Ericsson Annual Report 2015

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FY2015 Annual Report · Ericsson

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” Our ambition
is to lead the market
transformation as the
new ICT market evolves”

Hans Vestberg,
President and CEO

Ericsson Annual Report 2015

ericsson in brief

Share of the world’s mobile traffic carried over Ericsson networks

40 PERCENT

Ericsson has been at the forefront of
communications technology over the
past 140 years, despite ever-changing
conditions and major technological dis-
ruptions. Over the past 15 years,
and reflecting the ongoing transforma-

tion of the comm u nications technology
and services market, the business has
evolved from being hardware- centric
to becoming increasingly software- and
services- centric, and today close to 70%
of sales derive from software and ser-

vices. The Company mission is to lead
this transformation through mobility.
Ericsson has its headquarters in
Stockholm, Sweden. The Ericsson
share is listed on Nasdaq Stockholm,
Sweden, and NASDAQ New York.

Technology leadership

Services leadership

Scale and skills

39,000

35 billion

Patents

Annual
investments
in R&D (SEK)

1 billion

66,000

Subscribers
served
by Ericsson

Services
professionals

180

Countries

116,281

Employees

Net sales

SEK billion

246.9

(2014: 228.0)

Operating income

SEK billion

21.8

(2014: 16.8)

Cash flow from operating activities

SEK billion

20.6

(2014: 18.7)

contents

The business ....................................
Ericsson in brief ........................................................ i
Letter from the CEO ............................................... 2
This is Ericsson ......................................................... 6
Profit improvement .................................................. 8
Business structure ................................................ 12
Global presence .................................................... 14
The IPR portfolio .................................................... 16
Market transformation ......................................... 18
The strategic direction ......................................... 22
Core business ........................................................ 24
Targeted areas ....................................................... 30
The people ............................................................... 36
Sustainability and
Corporate Responsibility ..................................... 38
Letter from the Chairman ................................... 41

Results .............................................
Board of Directors’ report* ................................ 42
Consolidated financial statements* ................ 55
Notes to the consolidated
financial statements* ........................................... 63
Parent Company financial statements* .......102
Notes to the Parent Company
financial statements* ...........................................108
Risk factors* ..........................................................121
Auditor’s report ....................................................129
Forward-looking statements ...........................130

Corporate Governance ....................
Corporate Governance report, 2015 ............132
Remuneration report ..........................................160

Shareholders ...................................
Ericsson and the Capital markets ...................164
Share information ................................................168

Other information .............................
Ten-year summary ..............................................172
Glossary .................................................................174
Financial terminology and
Exchange rates ....................................................175
Shareholder information ...................................176

* Chapters covered by the Auditor’s report.

Ericsson’s aim is to reduce its carbon footprint from direct operations while improving productivity
and achieving a cost-benefit balance.

Ericsson has a long-term objective to maintain absolute CO2e emissions from its own activities for
business travel, product transportation and facilities energy use in 2017 at the same level as in 2011.
This equates to a reduction of 30% CO2e emissions per employee. In 2015, the reduction was
16% CO2e emissions per employee.

Contacts Investor Relations

investor.relations@ericsson.com

The business – Ericsson in brief

Ericsson | Annual Report 2015THE BUSINESS – Letter from the CEO

Towards the
Networked Society

Dear reader

We are living in a truly remarkable time. The
pace of change in society, in our industry and
within Ericsson has never been faster. The
transformation to the Networked Society,
where anything that benefits from being con-
nected will be connected, is pushed forward
at speed with 5G, Internet of Things (IoT) and
cloud as the key drivers.

Our ambition is to lead the market transfor-
mation to secure that we continue to be rele-
vant to existing and new customers as the new
ICT market evolves. Our core strategy remains
unchanged and builds on a combination of
excelling in our current core business and to
establish leadership in targeted growth areas,
combined with best-in-class margins and
strong operating cash flow. In doing so, we will
be able to create shareholder value at the same
time as we generate value for our customers,
employees and for society at large.

With this introduction, let me continue by
giving you some examples of strategic events
in 2015 that reflect our ambitions and strategic
direction.

Transforming the user experience
The year started with the Consumer Electron-
ics Show (CES) in Las Vegas in January.
Among the things that we showcased at CES,
was how the Networked Society will redefine
entertainment. We also demonstrated how

connectivity transforms the driving experience
and how industries and cities can benefit from
a society where everything that can be connec-
ted will be connected. As an industry first we
launched the LTE License Assisted Access that
increases mobile data speeds on smart phones
and other devices by using the com bination of
licensed and unlicensed frequency bands.

Strengthening our offerings
Mobile World Congress (MWC) in Barcelona
in February–March is the event where the
entire global mobile industry comes together
every year. MWC is an important platform for
us to bring new products, services and solu-
tions to market. In 2015 we had seven import-
ant launches, including the Ericsson HDS 8000
(Hyperscale Data center System) and the new
Ericsson Radio System. HDS 8000 is the first
product in the world to include Intel Rack Scale
Architecture and is a result of a long-term rela-
tionship between Intel and Ericsson. Ericsson
Radio System is a completely new approach to
building radio networks. I believe these recent
launches clearly strengthen our offering and
pave the way for the strategic direction.

Company transformation
Ericsson has a structured talent planning
process and runs leadership programs at all
levels, which is crucial in securing Ericsson’s

STRATEGIC
EVENTS
2015

Consumer Electronics Show in Las Vegas

Mobile World Congress in Barcelona

January 6–9

March 2–5

JANUARY FEBRUARY MARCH APRIL MAY

Ericsson | Annual Report 2015 I believe these recent launches clearly
strengthen our offering and pave
the way for the strategic direction”

Earnings per share, diluted

sek 4.13

(2014: 3.54)

leading position. In June, when we gathered
250 top managers to our annual two day Lead-
ership Summit, we focused on strategy and
leadership. This also includes talent manage-
ment or how to attract the best, to develop the
best, and to establish a high-performing organi-
zation of engaged employees.

Reflecting the transformation, almost 15,000
employees joined Ericsson and close to 17,000
employees left the Company in 2015.

Responsible leadership
In September I was part of a historic event,
when world leaders from 193 countries gath-
ered in New York City at the United Nations
General Assembly to adopt 17 Sustainable
Development Goals, with the ambition to end
poverty, protect the planet and ensure prosper-
ity for all by 2030. At Ericsson, I am proud that
my whole Global Leadership Team has adopted
a goal and my personal goal is number 17,
“Partnerships for the goals”. At Ericsson, sus-
tainability and corporate responsibility are part
of our business and one of the pillars in our
strategy. We continue to lead the industry in
working with providing solutions to sustainable
development challenges, while integrating
responsible business practices into our
process to ensure we are a trusted partner to

Acquisition of Envivio

September 10

our stakeholders. We are committed to
continuous improvements against the triple
bottom line principles of responsible financial
and environmental performance and socio-
economic development, and to being a
responsible and relevant driver of positive
change in the networked society.

This includes activities such as connecting
the unconnected as well as scaling up access
to education, reducing energy and carbon
dioxide emissions, and contributing to sustain-
able urbanization, financial inclusion, gender
equality, peace-building and humanitarian
response.

Filling the gaps
The overall ambitions of our partnering and
M&A activities are to expand market footprint,
strengthen competitive assets, fill portfolio
gaps, and, above all, strengthen the ability to
create value and to accelerate profitable
growth. After an intensive 2014, with import-
ant acquisitions and partnerships primarily
within targeted growth areas, we made fewer,
but still important, acquisitions in 2015. One of
these acquisitions was Envivio, announced in
September, which extends Ericsson’s position
in the TV and Media market. The acquisition of
Envivio was presented at the annual high pro-
file media and entertainment conference IBC
in Amsterdam, where we also announced the
commercial availability of Ericsson MediaFirst

Leadership summit
in Stockholm

June 7–9

United Nations Summit in New York

September 25–27

Media and entertainment
conference IBC in Amsterdam

September 11–15

JANUARY FEBRUARY MARCH APRIL MAY

JUNE JULY AUGUST SEPTEMBER OCTOBER

The business – Letter from the CEO

Ericsson | Annual Report 2015THE BUSINESS – Letter from the CEO

and showcased new innovative transforma-
tion solutions for the TV and media market.

Transforming our way of working
At Ericsson we are not only transforming the
business, but also our way of working, and
partnerships are part of this development.
Prior to our annual Capital Markets Day in
November, when we give an update on strate-
gic progress, I was very excited to announce
the strategic partnership with Cisco. The part-
nership will combine the best of both compa-
nies: routing, data center, networking, cloud,
mobility, management and control, and global
services capabilities. Together with Cisco, a
leader in IP-networking, we will offer end-to-
end leadership across network architectures
for 5G, cloud and IP, and the Internet of Things.
extending our addressable market.

Generating value from our
technology leadership
In December, we announced that Ericsson
and Apple had agreed a seven-year global
patent license agreement. Our IPR strategy
has been successful and over the past five
years we have more than tripled our IPR
licensing revenues and we now have agree-
ments with the majority of the global handset
suppliers. Ericsson’s IPR strategy is based on
generating value from our investments in R&D.
During 2015, we invested SEK 35 billion in
R&D, which adds up to a total investment of
SEK 169 billion over the past five years. Our
technology leadership is demonstrated by
more than 39,000 granted patents, one of the
strongest patent portfolios in the industry.

Strategic focus in 2016
In 2015, Ericsson reported sales of SEK 247
billion, an increase of 8%, with an operating
margin, excluding restructuring charges, of
11%. All three reporting business segments
showed growth. As the result of a strong cash-
flow from operating activities in Q4, we deliv-
ered a full-year cash flow of SEK 21 billion,
which exceeded the cash conversion target of
more than 70%. Our global cost and efficiency
program is progressing according to plan and
operating expenses for the second half of
2015 declined by almost 10%.

Our performance remains top priority in
2016. There is room for further improvement,
and to safeguard the process to generate fur-
ther value, our focus in 2016 is:

1. Core business – While market conditions

are challenging in certain parts of the world,
we continue our work to capture business
opportunities as more markets shift to 4G.
At the same time, we will work to extend our
technology leadership also in the emerging
5G market.

2. Targeted growth areas – After a period
of investments we now also need to improve
earnings. This will involve a stronger focus on
software sales and recurring business.

3. Cost and efficiency – We are confident
in our ability to reach the SEK 9 billion target
in net annual savings during 2017 through the
global cost and efficiency program. We are
closely monitoring the market and business
developments and we will take action to
remain competitive across the entire business.
The long-term fundamentals in the industry
remain attractive and I look forward to another
exciting year heading Ericsson with full focus
on transformation, performance and value
generation.

Global patent license
agreement with
Apple

December 21

Q4 Report

January 27, 2016

Hans Vestberg
President and CEO

Business and tech-
nology partnership
with Cisco

November 9

Capital Markets Day
in Stockholm

November 10

NOVEMBER DECEMBER

JANUARY 2016

Ericsson | Annual Report 2015The ICT centers house
the tools, methods and
processes ensuring
that Ericsson remains
relevant in the future

Between 2013 and 2018, Ericsson’s inten-
tion is to invest SEK 7 billion in three sus-
tainable ICT centers. As a part of Ericsson’s
global cost and efficiency program, the
new ICT centers in Sweden (Linköping
and Stockholm) and Canada (Montreal) will
replace smaller local test centers and form
an important platform for cross-functional
and flexible collaboration between Erics-
son’s more than 23,000 R&D engineers.
The high-tech ICT centers will enable the
Company to easily share innovations both
internally and with customers. They will
also speed up time to market while enabling
a lean and agile R&D and lower R&D invest-
ments long-term. Using cloud-based tech-
nology, the centers allow for new ways of
working when developing next generation
technologies and solutions, and they are
a firm step in the journey towards the
Networked Society. The architecturally
advanced ICT centers are modular and
scalable, which enables efficient and
sustainable use of space and resources.

THE BUSINESS – This is Ericsson

This is Ericsson

Ericsson’s ability to transform its core business and its ambition
to enter into new and adjacent markets are key to generating
customer and shareholder value.

Ericsson is a global company with customers
in more than 180 countries. During 140 years,
Ericsson has delivered customer value by con-
tinuously evolving its business portfolio through
its core assets – technology and services, global
scale and skills. This, in combination with its
business expertise, has resulted in a profound
technology and services leadership. Ericsson
believes that the Company’s technological and
financial capability to adapt and the will to
change are major competitive strengths.

In 2015, approximately two thirds of Ericsson’s

business was related to services and software,
compared with less than 50% ten years ago.
This change reflects the ongoing transformation
from a hardware-centric business to one where
the share of the software and services business
continues to increase. However, competitive
hardware also remains an important perfor-
mance differentiator. The number of product
platforms has been significantly reduced over
time, while the scope has extended from mainly
mobile infrastructure and related services to
include IP Networks and Cloud, OSS and BSS,

TV and Media and Industry and Society. The
workforce is also going through a transform-
ation, reflecting the Company’s business and
competence shift. In 2015 almost 15,000
employees joined Ericsson and close to 17,000
employees left the Company, resulting in a net
reduction of 1,774 employees to 116,281.

In 2015, Ericsson discontinued its Modem

business segment, and thus reported three
business segments: Networks, Global Services
and Support Solutions, each of which is respon-
sible for an income statement and for the devel-
opment and maintenance of its specific portfo-
lio.1) The Company has ten geographical regions,
and one region Other, which vary in size and
where the maturity of the operators and the
markets differ. Over the past five years, the
North American region has become the largest
as regards share of total Group sales, followed
by North East Asia. It is important for Ericsson to
find a beneficial mix between the different busi-
ness segments and regions in order to secure a
good balance between growth and profitability.

1) Unless stated or implied otherwise, the financial information

presented in this Annual Report excludes Modems.

Ericsson’s stakeholders

Customers
A leading ICT
transformation partner

Employees
Attract, develop and
retain best talent

Shareholders
Shareholder
value creator

Society
Responsible and relevant
driver of positive change

Ericsson | Annual Report 2015Networks

Share of net sales
SEK 123.7 billion

50%

Operating margin

10%

Global Services

Share of net sales
SEK 108.0 billion

44%

Operating margin

Support Solutions

Share of net sales
SEK 15.0 billion

Operating margin

10%

Ericsson reporting
structure

Networks

Networks represented 50% of net sales in 2015
(51% in 2014). The segment delivers products
and solutions that are needed for mobile and
fixed communication, several generations of
radio networks, IP and transmission networks,
core networks and cloud. The main business
driver in 2015 was mobile broadband network
deployments. The major business models have
so far been based on network coverage and
network capacity expansions and upgrades with
a revenue mix consisting of hardware and soft-
ware. Despite a decreasing share of total reve-
nue, hardware remains a core element of the
strategy, representing some two thirds of sales
in the segment. Gross margins are affected by
the business mix between sales of network cov-
erage build-outs, upgrades and network expan-
sions. Network coverage build-out, which is
mainly hardware related, is to a large extent
done on site, while upgrades and expansions
usually involve software and are often delivered
remotely. A majority of the Company’s Research
and Development (R&D) investments are made
within Networks. In terms of share of segment
sales, the North American region is the largest,
followed by North East Asia.

Major competitors include Huawei, Nokia/

Alcatel-Lucent and ZTE.

Global Services

Global Services represented 44% of net sales in
2015 (43% in 2014). The segment delivers net-
work rollout services and professional services
(i.e., managed services, consulting and systems
integration (CSI), customer support as well as
network design and optimization services). Main
business drivers in 2015 were professional ser-
vices, mainly systems integration and managed
services. Through a service delivery organiza-
tion of approximately 66,000 services profes-
sionals and four Global Services Centers, which
offer a universal approach to managed services,
Ericsson deploys, operates and evolves net-
works and related support systems. The Com-
pany provides managed services to networks
that serve more than 1 billion subscribers in

approximately 100 countries. These networks
are typically multi-vendor, multi-technology envi-
ronments, with typically more than half of the
equipment deriving from non-Ericsson equip-
ment. The product mix in Global Services is
divided between network rollout services and
professional services, of which 2/3 are recurring
revenues. Network rollout is a low margin busi-
ness. During 2015, modernization projects have
come to completion, and Ericsson has made
progress in its efforts to improve the profitability
of network rollout services and industrialize the
business. In terms of share of segment sales,
the North American region is the largest, fol-
lowed by the Mediterranean and Western and
Central European regions. R&D investments are
limited and network rollout services of extensive
networks are working-capital intensive.

Major competitors include Accenture,
Huawei, IBM, and Nokia/Alcatel-Lucent.

Support Solutions

Support Solutions represented 6% of net sales
in 2015 (6% in 2014). The portfolio of Support
Solutions is designed around measurable per-
formance improvements in an operator’s busi-
ness processes, with software that is scalable,
configurable and that provides end-to-end
capabilities. The business segment develops
and delivers software-based solutions for OSS
and BSS, TV and media solutions, as well as
solutions and services for the emerging m-com-
merce ecosystem. A major key business driver
in 2015 was OSS and BSS which reported good
growth. Sales are dominated by software, and
the North American region is the largest in the
segment. The business is R&D-intensive, with
limited working capital. Ericsson is executing on
recent acquisitions, while transforming the busi-
ness model from one based on a revenue intake
from traditional telecom software licenses to one
that emphasizes recurring software sales based
on subscription-based software offerings com-
bined with value packages.

Major competitors include Amdocs, Huawei,

IBM and Oracle.

The business – This is Ericsson

Ericsson | Annual Report 2015THE BUSINESS – This is Ericsson

profit improvement

The financial plan consists of three major building blocks that drive the yearly incremental
profit improvements, namely efficiency improvements, monetizing footprint and building
success in targeted areas.

Efficiency improvements
The global cost and efficiency program was
launched November 2014 and includes reaching
annual net savings of SEK 9 billion with full-year
effect during 2017, compared to 2014. The pro-
gram is progressing according to plan, with
planned restructuring costs for 2015–2017 in the
range of SEK 3.5–4.5 billion. The scope of the
structural efficiency measures involves service
delivery, supply, R&D, SG&A (Selling, General
and Administrative expenses) as well as com-
mon functions. Savings in the service delivery
and supply functions are mainly related to cost
of sales, while savings rel ated to operating
expenses include R&D, SG&A and common
functions. Major elements in the profit improve-
ment plan includes service delivery related activi-
ties such as centralization, automation and stan-
dardization, and production related activities
such as improved supply chain efficiency, as well
as outsourcing and site consolidation.

Monetize footprint
Ericsson’s strong position in both mobile infra-
structure and telecom services has resulted in
a large installed global base to build on, which
Ericsson aims to monetize. In the core business
of Radio, Core and Transmission, coverage
projects, mainly driven by LTE roll out, continue
to drive sales. The coverage phase is capital

intensive and has lower-than-average margin.
However, when the network is up and running,
increased data traffic drives the demand for
capacity expansions and quality improvements.
This generates capacity sales with higher mar-
gins and less capital employed. In managed
services the Company continues to monetize
on the strong global footprint, with more than
300 contracts running.

Build success in targeted areas
The third building block for improved profitability
is represented by the objective to succeed and
establish leadership in targeted growth areas.
The market growth rate (CAGR) of an estimated
10% (2014–2018) in targeted areas is higher than
the estimated CAGR of 1–3% (2014–2018) in
Core business (Company estimates). The share
of the targeted areas of group net sales is
expected to increase from the 18% reported in
2015. The company expects that approximately
half of the sales growth up to 2020 will originate
from the targeted areas. Such growth would
have a positive impact on Group operating
margin. Ericsson believes that such growth
would have a positive impact on Group operat-
ing margin as well as positive effects on earnings
across all three reported segments, as sales
from targeted areas include a higher portion
of software and professional services business.

Profit improvement – operating margin

Global cost and efficiency program

(Illustrative only)

Build success
in targeted areas

Monetize
footprint

Efficiency
improvements

–2

–3

–1.5

–2

Starting point

2020

2015A

2016E

2017E

Cost

Sales

Normal
restructuring
charges

Additional
restructuring
charges

Three building blocks driving towards continued yearly incremental improvements.

Yearly run-rate savings related to additional restructuring charges (SEK billion).

Ericsson | Annual Report 2015Ericsson’s HDS 8000
is already hyper-
scale – meeting a
future prerequisite

The disruptive cloud platform Ericsson
HDS 8000 is built with advanced automa-
tion capabilities that take data centers
and central offices to a new level of cloud
economics and efficiency. The combina-
tion of a disaggregated hardware archi-
tecture and optical interconnect removes
the traditional distance and capacity lim-
itations of electrical connections, which
enables efficient pooling of resources.
The hardware platform is designed and
built based on the Intel® Rack Scale
Architecture, which enables the disaggre-
gation of compute, storage and network
resources. It also simplifies management
of the same resources and eliminates
today’s connectivity challenges in the
data centers. The hyperscale cloud plat-
form was brought to the market through a
partnership between Ericsson and Intel –
a collaboration initiative that spans both
hardware and software and combines the
long experience and expertise of both
companies in the telecom, enterprise and
data center domains. For operators, the
cloud platform enables CAPEX and OPEX
savings in combination with hyperscale
performance and faster service delivery.

The business – This is Ericsson

Ericsson | Annual Report 2015the
business

Ericsson | Annual Report 2015

A market-leading position,
global presence, regional and
local competence as well as
close customer relationships
provide a solid foundation for
profitable growth in combination
with the technological and
financial capability to adapt
and the will to change.

pages
10-19

Ericsson | Annual Report 2015

THE BUSINESS – Business structure

business structure

Strategic structure

Go to market

THE GROUP

CORE BUSINESS
Share of Group sales, 82%

TARGETED AREAS
Share of Group sales, 18%

OSS and BSS
Industry and Society
TV and Media
IP and Cloud

SEGMENT

REGION X 10

GEOGRAPHICAL

ENGAGEMENT PRACTICES

NETWORKS

Mobile
Broadband

IP and Transport

Core and Cloud

OSS and BSS

TV and Media
Management

Managed
Services

CUSTOMERS

C
O
N
S
U
M
E
R
S

R
E
S
E
A
R
C
H

GLOBAL
SERVICES

SUPPORT
SOLUTIONS

Sales per region and segment 2015, SEK billion

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

(2%)

(1%)

(7%)

(–5%)

(0%)

(33%)

(21%)

(74%)

(–14%)

(18%)

(7%)

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The number in brackets shows
the change compared to 2014.

The strategic direction is to:

Excel in core business
Radio, Core and Transmission and
Telecom Services.

Establish leadership in targeted areas
IP Networks, Cloud, OSS and BSS, TV and
Media and Industry and Society.

Expand in new areas
with future possibilities and growth.

The solutions-based go-to-market approach is built on close cooperation
between segments and regions. Ericsson has ten geographical regions, and
one region Other, which vary in size and where the maturity of the operators
and the markets differ.

The relationship between the regions and the segments is such that the
segments develop the products and the regions cultivate relationship with its
customers.

There are six engagement practices designed to develop solutions
addressing typical customer needs. The engagement practices share their
solutions to build business expertise and global scale and skill.

Research projects typically have at least a 10-year horizon, have a separate

organization, and development is aligned with the segments. Shorter term
development decisions are made within the segments.

Ericsson | Annual Report 2015Reporting structure
Segments and share of total Group sales

Share of total
Group sales

50%

Share of total
Group sales

44%

Share of total
Group sales

NETWORKS

GLOBAL SERVICES

CORE BUSINESS

SUPPORT
SOLUTIONS

CORE
BUSINESS

TARGETED
AREAS

TARGETED AREAS

Sales

SEK 123.7 billion

(2014: 117.5 billion)

Sales

SEK 108.0 billion

(2014: 97.7 billion)

Operating margin

10%

(2014: 12%)

Operating margin

(2014: 6%)

Sales

SEK 15.0 billion

(2014: 12.7 billion)

Operating margin

10%

(2014: 0%)

Sales and operating margin

SEK billion

125

100

117.3

117.7

117.5

123.7

12,0

10
117,5

2012

2013

2014

2015

Sales
Operating margin

The business – Business structure

120

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80

97.0

97.4

97.7

108.0

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40
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20
“Column type”.

2012

2013

2014

2015

Sales
Operating margin

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12.2
ev frågor.

13.5

12
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2012

2013

12.7

2014

2015

15.0

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design. Prata med
Eva/Catta/Sanna om ev
frågor.

Sales
Operating margin

Ericsson | Annual Report 2015

global presence 24/7

Ericsson is a global company, with customers in more than 180 countries.
The Company has been present in many countries, such as China, Brazil
and India, for more than 100 years. The go-to-market organi zation is
based in 10 geographical regions and one region Other.

NORTH AMERICA 7%

Mobile broadband investments were slow as
operators focused on cash flow optimization in
order to finance major acquisitions and spec-
trum auctions. Investments stabilized during
the second half of the year, driven by data traffic
growth. ICT transformation, TV and Media and
Professional Services developed favorably.

SHARE OF GROUP REVENUES: 24%

LATIN AMERICA -5%

Sales decreased YoY mainly due to lower activ-
ities in Brazil. Operator investments increased
in local currency, but not enough to compen-
sate for the depreciation towards the US dollar
and currency restrictions in many parts of the
region. Professional Services sales increased
mainly in OSS and BSS.

SHARE OF GROUP REVENUES: 9%

± XX%: Sales growth 2015, year over year

Ericsson | Annual Report 2015WESTERN AND
CENTRAL EUROPE 0%

Investments in mobile broadband were driven by the
transition from 3G to 4G and capacity enhancements.
At the same time, some important projects peaked.
Sales were stable with a shift towards Professional
Services and Support Solutions, as operators focus on
network optimization, efficiency and new functionality.

SHARE OF GROUP REVENUES: 8%

NORTHERN EUROPE
AND CENTRAL ASIA -14%

Sales declined, primarily due to lower mobile broadband
investments in Russia with sales of SEK 4.7 (6.7) billion.
However, sales stabilized in the second half of the year,
but at a lower level compared to the same period last
year. Professional Services sales increased, driven by
Managed Services and ICT transformation projects in
the Nordics. TV and Media and OSS and BSS developed
favorably, driving sales growth in Support Solutions.

SHARE OF GROUP REVENUES: 4%

MEDITERRANEAN 1%

MIDDLE EAST 7%

Sales increased somewhat, driven by Managed
Services. Investments in mobile broadband were
driven by the transition from 3G to 4G and improve-
ment of the quality and capacity of the network.

Sales increased, primarily in Global Services. In the first
half of the year, Network sales growth was mainly driven
by some major mobile broadband projects, which were
completed in the second half of the year.

SHARE OF GROUP REVENUES: 10%

SHARE OF GROUP REVENUES: 9%

NORTH EAST ASIA 2%

Sales growth was driven by 4G deployments in
Mainland China, partly offset by lower operator
investments in Japan. Professional Services
showed growth, supported by the acquisition
of Sunrise Technologies.

SHARE OF GROUP REVENUES: 11%

INDIA 74%

Sales growth was driven by increased operator
investments in mobile broadband infrastructure
and Professional Services. Increased focus on
network quality and cost optimization continued
to drive strong sales growth for Managed
Services. Support Solutions sales showed
significant growth, driven by OSS and BSS.

SHARE OF GROUP REVENUES: 5%

SUB-SAHARAN

AFRICA 18%

SOUTH EAST ASIA

AND OCEANIA 21%

Sales increased across all segments, driven by strong
consumer demand for mobile broadband, despite a
challenging regulatory environment and recent macro-
economic development. Operators’ focus on network
quality and efficiency drove Professional Services
sales growth.

Sales increased, primarily driven by mobile broadband
deployments across several markets. Professional
Services sales developed favorably as operators
focused on efficiency and network optimization.
TV and Media showed a positive development
during the year.

SHARE OF GROUP REVENUES: 4%

SHARE OF GROUP REVENUES: 8%

OTHER 33%

Sales increased, driven by the Apple global
patent license agreement and currency, as
a majority of the IPR contracts are in US dollars.
Broadcast services showed good growth.
IPR licensing revenues amounted to
SEK 14.4 (9.9) billion.

SHARE OF GROUP REVENUES: 8%

The business – Global presence

Ericsson | Annual Report 2015THE BUSINESS – The IPR portfolio

THE IPR portfolio

Ericsson has one of the largest patent portfolios in the industry. The Company continues
to expand its IPR licensing business into new products and industries to share technology
and capture growth by using its technology know-how and its R&D investments.

Ericsson’s IPR (Intellectual Property Rights)
portfolio includes both patents and technology
know-how. Patent licensing includes giving
access to patents for different technology
standards, while technology licensing provides
specifications for proprietary technologies such
as different interfaces. The Company is a net
receiver of royalties, and the royalty-based IPR
licensing business is a key element of its growth
strategy. As a result of the work of 23,700 R&D
engineers and with more than 39,000 patents
being granted (and thousands more pending),
the Company has one of the broadest and most
useful patent portfolios in mobile communica-
tion. The IPR portfolio illustrates the value of
Ericsson’s technology know-how and R&D –
the IPR portfolio contributes to a fair return on
Ericsson’s R&D investments through fair, reason-
able and non-discriminatory (FRAND) licensing.
Over the past five years, annual R&D invest-
ments have been around SEK 32–36 billion
and revenues from the IPR licensing business
were SEK 14.4 (9.9) billion in 2015. IPR licensing
margins are above Company average and
hence have an accretive impact on profitability.

Expanding the customer base
beyond telecom
Ericsson’s ambition in relation to IPR licensing is
to encourage innovation, strengthen Ericsson’s
position at the heart of the ever-broadening

digital economy, and ensure a fair return on our
R&D investment in all areas. A major portion of
the revenues currently stems from handset man-
ufacturers, but through continued digitalization
and the developing IoT (the Internet of Things),
the number of new licensees in consumer elec-
tronics and industry verticals is expected to
increase. An increasing number of things benefit
from being connected, and the value of wireless
connectivity differs greatly depending on the
device, its capability and use. By 2021, the num-
ber of connected devices is expected to grow to
28 billion (excluding passive sensors and radio
frequency ID tags). Ericsson aims to expand its
patent licensing to establish a licensing program
for the IoT to give access to the Company’s tech-
nology also in this area. This will cover products
beyond handsets in new industries, ensuring
that standard-essential patents are licensed and
that licensing terms are adapted to reflect the
use, capability and importance of the essential
wireless technology for the device in question.

Reflecting the value of connectivity for IoT
Ericsson’s initiative regarding licensing for IoT
aims for connected devices to be efficiently
covered by necessary patent licenses with flat
per-unit licensing fees that reflect the value of
the connectivity technology for the device. This
initiative, introduced in 2015, is in line with the
Company’s long-standing view that owners of

IPR strategy and value creation

Run-rate

IPR licensing
revenue

> Licensing revenue generated by providing
access to its industry-leading wireless IPR
portfolio (+39,000 patents)

> Increased revenue from licensing, joint

licensing platforms and selected divestments

Cost
prevention

Today

Tomorrow

> The strong patent portfolio protects Ericsson
through cross-license agreements, providing
freedom of action

> Being a net-receiver of royalties, reduces Ericsson’s
product cost base and improves competitiveness

Ericsson | Annual Report 2015essential patents should be compensated in
proportion to their technological contribution to
the product and that patent licensing should
adequately and fairly reward innovative compa-
nies that develop and share technologies that
enable standards. These standards lower barri-
ers to market entry and, through interoperability
and high-performance, enable large markets for
digital products and services.

Innovative IPR portfolio
Ericsson’s licensing supports development of
open standards, guarantees choice and enables
decreased costs of technology for consumers.

The Company believes that this approach bene-
fits consumers, partners and competitors.

For Ericsson, there is value in the IPR portfolio

in securing cross-licensing agreements. These
agreements are signed with other major IPR
holders, thus ensuring freedom for Ericsson to
operate. Ericsson believes that this approach
enables Ericsson to commercialize and obtain
a fair return on the IPR portfolio when others
are using the Company’s technology. The IPR
licencing business is a direct return on the
R&D-investments made.

The business – The IPR portfolio

Ericsson | Annual Report 2015THE BUSINESS – Market transformation

market transformation

The market transformation is driven by 5G, cloud and IoT (Internet of Things) in combination
with changing user behavior and consumer demands. Operators respond by differentiating
their services and assuming different roles in the evolving ICT market.

operator and
industry roles

Networked Society drives segmentation
Ericsson’s vision is a Networked Society where
everything that benefits from being connected
will be connected. During the transformation to
the Networked Society clear customer segmen-
tation is taking place as operators assume differ-
ent roles in the transforming information and
communications technology (ICT) market, and
Ericsson is adapting its business accordingly.

The Company has identified three emerging
and strategic operator segments where connec-
tivity is, and will continue to be, the foundation
of business:
> Network developer
> Service enabler
> Service creator

Network developer: Broadband experience
Network developers address user demand
through network evolution, performance and
efficiency. They concentrate on the broadband
experience through Internet connectivity and
communication services. They must ensure that
their networks remain a relevant and vital part
of their users’ everyday experience and deliver
added value in new and unique ways.

For these customers, network performance
and transformation are key. The network devel-
opers use ext ernal service platforms, such as
Google, to address the increased demand for
applications and services, while their own ambi-
tions are focused on high-quality connectivity,
cost-efficiency and operating the network as a
utility service with a good return on capital
investment.

Operator and industry roles

Applications and Services

IT Systems and Platforms

Connectivity and Infrastructure

Users, Content & Devices

~20%

~40%

Other

Operator

There are three strategic operator
segments. The largest share of
total network investments is in the
Service creator segment.

Ericsson | Annual Report 2015Service enablerService platform developerNetwork developerService producerService creatorService enabler: Control and management
of operations
Service enablers focus on establishing systems
and platforms that enable new enterprise prac-
tices such as IT cloud services and business
processes, as well as services to enrich the
consumer experience. Service enablers provide
functionality on capable platforms that are easy
for other industries to integrate into their respec-
tive business processes. For applications and
services they use external service producers
such as Spotify. Service enablers are capitaliz-
ing on mobile broadband growth by introducing
new pricing and revenue models such as
targeted offerings based on usage patterns,
capacity, service bundles, multi-device plans
and real-time features.

Service creator: New services
The ambition of service creators is to create
intelligent networks to allow for the creation of
new services. In addition to network performance
and consumer experience, these operators take
the lead in providing new innovative services.
Service creators are active participants in the

establishment of new ecosystems in adjacent
markets, such as utilities, transport and public
safety, as well as media, finance and health.
Their strategic focus is broader than that of the
other two roles since, in addition to connectivity
and customer experience, they have the assets
required to expand business in applications and
services and to increase the share of profits from
other industries. Still, they would not compromise
on the IT systems part, such as the OSS and
BSS platforms, to orchestrate the traffic flows.

The market transformation impacts
investments in networks
The vast majority of operators are currently
represented by network developers (approxi-
mately 40%) and service enablers (approxi-
mately 40%), but these only represent a small
share of the total network investments. Service
creators consume the largest share of current
investments, with investments also in the devel-
opment of new businesses in media and enter-
tainment, cloud and IT services, machine-to-
machine (M2M) communications and enterprise
offerings, as well as in specific industry solutions.

Ericsson’s offering

Network developer
Ericsson addresses the demands with solutions
for high-performance network architecture
including mobile infrastructure, software-defined
networking (SDN) technologies, network func-
tions virtualization (NFV) and indoor connectivity.

Service enabler
Ericsson addresses demands for a high-per-
forming network, billing, customer care and ser-
vice assurance with its OSS and BSS platforms
and professional services offering. These offer-
ings cater to needs for control and management
of operations and the identification of new reve-
nue streams. Included in Ericsson’s offerings are
also the Network-enabled Cloud, network func-
tions virtualization (NFV) and software-defined

networking technologies that enable common
management and orchestration across network
resources and cloud applications.

Service creator
Ericsson offers intelligent nodes and platforms,
and tools to transform the platforms, including
service capabilities that fit the demands of ser-
vice creators and enable them to expand their
business. Ericsson also addresses service cre-
ator needs by providing technology that brings
cloud capabilities into the network, with the flexi-
bility and elasticity needed to deploy software
applications wherever and whenever they are
needed. Offerings include Media Play-out,
Smart Meter Managers and IoT Security.

The business – Market transformation

Ericsson | Annual Report 2015strategy

Ericsson | Annual Report 2015

The strategy is to excel in core
business, establish leadership in
targeted areas and expand busi-
ness in new areas. Successful
implementation of the strategy
depends on the Company’s abil-
ity to leverage its current assets,
namely technology and services
leadership and its global scale
and skills.

pages
20-40

Ericsson | Annual Report 2015

THE BUSINESS – The strategic direction

THE strategic direction

Ericsson strives to lead industry transformation through mobility. The ability to
implement the strategy, through the Company’s core assets, is key to staying
at the forefront of the market. The result of its endeavours will be reflected in
future earnings with the ambition to improve shareholder value.

For more information
regarding how the strategic
structures folds in to the
reporting structure,
see page 12–13.

Ericsson’s Networked
Society Strategy

Ericsson’s ambition is to grow faster than the
market, which the Company estimates will
increase by CAGR 2–4% (2014–2018). Growth is
expected to be achieved primarily through
organic growth in combination with bolt-on
acquisitions and partnerships. The strategy is to
excel in core business, establish leadership in
targeted areas and expand business in new
areas. The strategy implies that the Company
needs to stay focused on progress both in the
present and in the future at the same time, while
remaining true to its core values of professional-
ism, respect and perseverance. Successful
implementation of the strategy depends on the
Company’s ability to use its current assets,

namely technology and services leadership
and its global scale and skills, also in targeted
growth areas.

Excel in core business
Ericsson’s two core business areas are “Radio,
Core and Transmission” and “Telecom Ser-
vices”.

Radio, Core and Transmission addresses the
network equipment market with a vast portfolio
of offerings based on industry standards. To
enable value creation, the network is, and will
continue to be, based on a high-performance
common infrastructure that offers seamless
connectivity and that delivers relevant services

Expand business
in new areas

Establish leadership
in targeted areas

Excel in
core business

Strategic direction

Future/
Emerging

IP
Networks

Cloud

OSS and BSS

Radio, Core and
Transmission

Present/
Large

TV and Media

Telecom
Services

Industry
and Society

In order to be relevant in the future, Ericsson’s strategy is to excel in its core business,
establish leadership in targeted areas, and expand business in new areas.

Ericsson | Annual Report 2015Market CAGR 2014–2018
(Company estimate)

2-4%

and content. Ericsson’s sales are generated by
addressing operator CAPEX (capital expendi-
tures) through software and network infrastruc-
ture offerings.

Telecom Services addresses a fragmented
market with a broad range of service capabilities
comprising managed services, design and opti-
mization, consulting and systems integration,
network rollout and customer support. Services
such as network rollout and customer support
are highly dependent on the network infrastruc-
ture business, while other services such as man-
aged services are more independent. Ericsson’s
sales in Telecom Services are generated by
addressing operator OPEX (operating expendi-
tures) through its professional services offerings,
but revenues are also partly generated by
addressing CAPEX through network rollout.

Ericsson has selected targeted areas based on
that they:
> are adjacent to the core business
> address markets that are expected to grow

faster than the core business

> have a significant share of software

and professional services

> have a larger share of recurring revenues.
The targeted areas are IP Networks, Cloud,
OSS and BSS, TV and Media as well as Industry
and Society. Industry and Society includes
expanding market exposure to new customers
by re-using products, solutions and service skills
and having direct commitments with customers
in three selected industry verticals – utilities,
transport and public safety. In 2015 the targeted
areas grew according to plan and represented
approximately 18% of Group sales.

Establish leadership in targeted areas
Ericsson aims to address demands and needs
in the transforming ICT market through mobility.
The technology and service leadership in the
core business and its global scale and skills
therefore form a platform from which Ericsson
can evolve and expand into targeted areas to
capture growth.

Expand business in new areas
In order to stay at the forefront, the long-term
strategy also includes expanding into new areas
– with the ambition to develop these into value
creative businesses with cutting-edge offerings
that are competitive and profitable. Thus, Erics-
son selectively invests in, explores and expands
in new areas and may also discontinue business.

Criteria for targeted areas

Growth potential

High degree
of software and
professional services

High degree of
recurring revenues

Adjacency – leveraging Ericsson core business areas

Financials – The strategic direction

Ericsson | Annual Report 2015THE BUSINESS – Core business

Core BUSINESS

In its core business areas, Ericsson is a market leader, with the strategy to excel, to
improve earnings and to continue to lead and innovate. The Company’s ability to move
into new areas and markets is reflected in its current market position and global scale.

RADIO, CORE AND
TRANSMISSIOn

High-quality hardware and software
based functionality
In its core business area of Radio, Core and
Transmission, Ericsson supports its customers
in the new ICT landscape by using the advan-
tages of technology leadership, a position which
has resulted in a competitive portfolio of radio
networks, core networks and backhaul solu-
tions. Strategic focus areas include to grow cur-
rent market (mainly driven by 4G), to increase
market share (by performance leadership), to
extend into new markets (by indoor coverage)
and to prepare for next market (5G).

Profitability in Radio, Core and Transmission
depends partly on scale and the sustainability of
market leadership. The Company aims to gradu-
ally increase software sales as the core business
evolves, and believes that this – in combination
with continuous operational efficiency improve-
ments and a focus on commercial excellence,
operational efficiency and cost control – will
affect profitability development.

The combination of high-performance,

high-quality hardware and software-based func-
tionality as well as service offerings, is Ericsson’s

main competitive advantage in radio and core.
This capability enables Ericsson to compete in
terms of quality and value, which is often
reflected in a price premium. The Company
believes that with a performance-driven
approach it can meet operator expectations for
speed, quality, personalization, simplicity and
fast response time. In transmission, the increas-
ing complexity of current and future networks
requires flexible and well-integrated microwave
nodes, and Ericsson’s cost-efficient and scal-
able solutions have been developed to meet the
capacity requirements demanded by the
increased mobile broadband and video traffic.

Increased data usage as
a major market driver
The Company estimates that the network equip-
ment market to which Ericsson is exposed will
increase by CAGR 1–3% (2014–2018). This mar-
ket includes both core business and targeted
areas. Key segments in the market include Core
which is expected by Ericsson to grow by CAGR
2–4% (2014–2018), IP and Transport which is
expected by Ericsson to grow by CAGR 2–4%

Strategic focus areas

Mobile
market growth

driven by 4G

Grow
current market

Performance
leadership

Increase
market share

Indoor

Extend
into new market

Prepare
for next market

Network equipment market
CAGR 2014–2018
(Company estimate)

1-3%

Ericsson | Annual Report 2015(2014–2018), and Radio which is expected by
Ericsson to grow by CAGR 0–2% (2014–2018).
By 2021, Ericsson estimates that the number of
mobile subscriptions will increase to 9.1 billion,
and that 7.7 billion of these will be mobile broad-
band subscriptions.

Mobile networks were initially designed pri-
marily to serve voice traffic, but data has deci-
sively overtaken voice and SMS as the primary
driver of network traffic. Competition is intense,
and operators need to monetize the increased
usage of data. This is done through data-centric
subscriptions, opening up network capabilities
and monetizing content and apps and introduc-
ing new services, e.g., Wi-Fi calling and VoLTE.
As data usage incre ases, app coverage will drive
demand for continuous investments in the net-
works, and app coverage could ultimately be
used to judge the performance of a mobile oper-
ator’s network. Speed, agility and efficiency, and
the ability to differentiate their services through
the network are some of the other capabilities
demanded by operators.

Multi-band, multi-layer and multi-standard

environments, coverage needs and traffic
growth continue to drive investments in radio.
The market mix change implies that growth is
shifting to new markets and use cases such as
Internet of Things (IoT), indoor coverage and
broadband access.

With world population coverage by LTE

technology being 40 percent in 2014, there is still
a significant share to be covered over the next
few years.

tionally scalable network for multiple industries
and use cases. Efficient usage of 5G requires a
common network platform and dynamic, auto-
mated and secure network slices to allow for tai-
lored mobile access to multiple industries and
applications – many with different types of
requirements. Some applications require high
bandwidth with low latency, while others require
capability to capture data from a vast number of
devices. The 5G network will offer connectivity
to an ever-expanding number of devices, while
simultaneously maximizing the broadband user
experience both indoors and outdoors and also
in challenging network conditions. Ericsson is at
the forefront of the market and expects 5G in
commercial mobile networks by 2020. Limited
trials are already ongoing.

Microwave backhaul in 5G
5G will have an impact on the transport network
since it needs to provide very high data rates
(tens of Gigabits per second) with very low
latency (few milliseconds). The design of 5G
transport networks will also need to remain
affordable and sustainable, while maintaining the
cost per bit transported contained. Microwave is
currently the dominant transmission technology
for mobile backhaul worldwide, providing opti-
mal performance and quality of experience in the
most cost-efficient manner while enabling fast
deployment. Even if the share of microwave
usage is declining (as fiber access increases),
Ericsson expects microwave backhaul to remain
an important element in the future.

One network – many uses
The next generation standard, 5G, is an evolu-
tion of the LTE networks, but with new frequen-
cies, technologies and strengthened capabilities
to support a broad range of services driven by
industry transformation, digitization, IoT and new
industrial applications to name but a few. 5G will
evolve to be a sustainable, flexible and opera-

Maintain performance leadership
through new capabilities
Ericsson’s ambition is to leverage its installed
base and make further investments in R&D to
maintain its technology leadership and broaden
its capabilities. Over time, the Company believes
that capacity upgrades and the number of small-
cell projects, which are an effect of network

End-to-end leadership in mobile infrastructure

Trans-
mission
Microwave
and optical

Ericsson delivers end-to-end solutions
for mobile infrastructure, including
radio, transmission and core.

Financials – Core business

Radio, based on RBS 6000
Multi-standard radio base
station for GSM, WCDMA/
HSPA, LTE and CDMA

Core network

Internet

Ericsson | Annual Report 2015
THE BUSINESS – Core business

The profitability in Radio, Core and
Transmission depends on the sus-
tainability of the market leadership
but also on the existing business
mix. Currently software sales as a
proportion of software and hard-
ware sales is around 40%.

Telecom services market
CAGR 2014–2018
(Company estimate)

3-5%

densification and indoor coverage build, will
increase their share of total revenues.

Software sales have higher margins
The most traditional business model is in net-
work infrastructure with its embedded software:
delivering and rolling out physical networks
including all necessary hardware and software.
When Ericsson builds network coverage there is
a large share of hardware, and the project often
includes network rollout services. The initial

build-out or rollout phase is capital-intensive
and has a lower-than-average gross margin.
However, when the network is up and running
and demands for capacity expansions and qual-
ity improvements arise, profitability increases,
driven by an increased share of software sales
and higher-margin hardware through network
densification (including small cells). In 2015
network coverage was driven by LTE rollout,
capacity and quality by traffic increases as well
as the need for good user experience.

