NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
(Thousands of dollars)
The following description of the Ericsson US 401(k) Plan (the “Plan”) provides only general information. Participants should refer
to the Plan agreement for a more complete description of the Plan’s provision. The Plan was created by action of the board of directors of Ericsson Inc. (the “Company” or “Ericsson” or the “Employer”) on
May 27, 1983, effective July 1, 1983. The Plan is a defined contribution plan and is administered by an administrative committee (the “Committee”) which monitors the investment objectives and performance of the Plan’s
individual investment options.
The Plan is a single employer plan.
Effective August 24, 2009, a Master Trust was created to permit the commingling of trust assets of both the Plan and the Ericsson Services
401(k) Plan. On December 28, 2012 the Ericsson Services 401(k) Plan was merged into the Ericsson US 401(k) Plan formerly called the Ericsson Capital Accumulation and Savings Plan. Total assets transferred into the Plan due to the merger were
approximately $140,800. Effective July 18, 2016 Great-West Trust (“Trustee”) was made trustee of the Plan and the Master Trust was dissolved. Empower Retirement, the retirement services business of Great-West Financial, is the
recordkeeper of the Plan.
Effective December 1, 2021 the Vidscale, Inc. 401(k) Plan was merged into the Plan. This allowed the
Vidscale, Inc. employees who satisfied the eligibility requirements of the Plan participation in the Plan. Total assets transferred into the Plan due to the merger were approximately $393.
Each pay period participant contributions are remitted to the Plan made to the Trustee for investment. There is currently one stable value
fund, five mutual funds, seven commingled funds, twelve common collective trusts and two separately managed accounts. In addition, there is a self – directed brokerage account (“SDA”) to which participants may direct their
investments. The SDA allows access to a wide variety of mutual funds, stocks and bonds. Brokerage services are provided through the Trustee. Participants can choose these options for their contributions as well as the Company contributions.
| 2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Accounting
The
Plan’s financial statements are presented using the accrual method of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”).
Use of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and changes therein.
Actual results could differ from those estimates.
Risks, Uncertainties and Concentrations
The Plan provides for various investment options as described in Note 1. The underlying investments held by the investment options may include
stocks, bonds, fixed income securities, mutual funds and other investment securities. Such investments are exposed to various risks, such as interest rate,
7
ERICSSON US 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
(Thousands of dollars)
market and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at
least reasonably possible that changes in the values of investment securities in the near term could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits.
The Novel Coronavirus Pandemic or COVID-19 (“Coronavirus”) has resulted in governments
worldwide enacting emergency measures to combat the spread of the virus. These measures, which have included the implementation of travel restrictions, government-imposed
shelter-in-place orders, quarantine periods, social distancing, and restrictions on large gatherings, have caused material disruption to businesses globally, resulting
in increased unemployment, a recession and increased economic uncertainty. These measures have moderated in 2021 as vaccines have become more widely available in the United States and Canada. The duration and impact of the Coronavirus on the overall
economy cannot be determined at this time.
As of December 31, 2021 and 2020, there was one investment that represented 22% and 20% of
investments, respectively. That investment is the only investment that represented more than 10% of investments held. See the schedule of assets (held at end of year) for a complete list of investments as of December 31, 2021.
Contributions and Contributions Receivables
Contributions are recorded on the accrual method of accounting. Contributions receivable are obligations arising from amounts owed to the Plan
from participants or the Employer that have not been included in the Plan’s investments at year end. Contributions receivable are recorded at cost, which approximates their fair value. Total contributions receivable were $609 and $1,458 at
December 31, 2021 and 2020, respectively.
Valuation of Investments
The Plan’s investments are reported at fair value. At December 31, 2021 and 2020 the Plan held a Stable Value Fund which was reported
at contract value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit
price). See Note 4 for further discussion of fair value and fair value measurements. See Note 8 for further discussion of the investment carried at contract value.
Investment Income
Purchases and sales of the investments within the Plan are reflected on a trade-date basis. Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Other income includes the net appreciation (depreciation), interest and dividends of the investments held in the SDA and separately managed
accounts.
