Ericsson Annual Report 2013

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FY2013 Annual Report · Ericsson

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LIVING in the
networked
society

ANNUAL REPORT 2013

138th year of operations

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

Printed on UPM Sol Matt och Munken Lynx
– chlorine free paper that meets international
environmental standards
EN/LZT 138 1292 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2013

LIVING in the
networked society
New solutions are transforming
the way people, business and
society communicate and collaborate.
Ericsson is expanding its position in
the ICT (Information and Communication
Technology) industry, helping create
the Networked Society.

Our focus on profitability is now starting to pay off.
Operating income was up from SEK 10.5 billion in
2012 to SEK 17.8 billion in 2013, with our operating
margin increasing from 5% to 8%.

Hans Vestberg, President and CEO

MORE INFORMATION

The Annual Report describes Ericsson’s
financial and operational performance during
2013. A Corporate Governance Report is
attached to the Annual Report.

We issue a separate Sustainability
and Corporate Responsibility Report.
www.ericsson.com/thecompany/
sustainability_corporateresponsibility

Find our Annual Report online:
www.ericsson.com/annualreport2013

There is further information on sustainability
and corporate responsibility on page 19
and pages 44–46.

LETTER
FROM
THE CEO

PAGE 6

Making
Better
Cities

PAGE 18

Connect
To Learn

PAGE 21

The
Connected
Car

PAGE 23

Contents

Annual Report 2013

Our business
This is Ericsson
2013 at a glance
Letter from the CEO
Market trends
Our markets
Our strategy
How we create value
How we work
Sustainability and Corporate Responsibility
Our solutions
Our performance
Regional development
Ten-year summary
Letter from the Chairman

Results
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

2
4
6
8
11
12
14
16
19
22
28
30
32
35

36
49
57
102
108
122
130
131

Corporate Governance

Corporate Governance Report 2013
Remuneration report

134
162

Shareholders
Share information
Shareholder information

Other information
Glossary
Financial terminology and Exchange rates

166
173

171
172

* Chapters covered by the Auditors’ report.

Ericsson | Annual Report 2013Our BusinessResultsCORPORATE GOVERNANCESHAREHOLDERSOTHER INFORMATIONTHIS IS ERICSSON

We are a world-leading provider of communications
networks, telecom services and support solutions. Here
we look at some of the factors that make Ericsson unique.

40%

40% of the world’s mobile
traffic runs through
networks supplied
by Ericsson.

Our segments

Today, Ericsson has more
than 114,000 people serving
customers in over 180
countries. Our business is
divided into four segments:

Life in the Networked Society is becoming
a reality for billions of people and millions of
businesses around the world. As everything
becomes connected, our world is changing.
Our lives are changing. At Ericsson, we are
proud of the central role we are playing in this
evolution, using innovation to empower people,
business and society. The solutions we provide
allow people to communicate, work, study, do
business and live more freely. They help create
more efficient and more sustainable societies.

Every time you make a call or use an app on
your smartphone, tablet or mobile computer,
you are probably using one of our solutions
and one of the networks provided or managed
by us. When you watch video or TV, there is a
good chance that one of our solutions is behind
it – maybe even one of the technologies that
have won us four Emmy awards.

As well as the advanced technology, we also

provide world-leading services, software and
infrastructure, mainly to telecom operators.

We have been leaders in telecommunications

Ericsson has always been a company driven

and related services ever since Lars Magnus
Ericsson founded the company in 1876.
Today, we are expanding into the Information
and Communications Technology (ICT) arena,
and becoming a major ICT solutions provider.
It is a natural progression: our research and
innovations made mobile communications and
broadband possible, and those technologies are
powering modern technologies such as cloud
computing, smart grids, machine-to-machine
(M2M) communication and m-commerce.

by innovation – in technology and business.
That is why we were the pioneers in managed
services. That is why we hold so many
standards-essential patents. We see our
leadership in technology and services as
one of the foundations of our business.
> Some 40 percent of global mobile traffic
runs through networks we have supplied
> Every major telecom operator in the world
buys solutions or services from Ericsson

NETWORKS

GLOBAL SERVICES

We provide the network infrastructure needed for
mobile and fixed communication, including 2G, 3G
and 4G radio networks, and IP core and transport
networks. Our cost-efficient networks offer superior
performance and ensure a quality user experience.

Through our 64,000 services professionals
around the world, we deploy, operate and
evolve networks and related support systems.
Global Services includes professional services
and network rollout.

Revenue

SEK 117.7 bn

(2012: 117.3 bn)

Market share estimate

25% in network

equipment, key segments*

Revenue

SEK 97.4 bn

(2012: 97.0 bn)

Market share estimate

13%
in a telecom services

For more information on our solutions
please go to page 22

Operating margin

10%
(2012: 6%)

Market position

in radio access

Operating margin

(2012: 6%)

* Key segments include Radio IP and Transport as well as Core.

Market position

in telecom services

Ericsson | Annual Report 2013OUR BUSINESS > We manage networks that serve more than

1 billion subscribers globally

> With more than 35,000 granted patents, we have
one of the industry’s strongest patent portfolios.

Our REGIONS

As a global company, we have created an
efficient go-to-market organization based on
10 regions. Backed by our collective global
knowledge, our regional competence and
close customer relationships provide a solid
foundation for profitable growth. In each of our
regions, we work closely with customers to
develop innovative, scalable solutions that help
them increase revenue and reduce costs.

We share best practices across regions,
which boosts both quality and efficiency. When
a successful customer solution is identified and
proven in one region, we can roll it out around
the world, sharing common processes,
methods and tools.

This knowledge-sharing, the expertise and
local knowledge gained through working closely
with customers combine to create global scale,
another of the pillars of our business success.
Operators look to long-term partners such
as Ericsson for support in every aspect of their
business. To ensure a consistent offering
towards all customers and enable economies
of scale, the same set of engagement practices
operate in each region: Mobile Broadband;
Communication Services; Fixed Broadband and
Convergence; Managed Services; Operations
and Business Support Systems; and Television
and Media Management.

Business units

To best reflect our business, Ericsson reports
four business segments. They are reflected in the
four business units, each of which is responsible
for developing and maintaining its specific
portfolio of products, solutions and services.

Organization

CEO

GROUP FUNCTIONS

Strategic Projects

Sustainability
and Corporate Responsibility

BUSINESS UNIT
SUPPORT SOLUTIONS

RESEARCH

BUSINESS UNIT
GLOBAL SERVICES

BUSINESS UNIT
NETWORKS

BUSINESS UNIT MODEMS

Go to market

REGIONS

ENGAGEMENT
PRACTICES

OPERATIONS &
COMPETENCE CENTER

IPR & LICENSING

CUSTOMER
UNITS

CUSTOMERS

Support solutions

Modems

The Support Solutions segment focuses on
software for operations and business support
systems (OSS and BSS), as well as TV and
media management, and m-commerce.

A new segment in 2013, for design, development
and sales of LTE multi-mode thin modems.
The modem portfolio targets smartphone
and tablet manufacturers.

Multi-technology and multi-band connectivity

is essential for the Networked Society.

Using your smartphone, scan this
code to view a short film about
the Networked Society.
Or visit: www.ericsson.com/
thinkingahead/networked_society

Revenue

SEK 12.2 bn

(2012: 13.5 bn)

Market share estimate

25%

in IPTV

Operating margin

12%

(2012: 9%)

Market position

in OSS and BSS

Operating income

–0.5 bn

THIS IS ERICSSON

Ericsson | Annual Report 2013Our Business2013 at a glance

A look at some of the most important measures of our
performance, and a summary of business highlights from
around the world during 2013.

Net sales
and operating margin incl. JV
SEK billion

Percent

Operating income
and net income incl. JV
SEK billion

Cash flow from operating
activities and cash conversion
Percent
SEK billion

226.9

227.8 227.4

206.5 203.3

8.1

7.9

7.8

4.6

2.9

250

200

150

100

17.9

16.5

17.8

11.2

12.6

10.5

12.2

5.9

4.1

5.9

117

112

116

26.6

24.5

22.0

10.0

17.4

120

105

2009 2010 2011 2012 2013

2009

2010

2011

2012

2013

Net sales (SEK billion)
Operating margin (%)

Operating income
(SEK billion)

Net income
(SEK billion)

Cash flow from operating activities (SEK billion)
Cash conversion (%)

Earnings per share (EPS)
and dividend per share
SEK

Net sales
SEK billion

227.4

(2012: 227.8)

Operating income
SEK billion

17.8(2012: 10.5)

Operating margin incl. JV
Percent

Earnings per share (EPS)
SEK

7.8(2012: 4.6%)

3.69(2012: 1.78 SEK)

3.77

3.46

3.69

3.00

2.75

2.50

2.25

1.78

2.00

1.14

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2009 2010 2011 2012 20131)

EPS diluted (SEK)
Dividend (SEK)

1) Dividend for 2013 as proposed by the
Board of Directors

Ericsson | Annual Report 2013OUR BUSINESS

2013 in review

JANUARY – March

April – June

JULY – SEPTEMBER

OCTOBER – DecEMBER

> In line with Ericsson’s services

strategy to broaden its IT capabilities,
the Company announced the
intention to acquire Devoteam
Telecom & Media operations in
France, bringing consulting and
systems integration capabilities.

> Ericsson signed managed services
agreements comprising fixed and
mobile networks for telecom operators
in India and Russia. Ericsson is
responsible for network operations
and field maintenance, and for driving
modernization of tools, processes and
best practices, in order to maximize
operational efficiencies.

> UK operator O2 signed an agreement

with Ericsson to provide a 4G/
LTE-compatible core network and to
deploy RBS 6000 multi-standard
radio base stations for 50% of O2’s
radio access network in the UK.

> Ericsson introduced a service to provide
testing and verification for devices and
applications in its global device labs.
Devices can be tested before launch to
help make them more network-friendly,
as well as to make networks themselves
more device-friendly.

> At Mobile World Congress (MWC),

Ericsson met numerous customers,
showcased a series of world firsts
and launched new products and
services, including in the areas of
mobile broadband, operation and
business support systems (OSS and
BSS), m-commerce and managed
services. Ericsson also announced
its network-enabled cloud concept,
a business platform that enables
operators to generate new revenues
and evolve network capabilities.

2013 at a glance

> Acquisition of Canadian Telcocell
broadened Ericsson’s systems
integration capabilities for business
support systems (BSS) in North
America and strengthened its full ICT
transformation services. Multi-vendor
BSS systems integration and
consulting are of great importance at
the intersection of IT and telecom.

> South Korean operator LG U+

commercially launched Ericsson’s
LTE-Advanced (LTE-A) with carrier
aggregation, combining spectrum
bands for higher broadband speeds.

> Ericsson and STMicroelectronics

completed the split-up of the former
ST-Ericsson joint venture on August 2.

> Ericsson announced it would build

three Global ICT Centers to support
R&D in developing and verifying
solutions, bringing innovations to the
market faster.

> Redefining the small-cell market,
Ericsson announced the Ericsson
Radio Dot System: a cellular radio unit
that is small enough to fit in a hand,
and provides enough indoor network
coverage for a crowd. It enables
operators and enterprises to offer a
complete indoor solution for mobile
broadband and voice services.

> Russian operator Rostelecom,

a provider of broadband and pay TV,

has deployed the world’s largest

operator content-delivery network

(CDN) through a solution developed

and integrated by Ericsson. The CDN

is ground-breaking in terms of both

capability and geographic span.

> Ericsson announced its intention to

acquire Microsoft Mediaroom, making
Ericsson a leading player for
innovative video distribution and IPTV
across multiple networks and devices.
The importance of video distribution
capabilities is increasing as more and
more LTE networks are deployed.

> Energy company E.ON selected
Ericsson to operate more than
600,000 smart metering points for its
Swedish operations. Ericsson provides
a hosted solution, including consulting
and systems integration services.

> Ericsson was named the global leader
in telecom operations management
by industry analyst firm Gartner.

> Following the acquisition of Canadian

Wi-Fi company BelAir Networks,
Ericsson announced its 3GPP-
compliant Wi-Fi network solution.
It enables operators to incorporate
telecom-grade Wi-Fi into their
heterogeneous networks so that
smartphone traffic can seamlessly shift
between 3GPP and Wi-Fi networks.

> Ericsson reached a milestone by
providing managed services to
networks that serve 1 billion
subscribers.

> Russian operator MTS selected

Ericsson to build an LTE network
covering approximately half of Russia.
Ericsson supplies hardware and
services for radio access and core
networks. Under the three-year
agreement, MTS’s 2G and 3G
networks will also be further
developed in several Russian regions.

> To meet the demand from traffic
streams generated by innovative
cloud services, Ericsson announced
a new multiple-application board for
the family of Smart Services Routers
(SSR). This board is powered by the
SNP 4000, a revolutionary processor
introduced by Ericsson in March 2013

> As the world’s first LTE broadcast

on a live network, Australian operator
Telstra activated Ericsson’s LTE
Broadcast solution on its commercial
network to deliver high-quality video
without buffering.

> Ericsson’s complete Voice-over-LTE
(VoLTE) solution was selected by
Japanese operator SoftBank Mobile.
Ericsson’s VoLTE solution offers
telecom-grade HD voice and video
calling alongside simultaneous
enriched multimedia services on
LTE smartphones.

> Ericsson was selected by China

Mobile to deploy LTE in 15 provinces in
mainland China. Ericsson is the main
supplier of the core network and will
deploy a radio access network based
on its RBS 6000 radio base station.
The contract also includes network
design and optimization services.

> Japanese operator KDDI selected

Ericsson as one of the prime vendors
to deploy its LTE system and Evolved
Packet Core (EPC) network. This was
the first time that KDDI selected
Ericsson to implement a radio access
network, based on RBS 6000.
In addition to network solutions,
Ericsson will provide related services
such as network rollout and
systems integration.

Ericsson | Annual Report 2013Our BusinessLETTER FROM THE CEO

Ericsson is on a journey of transformation. Building on our
technology and services leadership in telecoms, we are
becoming a leader in Information and Communications
Technology (ICT), a driving force in the Networked Society.
Let us look at some milestones from last year, and explore
the road ahead.

Dear shareholders

As the world is changing into a Networked
Society, it is starting to transform virtually all
industries. The music industry was early out with
digital distribution and new business models as
a result of mobility, broadband and cloud
creating new opportunities. The networks are
becoming more relevant not only to people using
their smartphones, but also to businesses and
society at large. In light of this development,
both operators and vendors are making strategic
choices based on their respective assets. It is
a truly exciting time in the industry.

Let’s look more closely at developments at

Ericsson in 2013. In our core business, we redefined
the small-cell market with our Radio Dot System.
We have established ourselves in the Chinese 4G
market with TD-LTE, after a weaker position in 3G
where we did not participate in the TD-SCDMA
technology. The majority of the European network
modernization projects, which put pressure on our
margins in recent years, are now behind us; in line
with our strategy we now have a strong installed
base in Europe. In parallel, we have strengthened
in services across North America and are now the
leaders in both infrastructure and telecom services
in the world’s most advanced ICT market.

We have continued with our strategy of
expanding into targeted areas such as TV and
media, IP, cloud, as well as OSS and BSS. And we
have refocused our position in modems, winding
up the ST-Ericsson joint venture and establishing
our own thin modems business. We further
strengthened our global services capabilities all
over the world. And we continue to invest in
research and development – SEK 162 billion in the
past five years alone. We build on our core assets
– our technology and services leadership and our
global scale – as part of our constant evolution,
something that is vital for maintaining our leading
position in a transforming industry.

By 2019, we expect to see 9 billion
mobile subscriptions, with three
times as many smartphones as
today, and 8 billion mobile
broadband subscriptions.

Ericsson | Annual Report 2013OUR BUSINESSCash flow from
operating activities
SEK billion

26.6

24.5

22.0

17.4

10.0

2009 2010 2011 2012 2013

Cash flow from operating activities

Earnings per share, diluted

SEK3.69

(2012: 1.78)

Our technology leadership is built on our
investments in R&D and evidenced by more
than 35,000 granted patents, one of the
industry’s strongest patent portfolios. During
the year we closed an IPR (intellectual property
rights) and licensing agreement with Samsung
that is important not only to Ericsson but to
the whole industry as it shows the benefits of
sharing technology on fair, reasonable and
non-discriminatory (FRAND) terms. The
multi-year agreement, which ends the patent-
related legal disputes between the companies,
consists of an initial payment and ongoing
royalty payments going forward.

Profitability
Our focus on profitability is now starting to pay off,
with stable margins in Professional Services and
a steady improvement in Networks during the
year. Operating income was up from SEK 10.5
billion in 2012 to SEK 17.8 billion in 2013, with
our operating margin increasing from 5% to 8%.
In North America we saw a strong start to

the year as two major coverage projects
peaked, with a subsequent weaker second half
of 2013. We expect more capacity projects in
Networks, continued momentum for
Professional Services and growth in Support
Solutions such as TV and media following the
acquisition of Mediaroom from Microsoft.

As I mentioned earlier, the big European
network modernization projects are coming to
an end and we expect the telecom industry in
Europe to improve, driven by macroeconomic
improvements as well as a recent investment
announcement by a large operator that could
trigger others to invest.

It was a challenging year in Northeast Asia.
This was primarily due to reduced activity and
currency headwinds in Japan, where we are
approaching completion of a major project,
and a structural decline in GSM sales in China.
But late in the year we won important contracts
for rolling out 4G both in China and Japan.

And now we have integrated Modems into
the business, providing the device connectivity
that is so important in the Networked Society.

Growth
From 2012 to 2016, we expect a compound
annual growth rate of more than 4% in the
market segments that we address, measured
in USD, with some variation between market
segments and years.

The underlying fundamentals for growth
in the industry are intact. Mobile broadband
continued to grow, with subscriptions
increasing 40% to 2.1 billion during 2013.
By 2019, we expect to see 9 billion mobile
subscriptions, with three times as many
smartphones as today, and 8 billion mobile
broadband subscriptions.

Sustainable development was high on the
agenda during 2013 and we lead the industry

in working holistically with sustainability issues to
drive growth in a way that positively impacts the
triple bottom line. We focus on the issues where
we can make the biggest difference: accessibility
and affordability of mobile communication;
the energy and materials performance of our
products and solutions and our own activities;
climate change and urbanization, business ethics,
and employee engagement. We have made
progress during the year and we will continue to
use our strength to ensure that technology is a
force for positive, lasting change in the world.

Strategic direction
We have set out a clear long-term strategy
framework, where we are determined to evolve
to become the industry leader in the Networked
Society. This framework has three components:
> Excel in our core business – radio, core and

transmission, and telecom services
> Establish leadership in targeted areas –

modems, cloud, IP networks, TV and media,
as well as OSS and BSS

> Expand business in new areas.

The road ahead
The key focus areas outlined at our 2013
Investor Day remain the foundation for our
strategy for 2014 and the years ahead.
> We will continue to pursue profitable growth,

by making the most out of our existing
footprint, increasing sales in new and
targeted areas, increasing the share of IPR
and software sales, and improving earnings
in network rollout.

> We will continue to reduce costs and improve
efficiency, thanks to a better order-to-cash
process and structural improvements; by
industrializing, centralizing and automating
our processes, and getting the most out of
our global skills base; and by continuing to
implement lean and agile ways of working
across our R&D.

> And we will keep on demonstrating

commercial excellence, by evolving our
infrastructure software model to a complete
ICT environment, through consistent price
management and by getting a price premium
for first-class network performance.
The long-term fundamentals in the industry
remain attractive and we are in a strong position
to capture the opportunities that lie ahead.
To assist me in achieving this, I have a
dedicated, global organization with talented
employees who work tirelessly to ensure that
Ericsson continues to generate sustainable
value for our shareholders and customers.

Hans Vestberg
President and CEO

LETTER FROM THE CEO

Ericsson | Annual Report 2013Our BusinessMARKET TRENDS

New ICT solutions are transforming the way people, business
and society communicate and collaborate.

The Networked Society brings innovation and
progress to private life, business and society.
New forms of collaboration, participation and
sharing, as well as new ways to meet customer
needs and build value, are making the network
more and more essential to all aspects of
everyday life.

All around the world, people are demanding

greater mobility, better broadband and more
access to cloud-based services. These three
factors are driving the evolution of the
Networked Society.

MOBILE BROADBAND
OPPORTUNITIES

Connections are the starting point of the
Networked Society. There are currently
approximately 6.7 billion mobile subscriptions
around the world, and the proportion of the
global population with mobile network access

– known as population coverage – is constantly
increasing as more radio base stations are
deployed. And the different generations of
mobile technology are reaching out to more
and more people every year.

GSM/EDGE technology has by far the widest

reach today, covering more than 85% of global
population. The areas yet to be reached by
GSM/EDGE in those countries that use the
technology are sparsely populated.

Further expansion of WCDMA/HSPA
will be driven by increased user demand for
internet access, the growing affordability of
smartphones and regulatory requirements
to connect the unconnected.

Even in the early days of LTE rollout, at the
end of 2012, it was estimated that the technology
covered 10% of the world’s population. Looking
ahead six years, Ericsson predicts that this will
increase to more than 65%.

In 2013, global smartphone shipments
outnumbered those of classic feature phones.

Population coverage by mobile technology
Percent

Global mobile traffic 2010–2019
Monthly Exabytes (1018 B)

100

>85%

>90%

-90%

~55%

>65%

~10%

2012 2019

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

GSM/EDGE

WCDMA/HSPA

LITE

Data: mobile PCs, tablets and mobile routers
Data: mobile phones

Voice

Source: Ericsson (November 2013)

Source: Ericsson estimate

40%

Mobile broadband
subscriptions grew by
around 40% in 2013,
reaching more than
2 billion.

Monthly data traffic
per active device (GB)

2019
forecast

2013

Smartphone

Mobile PC

Tablet

0.6

3.3

1.0

2.2

4.5

Total monthly mobile data traffic
is estimated to grow tenfold
between 2013 and 2019

Total smartphone data traffic is
estimated to grow tenfold
between 2013 and 2019

Source: Ericsson estimate

Ericsson | Annual Report 2013OUR BUSINESS4x

4X growth in mobile
broadband subscriptions
between 2013 and 2019.

Ericsson estimate.

Performance drives loyalty
Relative impact between each driver
and loyalty to operator brand

19%

16%

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10%

The 1.9 billion smartphones subscriptions today
are mainly in mid-to-high-end markets; the next
billion is set to be mass-market phones now
being introduced at USD 50-100. The continued
growth in smartphones is changing consumer
behavior and creating new lifestyles around the
world. Another factor is the accelerating usage
of tablets of which only around 25% are
currently connected to mobile networks.

A large proportion of the increasing data

traffic – for smartphones, tablets and computers
– comes from video, on websites, and through
streaming, downloads, video applications and
gaming. Video is more sensitive to network
quality than many other forms of data traffic,
a fact that makes network performance even
more important.

The opportunities that these factors

represent will increase demand for networks,
drive the expansion of mobile broadband and
pave the way for growth in new information
services and data business.

Changing consumer
expectations

Today’s social, collaborative and sharing
culture brings individual empowerment,
new consumption patterns and stronger civic
participation. It also brings an expectation of
an always-on connection to the network and
access to services wherever you are. For many
people, a service delivered over the network –
rather than ownership – is becoming the
preferred way to consume and access content
such as music and video, and is also becoming
increasingly important in areas such as health,
education and other public services.

Innovation in enterprises

Industries such as media, commerce, utilities,
transportation, health and education are using
ICT to create new business and improve
performance of today’s operations. New,
disruptive players, such as Spotify and Netflix,
are challenging the prevailing models of their
respective music and television/video industries.
This accelerating innovation power is based
on the combination of skilled, demanding users
who expect better ways to get what they want,
the availability of highly capable networks,
and powerful ICT-based business platforms.

models. Rather than the all-you-can-eat models
of a few years ago, we now see better-targeted
offerings based on usage patterns, capacity,
service bundles, multi-device plans and
real-time features such as top-up plans.
Operators are also increasing investments in,
and focus on, developing new businesses in
media and entertainment, cloud and IT services,
machine-to-machine communications and
enterprise offerings, as well as industry solutions
in areas such as connected cars, health
services and mobile money.

Differentiation through
network performance

In a smartphone and tablet-centric world,
broadband becomes the main enabler and
applications a key service model. The consumer
and business user experience is increasingly
determined by the actual performance of
applications, and the network needs not only to
provide access but also safeguard and optimize
the actual performance of the applications used.
Research by Ericsson ConsumerLab provides
clear evidence of the business value of a
superior consumer experience.

Operators that establish, demonstrate and

promote a better user experience can take
a lead in terms of satisfaction, loyalty and
business value. Ericsson has established an
approach to assessing and securing the
performance of networks in relation to a real
application experience. We call it App Coverage
and have developed a set of indicators to
measure and ensure network performance in
terms of the application experience. We discuss
this concept further in the Mobile Broadband
section on Page 22.

Operator transformation

Higher data volumes, more devices, demanding
applications and new service offerings to
consumers, enterprises and industries all
increase pressure on operators to meet customer
expectations. This calls for a rapid transformation
where improved network performance, more
efficient processes and better structured OSS
and BSS implementations enable the proactivity,
agility and performance that the business
portfolio requires.

The combination of Ericsson’s technology
and services leadership with business expertise
and wide network of partners allows us to
contribute to both network and business
transformation for operators in markets around
the world.

d
e
r
e
f
f
o
s
n
a
p

f
f
i
r
a
T

t
r
o
p
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u
s
r
e
m
o
t
s
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C

5%
s
d
r
a
w
e
r
y
t
l
a
y
o
L

e
c
v
r
e
s

r
e
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o
t
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C

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r
o
w
t
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N

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e
f
f

g
n
i
t
e
k
r
a
M

Operator business
development

Source: Ericsson ConsumerLab
Network Performance Study 2013

Operators are at the center of the development
of the Networked Society. Significantly, they are
capitalizing on the growth in mobile broadband
growth by introducing new pricing and revenue

MARKET TRENDS

Ericsson | Annual Report 2013Our Business

MARKET TRENDS CONTINUED

Operator evolution

Many operators are focusing on the user
experience as a means of differentiation, with
improved customer service and added-value
services in order to increase customer loyalty
and reduce retention costs. Increased focus
on improved efficiency and core business is
in many cases leading to new operational
practices such as outsourcing and managed
services partnerships.

Operators are also taking a sharper strategic

focus. The three roles here are representative
strategies adopted by several customers:
> Network developers concentrate on

connectivity and communication services.
Network performance and efficiency are
key priorities.

> Service enablers establish systems and
platforms that enable new enterprise
practices such as IT cloud services and
business processes as well as added-value
services to enrich the consumer experience.

> Service creators take the lead in providing
innovative new services, and are active
participants in the establishment of new
ecosystems in markets such as digital health,
connected cars, smart homes and cities.

Ericsson works closely with operators to
support their different strategic development

ambitions, providing solutions that grow
business and meet the operational priorities
of all three roles. Among our key offerings are:
> High-performance networks that meet the

most demanding service requirements from
users and are open for the development
of new business in areas such as new
connectivity services, machine-to-machine,
IP, heterogeneous networks, cloud and
data monetization.

> Network and business transformation
to increase efficiency and provide a
differentiated customer experience.

> Business support solutions that allow the

agile introduction of new pricing models and
offerings with appealing combinations of
new subscription packages with added-value
services and partnerships.

> Systems integration expertise and

communication solutions that provide
expansion opportunities and new
enterprise offerings.

> Platforms and development projects to

expand into industry-specific solutions with
machine-to-machine and applications for
specific industries.

Ericsson’s technical and business expertise
and solutions make it possible for operators
to explore new roles and capture the new
opportunities they can offer.

Ericsson brings

Operator strategic focus

Innovation and revenue growth

Applications and services

OSS & BSS and process
transformation

Systems and platforms

Network evolution

Connectivity and communication

Network
developer

Service
enabler

Service
creator

Source: Ericsson

Ericsson | Annual Report 2013OUR BUSINESSOUR MARKETS

Understanding of our customers and their businesses
helps us provide innovative offerings that ensure we and
they stay ahead in every market.

Customers in more than
180 countries

Ericsson’s business is characterized by long-
term relationships, mainly with large telecom
operators. We serve more than 500 operator
customers, and an increasing number of
non-operator customers, in more than 180
countries. We have been in many of these
markets for more than 100 years.

We provide solutions and services to all
major telecom operators in the world. Sales to
telecom operators represent the vast majority
of our revenues. Our ten largest customers,
of which half are multinational, account for
44% of net sales.

Our customers operate in a variety of markets
and are at various levels of technological maturity.
Their business focuses also differ depending on
the maturity of their markets.

The installed base of radio networks is the
foundation for Ericsson’s business with mobile
operators. We are also expanding into other
domains such as IP core networks, OSS and
BSS, as well as the TV and media markets.
Over the past ten years, we have built a
significant services business, representing
43% of net sales in 2013 (42% in 2012). Ericsson
pioneered managed services, and continues
to be the undisputed leader. Success in areas
such as managed services, consulting and
systems integration in turn creates opportunities
for more business.

In recent years, we have expanded into TV
and media. Users are consuming more video,
which is an increasing source of data traffic in
mobile networks – 35% at the end of 2013. Video
is forecast to account for more than half of all
mobile network traffic in 2019. In this domain,
we can reuse skills, methods and tools from our
telecom managed services in the operation of
broadcast services for TV and media companies.

Through the acquisition of Tandberg

Television in 2007 and Microsoft’s Mediaroom
in 2013, we are now also a leader in the
IPTV and video compression business,
with multi-screen solutions for TV Anywhere.

Reinventing the way
companies create value

To build the Networked Society, we have to offer
our innovations more widely than to operators
alone. This requires new ways to extend our
reach. Today we also engage directly with
customers in selected industry verticals –
particularly utilities, transport and public safety.
Our aim is to reuse products, solutions and
services for these customers. They either have
similar business models to telecom operators,
or gain from mobile broadband and the larger
opportunity to connect anything that benefits
from being connected. Connectivity is helping
these sectors reinvent the way they create value.

Sometimes we do business in direct
collaboration with these companies, and
sometimes together with our operator
customers. Business requirements – such as
handling large volumes of subscription data,
in machine-to-machine applications, for
example – are often a common factor.
Our strategy is to explore and commercialize
emerging opportunities within and between
these sectors.

Since the split-up of our joint venture
ST-Ericsson in 2013, and the establishment
of the Modems segment, handset and device
manufacturers have become a new customer
segment, to whom we will supply multi-mode
thin modems.

43%

Global Services
represented 43% of
Ericsson sales in 2013.

OUR MARKETS

Ericsson | Annual Report 2013Our BusinessOUR STRATEGY

We aim to become a leading Information and
Communications Technology (ICT) solutions provider
by combining our core assets: Our people, our
technology and services leadership, and global scale.

Vision and mission

OUR STRATEGY

Ericsson’s vision is to be the prime driver in an all-communicating
world. By using innovation to empower people, business and society,
we are enabling the Networked Society, in which everything that
benefits from a connection will be connected.

Our strategy

Global scale

Excel with a leading
portfolio for high
performance Networks

Expand Services
by driving world
class operations
and network evolution

Technology
leadership

The prime
driver in an
all-communicating
world

Services
leadership

Extend in Support
Solutions with leading
OSS & BSS Systems
and media distribution
to utilize and capitalize
on the network

Establish leading
position for enablers
(IPRs, M2M, Selected
industry verticals,
Modems) of the
Networked Society

Ericsson’s strategy builds directly on our vision
of a connected world in which broadband,
mobility and the cloud combine to create
the Networked Society.

The strategy is based on four pillars:

> Excel in networks
> Expand in services
> Extend in support solutions
> Establish a leading position in Networked

Society enablers.

We are executing this strategy by leveraging
our technology and services leadership
combined with our global scale. These
competitive advantages, together with the
skills and experience of our employees, make
Ericsson a true end-to-end business partner
for network operators and customers in
selected industry verticals as the Networked
Society becomes a reality.

Our go-to-market approach is built on

business units and regions. The business units
develop solutions for specific business areas,
while the regions cultivate strong relationships
with our customers. This allows us to address
customers’ needs, keep them satisfied and
ensure we always deliver what we promise.

Our position and our influence also give us
an opportunity – and a responsibility – to help
address urgent global challenges such as
poverty, human rights and climate change.

Excel in networks

We will excel with a leading portfolio for high-
performance networks. Our wanted position is to
remain No.1 in networks for service providers and
lead the transition to the network architecture
that will enable the Networked Society.

Ericsson | Annual Report 2013OUR BUSINESSOur acquisition of Microsoft’s Mediaroom

shows our commitment to capturing the
opportunities created by the ongoing
transformation of TV and media. Our ambition
is to be the industry’s TV and media partner of
choice, and we strive to enable the most efficient
video-delivery networks, exploit the growing need
for on-demand content management and lead in
the multi-screen and multi-platform market.

Establish a leading position in
Networked Society enablers

With the Networked Society becoming a reality,
we are establishing ourselves in the emerging
new business landscape. Building on our
technology and services leadership with
intellectual property rights, machine-to-machine
platforms and modems, we are creating new
business with players across the selected
industry verticals of the utility, transportation
and public safety industries.

Ericsson’s capabilities, combined with our
proven record of commercializing advanced
ICT solutions, position us perfectly to build
solutions that bring new innovative capabilities
into these industry verticals while providing
new efficiencies of scale.

Long-term STRATEGY
FRAMEWORK

Evolving to be the industry leader in the
Networked Society, based on our core
business, we expect to grow in targeted
areas and invest in new areas.
> We are focusing on increasing profit from

the portfolio in our core business.
> We aim to establish leadership in the

targeted areas of OSS and BSS, TV and
Media, IP Networks, Cloud and Modems.
> We are seeking to expand business in new
areas that are critical to the Networked
Society and where our capabilities will
make a significant difference.

As we allocate capital to support this strategy,
investment in services capabilities goes
hand in hand with investment in product
development. Our growth strategy, leveraging
our market footprint, is primarily through
organic growth, but also in combination with
acquisitions and partnerships.

We intend to simplify the management of
every component of an operator’s network,
while exploring opportunities to build new
services based on areas such as big data
and analytics on top of networks.

As the leader in radio evolution, Ericsson
will continue to drive the introduction of new
standards and technologies, while defending
our existing business with a strong migration
story. We can build on our leading position in
mobile backhaul and packet core networks to
grow our footprint in IP and transport, and use
our network experience to create compelling
cloud solutions.

Expand in services

We expect to expand our No.1 position in services
for operators by becoming a professional services
partner to new types of customers in selected
industry verticals. The strength of our services
business proves the value of combining local
capabilities with global scale, and we will continue
with this proven strategy while prioritizing
innovation, competence and cost control.

Top of the agenda is ensuring the continued

transformation of our professional services
capabilities. This means continuing to build
capabilities in IT services and ensuring we reuse
and standardize as much as possible – a process
we refer to as services industrialization. We
expect to also expand in product-related services,
where we will extend our capabilities in designing
and optimizing networks and move into services
for heterogeneous networks, wireless networks
that use a range of access technologies.

We expect to continue to lead in managed
services. At the same time, we intend to build
our consulting and systems integration
competencies further, with an increased focus
on extending our OSS, BSS and IP network
transformation offerings, and continuing to
explore opportunities in industry verticals.

Extend in support solutions

Our priority is to extend our support solutions
business with OSS and BSS as well as TV and
media solutions to get the most out of networks.
Ericsson strives to provide solutions that
contribute to the best customer experience,
business innovation and business efficiency.

We intend to build on our extensive installed
OSS and BSS base to strengthen our position
even further. In particular, we continue to focus
on customer experience management and
analytics, cloud and next-generation business
intelligence. In addition, we intend to use our
m-commerce strength in developing markets
to provide banking capabilities to everyone.

OUR STRATEGY

Ericsson | Annual Report 2013Our BusinessHow we create value

Ericsson develops and applies various business models
for different types of businesses and different parts of the
portfolio. Here we discuss two of our main business models
targeting telecom operators.

Ericsson has worked for many years with large
network-infrastructure projects. The operation
of the resulting complex networks created a
demand for managed services. The advent of
mobile data led to a need for software-based
support systems to monetize data services.
Over the years, the business models have
evolved to meet customer demand. All have
similar basic investment-to-value models,
but with some significant differences.

They all start with an initial investment phase,

such as research and the development of new
products, solutions and services.

The early phases of both infrastructure

coverage and managed services projects have
lower margins and profits, as explained in the
diagrams on the opposite page. Profitability
improves in both cases as the projects develop
and mature.

Business models evolution

Modems

Patents & licensing

> Unit-priced modems

TV & media

> Running royalty-based licensing

> Service-led transformations

OSS & BSS

> Recurring software contracts

IP & cloud

Managed services

Mobile infrastructure

> Recurring service contracts

> Capacity and small-cell projects

> Large, capital-intensive
infrastructure projects

> 2015

BUSINESS MODELS WILL GRADUALLY CHANGE AS BUSINESS EVOLVES

Large, capital-intensive
infrastructure projects

2005

Ericsson | Annual Report 2013OUR BUSINESSMobile broadband infrastructure business model

Capacity (expansion phase)

> Upgrade, capacity increase
> Small-cell deployments
> Shorter order cycles
> Positive effect on company

gross margin

Coverage (initial phase)

> Break-in and green field
> Open bidding
> More hardware and rollout services
> Negative effect on company

gross margin

> More capital tied up

Managed services business model

PROFITABILITY

A – Transition
B – Transformation
C – Optimization

YEARS

Industralize and
evolve contract

Optimize and
shorten transition
and transformation

MOBILE BROADBAND
infrastructure business model

Our most traditional business model is in
network infrastructure, delivering and rolling
out a physical network including all necessary
hardware and software. The first phase involves
building coverage across one or more
geographical areas and often includes network
rollout services. Subsequent phases include
increasing network capacity, and adding
functionality. Services include network design
and optimization, and systems integration.

The initial build and rollout phase can take

several years, is capital-intensive, open to
competitive bidding, and usually involves lower
margins. The later phases, extending the
capacity and functionality of the established
footprint, often involve a lower share of hardware
but more professional services and software,
which can be deployed remotely. These phases
generally produce higher margins. The differing
nature of the phases makes it important that we
find a beneficial mix of coverage and capacity
projects, in order to secure a good balance
between growth and profitability.

Managed services
business model

A different model applies to our managed
services business. We take over aspects of
a customer’s business operation, or even the
entire operation, for a period of up to seven
years. Staff and expertise are often transferred
from the customer to Ericsson. The initial
transition and transformation phases can involve
significant costs up front. But by simplifying,
implementing and consolidating resources,
tools, methods and processes, we step by
step reduce the costs and improve our returns.
Most such contracts are subsequently renewed.
We have a good balance of contracts in the
transition, transformation and optimization
phases – with the vast majority of the business
in the optimization phase – which has a
beneficial effect on revenue and cash flow.

How we create value

Ericsson | Annual Report 2013Our BusinessHOW WE WORK

Our competitive advantages and core values, our people
and our ways of working, all combine to ensure we
are always innovative and efficient, and do business
responsibly and sustainably.

TECHNOLOGY and SERVICES LEADERSHIP
Innovative solutions and unparalleled service offerings
We support our customers in the new ICT landscape by combining the advantages of our
leadership in technology and services capabilities.

Our technical expertise is driven by innovation, research and development, delivering high network
performance and enabling our customers to be first to market where it matters. We hold one of
the largest patent portfolios in the industry, with more than 35,000 granted patents worldwide.
We supplied the world’s first LTE network and have maintained our leading LTE position since the
first rollout of LTE in 2009. We are also a leading support systems provider.

Ericsson is also the largest telecom services provider in the world, supporting operators in creating
competitive, attractive and appealing offerings to consumers, while providing managed services to
networks that serve more than 1 billion subscribers worldwide. We pioneered managed services
for the telecom industry more than 10 years ago and remain the leader today.

GLOBAL SCALE
Local presence combined with global scale
With operations and customers in more than 180 countries, we have established relationships
with all the world’s major telecom operators. We use worldwide standards, combined with global
economies of scale in research and development, production and service delivery, to ensure that
our products and services are efficient and of high quality wherever they are deployed.

Our technology handles approximately 40% of the world’s mobile traffic and around 50% of all
global LTE smartphone traffic goes through networks delivered by Ericsson. Our capabilities and
business understanding in telecom, datacom and media are prerequisites for large-scale ICT
transformation projects. Every year, we deliver approximately 1500 consulting, systems integration
and learning services projects in multi-vendor and multi-technology environments.

Ericsson’s core values

Our values are the foundation of our culture.
They guide us in our daily work, in how we
relate to each other and the world around
us, and in the way we do business.

Professionalism

Respect

Perseverance

Ericsson | Annual Report 2013OUR BUSINESS77%

Employee Engagement
measures employees’
overall motivation and
commitment. Ericsson’s
score for 2013 is 77%,
8 percentage points above
a global benchmark,
and 2 points above an
ICT industry subset.

OUR PEOPLE

People have made Ericsson what it is
today. Our people with their ingenuity and
professionalism are at the heart of the success
we achieve today and aspire to tomorrow.
By working with Ericsson, they are helping
build the Networked Society and create a
more sustainable world.

Our people work with us because we can

help them fulfill their career ambitions and
reward their effort and commitment. Working
for Ericsson encourages and stimulates
creativity and initiative in an environment
that embraces innovation and rapid change.

To attract the best people, help them reach
their full potential and engage them on the way,
our People Strategy has four objectives:

Attract talent
To attract exceptional talent, we take a strategic
approach to becoming an employer of choice
wherever we operate. We want to be recognized
as the company that will fulfill the personal and
career ambitions of a potential employee.

Develop talent
Talent needs to be nurtured and encouraged,
and we place great emphasis on identifying
talented professionals early in their careers.
We have a structured approach to identifying
and assessing talent, and have created an
environment in which employees can achieve
their full potential. Our comprehensive career
and competence model, supported by online
and classroom training from Ericsson Academy
and on-the-job development helps employees to
build their careers and develop capabilities that
contribute to the company’s continued success.

Develop leaders
Strong leaders are essential for Ericsson to
keep our technology and services leadership
amid evolving business conditions. That is why
we constantly reexamine the leadership skills
and competencies required to maintain our
leading position. An annual process identifies,
assesses and develops people to assume

Ericsson Academy

Ericsson Academy provides innovative and
inspiring learning to all our employees,
enabling our business to grow in line with
strategic targets and ambitions. Learning
everyday includes both formal and informal
learning, collaboration and sharing.

strategic roles in the company. Our leadership
pipeline is under continual review to ensure that
we develop the right leadership capabilities at
all levels in the organization.

Embrace diversity
Different people bring different points of view
and different solutions to challenges – essential
factors in our constant search for better, more
effective solutions for our customers. We strive
for our management teams and employee base
to be as diverse as the world in which we live.
A diverse and inclusive workforce drives
innovation and leads to high-performing teams
and superior business results.

TOOLS, METHODS AND PROCESSES

As a global organization, Ericsson uses a
system of standardized tools, processes and
methods to ensure simplicity and efficiency,
guarantee aligned service offerings and quality
levels, and deliver economies of scale.

Our regional organizations, all of which
include six engagement practices, allow us to
identify best practices, methods and processes
from any individual market, and then adapt and
reuse them globally.

The Ericsson Group Management System

(EGMS) is used in all operations covering all
units around the world. Its consistency and
global reach helps ensure that the way we
work meets the objectives of Ericsson’s
major stakeholders, building trust. The EGMS
framework defines structure, rules and
requirements for compliance with
applicable laws, listing requirements,
governance standards and other requirements.
In addition, we employ a system of audits
and assessments to determine compliance and
to provide valuable information for understanding,
analyzing and continually improving performance.

GOVERNANCE

Good corporate governance forms the basis
for building a robust corporate culture
throughout a global organization. Ericsson
maintains a constant focus on corporate
governance issues including the establishment
of efficient and reliable controls and procedures,
and on promoting sustainable and responsible
business practices. It is crucial that such
business practices are valued and followed by
all people in the organization.

All Ericsson employees are responsible for
adhering to Ericsson’s Code of Business Ethics,
which summarizes the Group’s basic policies
and directives, and emphasizes the importance
of integrity in all business activities.

HOW WE WORK

Ericsson | Annual Report 2013Our BusinessMaking
better
cities

Urban growth is continuing at a fast pace – the
population in urban areas exceeds 50% of the
world’s population. By 2050 it is expected that
70% of the world’s population will live in cities.
Cities are also the hotspots of the global
economy and account for more than 70%
of CO2 emissions. In order to maintain cities’
role as a source of innovation and economic
growth, to improve the quality of life in urban
areas and to mitigate the impact of climate
change, they must develop sustainably.

Mobility, broadband and cloud technology
from Ericsson can help transform the way cities
are built and the services available to residents,
like transportation systems and smart energy
grids. This also has the potential to reduce
CO2 emissions by approximately 15%. Ericsson
and UN-Habitat have started a three-year
collaboration exploring on how cities can
leverage ICT investment to be more sustainable.

70%

Cities account for more than 70%
of global CO2 emissions and two-
thirds of the world’s energy use today.
The steps they take now to combat
climate change will have a major
impact on the future of our planet.

Ericsson | Annual Report 2013SUSTAINABILITY AND
CORPORATE RESPONSIBILITY

Sustainability and corporate responsibility are integral aspects
of our business, reflected in our strategy and governance.

40%

40% energy savings with
Psi coverage solution
compared with traditional
coverage solutions.

Ericsson aims to lead the industry in providing
significant and measureable contributions to
a sustainable Networked Society. Through our
commitment and actions, we demonstrate that
we are a trusted partner for our stakeholders.

Our Sustainability and Corporate

Responsibility program has three key focus
areas closely connected to our business and
where we can have the greatest impact:
> Conducting business responsibility
> Maximizing environmental and

energy performance

> Advocating Technology for Good.

CONDUCTING BUSINESS
RESPONSIBLY

Ericsson is committed to upholding the UN
Global Compact Principles, and reported in line
with the Global Compact Advanced level for the
first time in 2013.

We are also committed to the UN Guiding

Principles on Business and Human Rights,
and work actively to respect human rights
throughout our operations.

In Myanmar we received a Corporate Social
Responsibility Special Recognition Award from
Télécoms Sans Frontières. Ericsson was also
recognized by Swedish insurance company
Folksam as a “role model company” for our
work with human rights.

As part of our zero tolerance for corruption,
we have continued to develop our anti-corruption
program. This included a new version of an
anti-corruption e-learning course which has
now been completed by approximately
85,000 employees.

Maximizing ENVIRONMENTAL
and energy PERFORMANCE

We continue to improve energy efficiency
across our entire portfolio. Our latest generation
of network infrastructure equipment provides
better performance than previous generations
while consuming less electricity.

Examples include:

> The RBS 6000 radio base station,

part of our core portfolio, which provides
energy-efficient coverage and capacity.
Increasing deployment of our energy-efficient
Psi coverage solution in markets such as
Egypt, Bangladesh, Brazil and Turkey. These
deployments have shown energy savings of
40% compared with traditional solutions.
> By reducing indoor cell sizes and bringing
the network closer to users, the Radio Dot
System can reduce indoor solution power
requirements. It also prolongs the battery life
of devices such as smartphones and tablets
frequently used in enterprise environments.
> Our own operations are also yielding significant
energy savings, in areas such as business
travel, the efficiency of Ericsson facilities and
the way we ship our products. We are working
toward a five-year target of reducing CO2
emissions per employee by 30% and keeping
absolute CO2 emissions at 2011 levels, despite
forecast growth in sales and employees.
> When we take back our products, we reuse
or recycle 98% of the materials. We also
continued to expand our ecology
management program in 2013.

SUSTAINABILITY AND CORPORATE RESPONSIBILITY

Ericsson | Annual Report 2013Our BusinessSUSTAINABILITY AND CORPORATE RESPONSIBILITY
CONTINUED

Sustainability advocacy

TECHNOLOGY FOR GOOD

In early 2013, the Broadband Commission on
Digital Development established a Task Force
on Sustainable Development, chaired by our
CEO Hans Vestberg, to explore some of the
issues surrounding how broadband can best
contribute to development goals. The Ericsson-
led Broadband Commission Task Force report
“Transformative Solutions for 2015 and Beyond”
examines the role broadband and ICT can play
as transformative solutions for achieving
sustainable development for all.

Hans Vestberg was also a member of
the Leadership Council for the Sustainable
Development Solutions Network, which submitted
a report to the UN Secretary-General, “An Action
Agenda for Sustainable Development,” in 2013.
Our Energy and Carbon Report analyzed
the growing use of ICT. It showed that while the
expansion of ICT is stimulating economic growth
and development, the resulting increase in carbon
emissions is expected to be marginal, with the
sector as a whole not seen as contributing more
than 2% of global CO2 emissions.

At Ericsson’s NEST thought-leadership event

in 2013, we announced a collaboration with
UN-Habitat for research and involvement in
promoting sustainable cities, getting maximum
value out of ICT investments, and carrying out
collaborative research and specific initiatives
that provide valuable insights for city leaders
and policy makers.

Our Technology For Good program continues
to work with several initiatives helping people
and communities address global challenges
at the local, regional and international levels.
Connect to Learn is a global initiative
providing quality secondary education to
children, especially girls, worldwide. From its
inception in 2010 up to late 2013, Connect to
Learn had been established in 15 countries in
cooperation with 10 operators. The initiative
benefits nearly 40,000 students in schools
across three continents.

