “will”, “should”, “could”, “aim”, “ambition”, “target”,
“might” or, in each case, their negative, and similar words are
intended to help identify forward-looking statements. Forward-
looking statements may be found throughout this document,
but in particular in the chapter “Board of Directors’ Report” and
include statements regarding:
> Our goals, strategies and operational or financial

performance expectations

> Development of corporate governance standards, stock

market regulations and related legislation

> The growth of the markets in which we operate
> Our liquidity, capital resources, capital expenditures, our

credit ratings and the development in the capital markets,
affecting our industry or us

> The expected demand for our existing as well as new

products and services

> The expected operational or financial performance of our
joint ventures and other strategic cooperation activities
> The time until acquired entities will be accretive to income
> Technology and industry trends including regulatory and

standardization environment, competition and our customer
structure

> Our plans for new products and services including research

and development expenditures.

Although we believe that the expectations reflected in these
and other forward-looking statements are reasonable, we
cannot assure you that these expectations will materialize.
Because forward-looking statements are based on
assumptions, judgments and estimates, and are subject to risks
and uncertainties, actual results could differ materially from
those described or implied herein. Important factors that could
affect whether and to what extent any of our forward-looking
statements materialize include, but are not limited to:
> Our ability to respond to changes in the telecommunications

market and other general market conditions in a cost
effective and timely manner

> Developments in the political, economic or regulatory

environment affecting the markets in which we operate,
including trade embargoes, changes in tax rates, changes
in patent protection regulations, allegations of health risks
from electromagnetic fields, cost of radio licenses for our

customers, allocation of radio frequencies for different
purposes and results of standardization activities
> The effectiveness of our strategies and their execution,
including partnerships, acquisitions and divestments
> Financial risks, including changes in foreign exchange
rates or interest rates, lack of liquidity or access to
financing, changes in tax liabilities, credit risks in relation
to counterparties, customer defaults under significant
customer finance arrangements and risks of confiscation of
assets in foreign countries

> The impact of the consolidation in the industry, and the
resulting (i) reduction in the number of customers, and
adverse consequences of a loss of, or significant decline in,
our business with a major customer; (ii) increased strength of
a competitor or the establishment of new competitors
> The impact of changes in product demand, price erosion,
competition from existing or new competitors or new
technologies or alliances between vendors of different types
of technology and the risk that our products and services
may not sell at the rates or levels we anticipate

> The product mix and margins of our sales
> The volatility of market demand and difficulties to forecast

such demand

> Our ability to develop commercially viable products, systems
and services, to acquire licenses of necessary technology, to
protect our intellectual property rights through patents and
trademarks and to license them to others and defend them
against infringement, and the results of patent litigation
> Supply constraints, including component or production

capacity shortages, suppliers’ abilities to cost effectively
deliver quality products on time and in sufficient volumes,
and risks related to concentration of proprietary or
outsourced production in a single facility or sole source
situations with a single vendor

> Our ability to successfully manage operators’ networks to

their satisfaction with satisfactory margins

> Our ability to maintain a strong brand and good reputation
and to be acknowledged for good corporate governance
> Our ability to recruit and retain qualified management and

other key employees.

Certain of these risks and uncertainties are described further in
“Risk Factors”. We undertake no obligation to publicly update
or revise any forward-looking statements included in this
Annual Report, whether as a result of new information, future
events or otherwise, except as required by applicable law or
stock exchange regulation.

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Ericsson Annual Report 2011 | FORWARD-LOOKING STATEMENTS

125

THINKING
AHEAD

To enable the networked society, we need to be more
than just market leaders. We need to be thought leaders.
We make sure that the knowledge we gain is shared

with our people. This keeps our thinking – and our
business – one step ahead.

30,000

WiTh 30,000 paTenTs and
90 license agreemenTs,
We have The indusTry’s
sTrongesT Wireless
inTellecTual properTy
porTfolio.

126

Ericsson Annual Report 2011

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2012-03-04 15.14

corporaTe governance
reporT 2011

CorporATE GovErNANCE
rEporT 2011

As Chairman of the Board it lies at the core of my
responsibilities to ensure that the Board’s work is conducted in
an optimal way, in line with the principles and processes in the
work procedure for the Board of Directors.

The Board has two key roles: to provide good support for

Group management and to exercise critical review of their
work. This requires at all times an open, meaningful dialogue on
important issues. In my view, the Group management and the
Board do not have to be in agreement from the beginning, but
our dialogue must always result in agreement being reached.

It is of utmost importance that the Board is well informed at
all times in order to give constructive input to management. The
Board’s work is constantly scrutinized and improved to ensure
that it has the best possible basis for its resolutions.

Good corporate governance is the basis for building robust
corporate culture. However, corporate governance can not only
be about efficient and reliable controls and procedures. It is also
about the adherence to a strong principle of ethical business
practice by all people in the organization – starting at the top
and permeating to all employees. This strengthens the business,
which in turn generates shareholder value.

leif Johansson

Chairman of the Board of Directors

CoNTENTs
regulaTion and compliance

shareholders

governance sTrucTure

general meeTing of shareholders

nominaTion commiTTee

Board of direcTors

commiTTees of The Board of direcTors

remuneraTion To Board memBers

memBers of The Board of direcTors

managemenT

memBers of The eXecuTive
leadership Team

audiTors

inTernal conTrol over financial
reporTing 2011

audiTors’ reporT on The corporaTe
governance reporT

128

129

130

131

132

134

137

138

142

145

148

151

Corporate governance describes the ways in which rights and
responsibilities are distributed among the various corporate bodies
according to applicable laws, rules and processes. Corporate governance
also defines the decision-making systems and structure through which
owners directly or indirectly control a company.

KEy EvENTs 2011

leif Johansson was elected new
chairman of the Board

This Corporate Governance Report is rendered as a separate report
added to the Annual Report in accordance with the Annual Accounts Act
((SFS 1995:1554) Chapter 6, Section 6 and 8) and the Swedish Corporate
Governance Code. The report has been reviewed by Ericsson’s auditors in
accordance with the Annual Accounts Act and a report from the auditors is
appended hereto.

Jacob Wallenberg was elected
new member of the Board

Three new members joined the
executive leadership Team

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regulaTion and compliance

rEGulATIoN AND ComplIANCE

external rules

As a Swedish public limited liability company with securities
quoted on NASDAQ OMX Stockholm as well as on NASDAQ
New York, Ericsson is subject to a variety of rules that affect its
governance. Major external rules include:
> The Swedish Companies Act
> The Rulebook for issuers of NASDAQ OMX Stockholm
> The Swedish Corporate Governance Code (the “Code”)
> NASDAQ New York Stock Market Rules, including applicable
NASDAQ New York corporate governance requirements
(subject to certain exemptions principally reflecting
mandatory Swedish legal requirements)

> Applicable requirements of the US Securities and Exchange

Commission.

internal rules

In addition, to ensure compliance with legal and regulatory
requirements and the high ethical standards that we set for
ourselves, Ericsson has adopted internal rules that include:
> A Code of Business Ethics
> Group Steering Documents including Group policies and

directives, instructions and business processes for approval,
control and risk management

> A Code of Conduct, to be applied in the product

development, production, supply and support of Ericsson
products and services worldwide.

The Board of Directors has also included internal rules in its
work procedure.

compliance with the swedish corporate
governance code

The Code has been applied by Ericsson since July 2005.
Ericsson is committed to complying with best-practice
corporate governance on a global level wherever possible.
This includes continued compliance with the Code. Ericsson
has not deviated from any of the rules of the Code. The
Code can be found on the website of the Swedish Corporate
Governance Board which administrates the Code
(www.corporategovernanceboard.se).

compliance with applicable stock exchange rules

There has been no infringement of applicable stock exchange
rules and no breach of good practice on the securities market
reported by the stock exchange’s disciplinary committee or the
Swedish Securities Council.

code of Business ethics

Ericsson’s Code of Business Ethics sets out how the Group
achieves and maintains high ethical standards. It summarizes
the Group’s fundamental policies and directives and underpins
the importance of ethical conduct in all business activities.

The Code of Business Ethics has been translated into 25
languages. This ensures that it is accessible to all employees.
During recruitment, employees acknowledge that they are
aware of the principles of the Code of Business Ethics. This
procedure is repeated at regular intervals throughout the term
of employment.

Through this process, Ericsson strives to ensure that high
ethical standards are continuously upheld. All employees have
an individual responsibility to ensure that business practices
adhere to the rules of the Code of Business Ethics.

CODE OF
BUSINESS
ETHICS

The Code of Business
Ethics can be found at
www.ericsson.com/
code-of-business-ethics

Information on the Ericsson website
does not form part of this Report.

ericsson’s core values

Professionalism

Respect

Perseverance

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governance sTrucTure

GovErNANCE sTruCTurE

The shareholders may exercise their decision-making rights in
the Company at General Meetings of shareholders.

A Nomination Committee is appointed by the major
shareholders in accordance with a procedure adopted by
the Annual General Meeting of shareholders. One of the
tasks of the Nomination Committee is to propose candidates
for election to the Board of Directors at the Annual General
Meeting of shareholders.

The Board of Directors is ultimately responsible for the

organization of Ericsson and the management of its operations.
In addition to the Directors elected by the shareholders, the
Board of Directors consists of employee representatives
appointed by the unions.

The President and CEO, appointed by the Board of
Directors, is responsible for the day to day management of
Ericsson in accordance with instructions from the Board. The
President and CEO is supported by the Executive Leadership
Team.

The external auditor of Ericsson is elected by the General

Meeting of shareholders.

sHArEHolDErs

ownership structure

As of December 31, 2011, Telefonaktiebolaget LM Ericsson
(the “Parent Company”) had 592,542 shareholders (according
to the share register kept by Euroclear Sweden AB).
Institutions, both Swedish and international, own approximately
80% of the shares. The largest shareholders are Investor
AB, holding 21.48% of the votes and AB Industrivärden,
holding 19.92% of the votes (together with Svenska
Handelsbankens Pensionsstiftelse and Pensionskassan SHB
Försäkringsförening).

A significant number of the shares held by foreign investors

are nominee-registered, i.e. held off-record by banks, brokers
and/or nominees. This means that the actual shareholder is not
displayed in the share register or included in the shareholding
statistics.

More information on Ericsson’s shareholders can be found in

the chapter “Share Information” in the Annual Report.

shares and voting rights

The share capital of the Parent Company consists of two
classes of listed shares: A and B shares. Each Class A share
carries one vote and each Class B share carries one tenth of
one vote. Class A and B shares entitle the holder to the same
proportion of assets and earnings and carry equal rights to
dividends.

The Parent Company may also issue Class C shares in

order to create treasury stock to finance and hedge long-
term variable remuneration programs resolved by the General
Meeting of shareholders. The Class C shares are converted into
Class B shares before they are used for the long-term variable
remuneration programs.

The members of the Board of Directors and the Executive

Leadership Team have the same voting rights on shares as
other shareholders.

shareholders

governance sTrucTure

Ownership percentage (voting rights)

Swedish institutions. 59.29%, of which:
– Investor AB: 21.48%
– AB Industrivärden (together with SHB
Pensionsstiftelse and Pensionskassan
SHB Försäkringsförening): 19.92%

Foreign investors: 27.95%
Retail Swedish investors: 7.00%
Other: 5.76%

Source: Capital Precision

General Meetings of shareholders
Annual General Meeting/
Extraordinary General Meeting

Unions

Board of Directors
12 Directors elected by the General Meetings of shareholders
3 Directors and 3 Deputies appointed by the Unions

Audit
Committee

Finance
Committee

Remuneration
Committee

Nomination
Committee

External
Auditor

President and CEO

Management

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129

general meeTing of shareholders

GENErAl mEETING of sHArEHolDErs
decision-making at general meetings

Decisions of the AGM 2011 included:

The decision-making rights of Ericsson’s shareholders
are exercised at General Meetings of shareholders. Most
resolutions at General Meetings are passed by a simple
majority. However, the Swedish Companies Act requires
qualified majorities in certain cases, for example in case of:
> Amendment of the articles of association
> Resolution to transfer own shares to employees participating

in long-term variable remuneration programs.

> Payment of a dividend of SEK 2.25 per share for 2010
> Election of Leif Johansson as new Chairman of the Board of

Directors

> Re-election of members of the Board of Directors:

Roxanne S. Austin, Sir Peter L. Bonfield, Börje Ekholm,
Ulf J. Johansson, Sverker Martin-Löf, Nancy McKinstry,
Anders Nyrén, Carl-Henric Svanberg, Hans Vestberg and
Michelangelo Volpi

> Election of Jacob Wallenberg as a new member of the Board

The annual general meeting
of shareholders

of Directors

> Board of Directors’ fees:

The Annual General Meeting of shareholders (AGM) is held in
Stockholm. The date and venue for the meeting is announced
on the Ericsson website no later than at the time of release of
the third-quarter interim financial report.

Shareholders who cannot participate in person may be
represented by proxy. Only shareholders registered in the share
register have voting rights. Nominee-registered shareholders
who wish to vote may request to be entered into the share
register by the record date for the AGM.

The AGM is held in Swedish and is simultaneously
interpreted into English. All documentation provided by the
Company is available in both Swedish and English.

The AGM gives shareholders the opportunity to raise
questions relating to the operations of the Group. Ericsson
always strives to ensure that the members of the Board of
Directors and the Executive Leadership Team are present to
answer such questions. Shareholders and other interested
parties may also correspond in writing with the Company at
any time.

The external auditor is always present at the AGM.

ericsson’s annual general meeting 2011

Including shareholders represented by proxy,
2,263 shareholders attended the AGM held on April 13, 2011,
representing approximately 64% of the votes.

The meeting was also attended by the Board of Directors,
members of the Executive Leadership Team and the external
auditor.

– Chairman: SEK 3,750,000 (unchanged)
– Other non-employed Board members: SEK 825,000 each

(previously SEK 750,000)

– Chairman of the Audit Committee: SEK 350,000

(unchanged)

– Other non-employed members of the Audit Committee:

SEK 250,000 each (unchanged)

– Chairmen of the Finance and Remuneration Committees:

SEK 200,000 each (previously SEK 125,000)

– Other non-employed members of the Finance and

Remuneration Committees: SEK 175,000 each (previously
SEK 125,000)

> Approval for part of the Directors’ fees to be paid in the form

of synthetic shares

> Approval of guidelines for remuneration to the Executive

Leadership Team
Implementation of a Long-Term Variable Remuneration
Program 2011

> Approval of the Board of Directors’ proposal to amend

the articles of association to adjust the description of the
objects of the Parent Company to the Group’s strategy to
expand into new industry segments.