Business cycles – mobile infrastructure

Capacity (expansion phase)
> Upgrade, densification, capacity increase
> Small cell deployments
> Shorter order cycles
> Accretive to company gross margin

Coverage (initial phase)
> Break-in and green field
> Open bidding
> More hardware and rollout services
> Dilutive to company gross margin
> Higher capital tied-up
> Network rollout lag Network sales ~2–3 quarters

C O R E B U S I N E S S

telecom services

A leading telecom service provider
Global scale, skilled workforce, business under-
standing and extensive experience of managing
carrier-class projects and multi-vendor networks
make Ericsson a leader in telecom services, with
a market share of approximately 12 percent.
Ericsson’s ambition is to simplify the manage-
ment of every element in the operator network.
The Telecom Services business consists of Pro-
fessional Services and Network Rollout (NRO)
with offerings directed to network operators.

network design and optimization services and
customer support. CSI professionals focus on
helping operators transform their business strat-
egy and processes to improve efficiency and to
integrate new systems and ways of working.
Managed Services include designing, building,
operating and managing day-to-day network
operations, with a focus on network perfor-
mance and customer experience. The Customer
Support business offers 24/7 support for tele-
com hardware and software.

Professional Services consists of consulting
and system integration (CSI), managed services,

The network roll out services relate to
network coverage build outs and is closely

Ericsson | Annual Report 2015 connected to the business of Radio, Core and
Transmission. When building network coverage
across one or more geographical areas, the
offering often includes network rollout services.

A market driven by demand for
differentiation and quality
Ericsson believes that any area in the operator
network is addressable, but the business oppor-
tunity depends on the maturity of the network,
the geographical location and the competitive
situation of the operator.

Initially operators entered into a managed
services partnership as a means to drive cost
efficiency. Today, with increased complexity
both in networks and business models, opera-
tors want to maintain quality of service, differen-
tiate themselves from the competition and pro-
mote consumer loyalty. Thus, the underlying
reasons to why operators enter into managed
services partnerships have developed, and the
situation is now one where the aim is also to
drive sustainable and competitive business
differentiation by delivering attractive experi-
ence-centric services. In a market where tech-
nology is rapidly evolving and there is a steady
stream of new players and increasingly demand-
ing consumers, the demand for consulting and
integration services is also rapidly advancing,
and they are driven by ambitions to improve effi-
ciency, competitiveness and business growth.

Services-led transformation
Ericsson continues to build skills and scale to
expand its offering in order to become a trusted
transformation partner in every aspect of the
operator’s network. Ericsson had a first mover
advantage in managed services, and the possi-
bility to build scale and a pool of best-practices,
which the Company believes forms a significant
competitive advantage enabling Ericsson to
provide sophisticated methods, tools and pro-
cesses for operators, with capability to provide
services to customers regardless of which ven-
dor network they have as an installed base.

A successful implementation of the strategy to
excel in telecom services depends on Ericsson’s
ability to develop its service leadership, its global
scale and its local capabilities.

The Company has different sets of skills
covering everything from network equipment to
software-support processes and the expertise
required to design and manage end-to-end
solutions.

Long-term commitments include
several phases
In managed services Ericsson takes over
aspects of a customer’s business operation as
a long-term commitment over several years.
The Managed Services business model includes
three phases of which the initial phase, the tran-
sition, is coupled with lower profitability, as it

Financials – Core business

Ericsson | Annual Report 2015THE BUSINESS – Core business

involves up-front costs when staff and expertise
are transferred from the customer to Ericsson. In
the second phase, the transformation, Ericsson
introduces its global processes, methods and
tools and implements a global delivery model.
In the third phase, Ericsson upsells and focuses
on optimization and industrialization by simplify-
ing, implementing and consolidating resources,
processes, methods and tools to allow for
improved profitability.

The Company believes that it has reached
a good balance of contracts in the transition,
transformation and optimization phases – with
currently about 75 % in the optimization phase –
which has a beneficial effect on earnings and
cash flow. The Company continues to monetize
its global footprint, with approximately 300

contracts underway in 2015. Over time, the Com-
pany has advanced on the learning curve, which
means that global synergies can be obtained,
and thereby the initial phases can be shortened.
This limits the negative impact on cash flow in the
transition phase when entering into new contracts.
During 2015 Ericsson signed 101 managed
services contracts, including important contracts
with the operators Orange and Yoigo. Orange
awarded Ericsson a contract to manage oper-
ations and maintenance for the operator’s net-
works in Belgium, Moldova, Romania, Slovakia
and Spain, while Ericsson and Yoigo signed an
agreement to develop their managed services
partnership in Spain and improve customer
experience with Ericsson’s experience-centric
managed services offering.

Business model – managed services

Profitability

Current contract mix

~25%

~75%

TRANS-
ITION

TRANS-
FORMATION

OPTIMIZATION AND UPSELLING

Years

Industrialize and
evolve contract

Optimize and
shorten transition
and transformation

Ericsson has a good balance of contracts in the transition, transformation and optimization
phases. Over time Ericsson has advanced on the learning curve which implies that it can
now leverage global synergies and reduce the transition phase.

Ericsson | Annual Report 2015Enhancing user
experience through
managed services

Managed services is a partnership
between a vendor and a customer in
which the vendor assumes responsi-
bility for activities such as designing,
building, operating and managing the
day-to-day operations of the customer’s
network or solution. Ericsson has more
than 300 ongoing managed services
contracts. During 2015 Ericsson was
selected by Orange to provide a fully
managed end-to-end operations ser-
vice that includes network operations,
performance, optimization, expansion
and field support and maintenance.
Spare parts management services for
Orange’s fixed-line access and 2G, 3G,
and 4G access was also included. The
multi-year contract covers five coun-
tries including Spain, Belgium, Roma-
nia, Slovakia and Moldova, and sup-
ports more than 30 million consumers.
Ericsson’s experience-centric managed
services model aligns service delivery
with the operator’s strategic and busi-
ness objectives, with the purpose to
secure a customer experience-centric
operation that pro actively drives busi-
ness innovation.

Financials – Core business

Ericsson | Annual Report 2015THE BUSINESS – Targeted areas

targeted areas

Ericsson believes that global presence, software skills and a heritage of end-to-
end and multi-technology expertise form a sound foundation for the Company’s
business in targeted areas. Ericsson offers hardware, software and services that
drive development in mobility, broadband and cloud, creating the foundation for
new ecosystems, and transformation across industries.

Market CAGR 2014–2018
(Company estimate)

~10%

Targeted areas
> IP Networks
> Cloud
> OSS and BSS
> TV and Media
> Industry and Society

To expand its business, Ericsson is investing in
five targeted growth areas: IP Networks, Cloud,
OSS and BSS, TV and Media as well as Industry
and Society. The Company believes that its
competitive assets form a sound foundation for
the business to further expand these areas. In
the targeted areas, the ambition is to establish a
leading position. Ericsson already has a number
one position in OSS and BSS and in IPTV.

Growth rate that exceeds that
of the core business
The targeted areas combined represented a
mar ket of US dollar 120–140 billion in 2014,
with an estimated CAGR of approximately 10%
(2014–2018), according to Ericsson. The tar-
geted areas show good growth potential with
growth rates that exceed that of the core
business, which is also reflected in the good
momen tum seen in 2015.

Supporting improved profitability and
increased share of recurring revenues
In the targeted areas a majority of the current
business relates to services. OSS and BSS con-
stitute the largest area. The Company expects
approximately half of the total sales growth up to
2020 to be derived from the targeted areas. Build-
ing success in these areas also forms an import-
ant building block in relation to continued yearly
incremental Group operating margin improve-
ment. A high degree of software and professional
services, more recurring revenues – as a result
of subscription-based software sales – and less
working capital are important characteristics of
the targeted areas. As the targeted areas require
a high degree of services and have a high degree
of software, they also support Ericsson’s devel-
opment of the business mix to one where ser-
vices and software clearly dominate. Ericsson’s
major competitive advantages, in addition to the
combined strength of the product and profes-
sional services portfolio, is the ability to leverage
its core business and scale up for critical mass.

Net sales per targeted area

Industry and Society

TV and Media

OSS and BSS

IP and Cloud

2014

OSS and BSS

IP and Cloud

2015

Targeted areas net sales corresponded to 18% of Group sales in 2015

Ericsson | Annual Report 2015Market CAGR 2014–2018
(Company estimate)

2-4%

Definition
IP Edge, Metro aggregation, IP
core, Systems integration, Con-
sulting and Support Systems inte-
gration, Consulting and Support

Competition
Alcatel-Lucent, Huawei, Juniper

Market outlook
(Company estimate)
Market size 2018: USD 21 billion

An end-to-end network supplier
In IP Networks, Ericsson can leverage its radio
and service capabilities, and as Ericsson has
end-to-end network knowledge and experi-
ence, the Company can support operators in
the implementation of IP networks in all phases
of their IP transformation projects. Ericsson
has a strong portfolio of network applications
and an end-to-end portfolio which covers not
only IP transformation services, but also ser-
vice provider SDN and network management.
The new IP portfolio includes the programm-
able and integrated Router 6000 as well as
a modular and elastic virtual router which
secures the high-performance demands
that the growth in applications, services
and devices require.

In 2015, Ericsson and Cisco signed a strate-
gic partnership agreement that addresses the
converging service provider and enterprise
domains. The agreement will extend Ericsson’s
addressable market. Within this framework
Ericsson and Cisco also signed a reseller agree-
ment, whereby Ericsson will resell all Cisco’s
networking products, and a global service
partner agreement, through which Ericsson
can leverage its service delivery organization.

TA R G E T E D A R E A

IP Networks

Ericsson can build on its leading position in
mobile infrastructure and grow its footprint
in IP networking for operators, where the
Company wants to establish leadership in
the mobile backhaul and metro aggregation
markets. The wanted position is a top three
position in IP networking for operators by
2020. Ericsson’s IP strategy is on track, and
the Company developed the strategy through
a strategic partnership with Cisco in 2015.

Market driven by demand for efficient
service delivery
The market for IP Networks, which includes IP
Edge, Metro aggregation, Systems Integration
as well as Consulting and Support, is driven
by network requirements for performance,
personalization, agility and efficient service
delivery, and is expected by Ericsson to grow
by CAGR 2–4% (2014–2018).

Next generation IP networking solutions
are together with service provider SDN (soft-
ware-defined networking) and virtualization
transforming the architecture of the telecom
network. The result is a future network that is
programmable, agile and capable of delivering
superior performance. The legacy telecom
networks were designed to deliver a limited
number of services, such as voice and text
messaging, while the new IP-based multi-
service networks create opportunities for
operators to unlock the full potential of
mobility, video and the cloud.

Cisco partnership elements

> Ericsson to resell Cisco’s networking products

> Comprehensive systems integration and managed services for service providers

> Joint cloud and 5G architecture customer engagements

> Cross patent licensing agreement

Quarterly reviews and clear accountability for both partners

Financials – Targeted areas

Ericsson | Annual Report 2015THE BUSINESS – Targeted areas

Market CAGR 2014–2018
(Company estimate)

20-25%

Definition
Platform initially for network
functions virtualization (operator
telecom cloud)

Competition
Telecom vendors, IT vendors
and Niche vendors

Market outlook
(Company estimate)
Market size 2018: USD 15 billion

TA R G E T E D A R E A

Cloud

Ericsson uses its network experience and
competence to create compelling cloud solu-
tions, and strives to have top 1–3 positions in
selected areas towards operators by 2020.
This will be achieved by developing a broad
range of product offerings, virtualizing the
core network applications and leveraging
service capabilities.

Service agility
The market for operator telecom cloud is
expected by Ericsson to grow by CAGR
20–25% (2014–2018) and be driven by cloud
transformation and demand for service agility
and programmability, as well as by the increas-
ing traffic and business models from the IoT.
Today’s network is designed to handle data,
but in a non-differentiated way. It is optimized
for people and selected services, but not for
devices. Tomorrow’s network must be opti-
mized for machines as well as services and
people, and it needs to be tightly connected
to the underlying software architecture.

Cloud transformation drives the market
Cloud-based architecture allows the operator
to instantly deploy, modify and scale services
and applications, and enables easier adaption
of network characteristics and resources to
serve the dynamic and real-time nature of new
services. Cloud technologies together with the
Network Functions Virtualization (NFV) and
software-defined network (SDN) technologies

increase network flexibility since they enable
operators to divide the same infrastructure into
network slices – to cater to a wide array of
applications with different demands on capac-
ity, speed, robustness, security, governance
and availability.

New HW and SW launches during 2015
Ericsson’s cloud platform is built on four core
principles: accessibility, security and integrity,
governance, and automation. Ericsson’s offer-
ing includes hardware, software and services.
During 2015, Ericsson launched the Hyper-
scale Datacenter System HDS 8000. It is the
first hardware platform to use Intel® Rack
Scale Architecture. Ericsson has also launched
solutions for Platform as a Service (PaaS), built
on assets from the Apcera acquisition.

As networks develop into distributed and

programmable environments, the issue of
security becomes essential. In 2015, Ericsson
introduced an industrialized data-centric offer-
ing that provides a global security infrastruc-
ture based on Guardtime’s technology. To
provide secure management of cloud storage
resources, Ericsson entered into a partnership
with Cleversafe.

During the year, SK Telekom (Korea)

became the first customer to choose the HDS
8000, and NTT DoCoMo (Japan) selected
Ericsson as a solutions partner for network
virtualization and Cloud Manager.

Operators’ Three Cloud transformation journeys

Telecom Network
Transformation

Internal IT
Transformation

Commercial
Cloud Offerings

Operator Telecom Cloud

Operator IT Cloud

Operator
Commercial Cloud

Virtualized network functions
e.g. vEPC, vIMS

Virtualized IT functions
for internal use e.g. CRM,
OSS and BSS

Cloud offerings sold as a
service (XaaS) e.g. public
cloud for enterprises

Ericsson | Annual Report 2015Market CAGR 2014–2018
(Company estimate)

5-7%

Definition
Operations and Business
Support Systems

Competition
Accenture, Amdocs, Comverse,
Huawei, IBM, Netcracker

Market outlook
(Company estimate)
Market size 2018: USD 78 billion

TA R G E T E D A R E A

OPERATIONS AND BUSINESS
SUPPORT SystEMS (OSS AND BSS)

Ericsson has a market-leading position in opera-
tions and business support systems (OSS and
BSS). The desired position is to be the preferred
ICT transformation partner in OSS and BSS.
Since network performance has become the
prime driver of consumer loyalty, and increasing
customer loyalty has significant benefits in terms
of generating long-term value, there is also a
demand for network design and optimization
expertise to maintain high-quality of service,
including accessibility, speed, reliability and
high-quality user experience.

Managing diversity is key
The Company expects the fragmented OSS and
BSS market to increase by CAGR 5–7% (2014–
2018). The network, services and customers
need to be managed in an agile way both now
and in the future when complexity, personalized
services, on-demand service features and vola-
tile market conditions will require a transformed
OSS/BSS software platform. Operators need
to replace their legacy OSS and BSS systems in
order to cater to rapidly diversifying use cases,
devices, content and applications, all of which
require different things from networks, systems,
people and processes. Operators who manage
this diversity can find new ways to monetize new
services and segments.

Combination of software and services
Ericsson’s end-to-end software offering, ser-
vices and processes are all designed to help
operators become more agile and efficient, so
that they can quickly respond to market changes
and run operations efficiently in order to drive
growth and profit.

Ericsson’s offering includes a full range of

services that address everything from tech-
nology deployment, network and business
processes transformation as well as network
optimization in order to assure an optimal user
experience and operator profitability.

Ericsson has an end-to-end OSS and BSS
software offering, including consulting, systems
integration and IT managed services capabili-
ties, which combined help operators reduce the
total cost of ownership. The Company believes
that the ability to offer a combination of networks,
software expertise, IT and business processes
is a significant competitive advantage. During
the year several new contracts were signed,
including a multi-year Digital Telco Transform-
ation agreement that will bring agility to Entel’s
businesses in Chile and Peru. In 2015, the
Company also acquired the Sunrise Tech-
nologies telecom business, a Chinese provider
of IT services in operations and business
support systems.

Ericsson’s position in OSS and BSS

e
r
a
w

t
f
o
S

s
e
c
v
r
e
S
T

Operations support systems

Business support systems

Service delivery platforms

Consulting

Systems integration

App. dev. & maintenance

IT managed services

Support services

Rank

Top 4

Financials – Targeted areas

Ericsson | Annual Report 2015
THE BUSINESS – Targeted areas

Market CAGR 2014–2018
(Company estimate)

10-12%

Definition
TV and video solutions for content
owners, broadcasters, TV service
providers and network operators

Competition
Alcatel-Lucent, Arris, Arqiva, Cisco,
Encompass, Harmonic, Huawei

Market outlook
(Company estimate)
Market size 2018: USD 20–22 billion

TA R G E T E D A R E A

TV and Media

The TV and media industry undergoes major
change caused by the emergence of the Net-
worked Society, Ericsson wants to be the trans-
formation partner of choice for content owners,
broadcasters and TV service providers. Erics-
son is currently the market leader in IPTV plat-
forms, video compression and cloud DVR.

Transforming a fragmented market
Ericsson expects the fragmented market of TV
to have a CAGR of 10–12% (2014–2018). IP tech-
nology, networks and the vast amount of video
enabled connected devices are driving the
transformation of the TV and media market,
especially in the delivery and consumption of TV
content. Video traffic in mobile networks is
expected by Ericsson to grow by around 55%
annually through 2021, and by 2021 around 70%
of all mobile traffic is expected by Ericsson to be
video.

A combination of products and
service capabilities
The Company combines a product portfolio that
spans the TV value chain, and which is comple-
mented by consulting, systems integration and
broadcast managed services. This allows
Ericsson to advise, guide, support, implement
and manage its customers’ transformation in
the evolution of TV.

Ericsson’s strong portfolio has expanded
through significant investments where all of the

solutions come together to enable all customers
in TV and Media to create the ultimate TV experi-
ences that drive opportunity and promote loy-
alty. Ericsson’s recent acquisitions in TV and
Media include Fabrix Systems, a provider of
Cloud DVR and video storage and processing,
and in 2015 Envivio, a provider of software
defined video processing solutions.

In broadcast services, Ericsson has

expanded its service portfolio. By offering auto-
mation and standardization of processes, meth-
ods and tools, while applying Ericsson’s global
delivery model and services capabilities, the TV
and Media service offering enables broadcast-
ers to reduce time to market, minimize business
continuity risk and achieve significant OPEX and
CAPEX savings. When Ericsson manages
broadcast services, the Company takes respon-
sibility for the technical platforms and opera-
tional services including content logistics, library
management, quality control, playout services,
webTV and mobile services.

In 2015, BBC signed a multi-year service con-

tract with Ericsson for playout services. Two
important TV and media agreements, with Tellus
and AT&T, were announced in North America in
the second half of the year.

Ericsson is well positioned in the growing TV and media market

Fragmented, transforming
and fast growing market
without clear leader

70% of all mobile data traffic
will be from video by 2021
growing by 55% annually
(Company estimate)

Telecom operators and Pay
TV operators are merging

Opportunity for leadership
position in large market

Mobility, video delivery and
experience will be key

Increased focus on TV and
media among customers

Ericsson | Annual Report 2015Market CAGR 2015–2018
(Company estimate)

16-18%

Definition
Solutions for the industries of
utilities, transport and public safety

Competition
IT and telecom vendors as well
as industry specific vendors

Market outlook
(Company estimate)
Market size 2018: USD 63 billion

TA R G E T E D A R E A

Industry and society

In Industry and Society, Ericsson moves beyond
telecom operators and addresses three large
industries – utilities, transport and public safety.
Ericsson’s ambition is to address these vertical
markets in a focused manner, and reuse its
existing service capabilities, technology insights,
network competence, and global scale of con-
sulting, systems integration and managed ser-
vices. The ambition is to become a leading solu-
tions provider in the three selected verticals.

Mobility drives markets
The addressable market in Industry and Society
is expected by Ericsson to show a CAGR of
16–18% (2015–2018). The utilities, transport and
public safety industries have large and complex
players that are going through rapid transforma-
tion driven by mobility and evolving technologies
that are entering the market, such as smart
grids, intelligent transport systems and multime-
dia services. Urbanization, increased demand
for sustainability and regulatory initiatives drive
the market, as does increased demand for effi-
ciency and high-speed and reliable communica-
tion, where mobility offers a disruptive shift. In all
three industries, but especially in utilities, market
mechanisms are changing, deregulation is tak-
ing place, competition is growing and pricing is
becoming increasingly complex.

As the industries transform, they can benefit
from mobile broadband and extended connec-
tivity and capabilities such as actionable intelli-
gence and big data – all of which are expected
to provide business value both within customer
experience and efficiency. Companies in the util-
ity industry have geographically dispersed net-
works, regulatory frameworks and business
models that are similar to those of telecom
operators. The companies also face challenges
similar to telecom operators in that they need
to transform, increase operational efficiency,
improve customer experience and deliver
a higher degree of innovation. Machine-to-
machine (M2M) platforms and services, initially

developed for the telecom industry, will enable
the required functionalities for utility companies
at the lowest possible cost, using the latest
cloud technologies.

Reusing capabilities and assets
Across all industry sectors, the ability to estab-
lish service-centric business models and eco-
systems, while innovating in services adjacent to
products, will be increasingly critical to success.
The selected industries play an important role in
Ericsson’s strategy to expand the business and
grow in adjacent areas, by reusing and extend-
ing the current portfolio of both services and
products. The selected industries can benefit
from Ericsson’s mobility expertise and services
innovation, while the Company expands its foot-
print into new high-growth markets and brings
disruptive change into the rapidly transforming
industries.

The telecom network and related services

that Ericsson offers, including network infra-
structure and professional services, have
multi-industry relevance and meet communica-
tion needs that these industries require. One of
the innovative offerings is the Connected Vehicle
Cloud, which targets the global automotive
industry’s existing and future needs for scalabil-
ity, security and flexibility in the provisioning of
connected car services for drivers and passen-
gers. Launched in 2015, Maritime ICT Cloud is
an offering that connects vessels at sea with
shore-based operations, maintenance service
providers, customer support centers, fleet/
transportation partners, port operations and
authorities.

Ericsson believes that one of its major com-
petitive strengths is that the Company is an end-
to-end systems integrator, with capabilities to
bridge IT and communications and thereby
deliver value and performance. In 2014, the
Company acquired Ambient, a smart grid com-
munications company that Ericsson aims to
position in a global context.

Three industries in focus

Utilities

Transport

Public safety

Financials – Targeted areas

Ericsson | Annual Report 2015THE BUSINESS – The people

The people

The People Strategy is critical to Ericsson’s future success. The core values
of Professionalism, Respect and Perseverance support an enabling culture
that empowers people to fulfill their full potential.

Ericsson’s core values

Professionalism

Respect

Perseverance

Agility and leadership have taken Ericsson for-
ward over the decades in a continuously chang-
ing environment, and the ingenuity of teams and
individuals have made the difference. Ericsson’s
global team shares a vision of a sustainable Net-
worked Society. Within an evolving organization,
there is a constant demand for diverse and new
talent. By attracting the best, developing the
best and establishing a high-performance cul-
ture, Ericsson can ensure continued technology
and services leadership.

Global employer of choice
Ericsson takes a holistic approach to becoming
an employer of choice across the world, but
local nuances and demands must also be
observed and met. Competition for skilled pro-
fessionals in the ICT industry remains intense.
Although Ericsson is well known in the ICT space,
the Company constantly intensifies its efforts to
broaden awareness by engaging highly skilled
talent, tech-oriented groups and community
associations keen on promoting computer sci-
ence and STEM (Science, Technology, Engineer-
ing and Mathematics) education. These activi-
ties also drive the market as well as technology
and services development on a broader scale.

To become an employer of choice in fiercely
competitive markets, Ericsson’s employer value
proposition needs to stand out. The Company is
active in social and digital media with the “You +
Ericsson” concept, which communicates power-
ful people stories that convey Ericsson’s culture
and global opportunities. Through Ericsson’s
Employee Referral Program, top talent is
involved in attracting other top talent. The Com-
pany also works with universities all over the
world to increase access to new talent early.
Ericsson wants to be recognized as the

company that accommodates both the personal
and the career ambitions of potential employees.
The employee turnover rate remains low ( 8% on
Group level, excluding any impact from Company
trans formation).1) In the Asian operations Ericsson
outperforms the competition with a turnover rate
well below the local industry average.

Staying ahead
Competence and education are in focus, ensur-
ing that the organization is equipped with the
skills to execute the short and long-term business
strategy. In 2015, Ericsson employees continued
to stay on top of cutting-edge technology trends,
such as Cloud, 5G and Small Cell.

1) Employee turnover rate, excluding non-voluntary leave (Attrition Rate).

A learning organization – 2015 facts and figures

Share of employees
that took formal training
(any mode of delivery)

96%
27

HOURS

Total

learning hours: 2.75 million
courses attended: 15,800

No. of different

Average learning
hours per employee

Ericsson | Annual Report 2015Ericsson is investing in impactful and innovative
ways of learning that can be accessed by every-
one at all times. To date, more than 17,000
employees have been certified in the Ericsson
Technical Certification Program. Ericsson Acad-
emy works closely with the businesses to ensure
that key competence are in place to execute the
strategy. The Ericsson Virtual Campus is one
important element of Ericsson’s overall Digital
Enterprise initiative to support employee collab-
oration and knowledge management.

Transformative leadership and engagement
Ericsson invests in leaders and future leaders
across the organization. Strong leadership is
essential in maintaining high technology and
services leadership amid evolving business con-
ditions. Ericsson does rigorous talent planning
and runs structured leadership programs at all
levels. This is to ensure that the right skills are
developed, for the right people, at the right time
– all in line with Ericsson’s Networked Society
strategy.

The level of employee engagement remains

very high. The most recent employee survey
inspired a 94% response rate. The Employee
Engagement Index measures employees’ overall
motivation and commitment to the Company’s
success. Ericsson’s score for 2015 was 76%,
which puts the Company amongst the top-scor-
ing ICT companies included in the external
benchmark. One of the contributing factors to
the high score was strong leadership.

Diverse and inclusive culture
For Ericsson, diversity means acknowledging
the differences every individual brings to the
workplace. Diversity and inclusion are the prime
drivers of the unique culture at Ericsson.

Ericsson aspires for its leadership teams and
employees to be as diverse as the world in which
the Company operates. There are more than 170
nationalities within the organization and Ericsson
has customers in approximately 180 different
countries. In 2015, Ericsson emphasized lever-
aging generational differences to increase inno-
vation, and also launched “Unconscious Bias”
training in all regions.

The main challenge in the technology sector

is to attract more women at all levels, and in
2014 a new goal was set. By 2020, the aim is for
30 percent of all executives, line managers and
the employee workforce to be women. To get
there, all Global Leadership Team members
have diversity and inclusion objectives related to
gender in their performance management goals,
and all leaders at all levels should have diversity
objectives related to their operations. The gender
balance perspective is included in all strategic
processes, such as talent acquisition and plan-
ning, as well as development programs.

Female representation

Overall Workforce
Line Managers
EXE (top 250)
ELT

Goal
2020

30%
30%
30%
30%

2015

2014

22%
18%
22%
31%

22%
19%
20%
29%

2013

21%
18%
19%
29%

Diversity & Inclusion Strategy

YOU + ERICSSON
a powerful combination

Values for Customers, Employees, Shareholders

Create an
inclusive work
environment

Enable diverse
representation

Strengthen
employer
brand

Create a high-
performance
culture

Integrate
into business
processes

Leadership

Competency
and Education

Communication
and Engagement

Operational
Excellence and
Innovation

Values, Vision, Mission

Ericsson’s values of Professionalism, Respect
and Perseverance are an integral part of
everything the Company does, and so is the
strategy of diversity and inclusion. The Com-
pany believes that by leveraging its global
scale and skills, by innovating and adapting to
new ways of working and by maintaining a
diverse and inclusive workplace, Ericsson is
able to create differentiated value for share-
holders, customers and employees – and
remain a leader in the ICT industry.

Financials – The people

Ericsson | Annual Report 2015
THE BUSINESS – Sustainability and corporate responsibility

sustainability and
corporate responsibility

An important part of Ericsson’s ambition is to be a responsible
and relevant driver of positive societal change.

In the Networked Society, Ericsson is a leading
advocate for Technology for Good™. This is a
concept Ericsson works with to address issues
such as climate change, poverty, education,
health, human rights and humanitarian concerns
such as refugees, peace building and disaster
response.

Ericsson estimates that by 2020, 90% of the

world’s population will be covered by mobile
broadband networks. This scale brings unprec-
edented opportunities to address global
sustainable development challenges.

ICT is one of the few industries that can posi-
tively impact each one of the 17 UN Sustainable
Development Goals which aim to end poverty,
fight inequality and justice and halt climate
change; and were ratified by the UN General
Assembly in 2015.

this. The Code of Conduct is based on the UN
Global Compact principles and covers human
rights, labor conditions, environmental manage-
ment and anti-corruption, and it applies to
employees as well as suppliers.

In addition to upholding the ten UN Global
Compact Principles, Ericsson is committed to
implementing the UN Guiding Principles on
Business and Human Rights (UNGP) across its
business operations. Ericsson addresses and
reports on its most salient human rights issues
(the right to privacy, freedom of expression
and labor standards) according to the UNGP
Reporting Framework. Ericsson’s key areas
of commitment and action are human rights,
anti-corruption, responsible sourcing, improved
environmental performance and high labor and
occupational health and safety standards.

Key focus areas
Ericsson uses its technology solutions, the com-
petence of its people and industry leadership to
create positive impact for its stakeholders, while
managing environmental, social and corporate
responsibility risks. Ericsson’s Sustainability
and Corporate Responsibility (CR) focus areas
include the following: conducting business res-
ponsibly, addressing the environment, energy
and climate change and creating positive
socio-economic impact.

Conducting business responsibly
Responsible business practices are embedded
in Ericsson’s operations to ensure management
of risks. The Ericsson Group Management
System (EGMS) includes Group policies, pro-
cesses and directives encompassing respon-
sible sourcing, occupational health and safety,
environmental management, anti-corruption,
human rights and other areas. The Ericsson
Group Management System is assessed by
an external assurance provider.

Governance
The Code of Business Ethics sets the tone for
how Ericsson conducts business globally and is
our umbrella policy. In 2015 all employees were
requested to acknowledge the Code of Busi-
ness Ethics; over 97% of active employees did

Human rights
The Ericsson Sales Compliance Process
includes a forum that regularly reviews possible
human rights impacts as part of the sales pro-
cess. It looks at specific sales requests from the
perspec tive of product, customer, country, and
intended use, and when necessary determines
what mitigation actions should be undertaken.
The cross- functional internal Sales Compliance
Board has the ultimate responsibility for the
process. In 2015 more than 430 cases were
revi e wed; 6% were rejected and 94% were
approved or approved with mitigating conditions.

Health and safety
Providing a safe and healthy work environment
is of fundamental importance to Ericsson. The
Company takes a transparent and inclusive
approach, which includes our supply chain.
Our vision is zero major incidents. Occupational
Health and Safety (OHS) is integrated across
operations globally, with a focus on awareness
and prevention. In 2015, an OHS Incident Review
Board was initiated. In total during 2015, 27 work-
place fatalities were reported by contractors and
partners, where 17 involved contractors and 10
involved members of the public (the latter all rela-
ted to driving accidents). Given the high number
of fatalities due to traffic accidents, a key focus
of OHS work is driver training.

Ericsson | Annual Report 2015Addressing the environment,
energy and climate change
Ericsson has a three-fold strategy on energy and
climate change which supports a sustainable
Networked Society.

Reduce carbon footprint
The long-term objective is to maintain the same
level of absolute CO2e emissions from Ericsson’s
own activities in 2017 as they were in 2011. This
includes business travel, product transportation
and facility energy use. This implies a 30%
reduction of CO2e emissions per employee.
The work towards the objective is on track.

Maximize energy performance
In 2015, the focus was on continued improve-
ments in energy performance across the entire
pro duct portfolio. In 2015, the Company launched
the Ericsson Radio System, which provides a
50% improvement in energy efficiency.

Enable a low-carbon economy
In 2015, we delivered on a target to reduce twice
as much societal CO2 emissions via our product
and service offerings in areas such as utilities
(smart meters) and transportation as we emitted
from our own operations.

Ericsson takes a strong advocacy role in rela-

tion to climate change. For example, the Com-
pany is a signatory to the World Economic Forum
CEO Climate Leaders’ statement and to the
Paris Pledge, which gives support to ensuring
that the level of ambition called for in the agree-
ment will be achieved or exceeded. Ericsson
is also committed to the Swedish government
initi ative Fossil Free Sweden.

As part of a three-year collaboration with
UN-Habitat, the report “ICT for urban climate
action” was launched during COP21 in Paris.

Creating positive socio-economic impact
Mobility, broadband and the cloud can greatly
enable socio-economic development in areas
such as improved livelihood, greater financial
inclusion, gender equality and improved access
to health and education. But for people to bene-
fit, affordability and accessibility are key. Ericsson
has been actively involved in advocating the role
of ICT in achieving the Sustainable Development
Goals (SDGs). Joint research performed by
Ericsson and Columbia University in 2015 high-
lights how ICT is fundamental to achieving the
Sustainable Development Goals, and how it can
help to accelerate their attainment.

Humanitarian Response
In 2015, the employee volunteer initiative
Ericsson Response, providing communications

expertise, equipment and resources to assist
humanitarian relief organizations, celebrated 15
years of service. Active missions helped the UN
Emergency Telecom Cluster (ETC) connect over
90 Ebola treatment units in West Africa, and
humanitarian offices in Sierra Leone, Guinea and
Liberia. The cyclone in Vanuatu and earthquake
in Nepal were also among the missions. Com-
munications and expertise were provided to
support humanitarian efforts in refugee and
Internally Displaced Persons (IDP) camps in both
South Sudan and Iraq. In 2015, employee dona-
tion campaigns raised USD 75,000 for the World
Food Programme and the ETC in Nepal, and
USD 450,000 for UNHCR and refugees.

Refugees
In addition to the service offering in many coun-
tries in Africa, the Company continues to build
on the launch of the Refugees United service in
Iraq, Jordan and Turkey. Ericsson is working with
European operators to promote the service to
the more than one million people who according
to UNHCR arrived in Europe during 2015. The
service enables refugees arriving to Germany
and Sweden to reconnect with separated
family members.

Education
Ericsson is the lead technology partner in
Connect to Learn, a global education initiative
with the Earth Institute at Columbia University
and Millennium Promise. The program is now in
22 countries and engages 16 mobile operators,
and is benefiting about 70,000 students.

Financial inclusion
It is believed that Mobile Financial Services are
essential to expanding financial services and
social inclusion for approximately 1.8 billion
unbanked people globally (World Bank).
Ericsson’s M-Commerce solutions were deployed
in 2015 in Pakistan and across several countries
in sub-Saharan Africa and Latin America to
address financial inclusion, including a project
for ASBANC, Peru’s National Bank Association.

Achieving scale
Ericsson’s objective of positively impacting
4.8 million people directly through Technology
for Good™ initiatives by 2016 was achieved in
2015. Through an updated methodology that
includes many of Ericsson´s technology deploy-
ments with its customers, Ericsson estimates
that 20 million people are currently positively
impacted by Technology for Good™ initiatives.
Ericsson aims to impact eight million addi-
tional people by the end of 2016, bringing the
total to 28 million people.

Read more about Ericsson’s
approach and initiatives in
the Sustainability and
Corporate Resp onsibility
Report at: www.ericsson.
com./sustainability

Financials – Sustainability and corporate responsibility

Ericsson | Annual Report 2015THE BUSINESS – Sustainability and corporate responsibility

Solving the site
acquisition challenge
through modular
radio architecture

Ericsson’s new modular, compact and
energy efficient radio system can offer
operators the infrastructure they need
by creating conditions for tailor-made
networks that are designed according
to operator site requirements, and by
taking local regulations, traffic loads
and commercial realities into consider-
ation. Through an innovative rail system,
the Ericsson Radio System adapts to
any site, with zero floor footprint and
easy one-bolt installation. At the same
time, the modular, compact and energy
efficient Radio System reduces the cus-
tomers’ operating and capital expenses
by delivering three times the capacity
density with 50 percent improvement
in energy efficiency. Operators aim to
provide the best possible performance
and quality of experience in the most
cost-efficient way, and Ericsson believes
that this multi-standard, multi-band,
multi-layer architecture system, pro-
vides an ideal platform for operators
to support their business now and on
the road to 5G.

Ericsson | Annual Report 2015letter from
the chairman

Dear shareholders

As a Board, we are deeply involved in supporting
the Company on its transformation journey. We
are engaged with the President and CEO and
his leadership team in the development of the
long-term strategic direction, while we also
need to respond to short-term opportunities
and challenges.

The strategic direction that Ericsson has cho-

sen implies that the Company needs to stay
focused on progress both in the present and in
the future at the same time. This is a challenging
task, but the ability to balance today’s business
with a rapidly evolving future has always been
part of Ericsson’s culture, and has sustained its
success for 140 years. It is exciting to serve as a
Chairman of Ericsson, a Company where the
core values of Professionalism, Respect and
Perseverance support a culture which can be
characterized as one of creativity, innovation and
endeavor. Through this culture, Ericsson can
expand its market presence, while we provide
traditional and new customers with innovative
solutions, network competence and services as
well as business capabilities.

The task of ensuring long-term development

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in today’s competitive and rapidly changing
market, where even the macro environment is
exceptional, is not only exciting but also chal-
lenging. As a Board, we must be aware and
consider the long-term industry prospects while
remaining up-to-date on the latest technology
and services developments, so that investments
and resources can be allocated to create the
best competitive situation.

In 2015, the Board focused on three major

areas: strategy, governance and talent man-
agement.

Dividend per share

SEK

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

3.70

3.40

3.0

2.75

2.50

2011

2012

2013

2014

2015

1) For 2015 as proposed by
the Board of Directors.

In its strategic work, the Board always invests
considerable time evaluating several strategic
alternatives. In order to strengthen Ericsson’s
position as an end-to-end supplier the board
decided, among other initiatives, to enter a stra-
tegic partnership agreement with Cisco.

We as a Board have during 2015 invested
significant time on corporate governance, and
thoroughly discussed frameworks that cover
how to conduct business responsibly, address
environmental issues including, energy and
climate change and create positive socio-eco-
nomic impact. These are all important elements
in delivering value and retaining the trust of
Ericsson’s shareholders and other stakeholders.
The Board considers good talent manage-

ment and succession planning, not only on
exec utive level but also in technology and com-
mercial management as an important strategic
tool to execute well on strategy. The Board sup-
ports the President and CEO Hans Vestberg’s
and his leadership team’s ambitions to attract
and recruit some of the ICT industry’s best talents.
For stakeholders in the capital market, includ-

ing our shareholders, Ericsson’s capital struc-
ture is an area of high interest which the Board
invests significant time in analyzing and monitor-
ing. Capital efficiency, business plans, budgets
and investments in R&D and other assets are
carefully evaluated. The Board takes into
account the allocation of R&D, acquisitions and
other investments, while aligning it with the strat-
egy to maintain a leading position in core and
expand into targeted areas, and with the overall
capital efficiency ambitions. With this in mind,
the Board’s proposes to increase the dividend
from SEK 3.40 in 2014 to SEK 3.70 per share for
2015, an increase of 9%. Between 2009–2015
the dividend has increased in average by 11%
per annum. We as a Board are confident that
Ericsson, leading the ICT market transformation
through mobility, has the agility needed to take
on the challenges and the opportunities on the
transformation journey, and we are very excited to
be part of it and to contribute to future success.

Leif Johansson
Chairman of the Board of Directors

Ericsson | Annual Report 2015FINANCIALS

Board of
Directors’ report

Contents

Business in 2015

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

Post-closing events

Board assurance

Full-year highlights

> Reported sales increased by 8%. Sales growth in India,
North America and China as well as higher IPR licensing
revenues were partly offset by lower sales in Japan,
Russia and Brazil. Sales, adjusted for comparable units
and currency, decreased by –5%.

> The IPR licensing revenues were SEK 14.4 (9.9) billion.

> Operating income increased to SEK 21.8 (16.8) billion.

> Cash flow from operating activities was SEK 20.6 (18.7)
billion. Cash conversion was 85%, above target of more
than 70%.

> The Board of Directors proposes a dividend for 2015 of
SEK 3.70 (3.40) per share, an increase of 9% compared
to last year.

Business in 2015

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In 2015, net sales increased by 8% mainly due to
sales growth in India, North America and Main-
land China as well as higher IPR licensing reve-
nues. All three segments showed sales growth.
Both operating income and margin increased
compared to last year despite significantly
higher restructuring charges. The increase is
mainly related to higher IPR licensing revenues,
lower negative currency hedge effects and lower
operating expenses, excluding restructuring
charges. In the year, the US dollar strengthened
towards a number of currencies including SEK,
impacting sales and operating income positively.
The IPR strategy, to generate value from
investments in R&D, has been successful and
over the last five years IPR licensing revenues
have more than tripled. IPR revenues were SEK
14.4 (9.9) billion. Ericsson now has agreements
with the majority of handset suppliers.

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In 2015, there was good progress in the
targeted growth areas; IP network, Cloud, OSS
and BSS, TV and Media as well as Industry and
Society. Ericsson continued to invest in order
to establish leadership in these areas.

The effort to restore Network Rollout to a
sustainable profitable business progressed well,
with a break-even operating income, excluding
restructuring charges, for the second half of
2015. Network Rollout full-year operating
income, excluding restructuring charges,
improved to SEK –0.4 (–2.2) billion.

The global cost and efficiency program
progressed according to plan, with the target
to achieve net annual savings of SEK 9 billion
during 2017 compared with 2014. Operating
expenses, excluding restructuring charges,
declined to SEK 61.4 (63.0) billion. Ericsson will
continue to address operating expenses and
increase efforts to further reduce cost of sales
in order to improve the gross margin.

Ericsson delivered a full-year cash flow from

operating activities of SEK 20.6 (18.7) billion,
exceeding the cash conversion target of more
than 70%. The Board of Directors proposes a
dividend of SEK 3.70 (3.40) per share for 2015,
an increase of 9% compared with last year.

Net sales

SEK billion

250

200

150

100

226.9

227.8

227.4

228.0

246.9

2011

2012

2013

2014

2015

Net sales

Operating income and
operating margin

SEK billion

Percent

17.9

7.9

17.8

7.8

16.8

7.4

21.8

8.8

10.5

4.6

2011

2012

2013

2014

2015

Operating income

Operating margin

Ericsson | Annual Report 2015

IPR revenues (net)

SEK billion

14.4

10.6

9.9

6.2

6.6

2011

2012

2013

2014

2015

Software, hardware and
services: share of total
sales

Percent

100

2011

2012

2013

2014

2015

Software
Hardware
Services

Financial highlights

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Net Sales
Reported sales increased by 8%. Sales growth
in India, North America and Mainland China as
well as higher IPR licensing revenues were partly
offset by lower sales in Japan, Russia and Brazil.
All three segments showed sales growth.
Global Services sales grew by 11%, with 15%
growth in Professional Services, while Network
Rollout sales were almost flat. Networks sales
grew by 5% and Support Solutions sales by 19%.
IPR licensing revenues amounted to SEK 14.4

Type–Options:
1 stapel: 76% 70%
2 staplar: 80% 80%

(9.9) billion. In 2015, a global patent license
agreement was signed with Apple.

In the year, the US dollar strengthened

towards a number of currencies including SEK,
impacting sales positively. At the same time the
strong US dollar gradually impacted investments
negatively in some emerging markets.

Sales, adjusted for comparable units and

currency, decreased by –5%.

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Gross margin
Gross margin declined to 34.8% (36.2%).
Excluding restructuring charges the gross mar-
gin declined to 35.7% (36.6%) due to a mix with
a lower share of mobile capacity business and
higher share of Global Services sales. This was
partly offset by higher IPR licensing revenues
and effects of implemented efficiency measures.
The mix of sales by commodity was; software

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23% (24%), hardware 34% (34%) and services
43% (42%).

Restructuring charges and global cost
and efficiency program
Restructuring charges amounted to SEK –5.0
(–1.5) billion, in line with previous estimates. The
charges were mainly related to the global cost
and efficiency program announced in November
2014. The global cost and efficiency program is
progressing according to plan and is expected
to generate net annual savings of SEK 9 billion
during 2017 compared with 2014.

With current visibility, total restructuring
charges for 2016 are estimated to be approxi-
mately SEK 3–4 billion. This includes both
restructuring charges related to the global cost
and efficiency program and normal restructuring
charges for the ongoing business transformation.

Operating expenses
Total operating expenses increased to SEK 64.1
(63.4) billion. Operating expenses, excluding
restructuring charges, decreased from SEK 63.0
to 61.4 billion, due to lower R&D expenses
amounting to SEK 32.8 (36.0) billion. This is
partly a result of implementation of activities
related to the global cost and efficiency pro-
gram. Additions to capitalized development
expenses amounted to SEK 3.5 (1.5) billion. The
increase was due to higher activity in technology
platform development than a year ago.

Jan Frykhammar, Chief Financial
Officer, Hans Vestberg, President
and CEO, and Helena Norrman,
Chief Marketing and Communications
Officer, at the presentation of the
Q4 Report in January 2016.

Financials – Board of Directors’ report

Ericsson | Annual Report 2015

FINANCIALS – Board of Directors’ report

Days sales outstanding (DSO) decreased to
87 (105) days and Inventory turnover days
remained stable at 64 days. Accounts payable
days decreased to 53 (56) days. Provisions
amounted to SEK 3.8 (4.4) billion at year end. Cash
outlays of SEK 2.8 billion related to restructuring
charges were made during the year.

Total investing activities amounted to SEK
–8.0 billion. Investments in property, plant and
equipment increased to SEK –8.3 (–5.3) billion
driven by continued investments in new ICT
centers in Sweden and Canada. Acquisitions
amounted to SEK –2.2 (–4.4) billion.

Financing activities were impacted by
dividend payouts of SEK –11.3 (–9.8) billion.

Financial position
Net cash decreased to SEK 18.5 (27.6) billion in
2015, despite stronger cash flow from operating
activities, mainly due to increased investments
in ICT centers and in new facilities in Santa Clara,
California, as well as increased dividends.

Pension liabilities increased by SEK 2.3 billion

following actuarial adjustments. The net cash
position, excluding post-employment benefits,
was SEK 41.2 (48.0) billion. In 2015, Standard
& Poor’s and Moody’s confirmed Ericsson’s
long-term rating BBB+/Baa1, both with stable
outlook.