Our work with Refugees United progressed

over the year with the launch of the service in
the Democratic Republic of Congo. By year-
end, there were more than 250,000 refugees
registered on the platform, so we are a quarter
of the way toward our 2015 goal of helping
1 million people separated by conflict or
disaster come in contact with loved ones.

Ericsson supported the Whitaker

Development and Peace Initiative’s (WPDI)
Harmonizer program in Mexico. Harmonizer
encourages social change and transformation
in urban areas affected by violence and conflict,
while the WPDI provides training in areas such
as conflict resolution, community building and
ICT for vulnerable youth living through the
aftermath of violence and conflict.

This project is part of the Youth Peacemaker

Network (YPN), a program that has been
already established by the WPDI in South Sudan
and Uganda, where Ericsson is also a partner.
The YPN is a global initiative that seeks to
nurture a new generation of leaders committed
to reconciliation and conflict prevention.

At the request of our partners at the World

Food Programme and the Emergency
Telecommunications Cluster, Ericsson
Response, our employee volunteer program,
deployed volunteers to the Philippines in
response to the disaster caused by the super
typhoon Haiyan/Yolanda. The wireless internet
access provided to more than 2,500
humanitarian aid workers allowed them to
organize their disaster relief operations.

Ericsson | Annual Report 2013OUR BUSINESSConnect
To Learn

Through Ericsson’s Connect To Learn project,
pupils in the local school of Suruacá in the
Brazilian Amazon can now access the
internet, take part in cloud-based education
and interact with children in other schools
across Brazil and across the world.

The global education initiative Connect To

Learn was founded by Ericsson, the Earth
Institute at Columbia University and
Millennium Promise. It was launched in the
Millennium Villages – integrated, community-
led developments designed to improve the
living conditions and future outlook of some of
the world’s poorest people – with operators in
sub-Saharan Africa to meet the challenge of
access to secondary education. The project
has since been deployed in other regions
such as the Amazon with Vivo/Telefónica.
The initiative ensures access to global
resources through ICT, as well as teacher
training and scholarships. In Brazil, Ericsson
volunteers provide virtual classes for students
and make school-to-school connections for
classes in Rio de Janeiro and Portugal.

40,000

Nearly 40,000 students are benefiting
from Connect To Learn in schools
across three continents.

SUSTAINABILITY AND CORPORATE RESPONSIBILITY

Ericsson | Annual Report 2013OUR solutions

We have the competence, the skills and the solutions
our customers need to tackle the challenges of today
and tomorrow.

MOBILE BROADBAND

> Providing, upgrading and transforming

network infrastructure

> Supporting operators in adoption of new

data-centric business models

> Helping operators meet demand by

introducing the ‘App Coverage’ approach
> Building heterogeneous networks using small
cells, improving indoor and urban coverage

Mobile data traffic continued to grow rapidly
in 2013. The rising number of smartphone
subscriptions is a key driver for mobile data
traffic growth, together with the fact that users
are consuming more data per subscription –
mainly driven by video. Total smartphone
subscriptions reached 1.9 billion during 2013
and the number of subscriptions for mobile
PCs, tablets and mobile routers reached 300
million. The majority of mobile broadband
subscribers are connected using 3G/WCDMA
networks, but increasing numbers are gaining
access to 4G/LTE.

With our offerings, operators can cost-
effectively meet consumer and enterprise
demand for services anywhere, anytime.
Besides increasing coverage, speed and
capacity, operators are differentiating
their services and adapting them to new
business models.

A change in perspective
Operators need new ways to define
performance so they can build and manage
their networks in the most efficient way.
Ericsson’s “App Coverage” concept advances
the definition of performance beyond
traditional population coverage, measuring
whether a network delivers the performance
required to run a particular application with
acceptable quality.

Using this app-centric approach, our
services and tools help operators determine
where and when coverage and capacity
need to be added or improved for an optimal
user experience.

To increase network coverage and capacity

in densely populated urban areas, we are
building heterogeneous networks, improving our
macro radio base stations while complementing
them with smaller base stations including Wi-Fi.
This provides the required App Coverage and
sufficient capacity in high-load areas, such as
malls, transport hubs, hotels and offices.

We expect LTE to keep expanding from 175
million subscriptions in 2013, reaching around
2.6 billion in 2019 and covering more than 65%
of the world’s population. We also see 2G/GSM/
EDGE networks continuing to be an important
part of the ecosystem, and a complement to
3G/WCDMA/HSPA and 4G/LTE coverage.

The building blocks
We build network infrastructure with the
following main components:
> The RBS 6000 multi-standard platform for

radio base stations. It supports GSM/EDGE,
CDMA, WCDMA/HSPA and LTE in a single
unit, ensuring a smooth transition to new
technologies. Upgrades and expansions
usually involve software and services,
often delivered remotely.

> The Ericsson Blade System for network control
functionality in fixed and mobile core networks.

> The SSR 8000 family of smart services
routers for network gateways. The multi-
application, high-capacity platform improves
network performance and supports service
differentiation in fixed and mobile networks.

> Optimized backhaul solutions. The

introduction of heterogeneous networks
means many new sites, challenging traditional
solutions for backhaul and synchronization.

30%

Mobile broadband
now accounts for
approximately 30% of
all mobile subscriptions.

The Ericsson Radio Dot
System will provide quality
access to mobile services
indoors using small cells
to address coverage
challenges.

Ericsson | Annual Report 2013OUR BUSINESSThe
connected
car

Ericsson and Volvo Car Group have teamed
up to create the ‘connected car,’ allowing
drivers, passengers and the vehicle to
connect to cloud-based services.

Through the Ericsson connected vehicle
cloud, drivers and passengers will be able
to access applications for information,
navigation and entertainment on a screen in
the car. At the same time, the car itself will
supply data on the state of its various
systems and communicate with other parties
– for instance, to book a service date and
give the mechanic early information on parts
that need to be ordered.

OUR solutions

Ericsson | Annual Report 2013OUR solutions CONTINUED

Our backhaul solutions use technologies
such as microwave, optical and satellite.

> Our network design and optimization

services ensure that networks can handle
high levels of data traffic while maintaining
service quality and user experience.
> Ericsson’s network rollout services.

Communication services

> New opportunities for communication

between people, enterprises and machines
> Evolution driven by Voice over LTE (VoLTE),
High Definition Voice and Video, Enriched
Communication Services, all enabled by
IP Multimedia Subsystem (IMS)

> Cloud-based solutions, such as the Device
Connection Platform, pushing the borders
of communication beyond people

experience and reducing costs. In addition we
offer machine-to-machine solutions to operators
as a cloud service.

We help operators leverage the value of their
networks by exploiting these new opportunities,
providing enhanced communication services
that are secure, reliable and simple to use.

All our applications are moving to virtualized

deployments, complying with the ongoing
Network Functions Virtualization industry
group’s specifications.

FIXED Broadband
and convergence

> Fourth-generation IP network portfolio
> Real-time cloud capabilities
> Unlocks full potential of mobility, video

and the cloud

Consumers and business users want to
communicate with more people, in more contexts
and for more reasons than ever before. Operators
are using this growing demand to drive business,
providing new functionality and richer offerings
across networks, devices and country borders.

Operators are already providing

communication services, such as voice, text
and multimedia messaging based on industry
standards, ensuring global interoperability
across all devices and all subscriptions.

Our IMS solutions enable operators to offer

communication in new ways, such as high-
definition voice, video calling and conferencing,
multi-party chat with presence information, and
screen sharing. IMS is also providing Voice and
video over LTE (VoLTE), enhancing the user

Legacy telecom networks were designed
to deliver a limited number of services.
Our IP-based multi-service networks create
opportunities for operators to unlock the
full potential of mobility, video and the cloud.
Our fourth-generation IP network portfolio
allows operators to use their complete network
as a single business resource as opposed to the
fragmented and complex reality of most legacy
networks. It also allows for increasingly virtualized
network features, adding flexibility and paving the
way for cooperation with new partners.

As a first step we introduced the ability to
deliver telephony, internet and TV over fixed
and mobile broadband networks. By combining
operators’ software-defined networks (SDN) and
cloud solutions, we are now adding real-time

Three operator cloud tracks

Operator customer cloud

Operator IT cloud

Operator telecom cloud

Cloud services for
consumer and enterprise

Virtualized IT functions such
as customer management

Virtualized telecom
functions

Value-added offerings
sold as services

Optimized internal IT resources

Replaces telecom hardware

* The system has at least “five nines” availability, i.e. 99.999%.

A carrier-grade* cloud
Ericsson Cloud System allows
operators to simplify their networks
and accelerate service creation
and delivery. Virtualization of
network functions, for example,
allows applications to share the
same hardware.

Ericsson Cloud System broadens the
application of cloud-based services
by providing “carrier-grade” service
availability, continuity and security.

Ericsson | Annual Report 2013OUR BUSINESScapabilities to the cloud – essential qualities for
evolving consumer and enterprise services and
to create new vertical applications in areas such
as safety and traffic monitoring.

MANAGED SERVICES

> Experience-centric engagement approach

allows operators to get more out of
managed services

> Managing and evolving network and IT
environments for operators to improve
efficiency and strengthen competitiveness

> Established in media, the cloud and IT

Managed Services, expanding into utilities
and transport sectors

Managed services traditionally involve taking
over activities operators once handled in-house,
from designing, planning and building a
network, to managing operations. The main
driving factor has been cost savings, but as
competitive pressures have increased,
operators have also needed to adapt their
positions in the value chain.

We have developed managed services as
a way to enhance the customer experience and
increase business differentiation. We create new
value by combining technical, service and
customer experience expertise. Our experience-
centric approach enhances the performance that
subscribers actually get. Starting with the
operator’s business objectives, we define the level
of customer experience necessary to meet those
objectives and work together to make it happen.
Our traditional telecom managed services
model focuses on reducing cost and complexity.
Other models such as wholesale network
sharing allow operators to choose between
investing in their own infrastructure and sharing
it to varying degrees with partners.

We handle complex issues such as

convergence, quality and capacity management,
while freeing up operator resources to focus on
strategy, marketing and customer care.

Customer

Business Support Systems (BSS)

Operations Support Systems (OSS)

Network

We provide managed services to networks

that serve more than 1 billion subscribers in
more than 100 countries. These networks are
typically multi-vendor, multi-technology
environments, with more than half the equipment
coming from non-Ericsson sources. We operate
four Global Network Operations Centers
(GNOCs) offering a universal approach to
managed services based on years of innovation
and global best practice. We rely on our global
set of tools, methods and processes, and invest
to ensure they remain at the leading edge.

We are expanding our established model
for network and IT managed services to adjacent
areas such as cloud services, TV and media,
and selected industry verticals.

OPERATIONS AND BUSINESS
SUPPORT SYSTEMS (OSS AND BSS)

> Enabling operators to become agile
> Providing systems to manage increasingly

complex networks and services

> Solutions to improve user experience and

to create new business opportunities

OSS and BSS are used to run the networks –
not just from a technical perspective, but also
to manage how services are delivered and paid
for, keep track of revenues and maintain
customer relationships.

The shift in focus from voice to data services

is both a challenge and an opportunity for
operators. The growth of mobile broadband is
leading operators to evolve their OSS and BSS
in order to monetize the increasing amount of
data flowing through their networks while
managing the increasing complexity of networks
and services. Our solutions cater for user needs
and help identify new revenue streams, in addition
to running and maintaining operations. Our
extensive expertise and global experience makes
us unique in our approach to OSS and BSS.

We enable our customers to become more

agile – fast, flexible and in control of their
business in a dynamic and fast-paced market.
Our solutions help them capture, analyze and
report user data, providing insights for more
cost-efficient business decisions, identifying
new revenue streams and enabling increased
personalization and user control.

Our portfolio is designed around measurable

performance improvement in an operator’s
business processes, with software that is
scalable, configurable and which provides
end-to-end capabilities. This, together with our
expertise in consulting and systems integration,
makes us a world-class software company.
The integration of the former Telcordia
products, and those of ConceptWave, has
contributed to our comprehensive OSS and
BSS portfolio.

1 BN

We provide managed
services to networks
with more than one
billion subscribers.

This is BSS and OSS

Business Support
Systems help with
customer care, in areas
such as ordering, billing
and collecting payments.

Operations Support
Systems ensure the
technical aspects of
network quality, such as
performance and capacity.

OUR solutions

Ericsson | Annual Report 2013Our BusinessOUR solutions CONTINUED

TV and media MANAGEMENT

Connected Devices

>2.0BN

> A broad suite of standards-based solutions,

products and services

> Complete solutions for device connectivity
> Compact ‘modems-on-a-chip’ for

> Enabling content owners, broadcasters,

smartphones, tablets and other small devices

Subscriptions served by
Ericsson Charging and
Billing systems.

TV service providers and network operators
to create and deliver the future of TV on all
consumer devices

> Managing and monetizing the strong growth

in video traffic

TV is transforming into an immersive, connected
and social experience on every smart device a
consumer owns and interacts with. The
convergence of media and telecoms, especially
through the global uptake of mobile broadband,
is accelerating a change in the way consumers
get premium entertainment. It also changes
industry players’ roles in that value chain.

Our position in this transformation – with 20
years of media and video experience, and global
leadership in networks and telecoms – is a
crucial advantage to our customers as we help
them innovate in TV Anywhere services and
manage the strong growth in data traffic driven
by video.

Our Mediaroom and Multiscreen TV solutions
– enabling TV service providers to deliver on the
TV Anywhere future – is powering more than
70 TV services for over 14 million subscribers.
Our On-Demand Content Management Solution
provides the content management and
packaging needed to ensure unified access
to infinite amounts of relevant content.

Ericsson’s Media Delivery Network solution,
LTE Broadcast and advanced video compression
transform video efficiency, while maximizing the
value of content and network assets.

Our broad portfolio is enhanced by global

services capability to consult, integrate and
manage business operations for TV.

Following the 2013 split-up of the ST-Ericsson
joint venture between STMicroelectronics and
Ericsson, Ericsson will offer LTE multi-mode thin
modem solutions, including 2G, 3G and 4G
interoperability. Device manufacturers will get a
complete solution to ensure end-to-end device
support and network functionality.

Our modems are designed for smartphones,
tablets and other connected devices, important
for our vision of 50 billion connected devices in
the Networked Society.

Our modems support all major

access technologies.

The Ericsson Device Connection Platform
(DCP) is a cloud service enabling operators to
offer connectivity management to enterprise
customers. It enables operators to address new
revenue streams from a variety of devices while
simplifying the process and reducing the cost
of connecting them.

Opportunities in
industry verticals

> Creating new value for non-operator
businesses through ICT innovation

The rapid proliferation of connected devices,
self-service applications, machine-to-machine
communication and automation is changing the
way companies do business. The mobile network
is fundamental to this development and we serve
several select industry verticals, specifically,
utilities, the transport sector and public safety.
Our resources in technology, consulting,
systems integration and managed services
on a global scale give us a unique position.
This lets us support customers with everything
from connectivity to customer relationship
management – not just with technology but also
from a business transformation perspective.

Ericsson | Annual Report 2013OUR BUSINESSMobile
money

It is estimated that 2 billion people across
the world do not have access to any financial
system other than cash, and therefore lack
a safe way to make transactions and save
money. ICT and mobile money applications
are rapidly changing this situation. In Uganda,
since the introduction of mobile money in
2008, use of the service has grown rapidly.
Today 9 million Ugandans are using mobile
money as a means of saving funds and paying
for goods and services in a secure way.
The ability to send, spend and receive money
with a mobile phone is quickly becoming an
essential part of life for billions of people.

>1 bn

More than 1 billion people in emerging
and developing markets have mobile
phones but no bank accounts.

OUR solutions

Ericsson | Annual Report 2013Our performance

Our overall goal is to create shareholder value.
We use a range of financial and non-financial
targets to drive business performance.

What we aim for

Growing sales
faster than
the market

Best-in-CLASS
operating
margin

Why we measure it

Outperforming our market
confirms the validity of our
strategic direction.

A clear focus on
operating margins
demonstrates our
commitment to
profitable growth.

Our performance

Revenue growth
Percent

Profitability
SEK billion

Percent

–2

–4

–1

–2

5.9

2.9%

17.9

17.8

16.5

10.5

8.1% 7.9%

7.8%

4.6%

2009 2010 2011 2012 2013

Operating income incl. JV
Operating margin incl. JV

Ericsson | Annual Report 2013OUR BUSINESSStrong cash
conversion

Employee
engagement

Customer
satisfaction

A strong cash position
supports new business
activity, enables appropriate
acquisition opportunities and
provides resilience to external
economic volatility.

Engaged employees are
motivated to contribute
to the success of Ericsson
and are willing to go the
extra mile to meet the
organization’s goals.

Customer satisfaction
is a prerequisite for customer
loyalty. We strive to ensure
that our customers perceive
us as a thought leader and their
preferred business partner.

Capital efficiency
Percent

Employee engagement index

Customer satisfaction index

117

112

116

140

120

100

2009 2010 2011 2012 2013

Cash conversion

Target

77%

(2012: 77%)

Our score is 8 percentage
points higher than the
external benchmark average,
as measured across over 250
companies. We started to
measure the engagement
index in 2011.

71.4

70.4

70.8

2009 2010 2011 2012 2013

Our performance

Ericsson | Annual Report 2013Our Business
REGIONAL DEVELOPMENT

Ericsson is a truly global player, with customers in more
than 180 countries. We have been present in many countries,
such as China, Brazil and India, for more than 100 years.

NORTH AMERICA
Networks sales declined. The first half of the year was
strong as a result of the two large mobile broadband
coverage projects that peaked, while the second half was
weaker. While executing on the large rollout projects in
the US, Ericsson has also strengthened its professional
services position and capabilities. Global Services sales
increased by 20%.

SEK B

59.3

+5%

Key

Ericsson global
service center

Ericsson segments;
Networks
Global services
SUPPORT SOLUTIONS

+XX%

Percentage revenue
increase

Mediterranean
Sales grew, driven by 3G
deployments in Northwest Africa
and modernization projects.

SEK B
24.2

+4%

OTHER
Includes revenues generated across
all regions through licensing, sales
of cables, broadcast services,
power modules and other
businesses. Sales increased,
positively impacted by the Samsung
agreement but negatively impacted
by the divestment of IPX in 2012
and the exit of the power cable
businesses in 2013.

SEK B
15.0

+22%

Latin America
LTE deployments ramped up after
a slow start and together with 3G
network quality investments drove
sales growth for the full year 2013.
However, macroeconomic
development in mainly Brazil and
Mexico continued to slow down
during the year.

SEK B
22.0

+0%

Ericsson | Annual Report 2013OUR BUSINESSWestern and
Central Europe
The sales growth was driven by
network modernization projects in
several countries and also by a high
activity level in managed services.

Northern Europe
And central Asia
The sales growth was mainly driven
by Networks sales in Russia.
Operators continued to show high
interest in OSS and BSS.

SEK B
18.5

+6%

SEK B

11.6 +2%

Middle East
Sales grew, driven by increased
investments in mobile broadband.

SEK B
17.4

+12%

North east Asia
Sales declined. Japan was negatively
impacted by currency and reduced
activity. GSM in China structurally
declined whilst LTE deployments
commenced towards the end of the
year. In Japan, KDDI has selected
Ericsson as one of the prime vendors
to deploy its LTE system and evolved
packet core network.

SEK B

27.4

–24%

Sub-saharan
Africa
Sales came from 2G and 3G
deployment and managed services,
although the deployment pace
slowed down in the latter part of the
year. Long-term industry
fundamentals remain positive as
mobile broadband and smartphone
penetration is still at low levels.

India
Sales were negatively impacted by
poor macroeconomic environment
and delays in regulatory legislation.
Global Services grew largely due to
an increase in managed services.

SEK B

6.1 –5%

SEK B

10.0 –11%

REGIONAL DEVELOPMENT

South East Asia
And Oceania
Sales grew, with 3G deployments in
Thailand and LTE deployments in
Singapore and Australia. In
Indonesia major capacity projects
were finalized. Smartphone
penetration continued to increase
from a low level.

SEK B

15.8 +5%

Ericsson | Annual Report 2013Our BusinessTEN-YEAR SUMMARY

For definitions of the financial terms used, see Glossary, Financial terminology and Exchange rates.

Ten-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

Per share indicators

Earnings per share, basic, SEK

Earnings per share, diluted, 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

Other information

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 and associated companies

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 2013, as proposed by the Board of Directors.

2013

Change

2012

2011

2010

2009

2008

2007

2006

2005

2004

227,376

17,845

–747

12,174

269,190

106,940

180,903

77,089

37,809

11,433

140,204

1,419

39,280

3.72

3.69

5.39
3.00 1)
43.39

3,231

3,226

3,257

4,503

4,209

4,759

5,928

32,236

14.2%

7.9%

7.8%

9.8%

79%

8.7%

10.7%

52.6%

1.3

3.4

82,631

36.3%

114,340

17,858

108,944

71%

–

105%

–2%

–1%

–11%

107%

–21%

–

–17%

–

–2%

–

–3%

–

203,348

206,477

227,779

10,458

–276

5,938

274,996

100,619

176,653

76,708

38,538

11,493

136,883

1,600

38,170

1.80

1.78

6.85

2.75

42.51

3,220

3,216

3,247

5,429

4,012

13,247

5,877

32,833

14.4%

9.7%

4.6%

6.6%

116%

4.1%

6.7%

50.4%

1.3

3.6

84,951

37.3%

226,921

17,900

221

12,569

280,349

109,552

186,307

80,542

39,505

10,788

143,105

2,165

41,037

3.80

3.77

3.11

2.50

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

3.6

86,570

38.1%

16,455

–672

11,235

281,815

105,488

182,640

87,150

51,295

9,434

145,106

1,679

35,855

3.49

3.46

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

3.2

96,951

47.7%

208,930

16,252

974

11,667

285,684

99,951

182,439

75,005

34,651

9,995

140,823

1,261

40,354

3.54

3.52

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

3.1

84,917

40.6%

187,780

30,646

22,135

245,117

86,327

168,456

57,716

24,312

9,304

134,112

940

33,404

6.87

6.84

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

3.4

64,678

34.4%

5,918

325

4,127

269,809

99,079

181,680

76,724

36,071

9,606

139,870

1,157

40,653

1.15

1.14

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

2.9

88,960

43.1%

82,493

18,217

94,829

179,821

35,828

165

26,436

214,940

82,926

142,447

62,280

40,728

7,881

120,113

782

21,552

8.27

8.23

5.83

2.50

37.82

3,176

3,174

3,189

3,827

3,038

18,319

4,479

27,533

15.3%

16.7%

19.9%

21.0%

57%

23.7%

27.4%

56.2%

1.3

3.9

67,454

37.5%

63,781

19,094

98,694

153,222

33,084

251

24,460

209,336

86,184

133,332

81,505

50,645

6,966

101,622

850

30,860

7.67

7.64

5.26

2.25

32.03

3,173

3,169

3,181

3,365

2,438

2,250

3,364

24,059

15.7%

20.1%

21.6%

21.8%

47%

26.7%

28.7%

49.0%

1.2

4.1

78,647

51.3%

56,055

21,178

93,879

131,972

26,706

–540

17,836

186,186

69,268

115,144

76,554

42,911

5,845

80,445

1,057

33,643

5.54

7.10

1.25

25.4

3,167

3,166

3,179

2,452

2,434

1,950

4,452

23,421

17.7%

18.6%

20.2%

20.5%

80%

24.2%

26.4%

43.8%

1.2

4.1

81,447

61.7%

50,534

21,296

86,510

110,255

17,712

106,997

104,525

17,500

116,507

90,261

17,848

100,070

78,740

20,155

109,254

74,011

19,781

102,486

Ericsson | Annual Report 2013OUR BUSINESSFor definitions of the financial terms used, see Glossary, Financial terminology and Exchange rates.

Ten-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

Per share indicators

Earnings per share, basic, SEK

Earnings per share, diluted, SEK

Interest-bearing liabilities and post-employment benefits

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

Other information

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

Operating margin excluding joint ventures and associated companies

Ratios

Operating margin

EBITA margin

Cash conversion

Return on equity

Equity ratio

Capital turnover

Return on capital employed

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 2013, as proposed by the Board of Directors.

227,376

17,845

–747

12,174

269,190

106,940

180,903

77,089

37,809

11,433

140,204

1,419

39,280

3.72

3.69

5.39

3.00 1)

43.39

3,231

3,226

3,257

4,503

4,209

4,759

5,928

32,236

14.2%

7.9%

7.8%

9.8%

79%

8.7%

10.7%

52.6%

1.3

3.4

82,631

36.3%

114,340

17,858

108,944

71%

–

105%

–2%

–1%

–11%

107%

–21%

–17%

–

–2%

–

–3%

2013

Change

2012

2011

2010

2009

2008

2007

2006

2005

2004

203,348

206,477

227,779

10,458

–276

5,938

274,996

100,619

176,653

76,708

38,538

11,493

136,883

1,600

38,170

1.80

1.78

6.85

2.75

42.51

3,220

3,216

3,247

5,429

4,012

13,247

5,877

32,833

14.4%

9.7%

4.6%

6.6%

116%

4.1%

6.7%

50.4%

1.3

3.6

84,951

37.3%

226,921

17,900

221

12,569

280,349

109,552

186,307

80,542

39,505

10,788

143,105

2,165

41,037

3.80

3.77

3.11

2.50

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

3.6

86,570

38.1%

16,455

–672

11,235

281,815

105,488

182,640

87,150

51,295

9,434

145,106

1,679

35,855

3.49

3.46

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

3.2

96,951

47.7%

110,255

17,712

106,997

104,525

17,500

116,507

90,261

17,848

100,070

TEN-YEAR SUMMARY

5,918

325

4,127

269,809

99,079

181,680

76,724

36,071

9,606

139,870

1,157

40,653

1.15

1.14

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

2.9

88,960

43.1%

82,493

18,217

94,829

208,930

16,252

974

11,667

285,684

99,951

182,439

75,005

34,651

9,995

140,823

1,261

40,354

3.54

3.52

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

3.1

84,917

40.6%

187,780

30,646

22,135

245,117

86,327

168,456

57,716

24,312

9,304

134,112

940

33,404

6.87

6.84

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

3.4

64,678

34.4%

78,740

20,155

109,254

74,011

19,781

102,486

179,821

35,828

165

26,436

214,940

82,926

142,447

62,280

40,728

7,881

120,113

782

21,552

8.27

8.23

5.83

2.50

37.82

3,176

3,174

3,189

3,827

3,038

18,319

4,479

27,533

15.3%

16.7%

19.9%

21.0%

57%

23.7%

27.4%

56.2%

1.3

3.9

67,454

37.5%

63,781

19,094

98,694

153,222

33,084

251

24,460

209,336

86,184

133,332

81,505

50,645

6,966

101,622

850

30,860

7.67

7.64

5.26

2.25

32.03

3,173

3,169

3,181

3,365

2,438

2,250

3,364

24,059

15.7%

20.1%

21.6%

21.8%

47%

26.7%

28.7%

49.0%

1.2

4.1

78,647

51.3%

56,055

21,178

93,879

131,972

26,706

–540

17,836

186,186

69,268

115,144

76,554

42,911

5,845

80,445

1,057

33,643

5.54

7.10

1.25

25.4

3,167

3,166

3,179

2,452

2,434

1,950

4,452

23,421

17.7%

18.6%

20.2%

20.5%

80%

24.2%

26.4%

43.8%

1.2

4.1

81,447

61.7%

50,534

21,296

86,510

Ericsson | Annual Report 2013Our BusinessTechnology
leadership
joins
the dots

The release of the Ericsson Radio Dot
System in 2013 is strengthening mobile
access where people need it most: indoors.

This high-performance, small-cell solution

improves mobile broadband performance
inside company premises and public venues.
The visible element, the Dot itself, is a tiny
unit the size of a smoke detector, and fits
in to any environment.

The Radio Dot is just one of numerous
innovations that have kept Ericsson at the
forefront of technological advancement.
We have always invested in R&D to keep
our portfolio and our customers in front in
a rapidly changing market.

Another market-leading innovation is the
SSR 8000 family of Smart Services Routers.
A key building block for 4G IP, the SSR family
allows operators to deploy powerful IP
infrastructure that is smart, simple to
manage and operate, and scalable as
demand increases.

Whether connecting shipping containers

and cars to the cloud, or providing energy
efficient radio networks, Ericsson is
committed to maintaining its position as
a technology leader.

SSR (Smart Services Router)
contracts won in 2013.

Ericsson | Annual Report 2013LETTER FROM
THE Chairman

Attracting and retaining talent
The Board also pays much attention to talent
management. We have a committed and
experienced leadership team, led by our CEO
and President, Hans Vestberg. We also see it
as important to have a good leadership talent
pool, so that future leaders can be developed
and prepared, to secure the Company’s
leading position.

Another main area for the Board is corporate

governance, sustainability and responsible
business practice. Ericsson is a large company
with a unique global reach and it is essential that
our high standards are met in all our dealings
across diverse markets. Ericsson has set the
bar high: every part of the Company is required
to meet demanding financial, social, and
environmental standards. Good governance
ensures that risks are addressed and managed.
Ericsson works continuously to uphold these
standards as evidenced by the high trust that
our stakeholders put in us.

Proposal to raise the dividend
We are also entrusted with the capital structure
of the Company which is always an important
topic of discussion. Part of this, particularly
during the fourth quarter of each year, involves
a proposal for dividend to the annual general
meeting. This discussion is based on our
dividend policy, which takes into account the
previous year’s earnings and balance sheet
structure, as well as coming years’ business
plans and expected economic development.
Ericsson’s strategy is one of industry leadership
which requires large investments into R&D as
well as a continued focus on building on the
core business and expanding into new areas.
With all this taken into account the Board’s

proposal is to increase the dividend from
SEK 2.75 in 2012 to SEK 3 per share for 2013.

Ericsson is a dynamic, progressive company

operating in an exciting, growing market, with
good long-term prospects. I am proud of the
people of Ericsson and it is an honor to be the
Chairman of the Board.

Leif Johansson
Chairman of the Board of Directors

Dear shareholders

Looking back on my third year as chairman of
Ericsson, I have to say it is exciting to be part
of this industry. The rapid pace of change
I mentioned last year shows no signs of slowing,
and the transformative power of technology
is becoming increasingly felt all around the
world. It is a true privilege to be the chairman
of a company that is leading and driving
that development.

Much of our time on the Ericsson Board is
spent examining longer-term strategic issues
and the Board needs to form a long-term view.
But particularly in an environment and a market
like Ericsson’s, we also have to consider
short-term changes and opportunities that
arise, and respond appropriately.

2013 was a very eventful year in which
Ericsson and the Board addressed a number
of important matters including acquisitions,
divestments and refinancing. Two events that
came up for much discussion during 2013
were the dissolution of the ST-Ericsson joint
venture, with thin modems being integrated
into Ericsson’s operations, and the important
patent agreement with Samsung.

LETTER FROM THE Chairman

Ericsson | Annual Report 2013Our BusinessBOARD OF
DIRECTORS’ REPORT

Also in the latter part of 2013, Ericsson
continued to grow in some of its European key
markets. During the last years, the position in
Europe has been strengthened through the
network modernization projects. These have
been delivered according to plan and the major
part of the negative margin impact from these
projects is now over. Over time, it is expected
that the telecom industry in Europe will improve.
During 2013, Ericsson executed on a number

of strategic initiatives to both manage the
ongoing technology transition in the industry
and to transform the company for future
business opportunities. Ericsson has solidified
its core business as well as taken important
steps to build a leadership position in new and
targeted key areas. This includes consolidation
of the modems business and the acquisition of
the IPTV business Mediaroom from Microsoft.
The Company will gradually increase resource
and capital allocation in these areas as well as
in IP, Cloud, OSS and BSS.

The Company has also successfully

completed an IPR cross-licensing agreement
with Samsung. This agreement ends complaints
made by both companies against each other
before the International Trade Commission (ITC)
as well as the lawsuits before the U.S. District
Court for the Eastern District of Texas.

The long-term fundamentals in the industry

remain attractive and with ongoing strategic
initiatives Ericsson is well positioned to
continue to support its customers in a
transforming ICT market.

The Company has worked diligently to improve
working capital and ended the year with a strong
operating cash flow of SEK 17.4 (22.0) billion and
a full-year cash conversion of 79%, above the
target of 70%, giving Ericsson a solid balance
sheet to continue to execute on its strategy.

Contents

Business in 2013
Financial highlights
Business results-Segments
Business results-Regions
Corporate Governance
Material contracts
Risk management
Sourcing and supply
Sustainability and Corporate Responsibility
Legal proceedings
Parent Company
Board assurance

36
37
40
41
41
43
44
44
44
46
47
48

BUSINESS IN 2013

Ericsson’s sales ended at SEK 227.4 billion.
Sales for comparable units, adjusted for FX,
grew 5% for the full year. The focus on
profitability started to pay off and operating
margin for the Group gradually improved in
2013, despite significant currency headwind,
driven primarily by improvements in Networks
and Network Rollout.

The business mix, with a higher share of

coverage projects than capacity projects, started
to shift towards more capacity during the year.
As anticipated, sales came under some

pressure towards the end of the year. As
previously communicated, the major reasons
behind this development are the two large
mobile broadband coverage projects, which
peaked in North America in the first half of 2013,
and the impact from reduced activity in Japan.
While executing on the large rollout projects

in the US, Ericsson has also strengthened its
professional services position and capabilities.
In the second half of the year, Global Services
accounted for more than half of the region’s
sales and today the Company is the market
leader in both telecom services and mobile
infrastructure in one of the world’s most
advanced and dynamic ICT markets.

The LTE tenders in China continued and so
far the two major operators that have made their
vendor selections have included Ericsson as a
vendor. In the latter part of the year, sales in
China improved as a result of deliveries to
ongoing mobile broadband coverage projects.

Operating income
and operating margin
SEK billion

Percent

5.9

2.9%

17.9

17.8

16.5

10.5

8.1% 7.9%

7.8%

4.6%

2009 2010 2011 2012 2013

Operating income incl. JV
Operating margin incl. JV

ResultsEricsson | Annual Report 2013Net sales
SEK billion

250

200

150

100

226.9

227.8 227.4

206.5 203.3

2009 2010 2011 2012 2013

IPR revenue (net)
SEK billion

10.6

6.6

6.2

4.6

4.3

2009 2010 2011* 2012

2013

* One-off patent sales included

Software, hardware and
services: share of total sales
Percent

100

2009 2010 2011 2012

2013

Software
Services

Hardware

Financial Highlights

Impact of Samsung IPR agreement
On January 27, 2014, Ericsson and Samsung
signed an agreement on global patent licenses
between the two companies.

The industry is built on scale and a strong

tradition of sharing technologies through
licensing on fair, reasonable and non-
discriminatory (FRAND) terms. The agreement
shows the value of Ericsson’s R&D investments
and enables both companies to continue to
innovate and bring new technologies to the
market. The cross-license agreement covers
patents relating to GSM, UMTS, and LTE
standards for both networks and handsets.

The agreement includes an initial payment
and ongoing royalty payments from Samsung
to Ericsson for the term of the new multi-year
license agreement.

The transaction contributed to net sales of
SEK 4.2 billion, operating income of SEK 4.2
billion and net income of SEK 3.3 billion in 2013.
Ericsson expects that the initial payment will
impact operating cash flow in the beginning
of 2014. This specific agreement impacts
segments Networks and Support Solutions.

Income statement
Reported sales for 2013 were flat and amounted
to SEK 227.4 (227.8) billion. During the year
sales were negatively impacted by strong
currency headwind and lower sales in North
East Asia, driven by lower GSM investments in
China combined with lower project activity in
Japan and South Korea. In North America
CDMA sales declined by –50% to SEK 4.2 (8.4)
billion. For comparable units, adjusted for FX,
full-year sales increased by 5%.

Revenues for IPR and licensing were
SEK 10.6 (6.6) billion, of which the Samsung
agreement contributed with SEK 4.2 billion.

With a large share of coverage projects in the
beginning of the year and with slightly improved
business mix from the second quarter, the
commodity mix remained stable compared to last
year. Software represented 24% (23%), hardware
34% (35%) and services 42% (42%) of total sales.
Restructuring charges amounted to SEK 4.5
(3.4) billion, mainly related to continued execution
of the service delivery strategy and headcount
reductions in Sweden. The proactive work to
drive efficiency and cost reductions continues.
Gross margin increased to 33.6% (31.6%),
due to the agreement with Samsung, reduced
negative effect from network modernization
projects in Europe and improved business mix.
The Global Services share of Group sales was
flat at 43%.

Total operating expenses were basically
flat and amounted to SEK 58.5 (58.9) billion.
Expenses related to the modems business
added SEK –0.5 billion to operating expenses.
A one-time charge related to the acquisition of

Airvana Network Solutions Inc. impacted the
operating expenses negatively by SEK –0.4
billion. Excluding restructuring charges,
operating expenses were down –2% compared
to 2012. Selling, general and administrative
expenses (SG&A) amounted to SEK 26.3
(26.0) billion and represented 11.6% of sales
compared to 11.4% in 2012. For comments
on research and development expenses (R&D)
see the section “Research and development,
patents and licensing.”

Other operating income and expenses
decreased to SEK 0.1 (9.0) billion. During the
year, one-time charges related to the divestment
of Applied Communication Sciences (ACS), the
former research and engineering arm of Telcordia
Technologies, and the exiting of the telecom
and power cable operations of SEK –0.9 billion
impacted other operating income negatively.
For new hedges taken in 2013, hedge accounting
is not applied. The total re-evaluation effect for
2013 hedges on other operating income was
SEK 0.5 billion. In 2012, other operating income
included a gain related to the divestment of Sony
Ericsson of SEK 7.7 billion and to Multimedia
brokering (IPX) of SEK 0.2 billion.

Ericsson’s share in earnings of JV and

associated companies was SEK –0.1 (–11.7) billion.
In 2012 a non-cash charge of SEK –8.0 billion
related to ST-Ericsson was made.

Operating income, including JV, increased
to SEK 17.8 (10.5) billion, positively impacted by
improved gross margin, and no negative effect
from ST-Ericsson. Operating income was
negatively impacted by one-time charges of
SEK –1.3 billion related to the divestment of
ACS, the exiting of the telecom and power
cable operations and the acquisition of Airvana.
Operating margin, including JV, was 7.8%
(4.6%). Operating income including JV and
excluding the Samsung agreement was SEK
13.6 billion with an operating margin of 6.1%.
2012 included a gain of SEK 7.7 billion related
to the divestment of Sony Ericsson.

Financial net amounted to SEK –0.7 (–0.3)
billion. The difference is partly attributable to lower
interest income as an effect of lower interest rates
during 2013 compared to 2012. The tax rate
for 2013 was 29% compared to 42% in 2012,
positively impacted by product and market
mix. Tax costs were SEK –4.9 (–4.2) billion.

Net income increased to SEK 12.2 (5.9)
billion, positively impacted by the Samsung
agreement by SEK 3.3 billion.

EPS diluted was SEK 3.69 (1.78). EPS

non-IFRS was SEK 5.62 (3.55).

Board of Directors’ ReportResultsEricsson | Annual Report 2013BOARD OF DIRECTORS’ REPORT CONTINUED

Balance sheet and other
performance indicators
Compared to December 31, 2012, trade
receivables increased from SEK 63.7 billion
to 71.0 billion, mainly due to the Samsung
agreement. Days sales outstanding (DSO)
increased from 86 to 97 days.

Inventory decreased from SEK 28.8 billion
to 22.8 billion, positively impacted by improved
business mix and efficiency measures.

Inventory turnover days (ITO) improved
from 73 to 62 days. Accounts payable days
decreased from 57 to 53 days.

During the year, Ericsson concluded the
following refinancing activities to extend the
average debt maturity profile:
> A EUR 313 million bond was repaid
> Ericsson refinanced a USD 2 billion

Revolving Credit Facility (RCF). The new
facility is a five-year facility with two one-
year extension options

> A USD 684 million European Investment Bank
(EIB) loan was disbursed. The loan agreement
was signed in 2012 and the loan supports
R&D activities. The loan will mature in 2020.

A SEK 4 billion EIB loan, with original maturity
in 2015, will be repaid early 2014.

Provisions amounted to SEK 5.4 (8.6) billion by
the end of the year. The reduction was mainly due
to utilization of the 2012 ST-Ericsson provision.
Cash flow from operating activities was
positive at SEK 17.4 (22.0) billion, negatively
impacted by higher working capital. There
was no impact on cash flow from the
Samsung agreement.

Cash, cash equivalents and short-term

investments amounted to SEK 77.1 (76.7) billion.
The net cash position decreased from SEK 38.5
to 37.8 billion. Cash conversion for 2013 ended
at 79%.

In 2013, the net number of employees
increased by 4,085, of which 3,293 were in
services and 741 in R&D. By the end of 2013
the total number of employees was 114,340
(110,255) of which 5,377 people joined Ericsson
through acquisitions and through managed
services contracts. At the same time
approximately 13,000 employees left Ericsson,
reflecting the natural attrition rate and ongoing
company transformation.

Change in gross cash
SEK billion

Operating cash flow
17.4

Investing activities*
–8.1

Financing activities
–9.5

FX on cash
0.6

–2.5

–2.1

–4.5

–3.6

–0.4

76.7

22.0

–9.2

0.6

77.1

Change in gross cash SEK +0.4 billion

100

Gross cash
opening
balance

Net income
reconciled
to cash

Change net
operating
assets excl.
restructuring

Restruct-
uring

CAPEX

Acquisitions,
divestments
and other

Other
financing
activities

Dividend

FX on cash

Gross cash
closing
balance

* 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.

Operating income
and net income
SEK billion

17.9

17.8

16.5

11.2

12.6

12.2

10.5

5.9

4.1

2009 2010 2011 2012 2013

Operating income
Net income

Working capital
Days

120

100

106

2009 2010 2011 2012

2013

Days sales outstanding
(Target is less than 90 days)
Inventory days
(Target is less than 65 days)
Payable days
(Target is more than 60 days)

ResultsEricsson | Annual Report 2013

Dividend per share
SEK

3.00

2.50

2.00

2.50

2.25

3.00

2.75

1.50

1.00

0.50

Research and development, patents
and licensing
To secure continued technology leadership,
focus is on innovation and R&D. R&D expenses
(see table below) amounted to SEK 32.2 (32.8)
billion. During 2014, R&D expenses, excluding
expenses related to Modems, Mediaroom and
restructuring, are expected to increase
somewhat, mainly due to investments in IP.

Research and development, patents and licensing

2009 2010 2011 2012 2013 1)

Expenses (SEK billion)

2013

32.2

2012

32.8

2011

32.6

1) For 2013 as proposed by the Board
of Directors.

Equity ratio
Percent

52.3

52.1

51.8

50.4

52.6

2009 2010 2011 2012

2013

As percent of Net sales

14.2%

14.4%

25,300

Employees within R&D
as of December 31 1)
Patents 1)
IPR revenue, net
(SEK billion)
1) The number of employees and patents are approximate.

35,000

33,000

24,100

10.6

6.6

22,400

30,000

6.2

Seasonality
The Company’s sales, income and cash
flow from operations vary between quarters,
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.

Most recent five-year average seasonality

First
quarter

Second
quarter

Third
quarter

Fourth
quarter

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 material
effect on the Company’s financial condition,
revenues, expenses, result of operations, liquidity,
capital expenditures or capital resources.

Capital expenditures
For 2013, capital expenditures amounted to
SEK 4.5 billion, 2% of sales. Annual capital
expenditures are normally around 2% of sales.
This corresponds to the needs for keeping and
maintaining the current capacity level, including
the introduction of new technology and
methods. Expenditures are largely related to test
sites and equipment for R&D and network
operations centers as well as manufacturing and
repair operations. The Board of Directors reviews
the Company’s investment plans and proposals.
Ericsson is planning to invest in three new
global ICT Centers over the coming five years.
The centers will support R&D and Services in
developing and verifying solutions, bringing
innovation to the market faster. Apart from
this investment Ericsson believes 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, 2013, no material land, buildings,
machinery or equipment were pledged as
collateral for outstanding indebtedness.

The Company believes it has sufficient cash and

Net cash
SEK billion

Sequential change

Share of annual sales

–21%

23%

24%

–3%

24%

29%

cash generation capacity to fund expected capital
expenditures without external borrowings in 2014.

51.3

36.1

39.5

38.5

37.8

2009 2010 2011 2012

2013

Debt maturity, Parent Company
SEK billion

Capital expenditures 2009–2013

SEK billion

Capital
expenditures

of which in
Sweden

Share of
annual sales

2013

4.5

2012

2011

2010

2009

5.4

5.0

3.7

4.0

1.9

1.3

1.7

1.4

1.3

2.0% 2.4% 2.2% 1.8% 1.9%

4.0

4.4

2.0

1.9

6.4

1.1

4.4

0.6

2014

2015*

2016

2017

2018

2019

2020

2021

2022

Notes & bonds
Loan from the Swedish Export Credit Corporation guaranteed by the Swedish Export Credit Guarantee Board
Loan from the Swedish Export Credit Corporation

European Investment Bank

Nordic Investment Bank

* The loan from the European Investment Bank (EIB) with original maturity 2015 was repaid in January 2014. This was done in conjunction with the draw of

a new EIB loan in November 2013 (maturity 2020).

Board of Directors’ ReportResultsEricsson | Annual Report 2013

BOARD OF DIRECTORS’ REPORT CONTINUED

Support Solutions
Sales growth for comparable units, adjusted
for FX, was 0%. The development was primarily
driven by portfolio changes and decline in sales
of TV compression technology while OSS
and BSS showed stable development. The
Samsung agreement had an overall positive
impact on sales.

Operating margin increased to 12% (9%) due

to the Samsung agreement. Lower sales and
a charge related to the divestment of ACS had
a negative impact on the margin.

From ST-Ericsson to segment Modems
ST-Ericsson was created in 2008 as a joint venture
between Ericsson and STMicroelectronics. Early
in 2013, the parents agreed to split up and close
the joint venture.

Ericsson decided to take over the design,
development and sales of the thin LTE multi-
mode modem solutions as these are seen as an
important part of the Ericsson vision of 50 billion
connected devices in the Networked Society.
The ambition is to be among the top three
suppliers in the thin-modem market.

In 2013, all ST-Ericsson businesses have
been transferred to parents or divested. In 2012,
Ericsson made a provision of SEK 3.3 billion,
related to the ongoing implementation of
strategic options at hand.

Ericsson now has a highly focused thin-

modem operation with industry-leading
technology and intellectual property. A new
segment was established as of October 1, 2013,
and the modems business is now consolidated
into Ericsson. For 2013, segment Modems
generated an operating loss of SEK –0.5 billion,
primarily related to R&D expenses.

BUSINESS RESULTS – SEGMENTS

Networks
Sales for comparable units, adjusted for FX,
increased 5%, primarily due to the Samsung
agreement and increased sales in Latin
America, Europe and the Middle East. This was
partly offset by lower sales in North America,
where CDMA related sales declined by –50%.
North East Asia sales declined as an effect
of lower project activities in Japan and South
Korea and lower GSM investments in China.
At the end of the year there was solid demand
for our IMS and data layered architecture UDC
(User Data Consolidation). However, this was
not enough to offset the continued structural
decline in circuit-switched core.

Operating margin gradually improved during
the year and ended at 10% (6%) This was a result
of the Samsung agreement, reduced negative
effect from network modernization projects in
Europe, improved business mix and strong focus
on improving profitability. Restructuring charges
amounted to SEK –2.2 (–1.3) billion. This was
primarily related to reductions of operations
in Sweden and dismantling of the CDMA
operations. Operating margin excluding the
Samsung agreement was 7%.

Global Services
Reported sales for Global Services were flat
in comparison to a strong 2012. Growth for
comparable units, adjusted for FX, was 5%.
Network Rollout reported sales grew 4% driven
by high coverage project activities, primarily
in North America. Professional Services sales
grew, adjusted for FX, supported by strong
development in region North America and India.
Global Services operating margin was 6%

(6%). Network Rollout margin gradually
improved during the year due to the declining
dilutive effect from European network
modernization projects as well as the ongoing
efficiency programs. Professional Services
operating margin was 14% (14%).

2011

2012

2013

Restructuring charges amounted to

SEK –2.0 (–1.9) billion.

Networks sales
SEK billion

132.4

117.3

117.7

140

120

100

2011

2012

2013

Global Services sales
SEK billion

100

25.1

58.8

30.0

31.0

67.1

66.4

2011

2012

2013

Network rollout
Professional services

Support Solutions sales
SEK billion

13.5

12.2

10.6

ResultsEricsson | Annual Report 2013BUSINESS RESULTS-REGIONS

> North America: Networks sales declined
in 2013, with a strong first half while the
second half was weaker as a result of the
two large mobile broadband coverage
projects that peaked in the first half of the
year. While executing on the large rollout
projects in the US, Ericsson has also
strengthened its professional services
position and capabilities. Global Services
accounted for more than 50% of the region’s
sales in the second half of the year.

> Latin America: LTE deployments ramped
up after a slow start, and together with 3G
network quality investments, drove sales
growth for 2013. However, macroeconomic
development mostly in Brazil and Mexico
continued to slow down during the year.
> Northern Europe and Central Asia: Sales
growth was mainly driven by Networks sales
in Russia. Operators continued to show high
interest in OSS and BSS.

