Notes to the financial statements

1 General information

The financial statements of Swisscom Ltd, the parent company of the Swisscom Group, comply with Swiss law.

2 Contingent liabilities

At 31 December 2013, guarantees in favour of third parties for the account of Group companies amount to CHF 142 million (prior year: CHF 308 million).

3 Fire insurance values of property, plant and equipment

The fire insurance values of property, plant and equipment correspond generally to their replacement value or fair value.

4 Amounts payable to pension funds

As in the prior year, there were no amounts payable to pension funds as of 31 December 2013.

5 Debenture bonds issued

The amounts, interest rates and maturities of debenture bonds issued by Swisscom Ltd are as follows:

6 Treasury shares

Swisscom Ltd recognises treasury shares separately as assets and establishes a reserve for treasury shares in the same amount in equity. Treasury shares are measured at the lower of cost and market value. Details of the balance of and movements in treasury shares are set out in Note 31 to the consolidated financial statements.

7 Equity

Movements in the number of shares in circulation as well as the equity of Swisscom Ltd are as follows:

Swisscom Ltd is a holding company established under Swiss law. According to the provisions of law governing the appropriation of retained earnings by holding companies, the share capital and appropriations to the general legal reserve to the extent of 20% of share capital as well as the reserve for treasury shares may not be distributed. As of 31 December 2013, distributable reserves aggregated CHF 4,180 million. Any dividend distribution must be proposed by the Board of Directors and approved by the Annual General Meeting of Shareholders.

8 Significant shareholders

On 31 December 2013, the Swiss Confederation (Confederation), as majority shareholder, held 51.2% (prior year: 56.8%) of the issued share capital of Swisscom Ltd. The Federal Telecommunication Enterprises Act (TUG) stipulates that the Confederation must hold the majority of the capital and voting rights of Swisscom Ltd.

9 Participations and recording of dividends from subsidiaries

Participations are accounted for at acquisition cost less provisions for impairment, as required. Dividend income from subsidiary companies is accrued provided that the annual general meetings of the subsidiaries approve the payment of a dividend prior to approval of the annual financial statements of Swisscom Ltd by the Board of Directors. A list of direct and indirect shareholdings of Swisscom Ltd is provided in Note 41 to the consolidated financial statements.

10 Assets subject to restriction

As of 31 December 2013, financial assets totalling CHF 92 million were not freely available (prior year: CHF 93 million). These assets serve to secure commitments arising from bank loans. In the prior year, all assets were freely available.

11 Information on risk assessment process

Swisscom Ltd is fully integrated into the risk assessment process of Swisscom Group. This Group-wide risk assessment process also takes into consideration the nature and scope of business activities and the specific risks to which Swisscom Ltd is exposed. See Note 39 to the consolidated financial statements.

12 Net release of hidden reserves

In 2013, no hidden reserves were released to income (prior year: CHF 4 million).

13 Management compensation

Compensation for the members of the Board of Directors

The system of compensation provides for basic emoluments as well as functional allowances and meeting attendance fees. No variable profit-related emoluments are paid. The basic emolument for the Chairman of the Board of Directors is CHF 385,000, net, and CHF 120,000, net, for the other Board members. Furthermore, additional fees are paid for specific duties (functional allowances). Accordingly, each member of the Finance and Audit Committees is entitled to an unchanged allowance of CHF 10,000, net. The members of the Compensation Committee also receive a functional allowance in the same amount. In addition, the Vice-Chairman and the Chairman of the Finance and Compensation Committees are each entitled to an allowance in an unchanged amount of CHF 20,000 net. The Chairman of the Audit Committee receives a net amount of CHF 50,000. The representative of the Swiss Confederation receives a net amount of CHF 40,000 for the special duties related to his function. The members of the ad-hoc committees do not receive a functional allowance, but meeting attendance fees. Furthermore, meeting attendance fees of CHF 1,250 are paid for each full day and CHF 750 for each half-day. Out-of-pocket expenses are reimbursed on the basis of actual costs incurred. No significant non-cash benefits are paid nor services rendered.

The members of the Board of Directors are obligated to draw 25% of their basic emoluments including functional allowances in the form of equity shares, whereby Swisscom augments the amount to be invested in shares by 50%. In this manner, the compensation (excluding meeting attendance fees) is made up of a two-thirds’ cash portion and a one-third equity share portion. The amount of the share subscription obligation can vary in the case of members who join, leave, assume or give up a function during the year. The shares are allocated on the basis of their value accepted for tax purposes, rounded up to the next whole number of shares, and are subject to a three-year retention period. The shares which are allocated in April of each reporting year in respect of the reporting period are recorded at their market value as of the date of their allocation. In April 2013, a total of 1,667 shares were allocated to the members of the Board of Directors (prior year: 1,927 shares) for a tax value of CHF 371 per share (prior year: CHF 310). Their market value was CHF 442 (prior year: CHF 361) per share. From 2013 onwards, the members of the Board of Directors are obligated to hold a minimum number of equity shares equal to one year’s annual remuneration (basic emolument plus functional allowances). The Board members have four years to build up the required shareholding.