The average maturity of long-term borrowings

as of December 31, 2015 was 4.8 years, com-
pared with 5.7 years 12 months earlier. Ericsson
has an unutilized Revolving Credit Facility of
USD 2.0 billion. The facility expires in 2020.

Employees
In 2015, the number of employees decreased
by 1,774. At the end of 2015, the total number
of employees was 116,281 (118,055). Almost
15,000 employees joined Ericsson during the
year and close to 17,000 employees left Ericsson,
reflecting the natural attrition rate and ongoing
company transformation.

Other operating income and expenses
Other operating income and expenses improved
to SEK 0.1 (–2.2) billion. The increase is mainly
related to currency hedge effects of SEK –1.1
(–2.8) billion. They derive from the hedge con-
tract balance in US dollar, which has further
decreased in value. The SEK has weakened
towards the US dollar between December 31,
2014 (SEK/USD rate 7.79) and December 31,
2015 (8.40). The negative currency hedge effects
were more than offset by several minor positive
items and a capital gain of SEK 0.3 billion related
to a real estate divestment in the US.

Operating income
Operating income increased to SEK 21.8 (16.8)
billion despite significantly higher restructuring
charges. The increase is mainly related to higher
IPR licensing revenues, lower negative currency
hedge effects and lower operating expenses,
excluding restructuring charges. The net cur-
rency effect had a positive impact on operating
income. Operating margin was 8.8% (7.4%).

Financial net
Financial net amounted to SEK –1.9 (–1.0) billion.
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interest rates.

Taxes
The tax rate for 2015 was 31% compared with
30% in 2014, negatively impacted by the geo-
graphical mix. Tax costs were SEK –6.2 (–4.7)
billion.

Net income and EPS
Net income increased to SEK 13.7 (11.1) billion,
for the same reasons as for the increase in oper-
ating income. EPS diluted was SEK 4.13 (3.54).

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Cash flow
Cash flow from operating activities was SEK 20.6
(18.7) billion. The positive earnings were some-
what offset by increased working capital, due to a
business mix with a high share of coverage proj-
ects in Mainland China and emerging markets.

Working capital

Days

120

100

105

2011

2012

2013

2014

2015

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)

Net cash

SEK billion

39.5

38.5

37.8

27.6

18.5

2011

2012

2013

2014

2015

Debt maturity, Parent
Company

SEK billion

8.3

1.4

5.7

4.6

0.8

2016

2017

2018

2019

2020

2021

2022

Notes & bonds
Nordic Investment Bank
European Investment bank
Swedish Export Credit Corporation
MTN Bond

Ericsson | Annual Report 2015Research and development,
patents and licensing
In line with the global cost and efficiency pro-
gram, the Company has decreased its R&D
activities. The largest contribution to savings is
a result of discontinuation of the modems oper-
ations. Approximately half of the global cost
and efficiency program annual net savings of
SEK 9 billion is estimated to come from oper-
ating expenses. R&D expenses amounted to
SEK 34.8 (36.3) billion.

Research and development, patents and licensing

Expenses (SEK billion)
As percent of Net sales
Employees within R&D as
of December 31 1)
Patents 1)
IPR revenues, net
(SEK billion)

2015

34.8
14.1%

2014

36.3
15.9%

2013

32.2
14.2%

23,700
39,000

25,700
37,000

25,300
35,000

14.4

9.9

10.6

1) The number of employees and patents are approximate.

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

Sequential change,
sales
Share of
annual sales

–22%

21%

22%

24%

29%

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, rev-
enues, expenses, result of operations, liquidity,
capital expenditures or capital resources.

Capital expenditures
For 2015, capital expenditures were SEK 8.3
(5.3) billion, representing 3.4% of sales. Expendi-
tures are largely related to test sites and equip-
ment for R&D, network operation centers and
manufacturing and repair operations.

Investments have been made in three new
global ICT centers. The centers will support R&D
and services in developing and verifying solu-
tions more efficiently and bringing innovation
faster to the market. The first center, in
Linköping, Sweden, was opened in 2014. The
second center, in Rosersberg, Sweden, was
opened in the beginning of 2016. The third
center, in Montreal, Canada, is planned to be
opened during the second quarter of 2016. In
addition, Ericsson has invested in two buildings
in Santa Clara, California with the purpose to
consolidate Ericsson’s Silicon Valley operations.
Apart from these investments, 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.

Annual capital expenditures are normally
around 2% of sales. This corresponds to the
needs for keeping and maintaining the current
capacity level. The Board of Directors reviews
the Company’s investment plans and proposals.
As of December 31, 2015, no material land,
buildings, machinery or equipment were pledged
as collateral for outstanding indebtedness.

The Company believes it has sufficient cash
and cash generation capacity to fund expected
capital expenditures without external borrow-
ings in 2016.

Capital expenditures 2011–2015

SEK billion

Capital
expenditures
Of which in
Sweden
Share of
annual sales

2015

2014

2013

2012

2011

8.3

2.6

5.3

2.4

4.5

1.9

5.4

1.3

5.0

1.7

3.4% 2.3% 2.0% 2.4% 2.2%

Financials – Board of Directors’ report

Ericsson | Annual Report 2015FINANCIALS – Board of Directors’ report

Business results – Segments

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Networks
Reported sales increased by 5% compared to
last year. The increase was mainly due to higher
IPR licensing revenues. Operator investments in
mobile broadband in India and South East Asia
increased. The large-scale LTE deployments in
Mainland China continued at a high pace in
2015. Sales in North America were flat com-
pared to last year, supported by the strength-
ened US dollar. Mobile broadband investments
in North America were negatively impacted by
operator focus on cash flow optimization in
order to finance major acquisitions and spec-
trum auctions.

In 2015, sales in targeted growth area IP net-

works grew, mainly driven by investments in
packet core, VoLTE and user data management.
During the year, the US dollar strengthened
towards a number of currencies, including SEK,
impacting sales positively. At the same time, the
strong US dollar gradually impacted investments
negatively in some emerging markets. Sales,
adjusted for comparable units and currency,
decreased by –8% compared to last year.

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Operating income and margin decreased due
to a higher share of mobile broadband coverage
business and higher restructuring charges.
Increased IPR licensing revenues, lower operat-
ing expenses and lower negative effect of cur-
rency hedge contracts contributed positively
to operating income and margin.

The year started with a high level of R&D
expenses which gradually decreased as a result
of the global cost and efficiency program. The
ambition to improve Networks profitability
remains.

Restructuring charges amounted to SEK –2.8

(–0.4) billion and the negative effect from hedge
contracts was SEK –0.9 (–2.1) billion.

Global Services
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frågor.
grew 15% with strong development across the
portfolio and with growth in all ten regions.

Consulting and Systems Integration sales
grew, driven by OSS and BSS transformation
projects and by solutions for Industry & Society
customers. Sales in Managed Services grew by
17% and the number of signed contracts incre-
ased by more than 40% compared with 2014.

Network Rollout sales were flat. Lower cover-

age project activities in Japan, North America
and Latin America impacted sales negatively.

Global Services sales, adjusted for compara-

ble units and currency, declined –2%.

Global Services operating income increased by
more than 30% compared with 2014, driven by
increased sales in Professional Services and
reduced losses in Network Rollout. Professional
Services margin was stable compared to last
year.

The effort to restore Network Rollout profit-
ability progressed well with a break-even result,
excluding restructuring, for the second half of
the year. Network Rollout full-year operating
income improved to SEK –1,4 (–2,5) billion.
Operating income for Network Rollout, exclud-
ing restructuring charges, improved to SEK –0.4
(–2.2) billion.

Restructuring charges for Global Services
increased to SEK –1.7 (–0.8) billion. The imple-
mentation of the Global Services delivery strategy
accelerated during the year as part of the global
cost and efficiency program, resulting in a remote
delivery rate of 50% (44%). The ambition to opti-
mize service delivery and improve profitability
will continue.

The effect of currency hedge contracts on
operating income was SEK –0.2 (–0.6) billion.

Support Solutions
Reported sales increased by 19% compared
with 2014, with North America and India as main
contributors. Sales, adjusted for comparable
units and currency, were flat. The overall transi-
tion of business models, from traditional telecom
software licenses to recurrent license revenue
deals, continued.

Sales in OSS and BSS developed favorably.
Growth of mobile broadband drives operators
to transform their OSS and BSS solutions, in
order to monetize the data growth while at the
same time managing the increased complexity.
Two important TV & Media agreements were
announced in North America in the second half
of the year, showing the strong position Ericsson
has in this transforming market.

IPR licensing revenues increased compared

with 2014.

Operating Income and margin improved
significantly compared with 2014, driven by
higher sales. Focus going forward is to improve
earnings leverage through increased recurring
software sales and efficiencies.

Restructuring charges increased to SEK –0.5
(–0.1) billion due to the global cost and efficiency
program. The effect of currency hedge contracts
on operating income was SEK –0.1 (–0.2) billion.

Networks

SEK billion

125

100

117.3

117.7

117.5

123.7

12,0

10
117,5

2012

2013

2014

2015

Sales

Operating margin

Global Services

SEK billion

120

100

97.0

97.4

97.7

108.0

2012

2013

2014

2015

Sales

Operating margin

Support Solutions

SEK billion

13.5

12.7

12.2

15.0

2012

2013

2014

2015

Sales

Operating margin

Ericsson | Annual Report 2015

Business results – Regions

> North America

> Middle East

Mobile broadband investments were slow as
operators focused on cash flow optimization in
order to finance major acquisitions and spec-
trum auctions. Investments stabilized during
the second half of the year, driven by data traf-
fic growth. ICT transformation, TV & Media and
Professional Services developed favorably.

> Latin America

Sales decreased compared to last year mainly
due to lower activities in Brazil. Operator invest-
ments increased in local currency, but not
enough to compensate for the depreciation
towards the US dollar and currency rest ric-
tions in many parts of the region. Professio nal
Services sales grew, mainly in OSS and BSS.

> Northern Europe and Central Asia

Sales declined, primarily due to lower mobile
broadband investments in Russia with sales of
SEK 4.7 (6.7) billion. However, sales stabilized
in the second half of the year, but at a lower
level compared to the same period last year.
Professional Services sales increased, driven
by Managed Services and ICT transformation
projects in the Nordics. TV & Media and OSS
and BSS developed favorably, driving sales
growth in Support Solutions.
> Western and Central Europe

Investments in mobile broadband were driven
by the transition from 3G to 4G and capacity
enhancements. At the same time, some
important projects peaked. Sales were stable
with a shift towards Professional Services and
Support Solutions, as operators focus on
network optimization, efficiency and new
functionality.
> Mediterranean

Sales increased somewhat, driven by
Managed Services. Investments in mobile
broadband were driven by the transition from
3G to 4G and improvements of the quality
and capacity of the networks.

Sales increased, primarily in Global Services.
In the first half of the year, Network sales
growth was mainly driven by some major
mobile broadband projects, which were com-
pleted in the second half of the year.

> Sub-Saharan Africa

Sales increased across all segments, driven
by strong consumer demand for mobile
broadband, despite a challenging regulatory
environment and recent macro-economic
development. Operators’ focus on network
quality and efficiency drove Professional
Services sales growth.

> India

Sales growth was driven by increased
operator investments in mobile broadband
infrastructure and Professional Services.
Increased focus on network quality and cost
optimization continued to drive strong sales
growth for Managed Services. Support
Solutions sales showed significant growth,
driven by OSS and BSS.

> North East Asia

Sales growth was driven by 4G deployments
in Mainland China, partly offset by lower
operator investments in Japan. Professional
Services showed growth, supported by the
acquisition of Sunrise Technologies’ telecom
business.

> South East Asia and Oceania

Sales increased, primarily driven by mobile
broadband deployments across several mar-
kets. Professional Services sales developed
favorably as operators focused on efficiency
and network optimization. TV & Media showed
a positive development during the year.

> Other

Sales increased, driven by the Apple global
patent license agreement and currency, as
a majority of the IPR contracts are in US dollar.
Broadcast services showed good growth.
IPR licensing revenues amounted to
SEK 14.4 (9.9) billion.

Sales per region and segment 2015 and percent change from 2014

Networks

Global Services

Support Solutions

Total

SEK million

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

Total

Share of total

2015

26,200
9,763
6,203
6,754
9,151
11,873
4,793
8,083
18,714
10,001
12,185

123,720

50%

Change

1%
–9%
–22%
–16%
–5%
2%
22%
98%
4%
19%
34%

2015

27,898
10,742
4,118
12,233
13,408
9,741
4,902
4,570
8,838
8,693
2,875

108,018

44%

Change

12%
–1%
0%
11%
6%
15%
15%
46%
–1%
24%
25%

11%

2015

4,163
852
328
745
751
1,235
654
728
685
541
4,367

15,049

1) Discontinued segment Modems is not shown separately in the table. SEK 133 (0) million is included as region Other in the total column.

Financials – Board of Directors’ report

Change

2015

Change

20%
–17%
16%
21%
–8%
3%
18%
50%
4%
10%
43%

19%

58,261
21,357
10,649
19,732
23,310
22,849
10,349
13,381
28,237
19,235
19,560 1)
246,920 1)

100%

7%
–5%
–14%
0%
1%
7%
18%
74%
2%
21%
33%

Ericsson | Annual Report 2015FINANCIALS – Board of Directors’ report

Corporate Governance

In accordance with the Annual Accounts Act
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.

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. For 2015, Ericsson
does not report any deviations from the Code.

Business integrity
Ericsson’s Code of Business Ethics summarizes
the Group’s basic policies and directives govern-
ing its relationships internally, with its stakehold-
ers and with others. It also sets out how the
Group works to secure that business activities
are conducted with a strong sense of integrity.
In 2015, the Code of Business Ethics was
acknowledged by employees throughout
Ericsson’s global organization.

Board of Directors
At the Annual General Meeting, held on April 14,
2015, Leif Johansson was re-elected Chairman
of the Board and Roxanne S. Austin, Nora
Denzel, Börje Ekholm, Alexander Izosimov, Ulf J.
Johansson, Kristin Skogen Lund, Hans Vestberg
and Jacob Wallenberg were re-elected mem-
bers of the Board. Anders Nyrén and Sukhinder
Singh Cassidy were elected new Board
members and Sir Peter L. Bonfield, Sverker
Martin-Löf and Pär Östberg left the Board.
As of April 14, 2015, Pehr Claesson, Kristina
Davidsson and Karin Åberg were appointed
employee representatives by the unions, with
Rickard Fredriksson, Karin Lennartsson and
Roger Svensson as deputies. In August 2015,
Mikael Lännqvist, employee representative, and
Zlatko Hadzic, deputy, were appointed to the

Board, replacing Kristina Davidsson and Rickard
Fredriksson, respectively.

Management
Hans Vestberg has been President and CEO of
the Group since January 1, 2010. The President
and CEO is supported by the Group manage-
ment, 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 con-
trol 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 2015, are reported in Notes to the
consolidated financial statements – Note C28,
“Information regarding members of the Board
of Directors, the Group management and
employees”.

The Board of Directors’ proposal for guide-
lines for remuneration to Group management
The Board of Directors proposes no changes to
the current guidelines for remuner ation to Group
management for the period up to the 2017
Annual General Meeting.

Executive Performance Stock Plan
The Company has a Long-Term Variable Com-
pensation program (LTV). It builds on a common
platform of investment in, and matching of,
Ericsson shares. It consists of three separate
plans: one targeting all employees, one targeting
key contributors and one targeting senior

Shareholder value creation

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

Executive Performance Stock Plan 2014
targets for 2014–2016
Base year 2013

Executive Performance Stock Plan 2015
targets for 2015–2017
Base year 2014

Net sales growth 2–8% CAGR

Net sales growth 2–8% CAGR 2)

Net sales growth 2–6% CAGR

Operating income growth 5–15% CAGR 1)

Operating income growth 5–15% CAGR 2)

Cash conversion ≥ 70% annually

Operating income growth 5–15% CAGR
excluding extraordinary restructuring
charges

Cash conversion ≥ 70% annually excluding
extraordinary restructuring charges

1) Base year 2012 excludes non-cash charge for ST-Ericsson. 2) Base year 2013 has been adjusted for the impact of the Samsung IPR agreement.

Ericsson | Annual Report 2015 managers. The program is designed to encour-
age 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 per-
formance-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 approved by the Annual General
Meeting. Proposed performance criteria for the
2016 Executive Performance Stock Plan will be
communicated in the notice to the 2016 Annual
General Meeting.

The targets for the 2013, 2014 and 2015
Executive Performance Stock Plans are shown
in the illustration on page 48. 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. For the
2014 plan, net sales for base year 2013 has
been adjusted by SEK 2.1 billion for the
impact of the Samsung IPR agreement.
> Up to one-third of the award will vest if the
target for compound annual growth rate of
consolidated operating income, is achieved.
For the 2013 plan, base year 2012 excludes a
non-cash charge of SEK 8.0 billion for ST-
Ericsson. For the 2014 plan, operating income
for the base year 2013 has been adjusted by
SEK 2.1 billion for the impact of the Samsung
IPR agreement. For the 2015 plan, extraor din-
ary restructuring charges are excluded.
> Up to one-third of the award will vest if cash

conversion is at or above 70% during each of
the years, vesting one-ninth of the award for
each year the target is achieved. For the 2015
plan, extraordinary restructuring charges are
excluded. The cash conversion targets were
reached in 2015, 2014 and 2013.

Before the number of performance shares to
be matched is finally determined, the Board
of Directors shall examine whether the perfor-
mance matching is reasonable considering
the Company’s financial results and position,
con ditions on the share market and other
circumstances, and if not, reduce the number
of per formance shares to be matched.

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 compo-
nents 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 for example
financing agreements and certain license agree-
ments. However, considering among other
things the Company’s strong financial position,
the Company believes that none of the agree-
ments currently in effect would in and of itself
entail any material consequence for Ericsson
due to a change in control of the Company.

Risk management

Risks are defined in both a short-term and long-
term perspective. They are related to long-term
objectives as per the strategic direction of core
business, targeted areas and new areas as well as
short-term objectives for next coming year. Risks
are categorized into industry and market risks,
commercial risks, operational risks and compli-
ance risks. Ericsson’s risk management is based
on the following principles, which apply univer-
sally 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 own-
ing and managing its risks according to poli-
cies, 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 pro-
cess, annual planning and target setting,
continuous monitoring through monthly and
quarterly steering group meetings and during
operational processes (customer projects,
customer bid/contract, acquisition, invest-
ment 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 manage-
ment of certain risks, such as business interrup-
tion, information security and physical security.
The Group 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.

Financials – Board of Directors’ report

Ericsson | Annual Report 2015FINANCIALS – Board of Directors’ report

Sourcing and supply

Ericsson’s hardware largely consists of electron-
ics. 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.

The production of electronic modules and
sub-assemblies is mostly outsourced to manu-
facturing services companies, of which the vast
majority are in low-cost countries. Final configu-
ration of products is largely done in-house. 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 10 manufacturing sites in
Brazil, China, Estonia, India, Mexico and Sweden.
A number of suppliers design and manufac-
ture highly specialized and customized compo-
nents. The Company generally negotiates global
supply agreements with its primary suppliers.
Ericsson’s suppliers are required to comply with
the requirements of Ericsson’s Code of Conduct.
In general, Ericsson has alternative supply
sources and seeks to avoid single source supply
situations.

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

Sustainability and Corporate Responsibility (CR)
are central to Ericsson’s core business and the
Company’s commitment to the triple bottom line
of responsible financial and environmental per-
formance and socio-economic development.
Ericsson’s ambition is to be a relevant and
responsible driver of positive change. The Com-
pany aims to do this by creating positive impacts
in society and minimizing risks for stakeholders.
Ericsson’s approach to Sustainability and
Corporate Responsibility is integrated into busi-
ness operations throughout the value chain; per-
formance is regularly measured and assessed.
The Board of Directors is apprised of Sustain-
ability and Corporate Responsibility issues twice
per year, or as needed on an ad hoc basis. Group
policies and directives are implemented to ensure
consistency across global operations. Ericsson’s
annual Sustainability and Corporate Responsi-
bility Report provides additional information.

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.
Since 2012, Ericsson has reported its Communi-
cation on Progress at the Global Compact
Advanced level. In 2015, Ericsson was the first
ICT company to report according to the UN
Guiding Principles on Business and Human
Rights Reporting Framework. The Ericsson
Group Management System includes a Code of
Business Ethics, a Code of Conduct, a Sustain-
ability Policy and an Occupational Health and
Safety Policy which reflect responsible business
practices. These practices are reinforced by
employee awareness training, workshops and
monitoring, and are externally assured.

The Code of Business Ethics and Code of
Conduct were updated in 2015, with information
about a new external whistleblower tool, Ericsson
Compliance Line. New employee e-learning
training was launched on Code of Business
Ethics and Code of Conduct awareness as well
as on human rights.

Ericsson’s anti-corruption program, focused

on prevention and accountability, is reviewed
and evaluated by the Audit Committee of the
Board of Directors annually.

Human rights
The Code of Business Ethics and Code of
Conduct reflect the Company’s ongoing com-
mitment to respect human rights. Ericsson has
actively worked to integrate the United Nations
Guiding Principles on Business and Human
Rights into its governance framework since 2011.
A Sales Compliance Process evaluates risk to
human rights impacts with respect to four criteria;
country, customer, product and service as well
as purpose. In 2015 Ericsson completed a third
year with the Shift Business Learning Program
to further strengthen its human rights frame-
work. Human rights due diligence was strength-
ened in processes such as the Sales Compliance
Process. Human rights criteria are now being
incorporated in the mergers and acqui sitions
due diligence process and the implem entation
started during 2015. Human Rights Impact
Assessments according to the UN Guiding
Principles are ongoing in Iran and Ethiopia.

Responsible sourcing
Suppliers must comply with the requirements of
Ericsson’s Code of Conduct. The Company has

Ericsson | Annual Report 2015205 sourcing personnel, covering all regions,
who 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 prior-
itized areas such as road and vehicle safety,
working at heights, working hours and labor
rights, Ericsson performs regular audits and
works with suppliers to ensure measurable and
continuous improvements. Findings are followed
up to ensure that improvements are made. In
2015, over 345 audits and assessments were
performed.

Ericsson addresses the issue of conflict min-

erals, 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 processes.
The Company also actively works with suppliers
on this issue and engages in industry initiatives
such as the Conflict-Free Sourcing Initiative
(CFSI), driven by the Global e-Sustainability Ini-
tiative (GeSI), and the Electronic Industry Citizen-
ship Coalition (EICC).

Reducing environmental impact
Continuously improving sustainability perfor-
mance is fundamental to Ericsson’s strategy and
a priority remains improving the life-cycle carbon
footprint. The Company works to reduce nega-
tive environmental impacts while delivering solu-
tions that enable a low-carbon economy. As
energy use of products in operation remains the
Company’s most significant environmental
impact, Ericsson works proactively with mobile
operators to encourage network and site energy
optimization, through innovative products, soft-
ware and solutions. Processes and controls are
in place to ensure compliance with relevant
product-related environmental, customer and
regulatory requirements. An important aspect of
Ericsson’s Design for Environment initiatives is
materials management and efficiency.

Obs! Stapel gjord med
column design. Prata
med Eva/Catta/Sanna om
ev frågor.

Ericsson has a long-term objective to main-
tain absolute CO2e emissions from its own activ-
ities for business travel, product transportation
and facilities energy use in 2017 at the same
level as in 2011. To achieve this long-term objec-
tive, the Company aims to reduce CO2e emis-
sions per employee by 30% over five years. The
Company achieved a 16% reduction of CO2e
emissions per employee in 2015.

products at the end of their life and to treat them
in an environmentally preferable way. The pro-
gram also ensures that Ericsson fulfills its pro-
ducer responsibility and is offered to all custom-
ers globally free of charge, not only in markets
where it is required by law.

When taking back the Company’s products,

more than 98% of the materials is recycled.

Occupational health and safety
As a part of its vision for zero major incidents
within Occupational Health and Safety (OHS),
the Company applies a risk-based approach to
control and prevent work-related hazards. Cer-
tain operations undergo internal audits to meet
the OHSAS 18001 standard. Ericsson believes
that anyone working on its behalf should have a
safe work environment and therefore has taken
a comprehensive and inclusive approach by
not only reporting its own incidents and fatalities,
but also including partners and suppliers.

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 sup-
ports 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 Organiza-
tion, 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.

Technology for Good™
Technology for Good is a concept that Ericsson
works with every day to address areas such
as climate change, poverty, education, health,
human rights and humanitarian issues such as
refugees, peace-building, and disaster response.

In 2015, we delivered on a target to reduce
twice as much societal CO2 emissions via our
product and service offerings in areas such as
utilities (smart meters) and transportation as we
emitted from our own operations.

Ericsson Ecology Management is a product

take back program to take responsibility for

Reporting according to GRI G4 core
Ericsson publishes an annual Sustainability and
Corporate Responsibility report and full key per-
formance data is made available on the Ericsson
website according to the Global Reporting Initia-
tive (GRI) sustainability reporting guidelines. The
performance data is assured by a third-party.

Ericsson own activities
Carbon footprint intensity target

Tonnes CO2e/Employee

Mtonnes

0.82

7.93

0.78

6.90

0.69

6.18

0.63

5.43

1.0

0.8

0.54

0.6

4.56

0.4

2011

2012

2013

2014

2015

0.2

0.0

Carbon footprint intensity, tonnes
Carbon dioxide equivalents (CO2e)/
Employee

Carbon footprint absolute emission,
Mtonnes

Ericsson life-cycle assessment –
carbon footprint 2015

Mtonnes CO2e

–5

˜ 30

˜ 3

0.7

˜ 5

˜ – 0.3

Activities in 2015

Supply chain
Own activities

Future (lifetime) operation
of products delivered in 2015

Operator activities
Products in operation
End-of-life treatment
˜ Approximately

Financials – Board of Directors’ report

Ericsson | Annual Report 2015
FINANCIALS – Board of Directors’ report

Legal proceedings

On December 21, 2015, Ericsson announced
that Ericsson and Apple have agreed on a global
patent license agreement between the two com-
panies. The agreement includes a cross license
that covers standard-essential patents of both
companies (including the GSM, UMTS and LTE
cellular standards), and grants certain other pat-
ent rights. In addition, the agreement includes
releases that resolve all pending patent-infringe-
ment litigation between the companies.

As part of the seven-year agreement, Apple

will make an initial payment to Ericsson and,
thereafter, will pay on-going royalties. The
specific terms of the contract are confidential.
The agreement ends investigations before the
US International Trade Commission, lawsuits
pending in the US District Court for the Eastern
District of Texas and the U.S. District Court for
the Northern District of California, as well as
lawsuits in the United Kingdom, Germany and
the Netherlands.

In 2013, Adaptix Inc. (“Adaptix”) filed two law-
suits 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 pat-
ents purportedly assigned to Adaptix. The trial is
currently anticipated to take place in May 2016
and Adaptix seeks damages and an injunction.
In 2014, Adaptix filed three more patent infringe-
ment lawsuits against Ericsson in the same
court regarding three US patents, all of which
are also included in the 2013 lawsuit. One of the
2014 lawsuits accuses Ericsson’s LTE products
and Sprint’s use thereof of infringement, one
accuses Ericsson’s LTE products and Verizon’s
use thereof of infringement and one accuses
Ericsson’s LTE products and T-Mobile’s use
thereof of infringement. In January 2015, Adaptix
filed one more lawsuit in the same court alleging
that Ericsson’s LTE products, and Sprint and
Verizon’s use thereof, infringe one US Patent.

In addition to its complaint filed in 2013 with

the Tokyo District Court settled in December
2014, Adaptix filed another lawsuit in Japan in
September 2014 alleging that Ericsson’s LTE
products infringe another Japanese patent. In
the lawsuits in Japan, Adaptix is only seeking
damages. On January 28, 2016, the Tokyo
District Court denied Adaptix’s complaint.
Adaptix may appeal the decision.

In 2013, Ericsson filed a patent infringement

lawsuit in the Delhi High Court against Indian
handset company Micromax, seeking damages
and an injunction. As part of its defense, Micro-
max filed a complaint with 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 January 2014, the CCI opened another inves-
tigation against Ericsson based on claims made
by Intex Technologies (India) Limited. Ericsson
has challenged CCI’s jurisdiction in these cases
before the Delhi High Court and is waiting for a
final decision by the Delhi High Court. Ericsson
has made numerous attempts to sign a license
agreement with both Micromax and Intex on
Fair, Reasonable and Non-discriminatory
(FRAND) terms.

In 2012, Wi-LAN Inc., a Canadian patent
licensing company, filed a complaint against
Ericsson in the US District Court for the South-
ern District of Florida alleging that Ericsson’s LTE
products infringe three of Wi-LAN’s US patents.
In 2013, Ericsson’s motion for summary judg-
ment was granted and in 2014, the decision was
reversed by the US Court of Appeals for the
Federal Circuit. As a result, the case is back
before the Florida court. On May 22, 2015, the
Florida Court granted a Motion for Summary
Judgment in favor of Ericsson. This matter is
currently on appeal.

In 2014, Ericsson was joined as a party to
litigation brought by Unwired Planet against
Google, Samsung and Huawei in the English
High Court, in which Unwired Planet accuses
the defendants of infringing certain patents,
some of which were purchased from Ericsson in
2013. Ericsson has also intervened in the similar
proceedings ongoing in the Dusseldorf District
Court in which the defendants also include HTC
and LG. Unwired Planet and Google have since
settled their cases, but the litigations continue in
respect of the other defendants. The Defendants’
counter-allegations include that the agreement
entered into between Unwired Planet and
Ericsson in 2013 for the sale of part of Ericsson’s
patent portfolio is invalid by reason of breach of
competition law. Ericsson has rejected these
claims. On January 19, 2016, the Dusseldorf
District Court found that Ericsson’ sale of patents
to Unwired Planet is not in breach of competition
law, and rejected this and all other allegations
made by the defendants’ against Ericsson.

In addition to the proceedings discussed
above, the Company is, 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.

Ericsson | Annual Report 2015The Parent Company has 5 (5) branch offices.
In total, the Group has 81 (81) branch and repre-
sentative offices.

Financial information
Income after financial items was SEK 16.8 (25.6)
billion. The Parent Company had no sales in
2015 or 2014 to subsidiaries, while 43% (54%)
of total purchases of goods and services were
from such companies.

Major changes in the Parent Company’s

financial position for the year included:
> Increased current and non-current receiv-
ables from subsidiaries of SEK 2.2 billion.

> Decreased other current receivables of

SEK 0.2 billion.

> Decreased cash, cash equivalents and

short-term investments of SEK 6.4 billion.
> Decreased current and non-current liabilities

to subsidiaries of SEK 5.5 billion.

> Decreased other current liabilities of SEK

3.3 billion.

At year-end, cash, cash equivalents and short-term
investments amounted to SEK 48.6 (55.0) billion.

Share information
As of December 31, 2015, 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 15.20% respectively of the voting
rights in the Parent Company.

In accordance with the conditions of the Long-

Term Variable Compensation Program (LTV) for
Ericsson employees, 14,082,917 treasury shares
were distributed to employees or sold in 2015.
The quotient value of these shares was SEK
5.00, totaling SEK 70.4 million, representing less
than 1% of capital stock, and compensation
received for shares sold and distributed shares
amounted to SEK 189.8 million.

The holding of treasury stock at December

31, 2015 was 49,367,641 Class B shares.
The quotient value of these shares is SEK 5.00,
totaling SEK 246.8 million, representing 1.5% of
capital stock, and the purchase price amounts
to SEK 381.5 million.

Proposed disposition of earnings
The Board of Directors proposes that a dividend
of SEK 3.70 (3.40) per share be paid to sharehol-
ders duly registered on the record date of April
15, 2016, 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 12,228,691,420

SEK 30,348,668,600

SEK 42,577,360,020

As a basis for its dividend proposal, the Board
of Directors has made an assessment in accor-
dance 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 liquid-
ity, financial position in other respects and long-
term ability to meet their commitments. The
Group reports an equity ratio of 51.8% (49.5%)
and a net cash amount of SEK 18.5 (27.6) billion.
The Board of Directors has also considered
the Parent Company’s result and financial posi-
tion 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’ assess-
ment that the proposed dividend is well-balanced
considering the nature, scope and risks of the
business activities as well as the capital require-
ments for the Parent Company and the Group
in addition to coming years’ business plans and
economic development.

Post-closing events

Ericsson and Huawei extend global patent
cross license agreement
On January 14, 2016, Ericsson announced that
Ericsson and Huawei have agreed on extending
their global patent license agreement between
the two companies. The agreement includes
a cross license that covers patents relating to
both companies’ wireless standard-essential
patents (including the GSM, UMTS and LTE
cellular standards). As part of the renewed
agreement, Huawei will make on-going royalty
payment based upon actual sales to Ericsson.

Financials – Board of Directors’ report

Ericsson | Annual Report 2015FINANCIALS – Board of Directors’ report

Board assurance

The Board of Directors and the President
declare that the consolidated financial state-
ments have been prepared in accordance with
IFRS, as issued by the IASB and 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 pos ition
and results of operations and describes material
risks and uncertainties facing the Parent Com-
pany and the companies included in the Group.

Stockholm, February 26, 2016

Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Leif Johansson
Chairman

Anders Nyrén
Deputy Chairman

Jacob Wallenberg
Deputy Chairman

Roxanne S. Austin
Member of the Board

Nora Denzel
Member of the Board

Börje Ekholm
Member of the Board

Alexander Izosimov
Member of the Board

Ulf J. Johansson
Member of the Board

Kristin Skogen Lund
Member of the Board

Sukhinder Singh Cassidy
Member of the Board

Hans Vestberg
President, CEO and
Member of the Board

Pehr Claesson
Member of the Board

Mikael Lännqvist
Member of the Board

Karin Åberg
Member of the Board

Ericsson | Annual Report 2015FINANCIALS

CONSOLIDATED FINANCIAL
STATEMENTS with NOTES

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

56
57
58
59
60

Notes to the consolidated financial statements
63
C1 Significant accounting policies
69
C2 Critical accounting estimates and judgments
70
C3 Segment information
74
C4 Net sales
74
C5 Expenses by nature
74
C6 Other operating income and expenses
74
C7 Financial income and expenses
75
C8 Taxes
76
C9 Earnings per share
76
C10 Intangible assets
78
C11 Property, plant and equipment
79
C12 Financial assets, non-current
80
C13 Inventories
80
C14 Trade receivables and customer finance
82
C15 Other current receivables
82
C16 Equity and other comprehensive income
83
C17 Post-employment benefits
87
C18 Provisions
C19 Interest-bearing liabilities
88
C20 Financial risk management and financial instruments 89
92
C21 Other current liabilities
92
C22 Trade payables
92
C23 Assets pledged as collateral
92
C24 Contingent liabilities
92
C25 Statement of cash flows
93
C26 Business combinations
C27 Leasing
95
C28 Information regarding members of the Board

of Directors, the Group management and employees 96
101
101
101
101

C29 Related party transactions
C30 Fees to auditors
C31 Contractual obligations
C32 Events after the reporting period

Financials – Consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Consolidated financial statements

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

Share in earnings of joint ventures and associated companies

Operating income

Financial income
Financial expenses

Income after financial items

Taxes

Net income

Net income attributable to:

Stockholders of the Parent Company
Non-controlling interest

Other information

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

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

Notes

C3, C4

C3, C12

C7
C7

C9
C9
C9

2015

246,920
–161,101

85,819
34.8%

–34,844
–29,285

–64,129

153

–38

21,805

525
–2,458

19,872

–6,199

13,673

13,549
124

3,249
4.17
4.13

2014

227,983
–145,556

82,427
36.2%

–36,308
–27,100

–63,408

–2,156

–56

16,807

1,277
–2,273

15,811

–4,668

11,143

11,568
–425

3,237
3.57
3.54

2013

227,376
–151,005

76,371
33.6%

–32,236
–26,273

–58,509

113

–130

17,845

1,346
–2,093

17,098

–4,924

12,174

12,005
169

3,226
3.72
3.69

Ericsson | Annual Report 2015Consolidated 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

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

2015

13,673

2014

11,143

2013

12,174

–2,026
721

–10,017
2,218

3,214
–1,235

–
–

457
–604
141
–

–1,311

12,362

12,218
144

–
–

47
8,734
579
5

1,566

12,709

12,981
–272

251
–1,072

71
–1,687
–14
179

–293

11,881

11,712
169

Financials – Consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Consolidated financial statements

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

Property, plant and equipment

Financial assets

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

Deferred tax assets

Current assets
Inventories

Trade receivables
Customer finance, current
Other current receivables
Short-term investments
Cash and cash equivalents

Total assets

Equity and liabilities
Equity
Stockholders’ equity
Non-controlling interest in equity of subsidiaries

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

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

Total equity and liabilities 1)

1) Of which interest-bearing liabilities and post-employment benefits SEK 47,784 (44,530) million.

Notes

C10, C26

C11, C26, C27

C12
C12
C12
C12
C8

C13

C14
C14
C15
C20
C25

C16

C17
C18
C8
C19, C20

C18
C19, C20
C22

C21

2015

2014

5,493
41,087
9,316

15,901

1,210
1,275
1,739
5,634
13,183

94,838

28,436

71,069
2,041
21,709
26,046
40,224

189,525

284,363

146,525
841

147,366

22,664
176
2,472
22,744
1,851

49,907

3,662
2,376
22,389

58,663

87,090

284,363

3,570
38,330
12,534

13,341

2,793
591
1,932
5,900
12,778

91,769

28,175

77,893
2,289
21,273
31,171
40,988

201,789

293,558

144,306
1,003

145,309

20,385
202
3,177
21,864
1,797

47,425

4,225
2,281
24,473

69,845

100,824

293,558

Ericsson | Annual Report 2015
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

Cash flow from operating activities

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

Cash flow before financing activities

Financing activities
Proceeds from issuance of borrowings
Repayment of borrowings
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

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

C25

Notes

2015

2014

2013

C25

C11

C25, C26
C25, C26
C10

13,673
10,611

24,284

–366
824
7,000
–2,676
544
–9,013

–3,687

20,597

–8,338
1,301
–2,201
1
–3,302
–543
5,095

–7,987

12,610

1,179
–1,336
169
–11,337
615

–10,710

–2,664

–764

40,988

40,224

11,143
11,200

22,343

–2,924
–710
1,182
1,265
–859
–1,595

–3,641

18,702

–5,322
522
–4,442
48
–1,523
–3,392
6,596

–7,513

11,189

1,282
–9,384
–
–9,846
–277

–18,225

5,929

–1,107

42,095

40,988

12,174
9,828

22,002

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

–4,613

17,389

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

–11,109

6,280

5,956
–5,094
90
–9,153
–1,307

–9,508

641

–2,587

44,682

42,095

Financials – Consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Consolidated financial statements

Consolidated statement of changes in equity

Equity and Other comprehensive income 2015

SEK million

January 1, 2015

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
Revaluation of other investments in shares and participations

Group

Changes in cumulative translation adjustments

Group
Joint ventures and associated companies

Total other comprehensive income, net of tax

Total comprehensive income

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

Group

Dividends paid
Transactions with non-controlling interest

December 31, 2015

Capital stock

Addi tional
paid in capital

16,526

24,731

Retained
earnings

103,049

Stock holders’
equity

Non-control ling
interest

144,306

1,003

Total equity

145,309

–
–

–

–
–

–

–
–
–

–
–

–

–
–

–

–
–
–

16,526

24,731

13,587
–38

124
–

13,711
–38

–2,033
722

457

–618
141

–1,331

12,218

169

865
–11,033
–

105,268

–618 1)
141

–1,331

12,218

169

865

–11,033 2)

–

146,525

7
–1

–

14
–

144

–

–
–304
–2

841

–2,026
721

457

–604
141

–1,311

12,362

169

865
–11,337
–2

147,366

1) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK 1,592 million (SEK 4,794 million in 2014 and –204 million in 2013), and real-

ized gain/losses net from sold/liquidated companies, SEK –3 million (SEK 3 million in 2014 and SEK –20 million in 2013.

2) Dividends paid per share amounted to SEK 3.40 (SEK 3.00 in 2014 and SEK 2.75 in 2013).

Ericsson | Annual Report 2015Equity and Other comprehensive income 2014

SEK million

January 1, 2014

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
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
Sale/repurchase of own shares
Stock purchase plans

Group

Dividends paid

December 31, 2014

Capital stock

Addi tional
paid in capital

16,526

24,731

Retained
earnings

98,947

Stock holders’
equity

Non-control ling
interest

140,204

1,419

Total equity

141,623

11,624
–56

–425
–

11,199
–56

–10,014
2,218

8,578
579
5

1,413

12,981

8,578
579
5

1,413

12,981

–3
–

–

156
–
–

153

–272

–10,017
2,218

8,734
579
5

1,566

12,709

106

–

106

–
–

–

–
–
–

–

–
–

–

–
–
–

–

–
–

16,526

24,731

103,049

717
–9,702

144,306

–
–144

1,003

717
–9,846

145,309

Financials – Consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Consolidated financial statements

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

Total other comprehensive income, net of tax

Total comprehensive income

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

Group
Dividends paid
Transactions with non-controlling interest

December 31, 2013

Capital stock

Addi tional
paid in capital

16,526

24,731

Retained
earnings

95,626

Stock holders’
equity

Non-control ling
interest

Total equity

136,883

1,600

138,483

–
–

–

–
–
–

–

–
–
–

–
–

–

–
–
–

–

–
–
–

16,526

24,731

12,135
–130

169
–

12,304
–130

3,214
–1,235

251

–1,072

–1,687
–14
179

–293

11,712

–1,687
–14
179

–293

11,712

388
–8,863
–6

98,947

388
–8,863
–6

140,204

–
–

–

–
–
–

–

169

–

–
–290
–60

1,419

3,214
–1,235

251

–1,072

–1,687
–14
179

–293

11,881

388
–9,153
–66

141,623

Ericsson | Annual Report 2015FINANCIALS

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,

2015 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 2015, the
Company has applied IFRS as issued by the IASB (IFRS effective as per
December 31, 2015). There is no difference between IFRS effective as per
December 31, 2015, 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 con-
flict with IFRS, for all periods presented.

The financial statements were approved by the Board of Directors on
February 26, 2016. The balance sheets and income statements are sub-
ject to approval by the Annual General Meeting of shareholders.

There have not been any significant amendments of IFRS concerning

the Company during 2015.

The Company has during 2015 amended the discount rate applied for
pension liability calculation in Sweden. The Company has in periods up to
the second quarter of 2015 estimated the discount rate for the Swedish
pension liability based on the interest rates for Swedish covered bonds.
Due to the development since then of the deepness of the Swedish cov-
ered bond market and the volatility in interest rates, the Company has
decided to apply Swedish government bonds rate for this discounting.
The discount rate used is 2.1% as of December 31, 2015 compared to
2.75% as of December 31, 2014 .

For information on “New standards and interpretations not yet

adopted,” refer to the end of this Note.

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 finan-
cial instruments, financial instruments held for trading, financial instru-
ments 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.

Subsidiaries are all companies for which Telefonaktiebolaget LM Erics-
son, directly or indirectly, is the parent. To be classified as a parent, Tele-
fonaktiebolaget 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.

Intra-group balances and any unrealized income and expense arising
from intra-group transactions are fully eliminated in preparing the consoli-
dated 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, Telefonaktiebolaget
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 trans-
actions with equity owners of the Company. For purchases from non-con-
trolling interests, the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidi-
ary 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 previ-
ously 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 accord-
ance 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.

JVs are classified as ownership interests under which the Company

has joint control of another company.

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 control

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

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%.

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

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 associ-

ated 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 influ-

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

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

Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of each respective trans-
actions. 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 comprehen-
sive 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 dif-
ferences related to changes in the amortized cost are recognized in profit
or loss, and other changes in the carrying amount are recognized in OCI.
Translation differences on non-monetary financial assets and 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 func-
tional 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

Period income and expenses for each income statement are translated

at period average exchange rates.

All resulting net exchange differences are recognized as a separate

component of OCI.

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

The Company is continuously monitoring the economies with high
inflation, the risk of hyperinflation and potential impact on the Company.
There is no significant impact due to any currency translation of a hyper-
inflationary economy.

Statement of cash flows
The statement of cash flows 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 support solu-
tions. 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 deliv-

ery-type or multi-year recurring services contracts. The delivery type
contracts often contain content from more than one segment.

Accounting treatment
Sales are based on fair values of consideration received and recorded
net of value added taxes, goods returned and estimated trade discounts.
Revenue is recognized when risks and rewards have been transferred to
the customer, with reference to all significant contractual terms, when:
> The product or service has been delivered
> The revenue amount is fixed or determinable
> 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 recogni-
tion 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:
> Delivery-type contracts – These contracts relate to delivery, installation,
integration of products and provision of related services, normally under
multiple elements contracts. Under multiple elements contracts, account-
ing 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.
> 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 measured
based on the substance of the contract. Examples are a percentage
of sales or currency amount per unit and recognized over the license
period or at a single point of time when no obligations remain. The
amount of consideration shall also be reasonably certain. Networks
and Support Solutions have contracts that relate to this type of
arrangement.

Ericsson | Annual Report 2015For 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 uncer-
tainty and (ii) the decision made in relation to accounting policies applied.

Earnings per share
Basic earnings per share are calculated by dividing net income attribut-
able 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 attrib-

utable to stockholders of the Parent Company, when appropriately
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 ful-

fillment 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 Com-
pany 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 rec-
ognized 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 state-
ment 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 sub-
sequently 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

revenue recognition.

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

Dividends on available-for-sale equity instruments are recognized in the

income statement as part of financial income when the Company’s right
to receive payments is established.

Changes in the fair value of monetary securities denominated in a for-
eign 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. Trans-
lation 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 classi-
fied as available-for-sale are recognized in OCI. When securities classified
as available-for-sale are sold or impaired, the accumulated fair value adjust-
ments 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 cur-
rent 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 pay-
ments are considered indicators that the trade receivable is impaired. The
amount of the allowance is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account, and the amount of the
loss is recognized in the income statement within selling expenses. When
a trade receivable is finally established as uncollectible, it is written off
against the allowance account for trade receivables. Subsequent
recoveries of amounts previously written off are credited to selling
expenses in the income statement.

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

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

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) 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 man-
agement objectives and strategy for undertaking various hedging trans-
actions. The Company also documents its assessment, both at hedge
inception and on an ongoing basis, of whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of the hedged items.

The fair values of various derivative instruments used for hedging
purposes are disclosed in Note C20, “Financial risk management and
financial instruments.” Movements in the hedging reserve in OCI are
shown in Note C16, “Equity and other comprehensive income.”