8
ERICSSON US 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
(Thousands of dollars)
Security Transactions
The Plan presents in the Statement of Changes in Net Assets Available for Benefits the net appreciation or depreciation in the fair value of
its investments which consists of the realized gains and losses and the unrealized appreciation (depreciation) on those investments. Realized gains and losses on security transactions are determined on the trade date (the date the order to buy or
sell is executed) as the difference between proceeds received and historical cost. Unrealized gains and losses represent the net change in market value of investments held during the year which are presented at fair value, with adjustments for
investments sold.
Upon withdrawal from the Plan, participants invested in Company stock may elect to receive cash or Company stock.
Whenever a participant receives stock, the difference between the cost of such stock and the market value on the applicable valuation date is reflected as a realized gain or loss of the Plan. Gains or losses are also realized whenever stocks are
sold in satisfaction of the participants’ election to take cash upon withdrawal.
Vesting and Forfeitures
Company and active participants’ capital accumulation contributions, and participants’ savings contributions, and the earnings
thereon, are fully and immediately vested, with the exception of non-active participants transferred in from other plans, which continue to be subject to the former plans’ vesting requirements.
Accordingly, the forfeiture balance as of December 31, 2021 and 2020 was$2,017 and $1,962, respectively. During 2021, $63 of forfeitures were used to pay Plan administrative expenses.
Expenses of the Plan
Most costs and expenses of the Plan and its administration, including all fees and expenses of the Trustee, are paid by the Company. All taxes,
commissions and other charges on purchases, sales and transfers of Company stock and other securities are paid by the Trustee out of the fund or account involved in such purchase or sale. Participants are responsible for their own managed account
fees, brokerage fees, and loan fees. A quarterly administrative fee is charged to each participant’s account.
Administration
The Committee is responsible for the general administration of the Plan and for carrying out its provisions. Members of the Committee
serve without compensation from the Plan.
Notes Receivable from Participants
Notes receivables from participants may be granted to participants in an amount not to exceed 50% of the participant’s contribution
account. The maximum loan amount is fifty thousand dollars minus the participant’s highest loan balance (if any) during the previous 12 months; the minimum loan amount is one thousand dollars. Loans may be repaid through payroll deductions over
a selected period between 12 months and 60 months. An employee is allowed only one loan at a time. If an employee misses payments, he/she will be required to make up the payments and accrued interest immediately. Failure to keep the loan current
could result in the loan being classified as a “deemed distribution”, which is taxable income to the employee. Interest on the loan is set at the time of issuance, and the rate is the prime rate plus 1%. At December 31, 2021, interest
rates range from 4.25% to 6.50%. Notes receivable from participants are reported at their outstanding principal plus any accrued interest.
9
ERICSSON US 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
(Thousands of dollars)
Termination Priorities
The Company reserves the right, by action of the board, to amend, suspend or terminate the Plan. In the event that the Plan is terminated or
the Company discontinues its contributions, all amounts allocated to the participants’ accounts and all assets held under the Plan will be fully vested and will be held for distribution to the participants.
The Company currently has no plans to terminate the Plan.
Benefit Payments
At
December 31, 2021 and 2020, there were no benefit claims which had been processed and approved for payment but not yet paid. At Empower Retirement, the recordkeeper of the Plan, benefit payments are determined, paid and taxed to participants
based upon the date the check is first processed. For financial statement purposes, benefit payments are recorded when paid.
The Company offers the Plan for eligible U.S. employees to which qualified employees may elect to contribute stated percentages of eligible
pay. Participation by eligible employees is voluntary and is defined as any regular salaried or hourly employee who is employed by a participating employer and receives regular compensation in the form of a weekly, biweekly, semi-monthly or monthly
salary from an Ericsson U.S. payroll. All eligible employees may immediately participate in the Plan. At December 31, 2021 and 2020, the number of active participants were roughly 6,300, respectively.