> Western and Central Europe: Sales growth

was driven by network modernization
projects in several countries and also by
a high activity level in managed services.
> Mediterranean: Sales in 2013 grew, driven
by 3G deployments in Northwest Africa and
modernization projects.

> Middle East: Sales grew in 2013, driven by
increased investments in mobile broadband.
> Sub-Saharan Africa: Sales came from 2G
and 3G deployment and managed services,
although the deployment pace slowed down
in the latter part of the year. Long-term
industry fundamentals remain positive as
mobile broadband and smartphone
penetration is still at low levels.

India: Sales were negatively impacted by
poor macroeconomic environment and
delays in regulatory legislation. Global
Services grew largely due to an increase
in Managed Services.

> North East Asia: Sales declined in 2013.

Japan was negatively impacted by currency
and reduced activity. GSM in China
structurally declined whilst LTE deployments
commenced towards the end of the year. In
Japan, KDDI has selected Ericsson as one of
the prime vendors to deploy its LTE system
and evolved packet core network.

> South East Asia and Oceania: Sales grew

in 2013 with 3G deployments in Thailand and
LTE deployments in Singapore and Australia.
In Indonesia major capacity projects were
finalized. Smartphone penetration continues
to increase from a low level.

> Other: Sales increased, positively impacted
by the Samsung agreement but negatively
impacted by the divestment of IPX in 2012
and the exit of the telecom and power cable
business. Sales of broadcast services,
cables, power modules and other businesses
are also included in “Other.”

Corporate Governance

In accordance with the Annual Accounts Act
((SFS 1995:1554), Chapter 6, Sections 6 and 8)
and the Swedish Corporate Governance Code
(the “Code”), a separate Corporate Governance
Report, including an Internal Control section,
has been prepared and attached to this
Annual Report.

Business results – Regions

Sales per region and segment 2013 and percent change from 2012

Networks

Global Services

Support Solutions

SEK billion

North America

Latin America

Northern Europe and Central Asia

Western and Central Europe

Mediterranean

Middle East

Sub-Saharan Africa

India

North East Asia

South East Asia and Oceania
Other 1)
Total

2013

28.5

11.3

7.2

7.6

10.8

8.5

5.0

3.1

16.7

8.9

10.1

117.7

Percent
change

-7%

16%

14%

24%

14%

26%

–22%

–13%

–26%

12%

28%

2013

28.2

9.5

4.2

10.3

12.6

7.6

4.1

2.7

10.4

6.4

1.4

97.4

Percent
change

20%

–10%

–8%

–3%

11%

–22%

–3%

17%

Share of total
1) Region “Other” includes licensing revenues, sales of cables, broadcast services, power modules and other businesses.

52%

43%

2013

Percent
change

–5%

–30%

–46%

–14%

–6%

–9%

–32%

–30%

10%

–9%

2.6

1.1

0.3

0.6

0.7

1.3

0.9

0.3

0.4

0.5

3.5

12.2

Percent
change

12%

–11%

–5%

–24%

22%

Total
2013

59.3

22.0

11.6

18.5

24.2

17.4

10.0

6.1

27.4

15.8

15.0

227.4

100%

The acquired Technicolor Broadcast Service Division is reported in region “Other.” Multimedia brokering (IPX) was part of region “Other” and divested end Q312. The power cable business was
divested in Q313.

Board of Directors’ ReportResultsEricsson | Annual Report 2013BOARD OF DIRECTORS’ REPORT CONTINUED

Continued compliance with the Swedish
Corporate Governance Code
Ericsson is committed to complying with best-
practice corporate governance standards on a
global level wherever possible. In 2013, Ericsson
did not report any deviations from the Code.

Business integrity
Ericsson’s Code of Business Ethics summarizes
the Group’s basic policies and directives
governing its relationships internally, with its
stakeholders and with others. It also sets out
how the Group works to secure that business
activities are conducted with a strong sense of
integrity. There have been no amendments to
Ericsson’s Code of Business Ethics or waivers
from a provision of the Code to any member of
Group management.

Board of Directors
The Annual General Meeting held on April 9,
2013, re-elected Leif Johansson Chairman
of the Board. Roxanne S. Austin, Sir Peter L.
Bonfield, Börje Ekholm, Alexander Izosimov,
Ulf J. Johansson, Sverker Martin-Löf,
Hans Vestberg and Jacob Wallenberg were
re-elected and Nora Denzel, Kristin Skogen
Lund and Pär Östberg were elected new
members of the Board. Pehr Claesson, Kristina
Davidsson and Karin Åberg were appointed
employee representatives by the unions, with
Rickard Fredriksson, Karin Lennartsson and
Roger Svensson as deputies.

Management
Hans Vestberg has been 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).

A global management system is in place

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

Remuneration
Remuneration to the members of the Board of
Directors and to Group management, as well
as the Guidelines for remuneration to Group
Management resolved by the Annual General
Meeting 2013, 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, 2013, 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
Annual General Meeting resolves on the
following guidelines for remuneration to Group
management for the period up to the 2015
Annual General Meeting. Compared to the
guidelines resolved by the 2013 Annual General
Meeting, a reference to the normally applicable
pensionable age has been deleted.
Guidelines for remuneration to

Group management
For Group management consisting of the
Executive Leadership Team, including the
President and CEO, total remuneration consists
of fixed salary, short- and long-term variable
compensation, pension and other benefits. The
following guidelines apply to the remuneration of
the Executive Leadership Team:
> Variable compensation is in 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 Group or unit level,
operational targets, employee engagement
targets and customer satisfaction targets.
> All benefits, including pension benefits, follow
the competitive practice in the home country
taking total compensation into account.

> By way of exception, additional arrangements
can be made when deemed necessary. An
additional arrangement can be renewed but
each such arrangement shall be limited in
time and shall not exceed a period of 36
months and twice the remuneration that
the individual would have received had no
additional arrangement been made.

ResultsEricsson | Annual Report 2013 > 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.

Executive Performance Stock Plan
The Company has a Long-Term Variable
remuneration program (LTV). It builds on a
common platform, but consists of three separate
plans: one targeting all employees, one targeting
key contributors and one targeting senior
managers. The 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 managers under the Executive
Performance Stock Plan are revised yearly and
approved by the Annual General Meeting.
Performance criteria for the 2014 Executive
Performance Stock Plan will be communicated
in the notice to the Annual General Meeting.
The targets for the 2011, 2012 and 2013
Executive Performance Stock Plans are shown
in the illustration below. The performance
criteria are:
> Up to one-third of the award will vest if the
target for compound annual growth rate of
consolidated net sales is achieved

> Up to one-third of the award will vest if the
target for compound annual growth rate of
consolidated operating income, including
earnings in joint ventures and restructuring,
is achieved. For the 2011 plan, base year

2010 excludes restructuring charges of SEK
6.8 billion. For the 2013 plan, base year 2012
excludes a non-cash charge of SEK 8.0
billion for ST-Ericsson.

> Up to one-third of the award will vest if cash

conversion is at or above 70% during each of
the years and vesting one-ninth of the award
for each year the target is achieved.
The cash conversion target was reached in
2013 and 2012 but not reached in 2011.

Before the number of performance shares

to be matched are finally determined,
the Board of Directors shall examine whether
the performance matching is reasonable
considering the Company’s financial results
and position, conditions on the stock market
and other circumstances, and if not, reduce
the number of performance shares.

Material Contracts

Material contractual obligations are outlined in
Note C31, “Contractual obligations.” These were
entered into in the ordinary course of business
and were 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. Such provisions are not unusual
for certain types of agreements, such as
financing agreements and certain license
agreements. However, considering among other
things the Company’s strong financial position,
none of the agreements currently in effect would
entail any material consequence to Ericsson due
to a change in control of the Company.

Shareholder value creation

Executive Performance Stock Plan 2011
targets for 2011–2013
Base year 2010

Executive Performance Stock Plan 2012
targets for 2012–2014
Base year 2011

Executive Performance Stock Plan 2013
targets for 2013–2015
Base year 2012

Net sales growth 4–10% CAGR

Net sales growth 2–8% CAGR

Operating income growth 5–15% CAGR
including JV(s) and restructuring 1)

Operating income growth 5–15% CAGR
including JV(s) and restructuring

Operating income growth 5–15% CAGR
including JV(s) and restructuring 2)

Cash conversion ≥ 70% annually

1) Base year 2010 excludes restructuring charges. 2) Base year 2012 excludes non-cash charge for ST-Ericsson.

Board of Directors’ ReportResultsEricsson | Annual Report 2013BOARD OF DIRECTORS’ REPORT CONTINUED

Risk Management

Risks are defined in both short-term and
long-term perspective. They are categorized
into industry and market risks, commercial
risks, operational risks and compliance 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, annual planning and target setting,
continuous monitoring through monthly and
quarterly steering group meetings and during
operational processes (customer projects,
customer bid/contract, acquisition,
investment and product development
projects). They are subject to various controls
such as decision tollgates and approvals.
At least twice a year, in connection with the
approval of strategy and targets, risks are
reviewed by the Board of Directors.

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 a serious nature.

For information on risks that could impact
the fulfillment of 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.

Sourcing and Supply

The production of electronic modules
and sub-assemblies is mostly outsourced to
manufacturing services companies, of which
the vast majority are 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 complete units. Final assembly and
testing are concentrated to a few sites. Ericsson
has 14 manufacturing sites in Brazil, China,
Estonia, India, Italy, Mexico 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. Ericsson’s suppliers are
required to comply with the requirements of
Ericsson’s 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. This process could take
some time to complete.

Variations in market prices for raw materials

generally have a limited effect on total cost of
goods sold. For more information, see the
chapter Risk factors.

Sustainability and
Corporate Responsibility

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

Ericsson’s approach to Sustainability and
Corporate Responsibility (CR) is integrated into
its core business operations throughout its value
chain. The Board of Directors considers these
aspects in governance decision-making. Group
policies and directives ensure consistency across
global operations. Ericsson publishes an annual
Sustainability and Corporate Responsibility
Report, which provides additional information.

Ericsson’s hardware largely consists of
electronics. 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, are produced in-house.

Responsible business practices
Since 2000, Ericsson has supported the UN
Global Compact, and endorses its ten principles
regarding human rights and labor standards,
anti-corruption and environmental protection.

In 2013, Ericsson reported its Communication

on Progress at the Global Compact Advanced

ResultsEricsson | Annual Report 2013level. The Ericsson Group Management System
(EGMS) includes a Code of Business Ethics,
a Code of Conduct and a Sustainability Policy
which reflect responsible business practices.
These practices are reinforced by employee
awareness training, workshops and monitoring,
including a global assessment plan run by an
external assurance provider.

Ericsson has adopted an anti-corruption
program which is reviewed and evaluated by
the Audit Committee of the Board of Directors
annually. The program continues to evolve and
a new version of the Company’s e-learning
regarding anti-corruption was launched during
the year. Approximately 85,000 employees
have completed the training.

Human rights
The Code of Business Ethics reflects the
Company’s ongoing commitment to respect
human rights, and the UN Guiding Principles
on Business and Human Rights. Ericsson
has worked actively to strengthen its internal
governance processes and has a Sales
Compliance Board which considers potential
human rights impacts in its decisions. The
human rights risk tools used by the Sales
Compliance Board include external global risk
indices. Ericsson joined the Shift Business
Learning Program to further strengthen its
framework on Human Rights across the
Company which included conducting a Human
Rights Impact Assessment in Myanmar,
in accordance with the UN Guiding Principles.

Responsible sourcing
All suppliers must comply with the requirements
of Ericsson’s Code of Conduct. Approximately
190 employees, covering all regions, are trained
as Code of Conduct auditors. The Company
uses a risk-based approach to ensure that
the high risk portfolio areas, and highest risk
markets, are targeted first. For prioritized areas,
Ericsson performs regular audits and works with
suppliers to ensure measurable and continuous
improvements. Findings are followed up to
ensure that improvements are made.

Ericsson addresses the issue of conflict
minerals, including compliance with the US
Dodd-Frank Act and the disclosure rule
adopted by the U.S. Securities and Exchange
Commission (SEC) through measures in its
sourcing and product management processes.

Ericsson has actively engaged with its
suppliers on this issue and suppliers within
scope have been queried on the smelters in
their supply chain. Ericsson’s supply chain is
complex and both Ericsson and its suppliers
are often many tiers away from the smelters.

Ericsson also participates in industry
initiatives such as the Conflict-Free Sourcing
Initiative (CFSI), driven by the Global
e-Sustainability Initiative (GeSI), and the
Electronic Industry Citizenship Coalition (EICC).

Supplier Code of Conduct
Audits and assessments

528

503

550

494

479

392

270

130

150

218

170

179

195

152

144

600

500

400

300

200

100

2009

2010

2011

2012

2013

Number of auditors
Number of assessments

Number of audits

Reducing environmental impact
Energy use of 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
environmental impact, with a focus on Design
for Environment, which includes product energy
efficiency and materials management.
Continuously improving sustainability
performance is fundamental to Ericsson’s
strategy – and a priority remains improving the
life-cycle carbon footprint. Last year, Ericsson
reported that it reached its five-year target to
reduce carbon footprint intensity by 40% one
year ahead of schedule. Ericsson continues
to report on this performance for the final year.
The target comprises two focus areas:
Ericsson’s own activities and the life-cycle
impacts of products in operation. Results for
the five-year target: A 56% reduction in direct
emission intensity from own activities, including
business travel, product transportation and
facilities’ energy use. A 47% reduction in indirect
emission intensity from life-cycle impacts of
products in operation.

Ericsson set a new long-term objective for its

own operations in 2012, which is to maintain
absolute CO2e emissions from Ericsson’s own
activities for business travel, product transportation
and facilities energy use in 2017 at the same level
as in 2011. To achieve this long-term objective, the
Company aims to reduce CO2e emissions per
employee by 30% over five years. The Company
achieved a 10% reduction of CO2e emissions per
employee in 2013.

Ericsson Ecology Management is a program
to take responsibility for products at the end of
their life and to treat them in an environmentally
preferable way. The program also ensures that

Ericsson life-cycle
assessment – carbon
footprint 2013
Mtonnes CO2e

–5

~28

0.8

~–0.3

Activities in 2013
Supply chain
Own activities

Future (lifetime) operation
of products delivered in 2013

Operator activities
Products in operation
End-of-life treatment

~ Approximately

Carbon footprint
intensity target
Percent

100

E
N
L
E
S
A
B

8
0
0
2

9
0
0
2

0
1
0
2

1
1
0
2

2
1
0
2

3
1
0
2

Ericsson own activities
Products in operation

Five-year target

Board of Directors’ ReportResultsEricsson | Annual Report 2013

BOARD OF DIRECTORS’ REPORT CONTINUED

Ericsson fulfills its producer responsibility and is
offered to all customers globally free of charge,
not only in markets where it is required by law.

Radio waves and health
Ericsson employs rigid product testing and
installation procedures with the goal of ensuring
that radio wave exposure levels from products
and network solutions are below established
safety limits. The Company also provides public
information on radio waves and health, and
supports independent research to further increase
knowledge in this area. Since 1996, Ericsson has
co-sponsored over 100 studies related to
electromagnetic fields and health, primarily
through the Mobile Manufacturers Forum.
To assure scientific independence, firewalls were
in place between the industrial sponsors and
the researchers conducting these studies.
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 any
health effects associated with radio wave exposure
from either mobile phones or radio base stations.

Reporting according to GRI 3.0
Ericsson publishes an annual Sustainability
and Corporate Responsibility report and full
key performance data is made available on
the Ericsson website according to the Global
Reporting Initiative (GRI). The performance
data is assured by a third party.

Legal Proceedings

In November 2012, Ericsson filed two patent
infringement lawsuits in the US District Court for
the Eastern District of Texas against Samsung.
Ericsson sought damages and an injunction.
Ericsson also asked the Court to adjudge that
Samsung breached its commitment to license
any standard-essential patents it owns on fair,
reasonable, and non-discriminatory terms and to
declare Samsung’s allegedly standard essential
patents to be unenforceable. In March 2013,
Samsung filed its answers and counterclaims
in the Ericsson suits in Texas, USA.

In November 2012, Ericsson also filed a

complaint with the US International Trade
Commission (ITC), seeking an exclusion order
blocking Samsung from import of certain
products into the USA.

In December 2012, Samsung filed a
complaint with the ITC seeking an exclusion
order blocking Ericsson from import of certain
products into the USA.

On January 27, 2014, Ericsson announced

that an agreement had been signed with
Samsung on global patent licenses between the
two companies. The cross-license agreement
covers patents relating to GSM, UMTS, and LTE
standards for both networks and handsets.

The agreement ends the complaints made by

both companies against each other before ITC
as well as the lawsuits before the U.S. District
Court for the Eastern District of Texas.

On January 10, 2013, Adaptix Inc. filed two
lawsuits against Ericsson, AT&T, AT&T Mobility
and MetroPCS Communications in the US
District Court for Eastern District of Texas
alleging that certain Ericsson products infringe
five US patents assigned to Adaptix. Adaptix
seeks damages and an injunction.

On January 18, 2013, Adaptix filed a

complaint with the Tokyo District Court alleging
certain Ericsson products infringe two Japanese
patents assigned to Adaptix. Adaptix seeks
damages and an injunction.

On January 25, 2013, Adaptix filed a complaint
with the US International Trade Commission (ITC)
requesting that the commission open a patent
infringement investigation into certain Ericsson
products. In December 2013, this complaint was
dismissed by the ITC based on Adaptix’s
withdrawal of the complaint.

In 2013, Ericsson filed a patent infringement

lawsuit in the Delhi High Court against Indian
handset company Micromax, seeking damages
and an injunction. Ericsson alleged that Micromax
products, compliant with the 2G/3G standard,
infringe eight of Ericsson’s Indian patents. As part
of its defence, Micromax has filed a complaint to
the Competition Commission of India (CCI) and the
CCI has decided to refer the case to the Director
General’s Office for an in-depth investigation.

In 2012, Wi-LAN Inc., a US patent licensing
company, filed a complaint against Ericsson in the
US District Court of Southern Florida alleging that
Ericsson’s LTE products infringe three of Wi-
LAN’s US patents. Ericsson was sued in 2010 by
Wi-LAN in another patent infringement lawsuit in
the US District Court for the Eastern District of
Texas. Wi-LAN alleged that Ericsson products,
compliant with the 3GPP standard, infringe three
US patents assigned to Wi-LAN.
In June 2013, a District Court Judge in the Florida
case granted Ericsson’s request for a Summary

ResultsEricsson | Annual Report 2013Judgment and dismissed Wi-LAN’s claims
against Ericsson. Wi-LAN has appealed this
decision. In July 2013, a jury in Tyler, Texas, found
in Ericsson’s favor in the Texas case. Wi-LAN may
appeal the final decision by the Court.

In 2012, Airvana Networks Solutions Inc.
sued Ericsson in the Supreme Court of the State
of New York, alleging that Ericsson had violated
key contract terms and misappropriated Airvana
trade secrets and proprietary information.
Ericsson announced on September 6, 2013
that it has acquired Airvana Network Solutions’
EVDO business. The lawsuit filed by Airvana
against Ericsson has now been dismissed.
In 2011, TruePosition sued Ericsson,
Qualcomm, Alcatel-Lucent, the European
Telecommunications Standards Institute (ETSI)
and the Third Generation Partnership Project
(3GPP) in the US District Court for the Eastern
District of Pennsylvania for purported federal
antitrust violations. The complaint alleged that
Ericsson, Qualcomm and Alcatel-Lucent 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. The case is
proceeding to discovery.

In 2007, H3G S.p.A, (H3G) filed arbitral
proceedings in Italy against Ericsson. H3G
claimed compensation from Ericsson for alleged
breach of contract. In June 2013, the parties
settled the dispute. The settlement is not
considered to have a material impact on
Ericsson’s business, operating results or liquidity.
In addition to the proceedings discussed
above, Ericsson companies are, and in the
future may be, involved in various other lawsuits,
claims and proceedings incidental to the
ordinary course of business.

Parent Company

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 5 (6) branch
offices. In total, the Group has 81 (71) branch
and representative offices.

Financial information
Income after financial items was SEK 7.2 (–4.9)
billion. The Parent Company had no sales in
2013 or 2012 to subsidiaries, while 30% (34%)
of total purchases of goods and services were
from such companies.

Major changes in the Parent Company’s

financial position for the year included:
>

In 2012, a provision of SEK 3.3 billion was
recognized, which provides for Ericsson’s
share of obligations for the wind-down of

ST-Ericsson. In 2013, SEK 2.1 billion has
been utilized or reversed, which resulted in
a net liability of SEK 1.2 billion

> Decreased current and non-current

receivables from subsidiaries of SEK 7.1 billion

> Decreased other current receivables of

SEK 2.0 billion
Increased cash, cash equivalents and
short-term investments of SEK 1.1 billion
> Decreased current and non-current liabilities

to subsidiaries of SEK 5.2 billion

> Decreased other current liabilities of

SEK 0.9 billion.

At year-end, cash, cash equivalents and
short-term investments amounted to SEK 58.5
(57.4) billion.

Share information
As of December 31, 2013, the total number of
shares in issue was 3,305,051,735, of which
261,755,983 were Class A shares, each carrying
one vote, and 3,043,295,752 were Class B
shares, each carrying one tenth of one vote.
Both classes of shares have the same rights
of participation in the net assets and earnings.
The two largest shareholders at year-end
were Investor AB and AB Industrivärden holding
21.50% and 15.21% respectively of the voting
rights in the Parent Company.

In accordance with the conditions of the

Long-Term Variable Remuneration Program (LTV)
for Ericsson employees, 10,829,917 treasury
shares were sold or distributed to employees in
2013. The quotient value of these shares was
SEK 5.00, totaling SEK 54.1 million, representing
less than 1% of capital stock, and compensation
received for shares sold and distributed shares
amounted to SEK 116.6 million.

The holding of treasury stock at December

31, 2013 was 73,968,178 Class B shares.
The quotient value of these shares is SEK 5.00,
totaling SEK 369.8 million, representing 2.2%
of capital stock, and the purchase price
amounts to SEK 571.6 million.

Proposed disposition of earnings
The Board of Directors proposes that a dividend
of SEK 3.0 (2.75) per share be paid to
shareholders duly registered on the record date
April 16, 2014, 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
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

Amount to be retained by the
Parent Company

Total non-restricted equity of
the Parent Company

SEK 9,915,155,205

SEK 13,882,835,598

SEK 23,797,990,803

Board of Directors’ ReportResultsEricsson | Annual Report 2013BOARD OF DIRECTORS’ REPORT CONTINUED

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.

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 53% (50%) and a net cash amount of
SEK 37.8 (38.5) 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
he capital requirements for the Parent Company
and the Group in addition to coming years’
business plans and economic development.

Stockholm, March 5, 2014
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Sverker Martin-Löf
Deputy Chairman

Roxanne S. Austin
Member of the Board

Börje Ekholm
Member of the Board

Leif Johansson
Chairman

Sir Peter L. Bonfield
Member of the Board

Alexander Izosimov
Member of the Board

Jacob Wallenberg
Deputy Chairman

Nora Denzel
Member of the Board

Ulf J. Johansson
Member of the Board

Kristin Skogen Lund
Member of the Board

Hans Vestberg
President, CEO and Member of the Board

Pär Östberg
Member of the Board

Pehr Claesson
Member of the Board

Kristina Davidsson
Member of the Board

Karin Åberg
Member of the Board

ResultsEricsson | Annual Report 2013Easy
financing
for small
businesses

Some 200 million businesses in developing
countries lack the financing they need to
grow as access to capital is scarce and
actually getting hold of money is inconvenient
without access to a bank branch office or
agent. Equally complicated is the repayment
of loans, which could require a full day of
travel to get to a bank.

In the Philippines, a mobile wallet solution
connecting micro-financing institutions directly
to borrowers is revolutionizing small business
financing. People get funding sent directly to
their mobile phone, or through agents offering
cash-out services. Financial products and
services are offered to customers utilizing the
network of a large operator reaching more
than 70 million subscriptions.

As a result, individuals starting up small
businesses get financing fast, cheaply and
securely. And by improving both the
distribution and collection of start-up loans,
micro-financing organizations improve
efficiency, decrease default rates and extend
their services to even more customers.

75%

Transaction costs can be cut by over
75% by moving payments from cash
to mobile.

ISXEN_v51.indd 49

2014-03-07 10:07

Ericsson | Annual Report 2013

results

CONSOLIDATED FINANCIAL
STATEMENTS with
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS

Contents

Consolidated financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity

Notes to the consolidated financial statements
C1 Significant accounting policies
C2 Critical accounting estimates and judgments
C3 Segment information
C4 Net sales
C5 Expenses by nature
C6 Other operating income and expenses
C7 Financial income and expenses
C8 Taxes
C9 Earnings per share
C10 Intangible assets
C11 Property, plant and equipment
C12 Financial assets, non-current
C13 Inventories
C14 Trade receivables and customer finance
C15 Other current receivables
C16 Equity
C17 Post-employment benefits
C18 Provisions
C19 Interest-bearing liabilities
C20 Financial risk management and financial instruments
C21 Other current liabilities
C22 Trade payables
C23 Assets pledged as collateral
C24 Contingent liabilities
C25 Statement of cash flows
C26 Business combinations
C27 Leasing
C28 Information regarding members of the Board of Directors,

the Group management and employees

C29 Related party transactions
C30 Fees to auditors
C31 Contractual obligations

51
52
53
54
55

58
66
68
71
71
71
72
72
73
74
76
77
78
79
81
81
82
86
87
88
91
91
91
92
92
93
95

96
101
101
101

Ericsson | Annual Report 2013

ISXEN_v51.indd 50

2014-03-07 10:07

CONSOLIDATED FINANCIAL
STATEMENTS

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 (%)

Notes

C3, C4

2013

2012

2011

227,376
–151,005
76,371
33.6%

–32,236
–26,273
–58,509

227,779
–155,699
72,080
31.6%

–32,833
–26,023
–58,856

226,921
–147,200
79,721
35.1%

–32,638
–26,683
–59,321

R
e
s
u
l
t
s

113

8,965 1)

1,278

17,975

22,189

21,678

Share in earnings of joint ventures and associated companies
Operating income

C3, C12

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) 2)
Earnings per share attributable to stockholders of the Parent Company, diluted (SEK) 2)

1) Includes gain on sale of Sony Ericsson of SEK 7.7 billion.
2) Based on Net income attributable to stockholders of the Parent Company.

C7
C7

C9
C9
C9

7.9%

–130
17,845

1,346
–2,093
17,098

–4,924
12,174

12,005
169

3,226
3.72
3.69

9.7%

–11,731
10,458

1,708
–1,984
10,182

–4,244
5,938

5,775
163

3,216
1.80
1.78

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

Consolidated financial statements

Ericsson | Annual Report 2013

ISXEN_v51.indd 51

2014-03-07 10:07

results

CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Consolidated statement of comprehensive income

January–December, SEK million

Net income
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements of defined benefits pension plans including asset ceiling
Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
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

Revaluation of other investments in shares and participations

Fair value remeasurement

Changes in cumulative translation adjustments
Share of other comprehensive income of joint ventures and associated companies
Tax on items that may be reclassified to profit or loss
Total other comprehensive income, net of tax
Total comprehensive income

Total comprehensive income attributable to:

Stockholders of the Parent Company
Non-controlling interests

2013

12,174

3,214
–1,235

251
–1,072
–

71
–1,687
–14
179
–293
11,881

11,712
169

2012

5,938

–451
–59

1,668
–568
92

6
–3,947
–486
–363
–4,108
1,830

1,716
114

2011

12,569

–6,963
1,810

996
–2,028
–

–
–964
–262
348
–7,063
5,506

5,081
425

Ericsson | Annual Report 2013

ISXEN_v51.indd 52

2014-03-07 10:07

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

2013

2012

C10

3,348
31,544
12,815

3,840
30,404
15,202

R
e
s
u
l
t
s

Property, plant and equipment

C11, C26, C27

11,433

11,493

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 1)
Provisions, non-current
Deferred tax liabilities
Borrowings, non-current
Other non-current liabilities

Current liabilities
Provisions, current
Borrowings, current
Trade payables
Other current liabilities 1)

C12
C12
C12
C12
C8

C13

C14
C14
C15

C20
C25

C16

C17
C18
C8
C19, C20

C18
C19, C20
C22
C21

2,568
505
1,294
5,684
9,103
78,294

2,842
386
1,290
3,964
12,321
81,742

22,759

28,802

71,013
2,094
17,941

34,994
42,095
190,896

63,660
4,019
20,065

32,026
44,682
193,254

269,190

274,996

140,204
1,419
141,623

136,883
1,600
138,483

9,825
222
2,650
22,067
1,459
36,223

5,140
7,388
20,502
58,314
91,344

9,503
211
3,120
23,898
2,377
39,109

8,427
4,769
23,100
61,108
97,404

Total equity and liabilities 2)

269,190

274,996

1) As of January 1, 2013 the provision for the Swedish special payroll taxes, amounting to SEK 1.8 billion, which was previously included in Other current liabilities, has been re-classified as

pension liability in line with the implementation of IAS 19R.

2) Of which interest-bearing liabilities and post-employment benefits SEK 39,280 (38,170) million.

Consolidated financial statements

Ericsson | Annual Report 2013

BSXEN_v25.indd 53

2014-03-06 13:35

results

CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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

2013

2012

2011

C25

12,174
9,828
22,002

4,868
1,809
–8,504
–2,158
–3,298
2,670
–4,613

5,938
13,077
19,015

2,752
–1,259
–1,103
–1,311
–1,920
5,857
3,016

12,569
12,613
25,182

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

Cash flow from operating activities

17,389

22,031

9,982

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

–4,503
378
–3,147
465
–915
–1,330
–2,057
–11,109

–5,429
568
–11,529 1)
9,452
–1,641
1,540
2,151
–4,888

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

Cash flow before financing activities

6,280

17,143

14,523

Financing activities
Proceeds from issuance of borrowings
Repayment of borrowings
Proceeds from stock issue
Sale/repurchase of own shares
Dividends paid
Other financing activities
Cash flow from financing activities

Effect of exchange rate changes on cash

Net change in cash

5,956
–5,094
–
90
–9,153
–1,307
–9,508

8,969
–9,670
159
–93
–8,632
–118
–9,385

641

–1,752

–2,587

6,006

2,076
–1,259
–
92
–7,455
52
–6,494

–217

7,812

Cash and cash equivalents, beginning of period

44,682

38,676

30,864

Cash and cash equivalents, end of period

C25

42,095

44,682

38,676

1) Includes payment of external loan of SEK –6.2 billion attributable to the acquisition of Telcordia.

Ericsson | Annual Report 2013

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2014-03-06 13:37

Consolidated Statement of Changes in Equity

Equity and Other comprehensive income 2013

SEK million

January 1, 2013
Net income
Group
Joint ventures and associated companies

Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements related to post-employment benefits

Group

Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
Cash flow hedges

Gains/losses arising during the year

Group

Reclassification adjustments for gains/losses
included in profit or loss

Revaluation of other investments in shares and participations

Group

Changes in cumulative translation adjustments

Group
Joint ventures and associated companies

Tax on items that may be reclassified to profit or loss 3)
Total other comprehensive income, net of tax
Total comprehensive income

Transactions with owners
Stock issue
Sale/repurchase of own shares
Stock purchase plans

Group
Joint ventures and associated companies

Dividends paid
Transactions with non-controlling interest
December 31, 2013

Capital stock

Addi tional
paid in capital

Retained
earnings

Stock
holders’
equity

Non-control ling
interest

Total
equity

16,526

24,731

95,626

136,883

1,600

138,483

R
e
s
u
l
t
s

–
–

–

–
–
–
–
–

–
–

–

–
–
–
–
–

–
–

–
–
–
–
16,526

–
–
–
–
24,731

12,135
–130

169
–

12,304
–130

3,214
–1,235

251

–1,072 1)

–1,072

–1,687 2)
–14
179
–293
11,712

–1,687
–14
179
–293
11,712

–
90

388
–
–8,863
–6
98,947

–
90

388
–

–8,863 4)

–6
140,204

–
–

–

0
–
–
–
169

–
–

–
–
–290
–60
1,419

3,214
–1,235

251

–1,072

–1,687
–14
179
–293
11,881

–
90

388
–
–9,153
–66
141,623

1) SEK –754 million is recognized in Net sales, SEK –495 million is recognized in Cost of sales, SEK 177 million is recognized in R&D expenses.
2) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK –204 million (SEK –1,400 million in 2012 and SEK 46 million in 2011),

gain/loss from hedging activities of foreign entities, SEK 0 million (SEK 0 million in 2012 and SEK 9 million in 2011), and realized gain/losses net from sold/liquidated companies, SEK –20 million
(SEK –461 million in 2012 and SEK 192 million in 2011).

3) For further disclosures, see Note C8, “Taxes.”
4) Dividends paid per share amounted to SEK 2.75 (SEK 2.50 in 2012 and SEK 2.25 in 2011).

Consolidated financial statements

Ericsson | Annual Report 2013

EQUITYXEN_v35.indd 55

2014-03-06 13:38

results

CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Equity and Other comprehensive income 2012

SEK million

January 1, 2012
Net income
Group
Joint ventures and associated companies

Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements related to post-employment benefits

Group
Joint ventures and associated companies

Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
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

Revaluation of other investments in shares and participations

Group

Changes in cumulative translation adjustments

Group
Joint ventures and associated companies

Tax on items that may be reclassified to profit or loss
Total other comprehensive income, net of tax
Total comprehensive income

Transactions with owners
Stock issue
Sale/repurchase of own shares
Stock purchase plans

Group
Joint ventures and associated companies

Dividends paid
Transactions with non-controlling interest
December 31, 2012

Capital stock

Addi tional
paid in capital

Retained
earnings

Stock
holders’
equity

Non-control ling
interest

Total
equity

16,367

24,731

102,007

143,105

2,165

145,270

–
–

–
–
–

–
–

–

–
–
–
–
–

159
–

–
–
–
–
16,526

–
–

–
–
–

–
–

–

–
–
–
–
–

–
–

–
–
–
–
24,731

17,411
–11,636

163
–

17,574
–11,636

–451
50
–59

1,668
–25

–568

–3,898
–511
–363
–4,059
1,716

–
–93

405
–
–8,033
–376
95,626

–3,898
–511
–363
–4,059
1,716

159
–93

405
–
–8,033
–376
136,883

–
–
–

–
–

–

–49
–
–
–49
114

–
–

–
–
–599
–80
1,600

–451
50
–59

1,668
–25

–568

–3,947
–511
–363
–4,108
1,830

159
–93

405
–
–8,632
–456
138,483

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Equity and Other comprehensive income 2011

SEK million

January 1, 2011
Net income
Group
Joint ventures and associated companies

Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements related to post-employment benefits

Group
Joint ventures and associated companies

Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
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 that may be reclassified to profit or loss
Total other comprehensive income, net of tax

Total comprehensive income

Transactions with owners
Sale of own shares
Stock purchase plans

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

Total equity

16,367

24,731

104,008

145,106

1,679

146,785

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e
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t
s

15,727
–3,533

375
–

16,102
–3,533

–
–

–
–
–

–
–

–

–
–
–
–

–

–
–

–
–
–

–
–

–

–
–
–
–

–

–6,963
–212
1,810

996
11

–2,028

–1,014
–61
348
–7,113

5,081

–1,014
–61
348
–7,113

5,081

–
–
–
–
16,367

–
–
–
–
24,731

413
–
–7,207
–380
102,007

413
–
–7,207
–380
143,105

–
–
–

–
–

–

50
–
–
50

425

–

–
–
–248
309
2,165

–6,963
–212
1,810

996
11

–2,028

–964
–61
348
–7,063

5,506

413
–
–7,455
–71
145,270

Consolidated financial statements

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results

Notes to the CONSOLIDATED
FINANCIAL STATEMENTS

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 21, SE-164 83 Stockholm.

The consolidated financial statements for the year ended December

31, 2013 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 2013, the Company has applied IFRS as issued by the IASB
(IFRS effective as per December 31, 2013) and with early application
in relation to the amendment to IAS 36, “Impairment of assets” on
recoverable amount disclosures. There is no difference between IFRS
effective as per December 31, 2013, 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, for all periods presented.

The financial statements were approved by the Board of Directors on
March 5, 2014. The balance sheets and income statements are subject
to approval by the Annual General Meeting of shareholders.

New standards, amendments of standards and interpretations,

effective as from January 1, 2013 are as follows:
> Amendment to IAS 1, “Financial statement presentation

regarding Other comprehensive income”. The main change
resulting from this amendment is a requirement for entities to group
items presented in “other comprehensive income” (OCI) on the
basis of whether or not they are potentially recycled to profit or loss
(reclassification adjustments).

> Amendment to IAS 19, “Employee benefits” eliminates the

corridor approach and calculates finance costs on a net funding
basis. The Company implemented the immediate and full
recognition of actuarial gains/losses in “Other comprehensive
income” (OCI) in 2006, meaning that the corridor method has not
been applied by the Company as from that date and therefore the
transition to the revised IAS 19 has not had an effect on the present
obligation and equity except for the reclassification described below.
The main issue to address is the implementation of the net interest
cost/income, which integrates the interest cost and expected
interest income on assets to be based on a common discount rate.
The impact for fiscal year 2012 in relation to this amendment would
have been an increase in pension costs for 2012 of SEK 0.4 billion if
it had been restated.
The Company has addressed the taxes to be incorporated into the
defined benefit obligation. The Swedish special payroll taxes have
been reclassified from “Other current liabilities” to “Post-employment
benefits” with an amount of SEK 1.8 billion as of January 1, 2013.
The amendment also includes additional disclosure requirements on
yearly financial and demographic assumptions, sensitivity analysis,
duration and multi-employer plans.

Ericsson | Annual Report 2013

> Amendment to IFRS 7, “Financial instruments: Disclosures’ on

asset and liability offsetting.” This amendment requires disclosure
of gross amounts related to financial instruments for which offset
has been made.
IFRS 10, “Consolidated financial statements.” The objective
of IFRS 10 is to establish principles for the presentation and
preparation of consolidated financial statements when an entity
controls one or more other entities to present consolidated financial
statements. It defines the principle of control, and establishes
control as the basis for consolidation. It sets out how to apply
the principle of control to identify whether an investor controls an
investee and therefore must consolidate the investee. An entity
controls an investee if the entity has power over the investee, has
the ability to use the power and is exposed to variable returns. It
also sets out the accounting requirements for the preparation of
consolidated financial statements.
IFRS 11, “Joint arrangements” focuses 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 did not apply the proportionate consolidation method
prior to 2013.
IFRS 12, “Disclosures of interests in other entities” includes the
disclosure requirements for all forms of interests in other entities,
including joint arrangements, associates, structured entities and
other off-balance-sheet vehicles as well as non-controlling interests
in the subsidiaries of the Company. The conclusion from the
Company’s adoption analysis of IFRS 12 is that as per December
31, 2013 the Company experienced no material impact as a result
of this new standard that would require separate disclosures of non-
controlling interests or associated companies or joint ventures as per
this date. An exception to this relates to the Company’s ownership in
the associated company Rockstar Inc.
IFRS 13, “Fair value measurement” does not extend the use of fair
value accounting but provides guidance on how it should be applied
where its use is already required or permitted by other standards
within IFRS. This standard has also added disclosure requirements
to IAS 34, Interim Financial Reporting, regarding the disclosure for
financial instruments.
IAS 27 (revised 2011), “Separate financial statements” includes
the provisions on separate financial statements that remain after the
control provisions of IAS 27 have been included in the new IFRS 10.
IAS 28 (revised 2011), “Associates and joint ventures” includes
the requirements for joint ventures, as well as associates, to be
equity accounted following the issue of IFRS 11.

> Amendment to IAS 36, “Impairment of assets” on recoverable

amount disclosures. This amendment addresses the disclosure of
information about the recoverable amount of impaired assets if that
amount is based on fair value less costs of disposal.

None of the new or amended standards and interpretations have had
any significant impact on the financial result or position nor on the
disclosure of the Company.

For information on “New standards and interpretations not yet

adopted,” refer to the end of this Note.

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Change of hedge accounting
Due to cost efficiency reasons the Company has changed the hedge
accounting.

The Company hedges highly probable forecast transactions related
to sales and purchases with the purpose to limit the impact related to
currency fluctuations on these forecasted transactions. This will not be
changed.

The Company has, however, decided to discontinue hedge

accounting for this type of hedges. Until 2012 the Company applied
cash flow hedge accounting for highly probable forecast transactions.
Revaluation of these hedges (incepted prior to January 1, 2013) has,
prior to release, been reported under “Other comprehensive income”
and is at release recycled to Sales, Cost of sales and R&D expenses
respectively.

As from 2013, revaluation of new hedges (inception as from January

1, 2013) is reported under “Other operating income and expenses” in
the Income statement.

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. Financial information in the consolidated income
statement, the consolidated statement of comprehensive income, the
consolidated statement of cash flows and the consolidated statement of
changes in equity with related notes are presented with two comparison
years while for the consolidated balance sheet financial information with
related notes is presented with only one comparison year.

Basis of consolidation and composition of the group
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.

As from January 1, 2013, subsidiaries are all companies for
which Telefonaktiebolaget LM Ericsson, directly or indirectly, is the
parent. To be classed as a parent, Telefonaktiebolaget LM Ericsson,
directly or indirectly, must control another company which requires
that the Parent Company has power over that other company, is
exposed to variable returns from its involvement and has the ability
to use its power over that other company. The financial statements
of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that such control
ceases.

Before 2013, subsidiaries were all companies in which
Telefonaktiebolaget LM Ericsson, directly or indirectly, had an
ownership interest, including effective potential voting rights;
companies over which the Company had the power to govern the
financial and operating policies generally associated with ownership
of more than one half of the voting rights; or companies over which
Telefonaktiebolaget LM Ericsson, directly or indirectly, by agreement
had control. The financial statements of subsidiaries were included
in the consolidated financial statements from the date that control
commenced until the date that control ceases. The change as
from 2013 was made due to a change of IFRS, as disclosed under
Introduction: see IFRS 10, “Consolidated financial statements.”

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.

The Company is composed of a parent company, Telefonaktie-

bolaget LM Ericsson, with generally fully-owned subsidiaries in many
countries of the world. The largest operating subsidiaries are the
fully-owned telecom vendor companies Ericsson AB, incorporated in
Sweden and Ericsson Inc., incorporated in the US.

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
interests 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. If the Company’s interest in an associated company or joint
venture is nil, the Company shall not, as prescribed by IFRS, recognize
its part of any future losses. Provisions related to obligations for such
an interest shall, however, be recognized in relation to such an interest.
As from January 1, 2013, JVs are classed as ownership interests
under which the Company has joint control of another company, as
prescribed under IFRS 11, “Joint Arrangements,” a new standard
effective as from 2013: see Introduction. Prior to 2013, JVs were
classed as ownership interests where a joint influence was obtained
through agreement. IFRS 11 has not changed the Company’s
accounting treatment of JVs.

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

significant influence and the power to participate in the financial and
operating policy decisions of the associated company, but is not in

NOTES TO THE Consolidated financial statements

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control or joint control over those policies. Normally this is the case in
voting stock interest, including effective potential voting rights, which
stand at at least 20% but not more than 50%.

Income and expenses for each income statement are translated at
average exchange rates

> All resulting net exchange differences are recognized as a separate

The Company’s share of income before taxes is reported in item
“Share in earnings of joint ventures and associated companies”, included
in Operating Income. This reflects the fact 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 value
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,” 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.

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 any 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’s products and services are
disclosed in more 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 contain content from more than one segment.

Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of each respective
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 under the hedge accounting
practices as described below.

Changes in the fair value of monetary securities denominated in
foreign 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.

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
> The customer has received and activation has been made of

separately sold software

> Collection is reasonably assured
Estimations 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.

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

Translation differences on non-monetary financial assets and

> Delivery-type contracts – These contracts relate to delivery,

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

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

installation, integration of products and provision of related services,
normally under multiple elements contracts. Under multiple elements
contracts, 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 Support Solutions have contracts that relate to
this type of arrangement.

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> Contracts for services – These relate to multi-year service contracts
such as support – and managed service contracts and other types
of recurring 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 arrangement.
> Contracts generating license fees from third parties for the use
of the Company’s intellectual property rights – License fees are
normally measured as a percentage of sales or currency amount
per unit and recognized over the license period as the amount of the
consideration becomes reasonably certain. Networks and Support
Solutions have contracts that relate to this type of arrangement.
For sales between consolidated companies, associated companies,
joint ventures and segments, the Company applies arm’s length pricing.
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.

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.

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.

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 the 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 customers 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

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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 the amortized
cost of the security and other changes in the carrying amount of the
security. 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 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

NOTES TO THE Consolidated financial statements

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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.

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.

Hedge accounting
When applying hedge accounting, 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 hedges: a hedge of the fair value of recognized liabilities;
b) Cash flow hedges: a hedge of a particular risk associated with a

highly probable forecast transaction; or

c) Net investment hedges: 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.

As disclosed under Introduction in this note, the Company has
decided to discontinue hedge accounting for certain derivatives, as for
new transactions dated January 1st, 2013 or later.

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

Ericsson | Annual Report 2013

are attributable to the hedged risk, when hedge accounting is applied.
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
When applying hedge accounting, 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
the cumulative translation adjustment (CTA). 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 CTA
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 comprising 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 derecognition of CWIP relates to the Company’s
revenue recognition principles meaning that costs incurred under

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a customer contract are recognized as CWIP. When revenue is
recognized, CWIP is derecognized and is instead recognized as Cost
of sales.

In Note C2, “Critical accounting estimates and judgments,” further

disclosure is presented in relation to (i) key sources of estimation
uncertainty and (ii) the decision made in relation to accounting policies
applied.

Intangible assets
Intangible assets other than goodwill
Intangible assets other than goodwill comprise acquired intangible
assets, such as patents, customer relations, trademarks and software,
as well as capitalized development expenses and separately acquired
intangible assets, mainly consisting of software. At initial recognition,
acquired intangible assets related to business combinations are stated
at fair value and capitalized development expenses and software are
stated at cost. Subsequent to initial recognition, separately acquired
intangible assets, mainly software and capitalized development
expenses, are stated at initially recognized amounts less accumulated
amortization and any impairment. Amortization and any impairment
losses are included in Research and development expenses, which
mainly consists of capitalized development expenses and patents; in
Selling and administrative expenses, which mainly consists of expenses
relating to 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 economic feasibility has been established until
the product is available for sale or use. 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, trademarks 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 by higher
amounts in the beginning of its 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
discount rate 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

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carrying amount, net of amortization, which would have been reported
if no impairment loss had been recognized.

In Note C2, “Critical accounting estimates and judgments,” further

disclosure is presented in relation to (i) key sources of estimation
uncertainty and (ii) the decision made in relation to accounting policies
applied.

Goodwill
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.
The Company’s four operating segments have been identified as CGUs.
Goodwill is assigned to three of them: Networks, Global Services and
Support Solutions.

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 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.

NOTES TO THE Consolidated financial statements

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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.

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.

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, which have an indefinite
period of utilization.

In Note C2, “Critical accounting estimates and judgments,” further

disclosure is presented in relation to (i) key sources of estimation
uncertainty and (ii) the decision made in relation to accounting policies
applied.

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.

Ericsson | Annual Report 2013

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

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

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.

As from January 1, 2013, 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

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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 and changes in the discount rate. 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 a net benefit
to the Company, the recognized asset is limited to the present value of
any future refunds from the plan or reductions in future contributions to
the plan.

Interest cost on the defined benefit obligation and interest income
on plan assets is calculated as a net interest amount by applying the
discount rate to the net defined benefit liability. All past service costs
are recognized immediately. Swedish special payroll tax is accounted
for as a part of the pension cost and the pension liability respectively.
Payroll taxes related to actuarial gains and losses are included in

determining actuarial gains and losses, reported under OCI.

Prior to 2013, the present value of the defined benefit obligations for
current and former employees was calculated using the Projected Unit
Credit Method. The discount rate for each country was 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 were used. The calculations were based
upon actuarial assumptions, assessed on a quarterly basis, and
were as a minimum prepared annually. Actuarial assumptions were
the Company’s best estimate of the variables that determine the cost
of providing the benefits. When using actuarial assumptions, it was
possible that the actual results differed from the estimated results or
that the actuarial assumptions changed from one period to another.
These differences were reported as actuarial gains and losses. They
were, 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 were recognized in
OCI in the period in which they occurred. 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 was recognized
net on the balance sheet. When the result was a net benefit to
the Company, the recognized asset was 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.

In Note C2, “Critical accounting estimates and judgments,” further

disclosure is presented in relation to key sources of estimation
uncertainty.

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
would be 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 IFRS accounting principle 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 the 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. 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
will be 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-employee 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.

NOTES TO THE Consolidated financial statements

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The Company’s segment disclosure about geographical areas is

based on the country in which 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, 2013 and have not been applied in preparing these consolidated
financial statements.