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

Fair value hedges
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.
Changes in the fair value of derivatives that are designated and qualify
as fair value hedges are recorded in the income statement, together with
any changes in the fair value of the hedged asset or liability that are attribut-
able 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 hedg-
ing 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 amor-
tized to the income statement over the remaining period to maturity.

Net investment 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 for-
eign operation is partially disposed of or sold.

Financial guarantees
Financial guarantee contracts are initially recognized at fair value (i.e., usu-
ally 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.

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 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 dis-
closure 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 intangible assets acquired
through business combinations, 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 com-
binations are stated at fair value and capitalized development expenses
and software are stated at cost. Subsequent to initial recognition, these
intangible assets are stated at initially recognized amounts less accumu-
lated amortization and any impairment. Amortization and any impairment
losses are included in Research and development expenses, which
mainly consists of capitalized development expenses and technology; 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 other-

wise marketed or intended for internal use are capitalized as from when
tech nological and economic feasibility has been established until the pro-
duct is available for sale or use. Research and development expenses dir-
ectly 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.
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 pos-
sible 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 recover-
able amounts and if the recoverable amount is higher than the carrying
value. An impairment loss is reversed only to the extent that the asset’s
carrying amount after reversal does not exceed the carrying amount, net
of amortization, which would have been reported if no impairment loss
had been recognized.

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 cus-
tomer acceptance of new products.

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 three
operating segments have been identified as CGUs. Goodwill is assigned
to all of them: Networks, Global Services and Support Solutions.

Ericsson | Annual Report 2015An annual impairment test for the CGUs to which goodwill has been allo-
cated 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 good-
will” 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, servers
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, 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 derecog-
nizes 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 pro-
ceeds less cost to sell with the carrying amount and are recognized within
Other operating income and expenses in the income statement.

Leasing
Leasing when the Company is the lessee
Leases on terms in which the Company assumes substantially all the
risks and rewards of ownership are classified as finance leases. Upon
initial recognition, the leased asset is measured at an amount equal to
the lower of its fair value and the present value of the minimum lease
payments. Subsequent to initial recognition, the asset is accounted for
in accordance with the accounting policy applicable to that type of asset,
although the depreciation period must not exceed the lease term.

Other leases are operating leases, and the leased assets under such
contracts are not recognized on the balance sheet. Costs under operating
leases are recognized in the income statement on a straight-line basis
over the term of the lease. Lease incentives received are recognized as
an integral part of the total lease expense, over the term of the lease.

Leasing when the Company is the lessor
Leasing contracts with the Company as lessor are classified as finance
leases when the majority of risks and rewards are transferred to the lessee,
and otherwise as operating leases. Under a finance lease, a receivable is
recognized at an amount equal to the net investment in the lease and rev-
enue 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 tempo-
rary 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 regard-
ing 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.

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

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

A restructuring obligation is considered to have arisen when the Com-

pany has a detailed formal plan for the restructuring (approved by man-
agement), which has been communicated in such a way that a valid
expectation has been raised among those affected. Provision for restruc-
turing is recorded when the Company can reliably estimate the liabilities
relating to the obligation. 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, litiga-
tions, supplier claims, customer finance and other provisions. The Com-
pany provides for estimated future settlements related to patent infringe-
ments 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 infringe-
ment 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 proceed-
ings, 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,

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

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 reli-
ability. 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.

The present value of the defined benefit obligations for current and for-
mer employees is calculated using the Projected Unit Credit Method. The
discount rate for each country is determined by reference to market yields
on high-quality corporate bonds that have maturity dates approximating
the terms of the Company’s obligations. In countries where there is no
deep market in such bonds, the market yields on government bonds are
used. The calculations are based upon actuarial assumptions, assessed
on a quarterly basis, and are as a minimum prepared annually. Actuarial
assumptions are the Company’s best estimate of the variables that deter-
mine 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, remeasurement of plan assets
and changes in the discount rate. Actuarial gains and losses are recog-
nized 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 deter-

mining actuarial gains and losses, reported under OCI.

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

closure 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 consid-
ered 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 per-
formance 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 match-
ing 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 compens-
ation program as a part of the remuneration to the Board of Directors.
The program gives non-employee Directors elected by the General Meet-
ing 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 dis-
closed 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. The President and the Chief
Executive Officer is defined as the CODM function in the Company.

The segment presentation, as per each segment, is based on the
Company’s accounting policies as disclosed in this note. The arm’s
length principle is applied in transactions between the segments.

The Company’s segment disclosure about geographical areas is

based on 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 inter-
pretations are not yet effective for the year ended December 31, 2015 and
have not been applied in preparing these consolidated financial statements.
Below is a list of applicable standards/interpretations that have been

issued and are effective for periods as described per standard.

IFRS 9, “Financial instruments.” The complete version of IFRS 9

replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies the

Ericsson | Annual Report 2015mixed measurement model and establishes three primary measurement
categories for financial assets: amortized cost, fair value through OCI and
fair value through P&L. The basis of classification depends on the entity’s
business model and the contractual cash flow characteristics of the finan-
cial asset. Investments in equity instruments are required to be measured
at fair value through profit or loss with the irrevocable option at inception
to present changes in fair value in OCI. There is now a new expected
credit losses model that replaces the incurred loss impairment model
used in IAS 39. IFRS9 also amends the principles for hedge accounting.
This standard is effective as from January 1, 2018. The EU has not yet
endorsed IFRS 9, ‘Financial instruments.’ The Company has not yet final-
ized the evaluation of any impact on financial result or position.

IFRS 15, “Revenue from Contracts with Customers,” Revenue is recog-

nized when a customer obtains control of a good or service. A customer
obtains control when it has the ability to direct the use of and obtain the
benefits from the good or service. The core principle of IFRS 15 is that an
entity recognizes revenue to depict the transfer of promised goods or ser-
vices to customers in an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services.
This standard is effective as from January 1, 2018. The IASB has issued
an exposure draft, ED/2015/6 Clarifications to IFRS 15 and an amend-
ment to IFRS 15 is therefore expected during 2016. The EU has not yet
endorsed IFRS 15, “Revenue from Contracts with Customers.” The Com-
pany has not yet finalized the evaluation of any impact on financial result
or position. During 2015 the Company has identified specific areas of
focus within the business that may be affected by the new requirements
under IFRS 15 and is presently working to assess their impact on the
financial statements, including the financial periods that will be affected
by the transitional reporting. Preparations for implementation of amend-
ments to systems and processes have also started.

IFRS 16 “Leases”. In January 2016, IASB issued a new lease standard

that will replace IAS 17 Leases and the related interpretations IFRIC 4,
SIC-15 and SIC-27. The standard requires assets and liabilities arising
from all leases, with some exceptions, to be recognized on the balance
sheet. This model reflects that, at the start of a lease, the lessee obtains
the right to use an asset for a period of time and has an obligation to pay
for that right. The accounting for lessors will be based on the same classi-
fication as under IAS17, operating or finance leasing. The definition of a
lease is amended. The standard is effective for annual periods beginning
on or after 1 January 2019. Early adoption is permitted. EU has not yet
adopted the standard. The Company has not yet assessed the impact
of IFRS 16.

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 liabil-
ity 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 neces-
sary 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 cus-
tomer contracts. Managerial judgment is applied regarding, among other
aspects, conformance with acceptance criteria and if transfer of risks and
rewards to the buyer have 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, 2015, were SEK 1.5 (1.5) billion
or 2.0% (1.8%) 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. Esti-
mates 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. Inven-
tory allowances for estimated losses as of December 31, 2015, amounted
to SEK 2.6 (2.3) billion or 8% (8%) of gross inventory.

Deferred taxes
Key sources of estimation uncertainty
Deferred tax assets and liabilities are recognized for temporary differ-
ences 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 differ-
ences and loss carry-forwards may be utilized.

The largest amounts of tax loss carry-forwards are reported in 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, 2015, the value of deferred tax assets amounted to

SEK 13.2 (12.8) 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 the Company per-
forms 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 account-

ing 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, 2015, the amount of acquired intellectual property
rights and other intangible assets amounted to SEK 50.4 (50.9) billion,
including goodwill of SEK 41.1 (38.3) billion.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015Foreign 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.

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 develop-
ment 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 (closed during second half of 2015)

Networks delivers products and solutions for mobile access, IP and
transmission networks, core networks and cloud. The offering includes:
> Radio access solutions that interconnect with devices such as mobile
phones, tablets and PCs. The RBS 6000 supports all major standard-
ized mobile technologies

> IP routing and transport solutions based on the smart services routers,
(the SSR 8000 family of products), Ericsson’s evolved IP network as
well as backhaul including microwave (MINI-LINK) and optical trans-
mission solutions for mobile and fixed networks

> Core networks are based on the Ericsson Blade Server platform and

include solutions such as the IMS

> A cloud platform that can handle all types of workloads for all clouds;

telecom cloud, IT cloud and commercial cloud.

Global Services delivers managed services, product-related services,
consulting and systems integration services as well as broadcast and
media services. The offering includes:
> Managed Services: Services for designing, building, operating and

managing the day-to-day operations of the customer’s network or solu-
tion; 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; network
design and optimization services.

> Consulting and Systems Integration: Technology and operational

consulting; integration of multi-vendor equipment; design and integra-
tion of new solutions and transforming programs.

> Broadcast Services: Services include responsibility for technical

platforms and operational services related to TV content management,
playout and service provisioning.

> Industry and Society; All above types of services for industry-specific
solutions, primarily in the areas of utilities, transport & public safety.

FINANCIALS – Notes to the consolidated financial statements

Judgments made in relation to accounting policies applied
At initial recognition and subsequent remeasurement, management judg-
ments 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 judg-
ments might result in significantly different results and financial position
in the future.

Provisions
Key sources of estimation uncertainty
Provisions mainly comprise amounts related to warranty, restructuring,
contractual obligations and penalties to customers and estimated losses
on customer contracts, risks associated with patent and other litigations,
supplier or subcontractor claims and/or disputes, as well as provisions for
unresolved income tax and value added tax issues. The estimates related
to the amounts of provisions for penalties, claims or losses receive special
attention from the management. At December 31, 2015, provisions
amounted to SEK 3.8 (4.4) 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’ there are uncertainties in the estimated
amounts. The same type of uncertainty exists for contingent liabilities.

Judgments made in relation to accounting policies applied
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 state-
ments. 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 appli-
cable 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. As disclosed in
note C1, “Significant accounting policies,” the Company has in Sweden in
periods up to the second quarter of 2015 estimated the discount rate for
the Swedish pension liability based on the interest rates for Swedish cov-
ered bonds. Due to the development since then of the deepness of the
Swedish covered bond market and the volatility in interest rates, the
Company has decided to apply Swedish government bonds rate for
this discounting for the fiscal year 2015. The rate applied is 2.1% (2.75%).
At December 31, 2015, defined benefit obligations for pensions and other
post-employment benefits amounted to SEK 78.1 (73.8) billion and fair
value of plan assets to SEK 58.2 (56.9) billion. For more information on
estimates and assumptions, see Note C17, “Post-employment benefits.”

Ericsson | Annual Report 2015Major 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 2015, 2014 or 2013.

Ericsson derives most of its sales from large, multi-year agreements
with a limited number of significant customers. Out of a customer base of
more than 500, mainly consisting of network operators, the 10 largest
customers accounted for 46% (47%) of net sales. The largest customer
accounted for approximately 7% (8%) of sales in 2015.

For more information, see Risk Factors, “Market, Technology and

Business Risks.”

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 experi-

ence 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.

Support Solutions provides software suites for operators. The offering
includes:
> Operations Support Systems: plan, build and optimize, service fulfill-

ment and service assurance.

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

> TV & Media solutions: a suite of open, standards-based solutions and
products for the creation, management and delivery of TV on any
device over any network, including a TV platform for content creation,
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.

Modems performed design, development and sales of the LTE multi-
mode thin modems solutions, including 2G, 3G and 4G interoperability.
Modems was consolidated into Ericsson in late 2013. Since the integra-
tion, the addressable market for thin modems has been reduced. In addi-
tion, there is strong competition, price erosion and an accelerating pace
of technology innovation. As a consequence, Ericsson announced, on
September 18, 2014, the discontinuation of further development of
modems. Modems have had no impact on Group profit and loss from
the second half of 2015.

Unallocated
Some revenues, costs, assets and liabilities are not identified as part of
any operating segment and are therefore not allocated. Examples of such
items are costs for corporate staff, IT costs and general marketing costs.

Regions
The Regions are the Company’s primary sales channel. The Company
operates worldwide and reports its operations divided into ten geographi-
cal regions and one region Other:
> North America
> Latin America
> Northern Europe & Central Asia
> Western and Central Europe
> Mediterranean
> Middle East
> Sub-Saharan Africa
> India
> North East Asia
> South East Asia & Oceania
> Other.

Region “Other” includes licensing revenues, broadcast services, power
modules, mobile broadband modules, Ericsson-LG Enterprise and other
businesses.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

Operating segments 2015

Segment sales

Net sales

Operating income
Operating margin (%)
Financial income
Financial expenses

Income after financial items
Taxes

Net income

Networks

123,720

12,943
10%

Global
Services

108,018

8,215
8%

Other segment items
Share in earnings of JV and associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses from divestments

1) Modems was closed during second half of 2015.

–95
–3,327
–3,197
–20
11
–2,839
–

43
–1,029
–1,212
–
4
–1,681
1

Support
Solutions

Modems1)

Total
Segments

Unallocated

15,049

1,504
10%

–33
–1,118
–188
–
1
–480
–

133

7
–

246,920

22,669
9%

–
–
–108
–
–
–15
–

–85
–5,474
–4,705
–20
16
–5,015
1

–

–864
–

47
–44
–
–
–
–25
–50

Operating segments 2014

Segment sales

Net sales

Operating income
Operating margin (%)
Financial income
Financial expenses

Income after financial items
Taxes

Net income

Networks

117,487

13,544
12%

Global
Services

97,659

6,067
6%

Support
Solutions

12,655

–31
0%

Modems

182

–2,025
–

Other segment items
Share in earnings of JV and associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses from divestments

33
–3,497
–3,225
–34
14
–443
–

32
–1,036
–820
–1
4
–835
–

–52
–902
–124
–2
–
–146
–

–
–168
–160
–
1
–32
–

Total
Segments

Unallocated

227,983

17,555
8%

13
–5,603
–4,329
–37
19
–1,456
–

–748
–

–69
5
–
–
–
–
–36

Group

246,920

21,805
9%
525
–2,458

19,872
–6,199

13,673

–38
–5,518
–4,705
–20
16
–5,040
–49

Group

227,983

16,807
7%
1,277
–2,273

15,811
–4,668

11,143

–56
–5,598
–4,329
–37
19
–1,456
–36

Ericsson | Annual Report 2015Operating segments 2013

Segment sales

Net sales

Operating income
Operating margin (%)
Financial income
Financial expenses

Income after financial items
Taxes

Net income

Networks

117,699

11,318
10%

Global
Services

Support
Solutions

Modems

Total
Segments

Unallocated

97,443

6,185
6%

12,234

1,455
12%

–

–543
–

227,376

18,415
8%

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
–
1
–186
–105

–
–44
–61
–
–
–
–

–153
–5,928
–4,227
–7
25
–4,365
–892

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
1) Of which in Sweden 6)
2) Of which in EU 6)
3) Of which in the United States 6)
4) Of which in China 6)

Net sales

Non-current assets 5)

2015

58,261
21,357
10,649
19,732
23,310
22,849
10,349
13,381
28,237
19,235
19,560

246,920
3,796
45,585
64,299
18,977

2014

54,509
22,570
12,373
19,706
23,003
21,277
8,749
7,702
27,572
15,858
14,664

227,983
4,144
45,101
55,722
14,335

2013

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

2015

14,870
1,321
48,910
3,886
1,208
99
40
390
2,005
278
–

73,007
48,467
53,759
12,325
1,547

2014

16,148
1,749
43,868
4,227
1,389
100
54
471
2,217
345
–

70,568
43,298
48,881
13,116
1,370

5) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
6) Including IPR revenue reported under Other above.

For employee information, see Note C28, “Information regarding members of the Board of Directors, the Group management and employees.”

–

–570
–

23
–
–
–
–
–88
51

Group

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

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

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

C4 Net sales

Net sales

Sales of products and network rollout services
Professional Services sales
License revenues

Net sales
Export sales from Sweden

2015

2014

2013

150,775
81,749
14,396

246,920
117,486

147,235
70,831
9,917

227,983
113,734

150,429
66,395
10,552

227,376
108,944

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 increase/decrease (–/+) 2)
Additions to capitalized development

2015

2014

2013

137,458
80,054
10,223

1,438
2,458
6,199

237,830
–394
–3,548

132,185 1) 129,453
65,064
10,155

70,166 1)
9,927

1,138
2,273
4,668

537
2,093
4,924

220,357
–2,929
–1,523

212,226
5,220
–915

Expenses charged to the income statement

233,888

215,905

216,531

1) The Employee Remuneration amount in 2014 was overstated by SEK 5.8 billion due to compu-
tation error (see Note C28, section Employee wages and salaries). This resulted in a corre-
sponding amount of understatement of line item Goods and services in 2014.

2) The inventory changes are based on changes of net inventory values.

C7 Financial income and expenses

Financial income and expenses

Total restructuring charges in 2015 were SEK 5.0 (1.5) billion and were
mainly related to the continued implementation of the service delivery
strategy. 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

2015

2,274
2,021
745

5,040

2014

1,029
304
123

1,456

2013

2,657
872
924

4,453

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/expenses1)

Total other operating income and expenses

2015

363
–158
1
–50

156
–3

153

2014

843
–935
8
–44

–128
–2,028

–2,156

2013

172
–307
69
–910

–976
1,089

113

1) Includes revaluation of cash flow hedges of SEK –1.1 billion (SEK –2.8 billion in 2014 and SEK

0.5 billion in 2013) offset mainly by result from trading activities.

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

2015

2014

2013

Financial
income

Financial
expenses

Financial
income

Financial
expenses

Financial
income

Financial
expenses

385
–110
–

190
–
–53
–
3

525

–
–
–1,428

–760
152
–
213
–483

713
297
–

624
–
–70
–
10

–
–
–1,376

–651
–123
–
–32
–214

971
597
–

447
–
–75
–
3

–
–
–1,412

–601
–196
–
196
–276

–2,458

1,277

–2,273

1,346

–2,093

1) Excluding net loss from operating assets and liabilities, SEK 165 million (net loss of SEK 143 million in 2014, net gain of SEK 49 million in 2013), reported as Cost of sales.

Ericsson | Annual Report 2015
C8 Taxes

The Company’s tax expense for 2015 was SEK –6,199 (–4,668) million
or 31.2% (29.5%) 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 (+/–)

Tax expense

2015

–6,641
–104
546

–6,199

2014

–5,714
–66
1,112

–4,668

2013

–3,985
–26
–913

–4,924

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

2015

2014

2013

–4,372
–1,101

–3,479
–856

–3,762
–935

–
–104
–250

185
–1,559
981
21

–6,199
31.2%

–2
–66
–51

–459
–2,125
2,383
–15

–4,668
29.5%

–
–26
165

86
–620
199
–31

–4,924
28.8%

Deferred tax balances
Deferred tax assets and liabilities are derived from the balance sheet
items as shown in the table below.

Tax effects of temporary differences and tax loss carry-forwards

Deferred
tax assets

Deferred
tax liabilities

Net
balance

2015
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

2014
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

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

1,056
2,218
4,247
1,813
2,799
4,241

16,374
–3,191

13,183

517
2,720
4,024
1,729
2,478
3,279

14,747
–1,969

12,778

4,032
568
776
83
204
–

5,663
–3,191

2,472

3,645
197
1,013
63
228
–

5,146
–1,969

3,177

2015

9,601
546
721
121
–278

10,711

9,601

2014

6,453
1,112
2,223
–377
190

9,601

Tax effects reported directly in Other comprehensive income amount
to SEK 721 (2,223) million, of which actuarial gains and losses related to
pensions constituted SEK 721 (2,218) million and deferred tax on gains/
losses on hedges on investments in foreign entities SEK 0 (5) million.

Deferred tax assets are only recognized in countries where the Com-

pany 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 4,241 (3,279) million recognized deferred tax assets related to tax
loss carry-forwards, SEK 3,378 (2,336) million relates to Sweden with
indefinite periods of utilization. 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.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015

C9 Earnings per share

Earnings per share

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 (millions)
Average number of shares outstanding,
diluted (millions)
Earnings per share, diluted (SEK)

2015

2014

2013

13,549

11,568

12,005

3,249
4.17

3,237
3.57

3,226
3.72

13,549

11,568

12,005

3,249
33

3,282
4.13

3,237
33

3,270
3.54

3,226
31

3,257
3.69

FINANCIALS – Notes to the consolidated financial statements

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, 2015, the recognized tax loss carry-forwards
amounted to SEK 18,162 (13,503) 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

2016
2017
2018
2019
2020
2021 or later

Total

Tax loss
carry-forwards

Tax value

102
26
26
29
41
17,938

18,162

30
8
8
8
11
4,176

4,241

In addition to the table above there are loss carry-forwards of SEK 5,300
(4,572) million at a tax value of SEK 1,436 (1,216) 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.

C10 Intangible assets

Intangible assets 2015

Capitalized development expenses

Goodwill

For internal use

To be
marketed

Acquired
costs

Internal
costs

Total

Intellectual property rights (IPR),
trade marks and other intangible assets

Trademarks, customer
rel ation ships and
similar rights

Patents and
acquired R&D

Total

54,367
70

445
–83
–
1,096

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

12,204
3,329

2,213
–

1,478
219

15,895
3,548

38,348
–

23,362
70

31,005
–

–
–
–226
–

–
–
–
–

–
–
–226
–

1,165
–
–
1,592

261
–28
–
619

184
–55
–
477

Closing balance

15,307

2,213

1,697

19,217

41,105

24,284

31,611

55,895

Accumulated amortization
Opening balance
Amortization
Sales/disposals
Translation difference

Closing balance

Accumulated impairment losses
Opening balance
Impairment losses

Closing balance

Net carrying value

–6,616
–1,379
–
–

–7,995

–2,018
–20

–2,038

5,274

–2,158
–
–
–

–2,158

–55
–

–55

–

–1,441
–
–
–

–1,441

–37
–

–37

219

–10,215
–1,379
–
–

–11,594

–2,110
–20

–2,130

5,493

–
–
–
–

–

–18
–

–18

41,087

–13,444
–2,147
24
–409

–15,976

–
–

–

8,308

–23,058
–1,992
52
–274

–25,272

–5,331
–

–5,331

1,008

–36,502
–4,139
76
–683

–41,248

–5,331
–

–5,331

9,316

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

Ericsson | Annual Report 2015Intangible assets 2014

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

Capitalized development expenses

Goodwill

For internal use

To be
marketed

Acquired
costs

Internal
costs

Total

10,681
1,523

2,213
–

1,478
–

14,372
1,523

–
–
–

31,562
–

2,014
–22
4,794

Closing balance

12,204

2,213

1,478

15,895

38,348

Accumulated amortization
Opening balance
Amortization
Sales/disposals
Translation difference

Closing balance

Accumulated impairment losses
Opening balance
Impairment losses

Closing balance

Net carrying value

–5,349
–1,267
–
–

–6,616

–1,987
–31

–2,018

3,570

–2,157
–1
–
–

–2,158

–55
–

–55

–1,439
–2
–
–

–1,441

–37
–

–37

–8,945
–1,270
–
–

–10,215

–2,079
–31

–2,110

3,570

–
–
–
–

–

–18
–

–18

38,330

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

Intellectual property rights (IPR),
trade marks and other intangible assets

Trademarks, customer
rel ation ships and
similar rights

Patents and
acquired R&D

Total

48,066
107

2,540
–93
3,747

28,777
0

943
–22
1,307

31,005

54,367

–20,377
–1,826
16
–871

–23,058

–5,331
–

–5,331

2,616

–29,920
–4,328
89
–2,343

–36,502

–5,331
–

–5,331

12,534

19,289
107

1,597
–71
2,440

23,362

–9,543
–2,502
73
–1,472

–13,444

–
–

–

9,918

Goodwill is allocated to the operating segments Networks, at the sum of
SEK 21.2 (20.1) billion, Global Services, at the sum of SEK 6.5 (5.6) billion
and Support Solutions, at the sum of SEK 13.4 (12.6) billion.

The recoverable amounts for cash-generating units are established as the
present value of expected future cash flows. Estimation of future cash flows
includes assumptions mainly for the following key financial parameters:
> Sales growth
> Development of operating income (based on operating margin or cost

of goods sold and operating expenses relative to sales)

> Development of working capital and capital expenditure requirements.
> The assumptions regarding industry-specific market drivers and mar-
ket 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 2015–2020 for key industry parameters:

> The number of global mobile subscriptions is estimated to grow from
around 7.5 billion by the end of 2015 to around 9.2 billion by the end of
2020. Of these, around 7.7 billion will be mobile broadband subscrip-
tions, taking mobile PC, tablets, routers and handsets into account.
Out of all phone subscriptions, 6.1 billion will be associated with a
smartphone.

> Fixed broadband subscriptions are estimated to grow from around 750
million by the end of 2015 to around 850 million in 2020. Fixed broad-
band includes Fiber, Cable and xDSL. The overall number of connected
things will grow to around 26 billion devices in 2020, including also
M2M and connected consumer electronics.

> Mobile data traffic volume is estimated to increase by around six times
in the period 2015–2020, while fixed internet traffic is estimated to
increase around two times over the same timeframe, but from a much
larger base. The mobile traffic is driven by smartphone users and video
traffic. Smartphone traffic will grow by around six times, and video
traffic will grow around eight times in the period of 2015–2020.

The growth in network equipment is mainly driven by a shift in investments
from voice to data. The end user requirements for “app-coverage” drive
deployment of heterogeneous networks and small cells.

The demand for support solutions is driven by 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. Within OSS/BSS growth is driven by the Customers
introduction of new services, new business models and price plans.
The deployment and build out of mobile broadband networks and
increasing number of mobile broadband subscriptions enables new ser-
vices for end users and increases traffic. This puts high demand on plan
to provision, implementation and systems integration services as well as
real-time payment systems. The demand for professional services is also
driven by an increasing business and technology complexity. Operators
review their business models and look for partners that can help them to
transform their business across networks and support systems. This also
drives the demand for outsourcing of not only network operations, but
also operations of support systems. The need to also reduce operating
expenses remains a fundamental market driver for outsourcing.

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 busi-
ness 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 8.5% (9.0%) has been applied for the
discounting of projected after-tax cash flows. The same rate has been
applied for all cash-generating units, since there is a high degree of inte-
gration between them. In addition, when a reasonably higher discount
rate has been applied in the impairment tests it has not resulted in any
impairment. The assumptions for 2014 are disclosed in Note C10, “Intan-
gible assets” in the Annual Report of 2014.

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.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

C11 Property, plant and equipment

Property, plant and equipment 2015

Real estate

Machinery and other
technical assets

Other equipment,
tools and installations

Construction in progress
and advance payments

Cost
Opening balance
Additions
Balances regarding acquired/divested businesses
Sales/disposals
Reclassifications
Translation difference

Closing balance

Accumulated depreciation
Opening balance
Depreciation
Sales/disposals
Reclassifications
Translation difference

Closing balance

Accumulated impairment losses
Opening balance
Reversals of impairment losses
Sales/disposals
Translation difference

Closing balance

Net carrying value

6,378
49
13
–773
771
37

6,475

–2,980
–501
151
–323
19

–3,634

–32
–
32
–

–

2,841

5,273
163
–
–1,006
166
–36

4,560

–4,074
–441
909
–196
23

–3,779

–20
11
–
–1

–10

771

27,026
2,222
32
–2,412
1,994
–109

28,753

–20,406
–3,763
2,403
519
39

–21,208

–14
5
2
1

–6

7,539

2,190
5,904
–
–250
–2,931
–163

4,750

–
–
–
–
–

–

–
–
–
–

–

Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2015, amounted to SEK 394 (192) million.

4,750

15,901

Real estate

Machinery and other
technical assets

Other equipment,
tools and installations

Construction in progress
and advance payments

6,120
218
–
–483
–217
740

6,378

–2,492
–461
75
219
–321

–2,980

–40
–
–
62
–52
–2

–32

3,366

4,232
180
308
–842
935
460

5,273

–3,182
–539
720
–736
–337

–4,074

–123
–
19
75
14
–5

–20

1,179

24,060
2,452
119
–1,911
316
1,990

27,026

–17,945
–3,329
1,890
517
–1,539

–20,406

–62
–6
–
20
38
–4

–14

865
2,472
–
–218
–1,034
105

2,190

–
–
–
–
–

–

–
–
–
–
–
–

–

6,606

2,190

13,341

Property, plant and equipment 2014

Cost
Opening balance
Additions
Balances regarding acquired/divested businesses
Sales/disposals
Reclassifications
Translation difference

Closing balance

Accumulated depreciation
Opening balance
Depreciation
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

Total

40,867
8,338
45
–4,441
–
–271

44,538

–27,460
–4,705
3,463
–
81

–28,621

–66
16
34
–

–16

Total

35,277
5,322
427
–3,454
–
3,295

40,867

–23,619
–4,329
2,685
–
–2,197

–27,460

–225
–6
19
157
–
–11

–66

Ericsson | Annual Report 2015C12 Financial assets, non-current

Equity in joint ventures and associated companies

Opening balance
Share in earnings
Distribution of capital stock
Contributions to joint ventures
and associated companies
Reclassification
Dividends
Divestments
Translation difference

Closing balance

1) Goodwill, net, amounts to SEK 15 (15) million.

2015

2,793
–38
–1,558

–
–36
–92
–
141

2014

2,568
–56
–

–2
–
–249
–47
579

1,210 1)

2,793 1)

There were no major holdings in joint ventures or associated companies in 2015. Significant holdings from 2014 and 2013 are specified below.
All companies apply IFRS in the reporting to the Company as issued by IASB.

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

Ericsson’s share of assets, liabilities and income in joint venture
ST-Ericsson 1)

Percentage in ownership interest
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%)

2015

2014

2013

21.26% 21.26% 21.26%
6,429
7,348
53
196

21
5

16
3
–
–642

7,152
1,520
–
–484

6,376
1,356
–
–897

–642

–484

–897

–137

–103

–191

Rockstar Consortium LLC (Rockstar) is a company that was formed in
2011 by Apple, Blackberry, Ericsson, Microsoft, and Sony to purchase
approximately 4,000 patent assets out of the original about 6,000 from
the Nortel bankruptcy estate. On December 23, 2014, it was agreed
between the owners of Rockstar and RPX Corporation (RPXC) that RPX
shall purchase the remaining patents of Rockstar. The transaction
occured in 2015 and after that the main part of the capital stock has been
distributed to the owners. Rockstar Consortium has concluded its opera-
tions.

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

2015

50%
–
–
–
–

2014

50%
–
–
–
–

–
–
–
–
–

–

–
–

–
–
–
–
–

–

–
–

2013

50%
6
1,435
104
1,204

133
67
3,127
–726
–64

–790

–395 2)

–
–

1) The table consists of amounts considered by the Company when applying the equity method in

relation to ST-Ericsson.

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

disclosed in Note C1, “Significant accounting policies.”

The joint venture ST-Ericsson, equally owned by the Company and
STMicroelectronics, is winding down. Since December 2012, there are
no remaining investments related to ST-Ericsson recognized in the Com-
pany’s balance sheet. The result in ST-Ericsson for 2015, 2014 and 2013
has therefore not been recognized due to losses in previous periods, as
per IFRS principles disclosed in C1 “Significant accounting policies.”

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

Financial assets, non-current

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

Closing balance

Accumulated impairment losses/allowances
Opening balance
Impairment losses/allowance
Disposals/repayments/deductions
Translation difference

Closing balance

Net carrying value

Other investments in
shares and participations

Customer finance,
non-current

Derivatives,
non-current

Other assets, non-current

2015

2014

2015

2014

2015

2014

2015

2014

2,115
234
–240
–
457
–
1

2,567

–1,524
62
217
–47

–1,292

1,275

1,905
–
–1
–
47
–
164

2,115

–1,400
–
27
–151

–1,524

591

2,011
2,324
–2,018
–
–
–581
19

1,755

–79
–4
67
–

–16

1,484
1,452
–963
–
–
–
38

2,011

–190
–79
190
–

–79

551
–
–
–
–99
–
–

452

–
–
–
–

–

613
–
–
–
–62
–
–

551

–
–
–
–

–

1,739

1,932

452

551

5,621
1,882
–1,174
–740
–
–
–224

5,365

–272
74
–7
22

–183

5,182

6,387
327
–1,238
–38
–
–
183

5,621

–1,316
–5
1,076
–27

–272

5,349

1) This amount includes asset ceiling. For further information, see Note C17, “Post-employment benefits.”

C13 Inventories

Inventories

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

Inventories, net

2015

2014

6,807
8,778
12,851

28,436

6,880
11,117
10,178

28,175

The amount of inventories, excluding contract work in progress, recog-
nized as expense and included in Cost of sales was SEK 66,886 (60,291)
million.

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 2,555

(2,326) million.

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

2015

2014

72,208
–1,202

71,006

71,069
4,066
–286

3,780
2,041
11,101

78,727
–1,123

77,604

289

77,893
4,629
–408

4,221
2,289
12,018

Days sales outstanding (DSO) were 87 (105) in December 2015.

Movements in obsolescence allowances

Movements in allowances for impairment

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

Closing balance

2015

2,326
1,480
–1,295
44

–

2,555

2014

2,496
691
–979
204

–86

2,326

2013

3,473
308
–1,308
12

2,496

Opening balance
Additions
Utilized
Reversal of excess amounts
Reclassification
Translation difference

Closing balance

Trade receivables

Customer finance

2015

1,123
184
–59
–26
–2
–18

1,202

2014

880
316
–136
–8
–43
114

1,123

2015

2014

408
27
–47
–99
–
–3

286

305
121
–4
–5
–
–9

408

Ericsson | Annual Report 2015
Aging analysis as per December 31

Total

Of which neither
impaired nor past due

Of which impaired,
not past due

less than
90 days

90 days
or more

less than
90 days

90 days
or more

Of which
past due in the following
time intervals:

Of which past due
and impaired in the following
time intervals:

2015
Trade receivables, excluding associated
companies and joint ventures
Allowances for impairment
Customer finance credits
Allowances for impairment

2014
Trade receivables, excluding associated
companies and joint ventures
Allowances for impairment
Customer finance credits
Allowances for impairment

72,208
–1,202
4,066
–286

78,727
–1,123
4,629
–408

64,485
–
2,323
–

71,601
–
1,602
–

82
–82
1,419
–24

35
–21
1,981
–120

3,150
–
4
–

3,412
–
1
–

3,371
–
5
–

2,577
–
677
–

74
–74
16
–9

16
–16
21
–5

1,046
–1,046
299
–253

1,086
–1,086
347
–283

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

> Define escalation path and approval process for customer credit limits.

The credit worthiness of all customers is regularly assessed. 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 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
con firming the letters of credit, the political and commercial credit risk
exposures to the Company are mitigated.

Trade receivables amounted to SEK 72,208 (78,727) million as of

December 31, 2015. Provisions for expected losses are regularly
assessed and amounted to SEK 1,202 (1,123) million as of December 31,
2015. 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 30% (30%) of the total trade receivables in 2015.

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 rat-
ing 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 com-
mercial 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, 2015, the Company’s total outstanding exposure
related to customer finance was SEK 4,066 (4,631) million. As of Decem-
ber 31, 2015, the Company also had unutilized customer finance commit-
ments of SEK 11,101 (12,018) million. Customer finance is arranged for
infrastructure projects in different geographic markets and for a large
number of customers. As of December 31, 2015, there were a total of 91
(88) customer finance arrangements originated by or guaranteed by the
Company. The five largest facilities represented 50% (56%) of the total
credit exposure in 2015.

Total outstanding customer finance exposure per region as of December 31

Percent

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

2015

2014

12
16
3
5
13
29
12
1
–
9

8
3
2
3
15
30
24
1
6
8

100

The effect of risk provisions and reversals for customer finance affecting
the income statement amounted to a net positive impact of SEK 33 million
in 2015 compared to a net negative impact of SEK 70 million in 2014.
Credit losses amounted to SEK 47 (4) million in 2015.

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

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

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 cover from a third-party may also be issued by an insurance
company. 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.

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, 2015 and 2014.

Outstanding customer finance

Total customer finance
Accrued interest
Less third-party risk coverage

Ericsson’s risk exposure

2015

4,066
26
–1,478

2,614

2014

4,631
173
–649

4,154

Transfers of financial assets
Transfers where the Company has not derecognized
the assets in their entirety
As of December 31, 2015, 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, before the transfer, was SEK 534 (811) mil-
lion; the amount of the assets that the Company continues to recognize
was SEK 27 (168) million; and the carrying amount of the associated
liabilities was SEK 0 (0) million.

C15 Other current receivables

Other current receivables

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

Total

2015

4,883
1,604
515
950
11,582
2,175

21,709

2014

4,592
3,166
746
1,000
9,853
1,916

21,273

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

C16 Equity and other comprehensive Income

Capital stock 2015
Capital stock at December 31, 2015, consisted of the following:

Capital stock

Parent Company

Class A shares
Class B shares

Total

Number of shares

261,755,983
3,043,295,752

3,305,051,735

Capital stock
(SEK million)

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, 2015, the total number of treasury shares was

49,367,641 (63,450,558 in 2014 and 73,968,178 in 2013) Class B shares.
Ericsson did not repurchase shares in 2015 in relation to the Stock
Purchase Plan.

Reconciliation of number of shares

Number of shares Jan 1, 2015

3,305,051,735

16,526

Number of shares

Capital stock
(SEK million)

Number of shares Dec 31, 2015

3,305,051,735

16,526

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

Dividend proposal
The Board of Directors will propose to the Annual General Meeting 2016
a dividend of SEK 3.70 per share (SEK 3.40 in 2015 and SEK 3.00 in 2014).

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.

Ericsson | Annual Report 2015C17 Post-employment benefits

Ericsson sponsors a number of post-employment benefit plans through-
out the Company, which are in line with market practice in each country.
The year 2015 was characterized by an increase in discount rates in most
plans outside Sweden offset by a decrease in Sweden due to change to
government bond interest as discount rate. In total discount rate changes
resulted in a minor actuarial gain on defined benefit obligations. The devel-
opment of plan assets was weaker than expected resulting in actuarial
losses of SEK 1 billion.

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 sala-
ried employees in manufacturing industries and trade), complemented
by a defined contribution plan, known as ITPK (supplementary retire-
ment 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 52% (56%) 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 made by 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 Pensions-
stiftelse 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 various 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 infla-
tion 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 com-
pany Alecta. Although this part of the plan is classified as a multi-em-
ployer 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 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 pro-
visions 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 insur-

ance 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 meas-
ured in accordance with Alecta’s actuarial assumptions, which are different
from those in IAS 19R. Alecta’s collective funding ratio was 153% (143%)
as of December 31, 2015. The Company’s share of Alecta’s saving pre-
miums is 0.6%; the total share of active members in Alecta are 2.4%.
The expected contribution to the plan is SEK 122 million for 2016.

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 Pensions-
garanti has consumed all of its assets, and it amounts to a maximum of
2% of the Company’s pension liability in Sweden. The Company has a
pledged 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 mem-
bers 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 Com-
pany’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 2015.
Plan assets held in trusts are governed by local regulations and prac-
tice, as is the nature of the relationship between the Company and the
trustees (or equivalent) and their composition. Responsibility for govern-
ance 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 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.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

Amount recognized in the Consolidated balance sheet

2015
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)

2014
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)

Sweden

Other

Total

37,109
19,271

17,838
–

17,838

32,885
18,412

14,473
–

14,473

19,873
20,114

–241
918

677

18,281
19,665

–1,384
2,057

673

21,159
18,793

2,366
1,783

4,149

22,586
18,785

3,801
1,438

5,239

78,141
58,178

19,963
2,701

22,664

73,752
56,862

16,890
3,495

20,385

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 decreased during the year by SEK 55 million from SEK 585 million in 2014 to SEK 530 million in 2015.

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

2015
Pension cost for defined contribution plans
Pension cost for defined benefit plans

Total
Total pension cost expressed as a percentage of wages and salaries

2014
Pension cost for defined contribution plans
Pension cost for defined benefit plans

Total
Total pension cost expressed as a percentage of wages and salaries

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

Sweden

1,136
1,806

2,942

953
1,039

1,992

1,088
1,581

2,669

729
81

810

562
39

601

502
85

587

Other

1,375
666

2,041

713
651

1,364

778
392

1,170

Total

3,240
2,553

5,793
9.5%

2,228
1,729

3,957
6.8%

2,368
2,058

4,426
9.1%

Ericsson | Annual Report 2015Change in the net defined benefit obligation

Change in the net defined benefit obligation

Opening balance

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 (–/+)

Other changes:
Translation difference
Contributions and payments from:

Employers 1)
Plan participants
Payments from plans:
Benefit payments
Settlements

Business combinations and divestments 3)

Closing balance

Present value
of obligation

2015 2)

73,752

Fair value of
plan assets
2015

Total
2015

–56,862

16,890

Present value
of obligation

2014 2)

52,919

Fair value of
plan assets
2014

–46,567

1,975
169
2,446
143
–10

4,723

–
–
–2,172
22
2

–2,148

1,975
169
274
165
–8

2,575

1,476
31
2,347
54
31

3,939

–
–
–2,244
31
3

–2,210

Total
2014

6,352

1,476
31
103
85
34

1,729

–

1,088

–

–3,643

1,768
135
–1,020

883

–
–
–

1,088

1,768
135
–1,020

1,971

549
12,746
305

13,600

–
–
–

–3,643

549
12,746
305

9,957

1,167

–1,243

–76

4,949

–5,059

–110

–764
57

–1,550
–127
–

78,141

–579
–38

1,570
34
–

–1,343
19

20
–93
–

–58,178

19,963

–574
43

–1,282
–1,013
1,171

73,752

–775
–26

1,282
1,016
–880

–1,349
17

0
3
291

–56,862

16,890

1) The expected contribution to the plans is SEK 1,004 million during 2016.
2) The weighted average duration of DBO is 20.1 years.
3) Business combinations in 2014 were mainly related to the acquisition of Red Bee Media.

Present value of the defined benefit obligation

2015
DBO, closing balance

Of which partially or fully funded
Of which unfunded

2014
DBO, closing balance

Of which partially or fully funded
Of which unfunded

Sweden

Other

Total

37,109
36,583
526

32,885
32,348
537

19,873
19,196
677

18,281
17,608
673

21,159
18,590
2,569

22,586
20,005
2,581

78,141
74,369
3,772

73,752
69,961
3,791

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

Asset allocation by asset type and geography

2015
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

2014
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

Sweden

Other

Total

Of which
unquoted

3,001
4,588
6,602
2,654
2,426
–
–

19,271
–
–

2,118
4,598
6,815
2,383
2,498
–
–

18,412
–
–

715
612
16,884
–
1,354
–
549

20,114
–
–

509
1,003
14,993
–
2,309
–
851

19,665
–
–

141
4,428
12,404
155
233
629
803

18,793
–
–

483
4,389
11,455
134
557
770
997

18,785
–
–

3,857
9,628
35,890
2,809
4,013
629
1,352

58,178
–
–

3,110
9,990
33,263
2,517
5,364
770
1,848

56,862
–
–

19%
12%
79%
100%
71%
100%
48%

24%
10%
83%
100%
67%
100%
71%

Actuarial assumptions

Financial and demographic actuarial assumptions 1)

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

2015

2014

3.3%

3.4%

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.

Actuarial gains and losses reported directly
in Other comprehensive income

1) Weighted average for the Group for disclosure purposes only. Country-specific assumptions

were used for each actuarial calculation.

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

Sweden
As disclosed in note C1 “Significant policies” and C2 “Critical accounting
estimates and judgments,” the Company has during 2015 amended the
discount rate applied for pension liability calculation in Sweden. The Com-
pany has in periods up to the second quarter of 2015 estimated the dis-
count rate for the Swedish pension liability based on the interest rates for
Swedish covered bonds. Due to the development since then of the deep-
ness of the Swedish covered bond market and the volatility in interest
rates, the Company has decided to apply Swedish government bonds
rate for this discounting. The discount rate used is 2.1% as of December
31, 2015 compared to 2.75% as of December 31, 2014. IAS 19 Employee
Benefits prescribes that if there is no deep market in high-quality corpo-
rate bonds the market yields on government bonds shall be applied for
the pension liability calculation. If the discount rate had been based on
Swedish covered bonds an interest rate of about 3.75% would have been
used and the DBO had then been approximately 12 SEK billion lower.
The Company has changed the inflation rate assumption, from 2.00%
to 1.75% as from December 31, 2015.

Cumulative gain/loss (–/+) at beginning of year
Recognized gain/loss (–/+) during the year
Translation difference

Cumulative gain/loss (–/+) at end of year

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

2015

15,305
1,971
–181

17,095

2014

5,219
9,957
129

15,305

2015

–1,507
–55
–464

–2,026

2014

–8,322
–60
–1,635

–10,017

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

Sensitivity analysis of significant actuarial assumptions

Impact on DBO, SEK billion

Discount rate +0.5%
Discount rate –0.5%

2015

2014

–8
+7

–7
+8

Ericsson | Annual Report 2015
C18 Provisions

Provisions

2015
Opening balance
Additions
Reversal of excess amounts

Negative effect on Income Statement

Utilization/Cash out
Reclassifications
Translation differences

Closing balance

2014
Opening balance
Additions
Reversal of excess amounts

Negative effect on Income Statement

Utilization/Cash out
Reclassifications
Translation differences

Closing balance

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. Under 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 2015, new or additional provisions amounting to SEK 5.0 billion
were made, and SEK 0.5 billion of provisions were reversed. The actual
cash outlays for 2015 were SEK 5.1 billion compared with the estimated
SEK 3.2 billion. The total cash out for 2015 was made up of warranty pro-
visions of SEK 1.0 billion, restructuring provisions of SEK 2.8 billion and
other provisions of SEK 1.3 billion. The expected total cash outlays in
2016 are approximately SEK 2.4 billion.

Of the total provisions, SEK 176 (202) million is classified as non-cur-
rent. 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 0.7 billion were made and due to more favorable
out comes in certain cases reversals of SEK 0.1 billion were made.
The actual cash outlays for 2015 were SEK 1.0 billion, in line with the
expected SEK 0.9 billion. The cash outlays of warranty provisions
during year 2016 are estimated to total approximately SEK 0.4 billion.