Eligible participants may contribute on a pre-tax and/or Roth basis any whole percentage from 1% to 50%
of their eligible earnings up to current IRS limits into the Capital Accumulation 401(k) portion of the Plan; participants may also contribute any whole percentage from 1% to 5% of their eligible earnings to the Savings portion on an after-tax basis. The Company contributes 3% of a participant’s eligible pay for employees who are not actively participating in the Company’s Defined Benefit Plan, whether or not the employee contributes.
The Company also matches 100% of the first 3% and an additional 50% on the 4th % and 5th % contributed. All employee and Employer contributions
are 100% vested immediately.
Participants may change their percentage payroll deduction elections at anytime during the year using the web-based Empower Retirement “Retireonline” system. Participants may change investment percentages between funds at any time during the year. Participants may transfer existing fund balances to other
available investment options at any time during the year. There are no restrictions on the transfer of investment balances from LM Ericsson Telephone Co. shares of Common Stock to other investment funds.
Each participant’s account is credited with the participant’s contributions, Company contributions and Plan earnings. The benefit to
which a participant is entitled is the benefit that can be provided from the participant’s vested account. Participants may direct the investment of their account balances into various investment options offered by the Plan.
10
ERICSSON US 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
(Thousands of dollars)
Participants may, at any time, request certain
in-service withdrawals in the form of a normal or hardship withdrawal. Normal withdrawals may be requested from the Employee Savings account and Company Savings account for money that has been in the Plan for
at least 24 full calendar months. Hardship withdrawals must meet certain requirements including approval by the Committee.
| 4. |
FAIR VALUE MEASUREMENTS |
The accounting standards establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers
include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as
unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Assets and
liabilities measured at fair value are based on one or more of the following three valuation techniques noted in Accounting Standards Codification “ASC” Topic 820; A) Market approach: Prices and other relevant information generated by
market transactions involving identical or comparable assets and liabilities. B) Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost). C) Income approach: Techniques to convert future amounts to
a single present amount based upon market expectation (including present value techniques, option-pricing and excess earnings models).
The
following is a description of the valuation methodologies used for the investments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Mutual Funds
Mutual funds represent investments with various registered investment managers. The fair values of these investments are determined by
reference to the fund’s underlying assets, which are principally marketable equity and fixed income securities. Shares held in mutual funds traded on national securities exchanges are valued at the quoted market price as of December 31,
2021 and 2020 and classified as Level 1 assets.
Self-Directed Brokerage Accounts (SDA)
A majority of the SDA accounts include investments in cash and cash equivalents, common stock, and registered investment companies and are
classified as Level 2 investments. Cash and cash equivalent investments include cash and short-term interest-bearing investments with initial maturities of three months or less. Such amounts are recorded at cost, plus accrued
interest. Common stock traded in active markets on national securities exchanges are valued at closing prices on the last business day of each period presented. Securities traded in markets that are not considered active are valued based on
quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Securities that trade infrequently and therefore have little or no price transparency are valued using the Plan’s
investment manager’s best estimates. Mutual funds in registered investment companies are valued as mentioned above.
Commingled
Funds and Common Collective Trusts
Valued using the Net Asset Value (“NAV”) provided by the administrator of the fund.
The NAV is based on the value of the underlying assets owned by the fund minus applicable costs and liabilities and then divided by the number of shares outstanding. As these assets are measured at net asset value, they are therefore excluded from
the fair value hierarchy and included in other.
11
ERICSSON US 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
(Thousands of dollars)
Common Stocks
Ericsson Inc. common stock and common stocks held in participant-directed brokerage accounts are stated at fair value as quoted on a recognized
securities exchange and are valued at the last reported sales price on the last business day of the Plan year and are classified as Level 1 investments, except those held in the SDA and separately managed accounts.
Separately Managed Accounts
Self-managed fund consisting of a portfolio of assets under the management of a professional investment firm and primarily consist of common
stock valued using prices obtained from independent pricing services and are classified as Level 2 investments.