Below is a list of standards/interpretations, applicable for the
Company, that have been issued and are effective for the periods
starting from January 1, 2014 if not otherwise stated. These
amendments effective as from January 1, 2014 are not expected to
have a significant impact on the Company’s financial result or position.
> Amendment to IAS 32, “Financial instruments: Presentation,”
on asset and liability offsetting. This amendment i related to
the application of guidance in IAS 32, ‘Financial instruments:
Presentation,’ and clarifies some of the requirements for offsetting
financial assets and financial liabilities on the balance sheet. This
amendment is effective as from 1 January, 2014.
IFRIC 21, “Levies.” This sets out the accounting for an obligation to
pay a levy that is not income tax. The interpretation addresses what
the obligating event is that gives rise to the need to pay a levy and
when a liability should be recognized.
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. This amendment is expected to be effective as
from 1 January, 2015 or later. The EU has not yet endorsed IFRS 9,
‘Financial instruments.’

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. 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, 2013, were SEK 1.2 (1.1) billion
or 1.6% (1.5%) 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,
2013, amounted to SEK 2.5 (3.5) billion or 10% (11%) of gross inventory.

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.

The largest amounts of tax loss carry-forwards are reported in

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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, 2013, provisions other than warranty
commitments amounted to SEK 4.5 (7.0) 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.

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Judgments made in relation to accounting policies
As disclosed under Note C1, “Significant accounting policies” a
potential obligation that is not likely to result in an economic outflow
is classified as a contingent liability, with no impact on the Company’s
financial statements. However, should an obligation in a later period be
deemed to be probable, then a provision shall be recognized, impacting
the financial statements.

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, 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. At December 31, 2013, defined benefit obligations for
pensions and other post-employment benefits amounted to SEK 52.9
(52.0) billion and fair value of plan assets to SEK 46.6 (44.6) billion. For
more information on estimates and assumptions, see Note C17, “Post-
employment benefits.”

Foreign exchange risks
Key sources of estimation uncertainty
Foreign exchange risk impacts the financial results of the Company:
see further disclosure in Note C20, “Financial Risk Management and
Financial Instruments,” under Foreign Exchange Risk.

Sweden, 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, 2013, the value of deferred tax assets amounted
to SEK 9.1 (12.3) billion. The deferred tax assets related to loss carry-
forwards are reported as non-current assets.

Accounting for income tax, value added tax, 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 in the case of 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.

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.

At December 31, 2013, the amount of acquired intellectual property
rights and other intangible assets amounted to SEK 44.4 (45.6) billion,
including goodwill of SEK 31.5 (30.4) billion.

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 regarding 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, 2013, amounted to SEK 0.9 (1.6) billion.

Provisions other than warranty provisions
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/

NOTES TO THE Consolidated financial statements

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Modems performs design, development and sales of the LTE
multimode thin modem solutions, including 2G, 3G and 4G
interoperability.
Modems was consolidated into Ericsson as of October 1, 2013.

Former segments
ST-Ericsson was formed in 2009 as a joint venture between Ericsson
and STMicroelectronics. Early 2013 the parents agreed to split up and
close the joint venture. The company ST-Ericsson is winding down and
all business has been transferred to parents or divested during 2013.
The acquired business is now consolidated into Ericsson in the new
segment Modems. As of January 1, 2013, ST-Ericsson is no longer
reported as a separate segment.

As of December 31, 2012 there were no remaining investments
related to ST-Ericsson on the Company’s balance sheet. For more
information, see Note C12, “Financial assets.”
Sony Ericsson was, up until 2012, a joint venture delivering mobile
phones and accessories. In February 2012, Ericsson completed the
divestment of its 50% stake in Sony Ericsson to Sony. The sale resulted
in a gain of SEK 7.7 billion. Sony Ericsson was not consolidated by the
Company during 2012.

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 eleven regions:
> North America
> Latin America
> Northern Europe & Central Asia
> Western and Central Europe
> Mediterranean
> Middle East
> Sub-Saharan Africa
>
> North East Asia
> South East Asia & Oceania
> Other.
Region “Other” includes licensing revenues, broadcast services, power
modules and other businesses.

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 2013, 2012 or 2011.

We derive most of our sales from large, multi-year agreements with

a limited number of significant customers. Out of a customer base of
more than 400, mainly consisting of network operators, the 10 largest
customers account for 44% (46%) of net sales. The largest customer
accounted for approximately 8% (7%) of sales in 2013.
For more information, see Risk Factors, “Market, Technology and
Business Risks.”

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, four operating
segments are reported:
> Networks
> Global Services
> Support Solutions
> Modems
Networks delivers products and solutions for mobile access, IP
and transport networks and core networks. The offering includes:
> Radio access solutions that interconnect with devices such as

mobile phones, tablets and PCs. The RBS 6000 supports all major
standardized mobile technologies
IP and transport solutions based on the SSR 8000 family of products
as well as transmission/backhaul including microwave (MINI-LINK)
and optical transmission solutions for mobile and fixed networks
> Switching and IMS solutions, based on the Ericsson Blade Server

platform, for core networks

> Operations Support Systems (OSS), supporting operators’
management of existing networks and introduction of new
technologies and services.

Global Services delivers managed services, product-related services,
consulting and systems integration services as well as broadcast
services. The offering includes:
> Managed Services: Services for designing, building, operating and
managing the day-to-day operations of the customer’s network
or solution; maintenance; network sharing solutions; plus shared
solutions such as hosting of platforms and applications. Ericsson
also offers managed services of IT environments.

> Product-related services: Services to expand, upgrade, restructure
or migrate networks; network-rollout services; customer support;
and network optimization services.

> Consulting and Systems Integration: Technology and operational
consulting; integration of multi-vendor equipment; design and
integration of new solutions and transforming programs. Industry-
specific solutions for vertical industries are also included.

> Broadcast Services: Services include responsibility for technical

platforms and operational services related to TV content
management, playout and service provisioning of a TV broadcaster’s
business. Services cover live and pre-recorded, commercial and
public service television.

Support Solutions provides enablers and applications for operators.
The offering includes:
> Operations Support Systems: plan, build and optimize, service

fulfillment and service assurance.

> Business Support Systems: revenue management (prepaid, post-
paid, convergent charging and billing), mediation and customer
care solutions.

> TV solutions: a suite of open, standards-based solutions and

products for the creation, management and delivery of evolved TV
experiences on any device over any network. Includes a multi-
screen TV platform with consumer experience creation, video
content management, on-demand video delivery, advanced video
compression and video-optimized delivery network infrastructure.
> M-Commerce solutions for money transfer: payment transactions
and services between mobile subscribers and operators or other
service providers.

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Marketing channels
Marketing in a business-to-business environment is expanding, from
being primarily conducted through personal meetings, to on-line
forums, expert blogs and social media. Ericsson performs marketing
through:
> Customer engagement with a consultative approach
> Selective focus on events and experience centers for customer

experience and interaction

> Continuous dialogue with customers and target audiences through

social and other digital media (including virtual events)
> Activation of the open social and digital media landscape

to strengthen message reach and impact

> Execution of solutions-driven programs, aligned globally

and regionally.

Operating segments

2013

Segment sales
Net sales

Operating income
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income

Global
Services

Support
Solutions

Modems

Total
Segments

Unallo-
cated

Networks

117,699
117,699

97,443
97,443

12,234
12,234

–
–

227,376
227,376

18,415
8%

–
–

–570
–

11,318
10%

6,185
6%

1,455
12%

–543
–

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

–155
–4,237
–3,243
–5
19
–2,182
–621

60
–925
–788
–2
5
–1,997
–166

–58
–722
–135
0
1
–186
–105

–
–44
–61
–
–
–
–

–153
–5,928
–4,227
–7
25
–4,365
–892

23
–
–
–
–
–88
51

Revenue from the acquired Telcordia business operation is reported 50/50 between segments Global Services and Support Solutions.

Operating segments

2012

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
Write-down of investment
Restructuring expenses
Gains/losses from divestments

Networks

117,185
100
117,285

7,057
6%

Global
Services

Support
Solutions

Sony
Ericsson

ST-
Ericsson

Total
Segments

Unallo-
cated

Elimi-
nations 1)

97,009
34
97,043

6,226
6%

13,445
6
13,451

1,150
9%

–
–
–

8,457
634
9,091

236,096
774
236,870

–
–
–

8,026 2) –15,447 3)

–

–170%

7,012
3%

–267
–

–8,457
–634
–9,091

3,713
–

–59
–3,832
–3,035
–385
39
–
–1,253
–59

45
–853
–727
–9
9
–
–1,930
1

–20
–809
–290
–1
4
–
–246
216

–
–
–
–
–
–
–

8,026 2)

–11,734 3)
–322
–741

– 4)
–
–4,684
–624
–

–11,768
–5,816
–4,793
–395
52
–4,684
–4,053
8,184

37
–
–
–
–
–
–18
152

–
322
741
–
–
–
624
–

R
e
s
u
l
t
s

Group

227,376
227,376

17,845
8%
1,346
–2,093
17,098
–4,924
12,174

–130
–5,928
–4,227
–7
25
–4,453
–841

Group

227,639
140
227,779

10,458
5%
1,708
–1,984
10,182
–4,244
5,938

–11,731
–5,494
–4,052
–395
52
–4,684
–3,447
8,336

Revenue from the acquired Telcordia business operation is reported 50/50 between segments Global Services and Support Solutions.
1) All segment sales are presented, but as ST-Ericsson sales are accounted for in accordance with the equity method, their sales are eliminated in the Eliminations column.
2) Includes a gain from the divestment of Sony Ericsson of SEK 7.7 billion.
3) Includes a write-down of SEK –4.7 billion of the ST-Ericsson investment, a provision of SEK –3.3 billion and the Company’s share in ST-Ericsson’s operating loss of SEK –3.7 billion.
4) Impairment losses included in Write-down of investment.

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

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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

Networks

131,596
799
132,395

17,295
13%

Global
Services

Support
Solutions

Sony
Ericsson

ST-
Ericsson

Total
Segments

Unallo-
cated

Elimi-
nations 1)

83,854
30
83,884

5,544
7%

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

–
–
–

–56,098
–1,587
–57,685

15,020
5%

–501
–

3,381
–

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.

Regions

North America 3)
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
North East Asia 4)
South East Asia & Oceania
Other 1) 2) 3) 4)
Total

Net sales

Non-current assets 5)

2013

2012

2011

59,339
21,982
11,618
18,485
24,156
17,438
10,049
6,138
27,398
15,787
14,986
227,376
4,427
43,544
59,085
11,799

56,749
22,006
11,345
17,478
23,299
15,556
11,349
6,460
36,196
15,068
12,273
227,779
5,033
44,230
56,698
12,637

48,785
21,982
15,225
19,030
23,807
15,461
10,163
9,762
38,209
13,870
10,627
226,921
3,882
43,960
46,519
17,546

2013

13,290
1,742
38,522
3,539
1,089
46
32
439
2,667
342
–
61,708
38,049
42,239
11,173
1,344

2012

15,058
2,084
38,335
2,922
1,099
32
119
460
3,371
301
–
63,781
37,718
41,546
13,003
1,399

2011

6,296
2,268
41,008
5,097
1,395
42
79
355
3,939
318
–
60,797
40,415
44,786
6,020
1,496

1) Of which in Sweden
2) Of which in EU
3) Of which in the United States
4) Of which in China
5) 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.”

Ericsson | Annual Report 2013

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C4
Net Sales

Net sales

Sales of products and network rollout services
Of which:

Delivery-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 2013 were SEK 4.5 (3.4) billion.
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

1) Includes a gain from the divestment of Sony Ericsson of SEK 7.7 billion.
2) Includes revaluation of cash flow hedges of SEK 0.5 billion. For more information, see Note C1, “Significant accounting policies.”

R
e
s
u
l
t
s

2013

2012

2011

150,429

154,068

161,882

150,429
66,395
10,552
227,376
108,944

154,068
67,092
6,619
227,779
106,997

161,882
58,834
6,205
226,921
116,507

2013

2012

2011

129,453
65,064
10,155
537
2,093
4,924
212,226
–5,220
915
216,531

137,769
64,100
9,546
1,999
1,984
4,244
219,642
–2,782
1,641
220,783

142,221
58,905
8,964
1,363
2,661
5,552
219,666
3,417
1,515
214,734

2013

2,657
872
924
4,453

2012

2,225
852
370
3,447

2011

1,231
561
1,392
3,184

2013

172
–307
69
–910
–976

1,089 2)
113

2012

12
–261
8,462 1)
–126
8,087

878
8,965

2011

65
–64
210
–52
159

1,119
1,278

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

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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 gains/losses 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

2013

2012

2011

Financial
income

Financial
expenses

Financial
income

Financial
expenses

Financial
income

Financial
expenses

971
597
–

447
–
–75
–
3
1,346

–
–
–1,412

–601
–196
–
196
–276
–2,093

1,685
1,308
–

142
–
–127
–
8
1,708

–
–
–1,734

54
–129
–
–133
–171
–1,984

1,940
1,381
–

1,062
–
–132
–
12
2,882

–
–
–1,706

–591
–175
–
–105
–259
–2,661

1) Excluding net gain from operating assets and liabilities, SEK 49 million (net gain of SEK 1,299 million in 2012, SEK 51 million in 2011), reported as Cost of sales.

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

2013
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

2012
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

300
1,958
2,008
997
2,416
3,578
11,257
–2,154
9,103

941
2,388
2,600
1,512
3,487
4,239
15,167
–2,846
12,321

3,143
164
1,033
293
171
–
4,804
–2,154
2,650

4,579
293
614
48
432
–
5,966
–2,846
3,120

6,453

9,201

C8
Taxes

The Company’s tax expense for 2013 was SEK –4,924 (–4,244) million
or 28.8% (41.7%) of income after financial items. The tax rate may vary
between years depending on business and geographical mix.

Income taxes recognized in the income statement

Current income taxes for the year
Current income taxes related
to prior years
Deferred tax income/expense (+/–)
Subtotal
Share of taxes in joint ventures
and associated companies
Tax expense

2013

2012

2011

–3,985

–5,795

–4,642

–26
–913
–4,924

0
–4,924

–241
1,697
–4,339

283
–1,433
–5,792

95
–4,244

240
–5,552

A reconciliation between reported tax expense for the year and the
theoretical tax expense that would arise when applying statutory tax
rate in Sweden, 22.0%, 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 22.0%
Effect of foreign tax rates

Of which joint ventures and
associated companies

Current income taxes related to prior
years
Remeasurement of tax loss carry-
forwards
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

Effective tax rate

2013

2012

2011

–3,762
–935

–2,678
–581

–4,767
–1,126

–

–778

–754

–26

165

86
–620
199
–31
–4,924

28.8%

–241

134

468
–3,430
2,573
–489
–4,244

283

224

81
–768
521
–
–5,552

41.7%

30.6%

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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

2013

2012

9,201
–913
–1,056
–663
–116
6,453

10,770
1,697
–422
–2,309
–535
9,201

Tax effects reported directly in Other comprehensive income amount
to SEK –1,056 (–422) million, of which actuarial gains and losses related
to pensions constituted SEK –1,231 (–57) million, cash flow hedges
SEK 179 (–363) million and deferred tax on gains/losses on hedges on
investments in foreign entities SEK –4 (–2) 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 3,578 (4,239) million recognized deferred tax assets related
to tax loss carry-forwards, SEK 2,177 (2,840) million relates to Sweden
with indefinite periods of utilization. Due to the Company’s strong
current financial position and taxable income during 2013, the Company
has been able to utilize part of its tax loss carry-forwards during the
year. The assessment is that the Company will be able to generate
sufficient income in the coming years to also utilize the remaining part of
the recognized amounts.

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, 2013, the recognized tax loss carry-forwards
amounted to SEK 14,093 (17,081) 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

2014
2015
2016
2017
2018
2019 or later
Total

Tax loss
carry-forwards

62
–
10
5
131
13,885
14,093

Tax
value

23
–
3
1
27
3,524
3,578

R
e
s
u
l
t
s

In addition to the table above there are loss carry-forwards of SEK 3,518
(4,737) million at a tax value of SEK 1,019 (1,432) million that have not
been recognized due to judgments of the possibility they will be used
against future taxable profits in the respective jurisdictions. The majority
of these loss carry-forwards have an expiration date in excess of five
years.

C9
Earnings Per Share

Earnings per share 2011–2013

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)

2013

2012

2011

12,005
3,226
3.72

12,005
3,226
31
3,257
3.69

5,775
3,216
1.80

5,775
3,216
31
3,247
1.78

12,194
3,206
3.80

12,194
3,206
27
3,233
3.77

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

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2014-03-06 13:43

C10
Intangible Assets

Intangible assets 2013

Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired/divested
businesses 1)
Sales/disposals

Reclassification
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

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

9,766
915

–
–

–
–
10,681

–4,027
–1,322
–
–
–5,349

–1,987
–
–1,987
3,345

2,213
–

–
–

–
–
2,213

–2,106
–51
–
–
–2,157

–55
–
–55
1

1,478
–

–
–

–
–
1,478

–1,405
–34
–
–
–1,439

–37
–
–37
2

13,457
915

–
–

–
–
14,372

–7,538
–1,407
–
–
–8,945

–2,079
–
–2,079
3,348

30,422
–

1,646
–302

–
–204
31,562

–
–
–
–
–

–18
–
–18
31,544

18,595
587

200
–113

–
20
19,289

–7,277
–2,322
92
–36
–9,543

–
–
–
9,746

27,416
60

1,351
–

–
–50
28,777

–18,201
–2,199
–
23
–20,377

–5,331
–
–5,331
3,069

Total

46,011
647

1,551
–113

–
–30
48,066

–25,478
–4,521
92
–13
–29,920

–5,331
–
–5,331
12,815

1) For more information on acquired/divested businesses, see Note C26, “Business combinations”.

Intangible assets 2012

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

8,125
1,641
–
–

–
–
9,766

–3,187
–840
–
–
–4,027

–1,721
–266
–1,987
3,752

2,213
–
–
–

–
–
2,213

–1,975
–131
–
–
–2,106

–55
–
–55
52

1,478
–
–
–

–
–
1,478

–1,318
–87
–
–
–1,405

–37
–
–37
36

11,816
1,641
–
–

–
–
13,457

–6,480
–1,058
–
–
–7,538

–1,813
–266
–2,079
3,840

27,455
–
4,293
–20

94
–1,400
30,422

1
–
–1
–
–

–18
–
–18
30,404

14,188
538
4,517
–158

–
–490
18,595

–5,502
–2,023
46
202
–7,277

–
–
–
11,318

25,689
103
2,155
–137

–94
–300
27,416

–16,078
–2,413
124
166
–18,201

–5,214
–117
–5,331
3,884

Total

39,877
641
6,672
–295

–94
–790
46,011

–21,580
–4,436
170
368
–25,478

–5,214
–117
–5,331
15,202

Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired businesses 1)
Sales/disposals

Reclassification
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.”

Ericsson | Annual Report 2013

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Goodwill is allocated to the operating segments Networks, at the sum
of SEK 16.7 (16.2) billion, Global Services, at the sum of SEK 4.5 (4.2)
billion and Support Solutions, at the sum of SEK 10.3 (10.0) 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)

> Development of working capital and capital expenditure

requirements.

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 2013–2018 for key industry parameters:
> The number of global mobile subscriptions is estimated to grow

from around 6.8 billion by the end of 2013 to around 9 billion by the
end of 2018. Of these, around 7 billion will be mobile broadband
subscriptions. Around 850 million of these mobile broadband
subscriptions will use mobile PC/tablets/mobile routers, but the vast
majority will still use mobile phones to access the internet.

> Fixed broadband subscriptions are estimated to grow from around
650 million by the end of 2013 to around 800 million in 2018. Fixed
broadband includes Fiber, Cable and xDSL.

> Mobile data traffic volume is estimated to increase by around seven

times in the period 2013–2018, while fixed internet traffic is estimated
to increase around four times over the same timeframe, but from a
much larger base.

The growth in network equipment is mainly driven by a shift in
investments from voice to data. The end user requirements for
“app-coverage” drives deployment of heterogeneous networks and
small cells.
The demand for support 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, plus rapid
growth in digital viewing and on-demand services. As a consequence,
service providers and network owners need solutions to make networks
efficient for video delivery.

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 plan to
provision, implementation and systems integration services as well as
real time payment systems. The Business Support Systems’ growth is
driven by the introduction of new services, new business models and
price plans.

The demand for professional services is also driven by an increasing

business and technology complexity. Therefore, operators review
their business models and look for vendor partners that can take on a
broader responsibility, including the 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.

An after-tax discount rate of 9,5% (8%) has been applied for all
cash-generating units for the discounting of projected after-tax cash
flows. In addition, when a higher discount rate has been applied in the
impairment tests it has not resulted in any impairment. The assumptions
for 2012 are disclosed in Note C10, “Intangible assets” in the Annual
Report of 2012.

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.

R
e
s
u
l
t
s

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C10XEN_v24.indd 75

2014-03-06 13:44

C11
Property, Plant and Equipment

Property, plant and equipment 2013

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
Reclassifications
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

4,985

975
–29
–185
404
–30
6,120

–2,355
–479
–
399
–75
18
–2,492

–45
–
–
4
–
1
–40
3,588

4,746

175
–564
–341
165
51
4,232

–3,489
–558
450
386
80
–51
–3,182

–124
–7
2
6
1
–1
–123
927

23,033

2,113
315
–1,677
627
–351
24,060

–16,623
–3,190
147
1,493
–5
233
–17,945

–86
–
23
–
–1
2
–62
6,053

1,451

1,240
–19
–598
–1,196
–13
865

–
–
–
–
–
–
–

–
–
–
–
–
–
–
865

Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2013, amounted to SEK 203 (184) million.

Property, plant and equipment 2012

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

4,641

640
2
–476
381
–203
4,985

–2,165
–354
–
68
7
89
–2,355

–43
–4
–
–
2
–45
2,585

5,235

370
46
–373
–380
–152
4,746

–3,485
–428
–
347
–13
90
–3,489

–148
–8
22
6
4
–124
1,133

20,663

2,521
432
–1,296
1,458
–745
23,033

–15,094
–3,270
3
1,228
6
504
–16,623

–118
–
30
–
2
–86
6,324

1,302

1,898
–
–242
–1,459
–48
1,451

–
–
–
–
–
–
–

–
–
–
–
–
–
1,451

Ericsson | Annual Report 2013

Total

34,215

4,503
–297
–2,801
–
–343
35,277

–22,467
–4,227
597
2,278
–
200
–23,619

–255
–7
25
10
–
2
–225
11,433

Total

31,841

5,429
480
–2,387
–
–1,148
34,215

–20,744
–4,052
3
1,643
–
683
–22,467

–309
–12
52
6
8
–255
11,493

C11XEN_v24.indd 76

2014-03-06 13:45

C12
Financial Assets, Non-Current

Equity in joint ventures and associated companies

Opening balance
Share in earnings
Contributions to joint ventures and associated companies
Taxes
OCI
Dividends
Divestments
Reclassification
Closing balance

Joint ventures
2012

2013

Associated companies
2012

2013

–
–
–
–
–
–
–
–
–

4,663
–8,399 1)
5,029
106
–46
–
–1,353
–
–

2,842
–130
–2
0
–14
–128
–
–

2,568 2)

1,302
3
–
–11
42
–133
–

1,639 3)
2,842 2)

Total
2013

2,842
–130
–2
0
–14
–128
–
–
2,568

Total
2012

5,965
–8,396
5,029
95
–4
–133
–1,353
1,639
2,842

1) Includes a write-down of ST-Ericsson investment and the Company’s share in ST-Ericsson’s operating loss.
2) Goodwill, net, amounts to SEK 10.6 (12.2) million.
3) Reclassification from Other investments in shares and participation.

All companies apply IFRS in the reporting to the Company as issued
by IASB.

Ericsson’s share of assets, liabilities and income in joint venture
ST-Ericsson

Ericsson’s share of assets, liabilities and income in associated
company Rockstar Consortium

R
e
s
u
l
t
s

Percentage in ownership interest

Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets (100%)
Company’s share of net assets (50%)
Net sales
Income after financial items
Income taxes
Net income and total comprehensive
income (100%)
Company’s share of net income and
other comprehensive income (50%)
Assets pledged as collateral
Contingent liabilities

2013

50%

6
1,435
104
1,204
133
67
3,127
–726
–64

2012

50%

2,194
2,012
740
2,678
788
394
9,090
–5,006
–800

2011

50%

13,710
3,028
794
9,390
6,554
3,277
10,692
–5,460
312

–790

–5,806

–5,148

–395 1)
–
–

–2,903
–
–

–2,574
3
–

1) Reported losses has not been recognized in the result for the Company, due to IFRS

principles disclosed in Note C1, “Significant accounting policies.”

The table above consists of amounts considered by the Company when
applying the equity method in relation to ST-Ericsson.

The joint venture ST-Ericsson, equally owned by the Company
and STMicroelectronics, is winding down and all business has been
transferred to parents or divested during 2013. Since December 2012,
there are no remaining investments related to ST-Ericsson recognized in
the Company’s balance sheet. The result in ST-Ericsson has therefore
not been recognized due to losses in 2013 and previous periods, as per
IFRS principles disclosed in C1 “Significant accounting policies.” For
more information, see Note C3, “Segment information.”

Percentage in ownership interest

21.26% 21.26%

2013

2012

Total assets
Total liabilities
Net assets (100%)

Company’s share of net assets (21.26%)
Net sales
Income after financial items
Net income and total comprehensive income
(100%)
Company’s share of net income and other
comprehensive income (21,26%)

6,429
53
6,376

1,356
–
–897

7,342
28
7,314

1,555
–
–376

–897

–376

–191

–80

Rockstar is a patent licensing business based in North America that
owns and manages a portfolio of more than 4,000 patents developed by
technology pioneer Nortel Networks. This portfolio consists of patents
covering a wide range of consumer and enterprise communications
technologies currently in use or in development in markets worldwide.

Ericsson’s share of assets, liabilities and income in joint venture
Sony Ericsson Mobile Communications AB

Percentage in ownership interest

Non-current assets
Current assets
Non-current liabilities

Current liabilities
Net assets (100%)
Company’s share of net assets (50%)
Net sales
Income after financial items
Income taxes
Net income and total comprehensive
income (100%)
Company’s share of net income and
other comprehensive income (50%)
Assets pledged as collateral
Contingent liabilities

2013

2012

–

–
–
–

–
–
–
–
–
–

–

–
–
–

–

–
–
–

–
–
–
–
–
–

–

–
–
–

2011

50%

10,080
17,490
570

24,344
2,656
1,328
46,992
–2,190
170

–2,020

–1,010
1
37

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C12XC13XEN_v64.indd 77

2014-03-06 13:46

Other financial assets, non-current

Other investments
in shares and participations
2012

2013

Customer finance,
non-current
2012

2013

Cost
Opening balance
Additions
Disposals/repayments/deductions
Change in value in funded pension
plans 1)

Reclassifications
Revaluation
Translation difference
Closing balance

Accumulated impairment losses/
allowances
Opening balance
Impairment losses/allowance
Disposals/repayments/deductions
Reclassifications
Translation difference
Closing balance
Net carrying value

1,758
85
–20

–

–
71
11
1,905

–1,372
–
–14
–
–14
–1,400
505

3,576
45
–63

–

–1,639 2)

–
–161
1,758

–1,377
–51
–
–
56
–1,372
386

1,538
3,070
–3,070

1,661
5,249
–5,331

–

–
–
–54
1,484

–248
9
47
–
2
–190
1,294

–

–
–
–41
1,538

–261
–26
35
–
4
–248
1,290

1) This amount includes asset ceiling. For further information, see Note C17, “Post-employment benefits.”
2) Reclassification to Equity in associated companies.
3) Reclassification to Short-term investments.

Derivatives,
non-current
2012

Other
financial assets,
non-current
2012

2013

816
–
–

–

–
9
–
825

–
–
–
–
–
–
825

4,414
1,215
–130

951

–
–
–63
6,387

–1,275
–
–12
–
–29
–1,316
5,071

4,633
313
–136

776

–1,018 3)

–
–154
4,414

–1,332
–14
–
26 3)
45
–1,275
3,139

2013

825
–
–30

–

–
–182
–
613

–
–
–
–
–
–
613

C13
Inventories

Inventories

Raw materials, components, consumables
and manufacturing work in progress
Finished products and goods for resale
Contract work in progress
Inventories, net

2013

2012

5,747
7,743
9,269
22,759

7,351
10,981
10,470
28,802

Contract work in progress includes amounts related to delivery-type
contracts and service contracts with ongoing work in progress.

Reported amounts are net of obsolescence allowances of SEK

2,496 (3,473) million.

Movements in obsolescence allowances

Opening balance
Additions, net
Utilization
Translation difference
Balances regarding acquired/
divested businesses
Closing balance

2013

2012

3,473
308
–1,308
12

11
2,496

3,343
1,403
–1,140
–133

–
3,473

2011

3,090
918
–683
18

–
3,343

The amount of inventories recognized as expense and included in Cost
of sales was SEK 56,781 (56,842) million.

Ericsson | Annual Report 2013

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2014-03-06 13:46

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 credits
Allowances for impairment
Customer finance credits, net

Of which current

Credit commitments for customer finance

Days sales outstanding (DSO) were 97 (86) in December 2013.

Movements in allowances for impairment

Opening balance
Additions
Utilized
Reversal of excess amounts
Reclassification
Translation difference
Closing balance

Aging analysis as per December 31

2013

2012

71,850
–880
70,970
43
71,013
3,693
–305
3,388
2,094
6,402

64,015
–655
63,360
300
63,660
5,731
–422
5,309
4,019
5,933

R
e
s
u
l
t
s

Trade
receivables

2013

655
417
–127
–72
42
–35
880

2012

567
229
–116
–30
21
–16
655

Customer
finance
2013

2012

422
38
–13
–136
–
–6
305

426
101
–9
–112
–
16
422

2013
Trade receivables, excluding associated companies and joint ventures
Allowances for impairment
Customer finance credits
Allowances for impairment

2012
Trade receivables, excluding associated companies and joint ventures
Allowances for impairment
Customer finance credits
Allowances for impairment

Of which
neither
impaired
nor past
due

Of which
impaired,
not past
due

Of which past due in
the following time
intervals:

less than
90 days

90 days
or more

Of which past due and
impaired in the
following time intervals:
90 days
or more

less than
90 days

66,414
–
2,851
–

57,526
–
4,549
–

25
–11
98
–82

25
–15
845
–146

3,134
–
60
–

2,459
–
21
–

1,400
–
459
–

1,431
–
15
–

23
–19
149
–139

779
–70
70
–45

854
–850
76
–84

1,795
–570
231
–231

Total

71,850
–880
3,693
–305

64,015
–655
5,731
–422

Credit risk
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 to 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.

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. These are 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 environments. 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 71,850 (64,015) million as

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C14XC16XEN_v33.indd 79

2014-03-06 13:47

The effect of risk provisions and reversals for customer finance affecting
the income statement amounted to a net negative impact of SEK 55
million in 2013 compared to a negative impact of SEK 33 million in 2012.
Credit losses amounted to SEK 13 (16) million in 2013.

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. 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 2013, the Company did not take
possession of any collateral it holds as security or call 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, 2013 and 2012.

Outstanding customer finance

Total customer finance
Accrued interest
Less third-party risk coverage
Ericsson’s risk exposure

2013

3,693
155
–222
3,626

2012

5,731
96
–187
5,640

Transfers of financial assets
Transfers where the Company has not derecognized the assets
in their entirety
As per December 31, 2013 there existed certain customer financing
assets that the Company had transferred to third parties where the
Company did not derecognize the assets in their entirety. The total
carrying amount of the original assets transferred was SEK 899 (471)
million; the amount of the assets that the Company continues to
recognize was SEK 210 (28) million; and the carrying amount of
the associated liabilities was SEK 0 (0) million.

Transfers where the Company has continuing involvement
During 2012, the Company derecognized financial assets where it had
continuing involvement. A repurchase of these assets would amount to
SEK 0 (225) million. No assets or liabilities were recognized in relation to
the continuing involvement.

of December 31, 2013. Provisions for expected losses are regularly
assessed and amounted to SEK 880 (655) million as of December
31, 2013. 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 represented 25% (27%) of the total trade receivables
in 2013.

Customer finance credit risk
All major commitments to finance customers are made only after
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 includes 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, 2013, the Company’s total outstanding

exposure related to customer finance was SEK 3,693, (5,731) million.
As of December 31, 2013, the Company also had unutilized customer
finance commitments of SEK 6,402 (5,933) million. Customer finance
is arranged for infrastructure projects in different geographic markets
and for a large number of customers. As of December 31, 2013, there
were a total of 73 (78) customer finance arrangements originated by or
guaranteed by the Company. The five largest facilities represented 52%
(57%) of the total credit exposure in 2013.

Total outstanding customer finance exposure per region
as of December 31

Percent

2013

2012

North America
Latin America
Northern Europe & Central Asia
Western & Central Europe
Mediterranean
Middle East
Sub-Saharan Africa
India
North East Asia
South East Asia and Oceania
Total

10
3
9
1
11
22
26
5
9
4
100

26
4
8
1
9
17
19
9
7
–
100

Ericsson | Annual Report 2013

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Dividend proposal
The Board of Directors will propose to the Annual General Meeting 2014
a dividend of SEK 3.00 per share (SEK 2.75 in 2013 and SEK 2.50 in
2012).

Additional paid in capital
This relates to payments made by owners and includes share premiums
paid.

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 also include:

Remeasurements related to post-employment benefits
Actuarial gains and losses resulting from experience-based events and
changes in actuarial assumptions, fluctuations in the effect of the asset
ceiling, and adjustments related to the Swedish special payroll taxes.

Revaluation of other investments in shares and participations
The fair value reserve comprises the cumulative net change in the fair
value of available-for-sale financial assets.

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.

Cumulative translation adjustments
The cumulative translation adjustments comprise 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.

R
e
s
u
l
t
s

C15
Other Current Receivables

Other current receivables

Prepaid expenses
Accrued revenues
Advance payments to suppliers
Derivatives with a positive value 1)
Taxes
Other
Total

2013

2012

2,766
2,846
877
1,532
7,950
1,970
17,941

2,623
2,305
1,060
3,068
7,727
3,282
20,065

1) See also Note C20, “Financial risk management and financial instruments”.

C16
Equity and Other Comprehensive Income

Capital stock 2013
Capital stock at December 31, 2013, consisted of the following:

Capital stock

Parent Company

Class A shares
Class B shares
Total

Number
of shares

Capital stock
(SEK million)

261,755,983
3,043,295,752
3,305,051,735

1,309
15,217
16,526

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, 2013, the total number of treasury shares was

73,968,178 (84,798,095 in 2012 and 62,846,503 in 2011) Class B
shares. Ericsson did not repurchase shares in 2013 in relation to the
Stock Purchase Plan.

Reconciliation of number of shares

Number
of shares

Capital stock
(SEK million)

Number of shares Jan 1, 2013
Number of shares Dec 31, 2013

3,305,051,735
3,305,051,735

16,526
16,526

For further information about the number of shares, see the chapter
Share Information.

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

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2014-03-06 13:47

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 2013 was characterized by the overall
increase in discount rates and a positive development of plan assets.
Consequently, the Company experienced a decrease in the net pension
liability. During the year, the Swedish payroll tax was reclassified from
Other liabilities to Pension liability, which contributed to an increased
pension liability.
The comparison amounts for 2012 and 2011 have not been
recalculated.

Swedish plans
Sweden has both defined benefit and defined contribution plans based
on collective agreement between the parties in the Swedish labor
market:
> A defined benefit plan, known as ITP 2 (occupational pension
for salaried employees in manufacturing industries and trade),
complemented by a defined contribution plan, known as ITPK
(supplementary retirement benefits). This is a final salary-based plan.

> A defined contribution plan, known as ITP 1, for employees born in

1979 or later.

> A defined contribution plan ITP 1 or alternative ITP, for employees
earning more than 10 income base amount and who have opted
out of the defined benefit plan ITP 2, where rules are set by the
Company and approved by each employee selected to participate.

The Company has by far most of its Swedish pension liabilities under
defined benefit plans which are funded to 73% (72%) through Ericsson
Pensionsstiftelse (a Swedish Pension Foundation). The Pensionsstiftelse
covers the liability up to the value of the defined benefit obligation based
on Swedish GAAP calculations. There are no funding requirements for
the Swedish plans. The disability- and survivors’ pension part of the
ITP-plan is secured through an insurance solution with the company
Alecta, see section about Multi-employer plans.

The benefit payments are done from the Company since the liability
is growing and the necessary surplus therefore is not yet reached. For
the unfunded plans the Company meets the payment obligation when
it falls due. The responsibility for governance of the plans and the plan
assets lies with the Company and the Pensionsstiftelse. The Swedish
Pensionsstiftelse is managed on the basis of a capital preservation
strategy and the risk profile is set accordingly. Traditional asset-liability
matching (ALM) studies are undertaken on a regular basis to allocate
within different asset classes.

The plans are exposed to different risks, i.e. a sudden decrease in
the bond yields, which would lead to an increase in the plan liability. A
sudden instability in the financial market might also lead to a decrease
in fair value of plan assets held by the Pensionsstiftelse, as the holdings
of plan assets partly are exposed to equity markets; however, this may
be partly offset by higher values in fixed income holdings. Swedish
plans are linked to inflation and higher inflation will lead to a higher
liability. For the time being, inflation is a low risk factor to the Swedish
plans as actual rate of inflation has not reached the ceiling target set by
the Central Bank of Sweden.

Multi-employer plans
As before, the Company 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, as for most
of the accrued pension benefits in Alecta, information is missing on

Ericsson | Annual Report 2013

the allocation of earnings process between employers. Full vesting is
instead registered on the last employer. Alecta is not able to calculate a
breakdown of assets and provisions for each respective employer, and
therefore, the disability and survivors’ pension portion of the ITP Plan
has been accounted for as a defined contribution plan.

Alecta has a collective funding ratio which acts as 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 19R. Alecta’s collective funding
ratio was 148% (129%) as of December 31, 2013. The Company’s share
of Alecta’s saving premiums is 0.6%; the total share of active members
in Alecta are 2.3%. The expected contribution to the plan is SEK 163
million for 2014.

Contingent liabilities / Assets pledged as collateral
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 the instance that PRI
Pensionsgaranti has consumed all of its assets, and it amounts to a
maximum of 2% of the Company’s pension liability in Sweden. During
2013 the Company has pledged a business mortgage of SEK 2 billion to
PRI Pensionsgaranti.

US plans
The Company operates defined benefit pension plans in the US, which
are a combination of final salary pension plans and contribution-based
arrangements. The final salary pension plans provide benefits to
members in the form of a guaranteed level of pension payable for life.
The level of benefits provided depends on members’ length of service
and their salary in the final years leading up to retirement. Retirees
generally do not receive inflationary increases once in payment.

The other type of plan is a contribution-based pension plan, which
provides a benefit determined using a “cash balance” approach. The
balance is credited monthly with interest credits and contribution
credits, based on a combination of current year salary and length of
service.

The majority of benefit payments are from trustee-administered
funds; however, there are also a number of unfunded plans where the
Company meets the benefit payment obligation as it falls due. In the
US, the Company’s policy is at least to meet or exceed the funding
requirements of federal regulations. The funded level in the US Pension
Plan is above the point at which minimum funding would be required for
fiscal year 2013.

Plan assets held in trusts are governed by local regulations and
practice, as is the nature of the relationship between the Company
and the trustees (or equivalent) and their composition. Responsibility
for governance of the plans – including investment decisions and
contribution schedules – lies with the Plan Administrative Committee
(PAC). The PAC is composed of representatives from the Company.
The Company’s plans are exposed to various risks associated with
pension plans, i.e. a sudden decrease in bond yields would lead to
an increase in the present value of the defined benefit obligation. A
sudden instability in the financial markets might also lead to a decrease
in the fair value of plan assets held by the trust. Pension benefits in the
US are not linked to inflation; however, higher inflation poses the risk
of increased final salaries being used to determine benefits for active
employees. There is also a risk that the duration of payments to retirees
will exceed the life expectancy in mortality tables.

Other plans
The Company also sponsors plans in other countries. The main plans
are in Brazil, Ireland and the United Kingdom. The plan in Brazil is a

C17XEN_v101.indd 82

2014-03-06 13:48

pension plan wholly funded with a net surplus of assets. The plans
in Ireland and the UK are final salary pension plans and are partly or
wholly funded. The plans are managed by corporate trustees with
directors appointed partly by the local company and partly by the plan
members. The trustees are independent from the local company and
subject to the specific country’s pension laws.

Amount recognized in the Consolidated balance sheet

2013
Defined benefit obligation (DBO)
Fair value of plan assets
Deficit/surplus (+/–)
Plans with net surplus, excluding asset ceiling 1)
Provision for post-employment benefits 2)
2012
Defined benefit obligation (DBO)
Fair value of plan assets
Deficit/surplus (+/–)
Unrecognized past service cost
Plans with net surplus, excluding asset ceiling 1)
Provision for post-employment benefits 2)

R
e
s
u
l
t
s

Sweden

Other

Total

23,088
16,818
6,270
–
6,270

21,432
15,375
6,057
–
–
6,057

14,387
16,174
–1,787
2,307
520

16,472
16,263
209
–
738
947

15,444
13,575
1,869
1,166
3,035

14,054
13,004
1,050
–28
1,477
2,499

52,919
46,567
6,352
3,473
9,825

51,958
44,642
7,316
–28
2,215
9,503

1) 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.” The asset ceiling increased during the year

by SEK 308 million from SEK 217 million in 2012 to SEK 525 million in 2013.

2) Plans with net liabilities are reported in the balance sheet as Post-employment benefits, non-current.

Total pension cost recognized in the Consolidated income statement
The costs for post-employment benefits within the Company 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

2013
Pension cost for defined contribution plans
Pension cost for defined benefit plans
Total
Total pension cost expressed as a percentage of wages and salaries

2012
Pension cost for defined contribution plans
Pension cost for defined benefit plans
Total
Total pension cost expressed as a percentage of wages and salaries

2011
Pension cost for defined contribution plans
Pension cost for defined benefit plans
Total
Total pension cost expressed as a percentage of wages and salaries

Sweden

Other

Total

1,088
1,581
2,669

977
936
1,913

2,039
621
2,660

502
85
587

404
–454
–50

360
42
402

778
392
1,170

701
198
899

643
184
827

2,368
2,058
4,426
9.1%

2,082
680
2,762
5.7%

3,042
847
3,889
8.9%

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

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2014-03-06 13:48

Change in the net defined benefit obligation

Opening balance

Reclassification 1)
Included in the income statement:

Current service cost
Past service cost and gains and losses on settlements
Interest cost/ income (+/-)
Taxes and administrative expenses
Other

Remeasurements:

Return on plan assets excluding amounts in interest expense/income
Actuarial gains/losses (-/+) arising from changes in demographic assumptions
Actuarial gains/losses (-/+) arising from changes in financial assumptions
Experience-based gains/losses (-/+)

Translation difference
Contributions and payments from employer:

Employers 2)
Plan participants
Payments from plans:
Benefit payments
Settlements

Business combinations and divestments 4)
Closing balance

Present
value of
obligation

2013 3)

Fair value
of plan
assets
2013

51,958

–44,642

1,799

–

1,351
363
2,046
129
–4
3,885

–
46
–3,629
611
–2,972
–115

–554
55

–1,181
–116
160
52,919

–
–
–1,846
16
3
–1,827

–550
–
–
–
–550
190

–971
–44

1,181
96
–
–46,567

Present
value of
obligation
2012

Fair value
of plan
assets
2012

36,375

–28,019

–

1,280
–353
2,120
–
–72
2,975

–
–
2,104
363
2,467
–1,353

–
–
–2,357
–
42
–2,315

–1,634
–
–
–
–1,634
1,361

–
22

–1,751
–22

–1,478
372
12,578
51,958

1,311
–156
–13,417
–44,642

Total
2013

7,316

1,799

1,351
363
200
145
–1
2,058

–550
46
–3,629
611
–3,522
75

–1,525
11

0
–20
160
6,352

Total
2012

8,356

–

1,280
–353
–237
–
–30
660

–1,634
–
2,104
363
833
8

–1,751
0

–167
216
–839
7,316

1) The provision for the Swedish special payroll taxes which was previously included in Other current liabilities, has been re-classified as a pension liability in line with the implementation of the

revised IAS 19R on January 1, 2013.

2) The expected contribution to the plan is SEK 550 million during 2014.
3) The weighted average duration of DBO is 17.9 years.
4) Business combinations in 2013 are related to the acquisition of Modems. In 2012 business combinations are related to the acquisition of Telcordia.

Present value of the defined benefit obligation

Sweden

Other

Total

2013
DBO, closing balance

Of which partially or fully funded
Of which unfunded

2012
DBO, closing balance

Of which partially or fully funded
Of which unfunded

Asset allocation by geography

2013

Cash and cash equivalents
Equity securities
Debt securities
Real estate
Investment funds
Assets held by insurance company
Other
Total

Of which real estate occupied by the Company
Of which securities issued by the Company

23,088
22,598
490

21,432
20,916
516

14,387
13,867
520

16,472
15,895
577

15,444
13,396
2,048

14,054
12,064
1,990

Sweden

Other

Total

592
2,112
3,601
1,649
8,864
–
–
16,818
–
25

218
2,081
6,934
–
6,512
–
429
16,174
–
–

261
4,459
6,982
76
414
633
750
13,575
–
–

1,071
8,652
17,517
1,725
15,790
633
1,179
46,567
–
25

52,919
49,861
3,058

51,958
48,875
3,083

Of which
unquoted

35%
31%
61%
100%
60%
100%
65%

Ericsson | Annual Report 2013

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Asset allocation by geography

2012

Cash and cash equivalents
Equity securities
Debt securities
Real estate
Investment funds
Assets held by insurance company
Other
Total

Of which real estate occupied by the Company
Of which securities issued by the Company

Actuarial assumptions

Financial and demographic actuarial assumptions

2013
Financial assumptions
Discount rate
Demographic assumptions
Life expectancy after age 65 in years,
weighted average

2012
Financial assumptions
Discount rate
Demographic assumptions
Life expectancy after age 65 in years,
weighted average

Group 1)

4.5%

4.1%

1) Weighted average for disclosure purposes only. Country-specific assumptions were used

for each actuarial calculation.

Sweden

Other

Total

2,159
1,371
4,139
574
7,132
–
–
15,375
–
25

683
5,107
10,040
433
–
–
–
16,263
–
–

197
2,865
7,929
110
849
305
749
13,004
–
–

3,039
9,343
22,108
1,117
7,981
305
749
44,642
–
25

Of which
unquoted

25%
15%
60%
100%
55%
100%
100%

R
e
s
u
l
t
s

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

2013

8,696
–3,522
45
5,219

2012

7,911
833
–48
8,696

Total remeasurements in Other comprehensive income related
to post-employment benefits

Actuarial gains and losses (+/–)
The effect of asset ceiling
Swedish special payroll taxes 1)
Total
Actuarial gains and losses for joint ventures and
associated companies

2013

3,128
–308
394
3,214

2012

–833
266
116
–451

–

Actuarial assumptions are assessed on a quarterly basis.
See also Notes C1 and C2.

1) Swedish payroll taxes are included in recognized gain/loss during the year in OCI.

Sensitivity analysis of significant actuarial assumptions

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 the revised IAS 19 requirements.

US
The defined benefit obligation has been calculated using a discount rate
based on yields of high-quality corporate bonds, where “high-quality”
has been defined as a rating of AA and above.

Impact on DBO, SEK billion

2013
Discount rate +0.5%
Discount rate –0.5%

Group

–5
+5

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

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C18
Provisions

Provisions

2013

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

2012
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

Other

Total

1,595
924
–588

–948
–2

1
–73
909

1,888
1,088
–157

–1,188
48
1
–85
1,595

1,218
2,439
–237

–2,089
0

–3
17
1,345

1,327
1,234
–150

–1,170
–
11
–34
1,218

5,825
1,336
–736

–2,984
–10

–184
–139
3,108

3,050
4,689
–766

–1,117
92
–34
–89
5,825

8,638
4,699
–1,561
3,138
–6,021
–12

–186
–195
5,362

6,265
7,011
–1,073
5,938
–3,475
140
–22
–208
8,638

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 outcomes being more favorable 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 2013, new or additional provisions amounting to SEK 4.7 billion
were made, and SEK 1.6 billion of provisions was reversed. The actual
cash outlays for 2013 were SEK 6.0 billion compared with the estimated
SEK 7 billion. The main part of the total cash out for 2013 was made up
of other provisions of SEK 3.0 billion and restructuring provisions of SEK
2.1 billion. The expected total cash outlays in 2014 are approximately
SEK 4.2 billion.

Of the total provisions, SEK 222 (211) million is classified as non-
current. For more information, see Note C1, “Significant accounting
policies” and Note C2, “Critical accounting estimates and judgments.”

Warranty 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. Provisions

amounting to SEK 0.9 billion were made and due to more favorable
outcomes in certain cases reversals of SEK 0.6 billion were made.
The actual cash outlays for 2013 were SEK 0.9 billion, in line with the
expected SEK 1 billion. The cash outlays of warranty provisions during
year 2014 are estimated to total approximately SEK 0.7 billion.

Restructuring provisions
In 2013 SEK 2.4 billion in provisions were made and SEK 0.2 billion
were reversed due to a more favorable outcome than expected. The
cash outlays were SEK 2.1 billion for the full year. Due to the fact that
the major part of the cash outlays was related to additional provisions
during 2013, it deviated from the estimated SEK 1 billion. The cash
outlays for 2014 are estimated to total approximately SEK 1.1 billion.