Warranty Restruc turing

Other

Total

824
723
–59

–984
1
23

528

909
1,050
–319

–921
2
103

824

801
3,619
–189

–2,766
14
–13

1,466

1,345
708
–195

–1,202
51
94

801

2,802
634
–230

–1,312
–
–50

1,844

3,108
968
–424

–938
–16
104

2,802

4,427
4,976
–478
4,498
–5,062
15
–40

3,838

5,362
2,726
–938
1,788
–3,061
37
301

4,427

Restructuring provisions
In 2015, SEK 3.6 billion in provisions were made and SEK 0.2 billion were
reversed due to a more favorable outcome than expected. A cost and effi-
ciency program was announced in November 2014. The scope of the
structural efficiency measures involves service delivery, supply, R&D,
SG&A (Selling, General and Administrative expenses) as well as common
functions. The cash outlays for restructuring provisions were SEK 2.8 bil-
lion for the full-year, compared with the expected SEK 0.6 billion. The cash
outlays for 2016 for these provisions are estimated to total approximately
SEK 1.2 billion.

Other provisions
Other provisions include provisions for probable contractual penalties,
tax issues, litigations, supplier claims, and other. During 2015, new pro-
visions amounting to SEK 0.6 billion were made and SEK 0.2 billion were
reversed due to a more favorable outcome. The cash outlays were SEK
1.3 billion in 2015 compared to the estimate of SEK 1.7 billion. For 2016,
the cash outlays for other provisions are estimated to total approximately
SEK 0.8 billion.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

C19 Interest-bearing liabilities

As of December 31, 2015, the Company’s outstanding interest-bearing
liabilities stood at SEK 25.1 (24.1) billion.

Interest-bearing liabilities

Borrowings, current
Current part of non-current borrowings
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

2015

2014

435
1,941

2,376

14,699
8,045

22,744

25,120

946
1,335

2,281

14,346
7,518

21,864

24,145

To secure long-term funding, the Company uses notes and bond pro-
grams together with bilateral research and development loans. All out-
standing notes and bond loans are issued by the Parent Company under
its Euro Medium-Term Note (EMTN) program or under its U.S. Securities
and Exchange Commission (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. Total weighted average interest rate cost for the long-
term funding during the year was 2.58% (3.45%). The outstanding EUR
bond is revalued based on changes in benchmark interest rates accord-
ing to the fair value hedge methodology stipulated in IAS 39.

In June 2015, the Company renewed its USD 2 billion multi-currency
revolving credit facility and thereby refinanced its credit facility signed in
2013. 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.

Notes, bonds, bilateral loans and committed credit

Issued–maturing

Notes and bond loans
2007–2017
2010–2020 2)
2012–2022

Total notes and bond loans

Bilateral loans
2012–2019 3)
2012–2021 4)
2013–2020 5)

Total bilateral loans

Committed credit
Long-term committed credit facility 6)

Total committed credit

Nominal
amount

Coupon

Currency

Book value
(SEK million)

Maturity date

5.375%

4.125%

500
170
1,000

98
98
684

2,000

EUR
USD
USD

USD
USD
USD

USD

4,919 1)
1,428
8,352 7)

14,699

822
824
5,742 8)

7,388

June 27, 2017
December 23, 2020
May 15, 2022

September 30, 2019
September 30, 2021
November 6, 2020

June 8, 2020

Unrealized hedge
gain/loss (included
in book value)

–338

1) Interest rate swaps are designated as fair value hedges.
2) Private Placement, Swedish Export Credit Corporation (SEK).
3) Nordic Investment Bank (NIB), R&D project financing.
4) Nordic Investment Bank (NIB), R&D project financing.
5) European Investment Bank (EIB), R&D project financing.
6) Multi-currency revolving credit facility. Unutilized. Two one-year extension option remains.
7) Market value SEK 8,793 million.
8) Market value SEK 5,997 million.

Ericsson | Annual Report 2015C20 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.

The Company defines its managed capital as the total Company equity.

For the Company, a robust financial position with a strong equity ratio,
solid 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 balanc-
ing 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 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

2015

147
52%
85%
18.5

2014

145
50%
84%
27.6

Baa1, 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 facil-
ities, actively managing the Company’s liquidity as well as financial assets
and liabilities, and managing and controlling 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.

The Company classifies financial risks as:
> Foreign exchange risk
> Interest rate 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,

“Significant accounting policies.”

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.
The table below presents the net exposure for the largest cur rencies
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
CNY
INR
GBP
JPY
AUD
BRL
SAR

57.8
31.6
18.0
13.2
8.3
5.9
5.6
5.5
4.0

56.1
14.2
–0.3
0.0
–1.6
0.0
–0.1
0.0
0.8

113.8
45.8
17.6
13.2
6.6
5.9
5.5
5.5
4.7

–25.4
–5.3
–2.4
2.5
0.7
3.6
1.8
0.8
1.8

30.7
8.9
–2.7
2.5
–0.9
3.6
1.7
0.7
2.6

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, 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 func-
tional 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. By this way, the Company will have
hedged 84% of the next month and 7% of the 12th month of an average
forecast of the individual month at any given reporting date. This corre-
sponds to approximately 5-6 months of an average forecast.

Outstanding derivatives contracts 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 the Company’s
largest exposure and at year-end a change by 0.25 SEK/USD would
impact profit and loss with approximately SEK 0.2 billion. Revaluation
results of these derivative contracts amounted to SEK1.5 billion in 2015.
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.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

Interest rate risk
The Company is exposed to interest rate risk through market value fluct-
uations in certain balance sheet items and through changes in interest
revenues and expenses. The net cash position was SEK 18.5 (27.6) billion
at the end of 2015, consisting of cash, cash equivalents and short-term
investments of SEK 66.3 (72.2) billion, interest-bearing liabilities of SEK
25.1 (24.1) and post-employment benefits of SEK 22.7 (20.4) billion.
The net cash position, excluding post-employment benefits was SEK 41.2
(48.0) billion.

The Company manages the interest rate risk by i) matching fixed and
floating interest rates in interest-bearing balance sheet items and ii) avoid-
ing 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 6 and 14 months, taking derivative instru-
ments 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

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

< 3M 3–12M

1–3Y

3–5Y

5.1
56.6
–18.4

–4.8
–4.3
–9.6

–0.4
16.0
–8.2

0.0
2.1
–1.8

>5Y

0.1
–4.1
–9.8

Total

0.0
66.3
–47.8

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.

Outstanding derivatives

Outstanding derivatives 1)

Sensitivity analysis
The Company uses the VaR methodology to measure foreign exchange
and interest rate risks in portfolios managed by the Treasury. This statisti-
cal 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 2015 was SEK 11.7 (12.2) million for the

combined mandates. No VaR-limits were exceeded during 2015.

Financial credit risk
Financial instruments carry an element of risk in that counterparts may
be unable to fulfill their payment obligations. This exposure arises in the
investments in cash, cash equivalents, short-term investments and from
derivative positions with positive unrealized results against banks and
other counterparties.

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 concen-
tration. All derivative transactions are covered by ISDA netting agree-
ments to reduce the credit risk.

At December 31, 2015, the credit risk in financial cash instruments was

equal to the instruments’ carrying value. Credit exposure in derivative
instruments was SEK 1.4 (1.6) billion.

Liquidity risk
The Company minimizes the liquidity risk by maintaining a sufficient cash
position, centralized cash management, investments in highly liquid inter-
est-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.

2015

2014

Cash, cash equivalents and short-term investments

Fair value

Asset

Liability

Asset

Liability

Currency derivatives
Maturity within 3 months
Maturity between 3 and 12
months

Total

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

316

224

540

165
545
53
94
862 2)

338

137

178

–

234
243
176
108

761

–

221

311

–

72
937
85
146
1,240 2)

1,132

933

2,065

896
656
285
211

2,053

669

–

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 452 (551) million is reported as non-current assets.

SEK billion

Banks

Type of issuer/counterpart
Governments
Corporates
Mortgage institutes

2015
2014

Remaining time to maturity

< 3
months

3–12
months

29.4

0.4

1–5
years

–

>5
years

–

7.0
3.9
–

40.3
42.1

1.6
–
1.0

3.0
6.9

8.5
–
13.9

22.4
22.5

0.3
–
0.3

0.6
0.7

Total

29.8

17.4
3.9
15.2

66.3
72.2

The instruments are either classified as held for trading or as assets avail-
able-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.

Ericsson | Annual Report 2015Refinancing risk
Refinancing risk is the risk that the Company is unable to refinance out-
standing debt under reasonable terms and conditions, or at all, at a given
point in time.

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)

Euro Medium-Term Note program
(USD million)

SEC Registered program (USD million)

Amount

Utilized

Unutilized

5,000

712

1,000

4,288

–

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

Fair valuation of the Company’s financial instruments
The Company’s financial instruments accounted for at fair value 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 1.8 (2.9) billion in relation
to assets and gross SEK1.3 (5.5) billion in relation to liabilities were val-
ued 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 and other financial investments where
the Company neither has control nor significant influence. The amount
recognized in these cases was SEK 2.1 (0.5) billion. These assets, clas-
sified 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. For further
information about valuation principles, see Note C1, “Significant account-
ing policies.”

Financial instruments, such as trade receivables, borrowings and
payables, are carried at amortized cost which is deemed to be equal to
fair value, except for those noted in the table Notes, bonds, bilateral loans
and committed credits in Note C19, “Interest-bearing liabilities.” When a
market price is not readily available and there is insign i ficant interest rate
exposure and credit spreads affecting the value, the carrying value is
considered to represent a reasonable estimate of fair value.

Market price risk in own shares and other listed equity investments
Risk related to the Company’s own share price
The Company is exposed to fluctuations in its own share price through
stock purchase plans for employees and synthetic share-based com-
pensations 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 rep-
resents 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 1.8 (2.9) billion,
prior to offsetting of SEK 0.4 (1.4) billion, with a net amount of SEK 1.4 (1.5)
billion recognized in the balance sheet. The related liabilities amounted to
SEK 1.3 (5.5) billion, prior to offsetting of SEK 0.4 (1.4) billion, with a net
amount of SEK 0.9 (4.1) billion recognized in the balance sheet.

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
l iabilities

C14

–
3.8

–

3.8

C14

–
71.1

–

71.1

C19

C22

C12

C15

26.0
–

–

26.0

12.8
5.0

–

17.8

–
–

–25.1

–22.4

1.3
4.3

–

5.6

1.0
–

–

1.0

C21

–0.9
–

–

–0.9

2015

2014

40.2
84.2

–47.5

76.9

37.6
89.8

–48.6

78.8

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

C21 Other current liabilities

C24 Contingent liabilities

Other current liabilities

Income tax liabilities
Advances from customers
Accrued interest
Accrued expenses

Of which employee-related
Of which supplier-related
Of which other 1)
Deferred revenues
Derivatives with a negative value 2)
Other 3)

Total

2015

3,924
5,038
475
32,629
13,229
12,119
7,281
11,229
939
4,429

58,663

2014

3,225
10,076
212
35,805
13,762
13,863
8,180
11,057
4,118
5,352

69,845

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
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.”

2015

329
22,060

22,389

2014

288
24,185

24,473

2015

2,231
295

2,526

2014

2,222
303

2,525

Contingent liabilities

Total

2015

922

2014

737

Contingent liabilities assumed by Ericsson include guarantees of loans to
other companies of SEK 23 (25) million. Ericsson has SEK 32 (33) 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 Judg-
ments.” 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 70 (81) million
as of December 31, 2015. The maturity date for the majority of the issued
guarantees occurs in 2018 at the latest.

C25 Statement of cash flows

Interest paid in 2015 was SEK 926 million (SEK 1,120 million in 2014 and
SEK 1,233 million in 2013) and interest received in 2015 was SEK 550
million (SEK 1,369 million in 2014 and SEK 1,266 million in 2013).
Taxes paid, including withholding tax, were SEK 7,705 million in 2015
(SEK 6,114 million in 2014 and SEK 6,537 million in 2013).

Cash and cash equivalents include cash of SEK 22,431 (29,650) million
and temporary investments of SEK 17,793 (11,338) million. For more infor-
mation regarding the disposition of cash and cash equivalents and unuti-
lized credit commitments, see Note C20, “Financial risk management and
financial instruments.”

Cash and cash equivalents as of December 31, 2015, include SEK 4.7

billion (5.4) in countries where there exist significant cross-border con-
version restrictions due to hard currency shortage or strict government
controls. This amount is therefore not considered available for general
use by the Parent Company.

Ericsson | Annual Report 2015Adjustments 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

C26 Business combinations

2015

2014

2013

4,705
–16

4,689

4,329
–13

4,316

4,227
–18

4,209

Acquisitions and divestments
Acquisitions

Acquisitions 2013–2015

Total consideration, including cash

2015

2,119

2014

4,767

2013

3,176

Acquisition-related costs 1)

101

1,379

1,270

1,407

4,139

5,518

4,328

5,598

4,521

5,928

–

Net assets acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Other assets
Provisions, including post-employment benefits
Other liabilities

Total

5,538

5,629

5,928

Total identifiable net assets

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

10,227

9,945

10,137

–2,835

–1,235

–1,323

249

–156
3,245

128
2,057

128

130

976
–220

10,611

11,200

9,828

1) See Note C12, “Financial assets, non-current.”
2) See Note C6, “Other operating income and expense.”
3) Refers mainly to unrealized foreign exchange, gains/losses on financial instruments.

Acquisitions/divestments of subsidiaries and other operations

Acquisitions

Divestments

2015
Cash flow from business combinations 1)
Acquisitions/divestments of other investments

Total

2014
Cash flow from business combinations 1)
Acquisitions/divestments of other investments

Total

2013
Cash flow from business combinations 1)
Acquisitions/divestments of other investments

Total

1) See also Note C26, “Business combinations.”

–1,867
–334

–2,201

–4,410
–32

–4,442

–3,054
–93

–3,147

–
1

42
6

448
17

465

271
45
445
572
–
–379

954

–
–
1,165

2,119

407
427
2,540
817
–288
–1,150

2,753

–
–
2,014

4,767

223
597
1,551
850
–463
–1,705

1,053

410
67
1,646

3,176

Operating expenses
Non-controlling interest
Goodwill

Total

1) Acquisition-related costs are included in Selling and administrative expenses in the consolid-

ated income statement.

In 2015, Ericsson made acquisitions with a negative cash flow effect
amounting to SEK 1,867 (4,410) million. The acquisitions presented below
are not material but the Company gives the information to provide the
reader a summarized view of the content of the acquisitions made.
The acquisitions consist primarily of:

Envivio: On October 27, 2015, the Company acquired 100% of the shares
in Envivio, a US-based company with competence in software-defined
and cloud-enabled architectures for video processing. The acquisition will
strengthen Ericsson’s video compression position, combining its leading
position in broadcast and contribution with Envivio’s leadership in multi-
screen cable and telecom. Envivio’s cloud-centric and software-based
video capabilities will be a key addition to Ericsson’s extensive portfolio
of media enrichment, processing, publishing, delivery, and TV platforms,
enabling TV experiences on any device. Envivio has an installed base of
over 400 TV service provider and content owner customers in all markets
globally. Balances to facilitate the purchase price allocation are preliminary.

Icon: On August 5, 2015, the Company acquired assets of Guatemala-
based Icon Americas, a consulting and systems integration company with
approximately 250 employees and consultants. The acquisition boosts
Ericsson’s services portfolio in Latin America – particularly in application
development and maintenance. Balances to facilitate the purchase price
allocation are preliminary.

Sunrise technology: On July 31, 2015, the Company acquired assets of
Guangzhou-based IT services provider Sunrise Technology. The acquisi-
tion of Sunrise Technology strengthens Ericsson’s position in OSS and
BSS, which is one of the targeted growth areas where Ericsson aims to
establish leadership. Sunrise technology has a strong track record of
delivering complex IT solutions to leading operators in China. The employ-
ees have expertise in IT consulting; systems integration for charging and
billing systems, customer relationship management and business intelli-
gence/analytics solutions; and application development and maintenance.
Balances to facilitate the purchase price allocation are preliminary.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

Timelessmind: On April 8, 2015, the Company acquired assets of Time-
lessmind, a Canada-based consulting and systems integration company
specializing in operations and business support (OSS and BSS). The
acquisition includes approximately 30 employees and consultants and
Ericsson further expands its systems integration capabilities for OSS
and BSS in North America. Balances to facilitate the purchase price
allocation are final.

In order to finalize a purchase price allocation all relevant information
needs to be in place. Examples of such information are final consideration
and final opening balances, which may remain preliminary for a period
of time due to for example adjustments of working capital, tax items or
decisions from local authorities.

Divestments

Divestments 2013–2015

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

2015

–

–
52
–3

49
–49
–

2014

–

32
46
–

78
–36
–

2013

655

297

–
1,326
–127

1,496
–841
–207

448

In 2015, the Company made some minor divestments with a cash flow
effect amounting to SEK 0 (42) million.

Description

Transaction date

Oct 2015
Aug 2015
Jul 2015

Apr 2015
Oct 2014
Oct 2014
Sep 2014

May 2014
Feb 2014
Sep 2013
Sep 2013
Sep 2013

Aug 2013

Apr 2013

Transaction date

Dec 2013
Jul 2013
May 2013

Acquisitions 2013–2015

Company

Envivio
ICON
Sunrise technology
Timelessmind

Apcera
Fabrix
MetraTech
Red Bee Media

Azuki
Airvana
Mediaroom
Telcocell
Modems

Devoteam

A US-based company with competence in software-defined and cloud-enabled architectures for video processing.
A consulting and systems integration business with approximately 250 employees and consultants.
A business which has a strong track record of delivering complex IT solutions to leading operators in China
A Canada-based consulting and systems integration business specializing in operations and business support
(OSS and/BSS).
The acquisition of a majority stake in Apcera strengthens Ericsson’s position in enterprise cloud.
The acquisition of Fabrix Systems extends Ericsson’s overall leadership position in TV & Media.
The acquisition of MetraTech accelerates Ericsson’s cloud and enterprise billing capabilities within BSS.
A leading media services company headquartered in the UK with an extensive list of high-profile
broadcast services customers.
A provider of TV Anywhere delivery platforms for service providers, content owners and broadcasters.
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 Mid-
dle East and Africa.

Divestments 2013–2015

Company

Description

Telecom cable business
Power cables operation
Applied Communication
Sciences

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.
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.

Ericsson | Annual Report 2015C27 Leasing

Leasing with the Company as lessee
Assets under finance leases, recorded as property, plant and equipment,
consist of:

Expenses in 2015 for leasing of assets were SEK 3,449 (2,662) million,
of which variable expenses comprised SEK 35 (19) million. The leasing
contracts vary in length from 1 to 16 years.

Finance leases

Cost
Real estate

Accumulated depreciation
Real estate

Net carrying value

2015

2014

701

–249

452

650

–212

438

As of December 31, 2015, future minimum lease payment obligations
were distributed as follows:

Future minimum lease payment obligations

The Company’s lease agreements normally do not include any contin-
gent 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 facil-
ities contain purchase options. Only a very limited number of the Com-
pany’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 con-
tracts vary in length from 1 to 17 years.

At December 31, 2015, future minimum payment receivables were

Finance
leases

Operating
leases

Future minimum payment receivables

distributed as follows:

2016
2017
2018
2019
2020
2021 and later

Total
Future finance charges 1)

Present value of finance lease liabilities

1) Average effective interest rate on lease payables is 8.14%.

73
72
72
72
551
6

846
–225

621

3,025
2,529
2,125
1,800
1,113
4,778

15,370
n/a

n/a

2016
2017
2018
2019
2020
2021 and later

Total
Unearned financial income
Uncollectible lease payments

Net investments in financial leases

Leasing income in 2015 was SEK 73 (74) million.

Finance
leases

Operating
leases

317
12
–
–
–
–

329
n/a
n/a

n/a

28
20
16
6
5
10

85
n/a
n/a

n/a

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

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

Anders Nyrén
Jacob Wallenberg
Roxanne S. Austin
Nora Denzel

Börje Ekholm

Alexander Izosimov

Ulf J. Johansson
Sukhinder Singh Cassidy

Kristin Skogen Lund

Hans Vestberg

Employee Representatives
Pehr Claesson

Kristina Davidsson 9)

Mikael Lännqvist 10)
Karin Åberg

Rickard Fredriksson (deputy) 9)

Zlatko Hadzic (deputy) 10)
Karin Lennartsson (deputy)
Roger Svensson (deputy)

4,000,000

975,000
975,000
975,000
975,000

975,000

975,000
975,000

975,000

–

27,000

15,000

10,500
21,000

10,500

4,500
16,500
13,500

Number of
synthetic
shares/portion
of Board fee

Value at grant
date of synthetic
shares allocated
in 2015

Number of previously
allocated synthetic
shares outstanding

Net change
in value of
synthetic

shares 1)

0/0%

0/0%
5,027/50%
2,513/25%
2,513/25%

7,541/75%

2,513/25%

0/0%
2,513/25%

2,513/25%

–

–
–

–

–
–
–

–

–
487,418
243,660
243,660

731,175

243,660

–
243,660

243,660

–

–
–

–

–
–
–

–

–136,439 1)
10,575 1)
–62,583 1)

–156,452 1)

–88,552 1)

111,970 1)
–36,841 1)
–78,426 1)

–

–
–

–

–
–
–

–

–
15,026
19,552
2,976

34,607

9,272

–
–

5,780

–

–
–

–

–
–
–

Committee
fees

Total fees
paid in cash 2)

Total
remuner ation
2015

(A+B+C)

400,000

175,000
175,000
175,000
–

175,000

250,000

350,000
–

250,000

–

–
–

–

–
–
–

4,400,000 3)

1,150,000 4)
662,500
906,250
731,250

418,750

981,250 5)

1,325,000 6)
731,250

981,250

–

27,000

15,000

10,500
21,000

10,500

4,500
16,500
13,500

4,400,000

1,150,000
1,013,479
1,160,485
912,327

993,473

1,136,358

1,436,970
938,069

1,146,484

–

27,000

15,000

10,500
21,000

10,500

4,500
16,500
13,500

Total

12,893,500

25,133

2,436,893

87,213

97,492 8)

–436,748

1,950,000

12,406,000

14,406,145 7)

–337,636 8)

1,950,000

12,406,000

14,505,257 7)

1) The difference in value as of the time for payment, compared to December 31, 2014, for synthetic shares allocated in 2010 (for which payment was made in 2015).

The difference in value as of December 31, 2015, compared to December 31, 2014, for synthetic shares allocated in 2011, 2012, 2013 and 2014. Calculated on a share price of SEK 82.30.
The difference in value as of December 31, 2015, compared to grant date for synthetic shares allocated in 2015.
The value of synthetic shares allocated in 2011, 2012, 2013 and 2014 includes respectively SEK 2.50, SEK 2.75, SEK 3.00 and SEK 3.40 per share in compensation for dividends resolved by the
Annual General Meetings 2012, 2013, 2014 and 2015 and the value of the synthetic shares allocated in 2010 includes dividend compensation for dividends resolved in 2011, 2012, 2013 and 2014.

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 1,382,480.
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 361,330.
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 308,309.
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 135,282.
7) Excluding social security charges to the amount of SEK 4,247,196.
8) Including synthetic shares previously allocated to the former Directors Nancy McKinstry and Sir Peter L. Bonfield.
9) Resigned from the Board as of August 26, 2015.
10) Appointed as of August 26, 2015.

Comments to the table
> The Chairman of the Board was entitled to a Board fee of SEK

4,000,000 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 enti-

tled to a fee of SEK 975,000 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 Com-
mittees 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 termi-
nation benefits.

> Members and deputy members of the Board who are Ericsson employ-
ees 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, and, since the
Annual General Meeting 2015, per attended Committee meeting.

> Board members invoicing for the amount of the Board and Committee
fee through a company may add to the invoice an amount correspond-
ing 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 por-
tion of the Board fee and the Committee fee, including social charges,
constitutes the invoiced Board fee.

> The Annual General Meeting 2015 resolved that non-employee Direc-
tors may choose to receive the Board fee (i.e., exclusive of Committee
fee) as follows: i) 25% of the Board fee in cash and 75% in the form of
synthetic shares, with a value corresponding to 75% of the Board fee
at the time of allocation, ii) 50% in cash and 50% in the form of synthetic
shares, or iii) 75% in cash and 25% in the form of synthetic shares.
Directors may also choose not to participate in the synthetic share
program and receive 100% of the Board fee in cash. Committee fees
are always paid in cash.

Ericsson | Annual Report 2015The number of synthetic shares allocated is based on a volume-weighted
average of the market price of Ericsson Class B shares on Nasdaq Stock-
holm during the five trading days immediately following the publication of
Ericsson’s interim report for the first quarter 2015; SEK 96.96 . The num-
ber 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 state-
ment during the fifth year following the Annual General Meeting which
resolved on the synthetic share program, i.e., in 2020. The amount pay-
able shall be determined based on the volume-weighted 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 allocated in 2010
occurred in 2015. The amounts paid in 2015 under the synthetic share
programs were determined based on the volume-weighed average price
for shares of Class B on Nasdaq Stockholm during the five trading days
immediately following the publication of the year-end financial statements
for 2014: SEK 100.89 and totalled SEK 2,927,663, excluding social secu-
rity charges. The payments made do not constitute a cost for the Com-
pany in 2015. 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 2015, is disclosed in the table “Remuner-
ation 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,
2015, the total outstanding number of synthetic shares under the pro-
grams is 122,625 and the total accounted debt is SEK 10,849,768 (includ-
ing synthetic shares previously allocated to the former Director Nancy
McKinstry and Sir Peter L.Bonfield).

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- 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 2015: see the approved guidelines in
section “Guidelines for remuneration to Group management 2015.”

Remuneration costs for the President and CEO and other members of Executive Leadership Team (ELT)

SEK

Salary
Cost for annual variable remuneration
earned 2015 to be paid 2016
Long-term variable compensation provision
Pension costs
Other benefits
Social charges and taxes

Total

The Pres ident
and CEO 2015

The Pres ident
and CEO 2014

Other members
of ELT 2015

Other members
of ELT 2014

Total 2015

Total 2014

14,165,287

13,617,013

98,777,226

87,958,871

112,942,513

101,575,884

16,173,429
7,183,919
9,452,006
75,630
14,106,432

61,156,702

13,342,079
6,733,294
8,909,314
72,188
12,750,392

45,485,406
8,671,955
24,608,406
8,247,554
23,515,519

38,584,082
8,644,039
26,308,223
6,315,568
26,880,902

61,658,835
15,855,873
34,060,412
8,323,184
37,621,951

51,926,161
15,377,333
35,217,537
6,387,757
39,631,293

55,424,281

209,306,065

194,691,685

270,462,767

250,115,966

Comments to the table
> During 2015, there were three Executive Vice Presidents who have

been appointed by the Board of Directors. None of them have 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, Nina
Macpherson, Magnus Mandersson, Helena Norrman, Mats H. Olsson,
Rima Qureshi, Angel Ruiz, Anders Thulin, Johan Wibergh (left Ericsson
April 30, 2015 and effective January 15, 2015, he left the position as
Executive Vice President and Head of Segments Networks) 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 2015 as well as
other contracted compensation expensed in 2015.

> The remuneration costs for 2015 includes termination provisions

including compensation for unused vacation.

market (ITP) with pension payable from the age of 60 years. These
pension plans are not conditional upon future employment at Ericsson.

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, 2015 under IAS 19 amounted to SEK 10,391,762 for the
President and CEO which includes the ITP and early retirement. For
other members of the ELT the Company’s commitments amounted
to SEK 52,839,333 of which SEK 45,033,608 refers to the ITP, Ericsson
US Pension Plan and early retirement and the remaining SEK 7,805,725
to 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 2015 or earlier, to be paid 12 months after

> “Long-term variable compensation provision” refers to the compensa-

period end or later, amounts to SEK 24,645,025.

tion costs during 2015 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

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

Maximum outstanding matching rights

As of December 31, 2015
Number of Class B shares

The President
and CEO

Other members
of the ELT

Stock Purchase Plans 2012–2015
Executive Performance Stock Plans 2012–2015

337,083

360,053

Comments to the table
> For the definition of matching rights, see the description in section

“Long-term variable compensation”.

> Matching result of 33.3% is included for the 2012 plan.
> Cash conversion targets for 2013, 2014 and 2015 were reached.
> During 2015, the President and CEO received 73,635 matching shares

and other members of the ELT 107,557 matching shares.

Guidelines for remuneration to Group management 2015
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 of the Executive

Leadership Team:
> Variable remuneration 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 or 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.

> The mutual notice period may be no more than six months. Upon termi-
nation of employment by the Company, severance pay amounting to a
maximum of 18 months fixed salary is paid. Notice of termination given
by the employee due to significant structural changes, or other events
that in a determining manner affect the content of work or the condition
for the position, is equated with notice of termination served by the
Company.

Long-Term Variable compensation
The Stock Purchase Plan
The Stock Purchase Plan is designed to offer an incentive for all employ-
ees to participate in the Company where practicable, which is consistent
with industry practice and with Ericsson’s ways of working. For the 2015
plan, employees are able to save up to 7.5% of their gross fixed salary
(The President and CEO can save up to 10% of their gross fixed salary
and short-term variable remuneration) for purchase of Class B contribu-
tion shares at market price on Nasdaq Stockholm or American Depositary
Shares (ADSs) on NASDAQ New York (contribution shares) during a
twelve-month period (contribution period). If the contribution shares are
retained by the employee for three years after the investment and 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 94 countries
participate in the plans.

The table below shows the contribution periods and participation

details for ongoing plans as of December 31, 2015.

Stock Purchase Plans

Plan

Stock Purchase plan
2012
Stock Purchase plan
2013
Stock Purchase plan
2014
Stock Purchase plan
2015

Contribution
period

August 2012 –
July 2013
August 2013 –
July 2014
August 2014 –
July 2015
August 2015 –
July 2016

Number of
participants at
launch

Take-up rate
– percent of eligible
employees

27,000

29,000

32,000

33,800

28%

29%

30%

31%

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 invest-
ment, 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 manage-
ment 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 (2015 plan: 10,333 employ-
ees nominated) are selected through a nomination process that identifies
individuals according to performance, critical skills and potential. Partici-
pants selected obtain one extra matching share in addition to the ordinary
one matching share for each contribution share purchased under the
Stock Purchase Plan during a twelve-month period.

Ericsson | Annual Report 2015Executive Performance Stock Plan targets

Base year
value
SEK billion

Year 1

Year 2

Year 3

228.0

Compound annual growth rate of 2–6%

16.8 Compound annual growth rate of 5–15%
≥70%

≥70%

–

225.3

Compound annual growth rate of 2–8%

15.7 Compound annual growth rate of 5–15%
≥70%

≥70%

–

The Executive Performance Stock Plan
The Executive Performance Stock Plan is designed to focus management
on driving earnings and provide competitive remuneration. Senior manag-
ers, 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 (2015 plan: 464 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 Pur-
chase Plan matching share for each contribution share.

The performance targets changed from EPS targets to targets linked to
the business strategy as from 2011. To support the long-term strategy and
value creation of the company, performance targets are from since linked
to growth on Net Sales, Operating Income and Cash Conversion.

The table above show ongoing Executive Performance Stock Plans

227.8

Compound annual growth rate of 2–8%

as of December 31, 2015.

18.5 Compound annual growth rate of 5–15%
≥70%

≥70%

–

2015
Growth (Net sales growth)
Margin
(Operating income growth) 1)
Cash Flow (Cash conversion)

2014
Growth (Net sales growth) 2)
Margin
(Operating income growth) 2)
Cash Flow (Cash conversion)

2013
Growth (Net sales growth)
Margin
(Operating income growth) 3)
Cash Flow (Cash conversion)

1) Excluding extraordinary restructuring charges.
2) Base year 2013 has been adjusted for the impact of the Samsung IPR agreement.
3) Base year 2012 excludes a non-cash charge for ST-Ericsson.

Shares for all plans

Stock Purchase Plan, Key Contributor Retention Plan
and Executive Performance Stock Plans

Plan (million shares)

2015

2014

2013

2012

2011

Originally designated
Outstanding beginning of 2015
Awarded during 2015
Exercised/matched during 2015
Forfeited/expired during 2015
Outstanding end of 2015 1)
Compensation costs charged during 2015 (SEK million) 3) G

A
B
C
D
E
F=B+C–D–E

23.5
–
4.4
–
–
4.4
13 2)

22.8
3.6
10.9
0.5
0.5
13.5
290 2)

26.6
12.4
–
0.5
0.4
11.5
295 2)

26.2
11.7
–
3.5
1.6
6.6
216 2)

19.4
7.9
–
7.8
0.1
–
51 2)

Total

118.5
35.6
15.3
12.3
2.6
36.0
865 2)

1) Shares under the Executive Performance Stock Plans were based on the fact that the 2011 plan vested for 22% and lapsed for 78% and that the 2012 plan came out at 33%. In casu 67% lapsed.

For the other ongoing plans, cost 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 2011 and 2012 plans as disclosed under 1) when calculating the compensation
cost. Fair value of the Class B share at each investment date during 2015 was: February 15 SEK 95.93, May 15 SEK 83.36, August 15 SEK 76.55 and November 15 SEK 70.06.

3) Total compensation costs charged during 2014: SEK 717 million, 2013: SEK 388 million.

Shares for all plans
All plans are funded with treasury stock and are equity settled. Treasury
stock for all plans has been issued in directed cash issues of Class C
shares at the quotient value and purchased under a public offering at
the subscription price plus a premium corresponding to the subscribers’
financing costs, and then converted to Class B shares.

For all plans, additional shares have been allocated for financing of
social security expenses. Treasury stock is sold on the Nasdaq Stock-
holm to cover social security payments when arising due to matching
of shares. During 2015, 1,824,500 shares were sold at an average price
of SEK 92.65. Sales of shares are recognized directly in equity.

If, as of December 31, 2015, all shares allocated for future matching
under the Stock Purchase Plan were transferred, and shares designated
to cover social security payments were disposed of as a result of the exer-
cise and the matching, approximately 61 million Class B shares would be
transferred, corresponding to 1.9% of the total number of shares out-
standing, or 3,256 million not including treasury stock. As of December
31, 2015, 49 million Class B shares were held as treasury stock.

The table above shows how shares (representing matching rights but
excluding shares for social security expenses) are being used for all out-
standing 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
2015; (C) the number of shares awarded during 2015; (D) the number of
shares matched during 2015; (E) the number of shares forfeited by partici-
pants or expired under the plan rules during 2015; and (F) the balance left
as outstanding at the end of 2015, 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 2015 for each
plan, calculated as fair value in SEK.

For a description of compensation cost, including accounting treat-

ment, see Note C1, “Significant accounting policies,” section Share-
based compensation to employees and the Board of Directors.

Financials – Notes to the consolidated financial statements

Ericsson | Annual Report 2015FINANCIALS – Notes to the consolidated financial statements

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

2015

2014

Women

3,117
2,583
5,256
2,399
3,122
513
520
3,967
4,178
1,200

26,854
4,002
10,052

Men

11,912
9,812
15,549
10,144
10,023
3,215
1,997
17,865
9,446
2,900

92,864
13,106
33,908

Total

15,029
12,395
20,805
12,543
13,145
3,728
2,517
21,832
13,624
4,100

119,718
17,108
43,960

Women

3,173
2,517
5,312
1,746
2,899
491
448
3,184
4,028
1,211

25,009
3,944
9,438

Men

12,228
10,169
15,159
9,541
10,053
3,323
1,925
16,699
9,523
3,527

92,147
12,584
32,842

Total

15,401
12,686
20,471
11,287
12,952
3,814
2,373
19,883
13,551
4,738

117,156
16,528
42,280

Number of employees by region at year-end

Wages and salaries and social security expenses

Employee wages and salaries

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

2015

14,548
10,412
20,700
12,220
12,702
3,639
2,301
21,999
13,706
4,054

15,516
11,066
21,633
12,617
13,387
3,858
2,406
19,971
13,464
4,137

2014

(SEK million)

Wages and salaries
Social security expenses
Of which pension costs

2015

60,805
19,249
5,793

2014

53,176 1)
16,990 1)
3,957

1) 2014 figures are changed due to computation error. Wages and salaries (SEK 4.8 billion) and

Social security expenses (SEK 1.0 billion) were overstated by SEK 5.8 billion. See also footnote
in C5 “Expenses by nature.”

Amounts related to the President and CEO and the Executive Leadership
Team are included in the table above.

Remuneration to Board members and Presidents in subsidiaries

116,281
17,041
43,117

118,055
17,580
45,202

(SEK million)

Salary and other remuneration

Of which annual variable remuneration

Pension costs

2015

2014

368
56
47

288
72
21

Number of employees by gender and age at year-end 2015

Under 25 years old
25–35 years old
36–45 years old
46–55 years old
Over 55 years old

Percent of total

Women

1,973
10,736
7,329
4,331
1,397

22%

Men

3,151
35,514
28,813
17,901
5,136

4%
40%
31%
19%
6%

78%

100%

Percent
of total

Board members, Presidents and Group management
by gender at year end

Parent Company
Board members and President
Group Management

Subsidiaries
Board members and Presidents

2015

2014

Women

Men

Women

Men

36%
31%

64%
69%

30%
29%

70%
71%

13%

87%

13% 1)

87% 1)

Employee movements

1) 2014 figures are changed due to computation error.

Head count at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees

2015

2014

116,281
16,610
14,836
1,413

118,055
15,536
19,251
776

100

Ericsson | Annual Report 2015
C31 Contractual obligations

Contractual obligations 2015

SEK billion

Long-term debt 1) 2)
Finance lease obligations 3)
Operating leases 3)
Other non-current liabilities
Purchase obligations 4)
Trade payables
Commitments for customer
finance 5)

Total

Payment due by period

<1
year

1–3
years

3–5
years

>5
years

1.2
0.1
3.0
0.1
5.6
22.4

11.1

43.4

5.9
0.1
4.7
0.1
–
–

8.8
0.6
2.9
0.1
–
–

9.8
0.0
4.8
1.5
–
–

–

10.8

–

12.4

–

16.1

Total

25.7
0.8
15.4
1.8
5.6
22.4

11.1

82.8

1) Including interest payments.
2) See also Note C19, “Interest-bearing liabilities.”
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.”

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.

C32 Events after the reporting period

On January 14, 2016, Ericsson announced that Ericsson and Huawei
have agreed on extending their global patent license agreement between
the two companies. The agreement includes a cross license that covers
patents relating to both companies’ wireless standard-essential patents
(including the GSM, UMTS and LTE cellular standards). As part of the
renewed agreement, Huawei will make on-going royalty payment based
upon actual sales to Ericsson.

C29 Related party transactions

During 2015, 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 informa-
tion regarding transactions with the Board of Directors and Group man-
agement, see Note C28, “Information regarding members of the Board of
Directors, the Group management and employees.”

For information about the Company’s pension trusts, see Note C17,
”Post-employment benefits.”

C30 Fees to Auditors

Fees to auditors

2015
Audit fees
Audit-related fees
Tax fees
Other fees

Total

2014
Audit fees
Audit-related fees
Tax fees
Other fees

Total

2013
Audit fees
Audit-related fees
Tax fees
Other fees

Total

PwC

Others

Total

91
11
19
8

129

83
11
15
18

127

75
12
12
15

114

2
–
13
–

7
0
4
1

7
–
3
1

93
11
32
8

144

90
11
19
19

139

82
12
15
16

125

During the period 2013–2015, 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 effective-
ness and assessments of internal control.

Audit fees to other auditors largely consist of local statutory audits.

Financials – Notes to the consolidated financial statements

101

Ericsson | Annual Report 2015
FINANCIALS
FINANCIALS – Parent Company financial statements

Parent company FINANCIAL
STATEMENTS with NOTES

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

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
Investments
P8
P9
Inventories
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
108
109
109
110
111
112
113
113
114
115
115
116
116
117
117
118
119
119
119
119
119
119
120
120
120

102

Ericsson | Annual Report 2015Parent company FINANCIAL
STATEMENTS

Parent Company income statement

January–December, SEK million

Notes

2015

2014

2013

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

Changes in depreciation in excess of plan
Contributions to subsidiaries, net

Taxes

Net income

Parent Company statement of comprehensive income

January–December, SEK million

Net income

Other comprehensive income
Items that may be reclassified to profit and loss
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

–
–

–

–262
–947

–1,209

3,088

1,879

26,912
–3,228

25,563

–
–1,700

23,863
–263

23,600

–
–

–

–210
–1,170

–1,380

2,768

1,388

8,321
–2,465

7,244

288
–430

7,102
–247

6,855

–118
–922

–1,040

2,889

1,849

15,966
–1,014

16,801

–
–1,500

15,301
–208

15,093

2015

15,093

2014

23,600

2013

6,855

457

15,550

23,646

6,924

Financials – Parent Company financial statements

103

Ericsson | Annual Report 2015Notes

P5
P6

P7, P8
P7, P8

P7
P7, P11
P7, P10
P4
P7

P10
P10
P11

P12
P18
P18

2015

2014

809
456

1,193
470

80,928
330

1,067
14,322
1,440
218
1,610

101,180

81,265
337

496
13,290
1,475
227
811

99,564

–

6
1,241
22,337
158
1,949
25,506
23,118

74,315

8
1,343
21,130
164
2,173
30,577
24,443

79,865

175,495

179,429

FINANCIALS – Parent Company financial statements

Parent Company balance sheet

December 31, SEK million

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

104

Ericsson | Annual Report 2015

December 31, SEK million

Stockholders’ equity, provisions and liabilities
Stockholders’ equity
Capital stock
Revaluation reserve
Statutory reserve

Restricted equity
Retained earnings
Net income
Fair value reserves

Non-restricted equity

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

P13

P15
P16

P17
P17
P11

P17
P20
P11
P19

P21
P22

2015

2014

16,526
20
31,472

48,018
26,913
15,093
572

42,578

90,596

395
412

807

15,228
6,859
24,034
336

46,457

–
459
35,234
1,942

37,635

16,526
20
31,472

48,018
14,156
23,600
115

37,871

85,889

390
1,081

1,471

14,346
6,859
24,034
273

45,512

–
615
40,687
5,255

46,557

175,495

179,429

526
22,461

525
20,906

Financials – Parent Company financial statements

105

Ericsson | Annual Report 2015

FINANCIALS – Parent Company financial statements

Parent Company statement of cash flows

January–December, SEK million

Operating activities
Net income
Adjustments to reconcile net income to cash

Cash flow from operating activities

Investing activities
Investments in property, plant and equipment
Investments in intangible assets
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
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

Cash and cash equivalents, end of period

P18

106

Notes

2015

2014

P23

2013

6,855
956

7,811

48
54
–2,662
279
–1,803
901

–3,183

4,628

–245
–15
–
–883
300
9,047
–
–2,537

5,667

10,295

–2,547
4,436
–2,916
90
–8,863
–2,673
–1,324

23,600
2,057

25,657

–20
–853
–1,083
–74
–425
2,360

–95

25,562

–223
–902
153
–979
201
–7,918
–
3,435

–6,233

19,329

–5,016
–
–7,982
106
–9,702
–431
–619

–23,644

–13,797

4,804

489

23,954

24,443

1,510

–1,992

25,946

23,954

15,093
2,207

17,300

27
137
1,612
–374
–664
–2,223

–1,485

15,815

–148
–17
–
–166
1
–4,387
–875
5,616

15,839

–5,088
–
–
169
–11,033
–1,682
63

–17,571

407

–1,325

24,443

23,118

Ericsson | Annual Report 2015Parent Company statement of changes in stockholders’ equity

SEK million

January 1, 2015

Total comprehensive income

Transactions with owners
Sale of own shares
Stock purchase plans
Dividends paid

December 31, 2015

January 1, 2014

Total comprehensive income

Transactions with owners
Sale of own shares
Stock purchase plans
Dividends paid

December 31, 2014

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

16,526

31,472

48,018

100

–

–
–
–

16,526

–

–
–
–

–

–
–
–

–

–
–
–

–

–
–
–

–

–
–
–

31,472

48,018

31,472

48,018

–

–
–
–

–

–
–
–

–

–
–
–

100

–

–
–
–

115

457

–
–
–

572

–
–
–

16,526

31,472

48,018

100

115

Other
retained
earnings

Non-
restricted
equity

37,656

37,871

Total

85,889

15,093

15,550

169
21
–11,033

41,906

169
21
–11,033

42,578

169
21
–11,033

90,596

23,629

23,798

71,816

23,600

23,646

106
23
–9,702

37,656

106
23
–9,702

37,871

106
23
–9,702

85,889

Financials – Parent Company financial statements

107

Ericsson | Annual Report 2015FINANCIALS
FINANCIALS – Notes to the Parent Company financial statements

notes to the Parent Company
FINANCIAL STATEMENTS

P1 Significant accounting policies

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

2015

2014

2013

2,584
305
–

2,889

2,882
207
–1

3,088

2,639
135
–6

2,768

P3 Financial income and expenses

Financial income and expenses

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

2015

2014

2013

15,254
–

24,644
91

7,054
8

73
–

–

249
200

126
195

–

899
–260

740
988

357
575

15,966

26,912

8,321

–

–1

–137

–356

–317

–500

–

–44

–26
–500
–88

–1,014

14,952

–

–103
–1,121
–1,686

–3,228

23,684

–

–154
–977
–697

–2,465

5,856

Interest expenses on pension liabilities are included in the interest
expenses shown above.

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 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 had one rental agreement up until 2014 which
was 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 differ-
ent 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 finan-
cial statements. Changes to these reserves are reported as an addition to,
or withdrawal from, untaxed reserves in the inco me 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.

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.”

108

Ericsson | Annual Report 2015P4 Taxes

P5 Intangible assets

Income taxes recognized in the income statement

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

2015

2014

5,063
17
–

5,080

–2,925
–401
–

–3,326

–945
–

–945

809

4,161
902
–

5,063

–2,570
–355
–

–2,925

–945
–

–945

1,193

The balances are mainly related to RF technology and IPRs acquired
during 2014.

Current income taxes for the year
Current income taxes related to prior years
Deferred tax income/expense (+/–)

Tax expense

2015

–69
–130
–9

–208

2014

–87
–170
–6

–263

2013

–100
–183
36

–247

A reconciliation between actual tax expense for the year and the theoreti-
cal tax expense that would arise when applying the statutory tax rate in
Sweden, 22.0%, on the income before taxes is shown in the table below.

Reconciliation of Swedish income tax rate with actual tax

Expected tax expense at Swedish tax rate
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 invest-
ments in subsidiary companies

Actual tax expense

2015

2014

2013

–3,366
–130
–13
3,383

–82

–208

–5,250
–170
–326
5,554

–71

–263

–1,567
–183
–23
1,636

–110

–247

Deferred tax balances
Tax effects of temporary differences have resulted in deferred tax assets
as follows:

Deferred tax assets

2015

218

2014

227

Deferred tax assets refer mainly to costs related to customer finance and
post-employment benefits.