The following tables
provide information about the financial assets carried at fair value on a recurring basis as of December 31, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2021 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Other (a) |
|
|
Total |
|
| Mutual funds |
|
$ |
667,034 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
667,034 |
|
| Separately managed accounts |
|
|
— |
|
|
|
386,388 |
|
|
|
— |
|
|
|
— |
|
|
|
386,388 |
|
| Ericsson stock fund |
|
|
44,971 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,971 |
|
| Commingled funds |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,640,269 |
|
|
|
1,640,269 |
|
| Common collective trusts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
691,814 |
|
|
|
691,814 |
|
| Self-directed brokerage accounts |
|
|
— |
|
|
|
128,339 |
|
|
|
— |
|
|
|
— |
|
|
|
128,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total investments at fair value |
|
$ |
712,005 |
|
|
$ |
514,727 |
|
|
$ |
— |
|
|
$ |
2,332,083 |
|
|
$ |
3,558,815 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2020 |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Other (a) |
|
|
Total |
|
| Mutual funds |
|
$ |
610,854 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
610,854 |
|
| Separately managed accounts |
|
|
— |
|
|
|
366,212 |
|
|
|
— |
|
|
|
— |
|
|
|
366,212 |
|
| Ericsson stock fund |
|
|
47,931 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
47,931 |
|
| Commingled funds |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,439,633 |
|
|
|
1,439,633 |
|
| Common collective trusts |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
607,836 |
|
|
|
607,836 |
|
| Self-directed brokerage accounts |
|
|
— |
|
|
|
116,643 |
|
|
|
— |
|
|
|
— |
|
|
|
116,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total investments at fair value |
|
$ |
658,785 |
|
|
$ |
482,855 |
|
|
$ |
— |
|
|
$ |
2,047,469 |
|
|
$ |
3,189,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (a) |
As these assets are measured at net asset value using the practical expedient they are therefore excluded from
the fair value hierarchy and included in other. |
| 5. |
NET ASSET VALUE PER SHARE |
The following table for December 31, 2021 and 2020, sets forth a summary of the Plan’s investments with a reported NAV using the
practical expedient.
12
ERICSSON US 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Fair Value Estimated Using NAV per Share |
| Investment |
|
December 31
2021 Fair Value
(a) |
|
|
December 31
2020 Fair Value
(a) |
|
|
Unfunded
Commitment |
|
|
Redemption
Frequency |
|
Other
Redemption
Restrictions |
|
Redemption Notice Period |
| Asset allocation fund (b) |
|
$ |
691,814 |
|
|
$ |
607,836 |
|
|
$ |
— |
|
|
Daily |
|
None |
|
Daily |
| Intermediate-Term Bond (c) |
|
|
114,300 |
|
|
|
112,377 |
|
|
|
— |
|
|
Daily |
|
None |
|
Daily |
| Multiple Investment Trust (d) |
|
|
367,356 |
|
|
|
359,828 |
|
|
|
— |
|
|
Daily |
|
None |
|
Daily |
| Mid-Cap Value Equity Trust (e) |
|
|
946,620 |
|
|
|
769,868 |
|
|
|
— |
|
|
Daily |
|
None |
|
Daily |
| International Large Blend Trust (f) |
|
|
211,993 |
|
|
|
197,560 |
|
|
|
— |
|
|
Daily |
|
None |
|
Daily |
| (a) |
The fair values of the investments have been estimated using the NAV of the investment. |
| (b) |
The asset allocation fund uses a strategy designed for investors expecting to retire around the year indicated
in each fund’s name, with the allocation changing on an annual basis, becoming more conservative as the Fund nears the target retirement date. The funds invest in a combination of equity, fixed income and short-term JPMorgan Chase Bank, N.A
Commingled Pension Trust Funds and/or funds maintained by unaffiliated banks and trust companies, which includes vehicles with lower levels of active risk. |
| (c) |
Intermediate-term bond funds aim to generate excess return from
top-down sector allocation and bottom-up subsector/security selection. Duration and yield curve are tactically managed.
|
| (d) |
Multiple investment trust is a combination of funds including large cap growth equity trust, mid cap value
equity trust, small cap value equity trust, value yield equity trust, global growth equity trust and real estate securities trust. |
| (e) |
Mid-cap value equity trust invests its assets in a majority of equity
securities of medium-sized companies. |
| (f) |
International Large Blend Trust measures the investment return of stocks issued by companies located in
developed and emerging markets, excluding the United States. |
| 6. |
PARTY-IN-INTEREST AND
RELATED PARTY TRANSACTIONS |
Certain Plan investments are Common Stock shares of LM Ericsson Telephone Company, a
related party of Ericsson Inc. Ericsson Inc. sponsors the plan; therefore, these investments qualify as related party transactions. The Plan recorded purchases of $28,272 and sales of $28,100 of the Company’s stock during the year ended
December 31, 2021.