The minutes of the AGM 2011 are available at:
http://www.ericsson.com/res/investors/docs/2011/agm/
amg2011_minutes_en.pdf (information on the Ericsson website
does not form part of this Report).

annual general meeTing 2012

Ericsson’s AGM 2012 will take place on May 3, 2012 at Kistamässan in
Kista, Stockholm.

Shareholders who wish to have a matter addressed at the AGM may

submit their written request to the Board in due time before the AGM.
Further information is available on Ericsson’s website. (Information on the
Ericsson website does not form part of this Report.)

conTacT The
Board of direcTors

Telefonaktiebolaget LM Ericsson
The Board of Directors Secretariat
SE-164 83 Stockholm
Sweden

boardsecretariat@ericsson.com

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NomINATIoN CommITTEE

Work of the nomination committee
for the agm 2012

nominaTion commiTTee

The Nomination Committee starts its work by going through
a checklist of all its duties according to the Code and
the appointment procedure, resolved by the AGM. The
Committee also sets a time plan for its work ahead. A thorough
understanding of Ericsson’s business is paramount to the role
of the members of the Committee. Therefore, the President
and CEO is invited to, together with the Chairman of the Board,
present their views on the Company’s position and strategy.

The Committee has been thoroughly informed of the results
of the evaluation of the Board work and procedures, including
the performance of the Chairman of the Board. From this basis
the Committee can make assessments on the competence and
experience required by Board members.

The Committee has acquainted itself with the assessments

made by the Company and the Audit Committee on the
quality and efficiency of external auditor work, including
recommendations regarding auditors and audit fees. As of
February 24, 2012 the Nomination Committee has held six
meetings.

Shareholders may submit proposals to the Nomination
Committee at any time, but should do so in due time
before the AGM to ensure that the proposals can be
considered by the Committee. Further information is
available on Ericsson’s website. (Information on the
Ericsson website does not form part of this Report.)

conTacT The nominaTion commiTTee

Telefonaktiebolaget LM Ericsson
The Nomination Committee
c/o General Counsel’s Office
SE-164 83 Stockholm
Sweden

nomination.committee@ericsson.com

A Nomination Committee was elected by the AGM for the
first time in 2001. Since then, each AGM has appointed a
Nomination Committee, or resolved on the procedure for
appointing the Nomination Committee.

The AGM 2011 resolved that the Nomination Committee

shall consist of:
> Representatives of the four largest shareholders by voting
power by the end of the month in which the AGM was held

> The Chairman of the Board of Directors.

As described in the procedure for appointing members to the
Nomination Committee, the Committee may include additional
members following a request by a shareholder. The request
must be justified by changes in the shareholder’s ownership of
shares and be received by the Nomination Committee no later
than December 31. No fees are paid to the members of the
Nomination Committee.

members of the nomination committee

In addition to the Chairman of the Board of Directors, the
current Nomination Committee consists of four representatives
appointed by the four shareholders with the largest voting
power as of April 29, 2011:
> Carl-Olof By (AB Industrivärden, Svenska Handelsbankens
Pensionsstiftelse), Chairman of the Nomination Committee

> Petra Hedengran (Investor AB)
> Caroline af Ugglas (Livförsäkringsaktiebolaget Skandia)
> Marianne Nilsson (Swedbank Robur Fonder).

The tasks of the nomination committee

Over the years the tasks of the Nomination Committee have
evolved to comply with the requirements of the Code. The
main task of the Committee remains to propose candidates for
election to the Board of Directors. In doing this, the Committee
must not only orientate itself on the Company’s strategy and
future challenges to be able to assess the competence and
experience that is required by the Board; it must also consider
all applicable rules on independence of the Board of Directors.
The Committee also prepares remuneration proposals for
resolution by the AGM to non-employed Directors elected by
the AGM and to the auditor.

The assignment of the Nomination Committee further

includes proposing auditors, whereby candidates are selected
in cooperation with the Audit Committee of the Board. The
Committee also proposes a candidate for election of the
Chairman at the Annual General Meeting.

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131

Board of direcTors

BoArD of DIrECTors

The Board of Directors is ultimately responsible for the
organization of Ericsson and the management of Ericsson’s
operations. The Board of Directors develops guidelines and
instructions for day-to-day operations, managed by the
President and CEO. The President and CEO ensures that
the Board is updated regularly on events of importance to
the Group. This includes updates on business development,
results, financial position and the liquidity of the Group.

According to the Articles of Association, the Board of
Directors shall consist of no less than five and no more than
twelve directors, with no more than six deputies. In addition,
under Swedish law, trade unions have the right to appoint three
directors and their deputies to the Board.

Directors serve from the close of one AGM to the close of

the next, but can serve any number of consecutive terms.
The President and CEO may be elected director of the
Board, but under the Swedish Companies Act the President of
a public company may not be elected Chairman of the Board.

rules and regulations

Ericsson strictly follows rules and regulations regarding
conflicts of interest. Directors are disqualified from participating
in any decision regarding agreements between themselves and
Ericsson. The same applies to agreements between Ericsson
and any third party or legal entity in which the Board member
has an interest.

The Audit Committee has implemented a procedure on
related-party transactions and a pre-approval process for non-
audit services carried out by the external auditor.

composition of the Board of directors

The Board of Directors consists of 12 Directors, including the
Chairman of the Board, elected by the shareholders at the AGM

2011 for the period until the close of the AGM 2012. It also
includes three employee representatives, each with a deputy,
appointed by the trade unions for the same period of time. The
President and CEO, Hans Vestberg, is the only Board member
who was also a member of Ericsson’s management during
2011.

Work procedure

Pursuant to the Swedish Companies Act, the Board of Directors
has adopted a work procedure that outlines rules for the
distribution of tasks between the Board and its Committees as
well as between the Board, its Committees and the President
and CEO. This complements the regulation in the Swedish
Companies Act and in the Articles of Association of the
Company. The work procedure is reviewed, evaluated and
adopted by the Board as required and at least once a year.

independence

The Board of Directors and its Committees are subject to
a variety of independence requirements. Ericsson applies
independence rules in applicable Swedish law, the Code, the
NASDAQ New York Stock Market Rules and in the Sarbanes-
Oxley Act of 2002. However, Ericsson has sought and received
exemptions from certain requirements in the Sarbanes-Oxley
Act and in the NASDAQ New York Stock Market Rules that are
contrary to Swedish law.

The composition of the Board of Directors meets all

applicable independence criteria.

The Nomination Committee concluded before the AGM 2011

that, for the purposes of the Code, at least six of the persons
nominated to the Board were independent of Ericsson, its
senior management and its major shareholders. These were
Roxanne S. Austin, Sir Peter L. Bonfield, Leif Johansson, Ulf J.
Johansson, Nancy McKinstry and Michelangelo Volpi.

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structure of the work of the Board of directors

> Budget and financial outlook meeting

Board of direcTors

A meeting is held for the Board to address budget and
financial outlook as well as further analysis of internal and
external risks.

> fourth quarter and full-year financial results meeting

Following the end of the calendar year, the Board holds a
meeting which focuses on the financial results of the entire
year and handles the fourth-quarter financial report.

> annual report meeting

The Annual Report meeting closes the yearly cycle of work
of the Board of Directors and at this meeting the Board
approves the Annual Report.

As the Board is responsible for financial oversight, financials are
presented and evaluated at each Board meeting. Furthermore,
each Board meeting generally includes reports on Committee
work by the Chairman of each Committee. In addition, minutes
from the Committee meetings are distributed to all Directors
prior to the Board meeting.

At each Board meeting, the President and CEO reports on
business and market developments as well as on the financial
performance of the Company. The Board is regularly informed
of developments in legal and regulatory matters of importance.

The work of the Board follows a yearly cycle. This enables the
Board to appropriately address each of its duties and to keep
strategy, risk assessment and value creation high on the agenda.
> statutory meeting

The yearly cycle starts with the statutory Board meeting
which is held in connection with the AGM. At this meeting,
members of each of the three Committees are appointed
and the Board resolves on matters such as signatory power.

> first interim report meeting

At the next ordinary meeting, the Board handles the interim
financial report for the first quarter of the year.

> main strategy meeting

Various strategic issues are addressed at most of the Board
meetings. In accordance with the annual cycle for the
strategy process, a main strategy Board meeting is also
held, which is in essence dedicated to short and long-term
strategies of the Group. Following the Board’s input on and
approval of the overall strategy, the strategy is cascaded
throughout the entire organization, starting at the Global
Leadership Summit with Ericsson’s top 250 managers.

> second interim report meeting

At the second interim report meeting, the Board convenes to
handle the interim financial report for the second quarter of
the year.

> follow-up strategy and risk management meeting
Following the summer, a meeting is held to address
particular strategy matters in further detail and to finally
confirm the Group strategy. The meeting also addresses the
overall risk management of the Group.

> Third interim report meeting

A Board meeting is held to handle the interim financial report
for the third quarter of the year. At this meeting, the results
of the Board evaluation are presented to and discussed by
the Board.

The Board’s annual Work cycle

Budget and financial outlook meeting

Fourth quarter and full-year financial results meeting
> Financial result of the entire year

Third interim report meeting
> Q3 Financial report
> Board work evaluation
> Board training

Follow-up strategy and
risk management meeting

Nov

Dec

Jan

Feb

Annual Report meeting
> Board signs the annual report
> Board training

Oct

Sep

Aug

Board
meetings
– annual cycle

Mar

Apr

Statutory meeting (in connection with AGM)
> Appointment of Committee Members
> Authorization to sign for the Company

Jul

Jun

May

First interim report meeting
> Q1 Financial report

Second interim report meeting
> Q2 Financial report

Main strategy meeting

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133

Board of direcTors

auditor involvement

The Board meets with Ericsson’s external auditors at least once
a year to receive and consider the auditors’ observations. The
auditors report to management on the accounting and financial
reporting practices of the Group.

The Audit Committee also meets with the auditors to receive

and consider observations on the interim reports and the
Annual Report. The auditors have been instructed to report
on whether the accounts, the management of funds and the
general financial position of the Group are well controlled in all
material respects.

The Board also reviews and assesses the process for
financial reporting, as described later in “Internal control over
financial reporting 2011”. Combined with the internal controls,
the Board’s and the auditors’ review of interim and annual
reports are deemed to give reasonable assurance on the quality
of the financial reporting.

Training of the Board of directors

All new Directors receive comprehensive training tailored to
their individual needs. Introductory training typically includes
meetings with the heads of the business units and Group
functions, as well as training arranged by NASDAQ OMX
Stockholm on listing issues and insider rules. In addition, full-
day training sessions are held twice a year for all Directors.
These sessions enhance their knowledge of specific operations
and issues as appropriate to ensure that the Board has
knowledge and understanding at the forefront of technical
development and of the business activities of the Group.

As a rule, the Board receives Sustainability and Corporate

Responsibility training at least once a year.

Key focus areas in Board training 2011 were:

> Technology, research and thought leadership. Being

the thought leader is being the prime driver, while also
introducing entirely new thoughts, ideas and concepts

> Growth drivers and market trends.

Work of the Board of directors in 2011

In 2011, 12 Board meetings were held. For attendance at
Board meetings see the table on page 137. Among the matters
addressed by the Board this year (apart from regular matters in
the annual Board work cycle) were:
> A number of acquisitions, including Nortel’s Multiservices
Switch business, GDNT in China, Telcordia and the M2M
technology platform from Telenor Connexion

> Exclusive strategic alliance with Akamai to create mobile

cloud acceleration solutions

> Acquisition of a Nortel patent portfolio as part of a

consortium of technology companies

> Continued focus on effects of the general financial uncertainty
on the market, including effects of the political unrest in
the Middle East and Africa, the earthquake and tsunami in
Japan and other natural disasters

> Sale of Ericsson’s share of Sony Ericsson to Sony
> An increased focus on patents and licensing as a key

revenue area with growth opportunities.

Board work evaluation

A key objective of the Board evaluation is to ensure that
the Board is functioning well. This includes gaining an
understanding of the issues which the Board thinks warrant
greater focus, as well as determining areas where additional
competence is needed within the Board. The evaluation also
serves as guidance for the work of the Nomination Committee.
Each year, the Chairman of the Board initiates and leads
the evaluation of Board and Committee work and procedures.
The evaluation tools include detailed questionnaires and
discussions.

In 2011, all the Directors responded to three separate written

questionnaires, covering the Director’s individual performance,
Board work in general and the Chairman’s performance. The
Chairman was not involved in the development or compilation
of the questionnaire which related to his performance, nor
was he present when his performance was evaluated. The
evaluations were thoroughly discussed and an action plan was
developed in order to further improve the work of the Board.

CommITTEEs of THE
BoArD of DIrECTors
The Board of Directors has established three Committees:
the Audit Committee, the Finance Committee and the
Remuneration Committee. Members of each Committee
are appointed for one year amongst the Board members in
accordance with the Swedish Companies Act and the Code.
The task of the Committees is mainly to prepare matters

for final resolution by the Board. However, the Board has
authorized each Committee to determine certain issues in
limited areas. It may also on occasion provide extended
authorization to the Committees to determine specific matters.
If deemed appropriate, the Board of Directors and each
Committee have the right to engage external expertise, either in
general or in respect to specific matters.

organizaTion of The Board Work

Board of Directors
15 Directors

Finance
Committee
(4 Directors)

> Financing
> Investing
> Customer credits

Remuneration
Committee
(4 Directors)

> Remuneration policy
> Long-Term Variable
Remuneration
> Executive
compensation

Audit
Committee
(5 Directors)

> Oversight over
financial reporting
> Oversight over
internal control
> Oversight over
auditing

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Prior to every Board meeting, each Committee submits to
the Board minutes from Committee meetings held since the last
Board meeting. The Chairman of the Committee also reports on
the Committee work at each Board meeting.

The Audit Committee has also established the following:
> A process for reviewing transactions with related parties
> A whistleblower procedure for the reporting of violations

relating to accounting, internal control and auditing matters.

commiTTees of The
Board of direcTors

audit committee

On behalf of the Board, the Audit Committee monitors
the following:
> The scope and correctness of the financial statements
> Compliance with legal and regulatory requirements

Internal control over financial reporting

>
> Risk management.

The Audit Committee also reviews the annual and interim
financial reports and oversees the external audit process,
including audit fees. This involves:
> Reviewing, with management and the external auditors,
the financial statements (including their conformity with
generally accepted accounting principles)

> Reviewing, with management, the reasonableness of

significant estimates and judgments made in preparing the
financial statements, as well as the quality of the disclosures
in the financial statements

> Reviewing matters arising from reviews and audits performed.