Other provisions
Other provisions include provisions for probable contractual penalties,
tax issues, litigations, supplier claims, and other. During 2013, new
provisions amounting to SEK 1.3 billion were made and SEK 0.7 billion
were reversed due to a more favorable outcome. The cash outlays
were SEK 3.0 billion in 2013 compared to the estimate of SEK 5.4
billion. The majority of this stemmed from the utilization of the 2012
ST-Ericsson provision. For 2014, the cash outlays are estimated to total
approximately SEK 2.4 billion.

Ericsson | Annual Report 2013

C18XEN_v33.indd 86

2014-03-06 13:50

C19
Interest-Bearing Liabilities

As of December 31, 2013, the Company’s outstanding interest-bearing
liabilities stood at SEK 29.5 (28.7) 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 1,966 (2,671) million.

2013

2012

6,037
1,351
7,388

14,522
7,545
22,067
29,455

3,018
1,751
4,769

16,519
7,379
23,898
28,667

All outstanding notes and bond loans are issued by the Parent
Company under its Euro Medium-Term Note (EMTN) program or under
its SEC registered program. Bonds issued at a fixed interest rate are

Notes, bonds and bilateral loans

normally swapped to a floating interest rate using interest rate swaps
leaving a maximum of 50% of outstanding loans at fixed interest rates.
This arrangement resulted in a weighted average interest rate of 4.44%
(4.69%). These bonds are revalued based on changes in benchmark
interest rates according to the fair value hedge methodology stipulated
in IAS 39.

In June 2013, the Company repaid the EUR 313 million bond.
In June the Company signed a new USD 2 billion multi-currency
revolving credit facility and refinanced its credit facility signed in 2007.
The new facility has a tenor of five years, with two extension options of
one year each, and the facility serves for general corporate purposes.

In November 2013, the Company made a full drawdown of USD 684

million under the European Investment Bank (EIB) loan facility signed
in October 2012. The loan supports the company’s R&D activities
to further develop the next generation radio and IP technology that
supports mobile broadband build-out globally. The loan will mature in
November 2020.

In January 2014, the Company repaid the SEK 4 billion EIB loan with

original maturity July 2015.

R
e
s
u
l
t
s

Issued–maturing

Notes and bond loans
2007–2014
2007–2017
2009–2016 3)
2010–2020 4)
2012–2022
Total notes and bond loans
Bilateral loans
2008–2015 5)
2012–2019 6)
2012–2021 6)
2013–2020 7)
Total bilateral loans

Nominal
amount

Coupon

Currency

Book value
(SEK m.)

Maturity date

Unrealized hedge
gain/loss (included
in book value)

0.594%
5.375%

4.125%

220
500
300
170
1,000

4,000
98
98
684

EUR
EUR
USD
USD
USD

SEK
USD
USD
USD

1,966
5,056 2)
1,939
1,112
6,415
16,488

4,000
632
634
4,420
9,686

June 27, 2014 1)
June 27, 2017
June 23, 2016
December 23, 2020
May 15, 2022

July 15, 2015
September 30, 2019
September 30, 2021
November 6, 2020

–616

1) Next contractual repricing date March 27, 2014 (quarterly).
2) Interest rate swaps are designated as fair value hedges.
3) Private Placement, Swedish Export Credits Guarantee Board (EKN) / Swedish Export Credit Corporation (SEK).
4) Private Placement, Swedish Export Credit Corporation (SEK).
5) European Investment Bank (EIB), R&D project financing. Full prepayment January 15, 2014.
6) Nordic Investment Bank (NIB), R&D project financing.
7) European Investment Bank (EIB), R&D project financing.

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C19XEN_v25.indd 87

2014-03-06 13:51

C20
Financial Risk Management and
Financial Instruments

The Company’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 continuously monitors the exposure to
financial risks.

Interest rate risk

The Company classifies financial risks as:
> Foreign exchange risk
>
> Credit risk
> Liquidity and refinancing risk
> Market price risk in own and other equity instruments.

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.

For further information about accounting policies, see Note C1,

The Company defines its managed capital as the total Company

“Significant accounting policies”.

equity. For the Company, 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.

The Company’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 can 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. The Company strives to finance growth, normal capital
expenditures and dividends to shareholders by generating sufficient
positive cash flows from operating activities.
The Company’s capital objectives are:
> To maintain 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, SEK billion

Capital
Equity ratio
Cash conversion
Positive net cash
Credit rating
Moody’s

Standard & Poor’s

2013

142
53%
79%
37.8

2012

138
50%
116%
38.5

A3,
negative
BBB+,
negative

A3,
stable
BBB+,
stable

The Company has a treasury function with the principal role to ensure
that appropriate financing is in place through loans and committed
credit facilities, actively managing the Company’s liquidity as well as
financial assets and liabilities, and managing and controling 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.

The Company also has a customer finance function with the main
objective to find suitable third-party financing solutions for customers
and to minimize recourse to the Company. To the extent that 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.

Foreign exchange risk
The Company is a global company with sales mainly outside Sweden.
Sales and incurred costs are to a large extent denominated in
currencies other than SEK and therefore the financial results of the
Company are impacted by currency fluctuations.

The Company reports the financial statements in SEK. Movements
in exchange rates between currencies that affect these statements are
impacting the comparability between periods.

Line items, primarily sales, are impacted by translation exposure
incurred when converting foreign entities’ financial statements into SEK.
Line items and profitability, such as operating income are impacted
by transaction exposure incurred when financial assets and liabilities,
primarily, trade receivables and trade payables, are initially recognized
and subsequently remeasured due to change in foreign exchange rates.
In the table below we present the net exposure for the four largest
currencies impact on sales and also net transaction exposure of these
currencies on profitability.

Currency exposure, SEK billion

Exposure
currency

Sales
translation
exposure

Sales
transaction
exposure

Sales
net
exposure

Incurred
cost
transaction

exposure 1)

Net
transaction
exposure

USD
EUR
JPY
CNY

58.2
30.4
11.8
11.8

37.8
11.3
0.0
–0.2

96.0
41.7
11.8
11.6

–15.4
–6.9
5.7
–7.2

22.4
4.4
5.7
–7.4

1) Transactions in foreign currency - internal sales, internal purchases, external purchases.

Translation exposure
Translation exposure relates to sales and cost incurred in foreign entities
when converted into SEK upon consolidation. These exposures cannot
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 incurred in non-reporting
currencies in individual group companies. Foreign exchange risk is as
far as possible concentrated in Swedish group companies, primarily
Ericsson AB. Sales to foreign subsidiaries are normally denominated
in the functional currency of the customers, and so tend to be
denominated in USD or another foreign currency. In order to limit the
exposure toward exchange rate 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.

Ericsson | Annual Report 2013

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2014-03-06 13:52

As disclosed under note C1 Significant Accounting Policies, the
Company has as per January 1, 2013, discontinued hedge accounting
for new derivatives hedging forecasted sales and costs incurred as
from this date. This means that outstanding derivatives contracts, with
transaction date January 1, 2013 or later that are hedging future sales
and costs incurred are revalued against “Other operating income and
expense”. The sensitivity in “Other operating income and expense”
in relation to this revaluation is dependent on changes in foreign
exchange rates, forecasts, seasonality and hedging policy. USD is
our largest exposure and at year-end a 5% change in FX-rates would
impact profit and loss with approximately SEK 0.6 billion. Revaluation
results of derivatives contracts, with transaction date January 1, 2013
or later amounted to SEK 0.5 billion in 2013. When hedge accounting
was applied revaluation was recognized in OCI until the underlying
transaction occurred and then a recycling was made to the related
items of the income statements, as disclosed in C1.

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.

Translation exposure in net assets
The Company has many subsidiaries operating outside Sweden with
functional currencies other 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 cannot 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 Other comprehensive income during 2013 were negative, SEK –1.7
(–3.9) billion, including hedging gain/loss of SEK 0.0 (0.0) billion.

Interest rate risk
The Company 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 37.8 (38.5) billion at the end of 2013, consisting of cash,
cash equivalents and short-term investments of SEK 77.1 (76.7)
billion and interest-bearing liabilities and post-employment benefits
of SEK 39.3 (38.2) billion.

The Company 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 the Company’s
net cash position. The policy is that interest-bearing assets shall have
an average interest duration of between 10 and 14 months, taking
derivative instruments into consideration. Interest-bearing liabilities
do not have a firm target for the duration, nor a firm target for fixed/
floating interest rate, as duration and interest mix are decided based on
market conditions when the liabilities are issued. Group Treasury has a
mandate to deviate from the asset management benchmark given
by the Board and take foreign exchange positions up to an aggregated
risk of VaR SEK 45 million given a confidence level of 99% and a
1-day horizon.

Interest duration, SEK billion

< 3M 3-12M 1-3Y

3-5Y

>5Y

Total

Interest-bearing trading
Interest-bearing assets
Interest-bearing liabilities

–8.7
65.1
–10.5

10.9
–0.3
–6.8

0.5
7.8
0.0

–2.4
2.1
–4.4

–0.3
0.0
2.4
77.1
–7.8 –29.5

When managing the interest rate exposure, the Company 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.

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.

R
e
s
u
l
t
s

Outstanding derivatives 1)

Fair value

Currency derivatives
Maturity within 3 months
Maturity between 3
and 12 months
Maturity between 1
and 3 years
Total

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 between 1
and 3 years
Maturity between 3
and 5 years
Maturity of more than 5 years
Total

Of which designated in fair
value hedge relations

Asset

2013
Liability

2012
Liability

Asset

512

293

8
813

–

186

382

158

0
167

–

976

611

4
1,591

816

–

269

487

688

565

–
70

–

285

681

663
101
1,332 2)

163
36
1,156

1,212
38
2,302 2)

739
–
1,705

724

–

969

–

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 613 (825) million is reported as non-current assets.

Sensitivity analysis
The Company uses the VaR methodology to measure foreign exchange
and interest rate risks in portfolios managed by the 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, the Company 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 2013 was SEK 16.3 (9.8) million for

the combined mandates. No VaR-limits were exceeded during 2013.

Financial credit risk
Financial instruments carry an element of risk in that counterparts may

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C20XC23XEN_v76.indd 89

2014-03-06 13:52

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.

The Company 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-2/P-2 or equivalents, and long-term ratings of
AAA. Separate credit limits are assigned to each counterpart in order
to minimize risk concentration. All derivative transactions are covered
by ISDA netting agreements to reduce the credit risk. No credit losses
were incurred during 2013, SEK 0.0 (0.0) billion, neither on external
investments nor on derivative positions.

At December 31, 2013, the credit risk in financial cash instruments

was equal to the instruments’ carrying value. Credit exposure in
derivative instruments was SEK 2.1 (3.9) billion.

Liquidity risk

The Company minimizes the liquidity risk by maintaining a sufficient
net cash position, 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 as well as non-current borrowings.

Cash, cash equivalents and short-term investments

SEK billion

Banks
Type of issuer/counterpart
Governments
Corporates
Mortgage institutes
2013
2012

Remaining time to maturity
< 3
months

3-12
months

1–5
years

>5
years

37.6

0.3

–

0.5
4.4
–
42.5
47.1

4.1
–
–
4.4
4.8

14.6
–
11.9
26.5
24.0

3.7
–
–
3.7
0.8

Total

37.9

22.9
4.4
11.9
77.1
76.7

The instruments are either classified as held for trading or as assets
available-for-sale with maturity less than one year and are therefore
short-term investments. Cash, cash equivalents and short-term
investments are mainly held in SEK unless offset by EUR-funding.

Refinancing risk
Refinancing risk is the risk that the Company is unable to refinance
outstanding debt under 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)

2014
2015
2016
2017
2018
2019
2020
2021

2022
Total

6.0
–
–
–
–
–
–
–

–
6.0

–
–
2.0
4.4
–
–
1.1
–

6.4
13.9

–
0.8
0.0
0.0
–
0.6
4.4
0.6

–
6.4

Total

6.0
0.8
2.0
4.4
–
0.6
5.5
0.6

6.4
26.3

1) Excluding finance leases reported in Note C27, “Leasing.”

Ericsson | Annual Report 2013

Debt financing is mainly carried out through borrowing in the Swedish
and international debt capital markets.

Bank financing is used for certain subsidiary funding and to obtain

committed credit facilities.

Funding programs 1)

Amount

Utilized

Unutilized

Euro Medium-Term Note program
(USD million)
SEC Registered program (USD million)
Long-term Committed Credit facility
(USD million)
Indian Commercial Paper program
(INR million)

5,000
–

2,000

5,000

1,462
1,000 2)

–

3,538
–

2,000

5,000

1) There are no financial covenants related to these programs.
2) Program amount indeterminate.

In January 2013 Standard & Poor’s changed the Company’s credit
rating outlook from BBB+ (stable) to BBB+ (negative) and Moody’s
changed the credit rating outlook from A3 (stable) to A3 (negative). Both
credit ratings are considered to be solid investment grade.

Fair valuation of the Company’s financial instruments
The Company´s financial instruments generally meet the requirements
of level 1 valuation due to the fact that they are based on quoted prices
in active markets for identical assets.

Exceptions to this relates to:

> OTC derivatives with an amount of gross SEK 5.2 billion in relation to
assets and gross SEK 4.4 billion in relation to liabilities were valued
based on references to other market data as currency or interest
rates. These valuations fall under level 2 valuation as defined by
IFRS.
Ownership in other companies where the Company neither has
control nor significant influence. The amount recognized in these
cases was SEK 0.5 (0.4) billion. These assets, classified as level 3
assets for valuation purposes, have been valued based on value in
use technique.

Financial instruments carried at other than fair value
The fair value of the Company’s financial instruments, recognized
at fair value, is 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 sums other
than fair values are presented. Assets valued at fair value through profit
or loss showed a net gain of SEK 1.2 billion. For further information
about valuation principles, see Note C1, “Significant accounting
policies.”

Financial instruments carried at other than fair value 1)

SEK billion

2013

2012

2013

2012

Book value

Fair value

Current part of
non-current borrowings
Notes and bond loans
Other borrowings non-
current
Total

6.0
14.5

7.5
28.0

3.0
16.5

7.4
26.9

6.0
14.7

7.6
28.3

3.0
17.0

7.6
27.6

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.

C20XC23XEN_v76.indd 90

2014-03-06 13:52

Market price risk in own shares and other listed
equity investments
Risk related to our own share price
The Company is exposed to fluctuations in 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, which also cover
social security payments.

Synthetic share-based compensations to the Board of Directors
In the case of these plans, the Company is exposed to risks in relation
to own share price, both with regards 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.

For further information about the stock purchase plan and synthetic

share-based compensations to the Board of Directors, see note C28,
“Information regarding members of the Board of Directors, the Group
management and employees.”

Offsetting financial assets and liabilities
As required by IFRS, the Company has off set financial instruments
under ISDA agreements. The related assets amounted to SEK 5.2
billion, prior to offsetting of SEK 3.1, with a net amount of SEK 2.1 billion
recognized in the balance sheet. The related liabilities amounted to SEK
4.4 billion, prior to offsetting of SEK 3.1, with a net amount of SEK 1.3
billion recognized in the balance sheet.

R
e
s
u
l
t
s

Financial instruments, book value

SEK billion

Note
Assets at fair value
through profit or loss
Loans and receivables
Financial liabilities at
amortized cost
Total

Customer
finance

Trade
receiv-
ables

Short-term
invest-
ments

Cash
equiva-
lents

Borrow-
ings

Trade
payables

Other
financial
assets

Other
current
receiv-
ables

Other
current
liabilities

C14

–
3.4

C14

–
71.0

C19

C22

C12

C15

35.0
–

–
35.0

11.1
2.4

–
13.5

–
–

–29.5
–29.5

–20.5
–20.5

0.6
5.1

–
5.7

1.5
–

–
1.5

C21

–1.3
–

–
–1.3

2013

2012

46.9
81.9

–50.0
78.8

46.3
74.3

–51.8
68.8

C21
Other Current Liabilities

Other current liabilities

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

2013

2,805
5,471

–
208
32,810
11,532
11,478
9,800
9,887
1,323
5,810
58,314

2012

3,878
4,754

–
259
32,353
11,166
11,440
9,747
11,658
1,775
6,431
61,108

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 the related invoice has not yet been received.

C22
Trade Payables

Trade payables

Payables to associated
companies and joint ventures
Other
Total

C23
Assets Pledged as Collateral

Assets pledged as collateral

Chattel mortgages 1)
Bank deposits
Total

1) See also Note C17, “Post-Employment benefits”.

2013

2012

333
20,169
20,502

81
23,019
23,100

2013

2,177
379
2,556

2012

185
335
520

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C20XC23XEN_v76.indd 91

2014-03-06 13:52

C24
Contingent Liabilities

Contingent liabilities

Contingent liabilities
Total

2013

657
657

2012

613
613

Contingent liabilities assumed by Ericsson include guarantees of loans
to other companies of SEK 23 (24) million. Ericsson has SEK 37 (59)
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.” 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 parties amounted to SEK 116 (286)
million as of December 31, 2013. The maturity date for the majority of
the issued guarantees occurs in 2014 at the latest.

C25
Statement of Cash Flows

Interest paid in 2013 was SEK 1,233 million (SEK 1,650 million in 2012
and SEK 1,422 million in 2011) and interest received in 2013 was SEK
1,266 million (SEK 1,883 million in 2012 and SEK 2,632 million in 2011).
Taxes paid, including withholding tax, were SEK 6,537 million in 2013
(SEK 5,750 million in 2012 and SEK 4,393 million in 2011).

Cash and cash equivalents includes cash of SEK 28,618 (30,358)
million and temporary investments of SEK 13,477 (14,324) 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 and cash equivalents as of December 31, 2013, include
SEK 4.9 billion (3.8) in countries where there exist significant cross-
border conversion restrictions due to hard currency shortage or strict
government controls.

This amount is therefore not considered available for general use by

the Parent Company.

Adjustments to reconcile net income to cash

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 3)
Total adjustments to reconcile
net income to cash

2013

2012

2011

4,227

4,052

3,499

–18
4,209

–40
4,012

47
3,546

1,407

1,058

995

4,521
5,928

4,436
5,494

4,470
5,465

–

266

–
5,928

117
5,877

18
5,490

10,137
–1,323

9,889
–1,140

9,036
1,994

128

133

177

130

11,636

3,533

976
–220

–8,087
646

–159
–1,968

9,828

13,077

12,613

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.

Acquisitions/divestments of subsidiaries and other operations

Acquisitions Divestments

2013

Cash flow from business combinations 1)
Acquisitions/divestments of other
investments
Total

2012

Cash flow from business combinations 1)
Acquisitions/divestments of other
investments
Total

2011

Cash flow from business combinations 1)
Acquisitions/divestments of other
investments
Total

1) Also see Note C26, “Business combinations.”

–3,054

–93
–3,147

448

17
465

–11,575

9,502

46
–11,529

–50
9,452

–1,232

–1,949
–3,181

–28

81
53

Ericsson | Annual Report 2013

C24XC25XEN_v25.indd 92

2014-03-06 13:53

C26
Business Combinations

Acquisitions and divestments
Acquisitions

Acquisitions 2011–2013

Total consideration, including cash

2013

3,176

2012

2011

12,564 1)

1,162

Acquisition-related costs 2)

101

150

Net assets acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Investments in joint ventures and
associated companies
Other assets
Provisions, including post-employment
benefits
Other liabilities
Total identifiable net assets

Operating expenses

223
597
1,551

–
850

1,139
480
6,672

–
2,105

–463
–1,705
1,053

714
–3,214
7,896

410

–

7
259
382

120
140

–23
–37
848

–

54
Non-controlling interest
260
Goodwill
1,162
Total
1) The cash transaction includes payment of external loan of SEK 6.2 billion and investment

375
4,293
12,564

67
1,646
3,176

in subsidiary of SEK 2.5 billion.

2) Acquisition-related costs are included in Selling and administrative expenses in the

consolidated income statement.

In 2013, Ericsson made acquisitions with a negative cash flow effect
amounting to SEK 3,054 (11,575) million. These acquisitions consist
primarily of:
> Airvana: On September 5, 2013, the Company acquired 100% of the
shares in Airvana Network Solutions Inc. Airvana Network Solutions
is a Massachusetts-based company and supplier of EVDO software
to Ericsson. EVDO software enables data transmission in a CDMA
wireless network and is an important part of the CDMA ecosystem.
A one-time charge related to the acquisition impacted the operating
expenses negatively by SEK –0.4 billion. Balances to facilitate the
Purchase price allocation are preliminary.

> Devoteam: On April 30, 2013, the Company acquired Devoteam’s

Telecom & Media operations in France. The transaction was
structured as a stock purchase, where 100% of the shares in a
company holding Devoteam’s Telecom & Media operations were
acquired. Acquiring the activities of Devoteam adds unique expertise
in complex, strategic and technical consulting engagements that
will enable us to immediately enhance the value that we bring to our
customers. Balances to facilitate the Purchase price allocation are
final.

> Mediaroom: On September 5, 2013, the Company acquired the
TV solution Mediaroom business from Microsoft in an asset deal.
Mediaroom is the leading platform for video distribution deployed with
the world’s largest IPTV operators. This strategic acquisition positions
Ericsson as an industry leader thanks to the skills and experiences
of the talented people of Mediaroom combined with Ericsson’s end-
to-end service capabilities. Balances to facilitate the Purchase price
allocation are preliminary.

> Modems: On August 5, 2013 Ericsson and STMicroelectronics
announced the closing of the transaction for the split up of ST-
Ericsson. This follows the announcement the companies made

on March 18, 2013 on the chosen strategic option for the future
of the joint venture. Effective August 2, 2013 Ericsson has taken
on the design, development and sales of the LTE multimode thin
modem solutions, including 2G, 3G and 4G interoperability. In
total, approximately 1,800 employees and contractors have joined
Ericsson. Balances to facilitate the Purchase price allocation are
preliminary.

> Telcocell: On September 2, 2013, the Company acquired assets
from Telcocell, a Canadian consulting and systems integration
company specializing in Business Support Systems (BSS). The
acquisition complements Ericsson’s consulting and systems
integration offering to telecom and cable customers in North America,
Western Europe and Latin America. Balances to facilitate the
Purchase price allocation are preliminary.

In order to finalize a Purchase price allocation all relevant information
needs to be gathered. Examples of such information include final
consideration and final opening balances. Balances may remain
preliminary for up to a year due to, for example, working capital
adjustments, tax items or decisions from local authorities.

R
e
s
u
l
t
s

Divestments

Divestments 2011–2013

Proceeds

Net assets disposed of
Property, plant and equipment
Investments in joint ventures and
associated companies
Other assets
Other liabilities

Net gains/losses from divestments
Less Cash and cash equivalents
Cash flow effect

2013

655

2012

9,502

2011

–39

297

–

–
1,326
–127
1,496

–841
–207
448

1,353
296
–483
1,166

8,336
–
9,502

10
38
–224
–175

158
–11
–28

In 2013, the Company made divestments with a cash flow effect
amounting to SEK 448 (9,502) million.
> Power cables operation: On May 3, 2013, Ericsson announced an
agreement with the Danish company NKT Cables to divest its power
cables operation. As a result of the agreement approximately 320
employees and consultants were transferred to NKT Cables. The
transaction was closed on July 1, 2013 and resulted in a loss of SEK
–0.1 billion.

> Applied Communication Sciences (ACS): On May 15, 2013,
Ericsson completed the sale of ACS, the former research and
engineering arm of Telcordia Technologies. It resulted in a loss of
SEK –0.3 billion.

> Ericsson’s telecom cable business in Hudiksvall: On December

1, 2013, Ericsson finalized the divestment of its telecom cable
business in Hudiksvall, Sweden, to Hexatronic. The transaction
resulted in a loss of SEK –0.5 billion. The divestment was made as a
business transfer and the new company within the Hexatronic Group
will be named Hexatronic Cables & Interconnect Systems AB. 85
former Ericsson employees were transferred to Hexatronic.

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C26XEN_v46.indd 93

2014-03-06 13:54

Description

Transaction date

Acquisitions 2011–2013

Company

Airvana

Mediaroom

Telcocell

Modems

Devoteam

ConceptWave

Technicolor

BelAir
Ericsson-LG
Telcordia

GDNT

A Massachusetts-based company and supplier of EVDO software to Ericsson.

The leading platform for video distribution deployed with the world’s largest IPTV operators.

A consulting and systems integration company specializing in Business Support Systems (BSS).

Ericsson has taken on the design, development and sales of the LTE multimode thin modem
solutions, including 2G, 3G and 4G interoperability.

A leader in Information and Communications Technology consulting with 5,000 employees in
Europe, the Middle East and Africa.

A Canadian OSS/BSS company. The purchase price was CAD 55 million.

A technology company in the media and entertainment sector. The purchase price was EUR 20
million.
A telecom-grade Wi-Fi company based in Canada. The purchase price was USD 250 million.
Increase of ownership from 50% plus one share, to 75%.
A US company developing software and services for OSS/BSS. The purchase price was USD 1.15
billion.
An asset purchase agreement of certain assets. Enhances the Company’s existing R&D,
manufacturing and services capabilities in the China region. The purchase price was RMB 357 million.

Nortel Multiservice Switch
business (MSS)

An asset purchase agreement to acquire certain assets of Nortel’s MSS. The purchase price was
USD 53 million.

Divestments 2011–2013

Company

Description

Telecom cable business

Power cables operation

Divestment of the telecom cable business in Hudiksvall, Sweden, to Hexatronic. It resulted in a loss
of SEK –0.5 billion.

Divestment of the power cables operation to NKT Cables. The transaction resulted in a loss of SEK
–0.1 billion.

Applied Communication
Sciences

Sale of Applied Communication Sciences (ACS), the former research and engineering arm
of Telcordia Technologies. This resulted in a loss of SEK –0.3 billion.

IPX
EDA 1500 GPON
Sony Ericsson

Sale of IPX to Gemalto, with a positive cash flow effect of SEK 260 million.
Capital asset sale of EDA 1500 GPON portfolio with a positive cash flow effect of SEK 80 million.
Sale of the Company’s share in Sony Ericsson (50%) to Sony, with a positive cash flow effect
of SEK 9.1 billion.

Sep, 2013

Aug, 2013

Apr, 2013

Sep, 2012

Jul, 2012

Apr, 2012
Mar, 2012
Jan, 2012

May, 2011

Mar, 2011

Transaction date

Dec , 2013

Jul, 2013

May, 2013

Sep, 2012
Aug, 2012
Feb, 2012

Ericsson | Annual Report 2013

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2014-03-06 13:54

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

2013

2012

1,774
3
1,777

–610
–3
–613

–25
–25
1,139

1,538
3
1,541

–601
–3
–604

–35
–35
902

As of December 31, 2013, future minimum lease payment obligations
were distributed as follows:

Future minimum lease payment obligations

2014
2015
2016
2017
2018
2019 and later
Total
Future finance charges 1)
Present value of finance lease liabilities
1) Average effective interest rate on lease payables is 5.25%.

Finance
leases

Operating
leases

109
109
109
108
101
720
1,256
–291
965

2,089
1,766
1,425
881
626
2,406
9,193
n/a
9,193

Expenses in 2013 for leasing of assets were SEK 2,517 (3,172) million,
of which variable expenses comprised SEK 18 (20) million. The leasing
contracts vary in length from 1 to 17 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, 2013, future minimum payment receivables were

R
e
s
u
l
t
s

distributed as follows:

Future minimum payment receivables

2014
2015
2016
2017
2018
2019 and later
Total
Unearned financial income
Uncollectible lease payments
Net investments in financial leases

Leasing income in 2013 was SEK 165 (236) million.

Finance
leases

Operating
leases

27
24
2
2
–
–
55
n/a
n/a
n/a

112
90
23
6
4
1
236
n/a
n/a
n/a

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C27XEN_v13.indd 95

2014-03-06 13:55

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

SEK

Board fees

Board member
Leif Johansson
Sverker Martin-Löf
Jacob Wallenberg
Roxanne S. Austin
Sir Peter L. Bonfield
Nora Denzel
Börje Ekholm
Alexander Izosimov
Ulf J. Johansson
Kristin Skogen Lund
Hans Vestberg
Pär Östberg

Employee Representatives
Pehr Claesson
Kristina Davidsson
Karin Åberg
Rickard Fredriksson
Karin Lennartsson
Roger Svensson
Total
Total

3,850,000
900,000
900,000
900,000
900,000
900,000
900,000
900,000
900,000
900,000
–
900,000

13,500
13,500
12,000
13,500
13,500
13,500
12,929,500
12,929,500

Value at grant
date of
synthetic
shares
allocated in
2013

Number of
previously
allocated
synthetic shares
outstanding

Number of
synthetic
shares/portion
of Board fee

Net change
in value of

synthetic shares 1)

Committee
fees

Total
fees paid

in cash 2)

Total
remuner
ation 2013

–
–
224,945
224,945
–
–
674,996
224,945
–
224,945
–
–

0/0%
0/0%
2,804/25%
2,804/25%
0/0%
0/0%
8,414/75%
2,804/25%
0/0%
2,804/25%
–
0/0%

–
–
–
–
–
–
19,630
19,630

–
–
–
–
–
–
1,574,776
1,574,776

–
–
150,147
716,010
259,051
–
762,740
51,565
481,454
–4,831
–
–

(A+B+C)

400,000
175,000
175,000
175,000
250,000
–
175,000
–
350,000
–
–
250,000

4,250,000 3)
1,075,000 4)
850,000
850,000
1,150,000
900,000
400,000
675,000 5)
1,250,000 6)
675,000
–
1,150,000

4,250,000
1,075,000
1,225,092
1,790,955
1,409,051
900,000
1,837,736
951,510
1,731,454
895,114
–
1,150,000

–
–
–
–
–
–
2,416,136
3,071,949 8) 9)

–
–
–
–
–
–

13,500
13,500
12,000
13,500
13,500
13,500
1,950,000 13,304,500
1,950,000 13,304,500

13,500
13,500
12,000
13,500
13,500
13,500
17,295,412 7)
17,951,225 7)

–
–
9,246
28,492
10,660
–
31,984
3,492
14,720
–
–
–

–
–
–
–
–
–
98,594
117,312 8)

1) The difference in value as of the time for payment, compared to December 31, 2012, for synthetic shares allocated in 2008 (for which payment was made in 2013).

The difference in value as of December 31, 2013, compared to December 31, 2012, for synthetic shares allocated in 2009, 2010, 2011 and 2012.
The difference in value as of December 31, 2013, compared to grant date for synthetic shares allocated in 2013.
The value of synthetic shares allocated in 2009, 2010, 2011 and 2012 includes respectively SEK 2.00, SEK 2.25, SEK 2.50 and SEK 2.75 per share in compensation for dividends resolved by
the Annual General Meetings 2010, 2011, 2012 and 2013 and the value of the synthetic shares allocated in 2008 includes dividend compensation for dividends resolved in 2009, 2010, 2011
and 2012.

2) Committee fee and cash portion of the Board fee.
3) In addition, an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced through a company was paid, amounting to SEK 1,335,350.
4) In addition, an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced through a company was paid, amounting to SEK 109,758.
5) In addition, an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced through a company was paid, amounting to SEK 212,085.
6) In addition, an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced through a company was paid, amounting to SEK 127,625.
7) Excluding social security charges to the amount of SEK 4,746,168.
8) Including synthetic shares previously allocated to the former Directors Nancy McKinstry and Michelangelo Volpi.
9) Including synthetic shares previously allocated to the former Director Carl-Henric Svanberg, where the difference in value is the difference as of the time for payment, compared to December

31, 2012.

Comments to the table
> The Chairman of the Board was entitled to a Board fee of

SEK 3,850,000 and a fee of SEK 200,000 for each Board Committee
on which he served as Chairman.

> The other Directors elected by the Annual General Meeting were

entitled to a fee of SEK 900,000 each. In addition, the Chairman of the
Audit Committee was entitled to a fee of SEK 350,000 and the other
non-employee 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-employee 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 and a fee to the employee representatives
and their deputies of SEK 1,500 per attended Board meeting.

> Board members invoicing for the amount of the Board and

Committee fee through a 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, i.e. the cash portion of the Board fee and the Committee fee,
including social charges, constitutes the invoiced Board fee.
> The Annual General Meeting 2013 resolved that non-employee
Directors may choose to receive the Board fee (i.e. exclusive of

Ericsson | Annual Report 2013

C28X32XEN_v120.indd 96

2014-03-06 13:56

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 allocated 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 2013: SEK 80.223. 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 2018. 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 and have been allocated annually since then on
equal terms and conditions. Payment based on synthetic shares,
under the main rule, occurred for the first time in 2013 with respect
to the synthetic shares allocated in 2008. In 2013, advance payment
was also made to the former Director Carl-Henric Svanberg with
respect to his synthetic shares, all in accordance with the terms
and conditions for the synthetic shares. The amounts paid in 2013
under the synthetic share programs were 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 statements for 2012: SEK 77.05 and totalled SEK
3,562,958, excluding social security charges. The payments made
do not constitute a cost for the Company in 2013. The Company’s

costs for the synthetic shares have been disclosed each year and
the net change in value of the synthetic shares for which payment
was made in 2013, is disclosed in the table “Remuneration to
members of the Board of Directors” on page 96.
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 of December 31, 2013, the total outstanding
number of synthetic shares under the programs is 136,942 and the
total accounted debt is SEK 11,494,790 (including synthetic shares
previously allocated to the former Directors Nancy McKinstry and
Michelangelo Volpi). In accordance with the terms and conditions
for the synthetic shares, the time for payment to the former Director
Michelangelo Volpi has, on his request, been advanced, to occur
after the publication of the year-end financial statements for 2013.

R
e
s
u
l
t
s

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. The 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
compensation, pension and other benefits. These remuneration
elements are based on the guidelines for remuneration to Group
management as approved by the Annual General Meeting held in 2013:
see the approved guidelines in section “Guidelines for remuneration to
Group management 2013.”

Remuneration costs for the President and CEO and other members of Executive Leadership Team (ELT)

SEK

Salary
Costs for annual variable remuneration
earned in 2013 to be paid in 2014
Long-term variable compensation provision
Pension costs

Other benefits
Social charges and taxes
Total

The Pres ident
and CEO 2013

The President
and CEO 2012

Other members
of ELT 2013

Other members
of ELT 2012

Total 2013

Total 2012

13,177,080

12,573,233

90,320,536

76,973,215

103,497,616

89,546,448

3,256,151
8,184,603
6,847,596

68,704
9,368,485
40,902,620

3,972,247
6,439,873
6,491,713

123,612
9,114,641
38,715,319

22,880,144
9,066,127
22,971,876

5,370,876
26,838,704
177,448,263

21,877,700
6,472,215
22,865,674

4,431,160
22,877,888
155,497,852

26,136,295
17,250,731
29,819,473

5,439,579
36,207,190
218,350,883

25,849,947
12,912,088
29,357,387

4,554,772
31,992,529
194,213,171

Comments to the table
> During 2013 there were three Executive Vice Presidents, who have
been 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:
Per Borgklint, Bina Chaurasia, Ulf Ewaldsson, Jan Frykhammar,
Douglas L. Gilstrap, Nina Macpherson, Magnus Mandersson, Helena
Norrman, Mats H. Olsson, Rima Qureshi, Angel Ruiz, Anders Thulin
(from October 1), 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 2013 as well
as other contracted compensation expensed in 2013.

“Long-term variable compensation provision” refers to the
compensation costs during 2013 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 the 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 payable from the age of 60 years.
These pension plans are not conditional upon future employment at
Ericsson.

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

C28X32XEN_v120.indd 97

2014-03-06 13:56

Outstanding balances
The Company has recognized the following liabilities relating to unpaid
remunerations in the Balance sheet:
> Ericsson’s commitments for defined benefit based pensions as

of December 31, 2013 under IAS 19 amounted to SEK 5,232,263
for the President and CEO which includes ITP plan and temporary
disability and survivor’s pension. For other members of the ELT
the Company’s commitments amounted to SEK 26,593,686 of
which SEK 19,250,106 refers to the ITP plan and the remaining SEK
7,343,579 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.

> Deferred salary, earned in 2013 or earlier, to be paid 12 months after

period end or later, amounts to SEK 17,476,898.

Maximum outstanding matching rights

As of December 31, 2013
Number of Class B shares

The President
and CEO

Other members
of the ELT

Long-Term Variable compensation
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
2013 plan, employees are able to save up to 7.5% of their gross fixed
salary (President and CEO can save up to 10% of their gross fixed
salary and short-term variable remuneration) for purchase of Class B
contribution shares at market price on NASDAQ OMX Stockholm or
American Depositary Shares (ADSs) on NASDAQ New York (contribution
shares) during a 12-month period (contribution period). If the contribution
shares are retained by the employee for three years after the investment
and their 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
100 countries participate in the plans.

The table below shows the contribution periods and participation

details for ongoing plans as of December 31, 2013.

Stock purchase plans

Stock Purchase Plans 2010, 2011,
2012 and 2013 and Executive
Performance Stock Plans
2010, 2011, 2012 and 2013

482,927

566,509

Plan

Comments to the table
> For the definition of matching rights, see the description in section

“Long-term variable compensation”.

> Matching result of 100% is included for the 2010 plan.
> Cash conversion target for 2012 and 2013 was reached, but not

reached in 2011.

> During 2013, the President and CEO received 88,002 matching
shares and other members of the ELT 149,646 matching shares.

Stock Purchase
plan 2010
Stock Purchase
plan 2011
Stock Purchase
plan 2012
Stock Purchase
plan 2013

Contribution
period

August 2010
– July 2011
August 2011
– July 2012
August 2012
– July 2013
August 2013
– July 2014

Number of
participants
at launch

Take-up rate
– percent of eligible
employees

22,000

24,000

27,000

29,000

27%

30%

28%

29%

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, 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 to encourage
retention of key employees. Under the program, up to 10% of
employees (2013 plan: up to 9,300 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
12-month period.

Guidelines for remuneration to Group management 2013
For Group Management consisting of the Executive Leadership Team,
including the President and CEO, total remuneration consists of fixed
salary, short- and long-term variable compensation, pension and other
benefits.

The following guidelines apply for the remuneration to the Executive

Leadership Team:
> 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 Group or unit level, operational
targets, employee engagement targets and customer satisfaction
targets.

> 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 necessary. An additional arrangement can be renewed but
each such arrangement shall be limited in time and shall not exceed
a period of 36 months and twice the remuneration that the individual
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 conditions for the position, is equated with
notice of termination served by the Company.

Ericsson | Annual Report 2013

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Executive Performance Stock Plans

Executive Performance Stock Plan targets

Base year EPS 2)
Target average annual
EPS growth range 3)
Matching share vesting
range 4)

Maximum opportunity
as percentage of fixed
salary 5)

Executive Performance Stock Plan

2013 1)

2012

2011

0.67 to 4
1 to 6
1.5 to 9
30%
45%
162%

0.67 to 4
1 to 6
1.5 to 9

30%
45%
162%

2010

1.14

5% to
15%
0.67 to 4
1 to 6
1.5 to 9

30%
45%
162%

1) Targets for Executive Performance Stock Plans 2011 to 2013 are described in the next

table.

2) For 2010 plan the sum of four quarters up to December 31, 2010.
3) EPS range determined by average EPS of the 12 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 matching.

Executive Performance Stock Plan targets

Base year value
SEK billion

Year 1

Year 2

Year 3

2013

Growth (Net sales
growth)

Margin (Operating
income growth) 1)
Cash Flow (Cash
conversion)

2012

Growth (Net sales
growth

Margin (Operating
income growth)
Cash Flow (Cash
conversion)

227.8 Compound annual growth rate of
2 –8%
Compound annual growth of
5–15%
≥70%

≥70%

18.5

226.9 Compound annual growth rate of
2 –8%
Compound annual growth of
5–15%
≥70%

≥70%

17.9

–

Base year value
SEK billion

Year 1

Year 2

Year 3

203.3 Compound annual growth rate of
4 –10%
Compound annual growth of
5–15%
≥70%

≥70%

23.7

–

2011

Growth (Net sales
growth)

Margin (Operating
income growth) 2)
Cash Flow (Cash
conversion)

2) Base year 2010 excludes restructuring charges

R
e
s
u
l
t
s

The Executive Performance Stock Plan
The Executive Performance Stock Plan is designed to focus
management on driving earnings and provide competitive remuneration.
Senior managers, 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 (2013 plan: up to 400
executives) are offered participation in the plan. The President and
CEO can save up to 10% of gross fixed salary and short-term variable
compensation, 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 2010 plan is subject to the fulfillment
of a performance target of average annual Earnings per Share (EPS)
growth. The performance targets changed from EPS targets to targets
linked to the business strategy as from 2011.

The tables above show all Executive Performance Stock Plans as of

December 31, 2013.

1) Base year 2012 excludes a non-cash charge for ST-Ericsson

Shares for all plans

Plan (million shares)

Originally designated
Outstanding beginning of 2013
Awarded during 2013
Exercised/matched during 2013
Forfeited/expired during 2013
Outstanding end of 2013 1)
Compensation costs charged during 2013 (SEK million)

A
B
C
D
E
F=B+C–D–E
G

Stock Purchase Plan, Key Contributor Retention Plan
and Executive Performance Stock Plans

2013

26.6
0.0
3.2
0.0
0.0
3.2

6 2)

2012

2011

2010

2009

Total

26.2
4.4
9.0
0.4
0.5
12.5
108 2)

19.4
13.5
0.0
0.5
0.6
12.4
124 2)

19.4
9.2
0.0
2.8
0.4
6.0
124 2)

22.4
6.0
0.0
5.9
0.1
0.0
26 2)

114.0
33.1
12.2
9.6
1.6
34.1
388 3)

1) Shares under the Executive Performance Stock Plans were based on the fact that the 2009 plan lapsed and that the 2010 plan was fully vested. For the other ongoing plans, full vesting is

estimated.

2) 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 makes a forecast for the fulfillment of the financial targets for all ongoing plans except for 2009 and 2010 plans as disclosed under 1) when
calculating the compensation cost. Fair value of the Class B share at each investment date during 2013 was: February 15 SEK 70.50, May 15 SEK 74.42, August 15 SEK 70.99 and November 15
SEK 73.93.

3) Total compensation costs charged during 2012: SEK 405 million, 2011: SEK 413 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.

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 2013, 1,121,900 shares
were sold at an average price of SEK 80.19. Sales of shares are
recognized directly in equity.

If, as of December 31, 2013, all shares allocated for future

For all plans, additional shares have been allocated for

matching under the Stock Purchase Plan were transferred, and shares

NOTES TO THE Consolidated financial statements

Ericsson | Annual Report 2013

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2014-03-06 13:56

designated to cover social security payments were disposed of as a
result of the exercise and the matching, approximately 64 million Class
B shares would be transferred, corresponding to 2.0% of the total
number of shares outstanding, or 3,231 million not including treasury
stock. As of December 31, 2013, 74 million Class B shares were held as
treasury stock.

The table on page 99 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;
(B) the number of originally designated shares that were outstanding
at the beginning of 2013; (C) the number of shares awards that were

granted during 2013; (D) the number of shares matched during 2013;
(E) the number of shares forfeited by participants or expired under
the plan rules during 2013; and (F) the balance left as outstanding at
the end of 2013, 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 row (G) shows the
compensation costs charged to the accounts during 2013 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.

Employee numbers, wages and salaries
Employee numbers

Average number of employees

North America
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
North East Asia
South East Asia & Oceania
Total

1) Of which in Sweden
2) Of which in EU

Women

3,234
2,216
5,523
3,802
2,865
566
364
2,586
4,308
1,061
26,525
4,118
11,703

2013

Men

12,060
9,562
15,519
8,263
9,793
4,820
1,704
15,042
10,108
3,234
90,105
12,972
31,729

Total

Women

15,294
11,778
21,042
12,065
12,658
5,386
2,068
17,628
14,416
4,295
116,630
17,090
43,432

3,479
2,137
5,746
1,790
2,966
617
548
2,137
4,191
1,175
24,786
4,232
9,911

2012

Men

12,607
9,230
15,351
9,463
10,064
4,603
1,672
11,924
9,584
3,474
87,972
13,337
33,581

Total

16,086
11,367
21,097
11,253
13,030
5,220
2,220
14,061
13,775
4,649
112,758
17,569
43,492

Number of employees by region at year-end

Employee movements

North America
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
North East Asia
South East Asia & Oceania
Total

1) Of which in Sweden
2) Of which in EU

2013

2012

14,931
11,445
21,892
11,530
12,314
3,752
2,084
17,622
14,503
4,267
114,340
17,858
43,421

15,501
11,219
21,211
11,257
12,205
3,992
2,014
14,303
14,157
4,396
110,255
17,712
42,872

Number of employees by gender and age at year-end 2013

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

1,737
9,634
7,781
4,133
1,298
21%

3,285
34,966
29,895
16,830
4,781
79%

Percent
of total

5%
39%
33%
18%
5%
100%

100

Ericsson | Annual Report 2013

Head count at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees

2013

2012

114,340
13,025
17,110
493

110,255
12,280
18,010
766

Employee wages and salaries

Wages and salaries and social security expenses

(SEK million)

Wages and salaries
Social security expenses
Of which pension costs

2013

2012

48,533
16,531
4,426

48,428
15,672
2,762

Amounts related to the President and CEO and the Executive
Leadership Team are included.

Remuneration to Board members and Presidents
in subsidiaries

(SEK million)

Salary and other remuneration

Of which annual variable remuneration

Pension costs

2013

2012

294
40
23

243
33
27

C28X32XEN_v120.indd 100

2014-03-06 13:56

Board members, Presidents and Group management
by gender at year end

C30
Fees to Auditors

2013

2012

Women

Men Women

Men

Fees to auditors

Parent Company
Board members and President
Group Management
Subsidiaries
Board members and Presidents

25%
29%

75%
71%

27%
29%

73%
71%

27%

73%

12%

88%

C29
Related Party Transactions

During 2013, 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.”

ST-Ericsson
ST-Ericsson was formed in 2009 as a joint venture, equally owned by
Ericsson and STMicroelectronics. In early 2013 the parents agreed
to split up and close the joint venture. The company ST-Ericsson is
winding down and all business has been transferred to parents or
divested during 2013. Ericsson has taken over assets and liabilities in
the design, development and sales of the thin LTE multi-mode modem
solution with a net value of SEK 1.1 billion. The Purchase price allocation
related to this acquisition is preliminary. The acquired business is now
consolidated into Ericsson in the new segment Modems. For further
information, see Note C3, “Segment information” and Note C26
“Business combinations.”

During 2013 Ericsson had no sales and purchases in the course
of ordinary business, only transactions related to the winding down
described above. Therefore, the descriptions below refers to the years
2011 and 2012. The major transactions in 2011 and 2012 were as
follows:
> Sales: Ericsson provides ST-Ericsson with services in the areas

of R&D, HR, IT and facilities.

2013
Audit fees
Audit-related fees
Tax services fees
Other fees
Total

2012
Audit fees
Audit-related fees
Tax services fees
Other fees
Total

2011
Audit fees
Audit-related fees
Tax services fees
Other fees
Total

PwC

Others

Total

75
12
12
15
114

82
15
16
10
123

77
10
20
16
123

7
–
3
1
11

5
–
3
10
18

9
–
3
–
12

82
12
15
16
125

87
15
19
20
141

86
10
23
16
135

R
e
s
u
l
t
s

During the period 2011–2013, 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, SSAE 16 reviews and services in connection with the issuing
of certificates and opinions and consultation on financial accounting.
The tax services include general expatriate services and corporate tax
compliance work. Other services include, work related to acquisitions,
operational effectiveness and assessments of internal control.

Audit fees to other auditors largely consist of local statutory audits.

C31
Contractual obligations

Contractual obligations 2013

Payment due by period

<1
year

1–3
years

3–5
years

>5
years

> Purchases: A major part of Ericsson’s purchases from ST-Ericsson

SEK billion

consists of chipsets and R&D services.

ST-Ericsson

Related party transactions
Sales
Purchases

Related party balances
Receivables
Liabilities

1) See text above for further information.

2013 1)

2012

2011

–
–

138
634

127
–

182
781

51
24

Ericsson does not have any contingent liabilities, assets pledged as
collateral or guarantees towards ST-Ericsson.

Long-term debt 1) 2)
Finance lease obligations 3)
Operating leases 3)
Other non-current liabilities
Purchase obligations 4)
Trade payables
Commitments for customer
finance 5)
Total

6.5
0.1
2.1
0.1
5.4
20.5

6.4
41.1

3.1
0.2
3.2
0.2
–
–

–
6.7

5.6
0.3
1.5
0.1
–
–

–
7.5

13.5
0.7
2.4
1.1
–
–

–
17.7

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 finance.”

Total

28.7
1.3
9.2
1.5
5.4
20.5

6.4
73.0

For information about financial guarantees, see Note C24,
“Contingent liabilities.”