Financials – Notes to the Parent Company financial statements

109

Ericsson | Annual Report 2015Other equipment
and instal lations

Construction
in process and
advance payments

1,569
21
–
96

1,686

–1,163
–161
–

–1,324

362

1,482
33
–89
143

1,569

–1,073
–171
81

–1,163

406

64
126
–
–96

–
–
–

–

162
190
–145
–143

–
–
–

–

Total

1,633
147
–
–

1,780

–1,163
–161
–

–1,324

456

1,644
223
–234
–

1,633

–1,073
–171
81

–1,163

470

FINANCIALS – Notes to the Parent Company financial statements

P6 Property, plant and equipment

Property, plant and equipment

2015
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

Closing balance

Accumulated depreciation
Opening balance
Depreciation
Sales/disposals

Closing balance

Net carrying value

2014
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

Closing balance

Accumulated depreciation
Opening balance
Depreciation
Sales/disposals

Closing balance

Net carrying value

110

Ericsson | Annual Report 2015P7 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
Fair value remeasurement
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

Associated companies

2015

81,265
7
–
–
–
–344
–

80,928

2014

80,756
820
115
2
–
–199
–229

81,265

2015

2014

337
–
–
–
–
–7
–

330

337
–
–
–
–
–
–

337

Other investments in
shares and participations

Receivables from
subsidiaries, non-current

Customer finance,
non-current

Other financial assets,
non-current

2015

2014

2015

2014

2015

2014

2015

2014

507
114
–45
–
457
–

1,033

–11
–
45
–
–

1,067

466
42
–45
–2
46
–

507

–56
–
45
–
–

–11

496

13,290
–
–54
–
–
1,086

14,322

–
–
–
–
–

–

11,024
–
–
–
–
2,266

13,290

–
–
–
–
–

–

1,554
2,262
–1,807
–581
–
28

1,456

–79
–3
67
–
–1

–16

1,119
1,333
–570
–334
–
6

1,554

–55
–9
4
–13
–6

–79

811
923 1)
–25
–99
–
–

1,610

–
–
–
–
–

–

917
17
–61
–62
–
–

811

–
–
–
–
–

–

14,322

13,290

1,440

1,475

1,610

811

1) Convertible loan with PanOptis Holdings, LLC signed of 870 MSEK (100 MUSD) on the 19th of December.

Financials – Notes to the Parent Company financial statements

111

Ericsson | Annual Report 2015FINANCIALS – Notes to the Parent Company financial statements

P8 Investments

The following listing shows certain shareholdings owned directly and indirectly by the Parent Company as of December 31, 2015.

A complete listing of shareholdings, prepared in accordance with the Swedish Annual Accounts Act and filed with the Swedish Companies Registra-

tion 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

Company

Subsidiary companies
Ericsson AB
Ericsson Shared Services AB
Netwise AB
Datacenter i Rosersberg AB
Datacenter i Mjärdevi Aktiebolag
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.
L M Ericsson Limited
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 Media Solutions 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
ST-Ericsson SA
Rockstar Consortium Group
Ericsson Nikola Tesla d.d.

Total

Reg. No.

Domicile

Percentage of
ownership

Par value in local
currency, million

Carrying value,
SEK million

556056-6258
556251-3266
556404-4286
556895-3748
556366-2302
556030-9899
556326-0552

Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden

Austria
Denmark
Finland
France
Germany
Hungary
Ireland
Ireland
Italy
The Netherlands
Norway
Norway
Russia
Spain
Switzerland
United Kingdom

United States
Argentina

Canada
Canada
Mexico

Australia
China
China
India
India
Israel
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
100
100
–

100

95 1)

100
100
100
–

100
100
100
100
100
100
75
70
100
75
90
49 2)
–

50
21
49

50
361
2
–
10
14
5
–

4
90
13
26
–
1,301
2
4
44
222
75
161
5
43
–
328
–

2,896

41
–
–
–
–

20
2
65
725
389
–
600
2
2
–
270
90
–

137
1
65

20,731
2,216
306
88
69
6
5
1,640

65
216
196
524
4,232
120
15
34
5,357
3,199
114
1,729
5
170
–
4,094
269

29,006

15
51
170
1,050
166

100
2
475
147
64
711
3,114
4
1
144
36
17
255

80,928

–
–
330

330

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

Ericsson | Annual Report 2015
Shares owned by subsidiary companies

Company

Subsidiary companies
Ericsson Cables Holding AB
Ericsson France SAS
Ericsson Telekommunikation GmbH 1)
Ericsson Telecommunicatie B.V.
Ericsson Telekomunikasyon A.S.
Ericsson Ltd.
Redbee Media
Ericsson Inc.
Ericsson Wifi Inc.
Drutt Corporation Inc.
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.

Reg. No.

Domicile

Percentage
of ownership

556044-9489

Sweden
France
Germany
The Netherlands
Turkey
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
Brazil
Australia
China
China
Japan
Singapore

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100

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

P10 Trade receivables and customer finance

Credit risk management is governed on a Group level.

For further information, see Notes to the consolidated financial state-
ments – Note C14, “Trade receivables and customer finance” and Note
C20, “Financial risk management and financial instruments.”

Trade receivables and customer finance

2015

2014

–

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

2015

2014

28
–22

–

6
2,871
–190

2,681

30
–23

8
3,073
–255

2,818

Movements in allowances for impairment

Opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference

Closing balance

Trade receivables

Customer finance

2015

2014

2015

2014

23
–
–
–
–1

23
–
–
–
–

255
27
–47
–42
–3

190

75
191
–4
–11
4

255

Financials – Notes to the Parent Company financial statements

113

Ericsson | Annual Report 2015FINANCIALS – Notes to the Parent Company financial statements

Aging analysis as per December 31

2015
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

2014
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

22
–
–4
–
–
10

23
–
–1
–
–
8

–
–
–
–
–
–22

–22

–
–
–
–
–
–23

–23

–
–
–
–
–
–

–

1
–
–
–
–
–

1,568
1,075
4
3
11
210

2,871

2,072
94
12
682
4
209

3,073

–
–12
–
–
–8
–170

–190

–
–94
–
–
–3
–158

–255

2015

2,871
70

2,941
26
–1,431

1,536
2,681
1,241
3,432

2014

3,073
75

3,148
172
–649

2,671
2,818
1,343
4,975

P11 Receivables and liabilities –

subsidiary companies

Receivables and liabilities – subsidiary companies

Payment due by period

< 1
year

1–5
years

>5
years

Total
2015

Total
2014

Non-current receivables 1)
Financial receivables

–

14,322

Current receivables
Trade receivables
Financial receivables

Total

Non-current liabilities 1)
Financial liabilities

Current liabilities
Trade payables
Financial liabilities

Total

3,107
19,230

22,337

–

233
35,001

35,234

–
–

–

–
–

–

–
–

–

14,322

13,290

3,107
19,230

22,337

5,228
15,902

21,130

24,034

–
–

–

233
35,001

35,234

454
40,233

40,687

1) Including non-interest-bearing receivables and liabilities, net, amounting to SEK –24,034

(–24,034) million.

Transfers of financial assets
Transfers where the Parent Company has not derecognized
the assets in their entirety
As per December 31, 2015 there existed certain customer financing
assets that the Parent Company had transferred to third parties where
the Parent Company did not derecognize the assets in their entirety.
The total carrying amount of the original assets transferred, before the
transfer, was SEK 534 (811) million; the amount of the assets that the
Parent Company continues to recognize was SEK 27 (168) million; and
the carrying amount of the associated liabilities was SEK 0 (0) million.

114

Ericsson | Annual Report 2015
P12 Other current receivables

P13 Equity and other comprehensive income

Other current receivables

Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other

Total

2015

2014

304
62
973
610

516
263
993
401

1,949

2,173

Capital stock 2015
Capital stock at December 31, 2015, 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 2015

January 1, 2015

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
Sale of own shares
Stock Purchase Plans
Dividends paid

December 31, 2015

Equity and other comprehensive income 2014

January 1, 2014

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
Sale of own shares
Stock Purchase Plans
Dividends paid

December 31, 2014

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

16,526

–

–
–
–

–

–
–
–

31,472

48,018

–

–
–
–

–

–
–
–

100

–

–
–
–

115

–

457

–
–
–

16,526

31,472

48,018

100

572

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

16,526

–

–
–
–

–

–
–
–

31,472

48,018

–

–
–
–

–

–
–
–

100

–

–
–
–

–

–
–
–

16,526

31,472

48,018

100

115

Other
retained
earnings

Non-
restricted
equity

37,656

37,871

Total

85,889

15,093

–

457

169
21
–11,033

41,906

169
21
–11,033

42,578

169
21
–11,033

90,596

Other
retained
earnings

Non-
restricted
equity

23,629

23,798

Total

71,816

23,600

–

106
23
–9,702

37,656

106
23
–9,702

37,871

106
23
–9,702

85,889

Financials – Notes to the Parent Company financial statements

115

Ericsson | Annual Report 2015FINANCIALS – Notes to the Parent Company financial statements

P14 Untaxed reserves

Untaxed reserves

2015

Accumulated depreciation in excess
of plan
Total accumulated depreciation in
excess of plan

Jan 1

Additions/
withdrawals (–)

Dec 31

–

Contributions to Swedish subsidiaries amount to SEK 1,500 (1,700)
million. There were no contributions from Swedish subsidiaries in
2015 and 2014.

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 relat-
ing 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

Closing balance provision for pensions

2015

814
–1080

–266
395
266

395

2014

793
–1,031

–238
390
238

390

1) The ITP2 obligation is covered by the Swedish law on safeguarding of pension commitments

and amounts to SEK 804 (755) million.

The defined benefit obligations are calculated based on the actual salary
levels at year-end and based on a discount rate of 3.2%.

Weighted average life expectancy after the age of 65 is 25 years for

women and 23 years for men.

The Parent Company utilizes no assets held by the pension trust.

Return on plan assets was 4.7 (8.1)%.

Plan assets allocation

Cash and cash equivalents
Equity securities
Debt securities
Real estate
Investment funds

Total

Of which Ericsson securities

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

2015

2014

–
205
538
149
188

118
258
382
133
140

1,080
–

1,031
–

2015

2014

390
–
–

104
–78
–49
28

395

407
–6
–8

93
–72
–77
53

390

Estimated pension payments for 2016 are SEK 77 million.

Total pension cost and income recognized in the Income statement

2015

2014

2013

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

68
36
–

104

71
–21

154

39
54
2

65
–24

136

87
40
1

128

73
–

201

Of the total pension cost, SEK 139 (106 in 2014 and 161 in 2013) million is
included in operating expenses and SEK 15 (30 in 2014 and 40 in 2013)
million in the financial net.

116

Ericsson | Annual Report 2015P16 Other provisions

Other provisions

2015
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications

Closing balance

2014
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications

Closing balance

1) Of which SEK 407 (1,073) million is expected to be utilized within one year.

p17 Interest-bearing liabilities

As of December 31, 2015, the Parent Company’s outstanding inter-
est-bearing liabilities, excluding liabilities to subsidiaries, stood at SEK
22.1 (21.2) billion.

Interest-bearing liabilities

Borrowings, current
Current part of non-current borrowings
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

2015

2014

–
–

–

–
–

–

14,699
7,388

22,087

14,346
6,859

21,205

Notes, bonds, bilateral loans and committed credits

Restruc turing

Customer
finance

32
32
–12
–2
–

159
12
–40
–99
–

8
–
–4
–
–

89
1
–4
–78
–

Other

1,041
126
–
–809
–

358

1,442
93
–200
–294
–

1,041

Total other
provisions1)

1,081
158
–16
–811
–

412

1,690
106
–244
–471
–

1,081

To secure long-term funding, the Parent Company uses notes and bond
programs together with bilateral research and development loans. All out-
standing notes and bond loans are issued by the Parent Company under
its Euro Medium-Term Note (EMTN) program or under its U.S. Securities
and Exchange Commission (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. Total weighted average interest rate cost for the long-
term funding during the year was 2.58% (3.45%). The outstanding EUR
bond is revalued based on changes in benchmark interest rates accord-
ing to the fair value hedge methodology stipulated in IAS 39.

In June 2015 the Parent Company renewed their USD 2 billion

multi-currency revolving credit facility and thereby refinanced its credit
facility signed in 2013. 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.

Issued–maturing

Notes and bond loans
2007–2017
2010–2020 2)
2012–2022

Total notes and bond loans

Bilateral loans
2012–2019 3)
2012–2021 4)
2013–2020 5)

Total bilateral loans

Committed credit
Long-term committed credit facility 6)

Total committed credit

Nominal
amount

Coupon

Currency

Book value
(SEK)

Maturity date

5.375%

4.125%

500
170
1,000

98
98
684

2,000

EUR
USD
USD

USD
USD
USD

USD

4,919 1)
1,428
8,352 7)

14,699

822
824
5,742 8)

7,388

June 27, 2017
December 23, 2020
May 15, 2022

September 30, 2019
September 30, 2021
November 6, 2020

June 8, 2020

6) Multi-currency revolving credit facility. Unutilized.

Two one-year extension options remains.

7) Market value SEK 8,793 million.
8) Market value SEK 5,997 million.

Unrealized hedge
gain/loss (included
in book value)

–338

Financials – Notes to the Parent Company financial statements

117

Ericsson | Annual Report 2015
FINANCIALS – Notes to the Parent Company financial statements

P18 Financial risk management and financial instruments

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)

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.

Debt financing is mainly carried out through borrowing in the Swedish

2015

2014

and international debt capital markets.

Fair value

Asset

Liability

Asset

Liability

Bank financing is used for certain subsidiary funding and to obtain

committed credit facilities.

1,351

1,185

Funding programs 1)

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

Total

Of which internal

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

377

225
–

602
49

165
545
53
94

862 2)

338

352

225
–

577
398

–

234
243
176
108

761

–

946
–

2,297
1,994

–

72
937
85
146

933
–

2,118
63

896
656
285
211

1,240 2)

2,053

669

–

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 452 (551) million is reported as non-current assets.

Cash, cash equivalents and short-term investments

SEK billion

Banks

Type of issuer/counterpart
Governments
Corporations
Mortgage institutes

2015
2014

Remaining time to maturity

< 3
months

3–12
months

12.1

–

1–5
years

–

>5
years

–

7.0
3.9
–

23.0
25.4

1.6
–
1.0

2.6
6.5

8.5
–
13.9

22.4
22.4

0.3
–
0.3

0.6
0.7

Total

12.1

17.4
3.9
15.2

48.6
55.0

Euro Medium-Term Note program
(USD million)
SEC Registered program (USD million)

Amount

Utilized Unutilized

5,000
2)

712
1,000

4,288

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

At year-end, the Company’s credit rating by Standard & Poor’s credit rat-
ing outlook remained BBB+ (stable) and by Moody’s it remained at Baa1
(stable). 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 2.8 (4.9) billion in relation
to assets and gross SEK 2.7 (5.5) billion in relation to liabilities were val-
ued 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 and other financial investments where
the Company neither has control nor significant influence. The amount
recognized in these cases was SEK 1.9 (0.5) billion. These assets, clas-
sified as level 3 assets for valuation purposes, have been valued based
on value in use technique.

Financial instruments, book value

Trade
recei v ables

Short-
term
investment

P10

–
2.7

–

2.7

26.0
–

–

26.0

Rec eiv-
ables and
liabilities
sub sidi-
aries

P11

–
36.7

–59.3

–22.6

SEK billion

Note
Assets at fair value through
profit or loss
Loans and receivables
Financial Liabilities at
amortized cost

Total

Interest
bearing lia-
bilities

Trade
payables

Cash
equivalent

Other
current
receivables

Other
current
liabilities

Other
non-
current
assets

2015

2014

P17

P20

–
–

–22.1

–
–

–0.3

12.8
–

–

12.8

P12

1.0
–

–

1.0

P19

–0.9
–

–

–0.9

1.3
–

–

1.3

40.2
39.4

–81.7

–2.1

37.0
37.2

–86.3

–12.1

118

Ericsson | Annual Report 2015P19 Other current liabilities

P23 Statement of cash flows

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.

P21 Assets pledged as collateral

Assets pledged as collateral

Bank deposits

Total

2015

195
643
382
261
43
940
121

1,942

2014

205
693
357
336
41
4,109
207

5,255

2015

2014

273
186

459

411
204

615

2015

526

2014

525

The major item in bank deposits is the internal bank’s clearing and settle-
ment commitments of SEK 295 (303) million.

Interest paid in 2015 amounted to SEK 557 million (SEK 864 in 2014 and
SEK 1,022 million in 2013) and interest received was SEK 1,009 million
(SEK 1,657 in 2014 and SEK 1,203 million in 2013). Income taxes paid
were SEK 327 million (income taxes paid were SEK 321 million in 2014
and income taxes received SEK 255 million in 2013).

Adjustments to reconcile net income to cash

2015

2014

2013

161

402
–

402

563
–119

171

355
–

355

526
–58

203

218
–

218

421
–7

400

434

–
1,500
–
–137

–
1,700
–
–139

–288
430
–
–34

2,207

2,057

956

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 lessee
At December 31, 2015, future payment obligations for leases were
distributed as follows:

Future payment obligations for leases

P22 Contingent liabilities

Contingent liabilities

Total contingent liabilities

2016
2017
2018
2019
2020
2021 and later

Total

2015

2014

22,461

20,906

Operating leases

690
531
387
369
327
1,226

3,530

Contingent liabilities include pension commitments of SEK 17,544 (16,910)
million.

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 2015
was SEK 22,420 (19,801) million. 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.”

Leasing with the Parent Company as lessor
At December 31, 2015, future minimum payment receivables were
distributed as follows:

Future minimum payment receivables

Operating leases

2016
2017
2018
2019
2020
2021 and later

Total

4
1
1
–
–
–

The operating lease income is mainly income from the subleasing of real
estate. See Notes to the consolidated financial statements, Note C27,
“Leasing.”

Financials – Notes to the Parent Company financial statements

119

Ericsson | Annual Report 2015

FINANCIALS – Notes to the Parent Company financial statements

P25 Information regarding employees

Average number of employees

2015

2014

Men Women

Total

Men Women

Total

192
165

357
192
192

167
19

186
167
167

359
184

543
359
359

187
168

355
187
187

172
20

192
172
172

359
188

547
359
359

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

Wages and salaries
Social security expenses
Of which pension costs

Wages and salaries per geographical area

Northern Europe & Central Asia 1) 2)
Middle East

Total
1) Of which in Sweden
2) Of which in the EU

2015

2014

733
361
194

707
341
180

2015

2014

479
254

733
479
479

460
247

707
460
460

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, “Informa-
tion regarding members of the Board of Directors, the Group manage-
ment and employees.”

Long-term variable compensation
The Stock Purchase Plan
Compensation costs for all employees of the Parent Company amounted
to SEK 21.0 (22.4) million.

P26 Related party transactions

During 2015, 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 associ-
ated 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

120

2015

2014

3
72

–

1
249

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
Related party balances
Receivables
Payables

2015

2014

–
–

185
186

–
142

170
186

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.”

P27 Fees to auditors

Fees to auditors

2015
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

2014
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

2013
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

PwC

22
8
2
–

24
7
1
1

22
8
1
10

The allocation of fees to the auditors is based on the requirements in the
Swedish Annual Accounts Act.

During the period 2013–2015, in addition to audit services, PwC provided
certain audit-related services, tax and other services to the Parent Com-
pany. 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 corporate tax compliance work. Other services include services
related to acquisitions, operational effectiveness and assessments of
internal control.

Ericsson | Annual Report 2015FINANCIALS

risk factors

Contents

Market, Technology and Business risks

Regulatory, Compliance and Corporate Governance risks

Risks associated with owning Ericsson shares

121

126

128

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, profit margins, financial condition, cash
flow, liquidity, credit rating, market share, 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 and political unrest
may adversely impact the demand and pricing for our prod-
ucts and services as well as limit our ability to grow.
Challenging global economic conditions and political unrest could
have adverse, wide-ranging effects on demand for our products
and for the products of our customers. Adverse global economic
conditions and political unrest 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 our products and services,
including network infrastructure, 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. 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

> Risks of excess and obsolete inventories and excess manu-

facturing capacity

> Risk of financial difficulties or failures among our suppliers
> Increased demand for customer finance, difficulties in collec-
tion 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

> Changes in the value in our pension plan assets resulting from
for example, adverse equity and credit market developments
and/or increased pension liabilities resulting from, for example,
lower discount rates. Such development may trigger additional
pension trust capitalization needs affecting the company’s
cash balance negatively

> End user demand could also be adversely affected by reduced
consumer spending on technology, changed operator pricing,
security breaches and trust issues.

We may not be successful in implementing our strategy
or in achieving improvements in our earnings or in estimating
market CAGR in the markets where we operate.
There can be no assurance that we will be able to successfully
implement our strategy to achieve future earnings, growth or cre-
ate shareholder value. 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.
Furthermore, this annual report includes certain estimates with
respect to CAGR in the markets in which we operate, including
targeted areas and core business. If the underlying assumptions
on which our estimates are based prove not to be accurate, the
actual CAGR may be materially different from the CAGR estimates
presented in this annual report.

The telecommunications industry fluctuates and is affected by
many factors, including the economic environment, and deci-
sions 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 ser-
vice provider equipment market, telecommunications services
market and ICT market to grow in the coming years, the uncer-
tainty 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, con-
ditions in the specific industry segments in which we participate
may be weaker than in other segments. In that case, our revenue
and operating results may be adversely affected.

Financials – Risk factors

121

Ericsson | Annual Report 2015FINANCIALS – Risk factors

If capital expenditures by operators and other customers are
weaker than we anticipate, our revenues, operating results and
profitability may be adversely affected. The level of demand from
operators and other customers who buy our products and ser-
vices can change quickly and can vary over short periods of time,
including from month to month. Due to the uncertainty and varia-
tions in the telecommunication industry, as well as in the ICT
industry, accurately forecasting revenues, results, and cash
flow remains difficult.

Sales volumes and gross margin levels are affected by the
mix and 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. In
the targeted areas, such as OSS and BSS, Cloud TV Media, IP
and Industry & Society, third-party products and services repre-
sent a larger portion of our business than our traditional sales,
which challenge our business models including our terms and
conditions. 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 abil-
ity 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 indus-
tries in which we operate, including the convergence of the tele-
com, data and media industries. Convergence is largely driven by
technological developments for example in software and cloud.
This is changing the competitive landscape as well as business
models and affects our objective-setting, risk assessment and
strategies. Competitors new to our business have entered and
may continue to 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 compe-
tencies to develop and sell products, services and solutions that
are competitive in this changing business environment, our busi-
ness, 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 and operating results.
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

122

customers. If operators fail to increase the number of subscribers
and/or usage does not increase, our business and operating results
could be materially adversely affected. Also, if operators fail to mon-
etize new services, fail to introduce new business models or expe-
rience a decline in operator revenues or profitability, their willingness
to further invest in their networks 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, regula-
tion, or market acceptance occur, this could adversely affect our
business, operating 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 also encounter
increased competition from new market entrants and alternative
technologies are evolving industry standards. In particular, we
face competition from large IT companies entering the telecom-
munications 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 compet-
itors 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, which could have a
material adverse effect on our business, operating results, finan-
cial condition and market share. 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

Ericsson | Annual Report 2015that are competing as end-to-end suppliers as well as competi-
tors more specialized in particular areas, which could for example
impact our targeted areas such as OSS and BSS, Cloud TV and
Media, IP and Industry & Society 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
con dition and market share.

A significant portion of our revenue is currently generated
from a limited number of key customers, and operator con-
solidation may increase our dependence on key customers.
We also are significantly dependent on the sales of certain
of our products and services both in core business and
targeted areas.
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 represented
more than 7% of our sales in 2015, our ten largest customers
accounted for 46% of our sales in 2015. 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 addi-
tion, our dependence on the sales of certain of our products
and services in both core business and targeted areas may have
significant adverse impact on sales, profit and market share.

In recent years, network operators have undergone significant
consolidation, resulting in fewer operators with activities in several
countries. This trend is expected to continue, and intra-country
consolidation is likely to accelerate as a result of competitive pres-
sure. A market with fewer and larger operators will increase our reli-
ance 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 consoli-
dation process, which may include, among others, actions relating
to merger or acquisition agreements, securing necessary regula-
tory approvals, or integration of businesses. Network operators
also share parts of their network infrastructure through coopera-
tion 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, market share 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 continu-
ously 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, oper-
ating 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 oppor-
tunity, 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, such 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, business, operating results 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 technolo-
gies, products and solutions that do not function as expected, are
not adopted by the industry, are not ready in time, or are not suc-
cessful 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 and research and development may increase the
cost of research and development efforts and put us at a disad-
vantage against our competition. This could have a material
adverse effect upon our business, operating results and 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 contin-
gent 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

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123

Ericsson | Annual Report 2015FINANCIALS – Risk factors

> Expenses of any undisclosed or potential legal liabilities of the

acquired company

> Difficulties in identifying attractive available targets.

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 acqui-
sitions and divestments could have a material adverse effect upon
our business, operating results, financial condition and liquidity.

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 partnership arrangements, including for example our
recent partnership with Cisco, may fail to perform as expected for
various reasons, including an incorrect assessment of our needs
and synergies, our inability to take action without the approval of
our partners, our diffilcuties in implementing our business plans,
including for example, with respect to product resales and IP
development, or the lack of capabilities or financial instability 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 JVs and partnerships may
adversely affect our business, operating results, financial condi-
tion 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 contrac-
tual 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 possi-
ble. Accordingly, there is a risk that we will be unable to obtain key
supplies we need to produce our products and provide our ser-
vices 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 com-
ponents 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 pre-
dict 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 pur-
chased capacity ahead of us we could be blocked from acquiring
the needed products. This factor could limit our ability to supply
our customers and 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 dis-

124

ruptions 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 prod-
ucts 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, business, 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
o ur 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 con-
tinue 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 cur-
rency, 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 US dollars or
Euros, we presently have a net revenue exposure in foreign curren-
cies which means that a stronger SEK exchange rate would gen-
erally have a negative effect on our reported results. Our attempts
to reduce the effects of exchange rate fluctuations through a vari-
ety of hedging activities may not be sufficient or successful, result-
ing 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 relating to patents, inability to prevent infringement,
the loss of licenses to or 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 essential patents.
Although we have a large number of patents, there can be no
assurance that they will not be challenged, invalidated, or circum-
vented, 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

Ericsson | Annual Report 2015take 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 intel-
lectual 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 will be available on acceptable terms, or at all. Moreover,
the inclusion in our products of software or other intellectual prop-
erty 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. In addition to industry-wide standards, other key
industry-wide software solutions are today developed by market
participants as free and open source software. Contributing to
the development and distribution of software developed as free
and open source software may limit our ability to enforce applic-
able patents in the future. Third parties have asserted, and may
assert in the future, claims, directly against us or against our cus-
tomers, 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 prod-
ucts/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 judg-
ments could have a material adverse effect on our business, repu-
tation, operating results and financial condition. Using free and
open source software may allow third parties to further investigate
our software due to the accessibility of source code. This may in
turn make this software more prone to assertions from third parties.
Recent attention on licensing of patents necessary to conduct
an open standard (e.g. 2G, 3G and 4G technology), investigations
held by antitrust authorities, court judgments 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, oper-
ating results and financial condition. Ericsson holds a leading pat-
ent portfolio in open standards and possible changes regarding
such a portfolio may materially affect our reputation, business,
operating results and financial condition.

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 pro-
ceedings. These lawsuits include such matters as commercial
disputes, claims regarding intellectual property, antitrust, tax and
labor 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 law-
suits 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 com-
pensation to the plaintiffs could have significant impact on our
reported results and reputation. For additional information regard-
ing 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 commu-
nications networks, which are vulnerable to damage or disturb-
ance from a variety of sources. Having outsourced significant
portions of our operations, such as IT, finance and HR operations,
we depend on the performance of external companies, including
their security and reliability measures. Regardless of protection
measures, systems and communications networks are suscepti-
ble to disruption due to failure, vandalism, computer viruses,
security or privacy breaches, natural disasters, power outages
and other events. We also have a concentration of operations on
certain sites, including R&D, production, network operation cen-
ters, ICT 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. Interrup-
tions to our systems and communications may have an adverse
effect on our operations and financial condition.

Cyber security incidents 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 that may impact confidenti-
ality, availability or integrity of products, services or solutions.
These incidents may include data breaches, intrusions, espionage,
know-how and data privacy infringements, leakage, unauthorized
or accidental modification of data and general malfeasance.
Examples of these areas include, among others, research and
development, managed services, usage of cloud solutions, soft-
ware development, lawful interception, product engineering, IT,
finance and HR operations. 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 out-
sourced significant aspects of our IT infrastructure, product devel-
opment, engineering services, finance and HR operations. While
we have taken precautions relating to the selection, integration and
ongoing management of these third parties, any event or incident
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 prop-
erty or sensitive information 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 cont-
inued ability to hire, develop, motivate and retain engineers and
other qualified personnel needed to develop successful new

Financials – Risk factors

125

Ericsson | Annual Report 2015FINANCIALS – Risk factors

products, support our existing product range and provide ser-
vices to our customers.

Competition for skilled personnel and highly qualified manag-
ers in the industries in which we operate 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.

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 eco-
nomic conditions have impacted some of our customers’ ability to
pay their invoices. Although our credit losses have historically
been low and we have policies and procedures for managing cus-
tomer 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 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
cash flow may materially suffer.
Our business requires a significant amount of cash. 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 reasonable terms,
our business, financial condition and cash flow are likely to be
adversely affected. Access to funding may decrease or become
more expensive as a result of our operational and financial condi-
tion, market conditions, including financial conditions in the Euro-
zone, 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 on reasonable terms or at all. If we
cannot access capital on a commercially viable basis, our busi-
ness, financial condition and cash flow could materially suffer.

Impairment of goodwill or other intangible assets may nega-
tively impact our financial condition and results of operations.
An impairment of goodwill or other intangible assets could adver-
sely affect our financial condition or results of operations. We have
a significant amount of goodwill and other intangible assets; for
example, patents, customer relations, trademarks and software.
Goodwill is the only intangible asset the company has recog-

nized to have indefinite useful life. Other intangible assets are

126

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 fully 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 impair-
ment charges may be incurred in the future that could be signifi-
cant 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 esti-
mated 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 risk

Ericsson may fail or be unable to comply with laws or regul-
ations and could experience penalties and adverse rulings
in enforcement or other proceedings. Compliance with
changed laws or regulations may subject Ericsson to
increased costs or reduced products and services demand.
Compliance failure as well as required operational changes
could have a material adverse impact on our business,
financial condition and brand.
The industries in which we operate are subject to laws and regula-
tions. While Ericsson strives for compliance, we cannot assure
that violations do not occur. If we fail to or are unable to comply
with applicable laws and regulations, we could experience pen-
alties and adverse rulings in enforcement or other proceedings,
which could have a material adverse effect on our business, fin-
ancial condition and reputation.

Further changes in laws or regulations could subject us to lia-
bility, increased costs, or reduced products and services demand
and have a material adverse effect on our business, financial con-
dition and brand.

Changes to regulations may adversely affect both our custom-
ers’ 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 infra-
structure, which in turn could affect the sales of our systems and
services. Additionally, delay in radio frequency spectrum alloca-
tion, 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 exist-
ing regulations and technical standards, or the implementation of
new regulations and technical standards relating to products and

Ericsson | Annual Report 2015services 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 (including the cross-border transfer of personal
data for example between the EU and the US), and other regula-
tory areas may increase costs and restrict our operations or the
operations of network operators and service providers. Also indi-
rect 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.

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 con-
ditions unique to specific countries or regions. We have custom-
ers 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 additional risks, includ-
ing civil disturbances, acts of terrorism, economic and geopolitical
instability and conflict, pandemics, the imposition of exchange
controls, economies which are subject to significant fluctuations,
nationalization of private assets or other governmental actions
affecting the flow of goods and currency, effects from changing
climate and difficulty of enforcing agreements and collecting
receivables through local legal systems. Further, in certain mar-
kets in which we operate, there is a risk of protectionist govern-
mental measures implemented to assist domestic market partici-
pants 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 regula-
tions and sanctions or other trade embargoes in force in all parts
of the business process. The political situation in parts of the
world, particularly in the Middle East, remains uncertain and the
level of sanctions is still high. A universal element of these sanc-
tions are 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 coun-
try. Specifically on Iran, the Joint Comprehensive Plan of Action
(“JCPOA”) agreement between Iran and other countries have set
the stage for relieving the nuclear related sanctions towards Iran,
particularly the EU sanctions. Although many sanctions against
Iran have already been relaxed pursuant to the JCPOA, there are
provisions in the agreement to re-introduce sanctions if parts of
the agreement are not met. Further there is a risk in many of these
countries of unexpected changes in regulatory requirements, tar-
iffs 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 put upon 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 fur-
ther trade restrictions may also expose us to customer claims and
other actions. Although we seek to comply with all such regula-
tions, there can be no assurance that we are or will be compliant
with all relevant regulations at all times. Such violations could have
material adverse effects on our business, operating results, repu-
tation and brand.

The business operations are complex involving the development,
production and delivery of telecom solutions to customers in a
very large number of jurisdictions. Each jurisdiction has its own tax
legislation and regulations and we therefore face the challenge of
complying with the relevant rules in each of these countries.
These rules involve income taxes and indirect taxes such as VAT
and sales taxes as well as withholding taxes on domestic and
crossborder payments and social security charges related to our
employees. Constant changes of the rules and the interpretation
of the legislation also create exposures regarding taxes. This
results in complex tax issues and tax disputes that may lead to
additional tax payment obligations. Being a global operation, we
also face risk of being taxed for the same income in more than one
jurisdiction (double taxation). This could have adverse effects on
our operating results, reputation and brand.

In certain regional markets, there are trade barriers that limit
competition. Should these trade barriers be removed or lowered,
competition may increase, which could have material adverse
effects on our business and operating results.

There has been a growing concern reported by media and
others, that certain countries may use features of their telecom-
munications systems in violation of human rights. This may
adversely affect the telecommunications business and may have
a negative impact on our reputation and brand.

We may fail to comply with our corporate governance
standards, which could negatively affect our business,
operating results, financial condition, reputation and brand.
We are subject to corporate governance laws and regulations and
are also committed to several corporate responsibility and sus-
tainability initiatives. In some of the countries where we operate,
corruption risks are high. In addition, there is higher focus on anti-
corruption, for example with changed legislation in many coun-
tries. To ensure that our operations are conducted 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 pro-
cesses and operations. Our commitment to apply the UN Global
Compact principles, the UN Guiding Principles on Business and
Human Rights and principles of the World Economic Forum’s
Partnering Against Corruption Initiative to our operations cannot
fully prevent unintended or unlawful use of our technology by
democratic and non-democratic regimes, violation of our Code of
Business Ethics, corruption or violations of our Code of Conduct
in the supply chain. There is also an increased demand from
external stakeholders, for example non-governmental organiza-
tions and investors, on transparency about sustainability and cor-
porate responsibility issues that might be difficult to fulfill. While
we attempt to monitor and audit internal compliance with the poli-
cies 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, financial condition, 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, products and
services in each of the jurisdictions in which we operate. While we
work actively to ensure compliance with all material laws and reg-

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127

Ericsson | Annual Report 2015FINANCIALS – Risk factors

ulations related to the environment, health, and safety that apply
to us, we can provide no assurance that we have been, are, or will
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 diffi-
cult 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 con-
dition, reputation and brand.

Potential health risks related to radiofrequency electro-
magnetic fields may subject us to various product liability
claims and result in regulatory changes.
The mobile telecommunications industry is subject to claims that
mobile devices and other equipment that generate radiofrequency
electromagnetic fields may expose users to health risks. At present,
a substantial number of scientific reviews conducted by various
independent research bodies have concluded that radiofrequency
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 perce-
ived 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 cur-
rently applicable safety standards and regulations regarding radio-
frequency 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
changed regulatory requirements 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 (“SEC”)
adopted a rule requiring disclosures of specified minerals ( “con-
flict minerals”) that are necessary to the functionality or production
of products manufactured or contracted to be manufactured by
companies that file periodic reports with the SEC, whether or not
these products or their components are manufactured by third
parties. While we believe that we are able to fulfill these require-
ments 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.
These requirements could adversely affect the sourcing, availa-

bility and pricing of minerals used in the manufacture of certain of
our products. In addition, since our supply chain is complex, we
may not be able to sufficiently verify the origins for these minerals
contained in our products through the due diligence procedures
that we implement, which may harm our reputation. We may also
encounter challenges if customers require that all of the compo-
nents of our products be certified as conflict-free.

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 financial results and the expectations of financial ana-
lysts, as well as statements and market speculation regarding our
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 regard-

ing 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 introduc-
tion and viability of new network systems, including LTE evolu-
tion / 5G small cells products and new platforms such as the
HDS 8000 ( Hyperscale Datacenter System) platform.
> Actual or expected results of ongoing or potential litigation
> Announcements concerning bankruptcy or investigations into
the accounting procedures of ourselves or other telecommuni-
cations companies

> Our ability to forecast and communicate our future results in

a manner consistent with investor expectation

Currency fluctuations may adversely affect our share price
or value of dividends.
Because our shares are quoted in SEK on Nasdaq Stockholm
(our primary stock exchange), but in US dollars on NASDAQ New
York (ADSs), fluctuations in exchange rates between SEK and US
dollars may affect our share price. 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 alterna-
tive exchanges or markets, which may lead to less accurate share
price information on Nasdaq Stockholm or NASDAQ New York.

128

Ericsson | Annual Report 2015FINANCIALS

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 2015. (The
annual accounts and consolidated accounts of the company are
included in the printed version of this document on pages 42–128.)

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 respons-
ible for the preparation and fair presentation of these annual
accounts and consolidated accounts in accordance with Intern-
ational 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 con-
ducted 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 evi-
dence 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 appropriate-
ness 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 suffi-

cient and appropriate to provide a basis for our audit opinion.

Opinions
In our opinion, the annual accounts have been prepared in accord-
ance with the Annual Accounts Act and present fairly, in all mate-
rial respects, the financial position of the Parent Company as of
31 December 2015 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 the group as of 31
December 2015 and of their financial performance and cash flows

Financials – Auditor’s report

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 share-
holders 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 2015.

Responsibilities of the Board of Directors
and the President and CEO
The Board of Directors is responsible for the proposal for appro-
priations of the company’s profit or loss, and the Board of Direc-
tors 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 assur-
ance 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 stan-
dards in Sweden.

As a basis for our opinion on the Board of Directors’ proposed

appropriations of the company’s profit or loss, we examined
the Board of Directors’ reasoned statement and a selection of
supporting evidence in order to be able to assess whether the
proposal is in accordance with the Companies Act.

As a basis for our opinion concerning discharge from liability,
in addition to our audit of the annual accounts and consolidated
accounts, we examined significant decisions, actions taken and
circumstances of the company in order to determine whether any
member of the Board of Directors or the President and CEO is
liable to the company. We also examined whether any member
of the Board of Directors or the President and CEO has, in any
other way, acted in contravention of the Companies Act, the
Annual Accounts Act or the Articles of Association.

We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.

Opinions
We recommend to the annual meeting of shareholders that the
profit be appropriated in accordance with the proposal in the
statutory administration report and that the members of the
Board of Directors and the President and CEO be discharged
from liability for the financial year.

Stockholm, February 26, 2016
PricewaterhouseCoopers AB

Peter Nyllinge

Authorized Public Accountant

Bo Hjalmarsson
Authorized Public Accountant

Auditor in Charge

129

Ericsson | Annual Report 2015

FINANCIALS – Forward-looking statements

Forward-looking
statements

This Annual Report includes forward-looking statements, includ-
ing 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.

Forward-looking statements may be found throughout this docu-
ment, and include statements regarding:
> Our goals, strategies and operational or financial performance

expectations

> Development of corporate governance standards, stock

market regulations and related legislation

> The 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 for-
ward-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 and political unrest

may adversely impact the demand and pricing for our products
and services as well as limit our ability to grow.

> We may not be successful in implementing our strategy or in

achieving improvements in our earnings or in estimating market
CAGR in the markets where we operate.

> The telecommunications industry fluctuates and is affected by
many factors, including the economic environment, and deci-
sions 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 mix

and 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 conver-
gence of the telecom, data and media industries, which may
harm our market position relative to our competitors.

> 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 and oper-
ating results.

> We face intense competition from our existing competitors as
well as new entrants, including IT companies entering the tele-
communications market, and this could materially adversely
affect our results.

> Vendor consolidation may lead to stronger competitors who

are able to benefit from integration, scale and greater
resources.

> 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 also are
significantly dependent on the sales of certain of our procuts
and services both in core business and targeted areas.
> Certain long-term agreements with customers still include

commitments to future price reductions, requiring us to con-
stantly 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.

130

Ericsson | Annual Report 2015 > 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, pro-
duction 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 reve-

nue and gross margins and declining sales to existing and new
customers.

> Due to having a significant portion of our costs in SEK and rev-
enues in other currencies, our business is exposed to foreign
exchange fluctuations that could negatively impact our reve-
nues 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 relating to patents, inability to prevent infringement,
the loss of licenses to or 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 atten-
tion on licensing of open standard essential patents.

> We are involved in lawsuits and investigations which, if deter-

mined 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 opera-
tions, whether due to natural or man-made events, may be
highly damaging to the operation of our business.

> Cyber security incidents 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 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 cash flow may
materially suffer.

> Impairment of goodwill or other intangible assets may nega-
tively impact financial condition and results of operations.
> Ericsson may fail or be unable to comply with laws or regula-
tions and could experience penalties and adverse rulings in
enforcement or other proceedings. Compliance with changed
laws or regulations may subject Ericsson to increased costs or
reduced products and services demand. Compliance failure as
well as required operational changes could have a material
adverse impact on our business, financial condition and brand.

> Our substantial international operations are subject to uncer-

tainties which could affect our operating results.

> We may fail to comply with our corporate governance stan-

dards which could negatively affect our business, operating
results, financial condition, reputation and brand.

> Failure to comply with environmental, health and safety regula-
tions in many jurisdictions may expose us to significant penal-
ties and other sanctions.

> Potential health risks related to radiofrequency 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 our share price 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.

Financials – Forward-looking statements

131

Ericsson | Annual Report 2015CORPORATE GOVERNANCE

CORPORATE GOVERNANCE
REPORT 2015

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.

Today’s global business environment is challenging in
many ways. Therefore, a robust corporate culture is more import-
ant than ever to maintain credible, competitive and sustainable
business operations worldwide. Board and management commit-
ment is a key factor in establishing and maintaining such robust
corporate culture. As Chairman of the Board, I must therefore
secure that good governance, leadership and talent management
is continuously high on the agenda in the Board room as well as
throughout our global operations. Ericsson’s core values are:
Professionalism, Respect and Perseverance”. These have been
consistent for many years and are well known and appreciated
throughout the organization. I believe that the core values,
together with the Group’s continuous corporate governance
focus, play an important role in creating and maintaining a robust
corporate culture where business is conducted with integrity.

Important tasks of the Board of Directors are to support and
develop talent management, to give Group management clear
governance frameworks and mandates, and to set the Group
strategy. I always strive to enable an open and meaningful dia-
logue, both within the Board and between the Board and the
Group management. The management dialogue aims to give the
Board relevant insights in the business activities of Ericsson and in
the markets in which Ericsson operates. The Board also visits vari-
ous parts of the Group’s business operations as well as engages
with customers, partners, academia and thought leaders in order
to gain further insights. I believe that these insights are necessary
for the Board to provide relevant support to management and
add value, while also exercising due control of the business
operations.

This Corporate Governance Report 2015 aims to describe
how Ericsson continuously works with these matters and how
we focus on establishing efficient and reliable controls and pro-
cedures. I believe that Ericsson’s continuous corporate govern-
ance focus and work to create a robust corporate culture build
trust, and in turn generate value for our investors.

Leif Johansson
Chairman of the Board of Directors

Contents

Regulation and compliance

Governance structure

Shareholders

General Meetings of shareholders

Nomination Committee

Board of Directors

Committees of the Board of Directors

Remuneration to Board members

Members of the Board of Directors

Management

Members of the Executive Leadership Team

Auditor

Internal control over financial reporting 2015

Auditor’s report on the Corporate Governance Report

133

134

135

136

137

140

143

144

148

152

155

156

158

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.

Ericsson’s core values

Professionalism

Respect

Perseverance

132

Our values are the
foundation of our cul-
ture. 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.

Ericsson | Annual Report 2015The Code of Business Ethics
and the Code of Conduct
can be found on Ericsson’s
website.

Code of
Business
Ethics

ERICSSON
Code of
Conduct

Regulation and compliance

External rules
As a Swedish public limited liability company
with securities quoted on Nasdaq Stockholm
as well as on NASDAQ New York, Ericsson is
subject to a variety of rules that affect its gover-
nance. The most relevant external rules applic-
able to us include:
> The Swedish Companies Act
> The Rule Book for issuers of Nasdaq

Stockholm

> The Swedish Corporate Governance Code

(the “Code”)

> NASDAQ Stock Market Rules, including
applicable NASDAQ New York corporate
governance requirements (subject to certain
exemptions principally reflecting mandatory
Swedish legal requirements)

> Applicable requirements of the US Securities

and Exchange Commission (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 busi-
ness processes for approval, control and risk
management

> A Code of Conduct, which applies to product
development, production, supply and sup-
port of Ericsson products and services
worldwide.

The articles of association and the work pro-
cedure for the Board of Directors also include
internal corporate governance rules.

Code of Business Ethics
Ericsson’s Code of Business Ethics summarizes
fundamental Group policies and directives and
contains rules to ensure that business is con-
ducted 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 contains rules
for all individuals performing work for Ericsson,
under the staff management of Ericsson or in
Ericsson premises. The Code of Business Ethics
has been translated into more than 30 lan-
guages. This ensures that it is accessible to
everyone working for Ericsson. Upon recruit-
ment, employees acknowledge that they are
aware of the principles of the Code of Business
Ethics. This procedure is repeated during the
term of employment. During 2015, the Code of
Business Ethics was acknowledged by employ-
ees throughout Ericsson’s global organization.
Through this process, Ericsson strives to raise
awareness throughout its global operations.

Everyone working for Ericsson has an individ-

ual responsibility to ensure that business prac-
tices adhere to the Code of Business Ethics.

Compliance with regulations

Compliance with the Swedish
Corporate Governance Code
The Code is based on the principle of “comply or
explain” and is published on the website of the Swed-
ish Corporate Governance Board, which adminis-
trates the Code: www.corporategovernanceboard.se.
Ericsson is committed to com plying with best-practice
corporate governance on a global level wherever pos-
sible. This includes continued compliance with the
Code. Ericsson does not report any deviations from
the rules of the Code in 2015.