The Audit Committee itself does not perform audit work.
Ericsson has an internal audit function which reports to the
Audit Committee and performs independent audits.

The Committee is also involved in the preparatory work

of proposing candidates for election of the auditor. It also
monitors Group transactions and the ongoing performance and
independence of the auditors with the aim to avoid conflicts of
interest.

In order to ensure the auditors’ independence, the Audit

Committee has established pre-approval policies and
procedures for non-audit related services to be performed
by the external auditors. Pre-approval authority may not be
delegated to management.

memBers of The commiTTees

Members of the Committees of the Board of Directors 2011

Audit
Committee

Finance
Committee

> Ulf J Johansson
(Chairman)
> Roxanne S. Austin
> Sir Peter L. Bonfield
> Jan Hedlund
> Sverker Martin-Löf

> Leif Johansson
(Chairman)
> Pehr Claesson
> Anders Nyrén
> Jacob Wallenberg

Remuneration
Committee

> Leif Johansson
(Chairman)
> Börje Ekholm
> Nancy McKinstry
> Karin Åberg

Alleged violations are investigated by Ericsson’s internal audit
function together with the relevant Group function. Information
regarding any incident is reported to the Audit Committee.
Reports include measures taken, details of the responsible
Group function and the status of any investigation.

memBers of The audiT commiTTee

The Audit Committee consists of five Board members
appointed by the Board. In 2011, the Audit Committee
comprised Ulf J. Johansson (Chairman of the Committee),
Roxanne S. Austin, Sir Peter L. Bonfield, Jan Hedlund and
Sverker Martin-Löf.

The composition of the Audit Committee meets all
applicable independence requirements. Each member is
financially literate and familiar with the accounting practices
of an international company such as Ericsson. The Board of
Directors has determined that Ulf J. Johansson, Roxanne S.
Austin, Sir Peter L. Bonfield and Sverker Martin-Löf all satisfy
the requirement of being an audit committee financial expert, in
accordance with the Sarbanes-Oxley Act, Section 407. Each of
them fulfill relevant US independence requirements.

Former authorized public accountant Peter Markborn has
been appointed external expert advisor to assist and advise the
Audit Committee.

Work of The audiT commiTTee in 2011

The Audit Committee held 8 meetings in 2011. Directors’
attendance is reflected in the table on page 137. During the
year, the Audit Committee reviewed the scope and results of
external financial audits and the independence of the external
auditor. It also monitored the external audit fees and approved
non-audit services performed by the external auditor in
accordance with the Committee’s pre-approval policies and
procedures.

The Committee approved the annual audit plan for the

internal audit function and reviewed its reports. Prior to
publishing, the Committee also reviewed and discussed each
interim report with the external auditor.

The Committee monitored the continued compliance with
the Sarbanes-Oxley Act as well as the internal control and risk
management process. It also reviewed certain related-party
transactions in accordance with its established process.

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Ericsson Annual Report 2011 | CORPORATE GOVERNANCE REPORT

135

To achieve this, the Committee holds annual remuneration
reviews with Company representatives. These reviews
determine the strategic direction, and align program designs
and remuneration policies with the business objectives.

Consideration is given to trends in remuneration, legislative
changes, disclosure rules and the general global environment
surrounding executive remuneration. The Committee reviews
salary survey data before approving any salary adjustment for
CEO direct reports. In addition, the Committee prepares salary
adjustments for the President and CEO for resolution by the
Board.

memBers of The remuneraTion commiTTee

The Remuneration Committee consists of four Board members
as appointed by the Board. In 2011, the Remuneration
Committee comprised: Leif Johansson (Chairman of the
Committee), Börje Ekholm, Nancy McKinstry and Karin Åberg.
Piia Pilv was appointed by the Remuneration Committee in

September 2011 as an independent expert advisor to assist
the Committee, particularly regarding international trends and
developments. Piia Pilv replaced Gerrit Aronson as expert advisor.

Work of The remuneraTion commiTTee in 2011

The Remuneration Committee held 8 meetings in 2011.
Directors’ attendance is reflected in the table on page 137.
The Committee reviewed and prepared for resolution by
the Board a proposal for the Long-Term Variable remuneration
program 2011. This was approved by the AGM 2011. The
Committee further resolved on salaries and Short Term Variable
remuneration for 2011 for CEO direct reports. It prepared
remuneration to the President and CEO, for resolution by the
Board. The Committee also prepared a remuneration policy and
guidelines for remuneration to the Executive Leadership Team,
which were subsequently referred by the Board to the AGM for
approval.

Towards the end of the year, the Committee concluded
its analysis of the current Long-Term Variable remuneration
structure and remuneration policy. The resulting proposals will
be referred to the AGM 2012 for resolution.

For further information on fixed and variable remuneration,

please see Notes to the Consolidated Financial Statements
– Note C28 “Information Regarding Members of the Board of
Directors, the Group management and Employees” and the
“Remuneration Report” included in the Annual Report.

commiTTees of The
Board of direcTors

finance committee

The Finance Committee is primarily responsible for:
> Handling matters related to acquisitions and divestments
> Handling capital contributions to companies inside and

outside the Ericsson Group

> Raising of loans, issuances of guarantees and similar
undertakings, and the approval of financial support to
customers and suppliers

> Continuously monitoring the Group’s financial risk exposure.

The Finance Committee is authorized to determine matters
such as:
> Direct or indirect financing
> Provision of credits
> Granting of securities and guarantees
> Certain investments, divestments and financial

commitments.

memBers of The finance commiTTee

The Finance Committee consists of four Board members as
appointed by the Board. In 2011, the Finance Committee
comprised: Leif Johansson (Chairman of the Committee), Pehr
Claesson, Anders Nyrén and Jacob Wallenberg.

Work of The finance commiTTee in 2011

The Finance Committee held 6 meetings in 2011. Directors’
attendance is reflected in the table on page 137. During the
year, the Finance Committee has approved numerous customer
finance credit arrangements and reviewed a number of potential
mergers and acquisitions from a financial perspective. As
a result of the uncertainty on the financial markets and the
macro-economic development, the Finance Committee has
focused particularly on discussing and securing an adequate
capital structure, cash flow and cash-generating ability. It has
also continuously monitored Ericsson’s financial position and
credit exposure.

remuneration committee

The Remuneration Committee’s main responsibility is to prepare
for resolution by the Board of Directors matters regarding salary
and other remuneration, including pension benefits of the
President and CEO, the Executive Vice Presidents and other
officers who report directly to the President and CEO. Other
responsibilities include:
> Developing, monitoring and evaluating strategies and general
guidelines for employee remuneration, including Short-Term
Variable remuneration (“STV”) and pension benefits

> Reviewing the results of Short-Term Variable remuneration

plans before pay out

> Preparation of the Long-Term Variable remuneration (“LTV”)

program for referral to the Board and resolution by the
General Meeting of shareholders

> Preparation of targets for Short-Term Variable remuneration

for the following year, for resolution by the Board.

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remuneraTion To Board memBers

rEmuNErATIoN To BoArD mEmBErs

Remuneration to Board members not employed by the
Company is proposed by the Nomination Committee for
resolution by the AGM.

The AGM 2011 approved the Nomination Committee’s
proposal for fees to the non-employed Board members for
Board and Committee work. For information on Board of
Directors’ fees 2011, please refer to Notes to the Consolidated
Financial Statements – Note C28 “Information Regarding
Members of the Board of Directors, the Group management
and Employees” in the Annual Report. The AGM 2011 also
approved the Nomination Committee’s proposal that Board
members may be paid part of their Board fee in the form of
synthetic shares.

A synthetic share gives the right to receive a future cash
payment of an amount which corresponds to the market value
of a class B share in Ericsson at the time of payment. The
director’s right to receive payment with regard to allocated
synthetic shares occurs, as a main rule, after the publication
of the Company’s year-end financial statement during the
fifth year following the general meeting which resolved on the
allocation of the synthetic shares. The purpose of paying part of
the Board of Directors’ fee in the form of synthetic shares is to
further align the Directors’ interest with shareholder interest. For
more information on the terms and conditions of the synthetic
shares, please refer to the notice convening the AGM 2011 at
www.ericsson.com/thecompany/investors/general-meetings.
(Information on the Ericsson website does not form part of this
Report.)

direcTors’ aTTendance and fees 2011

fees resolved by the agm 2011

number of Board/committee meetings attended

Board member

Leif Johansson 2)

Michael Treschow 3)

Sverker Martin-Löf 4)

Jacob Wallenberg 2)
Marcus Wallenberg 3)
Roxanne S. Austin
Sir Peter L. Bonfield
Börje Ekholm
Ulf J. Johansson
Nancy McKinstry
Anders Nyrén
Carl-Henric Svanberg
Hans Vestberg
Michelangelo Volpi
Pehr Claesson 5)
Anna Guldstrand 7)
Jan Hedlund
Karin Åberg
Kristina Davidsson
Karin Lennartsson
Roger Svensson 8)
Total number of meetings

Board fees 1)

committee fees

Board

audit
committee

finance
committee

remuneration
committee

3,750,000

400,000

250,000

175,000

250,000
250,000
175,000
350,000
175,000
175,000

–

825,000

825,000
–
825,000
825,000
825,000
825,000
825,000
825,000
825,000
–
825,000

18,000 6)
6,000 6)
16,500 6)
18,000 6)
18,000 6)
18,000 6)
12,000 6)

8
4
12
12
12
12
11
12
10
12
11
12
4
11
12
12
12
8
12

3
3

8
8

1) Non-employed Directors can choose to receive part of their Board fee (exclusive of Committee fees) in the form of synthetic shares.
2) Elected Board member as of April 13, 2011.
3) Resigned as Board member as of April 13, 2011.
4) Member of the Audit Committee since April 13, 2011.
5) Member of the Finance Committee since April 13, 2011.
6) Employee representative Board members and their deputies are not entitled to a Board fee but a compensation in the amount of SEK 1,500 per attended Board meeting.
7) Resigned as employee representative as of April 13, 2011.
8) Appointed deputy employee representative as of April 13, 2011.

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137

MEMBERS OF THE BOARD OF DIRECTORS

MeMbers of the board of directors

Board members elected by the AGM 2011

Leif Johansson
(first elected 2011)

Chairman of the Board of
Directors, Chairman of the
Remuneration Committee and of
the Finance Committee

Born 1951. Master of Science in
Engineering, Chalmers University
of Technology.

Board Chairman: European
Round Table of Industrialists and
the International Advisory Board
of the Nobel Foundation.

Board Member: Svenska
Cellulosa Aktiebolaget SCA,
the Confederation of Swedish
Enterprise and Ecolean AB.

Sverker Martin-Löf
(first elected 1993)

Deputy Chairman of the Board of
Directors, Member of the Audit
Committee

Born 1943. Doctor of Technology
and Master of Engineering,
Royal Institute of Technology,
Stockholm.

Board Chairman: Skanska
AB, Svenska Cellulosa
Aktiebolaget SCA, SSAB and AB
Industrivärden.

Board Member: Svenska
Handelsbanken AB.

Holdings in Ericsson 1): 10,400
Class B shares.

Holdings in Ericsson 1): 17,933 Class B shares.

Principal work experience and other information: President and CEO
of AB Volvo 1997-2011. Executive Vice President of AB Electrolux
1988-1991, President 1991-1994 and President and CEO of AB
Electrolux 1994-1997. Member of the Royal Swedish Academy of
Engineering Sciences. Holds honorary Doctorates at Blekinge Institute
of Technology and the University of Gothenburg. Awarded the large gold
medal of the Royal Swedish Academy of Engineering Sciences in 2011.

Principal work experience and other information: President and CEO
of Svenska Cellulosa Aktiebolaget SCA 1990–2002, where he was
employed 1977–1983 and 1986–2002. Previous positions at Sunds
Defibrator and Mo och Domsjö AB.

Jacob Wallenberg
(first elected 2011)

Deputy Chairman of the Board of
Directors, Member of the Finance
Committee

Born 1956. Bachelor of Science
in Economics and Master
of Business Administration,
Wharton School, University of
Pennsylvania, Officer of the
Reserve, Swedish Navy.

Board Chairman: Investor AB.

Deputy Board Chairman: Atlas
Copco AB, SAS AB and SEB
Skandinaviska Enskilda Banken
AB (SEB).

Board member: ABB Ltd., The
Coca-Cola Company, The Knut and Alice Wallenberg Foundation and
Stockholm School of Economics.

Holdings in Ericsson 1): 750 Class A shares and 3,413 Class B shares.

Principal work experience and other information: Chairman of the
Board of Investor AB since 2005. Extensive experience in banking and
finance, including experience from the commercial banks JP Morgan,
New York and SEB. Appointed President and CEO of SEB in 1997 and
appointed Chairman of SEB’s Board of Directors in 1998. Executive
Vice President and CFO of Investor AB 1990-1993. Chairman of IBLAC
(Mayor of Shanghai’s International Business Leaders Advisory Council)
and a member of The European Round Table of Industrialists.

Roxanne S. Austin
(first elected 2008)

Member of the Audit Committee

Born 1961. Bachelor of Business
Administration in Accounting,
University of Texas, San Antonio,
USA.

Board Member: Abbott
Laboratories, Teledyne
Technologies Inc. and Target
Corporation.

Holdings in Ericsson 1): 3,000
Class B shares.

Principal work experience and
other information: President of
Austin Investment Advisors since
2004. President and CEO of Move
Networks Inc. 2009–2010. President and CEO of DIRECTV 2001–2003.
Corporate Senior Vice President and CFO of Hughes Electronics
Corporation 1997–2000, which she joined in 1993. Previously a partner
at Deloitte & Touche. Member of the board of trustees of the California
Science Center. Member of the California State Society of certified
Public Accountants and the American Institute of Certified Public
Accountants.

1) The number of shares reflects ownership as of December 31, 2011 and includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.

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Sir Peter L. Bonfield
(first elected 2002).

Member of the Audit Committee

Born 1944. Honors degree in
Engineering, Loughborough
University, Leicestershire, UK.

Board Chairman: NXP
Semiconductors N.V.

Deputy Board Chairman: British
Quality Foundation.

Board Member: Mentor Graphics
Inc., Sony Corporation, TSMC
and Actis Capital LLP.

Holdings in Ericsson 1): 4,400
Class B shares.