Except for those transactions described in this report, the Company
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 2013

101

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results

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
Parent Company Balance sheet
Parent Company Statement of cash flows
Parent Company Statement of changes in stockholders’ equity

Intangible assets

Investments
Inventories

Notes to the Parent Company financial statements
P1 Significant accounting policies
P2 Other operating income and expenses
P3 Financial income and expenses
P4 Taxes
P5
P6 Property, plant and equipment
P7 Financial assets
P8
P9
P10 Trade receivables and customer finance
P11 Receivables and liabilities – subsidiary companies
P12 Other current receivables
P13 Equity and other comprehensive income
P14 Untaxed reserves
P15 Post-employment benefits
P16 Other provisions
P17 Interest-bearing liabilities
P18 Financial risk management and financial instruments
P19 Other current liabilities
P20 Trade payables
P21 Assets pledged as collateral
P22 Contingent liabilities
P23 Statement of cash flows
P24 Leasing
P25 Information regarding employees
P26 Related party transactions
P27 Fees to auditors

103
104
106
107

108
108
109
109
110
110
111
112
113
113
114
115
115
116
116
117
117
118
119
119
119
119
120
120
120
121
121

102

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Parent company FINANCIAL
STATEMENTS

Parent company income statement

January – December, SEK million

Notes

2013

2012

2011 1)

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
Contributions from subsidiaries, net

Taxes
Net income

1) Restated for contributions to/from subsidiaries.

Parent Company Statement of comprehensive income

January – December, SEK million

Net income
Other comprehensive income
Items that may be reclassified to profit and loss
Cash flow hedges

Gains/losses arising during the period
Adjustments for amounts transferred to initial carrying amount of hedged items

Revaluation of other investments in shares and participations

Fair value remeasurement

Total other comprehensive income, net of tax
Total comprehensive income

P3
P3

P14
P14

R
e
s
u
l
t
s

–
–
–

–210
–1,170
–1,380

2,768
1,388

8,321
–2,465
7,244

288
–430
7,102

–247
6,855

–
–
–

–241
–690
–931

2,534
1,603

11,932
–18,392
–4,858

388
–2,034
–6,504

–289
–6,793

–
–
–

–609
–1,512
– 2,121

3,184
1,063

8,072
–2,765
6,370

339
–1,979
4,730

–103
4,627

2013

6,855

2012

–6,793

2011

4,627

–
–

69
69
6,924

–64
–139

–
–203
–6,996

203
–

–
203
4,830

PARENT COMPANY financial statements

Ericsson | Annual Report 2013

103

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results

Parent company FINANCIAL STATEMENTS
CONTINUED

Parent Company Balance Sheet

December 31, SEK million

Notes

2013

2012

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

Short-term investments
Cash and cash equivalents

Total assets

P5
P6

646
571

849
535

P7, P8
P7, P8
P7
P7, P11
P7, P10
P4
P7

P10
P10
P11

P12
P18
P18

80,756
337
410
11,024
1,064
233
917
95,958

80,839
337
267
15,737
999
198
1,153
100,914

34
901
13,833
123
2,356
34,520
23,954
75,728

35
1,020
16,195
134
4,310
31,491
25,946
79,186

171,686

180,100

104

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Parent Company Balance Sheet (continued)

December 31, SEK million

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
Other borrowings, non-current
Liabilities to subsidiaries
Other non-current liabilities

Current liabilities
Borrowings, current
Trade payables
Liabilities to subsidiaries
Other current liabilities

Total stockholders’ equity, provisions and liabilities

Assets pledged as collateral
Contingent liabilities

Notes

2013

2012

P13

P14

P15
P16

P17
P17
P11

P17
P20
P11
P19

P21
P22

R
e
s
u
l
t
s

16,526
20
31,472
48,018

16,874
6,855
69
23,798
71,816

16,526
20
31,472
48,018

32,620
–6,793
–203
25,624
73,642

–

288

407
1,690
2,097

14,522
5,686
24,034
249
44,491

6,005
611
44,444
2,222
53,282

386
3,709
4,095

16,519
5,273
26,732
239
48,763

2,671
555
46,959
3,127
53,312

171,686

180,100

553
15,999

520
16,719

PARENT COMPANY financial statements

Ericsson | Annual Report 2013

105

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results

Parent company FINANCIAL STATEMENTS
CONTINUED

Parent Company Statement of Cash Flows

January – December, SEK million

Operating activities
Net income
Adjustments to reconcile net income to cash

Notes

2013

2012

2011

P23

6,855
956
7,811

48
54
–2,662
279
–1,803
901
–3,183

–6,793
14,436
7,643

6
201
–39
–261
–91
–2,837
–3,021

4,627
3,163
7,790

–4
286
35
–133
–309
2,379
2,254

Cash flow from operating activities

4,628

4,622

10,044

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

Cash flow before financing activities

Financing activities
Changes in current liabilities to subsidiaries
Proceeds from issuance of borrowings
Repayment of borrowings
Stock issue
Sale/repurchase 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

Cash and cash equivalents, beginning of period

–245
–
–898
300
9,047
–
–2,537
5,667

–224
–
–1,807
9,792
–2,668
1
5,043
10,137

–148
16
–3,718
7
–3,074
–1,730
16,357
7,710

10,295

14,759

17,754

–2,547
4,436
–2,916
–
90
–8,863
–2,673
–1,324
–13,797

2,795
8,132
–7,296
159
–93
–8,033
–543
–158
–5,037

–9,361
–
–
–
92
–7,207
409
288
–15,779

1,510

–1,064

–126

–1,992

8,658

1,849

25,946

17,288

15,439

Cash and cash equivalents, end of period

P18

23,954

25,946

17,288

106

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Parent Company Statement of Changes in Stockholders’ Equity

SEK million

January 1, 2013
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock purchase plans
Repurchase of own shares
Dividends paid
December 31, 2013

January 1, 2012
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock purchase plans
Repurchase of own shares
Dividends paid
December 31, 2012

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

Other
retained
earnings

Non-
restricted
equity

16,526
–

–
–
–
–
–
16,526

16,367
–

159
–
–
–
–
16,526

20
–

–
–
–
–
–
20

20
–

–
–
–
–
–
20

31,472
–

–
–
–
–
–
31,472

31,472
–

–
–
–
–
–
31,472

48,018
–

–
–
–
–
–
48,018

47,859
–

159
–
–
–
–
48,018

100
–

–
–
–
–
–
100

100
–

–
–
–
–
–
100

–
69

–
–
–
–
–
69

203
–203

–
–
–
–
–
–

25,524
6,855

–
90
23
–
–8,863
23,629

40,417
–6,793

–
66
26
–159
–8,033
25,524

25,624
6,924

–
90
23
–
–8,863
23,798

40,720
–6,996

–
66
26
–159
–8,033
25,624

R
e
s
u
l
t
s

Total

73,642
6,924

–
90
23
–
–8,863
71,816

88,579
–6,996

159
66
26
–159
–8,033
73,642

PARENT COMPANY financial statements

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107

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results

notes to the Parent Company
FINANCIAL STATEMENTS

Borrowing costs
All borrowing costs in relation to qualifying assets are expensed
as incurred.

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 expensed 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
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

2013

2012

2011

2,639
135

–6
2,768

2,488
49

–3
2,534

2,704
479

1
3,184

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.

Contributions to/from subsidiaries and shareholders’ contributions
are accounted for according to RFR 2. Contributions from/to Swedish
subsidiaries are reported as untaxed reserves, net in the income
statement.

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
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.

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 standalone 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 19R shall be adopted regarding supplementary
disclosures when applicable.

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P3
Financial Income and Expenses

P4
Taxes

Financial income and expenses

2013

2012

2011

Income taxes recognized in the income statement
The following items are included in Taxes:

Financial income
Result from participations
in subsidiary companies

Dividends
Net gains on sales

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
Net loss from joint ventures and
associated companies
Write-down of participations
in other companies
Interest expenses and
similar profit/loss items
Subsidiary companies
Other

Other financial expenses
Total
Financial net

Taxes

7,054
8

5,031
61

5,198
6

126
195

132
4,768

154
–

Other current income taxes for the year
Current income taxes related to prior
years
Deferred tax income/expense (–)
related to temporary differences
Taxes

2013

–100

2012

–125

2011

–125

–183

–112

36
–247

–52
–289

–52
–103

357
575
8,321

472
1,406
11,932

280
2,433
8,072

–137

–36

–1

–500

–

–1,330

–

–16,972

–47

–

–154
–977
–697
–2,465
5,856

–189
–1,089
–59
–18,392
–6,460

–304
–1,109
–21
–2,765
5,307

R
e
s
u
l
t
s

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, 22.0% (26.3% in 2012 and 2011), on income before
taxes is shown in the table below.

Reconciliation of actual income tax rate to the actual income
tax rate

Tax rate in Sweden (22.0%)
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
Tax effect of change in deferred tax rate
Actual tax cost (–)

2013

2012

2011

–1,567

1,711

–1,244

–183

–112

–23

–29

–14

1,636

2,655

1,429

–110
–
–247

–4,476
–38
–289

–348
–
–103

Deferred tax balances
Tax effects of temporary differences have resulted in deferred tax
assets as follows:

Deferred tax assets

2013

233

2012

198

Deferred tax assets refer mainly to costs related to customer finance
and provisions for restructuring costs.

Interest expenses on pension liabilities are included in the interest expenses shown above.

NOTES TO THE PARENT COMPANY financial statements

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P5
Intangible Assets

Patents, licenses, trademarks and similar rights

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

2013

2012

4,146
15
–
4,161

–2,352
–218
–
–2,570

–945
–
–945
646

4,167
–
–21
4,146

–2,134
–218
–
–2,352

–945
–
–945
849

The balances relate mainly to the Marconi trademark acquired during
2006. The useful life and amortization period for this trademark has
been set to 10 years.

P6
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment

2013
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications
Closing balance
Accumulated depreciation
Opening balance
Depreciation
Sales/disposals
Closing balance
Net carrying value
2012
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

–
–
–
–
–

1,267
15
–77
277
1,482

–941
–203
71
–1,073
409

1,225
37
–53
58
1,267

–814
–177
50
–941
326

209
230
–
–277
162

–
–
–
–
162

80
187
–
–58
209

–
–
–
–
209

Total

1,476
245
–77
–
1,644

–941
–203
71
–1,073
571

1,305
224
–53
–
1,476

–814
–177
50
–941
535

110

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P7
Financial Assets

Investments in subsidiary companies, joint ventures and associated companies

Opening balance
Acquisitions and stock issues
Shareholders’ contribution
Reclassifications
Repayment of shareholders’ contribution
Write-downs
Disposals

Closing balance

Other financial assets

Accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/deductions
Reclassifications/revaluation
Translation difference
Closing balance

Accumulated write-downs/allowances
Opening balance
Write-downs/allowances
Disposals/repayments/deductions
Reclassifications
Translation difference
Closing balance
Net carrying value

Subsidiary companies

2013

80,839
282
518
–
–
–500
–383

80,756

2012

79,511
1,682
191
–
–
–
–545

80,839

Joint ventures
2013

Associated companies

2012

2013

2012

–
–
–
–
–
–
–

–

12,736
–
–
5,029
–
–13,629
–4,136

–

337
–
–
–
–
–
–

337

330
–
–
7
–
–
–

337

R
e
s
u
l
t
s

Other
investments in shares
and participations
2012

2013

Receivables
from subsidiaries,
non-current
2012

2013

Customer finance,
non-current
2012

2013

Other financial
assets, non-current
2012
2013

323
74
–
69
–
466

–56
–
–
–
–
–56
410

288
45
–3
–7
–
323

–9
–47
–
–
–
–56
267

15,737
1,405
–6,000
–630
512
11,024

–
–
–
–
–
–
11,024

8,017
9,725
–1,301
–93
–611
15,737

–
–
–
–
–
–
15,737

1,065
345
–49
–226
–16
1,119

–66
–
6
3
2
–55
1,064

1,379
547
–516
–328
–17
1,065

–42
–57
10
20
3
–66
999

1,153
42
–66
–212
–
917

–
–
–
–
–
–
917

1,203
20
–78
8
–
1,153

–
–
–
–
–
–
1,153

NOTES TO THE PARENT COMPANY financial statements

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2014-03-06 13:58

P8
Investments

The following listing shows certain shareholdings owned directly
and indirectly by the Parent Company as of December 31, 2013.
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

I
I
I
II
I
I
II
I
II
I
II

I
I
I
II

II
I
I
I
I

II
I
I
I
I
I
I
I
I
I
I

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 España S.A.
Ericsson AG
Ericsson Holdings Ltd.
Other (Europe, excluding Sweden)
Ericsson Holding II Inc.
Companía Ericsson S.A.C.I.
Ericsson Canada Inc.
Belair Networks
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
Ericsson-LG CO 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

Joint ventures and associated companies
II
I
I

ST-Ericsson SA
Rockstar Consortium Group
Ericsson Nikola Tesla d.d.
Total

Key to type of company
I Manufacturing, distribution and development companies
II Holding companies
III Finance companies

556056-6258
556251-3266
556404-4286
556030-9899
556326-0552

Sweden
Sweden
Sweden
Sweden
Sweden

Austria
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
The Netherlands
Norway
Norway

Russia
Spain
Switzerland
United Kingdom

United States
Argentina
Canada
Canada
Mexico

Australia
China
China
India
India
Korea
Malaysia
Singapore
South Africa
Taiwan
Thailand

Switzerland
Canada
Croatia

100
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
100
75
70
100
100
90
49 2)
–

50
21
49

50
361
2
14
5
–
4
90
13
26
–
1,301
2
44
222
75
161

5
43
–
328
–
2,830
41
–
170
n/a
–
20
2
65
725
389
150
2
2
–
270
90
–

137
1
65

20,731
2,216
306
6
5
1,847
65
216
196
524
4,232
120
15
5,357
3,200
114
1,788

5
170
–
4,094
395
29,006
178
51
170
1,050
67
100
2
475
147
64
3,285
4
1
128
36
17
373
80,756

–
7
330
337

1) Through subsidiary holdings, total holdings amount to 100% of Compania Ericsson S.A.C.I.
2) Through subsidiary holdings, total holdings amount to 100% of Ericsson (Thailand) Ltd.

112

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Shares owned by subsidiary companies

Type Company

Reg. No.

Domicile

Percentage
of ownership

Subsidiary companies
II
I
I
I
I
I
I
I
I
I
I

Ericsson Cables Holding AB
Ericsson France SAS
Ericsson Telekommunikation GmbH 1)
LM Ericsson Ltd.
Ericsson Telecommunicatie B.V.
Ericsson Telekomunikasyon A.S.
Ericsson Ltd.
Ericsson Inc.
Ericsson Wifi Inc.
Drutt Corporation Inc.
Optimi Corporation

I
I
I
I
I
I
I
I

Redback Networks Inc.
Telcordia Technologies Inc.
Ericsson Telecomunicações 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.

Key to type of company
I Manufacturing, distribution and development companies
II Holding companies

556044-9489

Sweden
France
Germany
Ireland
The Netherlands
Turkey
United Kingdom
United States
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
51
100
100

R
e
s
u
l
t
s

1) Disclosures Pursuant to Section 264b of the German Commercial Code (Handelsgesetzbuch – HGB)
Applying Section 264b HGB, Ericsson Holding GmbH and Ericsson Telekommunikation GmbH, 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.

P9
Inventories

Inventories

Finished products and goods for resale
Inventories

2013

2012

7
7

55
55

P10
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

Movements in allowances for impairment

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

2013

2012

54
–22
32

2
34
2,040
–75
1,965

57
–23
34

1
35
2,116
–97
2,019

Opening balance
Additions
Utilization
Reversal of excess
amounts
Translation difference
Closing balance

Trade receivables
2012
2013

Customer finance
2012
2013

23
–
–

–
–
23

23
–
–

–
–
23

97
3
–

–27
2
75

65
62
–9

–20
–1
97

NOTES TO THE PARENT COMPANY financial statements

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Aging analysis as per December 31

2013
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

2012
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 current

Credit commitments for customer finance

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

24
–
1
8
–
23
56

25
–
5
2
–
25
57

–
–
–
–
–
–23
–23

2
–
–
–
–
–
2

1
–
–
–
–
–
1

1,404
80
58
448
18
32
2,040

1,516
474
21
14
70
21
2,116

–
–63
–
–
–9
–3
–75

–
–48
–
–
–44
–5
–97

2013

2,040
178
2,218
115
–213
2,120
1,965
901
456

2012

2,116
258
2,374
56
–177
2,253
2,019
1,020
543

P11
Receivables and Liabilities – Subsidiary
Companies

Receivables and liabilities – subsidiary companies

Payment due by period

< 1
year

1–5
years

>5
years

Total
2013

Total
2012

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

10,990

3,573
10,260
13,833

–

502
43,942
44,444

–
–
–

–

–
–
–

–

–
–
–

11,024

15,737

3,573
10,260
13,833

896
15,299
16,195

24,034

26,732

–
–
–

502
43,942
44,444

277
46,682
46,959

1) Including non-interest-bearing receivables and liabilities, net, amounting

to SEK –24,034 million in 2013 (SEK –20,732 million in 2012).

During 2013 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 was SEK 428 (471)
million, the amount of the assets that the Parent Company continues
to recognize was SEK 188 (28) million, and the carrying amount of the
associated liabilities was SEK 0 (0) million.

114

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R
e
s
u
l
t
s

P12
Other Current Receivables

P13
Equity and other comprehensive income

Other current receivables

Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other
Total

2013

506
126
1,527
197
2,356

2012

446
75
3,520
269
4,310

Capital stock 2013
Capital stock at December 31, 2013, consisted of the following:

Capital stock

Class A shares 1)
Class B shares 1)
Total

Number
of shares

261,755,983
3,043,295,752
3,305,051,735

Capital
stock

1,309
15,217
16,526

1) Class A shares (quotient value SEK 5.00) and Class B shares (quotient value SEK 5.00).

Equity and other comprehensive income 2013

January 1, 2013
Net income
Other comprehensive income
Items that may be reclassified to profit or loss
Revaluation of other investments in shares and
participations

Fair value remeasurement

Total other comprehensive income, net of tax
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock Purchase Plans
Repurchase of own shares
Dividends paid
December 31, 2013

Capital
stock

16,526
–

–
–
–

–
–
–
–
–
16,526

Equity and other comprehensive income 2012

January 1, 2012
Net income
Other comprehensive income
Items that may be reclassified to profit or loss
Cash flow hedges

Gains/losses arising during the period

Capital
stock

16,367
–

–
–
–

159
–
–
–
–
16,526

Revalua-
tion
reserve

Statutory
reserve

Total
restricted
equity

Disposi-
tion
reserve

Fair
value
reserves

Other
retained
earnings

Non-
restricted
equity

20
–

31,472
–

48,018
–

100
–

–
–

25,524
6,855

25,624
6,855

–
–
–

–
–
–
–
–
20

–
–
–

–
–
–
–
–
31,472

–
–
–

–
–
–
–
–
48,018

–
–
–

–
–
–
–
–
100

69
69
69

–
–
–
–
–
69

–
–
–

–
90
23
–
–8,863
23,629

69
69
69

–
90
23
–
–8,863
23,798

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
–

203
–

40,417
–6,793

40,720
–6,793

–
–
–

–
–
–
–
–
20

–
–
–

–
–
–
–
–
31,472

–
–
–

159
–
–
–
–
48,018

–
–
–

–
–
–
–
–
100

–203
–203
–203

–
–
–
–
–
–

–
–
–6,793

–
66
26
–159
–8,033
25,524

–203
–203
–6,996

–
66
26
–159
–8,033
25,624

Total

73,642
6,855

69
69
69

–
90
23
–
–8,863
71,816

Total

88,579
–6,793

–203
–203
–6,996

159
66
26
–159
–8,033
73,642

NOTES TO THE PARENT COMPANY financial statements

Ericsson | Annual Report 2013

115

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2013

2012

33
119
203
93
499
947
1

123
78
235
32
405
873
1

2013

2012

386
–23
–17

126

–65

–51
51
407

376
–58
24

100

–56

–59
59
386

Change in the defined benefit obligation

Opening balance
Payment to pension trust
Payment to pension trust, reclassified
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 2014 are SEK 65 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

2013

2012

2011

87
40
1

61
39
1

128

101

73
–

59
–

201

160

55
43
–1

123

123
–25

195

Of the total pension cost, SEK 161 million (SEK 121 million in 2012 and
SEK 177 million in 2011) is included in operating expenses and SEK
40 million (SEK 39 million in 2012 and SEK 18 million in 2011) in the
financial net.

P14
Untaxed Reserves

Untaxed reserves

2013

Accumulated depreciation
in excess of plan
Total accumulated depreciation
in excess of plan

Jan 1

Additions/
withdrawals (–)

Dec 31

Plan assets allocation

Cash and cash equivalents
Equity securities
Debt securities
Real estate
Investment funds
Total

288

–288

–

Of which Ericsson securities

The company has decided to dissolve the accumulated accelerated
depreciation. Deferred tax liability on untaxed reserves, not accounted
for in deferred taxes, therefore amounts to SEK 0 million (SEK 64 million
in 2012).

Contributions to Swedish subsidiaries amount to SEK 430 million
(SEK 6,570 million in 2012). There were no contributions from Swedish
subsidiaries in 2013 (SEK 4,536 million in 2012).

P15
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 ITP2 plan
for the Parent Company is partly funded. ITP2 is a supplementary
pension plan for salaried employees born before 1979. 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
Payment to pension trust, reclassified
Closing balance provision for pensions

2013

2012

754
–947
–193
407
185
8
407

713
–873
–160
386
136
24
386

1) The ITP2 obligation is covered by the Swedish law on safeguarding of pension

commitments and amounts to SEK 737 million (SEK 709 million in 2012).

The defined benefit obligations are calculated based on the actual
salary levels at year-end and based on a discount rate of 3.4%.

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 2009–2013 additional transfers of SEK 175 million have
been made.

The Parent Company utilizes no assets held by the pension trust.

Return on plan assets was 5.8% (7.3% in 2012).

116

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Restruc turing

Customer
finance

71
170
–
–82
–
159

160
16
–1
–106
2
71

84
5
–
–
–
89

87
–
–3
–
–
84

Other

3,554
218
–195
–2,135
–
1,442

28
3,548
–200
–22
200
3,554

Total other
provisions 1)

3,709
393
–195
–2,217
–
1,690

275
3,564
–204
–128
202
3,709

R
e
s
u
l
t
s

P16
Other Provisions

Other provisions

2013
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications
Closing balance

2012
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications
Closing balance

1) Of which SEK 1,540 million (SEK 3,591 million in 2012) is expected to be utilized within one year.

P17
Interest-Bearing Liabilities
As per December 31, 2013, the Parent Company’s outstanding
interest-bearing liabilities, excluding liabilities to subsidiaries, stood at
SEK 26.2 billion.

Interest-bearing liabilities

1) Including notes and bond loans of SEK 1,966 (2,671) million.

2013

2012

5,966
39
6,005

14,522
5,686
20,208
26,213

2,671
–
2,671

16,519
5,273
21,792
24,463

Notes and bond loans

Issued–maturing

Nominal
amount

Coupon

Currency

Book value
(SEK million)

Maturity date

Unrealized hedge
gain/loss (included
in book value)

0.594%
5.375%

4.125%

220
500
300
170
1,000

4,000
98
98
684

EUR
EUR
USD
USD
USD

SEK
USD
USD
USD

1,966
5,056 2)
1,939
1,112
6,415
16,488

4,000
632
634
4,420
9,686

June 27, 2014 1)
June 27, 2017
June 23, 2016
December 23, 2020
May 15, 2022

July 15, 2015
September 30, 2019
September 30, 2021
November 6, 2020

–616

1) Next contractual repricing date March 27, 2013 (quarterly).
2) Interest rate swaps are designated as fair value hedges.
3) Private Placement, Swedish Export Credits Guarantee Board (EKN) / Swedish

5) European Investment Bank (EIB), R&D project financing.
6) Nordic Investment Bank (NIB), R&D project financing.
7) European Investment Bank (EIB), R&D project financing.

Export Credit Corporation (SEK).

4) Private Placement, Swedish Export Credit Corporation (SEK).

NOTES TO THE PARENT COMPANY financial statements

Ericsson | Annual Report 2013

117

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All outstanding notes and bond loans are issued under the Euro
medium-term note (EMTN) program or under its SEC Registered
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. This resulted in
weighted average interest rate of 4.44% (4.69%). These bonds are
revalued based on changes in benchmark interest rates according to
the fair value hedge methodology stipulated in IAS 39.

In June 2013 the Company repaid the EUR 313 million bond.
In June the Company signed a new USD 2 billion multi-currency
revolving credit facility and refinanced its credit facility signed in 2007.
The new facility has a tenor of five years, with two extension options of
one year each, and the facility serves for general corporate purposes.

In November 2013 the Company made a full drawdown of USD 684

In January 2014 the Company repaid the SEK 4 billion EIB loan with

original maturity July 2015.

P18
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

Liability

Asset

Liability

2013

2012

Currency derivatives
Maturity within 3 months
Maturity between 3
and 12 months
Maturity 1 to 3 years
Total

Of which internal
Of which designated in
cash flow 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

Of which designated in
fair value hedge relations

604

1,016

848

523

290
8
821
23

–

266
–
870
720

–

186
382
663
101
1,332 2)

269
688
163
36
1,156

611
4
1,630
32

–

487
565
1,212
38
2,302 2)

462
–
1,311
1,247

–

285
681
738
–
1,705

724

–

969

–

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 613 million (SEK 825 million in 2012) is reported as non-current assets.

118

Ericsson | Annual Report 2013

Cash, cash equivalents and short-term investments

SEK billion

Bank deposits
Type of issuer/counterpart
Governments
Banks
Corporates
Mortgage institutes
Total

Remaining time to maturity
> 5
years

3–12
months

1–5
years

< 3
months

12.8

–

0.4
6.7
4.4
–
24.3

4.0
–
–
–
4.0

14.7
–
–
11.8
26.5

3.7
–
–
–
3.7

2013

12.8

22.8
6.7
4.4
11.8
58.5

The instruments are classified as held for trading and are therefore
short-term investments.

During 2013, cash, cash equivalents and short-term investments

increased by SEK 1.1 billion to SEK 58.5 billion.

Repayment schedule of non-current borrowings

Nominal amount
(SEK billion)

Current maturities
of long-term debt

Borrowings
(non-current)

2014
2015
2016
2017
2018
2019 and later
Total

2.0
4.0
–
–
–
–
6.0

–
–
1.9
4.4
–
13.2
19.5

Total

2.0
4.0
1.9
4.4
–
13.2
25.5

Debt financing is mainly carried out through borrowing in the Swedish
and international debt capital markets.

Funding programs 1)

Amount

Utilized Unutilized

Euro Medium-Term Note program
(USD million)
SEC Registred program (USD Million)
Long-Term Committed Credit facility
(USD million)

5,000

– 2)

1,462
1,000

3,538
–

2,000

–

2,000

1) There are no financial covenants related to these programs.
2) Program amount not determined.

In January 2013 Standard & Poor’s changed the Company’s credit
rating outlook from BBB+ (stable) to BBB+ (negative) and Moody’s
changed the credit rating outlook A3 (stable) to A3 (negative). Both
credit ratings are considered to be solid investment grade.

Fair valuation of the Company’s financial instruments
The Company´s financial instruments generally meet the requirements
of level 1 valuation due to the fact that these assets are valued based
on quoted prices in active markets for identical assets.

Exceptions to this relate to:

> Ownership in other companies where the Company neither has

control nor significant influence. The amount recognized in these
cases was SEK 0.5 (0.4) billion. These assets, classified as level 3
assets for valuation purposes, have been valued based on the value
in use technique.

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

PCXP17XP29XEN_v74.indd 118

2014-03-06 14:01

and loss had a net gain of SEK 0.5 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

Short-term
invest-
ments

Receiv-
ables and
liabili ties
subsidia-
ries

Borrow-
ings

Trade
payables

Cash
equival-
ents

P10

–

2.0
–

–
2.0

P11

P17

P20

–

24.9
–

–

–
–

–

–
–

–68.5
–43.6

–26.2
–26.2

–0.4
–0.4

34.5

–
–

–
34.5

11.1

–
–

–
11.1

Other
current
receiv-
ables

P12

1.5

–
–

–
1.5

Other
current
liabilities

Other
non-
current
assets

2013

2012

P19

–1.3

–
–

–
–1.3

0.6

–
–

–
0.6

46.4

26.9
–

45.8

33.9
–

–95.1
–21.8

–98.8
–19.1

R
e
s
u
l
t
s

SEK billion

Note

Assets at fair value
through profit or loss

Loans and receivables
Available for sale assets
Financial liabilities at
amortized cost
Total

P21
Assets Pledged as Collateral

Assets pledged as collateral

Bank deposits
Total

2013

553
553

2012

520
520

The major item in bank deposits is the internal bank’s clearing and
settlement commitments of SEK 376 million (SEK 335 million in 2012).

P22
Contingent Liabilities

Contingent liabilities

Total contingent liabilities

2013

2012

15,999

16,719

Contingent liabilities include pension commitments of SEK 14,362
million (SEK 14,953 million in 2012).

In accordance with standard industry practice, the Company enters
into commercial contract guarantees related to contracts for the supply
of telecommunication equipment and services. The total amount for
2013 was SEK 16,595 million (SEK 18,473 million in 2012). Potential
payments due under these bonds are related to the Company’s
performance under applicable contracts.

For information about financial guarantees, see Note P10,

“Trade Receivables and Customer Finance.”

Financial instruments carried at other than fair value

SEK billion

Current part of
non-current borrowings

Notes and bond loans
Borrowings non-current
Total

Book value
2012

2013

6.0

14.5
5.7
26.2

2.7

16.5
5.3
24.5

Fair value
2012

2.7

17.0
5.5
25.2

2013

6.0

14.7
5.7
26.4

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.

P19
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

P20
Trade Payables

Trade payables

Trade payables excluding associated
companies and joint ventures
Associated companies and joint
ventures
Total

All trade payables fall due within 90 days.

2013

189
633
299
334
15
1,305
80
2,222

2012

254
392
302
90
7
2,214
260
3,127

2013

2012

407

204
611

555

–
555

NOTES TO THE PARENT COMPANY financial statements

Ericsson | Annual Report 2013

119

PCXP17XP29XEN_v74.indd 119

2014-03-06 14:01

P23
Statement of Cash Flows

Interest paid in 2013 amounted to SEK 1,022 million (SEK 1,218 million
in 2012 and SEK 1,258 in 2011) and interest received was SEK 1,203
million (SEK 1,536 million in 2012 and SEK 2,532 in 2011). Income taxes
paid were SEK 255 million (income taxes received were SEK 133 million
in 2012 and SEK 147 million in 2011).

Adjustments to reconcile net income to cash

2013

2012

2011

203
203

218
–
218

421
–7

177
177

218
–
218

395
421

168
168

237
–
237

405
250

434

12,167

1,326

–288
430
–
–34

–388
2,034
–
–193

–339
1,979
–70
–388

956

14,436

3,163

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

P24
Leasing

Leasing with the Parent Company as lessor
At December 31, 2013, future minimum payment receivables
were distributed as follows:

Future minimum payment receivables

2014
2015
2016
2017
2018
2019 and later
Total

Operating leases

11
5
4
1
1
–
22

The operating lease income is mainly income from the subleasing
of real estate. See Notes to the consolidated financial statements,
Note C27, “Leasing.”

P25
Information Regarding Employees

Average number of employees

2013

2012

Men Women

Total

Men Women

Total

189
217
406
189
189

168
27
195
168
168

357
244
601
357
357

200
238
438
200
200

169
29
198
169
169

369
267
636
369
369

Northern Europe &
Central Asia 1) 2)
Middle East
Total
1) Of which in Sweden
2) Of which in EU

Remuneration

Wages and salaries and social security expenses

Leasing with the Parent Company as lessee
At December 31, 2013, future payment obligations for leases
were distributed as follows:

Future payment obligations for leases

Wages and salaries
Social security expenses
Of which pension costs

Operating leases

Wages and salaries per geographical area

2014
2015
2016
2017
2018
2019 and later
Total

710
552
424
387
272
1,366
3,711

Northern Europe & Central Asia 1) 2)
Middle East
Total
1) Of which in Sweden
2) Of which in the EU

2013

2012

644
380
246

648
355
190

2013

2012

410
234
644
410
410

416
232
648
416
416

Remuneration in foreign currency has been translated to SEK at average exchange rates for
the year.

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 22.1 million in 2013 (SEK 19.2 million in 2012).

120

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P27
Fees to Auditors

Fees to auditors

2013
Audit fees
Audit-related fees
Tax services fees
Other fees
Total

2012
Audit fees
Audit-related fees
Tax services fees
Other fees
Total

2011
Audit fees
Audit-related fees
Tax services fees
Other fees
Total

PwC

22
8
1
10
41

23
11
1
5
40

18
8
–
12
38

R
e
s
u
l
t
s

The allocation of fees to the auditors is based on the requirements in the Swedish Annual
Accounts Act.

During the period 2011–2013, 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 and consultation on financial accounting.
The tax services include general expatriate services and corporate
tax compliance work. Other services include services related to
acquisitions, operational effectiveness and assessments of internal
control.

P26
Related Party Transactions

During 2013, various transactions were executed pursuant to
contracts based on terms customary in the industry and negotiated
on an arm’s length basis.

Ericsson Nikola Tesla d.d.
Ericsson Nikola Tesla d.d. is a company providing the design, sales
and service of telecommunications systems and equipment and an
associated member of the Ericsson Group. Ericsson Nikola Tesla d.d. is
located
in Zagreb, Croatia. 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

2013

2012

12
128

8
133

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 in 2009 as a joint venture, equally owned by
Ericsson and STMicroelectronics.

In early 2013 the parents agreed to split up and close the joint
venture. The company ST-Ericsson is winding down and all business
has been transferred to parents or divested during 2013. In 2013, the
Parent Company acquired the remaining shares in ST-Ericsson AT SA
which is now a fully owned subsidiary.

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/Other current assets
Related party balances
Receivables
Payables

2013

2012

–
23

–
204

–
–

Other related parties
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.”

NOTES TO THE PARENT COMPANY financial statements

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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, revenues, operating and after-tax results,
financial condition, cash flow, liquidity, credit rating,
marketshare, reputation, 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
operating 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 operators and other customers 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 and other
customers. Some operators and other customers, 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

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Contents

Market, technology and business risks
Regulatory, compliance and corporate
governance risks
Risks associated with owning Ericsson shares

122

127
129

> Risks of excess and obsolete inventories and excess

manufacturing capacity

> Risk of financial difficulties or failures among our suppliers
Increased demand for customer finance, difficulties in
>
collection of accounts receivable and increased risk of counter
party 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 in our pension plan assets and/or

increased pension liabilities due to discount rate changes or
other accounting or regulatory 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, and decisions
made 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,
our operating results, may be adversely affected.

If capital expenditures by operators and other customers is
weaker than we anticipate, our revenues and profitability may
be adversely affected. The level of demand from operators 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.

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Sales volumes and gross margin levels are affected by the
variation and short order time of our products and services.
Our sales to operators and other customers 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 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 shorter
lead times for delivery than initial network build outs. Orders for
such network expansions and upgrades are normally placed at
short notice by customers, often less than a month in advance,
and consequently variations in demand are difficult to forecast.
As a result, changes in our product and service mix and the
short order time for certain of our products may affect our ability
to accurately forecast sales and margins or detect in advance
whether actual results will deviate from market consensus.
Short-term variation could have a material adverse effect on our
business, operating results, financial condition and cash flow.

We may not be able to properly respond to market trends in the
industries in which we operate, 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
industries in which we operate, 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 competencies to develop and sell
products, services and solutions that are competitive in this
changing business environment, 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.
A substantial portion of our business depends on the continued
growth 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 operators fail to increase the number of
subscribers and/or stimulate increased usage, our business and
operating results could be materially adversely affected. Also,
if operators fail to monetize new services, fail to introduce new
business models or experience a decline in operator revenues
or profitability, their willingness to further invest in their network
systems may decrease which will reduce their demand for
our products and services and have an adverse effect on our
business, operating 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.

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.
The markets in which we operate are highly competitive in terms
of price, functionality, service quality, customization, timing of
development, and the introduction of new products and services.
We face intense competition from significant competitors, many
of which are very large, with substantial technological and
financial resources and established relationships with operators.
Further, certain competitors, Chinese companies in particular,
have become relatively stronger in recent years. We may also
encounter increased competition from new market entrants,
alternative technologies or due to evolving industry standards.
In particular, we may face competition from large IT companies
entering the telecommunications market who benefit from
economies of scale due to 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 offloaded 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
business, operating results, financial condition and market share.

Vendor consolidation may lead to stronger competitors who are
able to benefit from integration, scale and greater resources.
Industry convergence and consolidation among equipment and
services suppliers could potentially result in stronger competitors
that are competing as end-to-end suppliers as well as
competitors more specialized in particular areas. Consolidation
may also result in competitors with greater resources than we
have or in reduction of our current scale advantages. This could
have a materially adverse effect on our business, operating
results, financial condition and market share.

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 agreements
with a limited number of significant customers. Many of these
agreements are opened up on a yearly basis to renegotiate the
price for our products and services and do not contain committed
purchase volumes. Although no single customer represents more
than 8% of our sales in 2013, our ten largest customers accounted
for 44% of our sales in 2013. 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 fewer operators with activities in several

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countries. This trend is expected to continue, and intra-country
consolidation is likely to accelerate as a result of competitive
pressure. A market with fewer and larger operators will increase
our reliance on key customers and may negatively impact
our bargaining position and profit margins. Moreover, if the
combined companies operate in the same geographic market,
networks may be shared and less network equipment and fewer
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
agreements, securing necessary regulatory approvals, or
integration of businesses. Network operators have started to
share parts of their network infrastructure through cooperation
agreements rather than legal consolidations, which may
adversely affect demand for network equipment. Accordingly,
operator consolidation may have a material adverse effect on our
business, operating results and financial condition.

Certain long-term agreements with customers still include
commitments to future price reductions, requiring us to constantly
manage and control our cost base.
Long-term 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 to reduce costs will
be sufficient or quick enough to maintain our gross margin in
such contracts, which may have a material adverse effect on our
business, operating results and financial condition.

Growth of our managed services business is difficult to predict,
and requires taking significant contractual risks.
Operators increasingly outsource parts of their operations
to reduce cost and focus on new services. To address this
opportunity, we offer operators various services in which we
manage their networks. The 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, early
contract margins are generally low and the mix of new and old
contracts may negatively affect reported results in a given period.
Contracts for such services normally cover several years and
generate recurring revenues. However, contracts have been,
and may in the future be, terminated or reduced in scope, which
has negative impacts on sales and earnings. While we believe
we have a strong position in the managed services market,
competition in this area is increasing, which may have adverse
effects on our future growth and profitability.

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 make significant investments in technological innovation.
We invest significantly in new technology, products and solutions.
In order for us to be successful, those technologies, products
and solutions must be accepted by relevant standardization
bodies and by the industry as a whole. The failure of our research
and development efforts to be technically or commercially
successful, could have adverse effects on our business,
operating results and financial condition. If we invest in the
development of technologies, products and solutions that do not
function as expected, are not adopted by the industry, are not
ready in time, or are not successful in the marketplace, our sales
and earnings may materially suffer. Additionally, it is common for
research and development projects to encounter delays due to
unforeseen problems. Delays in production may increase the
cost of research and development efforts and put us at
a disadvantage against our competition. This could have a
material adverse effect upon our business, operating results a
nd financial condition.

We engage in acquisitions and divestments which may be
disruptive and require us to incur significant expenses.
In addition to in-house innovation efforts, we make strategic
acquisitions in order to obtain various benefits such as reduced
time-to-market, access to technology and competence,
increased scale or to broaden our product portfolio or customer
base. Future acquisitions could result in the incurrence of
contingent liabilities and an increase in amortization expenses
related to goodwill and other intangible assets, which could have
a material adverse effect upon our business, operating results,
financial condition and liquidity.
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

> Expenses of any undisclosed or potential legal liabilities of the

acquired company.

From time to time we also divest parts of our business to optimize
our product portfolio or operations. Any decision to dispose of or
otherwise 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 favorable terms or at all. The risks associated with such
acquisitions and divestments could have a material adverse
effect upon our business, operating results, financial condition
and liquidity.

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We are in, and may enter into new, JV arrangements and have,
and may have new, partnerships which may not be successful and
expose us to future costs.
Our JV and partnering arrangements may fail to perform as
expected for various reasons, including an incorrect assessment
of our needs, our inability to take action without the approval
of our partners or the capabilities or financial stability of our
strategic partners. Our ability to work with these partners or
develop new products and solutions may become constrained,
which could harm our competitive position in the market.

Additionally, our share of any losses from or commitments to
contribute additional capital to such partnerships may adversely
affect our business, operating results, financial condition and
cash flow.

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.
Our ability to deliver according to market demands and
contractual commitments depends significantly on obtaining a
timely and adequate supply of materials, components, production
capacity and other vital services on competitive terms. Although
we strive to avoid single-source supplier solutions, this is not
always possible. Accordingly, there is a risk that we will be unable
to obtain key supplies we need to produce our products and
provide our services on commercially reasonable terms, or at
all. Failure by any of our suppliers could interrupt our product
or services supply or operations and significantly limit sales or
increase our costs. To find an alternative supplier or redesign
products to replace components may take significant time
which could cause significant delays or interruptions in the
delivery of our products and services. We have from time to time
experienced interruptions of supply and we may experience such
interruptions in the future.

Furthermore, our procurement of supplies requires us
to predict future customer demands. If we fail to anticipate
customer demand properly, an over or under supply of
components and production capacity could occur. In many
cases, some of our competitors utilize the same manufacturers
and if they have purchased capacity ahead of us we could
be blocked from acquiring the needed products. This factor
could limit our ability to supply our customers or could increase
costs. At the same time, we commit to certain capacity levels
or component quantities, which, if unused, will result in charges
for unused capacity or scrapping costs. We are also exposed
to financial counterpart risks to suppliers when we pay in
advance for supplies. Such supply disruptions and cost
increases may negatively affect our business, operating
results and financial condition.

Product or service quality issues could lead to reduced
revenue and gross margins and declining sales to existing
and new customers.
Sales contracts normally include warranty undertakings for faulty
products and often include provisions regarding penalties and/
or termination rights in the event of a failure to deliver ordered
products or services on time or with required quality. Although
we undertake a number of quality assurance measures to
reduce such risks, product quality or service performance issues
may negatively affect our reputation, operating results and
financial condition. If significant warranty obligations arise due
to reliability or quality issues, our operating results and financial
position could be negatively impacted by costs associated with
fixing software or hardware defects, high service and warranty

expenses, high inventory obsolescence expense, delays in
collecting accounts receivable or declining sales to existing and
new customers.

Due to having a significant portion of our costs in SEK and
revenues in other currencies, our business is exposed to foreign
exchange fluctuations that could negatively impact our revenues
and operating results.
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.

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 negative effect on our reported results.
Our attempts to reduce the effects of exchange rate fluctuations
through a variety of hedging activities may not be sufficient or
successful, resulting in an adverse impact on our results and
financial condition.

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, infringement claims brought against us
by competitors and others and changes in the area of open
standards, especially in light of recent attention on licensing of
open standard patents.
Although we have a large number of patents, there can be
no assurance that they will not be challenged, invalidated, or
circumvented, or that any rights granted in relation to our patents
will in fact provide us with competitive advantages.

We utilize a combination of trade secrets, confidentiality
policies, nondisclosure and other contractual arrangements in
addition to relying on patent, copyright and trademark laws to
protect our intellectual property rights. However, these measures
may not be adequate to prevent or deter infringement or other
misappropriation. In addition, we rely on many software patents,
and limitations on the patentability of software may materially
affect our business.

Moreover, we may not be able to detect unauthorized use
or take appropriate and timely steps to establish and enforce
our proprietary rights. In fact, existing legal systems of some
countries in which we conduct business offer only limited
protection of intellectual property rights, if at all. Our solutions
may also require us to license technologies from third parties.
It may be necessary in the future to seek or renew licenses
and there can be no assurance that they would be available
on acceptable terms, or at all. Moreover, the inclusion in our
products of software or other intellectual property licensed from
third parties on a non-exclusive basis could limit our ability to
protect proprietary rights in our products.

Many key aspects of telecommunications and data network
technology are governed by industry-wide standards usable by
all market participants. As the number of market entrants and the
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 against our customers,

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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,
reputation, operating results and financial condition.

Recent attention on licensing of patents necessary to
conduct an open standard (e.g. 2G, 3G and 4G technology),
investigations held by antitrust authorities and legislative change
could potentially affect Ericsson’s ability to benefit from its patent
portfolio in the area of such open standards, which could have
a material adverse effect on our business, reputation, operating
results and financial condition. Ericsson holds a leading patent
portfolio in open standards and possible changes regarding such
a portfolio may materially affect our business.

We are involved in lawsuits and investigations which, if determined
against us, could require us to pay substantial damages, fines
and/or penalties.
In the normal course of our business we are involved in legal
proceedings. These lawsuits include such matters as commercial
disputes, claims regarding intellectual property, antitrust, tax
and 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
unfavorable resolution of a particular lawsuit could have a
material adverse effect on our business, operating results,
financial condition and reputation.

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
regulations or other laws, regulations or requirements. Whether or
not there is merit to such claims, the time and costs incurred to
defend the Company and its officers and the potential settlement
or compensation to the plaintiffs could have significant impact
on our reported results and reputation. For additional information
regarding certain of the lawsuits in which we are involved, see
“Legal Proceedings” in the Board of Directors’ Report.

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
communications networks, which are vulnerable to damage
or disturbance from a variety of sources. Having outsourced
a significant portion of our IT operations, we depend partly
on security and reliability measures of external companies.
Regardless of protection measures, our systems and
communications networks are susceptible to disruption due to

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failure, vandalism, computer viruses, security breaches, natural
disasters, power outages and other events. We also have a
concentration of operations on certain sites, including R&D,
production, network operation centers, and logistic centers
and shared services centers, where business interruptions
could cause material damage and costs. The delivery of goods
from suppliers, and to customers, could also be hampered for
the reasons stated above. Interruptions to our systems and
communications may have an adverse effect on our operations
and financial condition.

Cyber security incidents affecting our business may have a
material adverse effect on our business, financial condition,
reputation and brand.
Ericsson’s business operations involve areas that are particularly
vulnerable to cyber security incidents such as data breaches,
intrusions, espionage, know-how and data privacy infringements,
leakage and general malfeasance. Examples of these areas
include, among others, research and development, managed
services, usage of cloud solutions, software development,
lawful interception and product engineering. Any cyber security
incident including unintended use, involving our operations,
product development, services, our third party providers or
installed product base, could cause severe harm to Ericsson and
could have a material adverse effect on our business, financial
condition, reputation and brand.
Ericsson relies heavily on third parties to whom we have
outsourced significant aspects of our IT infrastructure, product
development and engineering services. While we have taken
precautions relating to the selection, integration and ongoing
management of these third parties, any event or attack that is
caused as a result of vulnerabilities in their operations or products
supplied to us could have a material adverse effect upon Ericsson,
our business, financial condition, reputation and brand, potentially
slowing operations, leaking valuable intellectual property or
damaging our products which have been installed in
our customers’ networks.

We must continue to attract and retain highly qualified employees
to remain competitive.
We believe that our future success largely depends on our
continued ability to hire, develop, motivate and retain engineers
and other qualified personnel needed to develop successful
new products, support our existing product range and provide
services to our customers.

Competition for skilled personnel and highly qualified

managers in the telecommunications industry remains intense.
We are continuously developing our corporate culture,
remuneration, promotion and benefits policies as well as other
measures aimed at empowering our employees and reducing
employee turnover. However, there are no guarantees that
we will be successful in attracting and retaining employees
with appropriate skills in the future, and failure in retention and
recruiting could have a material adverse effect on our business
and brand.

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If our customers’ financial conditions decline, we will be exposed
to increased credit and commercial risks.
After completing sales to customers, we may encounter difficulty
collecting accounts receivables and could be exposed to risks
associated with uncollectable accounts receivable. We regularly
assess the credit worthiness of our customers and based on that
we determine a credit limit for each one of them. 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 demands may increase. Upon the financial failure of a
customer, we may experience losses on credit extended and
loans made to such customer, losses relating to our commercial
risk exposure, and the loss of the customer’s ongoing business. If
customers fail to meet their obligations to us, we may experience
reduced cash flows and losses in excess of reserves, which
could materially adversely impact our operating results and
financial condition.

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, financial condition and
cashflow may materially suffer.
If we do not generate sufficient amounts of capital to support
our operations, service our debt and continue our research and
development and customer finance programs, or if we cannot
raise sufficient amounts of capital at the required times and on
the set terms, our business is likely to be adversely affected.
Access to funding may decrease or become more expensive
as a result of our operational and financial condition, market
conditions, including financial conditions in the Eurozone, or due
to deterioration in our credit rating. There can be no assurance
that additional sources of funds that we may need from time
to time, will be available or available on reasonable terms. If
we cannot access capital on a commercially viable basis, our
business, financial condition and cashflow could materially suffer.

Impairment of goodwill may negatively impact financial condition.
An impairment of goodwill or other intangible assets could
adversely affect our financial condition or results of operations.
We have a significant amount of goodwill and intangible assets;
for example, patents, customer relations, trademarks and
software. Goodwill is the only intangible asset the company has
recognized to have indefinite useful life.

Other intangible assets are mainly amortized on a straight-
line basis over their estimated useful lives, but for no more than
ten years, and are reviewed for impairment whenever events
such as product discontinuances, product dispositions or other
changes in circumstances indicate that the carrying amount may
not be wholly recoverable. Those not yet in use are tested for
impairment annually.

