Shareholders' Letter

tion costs of new outsourcing transactions are capitalised as other assets and amortised over the
duration of the contract. Revenue from maintenance is recorded evenly over the term of the maintenance
contracts.
3.18 Subscriber acquisition and loyalty-programme costs
Swisscom pays commissions to dealers for the acquisition and retention of Swisscom customers.
The commission payable is dependent on the type of subscription. Subscriber acquisition and loyalty-programme
costs are expensed immediately, since these costs do not meet the criteria in the
definition of an intangible asset.
3.19 Share-based payments
The cost of shares issued to employees, members of the Group Executive Board and of the Board
of Directors is equal to the excess of the fair value of the shares at the date of issuance over the
issue price. The related costs are recorded as personnel expense in the period in which the entitlement
arose.
3.20 Post-employment benefits
Defined benefit obligations and the related pension expense are determined on an actuarial basis
using the projected unit credit method. This reflects the number of years of service completed by
employees through the date of measurement and the assumptions made concerning future salary
growth. The latest actuarial valuation was undertaken using data as at 31 October 2010 with a
roll-forward of the plan assets to 31 December 2010. Current pension entitlements are charged
to income in the period in which they arise. The effects of changes in actuarial assumptions are
amortised evenly over the assumed average remaining period of service of the participating
employees. The share of actuarial gains and losses to be recorded is defined as the excess of the
cumulative unrecorded actuarial gains and losses as of the previous year’s balance sheet date over
the greater of 10% of the present value of the defined benefit obligations and 10% of the fair value
of plan assets. Past-service cost, attributable to pension plan amendments, is recorded as an
expense, or a reduction of expense, on a straight-line basis over the average period until the benefits
become vested. To the extent the benefits vest immediately, the related costs are expensed
immediately.
3.21 Capitalised costs of self-constructed assets and other income
The costs of capitalised self-constructed assets which are only expensed in future periods are
recorded in the income statement as other operating income as an offsetting position to the corresponding
amount included in operating expenses. Other income is recorded when the inflow of
proceeds or of other economic benefits is probable.
3.22 Financial income and financial expense
Financial income encompasses primarily interest income, dividend income, gains from the disposal
of available-for-sale financial assets, changes in the fair value of financial assets at fair value
through profit or loss as well as gains from hedging transactions recorded in the income statement.
Interest income is recognised in the income statement using the effective interest method.
Dividend income is recognised on the date that the right to receive payment arises. Financial
expense primarily includes interest expense, adjustments to the present value of provisions,
changes in the fair value of financial assets at fair value through profit or loss, impairment losses
on other financial assets as well as losses on hedging transactions which are recorded in the
income statement. Interest expense is recognised in the income statement using the effective
interest method. Foreign exchange gains and losses are reported on a net basis.