Principal work experience and
other information: CEO and
Chairman of the Executive Committee of British Telecommunications
plc. 1996–2002. Chairman and CEO of ICL plc 1985–1996. Positions
with STC plc and Texas Instruments Inc. Member of the Advisory
Boards of New Venture Partners LLP, the Longreach Group and Apax
Partners LLP. Board Mentor of CMi. Senior Advisor, Rothschild, London.
Fellow of the Royal Academy of Engineering.

Ulf J. Johansson
(first elected 2005)

Chairman of the Audit Committee

Born 1945. Doctor of Technology
and Master of Science in
Electrical Engineering, Royal
Institute of Technology,
Stockholm.

Board Chairman: Acando AB,
Eurostep Group AB, Novo A/S,
Novo Nordisk Foundation and
Trimble Navigation Ltd.

Holdings in Ericsson 1): 6,435
Class B shares.

Principal work experience and
other information: Founder of
Europolitan Vodafone AB, where
he was the Chairman of the Board 1990–2005. Previous positions
at Spectra-Physics AB as President and CEO and at Ericsson Radio
Systems AB. Member of the Royal Academy of Engineering Sciences.

MEMBERS OF THE BOARD OF DIRECTORS

Börje Ekholm
(first elected 2006)

Member of the Remuneration
Committee

Born 1963. Master of Science
in Electrical Engineering,
Royal Institute of Technology,
Stockholm. Master of Business
Administration, INSEAD, France.

Board Chairman: Royal Institute
of Technology, Stockholm.

Board Member: Investor AB, AB
Chalmersinvest, EQT Partners
AB, Husqvarna AB, Nasdaq OMX
Group Inc. and Scania AB.

Holdings in Ericsson 1): 30,760
Class B shares.

Principal work experience and other information: President and CEO
of Investor AB since 2005. Formerly Head of Investor Growth Capital
Inc. and New Investments. Previous positions at Novare Kapital AB and
McKinsey & Co Inc.

Nancy McKinstry
(first elected 2004)

Member of the Remuneration
Committee

Born 1959. Master of Business
Administration in Finance and
Marketing, Columbia University,
USA. Bachelor of Arts in
Economics, University of Rhode
Island, USA.

Board Chairman: CEO and
Chairman of the Executive Board
of Wolters Kluwer n.v.

Board Member: TiasNimbas
Business School, Sanoma
Corporation.

Holdings in Ericsson 1): 4,000
Class B shares.

Principal work experience and other information: CEO and Chairman
of the Executive Board of Wolters Kluwer n.v. President and CEO of
CCH Legal Information Services 1996–1999. Previous positions at
Booz, Allen & Hamilton and New England Telephone Company. Member
of the Advisory Board of the University of Rhode Island, the Advisory
Council of the Amsterdam Institute of Finance, the Board of Overseers
of Columbia Business School and the Advisory Board of the Harrington
School of Communication and Media.

1) The number of shares reflects ownership as of December 31, 2011 and includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.

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MEMBERS OF THE BOARD OF DIRECTORS

Anders Nyrén
(first elected 2006)

Member of the Finance
Committee

Born 1954. Graduate of
Stockholm School of Economics,
Master of Business Administration
from Anderson School of
Management, UCLA, USA.

Board Chairman: Sandvik AB.

Deputy Board Chairman:
Svenska Handelsbanken AB.

Board Member: Svenska
Cellulosa Aktiebolaget SCA, AB
Industrivärden, SSAB, AB Volvo,
Ernströmgruppen and Stockholm
School of Economics.

Holdings in Ericsson 1): 6,686 Class B shares.

Principal work experience and other information: President and CEO
of Industrivärden since 2001. CFO and EVP of Skanska AB 1997–2001.
Director Capital Markets of Nordbanken 1996–1997. CFO and EVP of
Securum AB 1992–1996. Managing Director of OM International AB
1987–1992. Earlier positions at STC Scandinavian Trading Co AB and
AB Wilhelm Becker.

Carl-Henric Svanberg
(first elected 2003)

Born 1952. Master of Science,
Linköping Institute of Technology.
Bachelor of Science in Business
Administration, University of
Uppsala.

Board Chairman: BP p.l.c.

Board Member: Melker Schörling
AB.

Holdings in Ericsson 1): 3,234,441
Class B shares.

Principal work experience and
other information: President and
CEO of Telefonaktiebolaget LM
Ericsson 2003-2009. President
and CEO of Assa Abloy AB
1994–2003. Various positions within Securitas AB 1986–1994 and Asea
Brown Boveri (ABB) 1977–1985. Member of the Steering Committee of
the Global Alliance for Information and Communication Technologies
and Development (GAID), the External Advisory Board of the Earth
Institute at Columbia University and the Advisory Board of Harvard
Kennedy School. Holds Honorary Doctorates at Luleå University of
Technology and Linköping University. Recipient of the King of Sweden’s
medal for his contribution to Swedish industry.

Hans Vestberg
(first elected 2010)

Born 1965. Bachelor of Business
Administration and Economics,
University of Uppsala.

Board Chairman: ST-Ericsson and
Svenska Handbollförbundet.

Board Member: Sony Ericsson
Mobile Communications AB and
Thernlunds AB.

Holdings in Ericsson 1): 116,535
Class B shares.

Principal work experience and
other information: President
and CEO of Telefonaktiebolaget
LM Ericsson since January
1, 2010. First Executive Vice
President until December 31, 2009. Chief Financial Officer and Head of
Group Function Finance until October 31, 2009. Previously Executive
Vice President and Head of Business Unit Global Services. Various
positions in the Group since 1988, including Vice President and Head
of Market Unit Mexico and Head of Finance and Control in USA, Brazil
and Chile. International advisor to the Governor of Guangdong, China
and co-chairman of the Russian-Swedish Business Council. Member
of the Broadband Commission for Digital Development, heading
the broadband and climate-change workstream and member of the
advisory board of the Digital Health Initiative.

Michelangelo Volpi
(first elected 2010)

Born 1966. Bachelor of Science
in Mechanical Engineering
and Masters in Manufacturing
Systems Engineering from
Stanford University, USA. MBA
from the Stanford Graduate
School of Business, USA.

Board Member: None.

Holdings in Ericsson 1): None.

Principal work experience and
other information: Partner at
Index Ventures since July 2009.
Previously CEO of Joost Inc..
Various positions in Cisco from
1994-2007, including Senior Vice
President & General Manager of
the Routing and Service Provider Technology Group and Chief Strategy
Officer. Has also worked for Hewlett Packard in the optoelectronics
division.

1) The number of shares reflects ownership as of December 31, 2011 and includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.

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MeMbers of the board of directors

Board members and deputies appointed by the unions

MEMBERS OF THE BOARD OF DIRECTORS

Pehr Claesson (first appointed 2008)

Jan Hedlund (first appointed 1994)

Karin Åberg (first appointed 2007)

Employee representative, Member of the
Finance Committee

Employee representative, Member of the
Audit Committee

Employee representative, Member of the
Remuneration Committee

Born 1946. Appointed by the union IF Metall.

Born 1959. Appointed by the union Unionen.

Born 1966. Appointed by the union The
Swedish Association of Graduate Engineers.

Holdings in Ericsson 1): 767 Class B shares.

Holdings in Ericsson 1): 1,259 Class B
shares.

Employed since 1997. Working with
marketing and communication for Consulting
and Systems Integration within Business Unit
Global Services.

Employed since 1982. Previously working
with model production mechanics within
Business Unit Networks. Currently working
full time as union representative.

Holdings in Ericsson 1): 2,289 Class B shares.

Employed since 1995. Working as a Service
Engineer within the IT organization.

Kristina Davidsson
(first appointed 2006)

Karin Lennartsson
(first appointed 2010)

Roger Svensson
(first appointed 2011)

Deputy employee representative

Born 1955. Appointed by the union IF Metall.

Born 1957. Appointed by the union Unionen.

Holdings in Ericsson 1): 1,369 Class B shares.

Holdings in Ericsson 1): 404 Class B shares.

Employed since 1995. Previously working
as repairer within Business Unit Networks
and currently working full time as union
representative.

Employed since 1976. Working as Process
Expert within Group Function Finance –
Process Management.

Born 1971. Appointed by the union The
Swedish Association of Graduate Engineers.

Holdings in Ericsson 1): 6,031 Class B
shares.

Employed since 1999. Working as Senior
Specialist Test Strategy Power Amplifier
within Business Unit Networks.

Hans Vestberg was the only Director who
held an operational management position
at Ericsson in 2011. No Director has been
elected pursuant to an arrangement or
understanding with any major shareholder,
customer, supplier or other person.

At the Annual General Meeting 2011, Leif
Johansson replaced Michael Treschow as
Chairman of the Board of Directors and Jacob
Wallenberg replaced Marcus Wallenberg as
Deputy Chairman of the Board of Directors.
Anna Guldstrand resigned as employee
representative of the Board of Directors as

of the date of the Annual General Meeting
2011 and Pehr Claesson was appointed
employee representative as of the same date
(previously deputy employee representative).
Roger Svensson was appointed new deputy
employee representative as of the date of the
Annual General Meeting 2011.

1) The number of shares reflects ownership as of December 31, 2011 and includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.

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MANAGEMENT

ManageMent

The President/CEO and the Executive
Leadership Team

The Board of Directors appoints the President and CEO and
the Executive Vice Presidents. The President and CEO is
responsible for the management of day-to-day operations
and is supported by the Executive Leadership Team (ELT). In
addition to the President and CEO, the ELT consists of heads
of Group functions, heads of business units and heads of two
of Ericsson’s regions. Up until December 21, 2011, the Chief
Brand Officer was also part of the ELT.

The role of the ELT is to:

> To fulfill the objectives of Ericsson’s major stakeholders

(customers, shareholders, employees)

> Within established risk limits and with reliable internal control

In compliance with relevant applicable laws, listing
requirements, governance codes and corporate social
responsibilities.

The EGMS is founded on ISO 9001 (International Standard for
Quality management system) but is designed as a dynamic
governance system, enabling Ericsson to adapt the system to
evolving demands and expectations, including new legislation
as well as customers’ and other stakeholders’ requirements.
The management system is an important foundation and is
continuously evaluated and improved.

> Establish a strong corporate culture, a long-term vision and

Certificates are evidence from an independent body verifying

Group strategies and policies, all based on objectives stated
by the Board

> Determine targets for operational units, allocate resources

and monitor unit performance

> Secure operational excellence and realize global synergies

through efficient organization of the Group.

Remuneration to the Executive Leadership Team

A remuneration policy including guidelines on remuneration to
the ELT was approved by the AGM 2011. For further information
on fixed and variable remuneration, see the Remuneration
Report and Notes to the Consolidated Financial Statements
– Note C28, “Information Regarding Members of the Board
of Directors, the Group management and Employees” in the
Annual Report.

that the operations fulfill defined requirements. As the EGMS
is a global system, group-wide certificates can be issued by a
third party certification body proving that the system is efficient
throughout the whole organization. Ericsson has a number
of certificates and is currently globally certified to ISO 9001
(Quality) and ISO 14001 (Environment) and is in the process of
obtaining global OHSAS 18001 (Health & Safety) certification.
Ericsson is also ISO 27001 (information security) certified in
selected units.

The EGMS comprises three elements:

> Management and control
> Ericsson business processes
> Organization and resources.

MANAGEMENT AND CONTROL

Strategy and target setting

The Ericsson Group Management System

Ericsson has a global management system, the Ericsson Group
Management System (EGMS) to drive corporate culture and to
ensure that the business is managed:

Ericsson’s strategy and target setting processes consider
the demands and expectations of customers as well as other
key stakeholders. The process facilitates the alignment of
objectives and their measurement in activities at all levels of the
organization.

ERICSSON GROUP MANAGEMENT SySTEM

Demands
and Expectations

Objectives
Strategies

Performance
Improvement

Customers
Key Stakeholders
Business Environment

Management and Control
Vision

Policies and Directives

Corporate Culture

Ericsson Business Processes
IT

Organization and Resources

Satisfaction through
Value Deliverables

Results

Performance
Evaluation

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Ericsson uses balanced scorecards as tools for translating
strategic objectives into a set of performance indicators for its
operational units. Based on the annual strategy work, these
scorecards are updated with targets for each unit for the next
year and are communicated throughout the organization.

Group policies and directives

Group-wide policies and directives govern how the organization
works and are core elements in managing and controlling
Ericsson. The policies and directives include a Code of
Business Ethics, a Code of Conduct and accounting and
reporting directives to fulfill external reporting requirements
and the Sarbanes-Oxley Act. The Group Steering Documents
Committee secures that the policies and directives cover
relevant issues; that they are aligned and consistent with Group
strategies, values and structures; and that they are not in
conflict with legal and regulatory requirements.

ERICSSON BUSINESS PROCESSES

As a market leader, Ericsson utilizes the competitive advantages
that are gained through global scale and has implemented
common processes and IT tools across all operational units
worldwide. Customer requirements are identified, clarified and
formalized in Ericsson Business Processes where requirements
transform from theory to reality. Through management and
continuous improvement of processes and IT tools, Ericsson
reduces costs with efficient and effective process flows and
with standardized internal controls and performance indicators.

ORGANIzATION AND RESOURCES

Company structure

Ericsson is operated in two dimensions: one operational
structure and one legal structure.

The operational structure aligns accountability and authority

regardless of country borders and supports the process flow
with cross-country operations. There are four business units and
ten regions. Group functions coordinate Ericsson’s strategies,

STRATEGIC, TARGET SETTING AND RISK MANAGEMENT CyCLE

MANAGEMENT

operations and resource allocation and define the necessary
directives, processes and organization for the effective
governance of the Group.

The legal structure is the basis for legal requirements and
responsibility as well as for tax and statutory reporting purpose.
There are more than 200 legal entities within the Ericsson Group
with representation (via legal entities, branch and representative
offices) in more than 140 countries.

Risk management

Ericsson’s risk management is integrated with the business and
its operational processes, and is a part of the EGMS to ensure
accountability, effectiveness, efficiency, business continuity
and compliance with corporate governance, legal and other
requirements. The Board of Directors is also actively engaged in
the Company’s risk management. Risks related to set long-term
objectives are discussed and strategies are formally approved
by the Board as part of the annual strategy process. Risks
related to annual targets for the Company are also reviewed
by the Board and then monitored continuously during the year.
Certain transactional risks require specific Board approval,
e.g. acquisitions, management remuneration, borrowing or
customer finance in excess of pre-defined limits.