Historically, we have recognized impairment charges related

to intangible assets mainly due to restructuring. Additional
impairment charges may be incurred in the future that could be
significant due to various reasons, including restructuring actions
or adverse market conditions that are either specific to us or the
broader telecommunications industry or more general in nature
and that could have an adverse effect on our operating results
and financial condition.

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. Estimates require management judgment as well as
the definition of cash-generating units for impairment testing
purposes. Other judgments might result in significantly
different results and may differ from the actual financial
condition in the future.

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.
Telecommunications is an industry which is subject to
regulations. Changes to these regulations may adversely affect
both our customers’ and our own operations. For example,
regulations imposing more stringent, time-consuming or costly
planning and zoning requirements or building approvals for
radio base stations and other network infrastructure could
adversely affect the timing and costs of network construction or
expansion, and ultimately the commercial launch and success
of these networks. Similarly, tariff and roaming regulations or
rules on network neutrality could also affect operators’ ability or
willingness to invest in network infrastructure, which in turn could
affect the sales of our systems and services. Additionally, delay
in radio frequency spectrum allocation, and allocation between
different types of usage may adversely affect operator spending
or force us to develop new products to be able to compete.
Further, we develop many of our products and services

based on existing regulations and technical standards.
Changes to existing regulations and technical standards, or
the implementation of new regulations and technical standards
relating to products and services not previously regulated,
could adversely affect our development efforts by increasing
compliance costs and causing delay. Demand for those products
and services could also decline. Regulatory changes in license
fees, environmental, health and safety, privacy and other
regulatory areas may increase costs and restrict our operations
or the operations of network operators and service providers.
Also indirect 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 products or us.

Ericsson may fail or be unable to comply with laws or

regulations and could experience adverse rulings in enforcement
or other proceedings, which could have a material adverse
impact on our business, financial condition and brand.

Our substantial international operations are subject to
uncertainties which could affect our operating results.
We conduct business throughout the world and are subject
to the effects of general global economic conditions as well
as conditions unique to specific countries or regions. We
have customers in 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

Risk factors

Ericsson | Annual Report 2013

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Results

Risk factors CONTINUED

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 our sales or our ability to
purchase critical components.

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, remains uncertain and the level of sanctions are
still high. 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. In particular,
the sanctions towards Iran are still significant in scope, although
in part temporarily and conditionally recently relieved. The
EU exemption for certain standard telecom equipment is still
maintained. Even so, there is a risk in many of these countries of
unexpected changes in regulatory requirements, tariffs and other
trade barriers, price or exchange controls, or other governmental
policies which could limit our operations and decrease our
profitability. Further export control regulations, sanctions or
other forms of trade restrictions imposed on countries in which
we are active may result in a reduction of commitment in those
countries. The need to terminate activities as a result of further
trade restrictions may also expose us to customer claims
and other actions. Although we seek to comply with all such
regulations, there can be no assurance that we are, or will be
in the future, compliant with all relevant regulations and such
violations, even unintentional violations, could have material
adverse effects on our business, operating results, reputation
and brand.

There has been a growing concern reported by media
and others, that certain countries may use features of their
telecommunications systems in violation of human rights. This
may adversely affect the telecommunications business and may
have a negative impact on our reputation and brand.

As a result of the credit crisis in Europe, concerns persist

regarding the debt burden of certain Eurozone countries and their
ability to meet future financial obligations, the overall stability of
the euro and the suitability of the euro as a single currency given
the diverse economic and political circumstances in individual
member states. These and other concerns could in worst case
lead to the re-introduction of individual currencies in one or more
member states, or, in more extreme circumstances, the possible
dissolution of the euro entirely. These potential developments, or
market perceptions concerning these and related issues, could
adversely affect our operations and have a material adverse
effect on our business, operating results and financial condition.

We may fail to comply with our corporate governance standards
which could negatively affect our business, operating results,
financial condition, reputation and our brand.
We are subject to corporate governance laws and regulations
and are also committed to several corporate responsibility
and sustainability initiatives. In some of the countries where
we operate, corruption risks are high. In addition, there is
higher focus on anticorruption, with changed legislation in
many countries. To ensure that our operations are executed in
accordance with applicable requirements, our management
system includes a Code of Business Ethics, a Code of Conduct
and a Sustainability Policy, as well as other policies and directives
to govern our processes and operations. Our commitment
to apply the UN Global Compact principles, the UN Guiding
Principles for Business and Human Rights and principles of the
Partnering Against Corruption Initiative to our operation cannot
fully prevent unintended or unlawful use of our technology by
non-democratic regimes, corruption or violations of our Code of
Conduct in the supply chain. While we attempt to monitor and
audit internal compliance with the policies and directives as well
as our suppliers’ adherence to our Code of Conduct and strive
for continuous improvements, we cannot provide any assurances
that violations will not occur which could have material adverse
effects on our business, operating results, reputation and brand.

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, financial condition,
reputation and brand. Additionally, there is a risk that we may
have to incur expenditures to cover environmental and health
liabilities to maintain compliance with current or future laws and
regulations or to undertake any necessary remediation. It is
difficult to reasonably estimate the future impact of environmental
matters, such as climate change and weather events, including
potential liabilities. This is due to several factors, particularly the
length of time often involved in resolving such matters. Adverse
future events, regulations, or judgments could have a material
adverse effect on our business, operating results, financial
condition, reputation and brand.

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R
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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 applicable electromagnetic
fields, we cannot guarantee that we 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, financial
condition, reputation and brand.

Regulations related to “conflict minerals” may cause us to
incur additional expenses, and may make our supply chain
more complex.
In 2012, the US Securities and Exchange Commission ( the
“SEC”) adopted a new rule requiring disclosures beginning in
2014 of specified minerals (“conflict minerals”) that are necessary
to the functionality or production of products manufactured or
contracted to be manufactured by companies registered with
the SEC, whether or not these products or their components are
manufactured by third parties. While we believe that we will be
able to fulfill these requirements without materially affecting our
costs or access to materials we can provide no assurance that
there will not be material costs associated with complying with
the disclosure requirements.

While we work and strive to be able to sufficiently verify the
origins of these minerals, our supply chain is complex, and we
may not be able to sufficiently verify the origins of the relevant
minerals used in our products through the due diligence
procedures that we implement, which may harm our reputation.
In addition we may encounter challenges if customers require
that all of the components of our products be certified as conflict-
free. These new disclosure requirements may negatively affect
our business, operating results, financial condition, reputation
and brand.

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
> Announcements concerning bankruptcy or investigations
into the accounting procedures of ourselves or other
telecommunications companies

> Our ability to forecast and communicate our future results in a

manner consistent with investor expectations.

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’ investments.
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.

Risk factors

Ericsson | Annual Report 2013

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results

Auditor’s 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 2013. (The annual
accounts and consolidated accounts of the company are included in the
printed version of this document on pages 36–129.)

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 2013
and of its financial performance and its cash flows for the year then
ended in accordance with the Annual Accounts Act. The consolidated
accounts have been prepared in accordance with the Annual Accounts
Act and present fairly, in all material respects, the financial position of

130

Ericsson | Annual Report 2013

the group as of 31 December 2013 and of their financial performance
and cash flows for the year then ended 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 also audited 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 2013.

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, March 5, 2014
PricewaterhouseCoopers AB

Peter Nyllinge
Authorized Public Accountant

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Forward-looking
statements

R
e
s
u
l
t
s

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,”
“forecast,” “will,” “should,” “predict,” “aim,” “ambition,” “target,”
“might,” or, in each case, their negative, and similar words
are intended to help identify forward-looking statements.

> 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.

> 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.

Forward-looking statements may be found throughout this

document, and include statements regarding:
> Our goals, strategies and operational or financial performance

> Vendor consolidation may lead to stronger competitors
who are able to benefit from integration, scale and
greater resources.

expectations

> Development of corporate governance standards, stock

market regulations and related legislation

> The future characteristics of the markets in which we operate
> Projections and other characterizations of future events
> 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 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:
> Challenging global economic conditions may adversely impact
the demand and pricing for our products and services as well
as limit our ability to grow.

> The telecommunications industry fluctuates and is affected
by many factors, including the economic environment, and
decisions made by operators and other customers regarding
their deployment of technology and their timing of purchases.

> Sales volumes and gross margin levels are affected by the

variation and short order time of our products and services.

> We may not be able to properly respond to market trends

in the industries in which we operate, including the ongoing
convergence of the telecom, data and media industries, which
may harm our market position relative to our competitors.

> 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.

> Certain long-term agreements with customers still include
commitments to future price reductions, requiring us to
constantly manage and control our cost base.

> Growth of our managed services business is difficult to
predict, and requires taking significant contractual risks.
> 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.

> We engage in acquisitions and divestments which may be
disruptive and require us to incur significant expenses.

> We are in, and may enter into new JV arrangements and have,
and may have new, partnerships which may not be successful
and expose us to future costs.

> 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.

> Product or service quality issues could lead to reduced

revenue and gross margins and declining sales to existing and
new customers.

> Due to having a significant portion of our costs in SEK and
revenues in other currencies, our business is exposed to
foreign exchange fluctuations that could negatively impact our
revenues and operating results.

> 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, infringement claims brought
against us by competitors and others and changes in the area
of open standards, especially in light of recent attention on
licensing of open standard patents.

> We are involved in lawsuits and investigations which, if

determined against us, could require us to pay substantial
damages, fines and/or penalties.

> 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.

Forward-looking statements

Ericsson | Annual Report 2013

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results

Forward-looking statements CONTINUED

> Cyber security incidents affecting our business may have a
material adverse effect on our business, financial condition,
reputation and brand.

> We must continue to attract and retain highly qualified

employees to remain competitive.
If our customers’ financial conditions decline, we will be
exposed to increased credit and commercial risks.

> 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, financial condition and
cashflow may materially suffer.
Impairment of goodwill may negatively impact
financial condition.

> 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.

> Our substantial international operations are subject to
uncertainties which could affect our operating results.
> We may fail to comply with our corporate governance
standards which could negatively affect our business,
operating results, financial condition, reputation and
our brand.

> Failure to comply with environmental, health and safety

regulations in many jurisdictions may expose us to significant
penalties and other sanctions.

> Potential health risks related to electromagnetic fields may
subject us to various product liability claims and result in
regulatory changes.

> Regulations related to “conflict minerals” may cause us to

incur additional expenses, and may make our supply chain
more complex

> Our share price has been and may continue to be volatile,

especially as technology companies, securities and markets
as a whole remain volatile.

> Currency fluctuations may adversely affect share value

or value of dividends.

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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Working
life in the
networked
society

Working life is changing. Globalization and
other powerful trends are transforming the
workplace into a global arena where virtual
teams operate across organizational and
geographic boundaries. At the same time,
social media and communication services are
eroding the borders between private and
professional lives. Open innovation and crowd
involvement are also changing the mechanics
of business development.

Digitalization and information flows are

enabling organizations to work in new
ways. This continues to create fundamental
changes in working life and the activities we
engage in. Communication services
provide us with constant access to work
networks.The removal of restrictions of time
and location enable people to perform
effectively and conveniently in a global
working environment.

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Ericsson | Annual Report 2013

133

Corporate
governance

CORPORATE GOVERNANCE
REPORT 2013

Corporate governance describes how rights and
responsibilities are distributed among corporate bodies
according to applicable laws, rules and internal processes.
Corporate governance also defines the decision-making
systems and structure through which owners directly or
indirectly control a company.

Building trust, both within an organization and in
relation to external stakeholders, is a key factor
for successful business operations. Good
corporate governance forms the basis for
building a robust corporate culture throughout a
global organization. Ericsson’s corporate
governance work focuses both on establishing
efficient and reliable controls and procedures
and on establishing a global business culture
where business is conducted with integrity,
applying Ericsson’s core values:
professionalism, respect and perseverence.
One of the Board of Directors’ tasks is to
support Group management and to exercise
critical review of its work. As Chairman of the
Board, I therefore work to enable an open and
meaningful dialogue between the Board and
the Group management. I believe that this
dialogue is crucial to allow the Board to
adequately set Ericsson’s strategy and to add
value to and exercise due control of Ericsson’s
business operations.

I am confident that the continuous corporate

governance focus within Ericsson builds trust,
which in turn generates shareholder value.

Leif Johansson
Chairman of the Board of Directors

Contents

135
136
136
137
138
139

Regulation and compliance
Governance structure
Shareholders
General Meetings of Shareholders
Nomination Committee
Board of Directors
Committees of the Board
142
of Directors
145
Remuneration to Board members
Members of the Board of Directors 146
Management
150
Members of the Executive
Leadership Team
Auditor
Internal control over
financial reporting 2013
Auditor’s report on the Corporate
Governance Report

154
157

160

157

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,
Sections 6 and 8) and the Swedish
Corporate Governance Code.
The report has been reviewed by Ericsson’s
auditor in accordance with the Annual
Accounts Act. A report from the auditor is
appended hereto.

KEY EVENTS IN 2013

> Election of Nora

Denzel, Kristin Skogen
Lund and Pär Östberg
as new members of
the Board of Directors

> Establishment of
Group Function
Business Excellence
and Common
Functions

> Further improvement
of Board training
through introducing
bi-annual Board
Strategic Days

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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 Rule Book for issuers of NASDAQ

OMX Stockholm

> The Swedish Corporate Governance Code

Compliance with the Swedish Corporate
Governance Code
Ericsson is committed to complying with
best-practice corporate governance on a global
level wherever possible. This includes continued
compliance with the Code. Ericsson does not
report any deviations from the rules of the Code
in 2013. The Code is published on the website
of the Swedish Corporate Governance Board
which administrates the Code:
www.corporategovernanceboard.se.

(the “Code”)

> NASDAQ Stock Market Rules, including
applicable NASDAQ New York corporate
governance requirements (subject to certain
exemptions principally reflecting mandatory
Swedish legal requirements)

The Code of Business Ethics can be

> Applicable requirements of the US Securities

found on Ericsson’s website.

and Exchange Commission (the “SEC”).

Internal rules
In addition, to ensure compliance with legal and
regulatory requirements and the high 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

product development, production, supply
and support of Ericsson products and
services worldwide.

The articles of association and the work
procedure for the Board of Directors also
include internal corporate governance rules.

C
O
R
P
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R
A
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G
O
V
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N
A
N
C
E

Compliance with applicable stock
exchange rules
In 2013, 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 summarizes
the Group’s basic policies and directives and
contains rules to ensure that business is
conducted with a strong sense of integrity. This
is critical to maintain trust and credibility with
Ericsson’s customers, partners, employees,
shareholders and other stakeholders.
The Code of Business Ethics has been
translated into 30 languages. This ensures
that it is accessible to everyone working for
Ericsson. During recruitment, employees
acknowledge that they are aware of the
principles of the Code of Business Ethics. This
procedure is repeated during the term of
employment. Through this process, Ericsson
strives to raise awareness throughout its
global operations.

Everyone working for Ericsson has an

individual responsibility to ensure that
business practices adhere to the Code of
Business Ethics.

Professionalism

Respect

Perseverance

Ericsson’s core values
Our values are the foundation of our culture.
They guide us in our daily work, in how we relate
to each other and the world around us and in
the way we do business.

Corporate Governance report

Ericsson | Annual Report 2013

135

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Corporate
governance

CORPORATE GOVERNANCE REPORT 2013 CONTINUED

Shareholders
Ownership percentage (voting rights)

Swedish institutions:
Of which:
– Investor AB:
– AB Industrivärden:
(together with SHB
Pensionsstiftelse and
Pensionskassan SHB
Försäkringsförening)

Foreign institutions:

Swedish retail investors:

Other:

Source: King Worldwide

56.73%

21.50%
19.96%

25.38%

4.98%

12.91%

GOVERNANCE STRUCTURE
Shareholders may exercise their decision-
making rights in the Company at General
Meetings of shareholders.

A Nomination Committee is appointed each
year by the major shareholders in accordance
with the Instruction for the Nomination
Commit-tee adopted by the Annual General
Meeting of shareholders. The tasks of the
Nomination Committee include the proposal of
an external auditor and Board members for
election by the Annual General Meeting of
shareholders and proposals of Board member
and auditor remuneration.

In addition to the Board members elected by

shareholders, the Board of Directors consists
of employee representatives and their deputies,
which the unions have the right to appoint
under Swedish law. The Board of Directors is
ultimately responsible for the strategy and the
organization of Ericsson and the management
of its operations.

The President and CEO, appointed by the
Board of Directors, is responsible for handling
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 (ELT).

The external auditor of Ericsson is elected

by the General Meeting of shareholders.

Governance structure

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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SHAREHOLDERS
Ownership structure
As of December 31, 2013, Telefonaktiebolaget
LM Ericsson (the “Parent Company”) had
516,922 registered shareholders, of which
503,668 were resident or located in Sweden
(according to the share register kept by
Euroclear Sweden AB). Swedish institutions held
almost 57% of the votes. The largest
shareholders as of December 31, 2013 were
Investor AB, with 21.50% of the votes, and AB
Industrivärden, with 19.96% 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, which shares are used to create
treasury stock to finance and hedge long-term
variable remuneration programs resolved by the
General Meeting of shareholders. Class
C shares are converted into Class B shares
before they are used for long-term variable
remuneration programs.

In the United States, the Ericsson Class B
share is listed on NASDAQ New York in the form
of American Depositary Shares (ADS) evidenced
by American Depositary Receipts (ADR). Each
ADS represents one Class B share.

The members of the Board of Directors and
the Executive Leadership Team have the same
voting rights on shares as other shareholders
holding the same class of shares.

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GENERAL MEETINGs OF
SHAREHOLDERS
Decision-making at General Meetings
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 treasury stock to

employees participating in long-term variable
remuneration programs.

The Annual General Meeting of shareholders
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 must 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. Normally, the majority of the
members of the Board of Directors and the
Executive Leadership Team is 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 2013
Including shareholders represented by proxy,
2,885 shareholders were represented at the
AGM held on April 9, 2013, making up
approximately 69% of the votes.

The meeting was also attended by members

of the Board of Directors, members of the
Executive Leadership Team (ELT) and the
external auditor.

Decisions of the AGM 2013 included:

> Payment of a dividend of SEK 2.75 per share
> Re-election of Leif Johansson as Chairman

of the Board of Directors

> Re-election of members of the Board of

Directors: Roxanne S. Austin, Sir Peter L.
Bonfield, Börje Ekholm, Alexander Izosimov,
Ulf J. Johansson, Sverker Martin-Löf, Hans
Vestberg and Jacob Wallenberg

> Election of Nora Denzel, Kristin Skogen Lund
and Pär Östberg as new members of the
Board of Directors

> Board of Directors’ fees:

– Chairman: SEK 3,850,000 (previously SEK

3,750,000)

– Other non-employee Board members: SEK
900,000 each (previously SEK 875,000)

– Chairman of the Audit Committee:

SEK 350,000 (unchanged)

– Other non-employee members of the Audit
Committee: SEK 250,000 each (unchanged)
– Chairmen of the Finance and Remuneration

Committees: SEK 200,000 each
(unchanged)

– Other non-employee members of the

Finance and Remuneration Committees:
SEK 175,000 each (unchanged)

> Approval for part of the Directors’ fees to
be paid in the form of synthetic shares
> Approval of Guidelines for remuneration

to Group Management
Implementation of a Long-Term Variable
Remuneration Program 2013.

The minutes from the AGM 2013 are available
on Ericsson’s website.

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CONTACT THE BOARD
OF DIRECTORS
Telefonaktiebolaget LM Ericsson
The Board of Directors Secretariat
SE-164 83 Stockholm
Sweden
boardsecretariat@ericsson.com

Annual general meeting 2014

Ericsson’s AGM 2014 will take place on April 11, 2014 at Stockholm Waterfront Congress Centre in Stockholm.
Further information is available on Ericsson’s website.

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NOMINATION COMMITTEE
The Annual General Meeting of shareholders
has adopted an Instruction for the Nomination
Committee that includes the tasks of the
Nomination Committee and the procedure for
appointing its members. The instruction applies
until the General Meeting of shareholders
resolve otherwise. Under the instruction, 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, and

> The Chairman of the Board of Directors.
The Committee may also 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
The current Nomination Committee consists of
the Chairman of the Board of Directors, Leif
Johansson, and of representatives appointed by
the four shareholders with the largest voting
power as of April 30, 2013. The current
Nomination Committee members are:
> Carl-Olof By (AB Industrivärden, Svenska

Handelsbankens Pensionsstiftelse), Chairman
of the Nomination Committee

> Leif Johansson, Chairman of the Board

of Directors

> Petra Hedengran (Investor AB)
> Johan Held (AFA Försäkring)
> Marianne Nilsson (Swedbank Robur Fonder).

The tasks of the Nomination Committee
The main task of the Committee is to propose
Board members for election by the AGM. The
Committee must orient itself on the

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

PROPOSALS TO THE NOMINATION COMMITTEE

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.

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Company’s strategy and future challenges to
be able to assess the competence and
experience that is required by the Board. In
addition, the Committee must consider
independence rules applicable to the Board of
Directors and its committees.

The Nomination Committee also makes the
following proposals, for resolution by the AGM:
> Proposal for remuneration to non-employee

Directors elected by the AGM and
remuneration to the auditor

> Proposal for election of auditor, whereby

candidates are selected in cooperation with
the Audit Committee of the Board
> Proposal for election of Chairman at

the AGM.

Work of the Nomination Committee
for the AGM 2014
The Nomination Committee started its work
by going through a checklist of all its duties
according to the Code and the Instruction for
the Nomination Committee and by setting a time
plan for its work ahead. A good understanding
of Ericsson’s business and strategy is important
for the members of the Committee. Therefore,
the President and CEO was invited to, together
with the Chairman of the Board, present their
views on the Company’s position and strategy.
The Committee was thoroughly informed of
the results of the evaluation of the Board work
and procedures, including the performance of
the Chairman of the Board. On this basis, the
Committee was able to assess the competence
and experience required by Board members. In
proposing Board members, the Nomination
Committee considered, among other things,
necessary experience and competence, as well
as the value of diversity, renewal and gender
balance. The Committee also considered
whether the proposed Directors have the
capability to devote necessary time and care to
the Board work.

In addition, the Committee acquainted itself

with the assessments made by the Company
and the Audit Committee of the quality and
efficiency of external auditor work, and received
recommendations on external auditor
and audit fees.

As of March 5, 2014 the Nomination

Committee has held six meetings.

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BOARD OF DIRECTORS
The Board of Directors is ultimately responsible
for the organization of Ericsson and the
management of Ericsson’s operations. The
Board appoints the President and CEO who is
responsible for managing the day-to-day
operations in accordance with guidelines from
the Board. The President and CEO ensures that
the Board is updated regularly on issues of
importance to Ericsson. This includes updates
on business development, results, financial
position and liquidity.

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 a
Director of the Board, but, under the Swedish
Companies Act, the President of a public
company may not be elected Chairman of
the Board.

Conflicts of interest
Ericsson maintains 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 that may be contrary to
the interests of Ericsson.

The Audit Committee has implemented a
procedure for related-party transactions and
a pre-approval process for non-audit services
carried out by the external auditor.

only Board member who was also a member of
Ericsson’s management during 2013.

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
rules 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 rules under
applicable Swedish law, the Code and
applicable US securities laws, SEC rules and
the NASDAQ Stock Market Rules. However,
Ericsson can rely on exemptions from certain
US requirements.

The composition of the Board of Directors

meets all applicable independence criteria.
The Nomination Committee concluded
before the AGM 2013 that, for purposes of
the Code, at least seven of the nominated
Directors were independent of Ericsson, its
senior management and its major shareholders.
These were Roxanne S. Austin, Sir Peter L.
Bonfield, Nora Denzel, Alexander Izosimov, Leif
Johansson, Ulf J. Johansson and Kristin
Skogen Lund.

Composition of the Board of Directors
The current Board of Directors consists of 12
Directors elected by the shareholders at the
AGM 2013 for the period until the close of the
AGM 2014. It also consists of 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

Structure of the work of the Board of
Directors
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. In addition to Board meetings, the
annual work cycle of the Board includes two

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Board Strategic Days held in connection with
Board meetings. The Board Strategic Days are
described below under Training and Board
Strategic Days.
As the Board is responsible for financial
oversight, financial information is presented and
evaluated at each Board meeting. Furthermore,
the Chairmen of each Committee, generally
report on Committee work at each Board
meeting and minutes from Committee meetings
are distributed to all Directors prior to
the Board meetings.

> Main strategy meeting

Various strategic issues are addressed at
most Board meetings and, in accordance
with the annual cycle for the strategy
process, a main strategy Board meeting is
held, 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 leaders.

At every Board meeting, the President and

> Second interim report meeting

CEO reports on business and market
developments as well as on the financial
performance of the Group. Strategic issues and
risks are also addressed at most Board
meetings. The Board is regularly informed of
developments in legal and regulatory matters
of importance.

The annual work cycle of the Board:

> 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 Board Committees
are appointed and the Board resolves
on 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.

At the second interim report meeting, the
Board handles 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.

> Board Strategic Day

A Board Strategic Day, focusing on
deepening Board member knowledge of
matters of strategic importance for Ericsson,
is held in connection with a Board meeting in
the fall.

> 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

The annual cycle applied to the
Board’s work allows the Board
to appropriately address its
duties during the year. It also
facilitates the organization in
aligning its global processes
to allow appropriate Board
involvement. This is particularly
relevant for the Group’s
strategy process and risk
management.

Third interim report meeting
> Q3 Financial report
> Board work evaluation

Board Strategic Day

Nov

Dec

Jan

Oct

Sep

Board meetings
– annual cycle

Feb

Mar

Apr

Follow-up strategy and
risk management meeting

Aug

Jul

Jun

May

Board Strategic Day

Annual Report meeting
> Board signs the annual report

Statutory meeting (in connection with AGM)
> Appointment of Committee Members
> Authorization to sign for the Company

First interim report meeting
> Q1 Financial report

Second interim report meeting
> Q2 Financial report

Main strategy meeting

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> Budget and financial outlook meeting

A meeting is held for the Board to address
the budget and financial outlook as well as to
further analyze 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.

> Board Strategic Day

A Board Strategic Day, focusing on
deepening Board member knowledge of
matters of strategic importance for Ericsson,
is held in connection with a Board meeting in
the spring.

> Annual Report meeting

The Annual Report meeting closes the
yearly cycle of work of the Board of
Directors. At this meeting the Board
approves the Annual Report.

Training and Board Strategic Days
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, the
company arranges training for Board members
at regular intervals.

During 2013, Ericsson took steps to further

improve the recurring Board training by
instituting bi-annual Board Strategic Days. The
Board Strategic Days are arranged for Board
members in conjunction with the ordinary Board
meetings, and normally span one full day in the
spring and one full day in the fall. The Board
Strategic Days focus on combining strategy
issues with making deep dives into issues of
importance for the Ericsson Group. The
purpose of the Board Strategic Days is to
ensure that members of the Board have
knowledge and understanding of the business
activities of the Group, the business

environment and of the Group’s strategic
options and challenges. Directors’ knowledge in
these fields is crucial to allow well-founded
Board resolutions, and to ensure that the
Company take due advantage of the different
compentences of the Directors.

As a rule, the Board Strategic Days also

include Sustainability and Corporate
Responsibility training for the Board members.

Auditor involvement
The Board meets with Ericsson’s external
auditor in closed sessions at least once a
year to receive and consider the auditor’s
observations. The auditor reports to
management on the accounting and financial
reporting practices of the Group.

The Audit Committee also meets with the
auditor to receive and consider observations
on the interim reports and the Annual
Report. The auditor has been instructed to
report on whether the accounts, the
management of funds and the general
financial position of the Group are presented
fairly in all material respects.

In addition, the Board reviews and assesses

the process for financial reporting, as
described later in “Internal control over
financial reporting 2013”. Combined with
internal controls, the Board’s and the auditor’s
review of interim and annual reports are
deemed to give reasonable assurance on the
internal controls over financial reporting.

Work of the Board of Directors in 2013
In 2013, nine Board meetings were held. For
attendance at Board meetings, see the table on
page 145. 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 the

Devoteam Telecom & Media operations in
France, Microsoft Mediaroom, TelcoCell, Red
Bee Media (the completion of the acquisition
of Red Bee Media is still subject to approval
by the UK Competition Commission after

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Organization of the Board work

Audit
Committee
(4 Directors)

> Oversight of financial

reporting

> Oversight of internal control

> Oversight of auditing

Board of Directors
15 Directors

Finance
Committee
(4 Directors)

> Financing
> Investing
> Customer credits

Remuneration
Committee
(4 Directors)

> Guidelines for remuneration

to Group management

> Long-Term Variable

Remuneration

> Executive remuneration

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referral to the Competition Commission by
The Office of Fair Trading in the UK) and the
EVDO business of Airvana Network Solutions
> Completion of the transaction to split up the

joint venture ST-Ericsson

> Refinancing of Ericsson’s USD 2 billion

revolving credit facility

> A number of divestments, including the
power cable operations and part of the
telecom cable operations, and the former
research and engineering arm of Telcordia
Technologies, ACS (Applied
Communication Sciences)

> Continued strong focus on risk management,

strategy and the competitive market
development, as well as on sustainability and
corporate responsibility matters.

Board work evaluation
A key objective of the Board evaluation is to
ensure that the Board work is functioning well.
This includes gaining an understanding of the
issues that 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 the Board and
Committee work and procedures. Evaluation
tools include detailed questionnaires and
discussions. The services of an external
corporate advisory firm have been retained by
the Company to assist in developing
questionnaires, carrying out surveys and
summarizing responses. As part of the

evaluation process, the Chairman of the Board
also had individual discussions with each
of the Directors.

In 2013, all Directors responded to written
questionnaires, covering the Director’s individual
performance, Board work in general, Committee
work 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 from amongst the Board members.
The task of the Committees is mainly to
prepare matters for 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 for the Committees to determine
specific matters.

If deemed appropriate, the Board of Directors

and each Committee have the right to engage
independent external expertise, either in general
or with respect to specific matters.

Prior to the Board meetings, each Committee

submits the minutes from Committee meetings

Members of the Committees

Members of the Committees of the Board of Directors 2013

Audit
Committee

> Ulf J Johansson

(Chairman)

> Sir Peter L. Bonfield

> Kristina Davidsson

> Pär Östberg

Finance
Committee

> Leif Johansson

(Chairman)

> Pehr Claesson

> Sverker Martin-Löf

> Jacob Wallenberg

Remuneration
Committee

> Leif Johansson

(Chairman)

> Börje Ekholm

> Roxanne S. Austin

> Karin Åberg

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to the Board. The Chairman of the Committee
also reports on the Committee work at each
Board meeting.

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 effectiveness and appropriateness of the

Group’s anti-corruption program.

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 auditor, 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 directly to the Audit
Committee. Ericsson also has an external
auditor elected by the AGM.

The Committee is involved in the

preparatory work of proposing an auditor for
election by the AGM. It also monitors Group
transactions and the ongoing performance
and independence of the auditor with the aim
to avoid conflicts of interest.

In order to ensure the auditor’s

independence, the Audit Committee has
established pre-approval policies and
procedures for non-audit related services to be
performed by the external auditor. Pre-approval
authority may not be delegated to management.
The Audit Committee also oversees:
> The process for reviewing transactions

with related parties

> The whistleblower procedure for the

reporting of alleged violations of laws or the
Code of Business Ethics that (i) are
conducted by Group or local management,
and (ii) relate to corruption, questionable
accounting or auditing matters or otherwise
seriously affect vital interests of the Group or
personal health and safety.

Violations reported through the whistleblower
procedure are handled by Ericsson’s Group
Compliance Forum, consisting of
representatives from Ericsson’s internal audit

function, Group Function Legal Affairs, Group
Security, and Group Function Human
Resources. 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 four Board
members appointed by the Board. The Audit
Committee members appointed by the Board in
connection with the AGM 2013 are Ulf J.
Johansson (Chairman of the Committee),
Sir Peter L. Bonfield, Kristina Davidsson and
Pär Östberg.

The composition of the Audit Committee

meets all applicable independence
requirements. The Board of Directors has
determined that each of Ulf J. Johansson, Sir
Peter L. Bonfield and Pär Östberg is an audit
committee financial expert, as defined under the
SEC rules. Each of them is considered
independent under applicable US securities
laws, SEC rules and NASDAQ Stock Market
Rules and each of them is financially literate and
familiar with the accounting practices of an
international company, such as Ericsson.

Work of the Audit Committee in 2013
The Audit Committee held seven meetings in
2013. Directors’ attendance is reflected in the
table on page 145. 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 it, the Committee
also reviewed and discussed each interim report
and the annual 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.

The Committee reviewed and evaluated

the effectiveness and appropriateness of
the Group’s anti-corruption program.

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

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CORPORATE GOVERNANCE REPORT 2013 CONTINUED

> Raising loans, issuing guarantees and similar

undertakings, and approving 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 guarantees and

similar undertakings

> Certain investments, divestments and

financial commitments.

Members of the Finance Committee
The Finance Committee consists of four
Board members appointed by the Board.
The Finance Committee members appointed
by the Board in connection with the AGM
2013 are: Leif Johansson (Chairman of the
Committee), Pehr Claesson, Sverker
Martin-Löf and Jacob Wallenberg.

Work of the Finance Committee in 2013
The Finance Committee held nine meetings in
2013. Directors’ attendance is reflected in the
table on page 145. During the year, the Finance
Committee approved numerous customer
finance credit arrangements and reviewed a
number of potential mergers and acquisitions
and real estate investments. The Finance
Committee spent significant time discussing
and securing an adequate capital structure, as
well as examining cash flow and working capital
performance. It has also continuously monitored
Ericsson’s financial position, foreign exchange
and credit exposures.

Remuneration Committee
The Remuneration Committee’s main
responsibilities include:
> Reviewing and preparing for resolution by
the Board, proposals on salary and other
remuneration, including retirement
compensation, for the President and CEO
> Reviewing and preparing for resolution by the
Board, proposals to the AGM on guidelines
for remuneration to the ELT

> Approving proposals on salary and other

remuneration, including retirement
compensation, for the Executive Vice
Presidents and other CEO direct reports
> Reviewing and preparing for resolution by
the Board, proposals to the AGM on the

Long-Term Variable Remuneration Program
and similar equity arrangements.

In its work, the Remuneration Committee
considers trends in remuneration, legislative
changes, disclosure rules and the general global
executive remuneration environment. The
Committee reviews salary survey data before
approving any salary adjustment for CEO direct
reports and before preparing 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 appointed by the Board. The
Remuneration Committee members appointed
by the Board in connection with the AGM 2013
are: Leif Johansson (Chairman of the
Committee), Börje Ekholm, Roxanne S. Austin
and Karin Åberg.

An independent expert advisor, Piia Pilv, has

been appointed by the Remuneration
Committee to advise and assist the Committee.

Work of the Remuneration Committee in 2013
The Remuneration Committee held six meetings
in 2013. Directors’ attendance is reflected in the
table on page 145.

The Committee reviewed and prepared a
proposal for the LTV 2013 for resolution by the
Board. This was approved by the AGM 2013.
The Committee further resolved on salaries and
Short-Term Variable remuneration (STV) for 2013
for certain CEO direct reports and prepared
proposals regarding remuneration to the
President and CEO, for resolution by the Board.
The Committee also prepared guidelines for
remuneration to the ELT, for resolution by the
Board, which were subsequently referred by the
Board to the AGM for approval.

The Remuneration Committee additionally

concluded its analysis of the current LTV
structure and executive remuneration. The
resulting proposals on LTV and guidelines for
remuneration to the ELT will be referred to the
AGM 2014 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.

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Directors’ attendance and fees 2013

Fees resolved by the AGM 2013

Number of Board/Committee meetings attended in 2013

Board fees,

SEK 1)

Committee fees,
SEK

Board

Audit
Committee

Finance
Committee

Remuneration
Committee

Board member

Leif Johansson

Sverker Martin-Löf 2) 3)
Jacob Wallenberg

Roxanne S. Austin 4)
Sir Peter L. Bonfield
Nora Denzel 5)
Börje Ekholm
Alexander Izosimov
Ulf J. Johansson
Anders Nyrén 6)
Nancy McKinstry 6)
Kristin Skogen Lund 5)

Hans Vestberg
Michelangelo Volpi 6)

Pär Östberg 5) 7)
Pehr Claesson
Kristina Davidsson
Karin Åberg
Rickard Fredriksson
Karin Lennartsson
Roger Svensson
Total number of meetings

400,000

175,000
175,000

175,000
250,000

175,000

350,000

3,850,000

900,000
900,000

900,000
900,000
900,000
900,000
900,000
900,000
–
–
900,000

–
–

900,000

250,000

13,500 8)
13,500 8)
12,000 8)
13,500 8)
13,500 8)
13,500 8)

9
9

9
8
7
9
9
9
2
2
7

9
1

7
9
9
8
9
9
9
9

7
9

1) Non-employee Directors can choose to receive part of their Board fee (exclusive of Committee fees) in the form of synthetic shares.
2) Member of the Finance Committee since April 9, 2013.
3) Resigned from the Audit Committee as of April 9, 2013.
4) Member of the Remuneration Committee since April 9, 2013.
5) Elected Board member as of April 9, 2013.
6) Resigned as Board member as of April 9, 2013.
7) Member of the Audit Committee since April 9, 2013.
8) Employee representative Board members and their deputies are not entitled to a Board fee but compensation in the amount of SEK 1,500 per attended Board meeting.

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following the General Meeting that 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’ interests with shareholder
interests. For more information on the terms and
conditions of the synthetic shares, please refer
to the notice convening the AGM 2013 and to
the minutes from the AGM 2013, which are
available at Ericsson’s website.

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 2013 approved the Nomination

Committee’s proposal for fees to the non-
employee Board members for Board and
Committee work. For further information on
Board of Directors’ fees 2013, 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 2013 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

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Members of the board of directors

Board members elected by the AGM 2013

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, Gothenburg, Sweden.
Board Chairman: Astra Zeneca PLC,
European Round Table of
Industrialists and the
International Advisory Board
of the Nobel Foundation.
Board Member: Svenska Cellulosa
Aktiebolaget SCA and Ecolean AB.
Holdings in Ericsson:
41,933 Class B shares 1), and
12,000 Class B shares held via
endowment insurance 2) .
Principal work experience and other
information: President of the Royal
Swedish Academy of Engineering
Sciences since 2012. 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. Holds
honorary Doctorates at Blekinge
Institute of Technology, the University
of Gothenburg and Chalmers
University of Technology. Awarded
the Large Gold Medal of the Royal
Swedish Academy of Engineering
Sciences in 2011.

Sverker Martin-Löf
(first elected 1993)
Deputy Chairman of the Board
of Directors, Member of the
Finance Committee

Jacob Wallenberg
(first elected 2011)
Deputy Chairman of the Board
of Directors, Member of the
Finance Committee

Roxanne S. Austin
(first elected 2008)
Member of the Remuneration
Committee

Born 1943. Doctor of Technology
and Master of Engineering, KTH
Royal Institute of Technology,
Stockholm, Sweden.
Board Chairman: Svenska Cellulosa
Aktiebolaget SCA, SSAB and AB
Industrivärden.
Deputy Board Chairman: Svenska
Handelsbanken AB.
Board Member: Skanska AB.
Holdings in Ericsson:
10,400 Class B shares 1)
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.

Born 1956. Bachelor of Science in
Economics and Master of
Business Administration, Wharton
School, University of Pennsylvania,
USA. Officer of the Reserve,
Swedish Navy.
Board Chairman: Investor AB.
Deputy Board Chairman: 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:
2,413 Class B shares 1), and
12,050 synthetic shares 3) .
Principal work experience and other
information: Chairman of the Board
of Investor AB since 2005. President
and CEO of SEB in 1997 and
Chairman of SEB’s Board of
Directors 1998–2005. Executive Vice
President and CFO of Investor AB
1990–1993. Honorary Chairman of
IBLAC (Mayor of Shanghai’s
International Business Leaders
Advisory Council) and member
of The European Round Table
of Industrialists.

Born 1961. Bachelor of
Business Administration in
Accounting, University of Texas,
San Antonio, USA.
Board Member: Abbott
Laboratories, AbbVie Inc., Teledyne
Technologies Inc. and Target
Corporation.
Holdings in Ericsson:
3,000 Class B shares 1), and 31,296
synthetic shares 3).
Principal work experience and
other information: President of
Austin Investment Advisors since
2004. President and CEO of Move
Networks Inc. 2009–2010.
President and COO 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
California State Society of
Certified Public Accountants and
the American Institute of Certified
Public Accountants.

The Board memberships and holdings in Ericsson reported above are as of December 31, 2013.
1) The number of shares includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.
2) Shares held via endowment insurance include shares held under an insurance under which the insurance holder may make investment decisions with respect to the shares (Sw:

“kapitalförsäkring” or “depåförsäkring”) and include holdings by related natural and legal persons, as well as holdings of ADS, if applicable.

3) Since 2008, the AGM has each year resolved that part of the Board fee may be received in the form of synthetic shares. A synthetic share is a right to receive in the future a

payment corresponding to the value of the Class B share in Ericsson at the time of payment. Please see page 145, for further information.

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Sir Peter L. Bonfield
(first elected 2002)
Member of the Audit Committee

Nora Denzel
(first elected 2013)

Börje Ekholm
(first elected 2006)
Member of the Remuneration
Committee

Alexander Izosimov
(first elected 2012)

Born 1944. Honors degree in
Engineering, Loughborough
University, Leicestershire, UK.
Board Chairman: NXP
Semiconductors N.V.
Board Member: Mentor Graphics
Inc., Sony Corporation and Taiwan
Semiconductor Manufacturing
Company, Ltd.
Holdings in Ericsson:
4,400 Class B shares 1), and
10,660 synthetic shares 3).
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 and the
Longreach Group. Board Mentor of
CMi. Senior Advisor, Rothschild,
London. Chair of Council and Senior
Pro-Chancellor, Loughborough
University, UK. Fellow of the Royal
Academy of Engineering.

Born 1962. Master of Science in
Business Administration, Santa Clara
University, USA. Bachelor of Science
in Computer Science, State
University of New York, USA.
Board Member: Outerwall, Inc. and
Saba Software.
Holdings in Ericsson: None 1).
Principal work experience and other
information: Intuit Software
(2008– 2012) – Senior Vice President
Big Data, Marketing and Social
Product Design and General
Manager QuickBooks Payroll
Division. Previous positions include
Senior Vice President and General
Manager of HP’s Global Software,
Storage and Consulting Divisions
(2000-2006), Senior Vice President
Product Operations Legato Systems
(bought by EMC) and various
engineering, marketing and
executive positions at IBM. Board
member of YWCA of Silicon Valley
and the Anita Borg Institute.

Born 1963. Master of Science in
Electrical Engineering, KTH Royal
Institute of Technology, Stockholm,
Sweden. Master of Business
Administration, INSEAD, France.
Board Chairman: KTH Royal Institute
of Technology, Stockholm and
NASDAQ OMX Group Inc.
Board Member: Investor AB,
AB Chalmersinvest and EQT
Partners AB.
Holdings in Ericsson:
30,760 Class B shares 1), and 40,398
synthetic shares 3).
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.

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Born 1964. Master of Business
Administration, INSEAD, France
and Master of Science in
Production Management
Systems and Computer Science,
Moscow Aviation Institute,
Russian Federation.
Board Member: East Capital AB,
Modern Times Group MTG AB,
EVRAZ Group S.A., Dynasty
Foundation, Transcom WorldWide
SA and International Chamber of
Commerce (ICC).
Holdings in Ericsson:
1,600 Class B shares 1), 50,000
Class B shares held via
endowment insurance 2) , and
6,296 synthetic shares 3).
Principal work experience and other
information: CEO and President of
VimpelCom 2003-2011. Previous
positions with Mars Inc., including
Member of the Global Executive
Board and Regional President for
CIS, Central Europe and Nordics.
Earlier positions with McKinsey & Co
as consultant in the Stockholm and
London offices. Served as GSMA
Board member 2005–2008 and
Chairman of GSMA 2008–2010.

“kapitalförsäkring” or “depåförsäkring”) and include holdings by related natural and legal persons, as well as holdings of ADS, if applicable.

3) Since 2008, the AGM has each year resolved that part of the Board fee may be received in the form of synthetic shares. A synthetic share is a right to receive in the future a

payment corresponding to the value of the Class B share in Ericsson at the time of payment. Please see page 145, for further information.

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Members of the board of directors CONTINUED

Board members elected by the AGM 2013

Ulf J. Johansson
(first elected 2005)
Chairman of the Audit Committee

Kristin Skogen Lund
(first elected 2013)

Hans Vestberg
(first elected 2010)

Pär Östberg
(first elected 2013)
Member of the Audit Committee

Born 1945. Doctor of Technology
and Master of Science in Electrical
Engineering, KTH Royal Institute of
Technology, Stockholm, Sweden.
Board Chairman: Acando AB,
Eurostep Group AB and Trimble
Navigation Ltd.
Board Member: European Institute
of Innovation and Technology.
Holdings in Ericsson:
6,435 Class B shares 1), and 14,720
synthetic shares 2).
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.

Born 1966. Master of Business
Administration, INSEAD, France.
Bachelor in International Studies and
Business Administration, University
of Oregon, USA.
Board Member: None
Holdings in Ericsson:
2,804 synthetic shares 2).
Principal work experience and other
information: Director General of the
Confederation of Norwegian
Enterprise (NHO) since 2012.
Executive Vice President and Head
of Digital Services and Broadcast
and Executive Vice President and
Head of Nordic Region, Group
Executive Management at Telenor
2010–2012. Previous positions
include Chief Executive Officer and
Commercial Director at Aftenposten,
Chief Executive Officer at Scanpix,
Managing Director and Editor
in Chief at Scandinavia Online,
and several positions at the
Coca-Cola Company, Unilever
and Norges Eksportråd.

Born 1962. Master of Business
Administration, Gothenburg
School of Economics,
Gothenburg, Sweden.
Board Member: Skanska AB
and SSAB.
Holdings in Ericsson: None .
Principal work experience and other
information: Executive Vice President
of AB Industrivärden since 2012.
Executive Vice President at Volvo
Group Truck Joint Ventures between
January 2012 and October 2012.
Several senior managerial positions
within the Volvo group including
Senior Vice President and President
Trucks Asia at AB Volvo, Chairman
of the Board of VE Commercial
Vehicles Ltd, Senior Vice President
and CFO at AB Volvo, CFO at Volvo
Trucks France and senior positions
at Volvo Treasury Asia Ltd,
Singapore and Volvo Treasury
Europe AB. Previous positions also
include Senior Vice President, CFO
at Renault Trucks and positions
within Renault Crédit International
(RCI) and Renault SA.

Born 1965. Bachelor of Business
Administration and Economics,
University of Uppsala, Sweden.
Board Chairman: Svenska
Handbollförbundet.
Board Member: Thernlunds AB.
Holdings in Ericsson:
217,185 Class B shares 1).
Principal work experience and other
information: President and CEO of
Telefonaktiebolaget LM Ericsson
since January 1, 2010. Previously,
First Executive Vice President, CFO
and Head of Group Function
Finance and 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. Founding
member of the Broadband
Commission for Digital Development,
and heading the Commission’s task
group on the post 2015
development agenda. Member of
the Leadership Council of the United
Nations Sustainable Development
Solutions Network.

The Board memberships and holdings in Ericsson reported above are as of December 31, 2013.
1) The number of shares reflects ownership as of December 31, 2013 and includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.
2) Since 2008, the AGM has each year resolved that part of the Board fee may be received in the form of synthetic shares. A synthetic share is a right to receive in the future a

payment corresponding to the value of the Class B share in Ericsson at the time of payment. Please see page 145, for further information..

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Board members and deputies appointed by the unions

Pehr Claesson
(first appointed 2008)
Employee representative, Member of
the Finance Committee

Kristina Davidsson
(first appointed 2006)
Employee representative, Member of
the Audit Committee

Karin Åberg
(first appointed 2007)
Employee representative, Member of
the Remuneration Committee

Born 1966. Appointed by the union
The Swedish Association of
Graduate Engineers.
Holdings in Ericsson:
1,319 Class B shares 1).
Employed since 1997. Working
with marketing and communication
for Consulting and Systems
Integration within Business Unit
Global Services.

Born 1955. Appointed by the union
IF Metall.
Holdings in Ericsson:
1,856 Class B shares 1).
Employed since 1995. Previously
working as a repairer within
Business Unit Networks and
currently working full time as
union representative.

Born 1959. Appointed by the union
Unionen.
Holdings in Ericsson:
3,156 Class B shares 1).
Employed since 1995. Working as
a Service Engineer within the
IT organization.

Rickard Fredriksson
(first appointed 2012)
Deputy employee representative

Karin Lennartsson
(first appointed 2010)
Deputy employee representative

Roger Svensson
(first appointed 2011)
Deputy employee representative

Born 1969. Appointed by the union
IF Metall.
Holdings in Ericsson:
1,249 Class B shares 1).
Employed since 2000. Previously
working as machine operator
within Business Unit Networks
and currently working full time as
union representative.

Born 1957. Appointed by the union
Unionen.
Holdings in Ericsson:
571 Class B shares 1).
Employed since 1976. Working as
Process Expert within Group
Function Business Excellence &
Common Functions.

Born 1971. Appointed by the union
The Swedish Association of
Graduate Engineers.
Holdings in Ericsson:
9,724 Class B shares 1).
Employed since 1999. Working as
Senior Specialist within Business
Unit Networks.