With regards to the disclosure of services rendered and non-cash benefits, these are dealt with from a tax point of view. Accordingly, neither services rendered and non-cash benefits nor expenses are included in reported allowances. No compensation was paid to former members of the Board of Directors in connection with their earlier activities as a member of a governing body of the Company and/or which is not at arm’s length. Swisscom bears all contributions paid for the members of the Board of Directors in respect of social security insurance, in particular for old-age and survivors’ as well as for unemployment insurance. The disclosed compensation to the Members of the Board of Directors includes the employee’s share of social security contributions. The employer’s share of contributions is disclosed separately but included in total remuneration.

Compensation for the members of the Group Executive Board

The compensation paid to the Group Executive Board consists of a basic salary settled in cash, a variable performance-related share of profits settled in cash and equity shares as well as non-cash benefits and additional benefits (primarily company car) as well as pension benefits. In addition, the Board of Directors may recognise exceptional individual performance by means of a discretionary premium settled in cash or shares. The variable performance-related share of profits is fixed in the subsequent year once the consolidated financial statements are available on the basis of the targets fixed in the year under review and is paid out in April of the same subsequent year. During the reporting period, the system of compensation payable to the Executive Board was amended. It was further adjusted by the requirement to hold a minimum number of equity shares. In order to support this minimum shareholding requirement, members of the Executive Board have now the possibility to draw a higher portion than previously of their variable performance-related compensation in the form of equity shares. A minimum of 25% of the variable performance-related share of compensation must be paid out in Swisscom shares. The Executive Board members now have the option of increasing this share up to a maximum of 50%. The remaining portion of the performance-related compensation is settled in cash. The option with regard to the level of compensation to be drawn in the form of equity shares must be exercised before the end of the reporting period, at the latest in November following the publication of the third quarter’s results. In addition, a ceiling of 130% (until now 200%) of the target performance-related share has been set for the payment of the variable performance-related compensation during the reporting period. Two members of the Executive Board receive additionally a certain part of their performance-related compensation fully in the form of equity shares, as a result of which their equity share amounts in total to a minimum of 34% and a maximum of 57%. During the period under review, Urs Schaeppi was awarded an extraordinary individual premium for additional services rendered by him in the function as CEO ad interim. The shares are allocated on the basis of their value accepted for tax purposes, rounded up to the next whole number of shares, and may not be sold during a three-year period. The share-based compensation for the reporting period is augmented by a factor of 1.19 in order to take account of the difference between the market value and the tax value. The market value is determined as of the date of allocation. Shares in respect of the current year are allocated in April 2014.

In April 2013, the Executive Board members in office in the prior year were allocated a total of 2,707 shares in respect of the 2012 financial year (2011: 3,170 shares) with a tax value of CHF 371 (2011: CHF 310) per share. The market value was CHF 442 (2011: CHF 361). With regards to the disclosure of service rendered and non-cash benefits as well as expenses, these are dealt with from a tax point of view. Of the services rendered and non-cash benefits reported, only a share of the use of a company car is thus included in the reported compensation. Out-of-pocket expenses are reimbursed on a lump-sum basis in accordance with expense reimbursement rules approved by the Tax Authorities and other expenses are reimbursed on an actual cost basis. They are not included in the reported remuneration. Reported pension benefits (amounts which give rise to or increase pension entitlements) encompass all savings, guarantee and risk contributions paid by the employer to the pension plan. Included therein is also the premium for complementary death benefit risk insurance contracted for executives in Switzerland.

All compensation was accrued in accordance with the International Financial Reporting Standards (IFRS). During the reporting period, two members left the Executive Board. The highest compensation during the current financial year was paid to Urs Schaeppi, CEO ad interim until his election as CEO in November and, in the prior year, to Carsten Schloter in his capacity as CEO Swisscom Ltd. Swisscom has granted no sureties, guarantees or pledges in favour of third parties or other collateral to any of the persons impacted by the disclosure requirement. During the current reporting period, no compensation was paid to former members of the Group Executive Board in connection with their earlier activities as a member of a governing body of the Company and/or which is not at arm’s length.

Payments to related parties

Related parties are spouses and common-law spouses, close relatives who are financially dependent on the member of the governing body or live in the same household, other persons who are financially dependent on such individuals as well as partnerships or corporate entities that are controlled by the member of the governing body or over which the member of the governing body exercises a significant influence. Parents, siblings and children are also considered to be related parties. During the reporting period, no payments were made to individuals who are closely related to any member of the Board of Directors or the Group Executive Board which are not at arm’s length.

Loans and credits granted

Swisscom has granted no sureties, loans, advances and credits to present or former members of the Board of Directors and the Group Executive Board as well as parties related thereto. It has not waived any rights to amounts due from such individuals.

Further information

Further information on compensation paid to management is set out in the Remuneration Report on page 137.

14 Shareholdings of the members of the Board of Directors and the Group Executive Board

The table below discloses the number of restricted and non-restricted shares held by the members of the Board of Directors and the Group Executive Board and as well as individuals related to them as of 31 December 2013 and 2012.

No share of the voting rights of any person required to make disclosure thereof exceeds 0.1% of the share capital.