STRATEGIC AND TACTICAL RISKS

Strategic risks constitute the highest risk to the Company
if not managed properly as they could have a long-term
impact. Ericsson therefore reviews its long-term objectives,
main strategies and business scope on an annual basis and
continuously works on its tactics to reach these objectives and
to mitigate any risks identified.

In the annual strategy and target setting process, objectives

are set for the next five years. Risks and opportunities are
assessed and strategies are developed to achieve the objectives.
The strategy process in the Company is well established and
involves regions, business units and Group functions. The
strategy is finally summarized and discussed in a yearly Global
Leadership Summit with approximately 250 managers from all

Board Target Approval
Review of one-year risks

Group Management Strategy directives
Quantitative and qualitative situation analysis

Target Setting
Related risk identification and
mitigation (12 month horizon)

Region &
Account Planning

Board Strategy Approval
Review of long-term risks

Nov

Dec

Jan

Feb

Oct

Sep

New Business
Development

Mar

Apr

Aug

May

Jul

Jun

Group Strategy Development
(five-year perspective)

Board quarterly risk monitoring

Business Unit & Group
Function strategy planning
Strategic risk identification and mitigation

Leadership Summit on Strategy

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MANAGEMENT

parts of the business. By involving all parts of the business in the
process, potential risks are identified early and mitigating actions
can be incorporated in the strategy and in the annual target
process following the finalization of the strategy.

Statements – Note C14, “Trade Receivables and Customer
Finance”, Note C19, “Interest-Bearing Liabilities” and Note C20,
“Financial Risk Management and Financial Instruments” in the
Annual Report.

Technology development, industry and market fundamentals

and the development of the economy are key components
in the evaluation of risks related to Ericsson’s long-term
objectives.

The outcome from the strategy process forms the basis for

the annual target process which involves regions, business
units and Group functions. Risks and opportunities linked to
the targets are identified as part of this process together with
actions to mitigate the identified risks. Follow-up of targets,
risks and mitigating actions are reported and discussed
continuously in business unit and region steering groups and
are reviewed by the Board of Directors.

The Company has been using the Balanced Scorecard
concept to structure its targets, risks and opportunities for
many years. For 2011 risks and opportunities were identified
and analyzed in the three balanced scorecard perspectives. For
more information on risks related to Ericsson’s business, see
the chapter “Risk Factors” in the Annual Report.

Operational and financial risks

Operational risks are owned and managed by operational units.
Risk management is embedded in various process controls,
such as decision tollgates and approvals. Certain cross-process
risks are centrally coordinated, such as information security,
IT security, corporate responsibility and business continuity
and insurable risks. Financial risk management is governed by
a Group policy and carried out by the Treasury and Customer
Finance functions, both supervised by the Finance Committee.
The policy governs risk exposures related to foreign exchange,
liquidity/financing, interest rates, credit risk and market price
risk in equity instruments. For further information on financial
risk management, see Notes to the Consolidated Financial

COMPLIANCE RISKS
Ericsson has implemented Group policies and directives to
ensure compliance with applicable laws and regulations,
including a Code of Business Ethics and a Code of Conduct.
Risk management is integrated in the Company’s business
processes. Policies and controls are implemented to ensure
compliance with financial reporting standards and stock market
regulations, such as the US Sarbanes-Oxley Act.

MONITORING AND AUDITS

Company management monitors the compliance with policies,
directives and processes through internal self-assessment
within all units. This is complemented by internal and external
audits. External financial audits are performed by PwC, and
ISO/management system audits by Det Norske Veritas, DNV
and Intertek. Internal audits are performed by the company’s
internal audit function which reports to the Audit Committee.
Audits of suppliers are also conducted in order to secure
compliance with agreed key performance indicators and
Ericsson’s Code of Conduct which is mandatory for suppliers to
the Ericsson Group.

RISK MITIGATION

Significant activities ongoing in order to mitigate risks are:
> Establish flexibility to cost-effectively accommodate for

fluctuations in demand

> Conduct regular Supplier Code of Conduct audits
> Efficient business continuity management
> Corporate governance training as needed
> Continuous monitoring of information systems to guard

against data breaches.

PROCESS TO IDENTIFy AND MANAGE OPERATIONAL RISKS FOR REGIONS, BUSINESS UNITS AND GROUP FUNCTIONS

Leadership Team meeting and workshop

Preparations

Establish gross list

Prioritize risks

Assign responsibility

Manage risks

> Group similar risks together
> Rank
> Prioritize

> Assign responsibility for

> Develop mitigation

managing each top risk to a
member of the leadership
team

actions (member of the
leadership team)

> Secure risk reviews in

connection with
performance reviews

Compile input:
> Business plan/growth
plan SWOT and risks

> Previously identified risks
> Scorecard and target

descriptions

> Preparatory meeting/

workshop

> Business continuity

management for local
operation

Consider each scorecard
perspective
Consider risk areas to make
additions to list:
> External environment

(e.g. political risk)

> Customers
> Competitors
> Suppliers/subcontractors
> Internal operations
> Competence
> Contractual conditions
> Product roadmaps

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MeMbers of the eXecUtiVe
LeadershiP teaM

MEMBERS OF THE
EXECUTIVE LEADERSHIP TEAM

1. Hans Vestberg

6. Per Borgklint

2. Jan Frykhammar

7. Bina Chaurasia

11. Helena Norrman

12. Mats H. Olsson

3. Magnus Mandersson

8. Håkan Eriksson

13. Rima Qureshi

4. Johan Wibergh

5. Cesare Avenia

9. Douglas L. Gilstrap

14. Angel Ruiz

10. Nina Macpherson

15. Jan Wäreby

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145

MEMBERS OF THE
EXECUTIVE LEADERSHIP TEAM

Hans Vestberg

President and CEO (since 2010).

Born 1965.

Bachelor of Business Administration and Economics, University of
Uppsala.

Johan Wibergh

Executive Vice President (since 2010)
and Head of Business Unit Networks (since 2008).

Born 1963.

Master of Computer Science, Linköping Institute of Technology.

Board Chairman: ST-Ericsson and Svenska Handbollförbundet.

Board member: Telefonaktiebolaget LM Ericsson, Sony Ericsson
Mobile Communications AB and Thernlunds AB.

Board member: ST-Ericsson, Confederation of Swedish Enterprise,
Royal Institute of Technology and Teknikföretagen.

Deputy board member: Sony Ericsson Mobile Communications AB.

Holdings in Ericsson 1): 116,535 Class B shares.

Holdings in Ericsson 1): 28,655 Class B shares.

Background: First Executive Vice President until December 31, 2009.
Chief Financial Officer and Head of Group Function Finance until
October 31, 2009. Previously Executive Vice President and Head of
Business Unit Global Services. Various positions in the Group since
1988, including Vice President and Head of Market Unit Mexico and
Head of Finance and Control in USA, Brazil and Chile. International
advisor to the Governor of Guangdong, China and co-chairman of
the Russian-Swedish Business Council. Member of the Broadband
Commission for Digital Development, heading the broadband and
climate-change workstream, and member of the advisory board of the
Digital Health Initiative.

Jan Frykhammar

Executive Vice President and Chief Financial Officer
and Head of Group Function Finance (since 2009).

Born 1965.

Background: President of Ericsson Brazil, President of Market Unit
Nordic and Baltics and Vice President and Head of Sales at Business
Unit Global Services.

Cesare Avenia

Chief Brand Officer (from 2010 up until December 21, 2011).

Born 1950.

Bachelor of Electronics engineering, University of Naples, Italy.

Board member: Sony Ericsson Mobile Communications Italy S.p.A,
member of the Steering Committee for Innovation and Technology
Services within the Association of Telecom service providers within
Confindustria, the National Association of Industrialists in Italy.

Holdings in Ericsson 1): 11,704 Class B shares.

Background: Previously Head of Market Unit Italy and Market Unit
South East Europe.

Bachelor of Business Administration and Economics, University of
Uppsala.

Per Borgklint

Board member: Sony Ericsson Mobile Communications AB,
ST-Ericsson and the Swedish International Chamber of Commerce.

Senior Vice President and Head of Business Unit Multimedia (since
June 7, 2011).

Holdings in Ericsson 1): 6,837 Class B shares.

Born 1972.

Background: Previously Senior Vice President and Head of Business
Unit Global Services. Various positions within Ericsson including Sales
and Business Control in Business Unit Global Services, CFO in North
America and Vice President, Finance and Commercial within the Global
Customer Account Vodafone.

Master of Science in Business Administration, Jönköping International
Business School.

Holdings in Ericsson 1): None.

Background: Previously CEO of Net1 (Ice.net), Canal Plus Nordic and
Versatel. Has also held several leading positions at Tele2.

Magnus Mandersson

Executive Vice President (since November 1, 2011)
and Head of Business Unit Global Services (since 2010).

Born 1959.

Bina Chaurasia

Senior Vice President and Head of Group Function Human Resources
and Organization (since 2010).

Bachelor of Business Administration, University of Lund.

Born 1962.

Deputy board member: Sony Ericsson Mobile Communications AB.

Holdings in Ericsson 1): 12,875 Class B shares.

Background: Previously Head of Business Unit CDMA, Market Unit
Northern Europe, Global Customer Account Deutsche Telekom AG and
Product Area Managed Services. Has also been President and CEO of
SEC/Tele2 Europe and COO of Millicom International Cellular S.A.

Master of Science in Management and Human Resources, Ohio State
University and Master of Arts in Philosophy, University of Wisconsin.

Holdings in Ericsson 1): 14,735 Class B shares.

Background: Joined Ericsson from Hewlett Packard, where she was
Vice President of Global Talent Management. Has held senior HR
leadership roles at Gap, Sun Microsystems and PepsiCo/Yum.

1) The number of shares reflects ownership as of December 31, 2011 and includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.

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MEMBERS OF THE
EXECUTIVE LEADERSHIP TEAM

Håkan Eriksson

Mats H. Olsson

Senior Vice President, Chief Technology Officer, Head of Group
Function Technology & Portfolio Management (since 2003)
and Head of Ericsson in Silicon Valley (since 2010).

Born 1961.

Master of Science and Honorary Ph D, Linköping Institute of
Technology.

Board member: Vestas Wind Systems A/S.

Holdings in Ericsson 1): 40,696 Class B shares.

Background: Previously Senior Vice President and Head of Research
and Development. Has held various positions within Ericsson since
1986. Member of the Royal Swedish Academy of Engineering Sciences.

Douglas L. Gilstrap

Senior Vice President and Head of Group Function Strategy (since
2009).

Born 1963.

Bachelor of Accounting, University of Richmond and Master of
Business Administration, Emory University, Atlanta. Executive program
at INSEAD, France.

Board member: TM Forum.

Deputy board member: Sony Ericsson Mobile Communications AB,
ST-Ericsson.

Holdings in Ericsson 1): 5,069 Class B shares.

Background: Has held various global managerial positions within the
telecommunications sector for more than 15 years.

Head of Region China & North East Asia (since 2010).

Born 1954.

Master of Business Administration from the Stockholm School of
Economics.

Board member: Sony Ericsson Mobile Communications (China) Co. Ltd.

Holdings in Ericsson 1): 50,547 Class B shares.

Background: Also International Economic Advisor to a number of
Chinese provincial and municipal governments. Previously Head of
Market Unit Greater China. Has held various executive positions across
Asia-Pacific over the last 25 years. Appointed President of Ericsson
Greater China in 2004, with overall responsibility for Mainland China,
Hong Kong, Macao and Taiwan.

Rima Qureshi

Senior Vice President and Head of Business Unit
CDMA Mobile Systems (since 2010).

Born 1965.

Bachelor of Information Systems and Master of Business
Administration, McGill University, Montreal, Canada.

Board member: MasterCard Incorporated.

Holdings in Ericsson 1): 3,477 Class B shares.

Background: Also serves as head of Ericsson Response. Previously
Vice President of Strategic Improvement Program and Vice President
Product Area Customer Support. Has held various positions within
Ericsson since 1993.

Nina Macpherson

Angel Ruiz

Senior Vice President, General Counsel and Head of Group Function
Legal Affairs (since January 1, 2011)

Head of Region North America (since 2010).

Born 1956.

Born 1958.

Master of Laws, LL M, University of Stockholm.

Board member: The Swedish Anti-Corruption Institute and the
Association for Listed Companies.

Bachelor of Electrical Engineering, University of Central Florida and
Master of Management Science and Information Systems, Johns
Hopkins University, USA.

Board member: CTIA, Sony Ericsson Mobile Communications (USA) Inc.

Holdings in Ericsson 1): 4,508 Class B shares.

Holdings in Ericsson 1): 23,023 Class B shares.

Background: Previously Vice President and Deputy Head of Group
Function Legal Affairs at Ericsson. Previous positions also include
private practice and in-house attorney. Member of the Swedish
Securities Council.

Background: Joined Ericsson in 1990 and has held a variety of sales
and managerial positions within the Company, including heading up
the global account teams for Cingular/SBC/BellSouth (now AT&T). Was
appointed President of Ericsson North America in 2001.

Helena Norrman

Jan Wäreby

Senior Vice President and Head of Group Function Communications
(since May 23, 2011).

Senior Vice President and Head of Sales and Marketing (since
January 1, 2011).

Born 1970.

Master of International Business Administration, Linköping University.

Holdings in Ericsson 1): 4,619 Class B shares.

Background: Previously Vice President, Communications Operations
at Group Function Communications at Ericsson. Has held various
positions within Ericsson’s global communications organization since
1998. Previous positions as communications consultant.

Born 1956.

Master of Science, Chalmers University, Göteborg.

Board member: Sony Ericsson Mobile Communications AB,
ST-Ericsson.

Holdings in Ericsson 1): 55,617 Class B shares.

Background: Senior Vice President and Head of Business Unit
Multimedia and Executive Vice President and Head of Sales and
Marketing for Sony Ericsson Mobile Communications.

Up until May 23, 2011, Henry Sténson, former Senior Vice President and Head of Group Function Communications, was a member of the Executive
Leadership Team.

1) The number of shares reflects ownership as of December 31, 2011 and includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.

Ericsson Annual Report 2011 | CORPORATE GOVERNANCE REPORT

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AUDITORS

aUditors

According to the Articles of Association, the Parent Company
shall have no less than one and no more than three registered
public accounting firms as external independent auditors.
Pursuant to the Swedish Companies Act, the mandate period of
an auditor shall be one year, unless the Articles of Association
provides for a longer mandate period up to four years. The
auditors report to the shareholders at General Meetings.