Hans Vestberg was the only Director who held an
operational management position at Ericsson in 2013.
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 2013, Nora Denzel, Kristin
Skogen Lund and Pär Östberg were elected new
members of the Board of Directors, replacing Nancy
McKinstry, Anders Nyrén and Michelangelo Volpi.

1) The number of shares reflects ownership as of December 31, 2013 and includes holdings by related natural and legal persons, as

well as holdings of any ADS, if applicable.

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CORPORATE GOVERNANCE REPORT 2013 CONTINUED

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
(the “ELT”). The ELT members as of December
31, 2013, are presented on page 154.
The role of the ELT is to:
> Establish a strong corporate culture, a

long-term vision and 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
Guidelines for remuneration to the ELT were
approved by the AGM 2013. 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.

The Ericsson Group Management System
Ericsson has one global management system,
known as the “Ericsson Group Management
System” (EGMS) to drive corporate culture and
to ensure that the business is managed:
> 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 a framework consisting of rules
and requirements for Ericsson’s business,
specified through process and organization
descriptions, policies, directives and
instructions. The management system is applied
in all Ericsson’s operations globally, and its
consistency and global reach is designed to
build trust in the way Ericsson works. The
EGMS is founded on ISO 9001 (international
standard for quality management systems) 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. Ericsson does not
implement external requirements without
analyzing them and putting them into the
Ericsson context.

Ericsson Group Management System

Customers
Key Stakeholders
Business Environment

Demands
and Expectations

Objectives
Strategies

Performance
Improvement

Management and Control
Policies

Directives

Vision

Satisfaction through
Value Deliverables

Results

Performance
Evaluation

The Ericsson Business Processes

Organization and Resources
Corporate Culture

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The EGMS comprises three elements:

> Management and control
> Ericsson business processes
> Organization and resources.

Management and control
Ericsson’s strategy and target-setting processes
consider the demands and expectations of
customers as well as other key stakeholders.
Ericsson uses balanced scorecards as tools for
translating strategic objectives into a set of
performance indicators for its operational units.
Based on annual strategy work, these
scorecards are updated with targets for each
unit for the next year and are communicated
throughout the organization.

Group-wide policies and directives govern

how the organization works and are core
elements in managing and controlling
Ericsson. The Group Policies and Directives
include, among other things, a Code of
Business Ethics, a Code of Conduct and
accounting and reporting directives to fulfill
external reporting requirements.

The Group Steering Documents Committee
works to ensure 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. In addition,
the Group Steering Documents Committee
works to ensure that the said strategies, values
and structures are implemented by the
responsible function.

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 practice. Ericsson
attempts to reduce costs with efficient and
effective process flows and with standardized
internal controls and performance indicators.

Organization and resources
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. In the operational
structure, Ericsson is organized in group
functions, business units and regions. The
legal structure is the basis for legal
requirements and responsibility as well as for
tax and statutory reporting purposes. There
are more than 200 legal entities within the
Ericsson Group with representation (via legal
entities, branch and representative offices) in
more than 150 countries.

Chief Compliance Officer
Ericsson has a Chief Compliance Officer (CCO)
whose primary focus is to further develop
Ericsson’s anti-corruption compliance program.
Attention from senior-management level on
anti-corruption and compliance is crucial, as is
ensuring that these matters are addressed from
a cross-functional perspective. Ericsson’s
anti-corruption compliance program is
reviewed and evaluated by the Audit
Committee at least annually.

Audits, assessments and certification
The purpose of audits and assessments is to
determine levels of compliance and to provide
valuable information for understanding,
analyzing and continually improving
performance. Management monitors
compliance with policies, directives and
processes through internal self-assessment
within all units. This is complemented by internal
and external audits.

Due to demands and requirements from
customers and other external stakeholders,
Ericsson sometimes needs to take decisions on
certification in order to stay competitive in the
market. Certification means that Ericsson’s
interpretation of standards or requirements are
confirmed by a third party assessment.

As the EGMS is a global system, group-wide

certificates are issued by a third party
certification body proving that the system is
efficient throughout the whole organization.
Ericsson is currently globally certified to ISO
9001 (Quality), ISO 14001 (Environment) and
OHSAS 18001 (Health & Safety). Selected
Ericsson units are also certified to additional
standards, for example ISO 27001 (Information
Security) and TL 9000 (telecom-specific
standard). EGMS is also audited within the
scope of the audit plan of Ericsson’s internal
audit fuction.

Ericsson’s external financial audits are
performed by PricewaterhouseCoopers, and
ISO/management system audits by Intertek.
Internal audits are performed by the company’s
internal audit function which reports to the
Audit Committee.

Ericsson conducts audits of suppliers in
order to secure compliance with Ericsson’s
Code of Conduct, which includes rules that
suppliers to the Ericsson Group must
comply with.

Risk management
Ericsson’s risk management is integrated into
the operational processes of the business, 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
long-term objectives are discussed and

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CORPORATE GOVERNANCE REPORT 2013 CONTINUED

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 three to
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 summarized and discussed in a
yearly Leadership Summit with approximately
250 leaders from all 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-setting process following
the finalization of the strategy.

Key components in the evaluation of risk

related to Ericsson’s long-term objectives.
include technology development, industry and
market fundamentals, the development of the
economy and laws and regulations.

The outcome of the strategy process forms
the basis for the annual target-setting process,
which involves regions, business units and Group
functions. Risks related 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.

Ericsson continuously strives to improve its

risk management and believes that it is
important that the entire global organization
takes part in the risk management and strategy
work. The risk management framework
implemented during 2012 has been further
developed and qualified during 2013. For more
information on risks related to Ericsson’s
business, see the chapter “Risk factors” in the
Annual Report.

Strategy, target-setting and risk management cycle

The annual strategy, target-
setting and risk management
cycle is part of Ericsson’s
strategy process, which is
well-established within the
Group and involves regions,
business units and Group
functions.

Board Target Approval
Review of one-year risks

Group Management Strategy Direction
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

Oct

Sep

Dec

Jan

New Business
Development

Feb

Mar

Apr

Aug

Jul

Jun

May

Group Strategy Development
(five-year perspective)

Business unit & Group
function strategy planning
Strategic risk identification and mitigation

Board quarterly risk monitoring

Leadership Summit on Strategy

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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 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.

Compliance risks
Ericsson has implemented Group policies and
directives in order to comply 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 comply with financial reporting
standards and stock market regulations.

Risk mitigation
Significant ongoing activities in order to mitigate
risks include:
> Establishing flexibility to cost-effectively

accommodate to fluctuations in customer
demand

> Conducting regular supplier Code of

Conduct audits

> Continuously assessing and managing

CR risks

> Conducting business continuity management

in an efficient way

> Conducting corporate governance training

as needed

> Continuously monitoring information systems

to guard against data breaches

> Reviewing top risks and mitigating actions
at various internal governance meetings.

Process to identify and manage strategic and tactical risks for regions, business units and Group functions

Leadership Team meeting and workshop

Preparations

Establish gross list

Prioritize risks

Assign responsibility

Manage risks

Compile input:

> Business unit plan, region
plan, functional strategy
including SWOT analysis

> Preparatory meetings/

workshop

Consider the four risk
categories:

> Industry and market risks

> Commercial risks

> Operational risks

> Compliance risks

> Rank the risks based on
business impact and
probability

> Document risk heat map
in relation with strategic
objectives (up to 5 years)
and with short-term
targets (1 year)

> Define management

response; accept, reduce,
eliminate

> Assign responsibility for
managing each top risk

> Agree on cooperation

between units.

> Develop mitigation actions

> Secure risk reviews in
business reports and
governance meetings

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Example of risk heat
map document
Risk heat maps are generated
by business units, regions and
Group functions in four risk
categories:
>
> Commercial risk
> Operational risk
> Compliance risk

Industry and market risk

RiSk hEat Map (illustration only)
Time horizon 1–5 years

Management response:

Reduce

Eliminate

Industry & Market

Commercial

Operational

Compliance

)

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Impact (Low, Medium, High)

Risk description

Mitigating action

1
2
3
4
5

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Corporate
governance

Members of the executive leadership team

Nina Macpherson

angel Ruiz

Bina Chaurasia

Jan Frykhammar

Mats h. Olsson

Johan Wibergh

helena Norrman

Douglas L. Gilstrap

per Borgklint

Jan Wäreby

hans Vestberg

Rima Qureshi

Ulf Ewaldsson

anders thulin

Magnus Mandersson

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per Borgklint

Hans Vestberg
President and CEO (since 2010)
Born 1965. Bachelor of Business Administration and
Economics, University of Uppsala, Sweden.
Board Chairman: Svenska Handbollförbundet.
Board Member: Telefonaktiebolaget LM Ericsson and
Thernlunds AB.
Holdings in Ericsson 1): 217,185 Class B shares.
Background: Previously, First Executive Vice President,
CFO and Head of Group Function Finance and 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. Founding member of the
Broadband Commission for Digital Development, and
heading the Commission’s task group on the post-2015
development agenda. Member of the Leadership
Council of the United Nations Sustainable Development
Solutions Network.

Jan Frykhammar
Executive Vice President, Chief Financial Officer and
Head of Group Function Finance (since 2009)
Born 1965. Bachelor of Business Administration and
Economics, University of Uppsala, Sweden.
Board Member: The Swedish International Chamber of
Commerce.
Holdings in Ericsson 1): 22,985 Class B shares.
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.

Magnus Mandersson
Executive Vice President (since 2011) and Head of
Business Unit Global Services (since 2010)
Born 1959. Bachelor of Business Administration,
University of Lund, Sweden.
Board Member: None.
Holdings in Ericsson 1): 33,504 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.

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, Sweden.
Board Member: Confederation of Swedish Enterprise,
KTH Royal Institute of Technology and Teknikföretagen.
Holdings in Ericsson 1): 55,012 Class B shares.
Background: Previously President of Ericsson

Brazil, President of Market Unit Nordic and Baltics
and Vice President and Head of Sales at Business
Unit Global Services.

Per Borgklint
Senior Vice President and Head of Business Unit
Support Solutions (since 2011)
Born 1972. Master of Science in Business Administration,
Jönköping International Business School, Sweden.
Board Member: None.
Holdings in Ericsson 1): 5,000 Class B shares.
Background: Previously CEO of Net1 (Ice.net), Canal Plus
Nordic and Versatel. Has also held several leading
positions at Tele2.

Bina Chaurasia
Senior Vice President, Chief Human Resources
Officer and Head of Group Function Human Resources
(since 2010)
Born 1962. Master of Science in Management and
Human Resources, Ohio State University, USA,
and Master of Arts in Philosophy, University of
Wisconsin, USA.
Board Member: None.
Holdings in Ericsson 1): 22,677 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.

Ulf Ewaldsson
Senior Vice President, Chief Technology Officer
and Head of Group Function Technology (since 2012)
Born 1965. Master of Science in Engineering and
Business Management, Linköping Institute of
Technology, Sweden.
Board Member: Lund University.
Holdings in Ericsson 1): 22,177 Class B shares.
Background: Previously Head of Product Area Radio
within Business Unit Networks. Has held various
managerial positions within Ericsson since 1990. Member
of the European Cloud Partnership Steering Board.

Douglas L. Gilstrap
Senior Vice President and Head of Group Function
Strategy (since 2009) and Chairman of Business Unit
Modems (since 2013)
Born 1963. Bachelor of Science in Accounting,
University of Richmond, USA, and Master of Business
Administration, Emory University, Atlanta, USA. Executive
program at INSEAD, France.
Board Member: None.
Holdings in Ericsson 1): 22,727 Class B shares.
Background: Has held various global managerial
positions within the telecommunications sector for more
than 18 years.

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The Board memberships and Ericsson holdings reported above are as of December 31, 2013.
1) The number of shares includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.

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Corporate
governance

Members of the executive
leadership team CONTINUED

Nina Macpherson
Senior Vice President, General Counsel, Head of Group
Function Legal Affairs and secretary to the Board of
Directors (since 2011)
Born 1958. Master of Laws, LL.M., University of
Stockholm, Sweden.
Board Member: The Association for Swedish Listed
Companies and the Arbitration Institute of the Stockholm
Chamber of Commerce (SCC).
Holdings in Ericsson 1): 11,560 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.

Helena Norrman
Senior Vice President, Chief Communications Officer
and Head of Group Function Communications
(since 2011)
Born 1970. Master of International Business
Administration, Linköping University, Sweden.
Board Member: None.
Holdings in Ericsson 1): 12,621 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.

Mats H. Olsson
Senior Vice President and Head of Asia-Pacific (since
January 2013)
Born 1954. Master of Business Administration,
Stockholm School of Economics, Sweden.
Board Member: None.
Holdings in Ericsson 1): 75,754 Class B shares.
Background: International economic advisor to a number
of Chinese provincial and municipal governments. Head
of Region North East Asia, 2010–2012. Has held various
executive positions across the Asia-Pacific region for
more than 25 years, including Head of Market Unit
Greater China and Head of Market Unit South East Asia.

Rima Qureshi
Senior Vice President Strategic Projects (since
January 2013)
Born 1965. Bachelor of Information Systems and
Master of Business Administration, McGill University,
Montreal, Canada.
Board Member: MasterCard Incorporated.

Holdings in Ericsson 1): 6,076 Class B shares.
Background: Also serves as Head of Ericsson
Response. Head of Business Unit CDMA Mobile
Systems 2010–2012. Previously Vice President of
Strategic Improvement Program and Vice President
Product Area Customer Support. Has held various
positions within Ericsson since 1993.

Angel Ruiz
Head of Region North America (since 2010)
Born 1956. Bachelor of Electrical Engineering, University
of Central Florida, USA, and Master of Management
Science and Information Systems, Johns Hopkins
University, USA.
Board Member: CTIA.
Holdings in Ericsson 1): 59,933 Class B shares.
Background: Joined Ericsson in 1990 and has held a
variety of technical, 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.
Member of National Security Telecommunications
Advisory Committee (NSTAC).

Anders Thulin
Senior Vice President, Chief Information Officer and
Head of Group Function Business Excellence and
Common Functions (since October 2013)
Born 1963. Degree in Economics and Business
Administration from Stockholm School of Economics,
Sweden, including MBA studies at the Western
University, Ivey Business School, Canada.
Board Member: None.
Holdings in Ericsson 1): None.
Background: Joined Ericsson from McKinsey & Co
where he was senior partner. Has more than 20 years of
experience in implementing business excellence across
diverse industries, including IT and telecom.

Jan Wäreby
Senior Vice President and Head of Sales and Marketing
(since 2011)
Born 1956. Master of Science, Chalmers University,
Gothenburg, Sweden.
Board Member: None.
Holdings in Ericsson 1): 82,286 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.

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AUDITOR
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
auditor. Ericsson’s auditor is currently elected
each year at the AGM pursuant to the
Swedish Companies Act, which provides that
the mandate period of an auditor shall be one
year, unless the Articles of Association
provide for a longer mandate period of up to
four years. The auditor reports to the
shareholders at General Meetings.

The duties of the auditor include:

> Updating the Board of Directors regarding
the planning, scope and content of the
annual audit work

> Reviewing the interim reports for the third
and fourth quarters and the year-end
financial statements to assess that the
financial statements are presented fairly in
all material respects

> Advising the Board of Directors of non-

audit services performed, the consideration
paid and other issues that determine the
auditor’s independence.

For further information on the contacts between
the Board and the auditor, please see “Work of
the Board of Directors” earlier in this Corporate
Governance Report.
Auditing work is carried out by the auditor
continuously throughout the year. The auditor
signs review opinions over Ericsson’s interim
financial reports for the third and fourth
quarters and signs an audit opinion over the
Annual Report.

Current auditor
PricewaterhouseCoopers AB was elected
auditor at the AGM 2013 for a period of one
year, i.e. until the close of the AGM 2014.

PricewaterhouseCoopers AB has appointed
Peter Nyllinge, Authorized Public Accountant,
to serve as auditor in charge.

Fees to the auditor
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 2013
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 internationally
established COSO framework for internal
control. The COSO framework is issued by the
Committee of Sponsoring Organizations of the
Treadway Commission (COSO).

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 2013, 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 equity and debt investors
on a timely, fair and equal basis. This will
support a fair market value for Ericsson
securities. 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 in a
timely manner

> 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.

Ericsson’s website comprises comprehensive
information on the Group, including:
> An archive of annual and interim reports
> Access to recent news.

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Disclosure controls and procedures
Ericsson has controls and procedures in place
to allow for 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
require 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 the
management 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.

Ericsson’s President and CEO and the
CFO evaluated the Company’s disclosure
controls and procedures and concluded
that they were effective at a reasonable
assurance level as of December 31, 2013.
Any controls and procedures, no matter
how well designed and operated, can
provide only reasonable assurance of
achieving the desired control objectives.

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.

During the period covered by the Annual
Report 2013, there were no changes to the
internal control over financial reporting that have
materially affected, or are reasonably 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 financial
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,
segregation of duties and appropriate
delegation of authority. This requires specific
approval of material transactions and ensures
adequate asset management.

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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, these
procedures are designed to produce financial
reports without material errors.

For external financial reporting purposes,
the Disclosure Committee performs additional
control procedures to review whether the
disclosure requirements are fulfilled.

The Company has implemented controls
to ensure that 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 allows the
President and CEO and the CFO to 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 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 the 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
for internal steering groups and Company
management. These include analysis and
comments on financial performance and risks.
The Board of Directors receives financial reports
monthly. Ericsson has established a
whistleblower procedure for the reporting of
alleged violations that (i) are conducted by
Group or local management, and (ii) relate to
corruption, questionable accounting or auditing
matters or otherwise seriously affect vital
interests of the Group or personal health
and safety.

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 monitor
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 reports
directly to the Audit Committee. 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, March 5, 2014
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016–0680

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Corporate Governance report

Ericsson | Annual Report 2013

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Corporate
governance

Auditor’s 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 corporate governance report for the year
2013 and that it has been prepared in
accordance with the Annual Accounts Act.
We have read the corporate governance

report and based on that reading and our
knowledge of the company and the group
we believe that we have a sufficient basis for
our opinions. This means that our statutory
examination of the corporate governance

report is different and substantially less in
scope than an audit conducted in
accordance with International Standards on
Auditing and generally accepted auditing
standards in Sweden.

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 March 5, 2014
PricewaterhouseCoopers AB

Peter Nyllinge
Authorized Public Accountant

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Play, pause,
resume
elsewhere

With the rise in streaming services on tablets
and smartphones, consumers can now view
the content of their choice from any device.
As a result, people are increasingly changing
the locations where they watch TV to suit
their daily lives.

They might start viewing a show at home,

pause it, and resume watching during their
commute to work. When moving between
locations, it can also make sense to switch
device. We might start watching an episode
of our favorite show on a laptop, stop it
midway through, continue on a smartphone
and catch the end on a tablet.

19%

19% of streamed time is spent on phones

or tablets.

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Ericsson | Annual Report 2013

161

Corporate
governance

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.
The work of the Remuneration Committee in 2013 and the
remuneration policy are explained at the beginning of the
report, followed by descriptions of plans and their outcome.
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.”

Board member remuneration is resolved annually by the

Annual General Meeting.

THE REMUNERATION COMMITTEE
The Remuneration Committee advises the Board of Directors on
a regular basis on the remuneration to the Group management,
consisting of the Executive Leadership Team (ELT). This includes
fixed salaries, pensions, other benefits and short-term and
long-term variable compensation, all in the context of pay and
employment conditions throughout Ericsson. The Remuneration
Committee reviews and prepares for resolution by the Board:
> Proposals on salary and other remuneration, including
retirement compensation, for the President and CEO

> Proposals on targets for the short-term variable compensation

for the President and CEO

> Proposals to the Annual General Meeting on guidelines for

remuneration to the ELT

> Proposals to the Annual General Meeting on long-term variable

compensation and similar equity arrangements

The responsibility of the Remuneration Committee is also to:
> Approve proposals on salary and other remuneration,

including retirement compensation, for the Executive Vice
Presidents and other ELT members.

> Approve pay out of the short-term variable compensation for

the ELT, based on achievements and performance.

The Remuneration Committee’s work forms 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, Roxanne S. Austin, and Karin Åberg. All the members
are non-executive directors, independent (except 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 President and CEO, the Senior Vice President,
Head of Human Resources and the Vice President, Head of Total
Rewards attend 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 2013. The Remuneration Committee is also furnished 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 shareholders
regarding remuneration.

The purpose and function of the Remuneration Committee
and its responsibilities can be found in the Corporate Governance
Report. These responsibilities, together with the Guidelines for
remuneration to Group management (ELT) and the Long-Term
Variable compensation (LTV) program is 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.

> Approve proposals on targets for the short-term variable

The Guidelines for remuneration to Group management are, in

compensation for the Executive Vice Presidents and other
ELT members.

accordance with Swedish law, brought to shareholders annually
for approval.

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
Guidelines for remuneration to Group management 2013,
approved by the AGM, can be found in Note C28. The
auditor’s report regarding whether the company has
complied with the guidelines for compensation to the ELT
during 2013 is posted on the Ericsson website.

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Ericsson | Annual Report 2013

The Remuneration Committee met six times during the

year 2013.

The winter meetings focused on following up on results from

the 2012 variable compensation programs and preparing
proposals to shareholders for the 2013 Annual General Meeting
(AGM). During the spring the committee determined the
relocation package for a member of the ELT and proposed to the
Board of Directors to approve the LTV 2010 vesting result. In the
fall, the committee reviewed the Guidelines for remuneration to
Group management and decided to continue the LTV program
without any material changes and the STV plans with an
increased weighting on functional targets for 2014. The
committee based its considerations on the business needs,
analyses and reviews of the global market trends and feedback
from shareholders and institutions. Supported by the
independent advisor, the Committee also reviewed the
competitiveness of the ELT remuneration in the global market.

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REMUNERATION REPORT

Evaluation of the Guidelines for remuneration to Group
management and of the LTV program

The Remuneration Committee supports the Board with the
review and evaluation of the Guidelines for remuneration to Group
management and Ericsson’s application of these guidelines. The
Committee and the Board has concluded that the guidelines
remain valid and right for Ericsson and that the guidelines should
not be materially changed for 2014.

Furthermore, the Remuneration Committee is of the opinion
that the LTV program fulfills the defined objectives to promote
“One Ericsson” and to align the interests of employees with those
of shareholders. The number of participants as of December 1,
2013 was approximately 29,000 employees, compared to 27,000
employees as of December 1, 2012. The evaluation also confirms
that the Key Contributor Retention Plan meets the purpose of
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.

TOTAL 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 compensation plus fixed salary. Thereafter, target
long-term variable compensation may be added to get to the
total target compensation and, finally, pension and other benefits
may be added to arrive at the total remuneration.

For the ELT, remuneration consists of fixed salary, short-term

and long-term variable compensation, pension and other
benefits. If the size of any one of these elements is increased or
decreased when setting the remuneration, at least one other
element has to change if the competitive position is to remain
unchanged.

The remuneration costs for the CEO and the ELT are reported

in Note C28.

Fixed salary
When setting fixed salaries, the Remuneration Committee
considers the impact on total remuneration, including pensions
and associated costs. The absolute levels are determined based
on 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 compensation

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 compensation plans have maximum award and
vesting limits. Short-term variable compensation is to a greater
extent dependent on the performance of the specific unit or
function, while long-term variable compensation is dependent on
the achievements of the Ericsson Group.

As described in the section “Our Performance,” Ericsson
measures business performance according to five categories of
measurements derived from the overall strategy: growing sales
faster than market, best-in-class operating margin, strong cash
conversion, customer satisfaction and employee engagement.
These categories form the basis for our short- and long-term
variable compensation programs and set the framework of what
measurements shall be used for variable compensation.

Short-term variable compensation
Annual variable compensation 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.
For the ELT, targets are thus predominantly financial 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 engagement.

The chart below illustrates how payouts to the ELT have

varied with performance over the past five years.

The Board of Directors and the Remuneration Committee
decide on all targets for Group management 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 2013, approximately 77,000 employees participated

in short-term variable compensation plans.

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Short-term variable compensation payouts
as percentage of opportunity

Fixed salary, short-term and long-term variable
compensation as percentage of total target compensation

%
2
.
0
8

%
4
.
4
6

%
8
.
6
5

%
4
.
9
4

100

%
0
.
9
4

%
6
.
0
4

%
9
.
9
3

%
1
.
0
3

%
5
.
6
% 4
1
.
1
3

2009 2010 2011 2012 2013

Remuneration report

CEO

46.1%

18.4%

35.5%

CEO

Average ELT excl.
CEO

Average
ELT excl.
CEO

60.1%

21.9%

18.0%

100

Fixed salary 2013

Short-Term Variable
Target 2013

Long-Term Variable
at half of max 2013

Ericsson | Annual Report 2013

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Corporate
governance

REMUNERATION REPORT CONTINUED

Summaries of 2013 short- and long-term variable compensation

What we call it

What is it?

What is the objective?

Who participates?

How is it earned?

Short-term: Compensation delivered over twelve months or less

Fixed salary

Fixed compensation
paid at set times

Short-Term Variable
compensation (STV)

A variable plan that is
measured and paid
over a single year

Attract and retain employees,
delivering part of annual
compensation 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.
Approximately 75,000
in 2013

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

Sales Incentive Plans

Tailored versions of
the STV

As for STV, tailored for local
or business requirements, such
as sales

Employees in sales.
Approximately 2,000
in 2013

Similar to STV. All plans have
maximum award and vesting limits

Long-term: Compensation delivered over three 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 managers

Reinforce a “One Ericsson”
mentality and align employees’
interests with those of shareholders

Recognize, retain and motivate key
contributors for performance,
critical skills and potential
Compensation for long-term
commitment and value creation

All employees are eligible

Up to 10% of employees

Buy one share and it will be
matched by one share after three
years if still employed

If selected, get one more matching
share in addition to the SPP one

Senior managers,
including Executive
Leadership Team

Get up to four, six or, for CEO,
nine further shares matched
to each SPP share for long-
term performance

Long-term variable compensation
Share-based long-term variable compensation plans are
submitted each year for approval by shareholders at the AGM. All
long-term variable compensation 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 2013, share-based compensation 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% of gross fixed salary
(the President and CEO can save up to 10% of gross fixed salary
and short-term variable compensation) for purchase of Class B
shares at market price on NASDAQ OMX Stockholm or ADSs on
NASDAQ New York (contribution shares) over a 12-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 2013, the number of participants was over 29,000, or
approximately 29% of eligible employees in 100 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 to encourage
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 12-month
investment period. The plan was introduced in 2004.

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Short-term variable compensation structure

Short-term variable compensation
as percentage of fixed salary

Percentage of short-term variable
compensation maximal opportunity

Target
level

40%
40%
36%
37%

Maximum
level

Actual paid
for 2012

Group financial
targets

Unit/functional
financial targets

Non-financial
targets

80%
80%
72%
74%

32%
25%
37%
36%

90%
100%
49%
53%

0%
0%
27%
25%

10%
0%
24%
22%

CEO 2012
CEO 2013
Average ELT 2012 1)
Average ELT 2013 1)

1) Excludes CEO – differences in target and maximum levels from year to year are due to changes in the composition of the ELT.

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 to provide market-
competitive remuneration. Senior managers, 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. Performance matching is
subject to the fulfillment of performance targets. Since 2010, the
President and CEO may obtain up to nine performance-matching
shares in addition to the Stock Purchase Plan matching share for
each contribution share.

For the President and 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 retirement age for
these ELT members is normally 60 years.

The ELT members employed in Sweden from 2011 are
normally covered by the defined contribution plan under
the ITP1 scheme, with a retirement age of 65 years.

For members of the ELT who are not employed in Sweden,

local market competitive pension arrangements apply.

Other benefits, such as company cars and medical insurance,

are also set to be competitive in the local market. The ELT
members may not receive loans from the Company.

In the 2004 to 2010 plans, the performance targets were

The ELT members locally employed in Sweden have a mutual

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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 periods and severance pay agreements apply; however,
no agreement exceeds the notice period of six months or
the severance pay period of 18 months.

REMUNERATION policy in practice
Ericsson has taken a number of measures since 2011 to enhance
the understanding of how the company translates remuneration
principles and policy into practice. The first step was the launch
of an internal remuneration website 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. The next
step in this development was the implementation of an Integrated
Human Resources IT tool in 2012. The first phase was launched
to all managers in Ericsson in November 2012 and covered
performance management, talent planning, variable
compensation and annual salary review. The second
implementation phase of this IT tool, with enhancements and
increased scope, was launched at the end of 2013.

Earnings Per Share (EPS) targets.

To support the long-term strategy and value creation of the
Company, new targets have been in place since the 2011 plan. At
the AGM 2013, the following targets for the 2013 Executive
Performance Stock Plan were resolved on proposal by the Board:
> Net Sales Growth: Up to one-third of the award will vest if the
compound annual growth rate of consolidated net sales is
between 2 and 8% comparing 2015 financial results to 2012
> Operating Income Growth: Up to one-third of the award will
vest if the compound annual growth rate of consolidated
operating income is between 5 and 15% comparing 2015
financial results to 2012

> Cash Conversion: Up to one third of the award will vest if cash

conversion is at or above 70% during each of the years
2013-2015 and vesting one ninth of the total award for each
year the target is achieved.

Before the number of performance shares to be matched are
finally determined, the Board of Directors shall examine whether
the performance matching is reasonable considering the
Company’s financial results and position, conditions on the stock
market and other circumstances, and if not, as determined by the
Board of Directors, reduce the number of performance shares to
be matched to the lower number of shares deemed appropriate
by the Board of Directors. When undertaking its evaluation of
performance, the Board of Directors will consider, in particular,
the impact of larger acquisitions, divestitures, the creation of joint
ventures and any other significant capital event on the three
targets on a case-by-case basis.

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 social security. Where
possible, pension plans are operated on a defined contribution
basis. Under these plans, Ericsson pays in contributions 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.

Remuneration report

Ericsson | Annual Report 2013

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SHAREHOLDERS

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 2013, approximately 2.0 (2.4) billion shares were traded on
NASDAQ OMX Stockholm and about 1.0 (1.1) billion shares were
traded on NASDAQ New York. A total of 3.0 (3.5) billion Ericsson
shares were thus traded on the exchanges where we are listed.
Trading volume in Ericsson shares decreased by approximately
17% on NASDAQ OMX Stockholm and by approximately 12%
on NASDAQ New York compared to 2012.

The Ericsson share is also traded on other venues such as

BATS Europe, Burgundy, and Chi-X Europe.

Changes in number of shares and capital stock 2008–2013

2008

2009

2010

2011

2012

2013

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
June 29, new issue (Class C shares, later converted to Class B) 1)
December 31

December 31

Share performance indicators

The Ericsson share

Share listings

NASDAQ OMX Stockholm

NASDAQ New York

Share data

Total number of shares in issue

of which Class A shares, each carrying one vote 1)
of which Class B shares, each carrying one tenth of
one vote 1)

Ericsson treasury shares, Class B

Quotient value

3,305,051,735

261,755,983

3,043,295,752

73,968,178

SEK 5.00

Market capitalization, December 31, 2013

approx. SEK 258 b.

ICB (Industry Classification Benchmark)

9500

Ticker codes

NASDAQ OMX Stockholm

NASDAQ New York

ERIC A/ERIC B

ERIC

Bloomberg NASDAQ OMX Stockholm

ERICA SS/ERICB SS

Bloomberg NASDAQ

Reuters NASDAQ OMX Stockholm

ERIC US

ERICa.ST/ERICb.ST

Reuters NASDAQ
1) Both classes of shares have the same rights of participation in the net assets and earnings.

ERIC.O

Number of shares

Share capital

3,226,451,735

16,132,258,678

19,900,000

99,500,000

3,246,351,735

16,231,758,678

27,000,000

3,273,351,735

31,700,000

3,305,051,735

135,000,000

16,366,758,678

158,500,000

16,525,258,678

Earnings per share, diluted (SEK) 1)
Earnings per share, diluted non-IFRS (SEK) 2)
Operating income per share (SEK) 3) 4)
Cash flow from operating activities per share (SEK) 3)
Stockholders’ equity per share, basic, end of period (SEK) 5)
P/E ratio

Total shareholder return (%)
Dividend per share (SEK) 6)
1) Calculated on average number of shares outstanding, diluted.
2) EPS, diluted, excluding restructuring charges, amortizations and write-downs of acquired

intangible assets, SEK.

3) Calculated on average number of shares outstanding, basic.

2013

3.69

5.62

5.53

5.39

2012

1.78

2.74

3.25

6.85

2011

3.77

4.72

5.58

3.11

2010

3.46

4.80

7.42

8.31

2009

1.14

2.87

5.8

7.67

43.39

42.51

44.57

45.34

43.79

–3

2.75
4) For 2010 and 2009 excluding restructuring charges.
5) Calculated on number of shares, end of period.
6) For 2013 as proposed by the Board of Directors.

3.00

–7

2.50

2.25

2,00

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

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Share trend
In 2013, Ericsson’s total market capitalization increased by about 20% to
SEK 258 billion, compared to a decrease by 7% reaching SEK 215 billion
in 2012. The OMX Stockholm Index on NASDAQ OMX Stockholm increased
by 23% and the NASDAQ composite index increased by 38%. The S&P 500
Index increased by 30%.

Share turnover and price trend, NASDAQ OMX Stockholm
Class A shares, SEK m

Dividend per share
SEK

1,200

1,000

800

600

400

200

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

Jan-Dec, 2012

Jan-Dec, 2013

Class B shares, SEK m

60,000

50,000

40,000

30,000

20,000

10,000

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

Jan-Dec, 2012

Jan-Dec, 2013

180

150

120

150

125

100

3.00

2.75

2.50

2.25

3.00

2.50

2.00

1.50

1.00

0.50

2009

2010

2011

2012

2013 1)

1) For 2013 as proposed by the Board of Directors.

Earnings per share, diluted
SEK

4.80

4.72

3.46

3.77

5.62

3.69

2.74

1.78

6.0

4.5

3.0

1.5

2.87

1.14

Turnover, SEK million

— Price, SEK

— NASDAQ OMX Stockholm (indexed to share price)

2009

2010

2011

2012

2013

Volumes reflect trading on NASDAQ OMX Stockholm only.

Source: Nasdaq OMX Stockholm

Share turnover and price trend, US market
ADS, USD m

3,000

2,500

2,000

1,500

1,000

500

Jan-Dec, 2009

Jan-Dec, 2010

Jan-Dec, 2011

Jan-Dec, 2012

Jan-Dec, 2013

Turnover, USD million

— Price, USD

— S&P 500 (indexed to share price)

Volumes reflect trading on NASDAQ OMX Stockholm only.

Source: Nasdaq New York

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

1) EPS, diluted, excl. restructuring charges, amortizations and write-downs
of acquired intangible assets, SEK.

Stockholders’ equity per share, basic
SEK

43.79

45.34

44.57

42.51

43.39

2009

2010

2011

2012

2013

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SHAREHOLDERS

Share information CONTINUED

Share and ADS PRICES
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 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 256 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 markups, markdowns or commissions, and do
not necessarily represent actual transactions.

Share prices on NASDAQ OMX Stockholm and NASDAQ New York

Share prices on NASDAQ OMX Stockholm

(SEK)

2013

2012

2011

2010

2009

Class A at last day of trading

Class A high
(September 16, 2013)

Class A low
(November 14, 2013)

Class B at last day of trading

Class B high
(September 16, 2013)

Class B low
(January 9, 2013)

Source: NASDAQ OMX Stockholm.

74.50

86.95

63.90

72.00

69.55

93.60

74.00

88.40

65.00

78.80

50.00

55.55

59.05

65.20

55.40

78.50

90.95

65.10

71.90

70.40

96.65

78.15

90.45

65.90

79.60

64.50

55.90

61.70

65.90

55.50

Share prices on NASDAQ New York

(USD)

2013

2012

2011

2010

2009

ADS at last day of trading

ADS high (September 19, 2013)

ADS low (January 9, 2013)

Source: NASDAQ New York.

12.24

14.22

9.78

10.10

10.60

8.23

10.13

15.44

8.83

11.53

12.39

9.40

9.19

10.92

6.60

Period
Annual high and low

2009

2010

2011

2012

2013

Quarterly high and low

2012 First Quarter

2012 Second Quarter

2012 Third Quarter

2012 Fourth Quarter

2013 First Quarter

2013 Second Quarter

2013 Third Quarter

2013 Fourth Quarter

Monthly high and low

August 2013

September 2013

October 2013

November 2013

December 2013

January 2014
1) One ADS = 1 Class B share.

NASDAQ OMX Stockholm

SEK per Class A share
Low

High

SEK per Class B share
Low

High

78.80

88.40

93.60

72.00

86.95

72.00

69.70

67.00

64.90

84.55

80.20

86.95

82.75

77.15

86.95

82.75

80.00

77.50

78.45

55.40

65.20

59.05

55.55

50.00

59.25

58.75

55.95

55.55

62.90

69.65

71.00

50.00

73.85

74.30

72.15

50.00

71.95

71.55

79.60

90.45

96.65

71.90

90.95

71.90

69.95

67.80

66.85

86.40

83.15

90.95

87.10

80.75

90.95

87.10

83.75

81.90

82.50

55.50

65.90

61.70

55.90

64.50

58.15

59.60

55.90

56.60

64.50

72.40

74.10

76.05

76.75

78.15

76.50

76.85

76.05

75.05

NASDAQ New York
USD per ADS 1)

High

10.92

12.39

15.44

10.60

14.22

10.53

10.60

10.05

10.21

13.46

12.60

14.22

13.71

12.36

14.22

13.71

12.64

12.45

12.58

Low

6.60

9.40

8.83

8.23

9.78

8.58

8.23

8.31

9.78

10.67

11.26

11.59

11.71

12.36

11.82

11.84

11.59

11.52

Source: NASDAQ OMX Stockholm and NASDAQ New York.

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Shareholders
As of December 31, 2013, the Parent Company had 516,922
shareholders registered at Euroclear Sweden AB (the Central
Securities Depository – CSD), of which 1,008 holders had a US
address. According to information provided by our depositary,
Citibank, there were 201,138,791 ADSs outstanding as of
December 31, 2013, and 4,310 registered holders of such ADSs.
A significant number of Ericsson ADSs are held by banks,
brokers and/or nominees for the accounts of their customers.
As of January 3, 2014, the total number of bank, broker and/or
nominee accounts holding Ericsson ADSs was 165,678.
According to information known at year-end 2013,

approximately 81% 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.

Geographical ownership breakdown of share capital including
retail shareholders and treasury shares
Percent of capital

Sweden

United States

United Kingdom

Norway

Netherlands

2013

38.65%

21.67%

10.15%

3.26%

1.49%

2012

43.22%

20.59%

9.44%

3.70%

1.44%

Other countries

24.80%

21.61%

Source: King Worldwide

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, 2013.

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)

828,323

0,01%

Includes shares held via endowment insurance, for more info see page 146 note 2
For individual holdings, see Corporate Governance Report.

The following table shows share information, as of December 31, 2013, with respect to our 15 largest shareholders, ranked by voting
rights, as well as their percentage of voting rights as of December 31, 2013, 2012 and 2011.

Largest shareholders, December 31, 2013 and percentage of voting rights, December 31, 2013, 2012 and 2011

Number
of Class A
shares

Of total
Class A shares,
percent

Number
of Class B
shares

Of total
Class B shares,
percent

2013
Voting rights,
percent

2012
Voting rights,
percent

2011
Voting rights,
percent

Identity of person or group 1)

Investor AB (Investment Management)

AB Industrivärden (Investment Management)

Handelsbankens Pensionsstiftelse

Swedbank Robur Fonder AB

AFA Försäkring AB

BlackRock Fund Advisors

Dodge & Cox, Inc.

AMF Pensionsförsäkring AB

Skandia Liv

Norges Bank Investment Management

115,762,803

86,052,615

20,465,220

16,795

11,423,000

6,406,801

Pensionskassan SHB Försäkringsföreningen

6,381,570

OppenheimerFunds, Inc.

Handelsbanken Fonder AB

State Street Global Advisors

Aberdeen Asset Managers Ltd.

Others

Total
1) Source: King Worldwide

290,578

22,824

14,933,777

261,755,983

44.23

32.88

7.82

0.01

4.36

0.00

2.45

0.00

2.44

0.00

0.11

0.01

0.00

5.71

100

59,284,545

500,000

122,129,103

4,465,519

82,330,468

77,028,778

75,764,586

10,549,642

65,175,818

61,829,103

44,974,450

43,108,269

40,461,909

2,355,693,562

3,043,295,752

1.95

0.02

0.00

4.01

0.15

2.71

2.53

2.49

0.35

2.14

0.00

2.03

1.48

1.42

1.33

77.41

100

21.50

15.21

3.62

2.16

2.10

1.45

1.36

1.34

1.32

1.15

1.13

1.09

0.85

0.77

0.71

44.25

100

21.37

14.96

3.72

2.71

2.18

1.37

1.14

1.26

1.31

1.36

1.13

1.10

1.07

0.07

1.16

44.10

100

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14.34

4.20

2.79

2.31

1.46

0.96

1.34

1.36

1.24

1.39

1.20

0.96

0.05

1.05

43.87

100

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Smart
metering

Using the Ericsson Smart Metering
solution, the Swedish energy company
E.ON has gained more efficient
management of the energy grid and the
possibility to supply its customers with
accurate and up-to-date information on
energy consumption.

The solution gathers data from more
than 600,000 metering points in Sweden
on a daily basis and provides the
collected information to E.ON’s internal
IT environment.

The smart meter technology opens

up new possibilities, allowing
improvements in transparency, data
quality, load management and
reductions in process costs.

In the Nordic region, Sweden has
spearheaded the development of smart
metering, and the technology is now
spreading across Europe. Additionally,
Ericsson is currently supplying clients in
Canada and Australia with solutions and
services for smart metering, providing
valuable experience ranging from managed
services to field support.

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Glossary

2G
The first digital generation of
mobile systems. Includes GSM,
TDMA, PDC and cdmaOne.

3G
Third 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.

Backhaul
Transmission between radio base
stations and the core network.

BSS
Business support systems.

Cloud
When data and applications reside
in the network.

EDGE
An enhancement of GSM. Enables
the transmission of data at speeds
up to 250 kbps (Evolved EDGE up
to 1 Mbps.)

GDP
Gross Domestic Product. The total
annual cost of all finished goods
and services produced within a
country.

GSM
Global System for Mobile
Communications. A first digital
generation mobile system.

CO2e
The amount of a particular
greenhouse gas, expressed as the
amount of carbon dioxide that
gives the same greenhouse effect.

CAGR
Compound Annual Growth Rate.

EPC
Evolved Packet Core. The core
network of the LTE system.

IMS
IP Multimedia Subsystem.
A standard for voice and
multimedia services over mobile
and fixed networks using IP.

IP
Internet Protocol.
Defines how information travels
between network elements across
the internet.

IPR
Intellectual Property Rights.

IPTV
IP Television.
A technology that delivers digital
television via fixed broadband
access.

JV
Joint Venture.

LTE
Long-Term Evolution.
4G; the evolutionary step of mobile
technology beyond HSPA, allowing
data rate above 100 Mbps.

Capex
Capital expenditure.

Carrier grade
(Also telecom grade) refers to a
system, or a hardware or software
component, with at least “five
nines”, i.e. 99.999%, availability.

CDMA
Code Division Multiple Access.
A radio technology on which the
cdmaOne (2G) and CDMA2000
(3G) mobile communication
standards are both based.

Heterogeneous network
Densification and enhancement of
a network to increase capacity.

HSPA
High Speed Packet Access.
Enhancement of 3G/WCDMA that
enables mobile broadband.

ICT
Information and Communication
Technology.

M-commerce
Mobile commerce.

M2M
Machine-to-machine
communication.

Managed services
Management of operator networks
and/or hosting of their services.

Mobile broadband
Wireless high-speed internet
access using the HSPA, LTE and
CDMA2000EV-DO technologies.

Networked Society
Ericsson’s vision of what will
happen when everything that can
benefit from being connected is
connected, empowering people,
business and society.

OSS
Operations Support Systems.

Penetration
The number of subscriptions
divided by the population in
a geographical area.

Psi
is a solution for mobile broadband
(3G) coverage. The name reflects
the shape of the solution with just
one radio connected to three
antennas.

RAN
Radio Access Network.

SDN
Software-Defined Network.

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.

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The terms “Ericsson,” “the Company,” “the Group,” “us,”
“we,” and “our” all refer to Telefonaktiebolaget LM Ericsson and
its subsidiaries.

Financial terminology

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Other
information

Financial terminology

Capital employed
Total assets less non-interest-
bearing provisions and liabilities.
(which includes: non-current
provisions; deferred tax liabilities;
other non-current liabilities; current
provisions; trade payables; other
current liabilities).

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.

Capital turnover
Net sales divided by average
capital employed.

Cash conversion
Cash flow from operating
activities divided by the sum of
net income and adjustments to
reconcile net income to cash,
expressed as percent.

Cash dividends per share
Dividends paid divided by average
number of basic shares.

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

EPS (non-IFRS)
EPS, diluted, excluding
amortizations and write-down of
acquired intangible assets and
including restructuring charges.

EBITA margin
Earnings before interest, taxes,
amortization and write-downs of
acquired intangibles (intellectual
property rights, trademarks and
other intangible assets; see Note
C10 “Intangible assets”) as a
percentage of net sales.

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 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 (which
include: non-current borrowings
and current borrowings) and
post-employment benefits.

P/E ratio
The P/E ratio is calculated as the
price of a Class B share at last day
of trading divided by Earnings per
basic share.

Stockholders’ equity per
share
Stockholders’ equity divided by
the number of shares outstanding
at end of period, basic.

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).

Total Shareholder Return
(TSR)
The increase or decrease in
Class B share price during the
period, adjusted for 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 (which include:
current provisions; trade payables;
other current liabilities).

Exchange rates

Exchange rates used in the consolidation

SEK/EUR

Average rate
Closing rate

SEK/USD

Average rate
Closing rate

January–December
2012

2013

8.67
8.90

6.52
6.46

8.70
8.58

6.73
6.51

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SHAREHOLDER INFORMATION

FOR PRINTED
PUBLICATIONS
A printed copy of the Annual Report

is provided on request.

Strömberg Distribution

SE-120 88 Stockholm, Sweden

Phone: +46 8 449 89 57

Email: ericsson@strd.se

IN THE UNITED STATES:
Ericsson’s Transfer Agent

Deutsche Bank, Deutsche Bank

Shareholder Services

American Stock Transfer & Trust

Company

Registered holders:

Toll-free number: +1 (800) 937-5449

Interested investors:

Direct dial: +1 (718) 921-8124

Email:

DB@amstock.com

Ordering a hard copy

of the Annual Report:

+1 888 301 2504

Telefonaktiebolaget LM Ericsson’s
shareholders are invited to participate in the
Annual General Meeting to be held on Friday,
April 11, 2014, at 3 p.m. at Stockholm
Waterfront Congress Centre, Nils Ericsons
Plan 4, 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 Saturday, April 5,
2014; and

> Give notice of attendance to the Company
at the latest on Monday April 7, 2014. Notice
of attendance can be given by telephone:
+46 8 402 90 54 on weekdays between
10a.m. and 4p.m., or on Ericsson’s website:
www.ericsson.com.

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 or registration number,
address, telephone number and number of
assistants, if any.

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,
share holders having their shares registered
in the name of a nominee, must request the
nominee to temporarily enter the shareholder into
the share register as per Saturday, April 5, 2014,
in order to be entitled to attend the meeting.
Since the record day for attending the meeting is
a Saturday, the shareholder should inform the
nominee to that effect well before Friday, April 4.

Proxy
Shareholders represented by proxy shall issue
and 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, or if no such certificate exists, a
corresponding document of authority. Such
documents must not be older than one year
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
original power of attorney, certificates of
registration and other documents of authority
should be sent to the Company in advance to
the address above for receipt by Thursday, April
10 , 2014. 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 3.00 per share for the year
2013 and that Wednesday, April 16, 2014 will be
the record date for dividend.

Financial information from Ericsson
Interim reports 2014:
> Q1, April 23, 2014
> Q2, July 18, 2014
> Q3, October 24, 2014
> Q4, January 27, 2015

Annual Report 2014:
March 2015

2013 Form 20-F for the US market:
April 2014

WHERE YOU CAN FIND OUT MORE

Information about Ericsson and
its development is available on
our website:
www.ericsson.com.
Annual and interim reports and
other relevant shareholder
information can be found at:
www.ericsson.com/investors

Ericsson headquarters
Torshamnsgatan 21
Kista, Stockholm, Sweden

Registered office
Telefonaktiebolaget LM Ericsson
SE–164 83 Stockholm, Sweden

Investor relations
For questions on the Company,
please contact Investor
Relations:
Telephone: +46 10 719 00 00
Email: investor.relations@
ericsson.com.

Ericsson Annual
Report 2013:

Project management:

Ericsson Investor Relations

Design and production:

Addison Group and Paues Media

Group Management, Board of Directors

photography: Per Myrehed AB

Reprographics and printing:

Trosa Tryckeri AB 2014

SHAREHOLDER INFORMATION

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2
0
1
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LIVING in the
networked
society

ANNUAL REPORT 2013

138th year of operations

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

Printed on UPM Sol Matt och Munken Lynx
– chlorine free paper that meets international
environmental standards
EN/LZT 138 1292 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2013