Compliance with applic able
stock exchange rules
There has been no infringement by Ericsson of
applicable stock exchange rules and no breach of
good practice on the securities market reported by
the disciplinary committee of Nasdaq Stockholm
or the Swedish Securities Council in 2015.

Corporate Governance – Corporate Governance Report

133

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

Governance structure

Shareholders

Ownership percentage (voting rights)

Swedish institutions:

54.66%

Of which:
– Investor AB:
– AB Industrivärden:
(together with SHB Pensions-
stiftelse and Pensionskassan
SHB Försäkringsförening)

21.50%
20.05%

Foreign institutions:
Swedish retail investors:
Others:

30.61%
5.53%
9.20%

Source: Nasdaq

Shareholders may exercise their decision-
making rights in Telefonaktiebolaget LM Ericsson
(the “Parent 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 Board
members and external auditor 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 opera-
tions.

The President and CEO, appointed by the
Board of Directors, is responsible for handling
the day-to-day management of Ericsson in
accordance with guidelines issued by 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.

Ownership structure
As of December 31, 2015, the Parent Company
had 468,089 registered shareholders, of which
456,431 were resident or located in Sweden
(according to the share register kept by Euro-
clear Sweden AB). Swedish institutions held
approximately 54.66% of the votes. The largest
shareholders as of December 31, 2015 were
Investor AB with 21.50% of the votes and
AB Industrivärden (together with Svenska Han-
delsbankens Pensionsstiftelse and Pensions-
kassan SHB Försäkringsförening), with 20.05%
of the votes.

A significant number of the shares held by
foreign investors are nominee-registered, i.e.
held of record by banks, brokers and/or nomi-
nees. 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 con-
sists of two classes of shares listed on Nasdaq
Stockholm: 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 converted into Class B
shares before they are used to create treasury
stock to finance and hedge long-term variable
compensation programs resolved by the General
Meeting of shareholders.

In the United States, the Ericsson Class B
shares are 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.

Governance structure

General Meetings of shareholders

Annual General Meeting/Extraordinary General Meeting

Unions

Board of Directors

Directors elected by the General Meetings of shareholders
3 Directors and 3 Deputies appointed by the Trade Unions

Audit
Committee

Finance
Committee

Remuneration
Committee

Nomination
Committee

External
Auditor

President and CEO

Management

134

Ericsson | Annual Report 2015General Meetings of shareholders

Decision-making at General Meetings
The decision-making rights of Ericsson’s share-
holders 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

Ericsson’s Annual General Meeting 2015
Including shareholders represented by proxy,
3,009 shareholders were represented at the
AGM held on April 14, 2015, representing more
than 68% of the votes.

The meeting was also attended by members
of the Board of Directors, members of the Exec-
utive Leadership Team (ELT) and the external
auditor.

Decisions of the AGM 2015 included:

employees participating in long-term variable
compensation programs.

> Payment of a dividend of SEK 3.40 per share
> Re-election of Leif Johansson as Chairman of

The Annual General Meeting of shareholders
The Annual General Meeting of shareholders
(AGM) is held in Stockholm. The date and venue
for the meeting are announced on the Ericsson
website no later than at the time of release of
the third-quarter interim financial report in the
preceding year.

Shareholders who cannot participate in
person may be represented by proxy. Only
shareholders registered in the share register
have voting rights. Nominee-registered share-
holders 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 simultane-
ously translated 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 mem-
bers of the Board of Directors and the Executive
Leadership Team is present to answer such
questions.

the Board of Directors

> Re-election of other members of the Board of
Directors: Roxanne S. Austin, Nora Denzel,
Börje Ekholm, Alexander Izosimov, Ulf J.
Johansson, Kristin Skogen Lund, Hans Vest-
berg and Jacob Wallenberg

> Election of new Board members: Anders
Nyrén and Sukhinder Singh Cassidy
> Approval of Board of Directors’ fees:
– Chairman: SEK 4,000,000 (previously

SEK 3,975,000)

– Other non-employee Board members:
SEK 975,000 each (previously SEK
950,000)

– 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 Remunera-
tion Committees: SEK 200,000 each
(unchanged)

– Other non-employee members of the

Finance and Remuneration Committees:
SEK 175,000 each (unchanged)

The external auditor is always present at

> Approval for part of the Directors’ fees to be

the AGM.

paid in the form of synthetic shares

> Approval of Guidelines for remuneration to

Group management

> Implementation of a Long-Term Variable

Compensation Program 2015.

The minutes from the AGM 2015 are available on
Ericsson’s website.

Annual General Meeting 2016

Ericsson’s AGM 2016 will take place on April 13, 2016 at Stockholm Waterfront Congress
Centre in Stockholm. Further information is available on Ericsson’s website.

Contact the Board of Directors

The Board of Directors Secretariat
SE-164 83 Stockholm
Sweden
boardsecretariat@ericsson.com

Corporate Governance – Corporate Governance Report

135

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

Nomination Committee

The Annual General Meeting of shareholders
has adopted an Instruction for the Nomination
Committee that includes the tasks of the Nomi-
nation Committee and the procedures for
appointing its members. The instruction applies
until the General Meeting of shareholders
resolves otherwise. Under the instruction,
the Nomination Committee shall consist of:
> Representatives of the four largest share-
holders 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 members,
appointed in May 2015 are:
> Petra Hedengran (Investor AB), Chairman of

the Nomination Committee
> Johan Held (AFA Försäkring)
> Leif Johansson, Chairman of the Board of

Directors

> Bengt Kjell (AB Industrivärden, Svenska
Handelsbankens Pensionsstiftelse)

> 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. As
member of the Nomination Committee, the
Chairman of the Board of Directors fulfils an
important role to inform the Committee of the
Company’s strategy and future challenges. Such
insights are necessary for the Committee 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 remunera-
tion 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 2016
The Nomination Committee started its work by
going through a checklist of its duties under 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 mem-
bers of the Nomination Committee. Therefore,
the Committee met with Ericsson’s President
and CEO who, together with the Chairman of the
Board, presented 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 has assessed the competence
and experience required by Ericsson Board
members as well as the need for improvement
of the composition of the Board in terms of
diversity in age, gender and cultural/geographic
background.

The Nomination Committee aims to propose
a composition of Board members with comple-
menting experiences and competencies to
make it possible for the Board to contribute to
a positive development of Ericsson. The Nomi-
nation Committee searches for potential Board
member candidates both with a long-term and
a short-term perspective and the Committee
makes particular efforts to identify potential
female candidates that would bring relevant
expertise and competence to the Board, while
also improving the gender balance. The Nomi-
nation Committee considers the need for
renewal and diversity and carefully assesses
whether the proposed Directors have the capa-
bility to devote necessary time and care to the
Board work.

In 2015, the Committee met with the Chair-
man of the Audit Committee to acquaint itself
with the assessments made by the Company
and the Audit Committee of the quality and
efficiency of external auditor work. The Audit
Committee also provided its recommendations
on external auditor and audit fees.

As of February 26, 2016 the current Nomina-

tion Committee has held 6 meetings.

Contact the Nomination
Committee

Telefonaktiebolaget LM Ericsson
The Nomination Committee
c/o The Board of Directors Secre-
tariat
SE-164 83 Stockholm
Sweden
nomination.committee
@ericsson.com

Proposals to the Nomination
Committee

Shareholders may submit propos-
als to the Nomination Committee
at any time, but should do so in
due time before the AGM to ensure
that the proposals can be consid-
ered by the Committee. Further
information is available on Erics-
son’s website.

136

Ericsson | Annual Report 2015Board of Directors

The Board of Directors is ultimately responsible
for the organization of Ericsson and the manage-
ment of Ericsson’s operations. The Board
appoints the President and CEO who is respon-
sible 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 com-
pany may not be elected Chairman of the Board.

Conflicts of interest
Ericsson maintains rules and regulations regard-
ing 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.

Composition of the Board of Directors
The current Board of Directors consists of
11 Directors elected by the shareholders at the
AGM 2015 for the period until the close of the
AGM 2016. 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
only Board member who was also a member
of Ericsson’s management during 2015.

Work procedure
Pursuant to the Swedish Companies Act, the
Board of Directors has adopted a work proce-
dure and Committee charters outlining rules for
the distribution of tasks among 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
Com pany. The work procedure and the Com-
mittee charters are reviewed, evaluated and
amended by the Board as required or appro-
priate, and are adopted by the Board 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 applica-
ble US securities laws, SEC rules and the
NASDAQ Stock Market Rules. 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 2015 that, for purposes of the Code,
at least seven of the nominated Directors were
inde pendent from Ericsson, its senior manage-
ment and its major shareholders. These were
Roxanne S. Austin, Nora Denzel, Alexander
Izosimov, Leif Johansson, Ulf J. Johansson,
Kristin Skogen Lund and Sukhinder Singh
Cassidy.

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
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 over-

sight, financial information is presented and
evaluated at each Board meeting. Furthermore,
the Chairmen of each Committee, report on
Committee work at each Board meeting and
minutes from Committee meetings are distrib-
uted to all Directors prior to the Board meetings.
At Board meetings, the President and 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. Board and
Committee meetings may, as appropriate, be
held by way of telephone or video conference, and
resolutions may be taken per capsulam (unani-
m ous written consent). Such resolutions are
accounted for as Board/Committee meetings.

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Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

The 2015 annual work cycle of the Board:
> Fourth-quarter and full-year financial

results meeting
Following the end of the calendar year, the
Board held a meeting which focused on the
financial results of the entire year 2014 and
handled the fourth-quarter financial report.

> Board Strategic Day

A Board Strategic Day, focusing on deepen-
ing Board member knowledge of matters of
strategic importance for Ericsson, was held
in connection with a Board meeting in the
spring.

> Board meeting

In March, an ordinary Board meeting was
held to address various matters, including
regular executive succession planning review.

> Statutory Board meeting

The statutory Board meeting was held in con-
nection with the AGM 2015. At this meeting,
members of each of the three Board Commit-
tees were appointed and the Board resolved
on signatory power.

> First interim report meeting

At the next ordinary meeting, the Board
handled the interim financial report for the first
quarter of the year.

> 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 was 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 was cascaded throughout the
entire organization, starting at the Global
Leadership Summit with Ericsson’s top
250 leaders.

> Second interim report meeting

At the second interim report meeting, the
Board handled the interim financial report for
the second quarter of the year.

> Board Strategic Day

A Board Strategic Day, focusing on deep-
ening Board member knowledge of matters
of strategic importance for Ericsson, was held
in connection with a Board meeting following
the summer.

> Follow-up strategy and risk management

meeting
Following the summer, a meeting was held to
address particular strategy matters in further
detail and to finally confirm the Group strat-
egy. The meeting also addressed the overall
risk management of the Group.
> Third interim report meeting

A Board meeting was held to handle the
interim financial report for the third quarter
of the year. At this meeting, the results of
the Board evaluation were presented to and
discussed by the Board.

> Budget and financial outlook meeting

A meeting was held for the Board to address
the budget and financial outlook as well as to
further analyze internal and external risks.

The Board’s annual work cycle 2015

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 involve-
ment. This is particularly
relevant for the Group’s
strategy process and risk
management.

Budget and financial
outlook meeting

Third interim report meeting
> Q3 Financial report
> Board work evaluation

Follow-up strategy and
risk management meeting

Board Strategic Day

Second interim report meeting
> Q2 Financial report

138

Fourth-quarter and full-year
financial results meeting
> Financial result of the entire year

Dec

Jan

Nov

Feb

Board Strategic Day

Oct

Sep

Mar

Apr

Aug

May

Jul

Jun

Board meeting

Statutory Board meeting
(in connection with AGM)
> Appointment of
Committee Members

> Authorization to sign
for the Company

First interim report meeting
> Q1 Financial report

Main strategy meeting

Ericsson | Annual Report 2015Training 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 func-
tions, as well as training required by Nasdaq
Stockholm on listing issues and insider rules.
In addition, the company arranges training for
Board members at regular intervals.

Bi-annual Board Strategic Days are arranged

for Board members as part of ordinary Board
meetings, normally spanning one full day each.
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 know-
ledge and understanding of the business activi-
ties of the Group, the business environment and
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 takes due advantage
of the different competences of the Directors.
The Board Strategic Days also form an import-
ant platform for contacts between Directors and
talent from different parts of Ericsson’s organiza-
tion where the Board gets the opportunity to
meet Ericsson employees and leaders. Such
contacts and meetings are highly valued by the
Board as part of the Board’s involvement in
Ericsson’s talent management.

As a rule, the Board Strategic Days also
include sustainability and corporate responsib-
ility updates for Board members.

Auditor involvement
The Board meets with Ericsson’s external audi-
tor 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 regularly
with the auditor to receive and consider obser-
vations on the interim reports and the Annual
Report. The auditor has been instructed to
report on whether the accounts, the manage-
ment 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
2015”. Combined with other steps taken inter-
nally, the Board’s and the auditor’s review of the
interim and annual reports are deemed to give
reasonable assurance of the effectiveness of
the internal controls over financial reporting.

Work of the Board of Directors in 2015
In 2015, eleven Board meetings were held. For
attendance at Board meetings, see the table
on page 143.

Strategy and risk management are always
high on the Board’s agenda and the bi-annual
Board Strategic Days aim at providing the Board
with good insight into these matters. Sustain-
ability and corporate responsibility are increas-
ingly important to Ericsson and are integrated
into Ericsson’s business strategy.

Organization of the Board work

Board of Directors

14 Directors

Audit Committee
(4 Directors)

Finance Committee
(4 Directors)

Oversight of financial reporting

Oversight of internal control

Financing

Investing

Oversight of auditing

Customer credits

Remuneration Committee
(4 Directors)

Guidelines for remuneration
to Group management

Long-Term Variable Remuner ation

Executive remuneration

Corporate Governance – Corporate Governance Report

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Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

The Board continuously monitors the interna-
tional developments and their possible impact
on Ericsson. Industry transformation, talent
management, targeted areas, cyber security,
profitability, cost reductions and efficiency gains
are among the matters that have continued to
be in focus within Ericsson during the year. The
Board also addressed the global business and
technology partnership with Cisco and a num-
ber of acquisitions, including the acquisitions
of Sunrise Technology and Envivio, Inc.

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 addi-
tional competence is needed within the Board
and whether the Board composition is appropri-
ate. 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 Com-
mittee 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.

In 2015, 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. As part of the eval-
uation process, the Chairman of the Board also
had individual discussions with each of the
Directors. The results from the evaluations were
presented to the Board and were thoroughly
discussed. An action plan was developed in
order to further improve the work of the Board.
The Nomination Committee was informed of
the results of the Board work and Chairman
evaluation.

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 pre-
pare matters for resolution by the Board. How-
ever, the Board has authorized each Committee
to determine and handle 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
to the Board and the Chairman of the Commit-
tee reports on the work of the Committee at
each Board meeting.

Audit Committee
On behalf of the Board, the Audit Committee
monitors the following:
> The scope and accuracy 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.

The Audit Committee itself does not perform

audit work. Ericsson’s internal audit function
reports directly to the Audit Committee.

Ericsson’s external auditor is elected by the
AGM. The Committee is involved in the prepa-
ratory work for the Nomination Committee to
propose external auditor for election by the
AGM. It also monitors Group transactions and the

Members of the Committees

Members of the Committees of the Board of Directors

Audit Committee

Finance Committee

Remuneration Committee

Ulf J. Johansson (Chairman)

Leif Johansson (Chairman)

Alexander Izosimov

Mikael Lännqvist

Kristin Skogen Lund

Pehr Claesson

Anders Nyrén

Jacob Wallenberg

Börje Ekholm

Roxanne S. Austin

Karin Åberg

140

Ericsson | Annual Report 2015ongoing 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-appro-
val 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

Ericsson’s process for reviewing transactions
with related parties and Ericsson’s whistleblower
procedures.

Whistleblower procedures
Ericsson’s whistleblower tool, Ericsson Compli-
ance Line, managed by an external service pro-
vider, can be used for reporting of alleged viola-
tions of laws or the Code of Business Ethics that:
> are conducted by Group or local manage-

ment, and

> 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
tool are handled by Ericsson’s Group Compli-
ance Forum, consisting of representatives from
Ericsson’s internal audit function, Group Func-
tion Legal Affairs, Group Security, and Group
Function Human Resources. Information regard-
ing any incident is reported to the Audit Commit-
tee. 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 mem-
bers appointed by the Board in connection with
the AGM 2015 are: Ulf J. Johansson (Chairman),
Kristina Davidsson, Alexander Izosimov and
Kristin Skogen Lund. In October 2015, Mikael
Lännqvist (employee representative) was
appointed as a new member of the Audit Com-
mittee replacing Kristina Davidsson. The Board
has appointed shareholder elected Board mem-
bers with CEO experience to the Committee.
The composition of the Audit Committee
meets all applicable independence require-
ments. The Board of Directors has determined
that each of Ulf J. Johansson, Alexander Izosimov
and Kristin Skogen Lund 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 com-
pany, such as Ericsson.

Work of the Audit Committee in 2015
The Audit Committee held nine meetings in
2015. Directors’ attendance is reflected in the
table on page 143. 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 risk
assessment and audit plan for the internal audit
function and reviewed its reports. Prior to pub-
lishing 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.

Finance Committee
The Finance Committee’s responsibilities
include:
> Handling matters related to acquisitions

and divestments

> Handling capital contributions to Group

and affiliated companies

> 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 mem-
bers appointed by the Board in connection with
the AGM 2015 are: Leif Johansson (Chairman),
Pehr Claesson, Anders Nyrén and Jacob Wal-
lenberg. The Board has appointed shareholder
elected Board members with extensive industrial
and financial experience to the Committee.

Work of the Finance Committee in 2015
The Finance Committee held nine meetings in
2015. Directors’ attendance is reflected in the
table on page 143. During the year, the Finance
Committee approved numerous customer
finance credit arrangements and reviewed

Corporate Governance – Corporate Governance Report

141

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

a number of potential mergers and acquisitions
and real estate investments. The Finance Com-
mittee spent significant time discussing and
securing an adequate capital structure, as well
as examining cash flow and working capital
performance. International developments and
their impact on Ericsson are continuously moni-
tored, as well as Ericsson’s financial position,
foreign exchange and credit exposures.

Remuneration Committee
The Remuneration Committee’s responsibilities
include:
> Reviewing and preparing for resolution by the
Board proposals on salary and other remu-
neration, 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 compen-
sation, for the members of the ELT.

> Reviewing and preparing for resolution by the
Board proposals to the AGM on the Long-
Term Variable Compensation 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. It reviews
salary survey data before approving any salary
adjustments for the members of the ELT and
before preparing salary adjustment recommen-
dations 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
members appointed by the Board in connection

with the AGM 2015 are: Leif Johansson (Chair-
man), Börje Ekholm, Roxanne S. Austin and
Karin Åberg. The Board has appointed share-
holder elected Board members to the Commit-
tee with experiences from different markets of
relevance to the Group, including the Swedish
and US markets.

An independent expert advisor, Piia Pilv, has
been appointed by the Remuneration Commit-
tee to advise and assist the Committee.

Work of the Remuneration Committee in 2015
The Remuneration Committee held four meet-
ings in 2015. Director’s attendance is reflected in
the table on page 143.

The Remuneration Committee reviewed and
prepared a proposal for the Long-Term Variable
Compensation program (LTV) 2015 for resolu-
tion by the Board and further approval by the
AGM 2015. It further resolved on salaries and
Short-Term Variable remuneration for 2015 for
the members of the ELT and prepared proposals
regarding remuneration to the President and
CEO for resolution by the Board. It also prepared
guidelines for remuneration to the ELT for resolu-
tion by the Board and subsequent referral to the
AGM for approval.

The Remuneration Committee concluded its
analysis of the current LTV structure and execu-
tive remuneration. The resulting proposals on
LTV and guidelines for remuneration to the ELT
will be referred to the AGM 2016 for resolution.
For further information on fixed and variable
remuneration, please see Notes to the consoli-
dated financial statements – Note C28 “Informa-
tion regarding members of the Board of Direc-
tors, the Group management and employees”
and the “Remuneration Report” included in the
Annual Report.

142

Ericsson | Annual Report 2015Directors’ attendance and fees 2015

Board member

Leif Johansson
Sverker Martin-Löf 2)
Anders Nyrén 3) 4)
Jacob Wallenberg
Roxanne S. Austin
Sir Peter L. Bonfield 5)
Nora Denzel
Börje Ekholm
Alexander Izosimov 6)
Ulf J. Johansson

Sukhinder Singh Cassidy 3)
Kristin Skogen Lund 6)
Hans Vestberg
Pär Östberg 5)
Pehr Claesson
Kristina Davidsson 7)
Mikael Lännqvist 8)
Karin Åberg
Rickard Fredriksson 9)
Zlatko Hadzic 10)
Karin Lennartsson
Roger Svensson

Total number of meetings

Fees resolved by the AGM 2015

Number of Board/Committee meetings attended in 2015

Board fees,

SEK 1)

Committee fees,
SEK

Board

Audit
Committee

Finance
Committee

Remuneration
Committee

4,000,000
–
975,000
975,000
975,000
–
975,000
975,000
975,000
975,000

975,000
975,000
–
–

27,000 11)
15,000 11)
10,500 11)
21,000 11)
10,500 11)
4,500 11)
16,500 11)
13,500 11)

400,000
–
175,000
175,000
175,000
–
–
175,000
250,000
350,000

–
250,000
–
–
–
–
–
–
–
–
–
–

11
3
8
11
11
2
11
11
11
11

7
11
11
3
11
7
4
11
7
3
11
10

9
2
7
9

6
9

6
3

1) Non-employee Directors can choose to receive part of their Board fee (exclusive of Committee

fees) in the form of synthetic shares.

2) Resigned from the Board and from the Finance Committee as of April 14, 2015.
3) Elected member of the Board at the AGM held on April 14, 2015.
4) Appointed member of the Finance Committee as of April 14, 2015.
5) Resigned from the Board and from the Audit Committee as of April 14, 2015.
6) Appointed member of the Audit Committee as of April 14, 2015.

7) Resigned from the Board and from the Audit Committee as of August 26, 2015.
8) Appointed employee representative as of August 26, 2015 and member of the Audit Committee

as of October 2015.

9) Resigned from the Board as of August 26, 2015.
10) Appointed deputy employee representative as of August 26, 2015.
11) Employee representative Board members and their deputies are not entitled to a Board fee, but
instead get paid compensation in the amount of SEK 1,500 per attended Board meeting, and
since the AGM 2015 per attended Committee meeting.

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 2015 approved the Nomination Committee’s pro-
posal for fees to the non-employee Board members for Board and
Committee work. For further information on Board of Directors’
fees 2015, 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 2015 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 general rule, after the pub-
lication of the Company’s year-end financial statement during the
fifth year following the General Meeting that resolved on the allo-
cation 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 2015 and to the
minutes from the AGM 2015, which are available at Ericsson’s
website.

Corporate Governance – Corporate Governance Report

143

Ericsson | Annual Report 2015CORPORATE GOVERNANCE

Members of the Board of Directors

Board members elected by the AGM 2015

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.

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: Member of the
European Round Table of Indust-
rialists since 2002, and served as
its Chairman 2009–2014.
President of the Royal Swedish
Academy of Engineering Sciences
since 2012. Chairman of the
International Advisory Board of the
Nobel Foundation. 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.

Anders Nyrén
(first elected 2015)

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 1954. Bachelor of Science in
Economics, Stockholm School of
Economics and Master of
Business Administration from
Anderson School of Management,
UCLA, USA.

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 ABB Ltd.

Board Member: The Knut and
Alice Wallenberg Foundation and
the Stockholm School of
Economics.

Holdings in Ericsson:
2,703 Class B shares 1), and
20,053 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.

Board Member: AB Volvo,
Stockholm School of Economics,
and Handelshögskoleföreningen
at Stockholm School of
Economics, Ernström & Co AB,
Coalalife Science AB and
Confederation of Swedish
Enterprises.

Holdings in Ericsson: 4,401
Class B shares 1).

Principal work experience and
other information: Vice President
of the Royal Swedish Academy of
Engineering Sciences since 2014.
President and CEO of AB
Industrivärden 2001–2015. CFO
and Executive Vice President of
Skanska AB 1997–2001. Director
Capital Markets Nordbanken
1996–1997. CFO and Executive
Vice President of Securum AB
1992–1996. President of OM
International AB 1987–1992.
Previous positions within STC
Scandinavian Trading Co AB and
AB Wilhelm Becker. Board
member in Telefonaktiebolaget LM
Ericsson 2006–2013. Honorary
Doctorate of Economics at
Stockholm School of Economics.

Born 1961. Bachelor of Business
Administration in Accounting,
University of Texas, San Antonio,
USA.

Board Member: Abbott
Laboratories, AbbVie Inc., Target
Corporation and Teledyne
Technologies Inc.

Holdings in Ericsson:
3,000 Class B shares 1), and
22,065 synthetic shares 3).

Principal work experience and
other information: President and
CEO 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, 2015.
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 143 for further information.

144

Ericsson | Annual Report 2015Nora Denzel
(first elected 2013)

Börje Ekholm
(first elected 2006)

Member of the Remuneration
Committee

Alexander Izosimov
(first elected 2012)

Ulf J. Johansson
(first elected 2005)

Member of the Audit Committee

Chairman of the Audit Committee

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: Alibaba, Inc.,
Chalmers Innovation AB and
Trimble Navigation Ltd.

Holdings in Ericsson:
30,760 Class B shares 1), and
42,148 synthetic shares 3).

Principal work experience and
other information: CEO of
Patricia Industries, newly created
division within Investor AB, since
2015. President and CEO of
Investor AB 2005–2015. Formerly
Head of Investor Growth Capital
Inc. and New Investments.
Previous positions at Novare
Kapital AB and McKinsey & Co Inc.
Member of the Board of Trustees
of Choate Rosemary Hall.

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: Modern Times
Group MTG AB, EVRAZ Group
S.A. and Transcom WorldWide
SA.

Holdings in Ericsson:
1,600 Class B shares 1), 50,000
Class B shares held via
endowment insurance 2), and
11,785 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.

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).

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
Swedish Academy of Engineering
Sciences.

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: Advanced Micro
Devices, Inc., Outerwall, Inc. and
Saba Software.

Holdings in Ericsson:
3,850 Class B shares1) , and
5,489 synthetic shares3).

Principal work experience and
other information: January 2015
– August 2015 CEO (interim) of
Outerwall Inc. 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. Non-Profit board member
of the Anita Borg Institute and the
Northern California Chapter of the
National Association of Corporate
Directors (NACD). Industrial
Advisor to the Private Equity Firm
EQT.

(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 143 for further information.

Corporate Governance – Corporate Governance Report

145

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

Board members elected by the AGM 2015, cont.

Kristin Skogen Lund
(first elected 2013)

Member of the Audit Committee

Sukhinder Singh Cassidy
(first elected 2015)

Hans Vestberg
(first elected 2010)

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:
8,293 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 Manage-
ment 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
Eksport råd.

Born 1970. Bachelor of Arts
Degree in Honors Business
Administration from the Richard
Ivey School of Business, University
of Western Ontario, Canada.

Board Chairman: Joyus.com.

Board Member: Tripadvisor LLC.

Holdings in Ericsson:
2,513 synthetic shares 2) .

Principal work experience and
other information: Founder,
Chairman and CEO of Joyus.com
since 2011. CEO of Polyvore, Inc.
2010, CEO-in-Residence of Accel
Partners 2009–2010, senior
executive positions with Google
Inc., 2003–2009, including
President, Asia-Pacific and Latin
America Sales & Operations, Vice
President Asia-Pacific and Latin
America, and General Manager,
Local Search & Content
Partnerships. Previous positions
with Yodlee.com, Amazon.com,
British Sky Broadcasting Group
and Merrill Lynch. Member of the
Advisory Council of Princeton
University’s Department of
Computer Science since 2012.

Born 1965. Bachelor of Business
Administration and Economics,
University of Uppsala, Sweden.

Board Chairman: Svenska
Handbollförbundet.

Board Member: Thernlunds AB,
UN Foundation and the Whitaker
Peace and Development Initiative.

Holdings in Ericsson:
409,234 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. 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, 2015.
1) The number of shares 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 143 for further information.

146

Ericsson | Annual Report 2015Board members and deputies appointed by the trade unions (as of December 31, 2015)

Pehr Claesson
(first appointed 2008)

Mikael Lännqvist
(first appointed 2015)

Karin Åberg
(first appointed 2007)

Employee representative, Member
of the Finance Committee

Employee representative, Member
of the Audit Committee

Employee representative, Member
of the Remuneration Committee

Born 1966. Appointed by the
union The Swedish Association of
Graduate Engineers.

Holdings in Ericsson:
2,138 Class B shares 1).

Employed since 1997. Has
currently a Strategic and Tactical
Marketing Manager position in
the Strategy, Marketing and
Communication team at
Business Unit Global Services.

Born 1969. Appointed by the union
IF Metall.

Born 1959. Appointed by the union
Unionen.

Holdings in Ericsson:
1,246 Class B shares 1).

Holdings in Ericsson:
4,022 Class B shares 1).

Employed since 1995. Working as
Analysis Technician within
Business Unit Radio.

Employed since 1998. Working as
a Service Engineer within the IT
organization.

Zlatko Hadzic
(first appointed 2015)

Karin Lennartsson
(first appointed 2010)

Roger Svensson
(first appointed 2011)

Deputy employee representative

Born 1970. Appointed by the union
IF Metall.

Born 1957. Appointed by the union
Unionen.

Holdings in Ericsson:
None 1).

Holdings in Ericsson:
752 Class B shares 1).

Employed since 2010. Working as
NPI Operator within Business Unit
Radio.

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:
13,570 Class B shares 1).

Employed since 1999. Working as
Global Process Architect for Test
within Business Unit Radio.

Hans Vestberg was the only Director who held an operational man-
agement position at Ericsson in 2015.
No Director has been elected pursuant to an arrangement or under-
standing with any major shareholder, customer, supplier or other person.
Sir Peter L. Bonfield, Sverker Martin-Löf and Pär Östberg left the Board in
connection with the AGM 2015 and Anders Nyrén and Sukhinder Singh

Cassidy were elected new members of the Board at the AGM 2015. In
August 2015, Kristina Davidsson, employee representative, and Rickard
Fredriksson, deputy employee representative, were replaced by Mikael
Lännqvist and Zlatko Hadzic, respectively. Karin Lennartsson, deputy
employee representative, was replaced by Kjell-Åke Soting as of
January 1, 2016.

1) The number of shares reflects ownership as of December 31, 2015 and includes holdings by related natural and legal persons, as well as holdings

of any ADS, if applicable.

Corporate Governance – Corporate Governance Report

147

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

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, 2015, are presented on pages 152–155.

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, allo-

cate resources and monitor unit performance.

> Secure operational excellence and realize
global synergies through efficient organiza-
tion of the Group.

Remuneration to the Executive
Leadership Team
Guidelines for remuneration to the ELT were
approved by the AGM 2015. For further inform-
ation 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

Ericsson Group Management System

Demands
and Expectations

Customers
Key Stakeholders
Business Environment

Management and Control

Vision Policies Directives

Satisfaction through
Value Deliverables

Objectives

Strategies

Results

The Ericsson
Business Processes

Performance
improvement

Performance
evaluation

Organization and Resources

Corporate Culture

148

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 responsibilities.

The EGMS is a framework consisting of rules
and requirements for Ericsson’s business, spec-
ified through process and organization descrip-
tions, 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 manage-
ment systems) but is designed as a dynamic
governance system, enabling Ericsson to adapt
the system to evolving demands and expecta-
tions, including new legislation as well as cus-
tomers’ and other stakeholders’ requirements.
Ericsson does not implement external require-
ments without analyzing them and putting them
into the Ericsson context.
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 score-
cards 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 direc-
tives to fulfill external reporting requirements.

Ericsson has a Group Steering Documents
Committee for purposes of aligning policies and
directives with Group strategies, values and
structures.

Ericsson | Annual Report 2015Ericsson business processes
As a market leader, Ericsson utilizes the compet-
itive advantages that are gained through global
scale and has implemented common processes
and IT tools across all operational units world-
wide. 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 flows with cross-country
operations. In the operational structure, Ericsson
is organized in group functions, segments, busi-
ness 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 eighty branch offices with
representation (via legal entities, branch and rep-
resentative offices) in more than 150 countries.

Chief Compliance Officer
Ericsson has a Chief Compliance Officer (CCO),
reporting to the Chief Legal Officer, whose
responsibilities among other things include to
further develop Ericsson’s anti-corruption pro-
gram. 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 program is reviewed and evalu-
ated by the Audit Committee at least annually.

Strategic direction 2015

Future/
Emerging

IP
Networks

Cloud

Radio,
Core and
Trans-
mission

Present/
Large

OSS
and BSS

Telecom
Services

TV and
Media

Industry
and
Society

Expand business
in new areas

Establish leadership
in targeted areas

Excel in core
business

In order to be relevant in the future, Ericsson’s strategy is to excel in its core business,
establish leadership in targeted areas, and expand business in new areas.

Audits, assessments and certification
The purpose of audits and assessments is to
determine levels of compliance and to provide
valuable information for understanding, analyz-
ing and continually improving performance.
Management monitors compliance with policies,
directives and processes through internal
self-assessment within all units. This is com-
plemented 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 certifica-
tion 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 exam-
ple 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 function.

Ericsson’s external financial audits are per-
formed by PricewaterhouseCoopers, and ISO/
management system audits by Intertek (from
January 1, 2016, ISO/management system
audits will be performed by EY). 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 overseeing the Com pany’s risk
management. Risks related to long-term objec-
tives with reference to core business, targeted
areas and new areas, are discussed and strate-
gies 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 trans-
actional risks require specific Board approval,
e.g. acquisitions, management remuneration,
borrowing or customer finance in excess of
pre-defined limits.

Corporate Governance – Corporate Governance Report

149

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

Operational, financial and compliance risks
Operational and financial risk
Operational risks are owned and managed by
operational units. Risk management is embed-
ded in various process controls, such as deci-
sion 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 instru-
ments. For further information on financial risk
management, see Notes to the consolidated
financial statements – Note C14, “Trade receiv-
ables and customer finance,” Note C19, “Inter-
est-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, as well as its Code of
Business Ethics and 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
Examples of significant activities to mitigate
risks are:
> Conducting regular supplier Code of Conduct

audits

> Continuously assessing and managing risks

relating to Corporate Responsibility

> Conducting business continuity management

in an efficient way

> Continuously monitoring information systems

to guard against data breaches

> Reviewing top risks and mitigating actions
in regular monthly reporting and at various
internal governance meetings

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 pro-
cess, objectives are set for the next three to five
years. Risks are assessed and strategies are
developed to achieve the objectives. The strat-
egy 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 attending. By involving all parts of the

Strategy process

The annual strategy and
target- setting process,
including risk management,
involves regions, business
units and Group functions.

Business strategy directives

Quantitative and qualitative situation analysis

Group management strategic direction,
strategic risk identification and mitigation

Board target approval
Review of one-year risks

Target Setting
Related risk identification
and mitigation
(12-month horizon)

Region strategy
development

Dec

Jan

Nov

Feb

Group strategy development
(five-year perspective)

Oct

Sep

Ericsson
Strategy process

Mar

Apr

Aug

May

Jul

Jun

Region strategy directives

Function strategy directives

Functional strategy
development

Strategic risk identification
and mitigation

Board quarterly risk monitoring

Review of long-term risks

Leadership Summit on strategy

Board approval of Group strategy

150

Ericsson | Annual Report 2015business in the process, potential risks are iden-
tified early and mitigating actions can be incor-
porated in the strategy and in the annual tar-
get-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, cyber security
related matters, industry and market fundamen-
tals, the development of the economy, the politi-
cal and international environment, health and
environmental aspects and laws and regula-
tions.

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 internal
governance meetings and are reviewed by the
Board of Directors.

Ericsson continuously strives to improve its
risk management and believes that it is import-
ant that the entire global organization takes part
in the risk management and strategy work.
The risk management framework implemented
during 2012 is continuosly reviewed and further
developed. For more information on risks related
to Ericsson’s business, see the chapter “Risk
factors” in the Annual Report.

Process to identify and manage strategic and tactical risks for regions, business units and group functions

The process is aligned with the strategy and target-setting process

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 & 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
monthly business
reports and gover-
nance meetings

Example of risk heat
map document

Risk heat maps are gener-
ated by business units,
regions and Group functions
in four risk categories:

> Industry & market
> Commercial
> Operational
> Compliance

RISK HEAT MAP (illustration only)

Time horizon 1–5 years

Industry & Market

Commercial

Operational

Compliance

)

h
g
H

m
u
d
e
M

w
o
L

(
y
t
i
l
i

b
a
b
o
r

Impact (Low, Medium, High)

Management response

Reduce

Eliminate

Risk description

Mitigating action

Corporate Governance – Corporate Governance Report

151

Ericsson | Annual Report 2015

CORPORATE GOVERNANCE

Members of the Executive Leadership Team

Hans Vestberg
President and CEO (since 2010)
and Head of Segment Networks
since 2015

Jan Frykhammar
Executive Vice President,
Chief Financial Officer and Head
of Group Function Finance
(since 2009)

Magnus Mandersson
Executive Vice President
(since 2011) and Head of Segment
and Business Unit Global Services
(since 2010)

Per Borgklint
Senior Vice President and Head of
Segment and 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):
5,953 Class B shares.

Background: Previously CEO of
Net1 (Ice.net), Canal Plus Nordic
and Versatel. Has also previously
held several leading positions at
Tele2.

Born 1965. Bachelor of Business
Administration and Economics,
University of Uppsala, Sweden.

Born 1959. Bachelor of Business
Administration, University of Lund,
Sweden.

Board Member: Interogo
Foundation.

Holdings in Ericsson 1):
50,447 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. Previously
also President and CEO of SEC/
Tele2 Europe and COO of Millicom
International Cellular S.A.

Board Member: Attendo AB,
Confederation of Swedish
Enterprises, the Swedish
International Chamber of
Commerce and Teknikföretagen.

Holdings in Ericsson 1):
46,355 Class B shares.

Background: Previously Senior
Vice President and Head of
Business Unit Global Services.
Various previous 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.

Board Chairman: Svenska
Handbollförbundet.

Board Member:
Telefonaktiebolaget LM Ericsson,
Thernlunds AB, UN Foundation
and the Whitaker Peace and
Development Initiative.

Holdings in Ericsson 1):
409,234 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. Member of the
Leadership Council of the United
Nations Sustainable Development
Solutions Network.

The Board memberships and Ericsson holdings reported above are as of December 31, 2015.
1) The number of shares includes holdings by related natural and legal persons, as well as

holdings of any ADS, if applicable.

152

Effective January 15, 2015 Johan Wibergh left his previous posi-
tion as Executive Vice President and Head of Segment Networks.

No ELT member has been appointed pursuant to an arrangement
or understanding with any major shareholder, customer, supplier
or other person.

Ericsson | Annual Report 2015Bina Chaurasia
Senior Vice President, Chief
Human Resources Officer and
Head of Group Function Human
Resources (since 2010)

Ulf Ewaldsson
Senior Vice President, Chief
Technology Officer and Head of
Group Function Technology
(since 2012)

Nina Macpherson
Senior Vice President, Chief Legal
Officer, Head of Group Function
Legal Affairs and secretary to the
Board of Directors (since 2011)

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):
48,879 Class B shares.

Background: Joined Ericsson
from Hewlett Packard, where she
was Vice President of Global
Talent Management. Has
previously held senior HR
leadership roles at Gap, Sun
Microsystems and PepsiCo/Yum.

Born 1965. Master of Science in
Engineering and Business
Management, Linköping Institute
of Technology, Sweden.

Board Member: Lund University.

Holdings in Ericsson 1):
35,560 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.

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):
23,549 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.

The Board memberships and Ericsson holdings reported above are as of December 31, 2015.
1) The number of shares includes holdings by related natural and legal persons, as well as holdings of any ADS, if applicable.

Organization

CEO
Hans Vestberg

GROUP FUNCTIONS

Sustainability and Corporate
Responsibility

SEGMENT NETWORKS

Business Unit Radio

Go to market

REGIONS

H
C
R
A
E
S
E
R

Business Unit Cloud & IP

Business Unit Support Solutions

Business Unit Global Services

Engagement
practices

Operations &
competence
center

IPR & Licensing

Customer
units

Corporate Governance – Corporate Governance Report

153

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

Members of the Executive Leadership Team, cont.

Helena Norrman
Senior Vice President, Chief
Marketing and Communications
Officer and Head of Group
Function Marketing and
Communications (since 2014)

Mats H. Olsson
Senior Vice President and Head of
Ericsson Asia-Pacific (since 2013)

Rima Qureshi
Senior Vice President, Chief
Strategy Officer, Head of Group
Function Strategy and Head of
M&A (since 2014)

Angel Ruiz
Head of Region North America
(since 2010)

Born 1970. Master of International
Business Administration,
Linköping University, Sweden.

Born 1954. Master of Business
Administration, Stockholm School
of Economics, Sweden.

Board Member: None.

Holdings in Ericsson 1):
22,388 Class B shares.

Board Member: None.

Holdings in Ericsson 1):
100,351 Class B shares.

Background: Senior Vice
President and Head of Group
Function Communications 2011–
2014. Previously Vice President,
Communications Operations at
Group Function Communications.
Has held various positions within
Ericsson’s global communications
organization since 1998. Previous
positions as communications
consultant.

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.

Born 1965. Bachelor of
Information Systems and Master
of Business Administration, McGill
University, Montreal, Canada.

Board Member: MasterCard
Incorporated and the Supervisory
Board of Wolters Kluwer NV.

Holdings in Ericsson 1):
11,991 Class B shares.

Background: Senior Vice
President Strategic Projects 2013–
2014, and 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.

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–The
Wireless Association and Liberty
Mutual Holding Company.

Holdings in Ericsson 1):
96,371 Class B shares.

Background: Joined Ericsson in
1990 and has held a variety of
technical, sales and managerial
positions within the Company.
Was appointed Head of Market
Unit North America in 2001.
Member of the US National
Security Telecommunications
Advisory Committee (NSTAC).

The Board memberships and Ericsson holdings reported above are as of December 31, 2015.
1) The number of shares includes holdings by related natural and legal persons, as well as

holdings of any ADS, if applicable.

154

Ericsson | Annual Report 2015Anders Thulin
Senior Vice President, Chief
Information Officer and Head of
Group Function Business
Excellence and Common
Functions (since 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):
7,608 Class B shares.

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
Group Function Sales (since 2014)

Born 1956. Master of Science,
Chalmers University, Gothenburg,
Sweden.

Board Member: Fingerprint
Cards AB.

Holdings in Ericsson 1):
54,168 Class B shares.

Background: Senior Vice
President and Head of Group
Function Sales and Marketing
2011–2014. Previously Senior Vice
President and Head of Business
Unit Multimedia and Executive
Vice President and Head of Sales
and Marketing for Sony Ericsson
Mobile Communications.

Auditor

According to the Articles of Association, the Parent Com-
pany shall have no less than one and no more than three
registered public accounting firms as external indepen-
dent auditor. Ericsson’s auditor is currently elected each
year at the AGM pursuant to the Swedish Companies Act
for a one-year mandate period. The auditor reports to the
shareholders at General Meetings.
The duties of the auditor include:

> Updating the Board of Directors regarding the plan-
ning, scope and content of the annual audit work
> Reviewing the interim reports to assess that the finan-
cial statements are presented fairly in all material
respects and providing review opinions over the
interim reports for the third and fourth quarters and
the year-end financial statements

> Reviewing and providing an audit opinion over the

Annual Report

> Advising the Board of Directors of non-audit services
performed, the consideration paid and other issues
that determine the auditor’s independence.

Auditing work is carried out by the auditor continuously
throughout the year. For further information on the con-
tacts between the Board and the auditor, please see
“Work of the Board of Directors” earlier in this Corporate
Governance Report.

Current auditor
PricewaterhouseCoopers AB was elected auditor at the
AGM 2015 for a period of one year, i.e. until the close of
the AGM 2016.

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.

The Board memberships and Ericsson holdings reported above are as of December 31, 2015.
1) The number of shares includes holdings by related natural and legal persons, as well as

holdings of any ADS, if applicable.

Corporate Governance – Corporate Governance Report

155

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Corporate Governance Report

Internal control over financial reporting 2015

This section has been prepared in accordance with the
Annual Accounts Act and the Swedish Corporate Gover-
nance 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, subject to certain exceptions. 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 2013
COSO framework for internal control. The COSO frame-
work is issued by the Committee of Sponsoring Organi-
zations 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.

Disclosure policies
Ericsson’s financial reporting and disclosure policies
aim to ensure transparent, relevant and consistent com-
munication 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 opera-
tions and performance and to avoid misinterpretations.
> Relevant – with focus on what is relevant to Ericsson’s
stakeholders or required by regulation or listing agree-
ments, to avoid information overload.

> Timely – with regularly 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 – disclosures 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.

Disclosure controls and procedures
Ericsson has controls and procedures in place to allow
for timely disclosure in accordance with applicable laws
and regulations, including the US Securities Exchange
Act of 1934, and under agreements with Nasdaq Stock-
holm and NASDAQ New York. These procedures also
require that such information is provided to management,
including the CEO and the CFO, so timely decisions can
be made regarding required disclosure.

The Disclosure Committee comprises members with
various expertise. It assists management in fulfilling their
responsibility regarding disclosures made to the share-
holders 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 subsidi aries.

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 assur-
ance level as of December 31, 2015. 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 assess-
ment, control activities, information and communication
and monitoring.

During the period covered by the Annual Report 2015,

there were no changes to the internal control over finan-
cial reporting that have materially affected, or are reason-
ably 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 dele-
gations 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:

156

Ericsson | Annual Report 2015 > 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 manage-
ment of each reporting legal entity, region and business
unit is supported by a financial controller function with
execution of controls related to transactions and report-
ing. 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 dis-
closure. Other risks related to financial reporting include
fraud, loss or embezzlement of assets and undue favor-
able 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 manage-
ment activities, segregation of duties and appropriate
delegation of authority. This requires specific approval
of material transactions and ensures adequate asset
management.

Control activities
The Company’s business processes include financial
controls regarding the approval and accounting of busi-
ness transactions. The financial closing and reporting
process has controls regarding recognition, measure-
ment 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 Disclo-
sure 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 environ-

ment 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 geo-
graphical area. During 2015, the Company developed its
internal control function within Group Function Finance,
Financial Control to cover a wider scope than previously.
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 chan-
nels support complete, correct and timely financial
reporting by making all relevant internal process instruc-
tions 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 finan-
cial 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 tool, Ericsson
Compliance Line, that can be used for the reporting of
alleged violations that:
> are conducted by Group or local management, and
> relate to corruption, questionable accounting or audit-
ing 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 management. This forms a basis for
evaluating the internal management system and internal
steering documents to ensure that they cover all signi-
ficant 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 subsidiaries as well as in business units
and regions.