The duties of the auditors include the following:

> Updating the Board of Directors regarding the planning,

scope and content of the annual audit

> Examining the interim and year-end financial statements to
assess accuracy and completeness of the accounts and
adherence to accounting standards and policies
> Advising the Board of Directors of non-audit services

performed, the consideration paid and other issues that
determine the auditors’ independence.

For further information on the contacts between the Board and
the auditors, please see “Work of the Board of Directors” earlier
in this Corporate Governance Report.

All Ericsson’s quarterly financial reports are reviewed by the

auditors.

Current auditors

PricewaterhouseCoopers AB was elected auditor at the AGM
2011 for a period of one year, i.e. until the close of the AGM
2012.

PricewaterhouseCoopers AB has appointed Peter Nyllinge,

Authorized Public Accountant, to serve as auditor in charge.

Fees to the auditors

Ericsson paid the fees (including expenses) for audit-
related and other services listed in the table in Notes to the
Consolidated Financial Statements – Note C30, “Fees to
Auditors” in the Annual Report.

internaL controL oVer
financiaL rePorting 2011

This section has been prepared in accordance with the Annual
Accounts Act and the Swedish Corporate Governance Code
and is limited to internal control over financial reporting.
Since Ericsson is listed in the United States, the

requirements outlined in the Sarbanes-Oxley Act (SOX) apply.
These regulate the establishment and maintenance of internal
controls over financial reporting as well as management’s
assessment of the effectiveness of the controls.

In order to support high quality reporting and to meet the
requirement of SOX, the Company has implemented detailed
documented controls and testing and reporting procedures
based on the COSO framework for internal control. The
COSO framework is issued by the Committee of Sponsoring
Organizations of the Treadway Commission.

Management’s internal control report according to SOX will
be included in Ericsson’s Annual Report on Form 20-F and filed
with the SEC in the United States.

During 2011, the Company has included operations of
acquired entities as well as continued to improve the design
and execution of its financial reporting controls.

Disclosure policies

Ericsson’s financial disclosure policies aim to ensure
transparent, relevant and consistent communication with the
equity and debt investors on a fair and equal basis. This will
support a fair market value for Ericsson shares. Ericsson wants
current and potential investors to have a good understanding
of how the Company works, including operational performance,
prospects and potential risks.

To achieve these objectives, financial reporting and

disclosure must be:
> Transparent – enhancing understanding of the economic
drivers and operational performance of the business,
building trust and credibility

> Consistent – comparable in scope and level of detail to

facilitate comparison between reporting periods

> Simple – to support understanding of business operations

and performance and to avoid misinterpretations

> Relevant – with focus on what is relevant to Ericsson’s

stakeholders or required by regulation or listing agreements,
to avoid information overload

> Timely – with regular scheduled disclosures as well as

ad-hoc information, such as press releases on important
events, performed on a timely basis

> Fair and equal – where all material information is published

via press releases to ensure that the whole investor
community receives the information at the same time

> Complete, free from material errors and a reflection of best
practice – disclosure is compliant with applicable financial
reporting standards and listing requirements and in line with
industry norms.

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Ericsson’s website (www.ericsson.com/investors) comprises
comprehensive information on the Group, including:
> An archive of annual and interim reports
> On-demand access to recent news
> Copies of presentations given by senior management at

industry conferences.

Internal control over financial reporting

Ericsson has integrated risk management and internal
control into its business processes. As defined in the COSO
framework, internal control is an aggregation of components
such as a control environment, risk assessment, control
activities, information and communication and monitoring.

INTERNAL CONTROL OVER
FINANCIAL REPORTING 2011

(Information on the Ericsson website does not form part of this
Report.)

Disclosure controls and procedures

Ericsson has controls and procedures in place to ensure timely
information disclosure under applicable laws and regulations,
including the US Securities Exchange Act of 1934 and under
agreements with NASDAQ OMX Stockholm and NASDAQ
New York. These procedures also ensure that such information
is provided to management, including the CEO and CFO, so
timely decisions can be made regarding required disclosure.

The Disclosure Committee comprises members with various

expertise. It assists managers in fulfilling their responsibility
regarding disclosures made to the shareholders and the
investment community. One of the main tasks of the committee
is to monitor the integrity and effectiveness of the disclosure
controls and procedures.

Ericsson has investments in certain entities that the

Company does not control or manage. With respect to such
entities, disclosure controls and procedures are substantially
more limited than those maintained with respect to subsidiaries.

During the year, Ericsson’s President and CEO and the
CFO evaluated the disclosure controls and procedures and
concluded that they were effective at a reasonable assurance
level as at December 31, 2011.

During the period covered by the Annual Report 2011, there
were no changes to the disclosure controls and procedures that
have materially affected, or are likely to materially affect, the
internal control over financial reporting.

Control environment

The Company’s internal control structure is based on the
division of tasks between the Board of Directors and its
Committees and the President and CEO. The Company has
implemented a management system that is based on:
> Steering documents, such as policies, directives and a Code

of Business Ethics

> A strong corporate culture
> The Company’s organization and mode of operations, with
well-defined roles and responsibilities and delegations of
authority

> Several well-defined group-wide processes for planning,

operations and support.

The most essential parts of the control environment relative
to financial reporting are included in steering documents
and processes for accounting and financial reporting. These
steering documents are updated regularly to include, among
other things:
> Changes to laws
> Financial reporting standards and listing requirements, such

as IFRS and SOX.

The processes include specific controls to be performed
to ensure high quality reports. The management of each
reporting legal entity, region and business unit is supported by
a financial controller function with execution of controls related
to transactions and reporting. The financial controller functions
are organized in a number of Company Control Hubs, each
supporting a number of legal entities within a geographical
area. A financial controller function is also established on Group
level, reporting to the CFO.

Risk assessment

Risks of material misstatements in financial reporting may exist
in relation to recognition and measurement of assets, liabilities,
revenue and cost or insufficient disclosure. Other risks related
to financial reporting include fraud, loss or embezzlement of
assets and undue favorable treatment of counterparties at the
expense of the Company.

Policies and directives regarding accounting and financial

reporting cover areas of particular significance to support
correct, complete and timely accounting, reporting and
disclosure.

Identified types of risks are mitigated through well-defined
business processes with integrated risk management activities,

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149

INTERNAL CONTROL OVER
FINANCIAL REPORTING 2011

segregation of duties and appropriate delegation of authority.
This requires specific approval of material transactions and
ensures adequate asset management.

Control activities

The Company’s business processes include financial
controls regarding the approval and accounting of business
transactions. The financial closing and reporting process has
controls regarding recognition, measurement and disclosure.
These include the application of critical accounting policies
and estimates, in individual subsidiaries as well as in the
consolidated accounts.

Regular analyses of the financial results for each subsidiary,

region and business unit cover the significant elements of
assets, liabilities, revenues, costs and cash flow. Together
with further analysis of the consolidated financial statements
performed at Group level, this ensures that the financial reports
do not contain material errors.

For external financial reporting purposes, additional

controls performed by the Disclosure Committee ensure that all
disclosure requirements are fulfilled.

The Company has implemented controls to ensure that

the financial reports are prepared in accordance with its
internal accounting and reporting policies and IFRS as well
as with relevant listing regulations. It maintains detailed
documentation on internal controls related to accounting and
financial reporting. It also keeps records on the monitoring of
the execution and results of such controls. This ensures that the
CEO and CFO can assess the effectiveness of the controls in a
way that is compliant with SOX.

Entity-wide controls, focusing on the control environment

and compliance with the financial reporting policies and
directives, are implemented in all subsidiaries. Detailed process
controls and documentation of controls performed are also
implemented in almost all subsidiaries, covering all items with
significant materiality and risk.

In order to secure compliance, governance and risk
management in the areas of legal entity accounting and
taxation, as well as securing funding and equity levels, the
Company operates through a Company Control hub structure,
covering subsidiaries in each respective geographical area.
Based on a common IT platform, a common chart of
account and common master data, the hubs and shared
services centers perform accounting and financial reporting
services for most subsidiaries.

Information and communication

The Company’s information and communication channels
support complete, correct and timely financial reporting by

making all relevant internal process instructions and
policies accessible to all the employees concerned. Regular
updates and briefing documents regarding changes in
accounting policies, reporting and disclosure requirements
are also supplied.

Subsidiaries and operating units prepare regular financial

and management reports to internal steering groups and
Company management. These include analysis and comments
on financial performance and risks. The Board of Directors
receives financial reports monthly. The Audit Committee of the
Board has established a whistleblower procedure for reporting
violations in accounting, internal controls and auditing matters.

Monitoring

The Company’s process for financial reporting is reviewed
annually by the management. This forms a basis for evaluating
the internal management system and internal steering
documents to ensure that they cover all significant areas related
to financial reporting. The shared service center and company
control hub management continuously monitors accounting
quality through a set of performance indicators. Compliance
with policies and directives is monitored through annual
self-assessments and representation letters from heads and
company controllers in all subsidiaries as well as in business
units and regions.

The Company’s financial performance is also reviewed
at each Board meeting. The Committees of the Board fulfill
important monitoring functions regarding remuneration,
borrowing, investments, customer finance, cash management,
financial reporting and internal control. The Audit Committee
and the Board of Directors review all interim and annual
financial reports before they are released to the market. The
Company’s internal audit function, which reports to the Audit
Committee, performs independent audits. The Audit Committee
also receives regular reports from the external auditor. The
Audit Committee follows up on any actions taken to improve or
modify controls.

BOARD OF DIRECTORS

Stockholm, February 24, 2012
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016–0680

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AUDITORS’ REPORT ON THE
CORPORATE GOVERNANCE REPORT

aUditors’ rePort on the corPorate goVernance rePort

To the Annual General Meeting of the shareholders in
Telefonaktiebolaget LM Ericsson (publ), corporate identity
number 556016-0680.

It is the Board of Directors who is responsible for the

report has been prepared and is consistent with the annual
accounts and the consolidated accounts, we have read the
corporate governance report and assessed its statutory content
based on our knowledge of the company.

corporate governance report for the year 2011 and that it has
been prepared in accordance with the Annual Accounts Act.
As a basis for our opinion that the corporate governance

In our opinion, the corporate governance report has been
prepared and its statutory content is consistent with the annual
accounts and the consolidated accounts.

Stockholm 24 February, 2012

Peter Nyllinge
Authorized Public Accountant

PricewaterhouseCoopers AB

Auditor in Charge

Johan Engstam
Authorized Public Accountant

PricewaterhouseCoopers AB

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151

IntroductIon

remuneratIon report

IntroductIon
This report outlines how the remuneration policy is implemented
throughout Ericsson in line with corporate governance best
practice, with specific references to Group management. To
begin with, the work of the Remuneration Committee 2011 and
the remuneration policy are explained, followed by descriptions
of plans and approaches.

This report also includes information on how the
remuneration programs have been evaluated and draws
conclusions from that. More details of the remuneration of
Group management and Board members’ fees can be found
in the Notes to the Consolidated Financial Statements – Note
C28, “Information regarding members of the Board of Directors,
the Group management and employees” (Note C28).

the remuneratIon
commIttee
The Remuneration Committee advises the Board of Directors
on an ongoing basis on the remuneration of the Executive
Leadership Team (ELT). This includes fixed salaries, pensions,
other benefits and short-term and long-term variable
remuneration, all in the context of pay and employment
conditions throughout Ericsson. The Remuneration Committee
also:
> Approves variable remuneration outcomes for the ELT
> Prepares remuneration related proposals for Board and

shareholder approval

> Develops and monitors the remuneration policy, strategies

and general guidelines for employee remuneration.

The Remuneration Committee’s work is the foundation for the
governance of Ericsson’s remuneration processes together
with Ericsson’s internal systems and audit controls. The
Committee is chaired by Leif Johansson and its other members
are Börje Ekholm, Nancy McKinstry, and Karin Åberg. All the
members are non-executive directors, independent (except

remuneratIon polIcy
Remuneration at Ericsson is based on the principles
of performance, competitiveness and fairness.
The remuneration policy, together with the mix of
remuneration elements, is designed to reflect these
principles by creating a balanced remuneration package.
The policy for 2011 can be found in Note C28. The
auditor’s report regarding whether we have complied with
the guidelines for compensation to the ELT during 2011 is
posted on the Ericsson website*.

152

REMUNERATION REPORT | Ericsson Annual Report 2011

contents
IntroductIon

the remuneratIon commIttee

remuneratIon 2011

total remuneratIon

remuneratIon of the Board
of dIrectors

152

153

154

156

for the employee representative) as required by the Swedish
Corporate Governance Code and have relevant knowledge and
experience of remuneration matters.

The Company’s General Counsel acts as secretary to
the Committee. The Chief Executive Officer, the Senior Vice
President, Head of Human Resources and Organization and the
Vice President, Head of Total Rewards attend the Remuneration
Committee meetings by invitation and assist the Committee in
its considerations, except when issues relating to their own
remuneration are being discussed.

The Remuneration Committee has appointed an

independent expert advisor, Piia Pilv, to assist and advise
the Committee. The independent advisor provided no other
services to the Company during 2011. The Remuneration
Committee is also provided with national and international pay
data collected from external survey providers and can call on
other independent expertise, should it so require. The Chairman
continues to ensure that contact is maintained, as necessary
and appropriate, with principal shareholders on the subject of
remuneration.

The purpose and function of the Remuneration Committee
will remain going forward and its responsibilities can be found
on the Ericsson website*. These responsibilities, together with
the remuneration policy, are reviewed and evaluated annually in
light of matters such as changes to corporate governance best
practice or changes to accounting, legislation, political opinion
or business practices among peers. This helps to ensure that
the policy continues to provide Ericsson with a competitive
remuneration strategy.

The guidelines for remuneration to the ELT is, in accordance

with Swedish law, brought to shareholders annually for
approval.

* Information on the Ericsson website (www.ericsson.com) does not form part of

this Report.

REMUNXENX2011_v56.indd 152

2012-03-01 10.03

summarIes of 2011 short and lonG-term VarIaBle remuneratIon

What we call it

What is it?

What is the objective?