Plan assets include investments in funds managed by the Trustee. These transactions are covered by an exemption
from the prohibited transaction provisions of ERISA and the IRC. Notes receivable are secured by the vested balance of participant accounts, and, as such, these transactions qualify as
party-in-interest transactions. Fees paid by the Plan for the investment management services are included in net appreciation (depreciation) in fair value of
investments.
| 7. |
TAX STATUS OF THE PLAN |
Management believes that the Plan is qualified under section 401(a) of the Internal Revenue Code (“IRC”) and therefore, the trust is
exempt from taxation under section 501(a). The Internal Revenue Service granted a favorable letter of determination to the Plan covering its most recent amendments
13
ERICSSON US 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021
AND 2020, AND FOR THE YEAR ENDED DECEMBER 31, 2021
(Thousands of dollars)
on April 6, 2017. Generally, contributions to a qualified plan are deductible by the Company when made, earnings of the trust are tax exempt and participants are not taxed on their benefits
until withdrawn from the Plan.
Although the Plan has been amended since receiving the determination letter, management believes that the
Plan is designed, and is currently being operated, in compliance with the applicable requirements of the IRC and, therefore, believe that the Plan is qualified, and the related trust is tax-exempt.
GAAP requires plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the organization has
taken an uncertain position that more likely than not would not be sustained upon examination by the Internal Revenue Service. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31,
2021, there are no uncertain positions taken or expected to be taken that would require recognition of the liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there
are currently no audits for any tax periods in progress.
| 8. |
FINANCIAL ASSETS CARRIED AT CONTRACT VALUE |
The following table provides information as of December 31, 2021 and 2020 about the financial assets carried at contract value:
|
|
|
|
|
|
|
|
|
| As of December 31, |
|
2021 |
|
|
2020 |
|
| Financial assets at contract value: |
|
|
|
|
|
|
|
|
| Ericsson US 401(k) Putnam Stable Value Fund |
|
$ |
317,427 |
|
|
$ |
343,903 |
|
|
|
|
|
|
|
|
|
|
In 2020, the Plan entered into a contract with the Putnam Fiduciary Trust Company, LLC for the Ericsson US
401(k) Putnam Stable Value Fund.
The Plan holds investments in synthetic guaranteed investment contracts (“synthetic GICs”) as
part of the stable value fund. The investments in synthetic GICs are presented at fair value on the table of the investments held in the Plan. The fair value of the synthetic GICs equals the total of the fair value of the underlying assets plus the
total wrap rebid value, which is calculated by discounting the annual rebid fee, due to rebid, over the duration of the contract assets.
In determining the net assets available for benefits, the synthetic GICs are recorded at their contract values, which are equal to principal
balance plus accrued interest. As provided in ASC 962, an investment contract is generally valued at contract value, rather than fair value, to the extent it is fully benefit-responsive.
The Stable Value Funds are credited with earnings on the underlying investments and charged for participant withdrawals and administrative
expenses. The synthetic GICs issuers are contractually obligated to repay the principal and a specified interest rate that is guaranteed to the Plan.
The GICs are included in the financial statements at contract value as reported to the Plan by the Trustee, the investment manager. Contract
value represents contributions made under the contract, plus earnings, less participant withdrawals and administrative expenses. Participants may ordinarily direct the withdrawal or transfer of all or a portion of their investment at contract value.
There are currently no reserves against contract values for credit risk of the contract issuers or otherwise.
The Plan has evaluated the effects of events that have occurred subsequent to December 31, 2021, through the issuance of these financial
statements and have identified no subsequent events.
14