Corporate Governance – Corporate Governance Report

157

Ericsson | Annual Report 2015CORPORATE GOVERNANCE

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 man-
agement, 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, February 26, 2016

Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

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 2015 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 com-

pany 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 differ-
ent and substantially less in scope than an audit con-
ducted 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, February 26, 2016
PricewaterhouseCoopers AB

Peter Nyllinge
Authorized Public Accountant
Auditor in charge

Bo Hjalmarsson
Authorized Public Accountant

158

Ericsson | Annual Report 2015

Digital Telco
Transformation
reinvents the telco
operating model

Ericsson’s Digital Telco Transformation
combines consulting and systems integra-
tion services with the industry’s most com-
prehensive Operations Support Systems/
Business Support Systems portfolio.
Ericsson’s holistic approach allows opera-
tors to gain an intimate understanding of
their customers, become more responsive,
improve satisfaction and address diverse
needs on a personalized basis. Ericsson
helps service providers meet identified
needs and improve interaction with cus-
tomers, using a combination of assets
that the Company continuously develops.
Ericsson’s customer Entel, based in
Santiago, Chile, signed a multi-year deal
with the Company, whereby the customer
will undergo a Digital Telco Transformation
that will help it achieve high levels of oper-
ational agility and improved service deliv-
ery across its operations in Peru and Chile.

Corporate Governance – Corporate Governance Report

159

Ericsson | Annual Report 2015CORPORATE GOVERNANCE

REMUNERATION REPORT

Introduction

This report outlines how the remuneration policy is implemented
throughout Ericsson in line with corporate governance best prac-
tice, with specific references to Group management.

The work of the Remuneration Committee in 2015 and the
remuneration policy are explained below, followed by descriptions
of plans and their outcomes.

More details on the remuneration of Group management and

Board members’ fees can be found in the Notes to the Consoli-
dated financial statements – Note C28, “Information regarding
members of the Board of Directors, the Group management and
employees” in the Annual Report.

Board member remuneration is resolved annually by the

Annual General Meeting.

The Remuneration Committee

The Remuneration Committee (the 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-
and long-term variable compensation. The Committee reviews
and prepares for resolution by the Board:
> Proposals on salary and other remuneration, including retire-

ment 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 Committee is also to:
> Approve proposals on salary and other remuneration, including

retirement compensation, for the ELT members.

> Approve proposals on targets for the short-term variable

compensation for the ELT members.

> Approve payout of the short-term variable compensation for

the ELT, based on achievements and performance.

The 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, Rox-
anne S. Austin, and Karin Åberg. All the members are non-execu-
tive directors, independent (except for the employee representa-
tive) as required by the Swedish Corporate Governance Code and
have relevant knowledge and experience of remuneration matters.
The Company’s Chief Legal Officer 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 Committee meetings by invitation and assist the
Committee in its considerations, except when issues relating to
their own remuneration are being discussed.

The Committee has appointed an independent expert advisor,
Piia Pilv, to assist and advise in its work. The independent advisor
provided no other services to the Company during 2015. The
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
strives to ensure that contact is maintained, as necessary and
appropriate, with shareholders regarding remuneration.

Further information on the Committee and its responsibilities
can be found in the Corporate Governance Report. These respon-
sibilities, together with the Guidelines for remuneration to Group
management and the Long-Term Variable (LTV) compensation
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.

The Guidelines for remuneration to Group management are, in
accordance with Swedish law, brought to shareholders annually
for approval.

The Committee held four meetings during 2015. The winter
meetings focused on following up on results from the 2014 vari-
able compensation programs and preparing proposals to share-
holders for the 2015 Annual General Meeting (AGM). The Commit-
tee proposed to the Board of Directors to approve the LTV 2012
vesting result. In early fall, the Committee made an overview of the
global technology sector pay practices to review the global com-
petitive landscape for Ericsson’s senior talent together with the
independent advisor. The Committee concluded that Ericsson’s
remuneration level is competitive but that the the pay mix is more
fixed in nature with larger emphasis on base salary compared to

Remuneration policy

Remuneration at Ericsson is based on the principles of per-
formance, 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 2015, approved by the AGM, can
be found in Note C28. The auditor’s report regarding
whether the company has complied with the guide lines
for remuneration to Group management during 2015 is
posted on the Ericsson website.

160

Ericsson | Annual Report 2015
typical market practice in the US, Europe and Asia. In the high-
tech industry, the prevalent long-term incentive vehicle is
restricted shares (shares that vest based on time only) as retention
and recognition continue to be the key drivers for plan design.
Ericsson’s Long-Term Variable Compensation program (LTV) is
the least competitive remuneration element in terms of design
and levels in the total compensation package. The Committee
therefore continues to monitor market trends. In its review with
the independent advisor, the Committee also covered the share-
holder perspective, as well as share market rules and legislation
relevant for executive remuneration. The conclusion was to con-
tinue monitoring the market, expectations, rules and regulations
to create a more competitive long-term incentive plan. At the last
meeting of the year, the Committee approved the CEO proposal
for salary adjustments for the ELT and established the framework
for the short-term targets for 2016 and prepared the CEO remu-
neration for the Board to resolve.

Evaluation of the Guidelines for remuneration to Group
management and of the LTV program
The 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 have concluded that the guidelines remain valid and right
for Ericsson and that the guidelines should not be changed for
2016 but will continue to explore possible changes for future years.
Furthermore, the Remuneration Committee is of the opinion

that the LTV program fulfills the defined objectives to promote
“One Ericsson”. The number of participants as of December 1,
2015 was approximately 34,000 employees, compared to 32,000
employees as of December 1, 2014. The evaluation also confirms
that the Key Contributor Retention Plan meets the purpose of
retaining the Company’s key employees. The voluntary attrition
rate among Key Contributors is far smaller compared to the overall
employee attrition rate. After a thorough review of alternative LTV
designs, the Committee concluded to not propose any changes in
the 2016 Executive Performance Stock plan but will continue to
explore alternatives.

Total remuneration

When considering the remuneration of an individual, it is the total
remuneration that matters. First, the total annual cash compensa-
tion is defined, consisting of the target level of short-term variable
compensation plus fixed salary. Thereafter, target long-term vari-
able compensation is added to get to the total target compensa-
tion and, finally, pension and other benefits are 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 total compensation 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 Committee con siders the impact
on total remuneration, including pensions and associated costs.
The absolute levels are determined based on the size and com-
plexity of the position and the year-on-year performance of the
individual. Together with other elements of remuneration, ELT sal-
aries are subject to an annual review by the Committee, which
considers external pay data to ensure that levels of pay remain
competitive and appro priate to the remuneration policy.

Variable compensation
Ericsson strongly believes that, where possible, variable comp-
ensation should be encouraged as an integral part of total remu-
neration. 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 func-
tion, while long-term variable compensation is dependent on the
achievements of the Ericsson Group.

Short-term variable compensation payouts as percentage
of opportunity

Fixed salary, short-term and long-term variable compensation
as percentage of total target compensation

CEO
Average ELT excl. CEO

71.5

65.1

Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
35.8
frågor.

CEO

Average
ELT excl.
CEO

28.7

35.5

56.3

26.8

16.9

Type–Options:
0
1 stapel: 76% 70%
2 staplar: 80% 80%

Fixed salary 2015
Short-Term Variable Target 2015
Long-Term Variable at half of max 2015

Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.

Type–Options:
1 stapel: 76% 70%
2 staplar: 80% 80%

2011

2012

2013

2014

2015

100

Corporate Governance – Remuneration report

161

Ericsson | Annual Report 2015CORPORATE GOVERNANCE – Remuneration report

Summaries of 2015 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

Short-Term Variable
compensation (STV)

Fixed compensation
paid at set times

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 75,100 in 2015

Sales Incentive Plan (SIP)

Tailored versions of
the STV

As for STV, tailored for local or
business requirements, such as sales

Employees in sales.
Approximately 2,200 in 2015

Long-term: Compensation delivered over three years or more

Stock Purchase Plan
(SPP)

All-employee share-
based plan

Key Contributor
Retention Plan (KC)

Share-based plan for
selected individuals

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

Where practicable, all
employees are eligible

Up to 10% of employees

Executive Performance
Stock Plan (EPSP)

Share-based plan for
senior managers

Compensation for long-term
commitment and value creation

Senior managers, including
Executive Leadership Team

Market appropriate levels set
according to position and evaluated
according to individual performance

Achievements against set targets.
Reward can increase to up to twice
the target level and decrease to zero,
depending on performance

Similar to STV, but reward can
increase up to three times the target
level depending on performance. All
plans have maximum award and
vesting limits

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

Subject to performance, get up to
four, six or, for CEO, nine further
shares matched to each SPP share
for long-term performance

Ericsson measures business performance according to five cate-
gories of measurements derived from the overall strategy: growing
sales faster than the market, best-in-class operating margin,
strong cash conversion, customer satisfaction and employee
engagement. These categories form the basis for the 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 on the previous page illustrates how payouts to the

ELT have varied with performance over the past five years.

The Board of Directors decides on the financial targets for the
CEO, and the Committee decides on all targets which are set for
the ELT. These targets are cascaded within the organization and
broken down to unit-related targets throughout the Company.
This is always subject to a two-level management approval pro-
cess. The 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 2015, approximately 77,300 employees participated in

short-term variable compensation plans.

162

Long-term variable compensation
Share-based long-term variable compensation plans are sub-
mitted 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, out-
comes are unknown and rewards depend on long-term personal
investment, corporate performance and the share price perfor-
mance. During 2015, 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 Presi-
dent 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 Stockholm or ADSs on NASDAQ New
York (contribution shares) over a twelve-month period. If the con-
tribution shares are retained by the employee for three years after
the investment and employment with the Ericsson Group contin-
ues 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 2015, the number
of participants was approximately 34,000, or approximately 31%
of eligible employees in 116 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.

Ericsson | Annual Report 2015Short-term variable compensation structure

CEO 2014
CEO 2015
Average ELT 2014 1)
Average ELT 2015 1)

Short-term variable compensation
as percentage of fixed salary

Percentage of short-term variable compensation
maximal opportunity

Target level Maximum level

Actual paid

80%
80%
54%
51%

160%
160%
107%
102%

99%
114%
59%
66%

Group financial
targets

Unit/functional
financial targets

Non-financial
targets

100%
100%
46%
48%

0%
0%
23%
25%

0%
0%
31%
28%

1) Excludes CEO, differences in target and maximum levels from year to year are due to changes in the composition of the ELT.

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 nom-

inate 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.

Participants selected obtain one extra matching share in
addition to the one matching share for each contribution share
purchased under the Stock Purchase Plan during a twelve-month
investment period. The plan was introduced in 2004.

The Executive Performance Stock Plan
The Executive Performance Stock Plan was first introduced in
2004. The plan is designed to focus management on driving long-
term financial performance and 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 con-
tribution share purchased under the all-employee Stock Purchase
Plan. The President and CEO may obtain up to nine perfor-
mance-matching shares in addition to the Stock Purchase Plan
matching share for each contribution share. Performance match-
ing is subject to the fulfillment of performance targets.

To support the long-term strategy and value creation the
following targets for the 2015 Executive Performance Stock Plan
were resolved at the AGM 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 6% comparing 2017 financial results to 2014.
> Operating Income Growth: Up to one-third of the award will

vest if the compound annual growth rate of consolidated oper-
ating income is between 5 and 15% comparing 2017 financial
results to 2014. Extraordinary restructuring charges excluded.
> Cash Conversion: Up to one-third of the award will vest if cash
conversion is at or above 70% during each of the years 2015–
2017, vesting one ninth of the total award for each year the tar-
get is achieved. Extraordinary restructuring charges excluded.

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 Compa-
ny’s financial results and position, conditions on the share 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 per-
formance, the Board of Directors will consider, in particular, the
impact of larger acquisitions, divestments, the creation of joint
ventures and any other significant capital event on the three
targets on a case-by-case basis.

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, i.e.
Ericsson pays contributions but does not guarantee the ultimate
benefit. This applies unless local regulations or legislation
prescribe that defined benefit plans that do give such guarantees
have to be offered.

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 ELT members employed in Sweden since 2011 are

normally covered by the defined contribution plan under the ITP1
scheme.

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 mem-
bers may not receive loans from the Company.

The ELT members locally employed in Sweden have a mutual

notice period of up to six months. Upon termination of employ-
ment by the Company, severance pay can amount to up to
18 months’ fixed salary.

Remuneration policy in practice

Ericsson has taken a number of measures over the years to
enhance the understanding of how the company translates remu-
neration principles and policy into practice. The first step was
the launch of an internal remuneration website which provides
e-learning and training program solutions targeted for line manag-
ers. This was followed by the development and implementation
of an Integrated Human Resources IT tool. Since then, enhance-
ments of the IT tool and continuous briefings of line managers
on pay principles and their practical execution enabled further
progress towards globally consistent principles while allowing
room for adaptation to local legislation and pay markets.

Corporate Governance – Remuneration report

163

Ericsson | Annual Report 2015FOR INVESTORS – Ericsson and the capital markets

Ericsson and the
capital marketS

Roadshows and
Conferences in 2015

Nordic 15%

UK 23%

Rest of Europe 29%

US 25%

Asia 6%

Other 2%

Number of IR activities 2015

304

350

300

250

200

150

100

170

142

One-on-one meetings

Conference calls

Group meetings

164

Purpose of the capital markets
communications
Ericsson’s overall goal is to create shareholder
value. This is achieved through a number of obj-
ectives, both financial and non-financial, including
growing faster than the market with best-in-class
margins and strong cash con version.

The communication with the capital markets
aims to support the Company’s overall goal by
ensuring increased understanding and decre-
ased volatility through transparency and clear
messages. The Investor Relations department
serves as the bridge between the Company’s
strategic planning , development and activities,
and the external valuation and perception.

Transparency means giving transparent, rele-
vant and consistent communication, on a timely,
fair and equal basis and making sure the stake-
holders are updated. Over the years, the stake-
holders have become more diverse, which has
increased the importance of clear and concise
messages to the financial market.

Goals and measurement
Perception studies are carried out on a regular
Obs! Gjord med column
basis to gauge the perceptions of messages at
design. Prata med
capital markets days, the web site, road shows
Eva/Catta/Sanna om ev
frågor.
and the availability and credibility of the IR depart-
ment and the executive management.
Gör så här: Färglägg inte från
Ericsson aims to maintain a long-term rela tion-
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
ship with its shareholders, and the IR department
Där väljer man färg och ev tint.
monitors shareholder turnover on a regular basis.
Kolla särskilt att “Sliding” är valt på
“Column type”.

IR activities are linked to the Company
strategy and development
Throughout the year, the IR department carries
out a number of activities aiming at meeting the
goals of transparent communication and
increased understanding; capital markets days,

road shows, meetings with investors and analysts
etc. There are about 600 IR meetings with inves-
tors and analysts every year. The IR department
also participates in all communications surround-
ing the Company’s activities, product launches,
quarterly earnings, M&A-activities etc, to ensure
that financial communication is clear and relevant
for the capital markets.

Working with other functions in the company
While communication with the rating institutions
primarily falls with Group function Treasury, the IR
department is also involved on a regular basis.

With strong growth in Ericsson’s operations in
the US, coupled with a larger shareholder base,
the US market has grown in importance in recent
years. To match strong operations with local
funding, Ericsson launched a bond program in
the US in 2012. Treasury and IR do a joint annual
roadshow to meet bondholders in the US market.

Activities at Industry events
The IR department also participates at important
industry events such as the annual Mobile World
Congress. The IR activities include communica-
tion relating to important Company news, but also
setting up meetings between Com pany spokes-
people and different stakeholders to facilitate their
understanding of how important news and activi-
ties relate to the Company’s goals and strategy.

IR in Transformation
Ericsson is transforming from a leader in telecom-
munications and related services into a leader in
the ICT arena.

Simultaneously, the stakeholders in the capital
markets have also transformed in recent years; from
industry-specialists focusing on the technology
sector to generalists covering several sectors. It

Important activities during the year 2015

> At the Mobile World Con-

gress in Barcelona in March,
Ericsson announced several
products including the new
Ericsson Radio System
product family. Investor and
analysts meetings were
held with management
and spokespersons.

> At the Annual General Meeting
of shareholders in April, CEO
Hans Vestberg talked about
Ericsson’s strategic direction
and the strong commitment
to sustainability and corpo-
rate responsibility with con-
tinuous and measurable
improvements in all areas.

> In September, CFO Jan
Frykhammar and group
Treasurer Carl Mellander
performed the annual US
investor roadshow to meet
share- and bondholders.

Ericsson | Annual Report 2015Share price and trading volume during the year

SEK

120

100

Trading volume, 000’s

60,000

50,000

40,000

30,000

20,000

10,000

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Volume traded at Nasdaq Stockholm, 000’s

Ericsson, B

Nasdaq Stockholm

Important events during the year 2015

Q4 Report, January: Sales
flat YoY. SEK continued to
weaken towards several
currencies including the US
dollar. Business activity in
North America slowed as
operators remained focused
on cash flow optimization.

AGM, April: The proposed
dividend of SEK 3.40 (SEK 3.00)
was approved at the AGM.
Record date was April 16.

Q1 Report, April: Reported
sales grew 13% while sales,
adjusted for comparable units
and currency decreased YoY,
driven by slower mobile
broadband activity in North
America. This had a negative
impact on sales and profitabil-
ity in segment Networks.

Implementation of the
global cost and efficiency
program in Sweden, June:
As part of the global cost and
efficiency program launched
November 2014, Ericsson
announced reductions of
2,100 positions in Sweden.

Q2 Report, July: Profitability
in segment Networks recov-
ered. Sales in North America
stabilized. Currency move-
ments continued to impact
sales.

Cisco partnership, Novem-
ber: Ericsson announced a
partnership with Cisco. The
strategic partnership will be a
key driver of growth and value
for the next decade.

Q3 Report, October: Operat-
ing Income excluding restruc-
turing improved YoY in all seg-
ments. Reported sales
increased by 3% YoY while
sales, adjusted for compara-
ble units and currency,
decreased by –9%.

Patent agreement with
Apple, December: Ericsson
and Apple settled litigation
and signed a global patent
licence agreement.

has become increasingly important for the
financial communication to make it easy for
stakeholders to make the connection
between the Company’s activ ities and
development and its long-term strategy,

thus putting higher demands on clear
messages.

With almost two thirds of Ericsson’s
holdings outside of Sweden, the IR depart-
ment needs to have an understanding of

focus areas, questions and issues in other
parts of the world. The demand for avail-
ability at a global level also means working
with other tools besides regular meetings,
such as digital media.

> During the UN week in New York, CEO
Hans Vestberg, Chief Strategy Officer
Rima Qureshi and Elaine Weidman-
Grunewald, head of Sustainability and
Corporate Responsibility, talked about
Ericsson’s strategy and how Sustain-
ability and Corporate Responsibility
are an integral part of this strategy.

For investors – Ericsson and the capital markets

> In November, Ericsson held the annual
Capital Markets Day in Stockholm with
more than 200 participants. For more
information, see page 167.

> CEO Hans Vestberg and CFO Jan

Frykhammar participated in meetings
and on stage at an investor confer-
ence in Barcelona in November. Focus
was primarily on the new partnership
with Cisco.

165

Ericsson | Annual Report 2015FOR INVESTORS – Ericsson and the capital markets

Investors and financial
analysts Q&a

What is the sales development and
market trend in North America?
The business in North America was driven
by network quality and capacity expan-
sion. As anticipated, segment Networks
mobile broadband business in North
America was slower than 2014 as opera-
tors focused on cash flow optimization in
order to finance major acquisitions and
spectrum auctions. There was however a
stabilization in mobile broadband business
during the year. There is an underlying
need for more densification and capacity
investments due to the increased mobile
data traffic and there is continued good
progress in targeted area business such
as OSS and BSS and TV and Media.

What is the market trend in Europe?
2015 was driven by continued investments
in network quality and capacity combined
with managed services. Vodafone contin-
ued and started to complete a multi-year
project called “Project Spring” to increase
the coverage and capacity in several Euro-
pean countries. Efficiency and ICT trans-
formation were main drivers for good
development in Professional Services and
Support Solutions. Operator consolida-
tions continued to be on the agenda
during the year partly driven by an increas-
ing need for network investments. Busi-
ness in Russia developed negatively
during the year driven by a weakened
Ruble.

What is the market trend in China?
In Mainland China large-scale roll out of
LTE networks continued, and sales during
the year were driven by deployment of 4G/
LTE coverage type of contracts. Future
capacity sales will be dependent on sub-
scriber uptake and mobile data usage in
the LTE networks.

What is the market trend in
emerging markets?
Business in many emerging markets
during 2015 was driven by 3G. 4G cover-
age is still low and there is a need for more
mobile broadband deployments. For,
example, the 4G subscriber penetration in
Asia Pacific 2014 was only 14% and we
estimate this to grow to 45% by 2021.
There has been a somewhat slower pace
of mobile broadband investments in mar-
kets that had a weak macro economic
development.

What is the reason for the organic
sales decline in segment Networks?
Mobile broadband business in North
America was slower than 2014 as opera-
tors focused on cash flow optimization in
order to finance major acquisitions and
spectrum auctions. There was also a
slower pace of mobile broadband invest-
ments in markets such as Japan, Russia,
and Brazil. We estimate a market growth of
1–3% CAGR 2014–2018 in the Networks
segment.

How has the business
mix developed during the year?
The business mix has developed with
more coverage sales compared to 2014,
partly driven by 4G deployments in Main-
land China.

US dollar has strengthened compared
to several currencies, how has
this impacted the result?
Compared to 2014, currency movements
versus the Swedish Krona have impacted
sales positively mainly driven by the
strengthened US dollar. The positive
underlying effect on the income from hav-
ing less costs than revenues in US dollar
was partly offset by negative effect from
currency hedge contracts. The strength-
ened US dollar also had a negative impact
on operator investments in some markets.

Can you give us an update
on your cost saving plan?
The global cost and efficiency program,
with the target to achieve annual net sav-
ings of SEK 9 billion during 2017 compared
to 2014, is progressing according to plan.
Since the announce ment in November last
year, a number of activities have been
implemented globally, contributing to
lower cost levels.

166

Ericsson | Annual Report 2015Capital Markets Day – the main messages

Ericsson held its Capital Markets Day in Stockholm November
10. The company gave an update on the progress of its Net-
worked Society strategy, focusing on market development,
growth agenda, and profitability.

gress in targeted growth areas was given, showing continued
sales growth in line with plan and representing a growing share
of Ericsson’s total sales.

Hans Vestberg was joined on stage by several executive leader-
ship team members of Ericsson. A detailed update of the pro-

The partnership with Cisco announced on November 9, 2015,
was discussed on stage by Hans Vestberg and John Chambers,
Executive Chairman, Cisco.

FOR INVESTORS – Share information

Share information

Share trading

The Ericsson Class A and Class B
shares are listed on Nasdaq Stock-
holm. 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 2015, approximately 2.3 (1.9)
billion shares were traded on Nasdaq
Stockholm and approximately 0.9 (1.0)
billion ADS were traded in the United
States (incl. NASDAQ New York). A
total of 3.2 (2.9) billion Ericsson shares
were thus traded on the exchanges in
Stockholm and in the United States.
Trading volume in Ericsson shares
increased by approximately 20% on

Share trading on different
market places (class B shares)

Shares traded, billions

Nasdaq Stockholm and decreased by
approximately 5% in the United States
compared to 2014. With the implemen-
tation of the Mifid directive in the EU,
share trading has become increasingly
fragmented across a number of venues
and trading categories. Trading on
MTFs and other venues have gained
market shares from stock exchanges
like Nasdaq Stockholm.

Trading in Stockholm represented

37 percent of total trading in 2015,
compared with 47 percent in 2011.
Total trading in Ericsson B on all venues
combined, has decreased slightly over
the past five years, from 7.1 billion
shares in 2011 to 6.2 billion shares in
2015. Over the same period, trading of
Ericsson ADS in the US has decreased
from 1.5 billion ADS to 0.9 billion ADS.
This development, with decreasing
share of trading volumes in Stockholm,
is in line with the development for other
Swedish Large Cap shares.

2011

2012

2013

2014

2015

Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.

Other
London
Boat
Turquoise
BATS Chi-X
Stockholm

Changes in number of shares and capital stock 2011–2015

2011
2012
2012
2013
2014
2015

December 31
June 29, new issue (Class C shares, later converted to Class B)
December 31
December 31
December 31
December 31

Share performance indicators

Earnings per share, diluted (SEK) 1)
Earnings per share, diluted non-IFRS (SEK) 2)
Operating income per share (SEK) 3)
Cash flow from operating activities per share (SEK) 3)
Stockholders’ equity per share, basic, end of period (SEK) 4)
P/E ratio
Total shareholder return (%)
Dividend per share (SEK) 5)

The Ericsson share

Share/ADS listings

Nasdaq 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
Market capitalization, December 31, 2015
ICB (Industry Classification Benchmark)

3,305,051,735

261,755,983

3,043,295,752
49,367,641
SEK 5.00
approx. SEK 271 billion
9500

1) Both classes of shares have the same rights of participation in the net assets

and earnings.

Ticker codes

Nasdaq Stockholm
NASDAQ New York
Bloomberg Nasdaq Stockholm
Bloomberg NASDAQ
Reuters Nasdaq Stockholm
Reuters NASDAQ

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

Number of shares

Share capital (SEK)

3,273,351,735
31,700,000
3,305,051,735
3,305,051,735
3,305,051,735
3,305,051,735

16,366,758,678
158,500,000
16,525,258,678
16,525,258,678
16,525,258,678
16,525,258,678

2015

4.13
6.06
6.71
6.34
45.00
20
–9
3.70

2014

3.54
4.80
5.19
5.78
44.51
26
24
3.40

2013

3.69
5.62
5.53
5.39
43.39
21
25
3.00

2012

1.78
2.74
3.25
6.85
42.51
36
–3
2.75

2011

3.77
4.72
5.58
3.11
44.57
19
–7
2.50

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.
4) Calculated on number of shares, end of period.
5) For 2015 as proposed by the Board of Directors.

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

168

Ericsson | Annual Report 2015Share trend

In 2015, Ericsson’s total market capitalization decreased by 12.6% to SEK 271 billion, compared to an
increase by 20.1% reaching SEK 310 billion in 2014. In 2015, the index, OMX Stockholm, on Nasdaq
Stockholm increased by 6.6%, the NASDAQ composite index increased by 5.7% and the S&P 500
Index decreased by 0.7%.

Share turnover and price trend, Nasdaq Stockholm

Dividend per share

Class A shares, SEK

000’s share traded

120

100

2011

2012

2013

2014

2015

18,000

15,000

12,000

9,000

6,000

3,000

Class B shares, SEK

000’s share traded

120

100

2011

2012

2013

2014

2015

600,000

500,000

400,000

300,000

200,000

100,000

Volume traded, 000’s

Ericsson share

Nasdaq Stockholm

Volumes reflect trading on Nasdaq Stockholm only.

Share turnover and price trend, US market

ADS, USD

000’s share traded

2011

2012

2013

2014

2015

300,000

250,000

200,000

150,000

100,000

50,000

Volume traded, 000’s

Ericsson ADS

S&P 500

For investors – Share information

Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.

Type–Options:
1 stapel: 76% 70%
2 staplar: 80% 80%

Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.

SEK

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

3.70

3.40

3.0

2.75

2.50

2011

2012

2013

2014

2015

1) For 2015 as proposed by
the Board of Directors.

Earnings per share, diluted

SEK

5.62

6.06

4.72

3.77

4.80

4.13

3.69

3.54

2.74

1.78

2011

2012

2013

2014

2015

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

44.57

42.51

43.39

44.51

45.00

2011

2012

2013

2014

2015

169

Ericsson | Annual Report 2015

FOR INVESTORS – Share information

Share and ADS prices

Principal trading market – Nasdaq Stockholm – share prices
The table below states the high and low share prices for the Class
A and Class B shares as reported by Nasdaq Stockholm for the
periods indicated. 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 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 Stockholm
Official Price List of Shares currently comprise the shares of
288 companies.

Host market NASDAQ New York – ADS prices
The table below states the high and low share prices quoted
for the ADSs on NASDAQ New York for the periods indicated. 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 Stockholm

(SEK)

Class A at last day of trading
Class A high
(April 14, 2015)
Class A low
(September 29, 2015)
Class B at last day of trading
Class B high
(April 14, 2015)
Class B low
(December 15, 2015)

Source: Nasdaq Stockholm.

2015

79.35

2014

88.25

2013

74.50

2012

63.90

2011

69.55

111.30

91.80

86.95

72.00

93.60

72.00
82.30

71.55
94.35

50.00
78.50

55.55
65.10

59.05
70.40

120.00

96.40

90.95

71.90

96.65

75.30

75.05

64.50

55.90

61.70

Share prices on NASDAQ New York

(USD)

ADS at last day of trading
ADS high (March 18, 2015)
ADS low (December 14, 2015)

Source: NASDAQ New York.

2015

9.61
13.14
8.87

2014

12.10
13.61
11.20

2013

12.24
14.22
9.78

2012

10.10
10.60
8.23

2011

10.13
15.44
8.83

Share prices on Nasdaq Stockholm and NASDAQ New York

Period

Annual high and low
2011
2012
2013
2014
2015

Quarterly high and low
2014 First Quarter
2014 Second Quarter
2014 Third Quarter
2014 Fourth Quarter
2015 First Quarter
2015 Second Quarter
2015 Third Quarter
2015 Fourth Quarter

Monthly high and low
August 2015
September 2015
October 2015
November 2015
December 2015
January 2016

Nasdaq Stockholm

SEK per Class A share

SEK per Class B share

NASDAQ New York
USD per ADS 1)

High

Low

High

Low

High

Low

93.60
72.00
86.95
91.80
111.30

82.00
84.10
89.95
91.80
107.10
111.30
91.00
83.70

86.80
79.60
82.20
83.70
82.05
80.40

59.05
55.55
50.00
71.55
72.00

71.55
74.15
74.50
76.05
88.75
80.05
72.00
73.00

73.60
72.00
74.60
74.80
73.00
71.50

96.65
71.90
90.95
96.40
120.00

86.25
88.55
94.45
96.40
113.70
120.00
96.40
88.30

92.10
84.80
88.30
88.40
85.20
83.60

61.70
55.90
64.50
75.05
75.30

75.05
77.55
77.90
81.05
92.90
85.85
77.45
75.30

77.45
77.50
80.45
78.55
75.30
73.25

15.44
10.60
14.22
13.61
13.14

13.37
13.61
13.28
12.74
13.14
13.10
11.08
10.58

10.66
10.04
10.58
10.15
9.86
9.64

8.83
8.23
9.78
11.20
8.87

11.52
11.83
11.50
11.20
11.75
10.33
9.23
8.87

9.42
9.23
9.47
9.06
8.87
8.55

1) One ADS = 1 Class B share.

Source: Nasdag Stockholm and NASDAQ New York.

170

Ericsson | Annual Report 2015Shareholders

As of December 31, 2015, the Parent Company had 468,089 sharehold-
ers registered at Euroclear Sweden AB (the Central Securities Depository
– CSD), of which 959 holders had a US address. According to information
provided by the Company’s depositary bank, Deutsche Bank, there were
274,335,547 ADSs outstanding as of December 31, 2015, and 3,987
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 11, 2016, the total number of bank, broker
and/or nominee accounts holding Ericsson ADSs was 150,928.

According to information known at year-end 2015, approximately 85%

of the Class A and Class B shares were owned by institutions, Swedish
and international. The major shareholders do not have different voting
rights than other shareholders holding the same classes of shares. As far
as Ericsson knows, the Company is not directly or indirectly owned or con-
trolled by another corporation, by any foreign government or by any other
natural or legal person(s) separately or jointly.

The table below 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, 2015.

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 (29 persons)

1,091,264

0.02%

Includes shares held via endowment insurance, for more info see page 144–145, note 2
For individual holdings, see Corporate Governance Report.

Geographical ownership breakdown of share capital including retail
shareholders and treasury shares

Percent of capital

Sweden

United States

United Kingdom

Norway

Netherlands

2015

36.36%

26.28%

8.91%

3.36%

2.65%

2014

37.75%

23.13%

10.52%

3.30%

1.77%

Other countries

22.44%

23.53%

Source: Nasdaq

Ownership breakdown by type of owner

Percentage of voting rights

Swedish institutions

54.66%

54.65%

2015

2014

Of which:
– Investor AB
– AB Industrivärden 1)

Foreign institutions

Swedish retail investors

Other

21.50%
20.05%

30.61%

5.53%

9.20%

21.50%
20.05%

32.16%

5.44%

7.75%

Source: Nasdaq
1) Together with SHB Pensionsstiftelse and

Pensions kassan SHB Försäkringsförening.

Share distribution 1)

Holding

1–500
501–1,000
1,001–5,000
5,001–10,000
10,001–15,000
15,001–20,000
20,001–

Total, December 31, 2015 2)

No. of
shareholders

370,450
44,783
43,383
5,181
1,323
618
2,350

468,089

No. of
shares A

1,361,190
1,026,313
3,126,529
1,155,815
530,481
423,291
254,132,364

261,755,983

No. of
shares B

Percentage
of share capital

Percentage
of voting rights

Market value
(MSEK)

49,687,320
32,700,427
90,609,772
35,751,563
15,763,760
10,558,905
2,808,120,373

3,043,295,752

1.54%
1.02%
2.84%
1.12%
0.49%
0.33%
92.65%

1.12%
0.76%
2.15%
0.84%
0.37%
0.26%
94.50%

100.00%

4,197
2,773
7,705
3,034
1,339
903
251,274

271,234

1) Source: Euroclear
2) Includes a nominee reporting discrepancy of 103,632 shares.

The following table shows share information, as of December 31, 2015, with respect to the 15 largest shareholders, ranked by voting rights, as well as
their percentage of voting rights as of December 31, 2015, 2014 and 2013.

Largest shareholders, December 31, 2015 and percentage of voting rights, December 31, 2015, 2014 and 2013

Identity of person or group 1)

Investor AB
AB Industrivärden
Svenska Handelsbankens Pensionsstiftelse
AFA Försäkring AB
Dodge & Cox
Swedbank Robur AB
AMF Pensionsförsäkring AB
Livförsäkringsbolaget Skandia, ömsesidigt
BlackRock Institutional Trust Company, N.A.
MFS Investment Management
PRIMECAP Management Company
Norges Bank Investment Management (NBIM)
Handelsbanken Asset Management
State Street Global Advisors (US)
The Vanguard Group, Inc.
Others

Total

1) Source: Nasdaq

For investors – Share information

Number of Class
A shares

Of total
Class A shares,
percent

Number of Class
B shares

Of total
Class B shares,
percent

2015
Voting rights,
percent

2014
Voting rights,
percent

2013
Voting rights,
percent

115,762,803
86,052,615
27,430,790
11,723,000
0
16,814
0
7,114,066
0
2,470
0
0
82,826
0
0
13,570,599

261,755,983

44.23
32.88
10.48
4.48
0.00
0.01
0.00
2.72
0.00
0.00
0.00
0.00
0.03
0.00
0.00
5.18

59,284,545
71,068

5,998,521
113,049,778
101,413,009
98,078,456
19,042,807
83,945,614
75,416,310
75,364,410
64,704,304
57,114,406
57,316,994
54,428,202
2,178,067,328

100

3,043,295,752

1.95
0.00
0.00
0.20
3.71
3.33
3.22
0.63
2.76
2.48
2.48
2.13
1.88
1.88
1.79
71.57

100

21.50
15.20
4.85
2.18
2.00
1.79
1.73
1.59
1.48
1.33
1.33
1.14
1.02
1.01
0.96
40.87

100

21.50
15.20
4.85
2.06
2.08
1.91
1.85
1.57
1.45
0.43
0.57
1.14
1.02
0.92
0.77
42.70

100

21.50
15.21
3.62
2.10
1.36
2.16
1.34
1.32
1.45
0.40
0.48
1.15
0.85
0.77
0.66
45.63

100

171

Ericsson | Annual Report 2015OTHER INFORMATION

Ten-year summary

For definitions of certain financial terms used, see Financial terminology.

Ten-year summary

Income statement items, SEK million
Net sales
Operating income
Financial net
Net income

Year-end position, SEK million
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, SEK million
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 2015, as proposed by the Board of Directors.

172

2015

Change

2014

2013

2012

2011

2010

2009

2008

2007

2006

246,920
21,805
–1,933
13,673

284,363
104,811
195,150
66,270
18,486
15,901
146,525
841
47,784

4.17
4.13
6.34
3.70 1)

45.00

3,256
3,249
3,282

8,338
4,689
5,228
5,538
34,844
14.1%

8.8%
8.8%
10.5%
85%
9.3%
11.6%
51.8%
1.3
64
3.3
80,691
32.7%

116,281
17,041
117,486

8%
30%
94%
23%

–3%
2%
3%
–8%
–33%
19%
2%
–16%
7%

17%
17%
9%
9%
1%

–
–
–

57%
9%
–18%
–2%
–4%
–

–
–
–
–
–
–
–
–
–
–
–6%
–

–2%
–3%
3%

227,983

16,807

–996

11,143

293,558

103,246

189,839

72,159

27,629

13,341

144,306

1,003

44,530

3.57

3.54

5.78

3.40

44.51

3,242

3,237

3,270

5,322

4,316

6,184

5,629

36,308

15.9%

7.4%

9.3%

84%

8.1%

9.8%

49.5%

1.2

3.1

85,465

37.5%

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

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%

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%

203,348

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%

206,477

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

118,055

17,580

113,734

114,340

17,858

108,944

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 2015For definitions of certain financial terms used, see Financial terminology.

Ten-year summary

Income statement items, SEK million

Year-end position, SEK million

Net sales

Operating income

Financial net

Net income

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, SEK million

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 2015, as proposed by the Board of Directors.

2015

Change

2014

2013

2012

2011

2010

2009

2008

2007

2006

246,920

21,805

–1,933

13,673

284,363

104,811

195,150

66,270

18,486

15,901

146,525

841

47,784

4.17

4.13

6.34

3.70 1)

45.00

3,256

3,249

3,282

8,338

4,689

5,228

5,538

34,844

14.1%

8.8%

10.5%

85%

9.3%

11.6%

51.8%

1.3

3.3

80,691

32.7%

116,281

17,041

117,486

30%

94%

23%

–3%

–8%

–33%

19%

–16%

17%

57%

–18%

–2%

–4%

–

–6%

–2%

–3%

227,983
16,807
–996
11,143

293,558
103,246
189,839
72,159
27,629
13,341
144,306
1,003
44,530

3.57
3.54
5.78
3.40
44.51

3,242
3,237
3,270

5,322
4,316
6,184
5,629
36,308
15.9%

7.4%
7.4%
9.3%
84%
8.1%
9.8%
49.5%
1.2
64
3.1
85,465
37.5%

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
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
62
3.4
82,631
36.3%

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
73
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
78
3.6
86,570
38.1%

203,348
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
74
3.2
96,951
47.7%

118,055
17,580
113,734

114,340
17,858
108,944

110,255
17,712
106,997

104,525
17,500
116,507

90,261
17,848
100,070

206,477
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
68
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
68
3.1
84,917
40.6%

187,780
30,646
83
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
70
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
71
3.9
67,454
37.5%

63,781
19,094
98,694

Other information – Ten-year summary

173

Ericsson | Annual Report 2015OTHER INFORMATION

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.

HDS 8000
A product announced by Ericsson in 2015.
Ericsson HDS 8000 (Hyperscale Datacenter
System) is a new generation of hyperscale data-
center systems that uses Intel® Rack Scale
Architecture.

Heterogeneous network
Densification and enhancement of a network to
increase capacity.

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 con-
nected is connected, empowering people,
business and society.

Backhaul
Transmission between radio base stations and
the core network.

BSS
Business support systems.

CAGR
Compound Annual Growth Rate.

CDMA
Code Division Multiple Access.
A radio technology on which the cdmaOne (2G)
and CDMA2000 (3G) mobile communication
standards are both based.

Cloud
When data and applications reside in the
network.

CO2e
The amount of a particular greenhouse gas,
expressed as the amount of carbon dioxide that
gives the same greenhouse effect.

HSPA
High Speed Packet Access.
Enhancement of 3G/WCDMA that enables
mobile broadband.

ICT
Information and Communication Technology.

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.

EDGE
An enhancement of GSM. Enables the trans-
mission of data at speeds up to 250 kbps
(Evolved EDGE up to 1 Mbps.)

JV
Joint Venture.

NFV
Network Functions Virtualization.
Software implementation of network functions
that can be deployed in virtualized infrastruc-
ture, offering efficient orchestration, automation
and scalability.

OSS
Operations Support Systems.

SDN
Software-Defined Network.
A programmable network with physical separa-
tion of decisions about where network traffic is
sent (control plane), from the underlying system
that forward traffic to the selected destinations
(data plane).

VoLTE (Voice over LTE)
VoLTE, based on the IP Multimedia Subsystem
(IMS), is a voice service delivered as data flows
in LTE, over time replacing the legacy
circuit-switched voice network.

WCDMA
Wideband Code Division Multiple Access.
A 3G mobile communication standard.
WCDMA builds on the same core network
infrastructure as GSM.

EPC
Evolved Packet Core.
The core network of the LTE system.

LTE
Long-Term Evolution.
4G; the evolutionary step of mobile technology
beyond HSPA, allowing data rate above 100
Mbps.

xDSL
Digital Subscriber Line technologies for broad-
band multimedia communications in fixed-line
networks. Examples: IP-DSL, ADSL and VDSL.

GSM
Global System for Mobile Communications.
A first digital generation mobile system.

M-commerce
Mobile commerce.

Global ICT Centers
Ericsson is building three Global ICT Centers,
facilities that allow the connection of both
Telco and ICT (Information Communication
Technology) equipment and allow access by
over 20,000 engineers globally.

M2M
Machine-to-machine communication.

Managed services
Management of operator networks and/or
hosting of their services.

The terms “Ericsson”, “the Company”, “the Group”, “us”, “we”, and “our”
all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries.

174

Ericsson | Annual Report 2015Financial terminology

CAPEX
Capital expenditures.

Capital employed
Total assets less non-interest-bearing provi-
sions and liabilities (which includes non-current
provisions; deferred tax liabilities; other
non-current liabilities; current provisions; trade
payables and other current liabilities.

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 multi-
plied by 90 days. If the amount of trade receiv-
ables 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 attribut-
able to stockholders of the Parent Company
divided by the weighted average number of
ordinary shares outstanding during the period.
Diluted earnings per share: the weighted aver-
age number of shares outstanding are adjusted
for the effects of all dilutive potential ordinary
shares.

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 (intel-
lectual property rights, trademarks and other
intangible assets; see Note C10 “Intangible
assets”) as a percentage of net sales.

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 percent-
age 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 inven-
tories for the year (net of advances from cus-
tomers).

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.

OPEX
Operational expenses.

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.

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.

Sales, adjusted for comparable units and
currency
YoY sales growth has been adjusted, using last
year’s currency rates. In addition any impact
from significant divestments or acquisitions has
been eliminated.

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).

Stockholders’ equity per share
Stockholders’ equity divided by the number of
shares outstanding at end of period, basic.

Total Shareholder Return (TSR)
The increase or decrease in Class B share price
during the period, including dividend,
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 maxi-
mum 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-bear-
ing provisions and liabilities (which include:
current provisions; trade payables and other
current liabilities).

Exchange rates

Exchange rates in consolidation

SEK/EUR

Average rate1)
Closing rate

SEK/USD

Average rate1)
Closing rate

January–December

2015

2014

9.34
9.17

8,39
8.40

9.11
9.47

6.89
7.79

1) Average for the year for disclosure purpose only.

Period income and expenses for each income statement
are translated at period average exchange rates.

Other information – Financial terminology

175

Ericsson | Annual Report 2015OTHER INFORMATION

SHAREHOLDER INFORMATION

Telefonaktiebolaget LM Ericsson’s Annual Gen-
eral Meeting of shareholders 2016 will be held on
Wednesday, April 13, 2016, at 3 p.m. at Stock-
holm 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 Securi-
ties Registry) on Thursday, April 7, 2016; and
> Give notice of attendance to the Company at
the latest on Thursday April 7, 2016. Notice of
attendance can be given by telephone:
+46 8 402 90 54 on weekdays between
10 a.m. and 4 p.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

Notice of attendance can be given as from the
publication of the notice convening the Annual
General Meeting.

When giving notice of attendance, please state
the 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 translated into English.

Shares registered in the name of a nominee
In addition to giving notice of attendance,
shareholders having their shares registered in
the name of a nominee must request the nomi-
nee to temporarily enter the shareholder into the
share register as per Thursday, April 7, 2016, in
order to be entitled to attend the meeting.

The shareholder should inform the nominee
to that effect well before that day.

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
Tuesday, April 12, 2016. 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 3.70 per share for the year
2015 and that Friday, April 15, 2016 will be the
record date for dividend.

Financial information from Ericsson
2015 Form 20-F for the US market:
April, 2016

Interim reports 2016:
> Q1, April 21, 2016
> Q2, July 19, 2016
> Q3, October 21, 2016
> Q4, January 26, 2017

Annual Report 2016:
March, 2017

176

Ericsson | Annual Report 2015MORE INFORMATION

The Annual Report describes Ericsson’s financial and
operational per formance during 2015. A Corporate
Governance Report is attached to the Annual Report.

Ericsson issues a separate Sustainability and Corporate
Responsibility Report. www.ericsson.com/thecompany/
sustainability _corporateresponsibility

Find this Annual Report online:
www.ericsson.com/annualreport2015

There is further information on sustainability and corporate
respon sibility on pages 38–39 and pages 50–51 in this
Annual Report.

For printed publications

Where you can find out more

Ericsson Annual Report 2015:

A printed copy of the Annual Report is provided on
request.

Information about Ericsson and its development is
available on the website: www.ericsson.com

Project management:
Ericsson Investor Relations

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:
Phone: +1 (888) 301 2504

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:
Phone: +46 (10) 719 00 00
Email: investor.relations@ericsson.com

Other information – Shareholder information

Design and production:
Hallvarsson & Halvarsson

Group Management, Board
of Directors photography:
Per Myrehed

Printing:
Göteborgstryckeriet 2016

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177

Ericsson | Annual Report 2015
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone +46 10 719 0000
www.ericsson.com