Who participates?

how is it earned?

remuneratIon 2011

short term: remuneration delivered over 12 months or less

Fixed salary

Fixed remuneration paid at
set times

Short-Term Variable
remuneration (STV)

A variable plan that is
measured and paid over a
single year

Attract and retain employees,
delivering part of annual
remuneration in a predictable
format

Align employees with clear
and relevant targets,
providing an earnings
opportunity in return for
performance, and flexible
cost

All employees

Enrolled employees, including
Executive Leadership Team.
Approx. 72,500 in 2011

Local and Sales Incentive
Plans

Tailored versions of the STV As for STV, tailored for local

long term: remuneration delivered over 3 years or more

Stock Purchase Plan (SPP)

All-employee stock-based
plan

Key Contributor Retention
Plan (KC)

Share-based plan for
selected individuals

Executive Performance
Stock Plan (EPSP)

Share-based plan for senior
executives

or business requirements,
such as sales

Reinforce a “One Ericsson”
and align employees’
interests with those of
shareholders

Recognize, retain and
motivate key contributors for
performance, critical skills
and potential
Remuneration for long-term
commitment and value
creation

Employees in sales.
Approx. 4,500 in 2011

All employees are eligible

Up to 10% of employees

Senior executives, including
Executive Leadership Team

Market appropriate levels set
according to position and
evaluated according to
individual performance

Achievements against set
targets. Reward can increase
to up to twice the target level
and decrease to zero,
depending on performance

Similar to STV. All plans have
maximum award and vesting
limits

Buy one share and it will be
matched by one share after 3
years if still employed

If selected, get one more
matching share in addition to
the SPP one

Get up to 4, 6 or, for CEO, 9
further matching shares to
the SPP one for long-term
performance

remuneratIon 2011
The Remuneration Committee met eight times during the
year. The winter meetings focused on following up on results
from the 2010 variable remuneration programs and preparing
proposals to shareholders for the 2011 Annual General Meeting
(AGM). During the spring the committee considered feedback
from the AGM and remuneration to new members of the ELT
were established. In the fall when the new independent advisor
was appointed the scope of the independent advisor role was
reviewed.

The committee continued with a review of the remuneration

strategy with focus on the Long-Term Variable remuneration
plans, the Short-Term Variable remuneration plans and levels of
fixed compensation. It was concluded that the committee will
recommend to continue the Long-Term Variable remuneration
plan without any substantial changes based on feedback from
investors, market analysis and global trend analyses. The
Committee has also considered market trends, target setting,
its working arrangements and corporate governance.

As of 2011 a new initiative for the ELT was introduced by the
Committee. On a voluntary basis ELT members may participate
in a wellness program that provides proactive and individual
coaching and training. ELT members have large responsibilities,
substantial travel and heavy workloads. The purpose of the
program is to actively reduce their health risks.

evaluation of remuneration policy and plans

The Remuneration Committee has supported the Board with
the review and evaluation of remuneration policy and practice.
As described later in this report, all remuneration elements and

levels are evaluated through benchmarking against market data
provided by external sources. Analyses of market data, as well
as of attrition data, show that Ericsson is in general competitive
in local markets and that total remuneration is appropriate and
not excessive.

The remuneration policy is evaluated annually. This is in
light of the long-term strategy as well as the Remuneration
Committee’s overview of total remuneration and each individual
remuneration element. The Committee has concluded and the
Board has decided that the remuneration policy remains valid
and right for Ericsson and should not be materially changed for
2012.

To enhance the understanding of how Ericsson translates

remuneration principles and policy into practice, an internal
remuneration website was launched in January 2011. The
site contains e-learning and training programs targeted at line
managers. It supports more informed decisions and better
communication to the wider employee population.

Extensive analyses of local market data for each position
in the ELT have been conducted. Decisions on remuneration
increases for the ELT have been taken by the Remuneration
Committee. The work is also reviewed by the independent
advisor to the Committee.

In its evaluation of the Long-Term Variable remuneration
plan the Remuneration Committee concluded that the plan
fulfills the defined objectives of the Stock Purchase Plan,
namely to promote “One Ericsson” and to align the interests
of employees with those of shareholders. The participation
rate as of December 1, 2011 was 30%, compared to 27% as
of December 1, 2010. The evaluation conducted also confirms
that the Key Contributor Retention Plan meets the purpose of

REMUNXENX2011_v56.indd 153

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Ericsson Annual Report 2011 | REMUNERATION REPORT

153

remuneratIon 2011

retaining our key employees. The voluntary attrition rate among
Key Contributors is about two thirds compared to the attrition
rate in the total number of employees.

or decreased when setting the remuneration, at least one other
element has to change if the competitive position is to remain
unchanged.

A survey of Ericsson’s managers in January 2011 verified
that all managers consider the Long-Term Variable and Short-
Term Variable remuneration plans to be “effective” or “very
effective” in meeting the purpose of the plans. This confirms
earlier third-party research that has shown that the Long-Term
Variable plan drives the right values and enhancing retention.
The plan remains competitive by Swedish standards. The
participation rate among Key Contributors remains high
compared with international benchmarks.

The evaluation also showed that the Executive Performance

Stock Plan has had limited success in terms of meeting the
purpose of rewarding long-term financial performance. The
Earnings per Share (EPS) performance target proved to be more
binary than anticipated, where the 2004 plan vested in full and
the plans for 2005, 2006, 2007 and 2008 did not vest. The 2009
and 2010 plans, that are still in the performance period, have
EPS as the performance target.

The following targets apply to the Executive Performance

Stock Plan 2011:
> Net sales growth
> Operating income growth
> Cash conversion rate.

For further information see below under the Executive
Performance Stock Plan.

The remuneration costs for the CEO and the ELT are

reported in Note C28.

fixed salary

Fixed salaries are set to be competitive within an individual’s
home market. When setting fixed salaries, the Remuneration
Committee considers the impact on total remuneration,
including pension and associated costs. The absolute levels
are determined by the size and complexity of the position
and the year-to-year performance of the individual. Together
with other elements of remuneration, ELT salaries are subject
to an annual review by the Remuneration Committee, which
considers external pay data to ensure that levels of pay remain
competitive and appropriate to the remuneration policy.

Variable remuneration

Ericsson strongly believes that, where possible, variable
compensation should be encouraged as an integral part of
total remuneration. First and foremost this aligns employees
with clear and relevant targets, but it also enables more flexible
payroll costs and emphasizes the link between performance
and pay. All variable remuneration plans have maximum
award and vesting limits. Short-term variable remuneration
is to a greater extent dependent on the own unit or function,
while long-term variable remuneration is dependent on the
achievements of the Ericsson Group.

total remuneratIon

short-term VarIaBle remuneratIon

When considering the remuneration of an individual, it is the
total remuneration that matters. First the total annual cash
compensation is defined, consisting of the target level of short-
term variable remuneration plus fixed salary. Thereafter target
long-term variable remuneration may be added to get to the
total target remuneration and, finally, pension and other benefits
to arrive at the total remuneration.

For the ELT, remuneration consists of fixed salary, short-
term and long-term variable remuneration, pension and other
benefits. If the size of any one of these elements is increased

Annual variable remuneration is delivered through cash-based
programs. Specific business targets are derived from the annual
business plan approved by the Board of Directors and, in turn,
defined by the Company’s long-term strategy. Ericsson strives
to grow faster than the market with best-in-class margins and
strong cash conversion and therefore the starting point is to
have three core targets:
> Net sales growth
> Operating income
> Cash flow.

short-term VarIaBle remuneratIon payouts
as percentaGe of tarGet leVels

fIxed salary, short-term and lonG-term VarIaBle
remuneratIon as percentaGe of total tarGet
remuneratIon

2011

2010

2009

2008

2007

30.1%

40.6%

80.2%

64.4%

49.4%

56.8%

49.4%

5.0%

10.0%

28.5%

CEO

46.1%

18.4%

35.5%

CEO
Average Ericsson
Leadership Team
excluding CEO

Average
ELT excl
CEO

60.3%

21.6%

18.1%

Fixed Salary 2011
Short-Term Variable
Target 2011
Long-Term Variable
at half of max 2011

100

20% 40% 60% 80% 100%

154

REMUNERATION REPORT | Ericsson Annual Report 2011

REMUNXENX2011_v56.indd 154

2012-03-01 10.03

short-term VarIaBle remuneratIon structure

short-term Variable remuneration
as percentage of fixed salary
maximum
level

target
level

actual paid
for 2010

total remuneratIon

percentage of short-term Variable
remuneration maximal opportunity

Group financial
targets

unit/functional
financial targets

non-financial
targets

CEO 2011
CEO 2012
Average ELT 2011 1)
Average ELT 2012 1)

40%
40%
34%
36%

80%
80%
68%
72%

24%
–
29%
–

90%
90%
61%
49%

0%
0%
23%
27%

1) Excludes CEO – differences in target and maximum levels from year to year are due to changes in the composition of the ELT.

10%
10%
16%
24%

For the ELT, targets are thus predominantly financial targets
at either Group level (for Heads of Group Functions) or at
the individual unit level (for Heads of Regions or Business
Units) and may also include operational targets like customer
satisfaction and employee motivation. Targets are cascaded to
all managers and will vary depending on the specific position.
All variable remuneration targets have to be objective and
measurable. They typically refer to a result that is achieved on a
collective basis.

Each target is, in accordance with our strict governance
instructions, defined in a target specification and measured
over the calendar year. The target setting process is fully
integrated with the strategy work and target levels are tested
against plans and forecasts until they are finalized around the
turn of the year.

The Board of Directors and the Remuneration Committee
decide on all Ericsson Group targets, which are cascaded to
unit-related targets throughout the Company, always subject to
a two-level management approval process. The Remuneration
Committee monitors the appropriateness and fairness of Group
target levels throughout the performance year and has the
authority to revise them should they cease to be relevant or
stretching or to enhance shareholder value.

During 2011, approximately 77,000 employees participated
in short-term variable plans. Of these 8,000 were in the global
Short-Term Variable remuneration plan (STV) for management,
including the ELT, and 4,500 were in the global Sales Incentive
Plan (SIP). Local plans vary in design according to local
competitive practice but typically mirror the STV.

The chart on page 154 illustrates how payouts to the ELT

have varied with performance over the past five years.

lonG-term VarIaBle remuneratIon

Share-based long-term variable remuneration plans are
submitted each year for approval by shareholders at the
AGM. All long-term variable remuneration plans are designed
to form part of a well-balanced total remuneration package
and to span over a minimum of three years. As these are
variable plans, outcomes are unknown and rewards depend
on long-term personal investment, corporate performance and
resulting share price performance. During 2011, share-based
remuneration was made up of three different but linked plans:
the all-employee Stock Purchase Plan, the Key Contributor
Retention Plan and the Executive Performance Stock Plan.

the stock purchase plan

The all-employee Stock Purchase Plan is designed to offer,
where practicable, an incentive for all employees to participate.
This reinforces “One Ericsson” aligned with shareholder
interests. Employees can save up to 7.5% (CEO 10%) of
gross fixed salary (CEO gross fixed salary and annual variable
remuneration) for purchase of Class B shares at market price
on NASDAQ OMX Stockholm or ADSs on NASDAQ New
York (contribution shares) over a twelve-month period. If the
contribution shares are retained by the employee for three
years after the investment and employment with the Ericsson
Group continues during that time, the employee’s shares will
be matched with a corresponding number of Class B shares
or ADSs as applicable. The plan was introduced in 2002 and
employees in 71 countries participated during its first year. In
December 2011 the number of participants was over 24,000, or
approximately 30% of eligible employees in 96 countries.

Participants save each month, beginning with the August
payroll, towards quarterly investments. These investments (in
November, February, May and August) are matched on the third
anniversary of each such investment and hence the matching
spans over two financial years and two tax years.

the key contrIButor retentIon plan

The Key Contributor Retention Plan is part of Ericsson’s talent
management strategy. It is designed to recognize individuals for
performance, critical skills and potential as well as encouraging
retention of key employees.

Under the program, operating units around the world can

nominate up to 10% of employees worldwide. Each unit
nominates individuals that have been identified according to
performance, critical skills and potential. The nominations are
calibrated in management teams locally and are reviewed by
both local and corporate Human Resources to ensure that there
is a minimum of bias and a strong belief in the system.

Participants selected obtain one extra matching share in
addition to the one matching share for each contribution share
purchased under the Stock Purchase Plan during a twelve-
month investment period. The plan was introduced in 2004.

the executIVe performance stock plan

The Executive Performance Stock Plan was first introduced
in 2004. The plan is designed to focus management on
driving long-term financial performance and providing market

REMUNXENX2011_v56.indd 155

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Ericsson Annual Report 2011 | REMUNERATION REPORT

155

total remuneratIon

competitive remuneration. Senior executives, including the
ELT, are selected to obtain up to four or six extra shares
(performance matching shares). This is in addition to the one
matching share for each contribution share purchased under
the all-employee Stock Purchase Plan. The performance
matching is subject to the fulfillment of the performance targets.
Since 2010, the CEO may obtain up to nine performance
matching shares in addition to the Stock Purchase Plan
matching share for each contribution share.

In the 2004 to the 2010 plans the performance targets were

Earnings Per Share (EPS) targets.

To support the long-term strategy and the value creation
of the Company, new operational targets were defined for the
2011 plan. At the AGM 2011, the following targets for the 2011
Executive Performance Stock Plan were resolved on proposal
by the Board:
> Up to one third of the award will vest based on the

compound annual growth rate of consolidated net sales
comparing 2013 to 2010

social security. Where possible, pension plans are operated on
a defined contribution basis. Under these plans, Ericsson pays
contributions into a plan but does not guarantee the ultimate
benefit, unless local regulations or legislation prescribe that
defined benefit plans that do give such guarantees have to
be offered.

For the CEO and other members of the ELT employed in
Sweden before 2011, a supplementary pension plan is applied
in addition to the occupational pension plan for salaried staff on
the Swedish labor market (ITP). The pension age for these ELT
members is normally 60 years. The pensionable salary for ELT
members employed before 2011 on local contract in Sweden
consists of the annual fixed salary including vacation pay and
the target value of the Short-Term Variable remuneration.

ELT members employed in Sweden as of 2011 are normally

covered by the defined contribution plan under the ITP1
scheme, with a pensionable age of 65 years. The pensionable
salary includes all cash compensation.

For members of the ELT who are not employed in Sweden,

> Up to one third of the award will vest based on the

local market competitive pension arrangements apply.

compound annual growth rate of consolidated operating
income comparing 2013 to 2010

> One third of the award will vest based on the cash

Other benefits, such as company car and medical insurance,
are also set to be competitive in the local market. ELT members
may not receive loans from the Company.

conversion rate. If the cash conversion rate is at or above
70% during each of the years 2011 to 2013 one ninth of the
total award will vest for each year the target is achieved.

The performance targets are not capable of being retested after
the end of the three-year performance period. If the minimum
required performance is not achieved, all matching shares
subject to performance will lapse. The Board will consider
the impact of larger acquisitions, divestments, the creation of
joint ventures and any other significant capital event on the
three targets on a case-by-case basis. Also, the Board may
reduce the number of performance matching shares, if deemed
appropriate, considering the Company’s financial results and
position, conditions on the stock market and other relevant
circumstances at the time of matching.

Benefits and terms of employment

Pension benefits follow the competitive practice in the
employee’s home country and may contain various
supplementary plans, in addition to any national system for

ELT members locally employed in Sweden have a mutual

notice period of up to six months. Upon termination of
employment by the Company, severance pay can amount to
up to 18 months’ fixed salary. For other ELT members different
notice period and severance pay agreements apply, however
no agreement exceeds the notice period of 6 months or the
severance pay period of 18 months.

remuneratIon of the
Board of dIrectors
The remuneration of Directors not employed by Ericsson is
handled separately and the Nomination Committee makes
remuneration proposals for resolution by the Annual General
Meeting of shareholders. The remuneration consists of fees
for Board and committee work, part of which can be delivered
under a synthetic share program. The synthetic shares, which
are valued in line with Ericsson’s Class B shares, vest in cash
after the publication of the year-end financial statement during
the fifth year after award.

156

REMUNERATION REPORT | Ericsson Annual Report 2011

REMUNXENX2011_v56.indd 156

2012-03-01 10.03

Gdp

0.3 percent Gdp Increase When
BroadBand speed douBles.

share
InspIre
GroW

as network speeds increase, their users find
better, richer ways to share. this inspires new
ideas and fresh thinking.

In turn, this stimulates economic growth –

creating more opportunity for everyone.

REMUNXENX2011_v56.indd 157

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Ericsson Annual Report 2011

157

Glossary

GLOSSARY

2G
The first digital generation of mobile
systems. Includes GSM, TDMA, PDC
and cdmaOne.

3G
3rd generation mobile system.
includes WCDMA/HSPA, CDMA2000
and TD-SCDMA.

4G
See LTE.

all-IP
A single, common IP infrastructure
that can handle all network
services, including fixed and mobile
communications, for voice and data
services as well as video services
such as TV.

aTM
(Asynchronous Transfer Mode)
A communication standard for
transmission and management
of high-speed packet-switched
networks.

Backhaul
Transmission between radio base
stations and the core network.

caGr
Compound Annual Growth Rate.

caPex
Capital expenditure.

cDMa
(Code Division Multiple Access)
A radio technology on which the
cdmaOne (2G) and CDMA2000 (3G)
mobile communication standards are
both based.

clouD
When data and applications reside in
the network.

eDGe
A mobile standard, developed as an
enhancement of GSM. Enables the
transmission of data at speeds up
to 250 kbps. (Evolved EDGE up to
1 Mbps)

IMs
(IP Multimedia Subsystem)
A standard for offering voice and
multimedia services over mobile
and fixed networks using internet
technology (IP).

FTTh
(Fiber-to-the-Home)
Refers to fiber optic broadband
connections to individual homes.

GDP
(Gross Domestic Product)
The total annual cost of all finished
goods and services produced
within a country.

IP
(Internet Protocol)
Defines how information travels
between network elements across the
internet.

IPTV
(IP Television)
A technology that delivers digital
television via fixed broadband access.

PeNeTraTIoN
The number of subscriptions
divided by the population in a
geographical area.

PeTaByTe
Million gigabytes.

raN
Radio Access Network.

soFTswITch
A software-based system for handling
call management functionality.
Integrates IP-telephony and the
legacy circuit-switched part of the
network.

GPoN
(Gigabit Passive Optical Network)
Used for fiber-optic communication to
the home (FTTH).

JV
(Joint Venture)
A business enterprise in which two or
more companies enter a partnership.

TDM
(Time Division Multiplexing)
Legacy technology for circuit
switching.

GPrs
(General Packet Radio Service)
A packet-switched technology (2.5G)
that enables GSM networks to handle
mobile data communications at rates
up to 115 kbps.

hIGh-TraFFIc sMarTPhoNes
High-traffic smartphones are defined
as the subset of open-OS phones
(e.g. iPhone, Android & Windows) that
typically generate high traffic, 5–10
times that of low-traffic devices.

hsPa
(High Speed Packet Access)
Enhancement of 3G/WCDMA that
enables mobile broadband.

IcT
Information and Communication
Technology.

lTe
(Long-Term Evolution)
The next evolutionary step of mobile
technology beyond HSPA, allowing
data rates above 100 Mbps.

M2M
Machine-to-Machine.

MaNaGeD serVIces
Management of operator networks
and/or hosting of their services.

MoBIle BroaDBaND
A wireless access technology. It
enables high-speed internet access
services, such as video streaming.

oPex
Operating expenses.

wcDMa
(Wideband Code Division Multiple
Access)
A 3G mobile communication
standard. WCDMA builds on the
same core network infrastructure
as GSM.

xDsl
Digital Subscriber Line technologies
for broadband multimedia
communications in fixed-line
networks. Examples: IP-DSL, ADSL
and VDSL.

158 GLOSSARY, FINANCIAL TERMINOLOGY AND EXCHANGE RATES | Ericsson Annual Report 2011

GLOSSXTERMSXENX2011_v21.indd 158

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exchaNGe raTes

FINANCIAL TERMINOLOGY

caPITal eMPloyeD
Total assets less non-interest-bearing
provisions and liabilities.

caPITal TurNoVer
Net sales divided by average
capital employed.

cash coNVersIoN
Cash flow from operating activities
divided by net income reconciled to
cash – expressed in percent.

cash DIVIDeNDs Per share
Dividends paid divided by average
number of shares, basic.

coMPouND aNNual GrowTh
raTe (caGr)
The year-over-year growth rate over a
specified period of time.

Days sales ouTsTaNDING (Dso)
Trade receivables balance at quarter
end divided by net sales in the quarter
and multiplied by 90 days.
If the amount of trade receivables
is larger than last quarter’s sales,
the excess amount is divided by
net sales in the previous quarter
and multiplied by 90 days, and
total DSO are the 90 days of the most
current quarter plus the additional
days from the previous quarter.

earNINGs Per share (ePs)
Basic earnings per share: profit or
loss attributable to stockholders of
the Parent Company divided by the
weighted average number of ordinary
shares outstanding during the period.
Diluted earnings per share: the
weighted average number of shares
outstanding are adjusted for the
effects of all dilutive potential ordinary
shares.

eBITa MarGIN
Earnings Before Interest, Taxes,
Amortization and write-downs of
acquired intangibles, as a percentage
of net sales.

ePs (NoN-IFrs)
EPS, diluted, excluding amortizations
and writedowns of acquired intangible
assets.

equITy raTIo
Equity, expressed as a percentage of
total assets.

Gross cash
Cash and cash equivalents plus
short-term investments.

INVeNTory TurNoVer Days
(ITo-days)
365 divided by inventory turnover,
calculated as total adjusted cost
of sales divided by the average
inventories for the year (net of
advances from customers).

NeT cash
Cash and cash equivalents plus
short-term investments less
interest-bearing liabilities and post-
employment benefits.

sTockholDers’ equITy Per
share
Stockholders’ equity divided by the
number of shares outstanding at end
of period, basic.

ToTal shareholDer reTurN
(Tsr)
The increase or decrease in share
price during the period plus dividends
paid, expressed as a percentage
of the share price at the start of the
period.

TraDe receIVaBles TurNoVer
Net sales divided by average trade
receivables.

Value aT rIsk (Var)
A statistical method that expresses
the maximum potential loss that
can arise with a certain degree of
probability during a certain period
of time.

workING caPITal
Current assets less current
non-interest-bearing provisions
and liabilities.

PayaBle Days
The average balance of trade
payables at the beginning and at the
end of the year divided by cost of
sales for the year, and multiplied by
365 days.

PayMeNT reaDINess
Cash and cash equivalents and
short-term investments less short-
term borrowings plus long-term
unused credit commitments.
Payment readiness is also shown as a
percentage of net sales.

reTurN oN caPITal eMPloyeD
The total of Operating income plus
Financial income as a percentage
of average capital employed (based
on the amounts at January 1 and
December 31).

reTurN oN equITy
Net income attributable to
stockholders of the Parent
Company as a percentage of average
Stockholders’ equity (based on the
amounts at January 1 and December
31).

EXCHANGE RATES

exchaNGe raTes useD IN The coNsolIDaTIoN

January–December

sek/eur

Average rate
Closing rate

sek/usD

Average rate
Closing rate

2011

9.02
8.92

6.48
6.90

2010

9.56
9.02

7.20
6.80

GLOSSXTERMSXENX2011_v21.indd 159

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Ericsson Annual Report 2011 | GLOSSARY, FINANCIAL TERMINOLOGY AND EXCHANGE RATES

159

SHAREHOLDER INFORMATION

Shareholder>InformatIon

CONTACT FOR PRINTED PUBLICATIONS

A printed copy of the Annual Report is

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WHERE YOU CAN FIND OUT MORE:

It is our ambition to provide our shareholder

with up to date information about Ericsson

and its development. Information is available

on Ericsson’s website:

www.ericsson.com

On the website, the Annual Report is

available as an online version and as a pdf

document. Previous annual and interim

reports and other relevant shareholder

information can be found at:

www.ericsson.com/investors

By publishing the Annual Report on the web,

we will not only reduce the cost for print and

distribution, but also the impact

on the environment.

The Annual Report on Form 20-F (filed with

the Securities and Exchange Commission,

SEC) is also available on:

www.ericsson.com/investors

Telefonaktiebolaget LM Ericsson’s shareholders are invited to participate in the
Annual General Meeting to be held on Thursday, May 3, 2012, at 3 p.m. at
Kistamässan, Arne Beurlings Torg 5, Kista, Stockholm, Sweden.

Registration and notice of attendance

Shareholders who wish to attend the Annual General Meeting must:
>> Be recorded in the share register kept by Euroclear Sweden AB (the Swedish

Securities Registry) on Thursday, April 26, 2012, and

>> Give notice of attendance to the Company at the latest on Thursday, April 26,

2012. Notice of attendance can be given on Ericsson’s website:
www.ericsson.com/investors; by telephone: +46 8 402 90 54 on weekdays
between 10 a.m. and 4 p.m.; or by fax: +46 8 402 9256.

Notice of attendance may also be given in writing to:
Telefonaktiebolaget LM Ericsson
General Meeting of Shareholders
Box 7835, SE-103 98 Stockholm, Sweden

When giving notice of attendance, please state name, date of birth, address,
telephone number and number of assistants.

The meeting will be conducted in Swedish and simultaneously interpreted

into English.

Shares registered in the name of a nominee

In addition to giving notice of attendance, shareholders who have their shares
registered in the name of a nominee must request the nominee to temporarily
enter the shareholder into the share register in order to be entitled to attend the
meeting. In order for such registration to be effective on Thursday, April 26, 2012,
shareholders should contact their nominee well before that day.

Proxy

Shareholders represented by proxy shall submit to the Company a power of
attorney for the representative. A power of attorney issued by a legal entity must
be accompanied by a copy of the entity’s certificate of registration (should no
such certificate exist, a corresponding document of authority must be submitted).
Such documents must be no more than one year old unless the power of attorney
explicitly provides that it is valid for a longer period, up to a maximum of five years.
In order to facilitate the registration at the Annual General Meeting, the power of
attorney in original, certificates of registration and other documents of authority
should be sent to the Company in advance. All documents should be sent to the
Company at the address above for receipt by Wednesday, May 2, 2012. Forms of
power of attorney in Swedish and English are available on Ericsson’s website:
www.ericsson.com/investors.

Dividend

The Board of Directors has decided to propose the Annual General Meeting to
resolve on a dividend of SEK 2.50 per share for the year 2011 and that Tuesday,
May 8, 2012 will be the record day for dividend.

Financial information from Ericsson

Interim reports 2012:

>> April 25, 2012 (Q1)
>> October 26, 2012 (Q3) >> January 25, 2013 (Q4)

>> July 18, 2012 (Q2)

Annual Report 2012: March, 2013
2011 Form 20-F for the US market: March-April, 2012

160

SHAREHOLDER INFORMATION | Ericsson Annual Report 2011

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SHAREHOLDER INFORMATION

CONTACT INFORMATION

Headquarters

Torshamnsgatan 23

Kista, Stockholm

Sweden

Registered office

Telefonaktiebolaget LM Ericsson

SE–164 83 Stockholm

Sweden

Investor Relations

For questions on the Company, please

contact Investor Relations:

Investor Relations for Europe, Middle East,

Africa and Asia Pacific:

Telefonaktiebolaget LM Ericsson

SE-164 83 Stockholm, Sweden

Telephone: +46 10 719 00 00

Email: investor.relations@ericsson.com

Investor Relations for the Americas:

Ericsson, The Grace Building

1114 Ave of the Americas, Suite #3410

New York, NY 10036, USA

Telephone: +1 212 685 40 30

Email: investor.relations@ericsson.com

Ericsson headquarters at Torshamnsgatan 23 in Kista, Stockholm, Sweden.

UncertaIntIeS>In>the>fUtUre

Some of the information provided in this material is or may contain forward-looking information such as statements about expectations,
assumptions about future market conditions, projections or other characterizations of future events. The words “believe”, “expect”,
“anticipate”, “intend”, “may”, “plan”, the negative of such terms, and similar expressions are intended to identify these statements.
Although we believe that the expectations reflected in these and other forward-looking statements are reasonable, we can give no
assurance that these expectations will prove to be correct and actual results may differ materially. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required
by law or stock exchange regulation. We advise you that Ericsson is subject to risks both specific to our industry and specific to our
company that could cause the actual results to differ materially from those contained in our projections or forward-looking statements,
including, among others, changing conditions in the telecommunications industry, political, economic and regulatory developments in
our markets, our management’s ability to develop and execute a successful strategy, various financial risks such as interest rate changes
and exchange rate changes, erosion of our market position, the structure and financial strength of our customer base, our credit ratings,
product development risks, supply constraints, and our ability to recruit and retain quality staff.

ERICSSON ANNUAL REPORT 2011:

Project Management:
Ericsson Investor Relations

Design and production:
Harleys and Paues Media

All Group Management and Board of
Directors photography:
Per Myrehed

Reprographics and Printing:
Imprima Visuell Kommunikation AB 2012

SHAREHOLDXENX2011_v28.indd 161

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Ericsson Annual Report 2011 | SHAREHOLDER INFORMATION

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Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone +46 10 719 0000
www.ericsson.com

Printed on Maxi Offset and Artic Matt Wind – chlorine free
paper that meets international environmental standards
EN/LZT 138 0622 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2012

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