Shareholders' Letter

Derivative financial instruments
Contract value Positive fair value Negative fair value
In CHF million 31.12.2010 31.12.2009 31.12.2010 31.12.2009 31.12.2010 31.12.2009
Foreign currency forward contracts in USD 155 32 – – (7) –
Foreign currency forward contracts in EUR 306 163 – – (15) (2)
Currency swaps in USD 24 – – – – –
Currency options in EUR 75 – – – (3) –
Cross currency interest rate swaps in USD 1 37 48 – – (21) (21)
Cross currency interest rate swaps in EUR 1 781 742 – – (143) (90)
Total currency instruments 1,378 985 – – (189) (113)
Interest rate swaps in CHF 1,250 1,100 10 – (11) (43)
Cross currency interest rate swaps in USD 1 37 48 – – (1) (1)
Cross currency interest rate swaps in EUR 1 781 742 4 5 (2) –
Total interest rate instruments 2,068 1,890 14 5 (14) (44)
Options from business combinations 14 – – –
Total derivative financial instruments 28 5 (203) (157)
Reconciliation to amount reported
in balance sheet (4) (5) 4 5
Thereof current derivative financial instruments – – 33 44
Thereof non-current derivative financial instruments 24 – (166) (108)
1 Separated into foreign exchange and interest rate components.
As of 31 December 2010, derivative financial instruments comprise cross-currency swaps to hedge
foreign exchange risks with respect to USD-denominated bank loans. The hedges were designated
for hedge accounting purposes. As of the balance sheet date, these hedging instruments had negative
fair values of CHF 22 million (prior year: CHF 22 million). For these hedging instruments designated
as cash flow hedges, CHF 6 million pre-tax (prior year: CHF 7 million) was recorded in the
hedging reserve within consolidated equity at 31 December 2010. The maximum remaining term
of the hedges is three years.
In 2010, cross-currency swaps aggregating EUR 350 with a term of five years were entered into in
order to hedge currency and interest-rate risk arising on euro-denominated financing. These
hedges were not designated for hedge accounting.
In 2007, for the purpose of hedging the foreign currency and interest rate risks of financing in EUR,
cross currency swaps for EUR 500 million were entered into. Hedges amounting to EUR 68 million
were designated as fair value hedges for hedge accounting. Of this amount, currency swaps of
EUR 29 million matured in 2010. As of 31 December 2010, the instruments designated for hedge
accounting had a negative fair value of CHF 15 million (prior year: CHF 7 million).
In order to hedge interest rate risk for CHF 150 million of the variable interest rate private placements,
in 2010 Swisscom concluded CHF interest rate swaps with a term of 2016. This hedge was
designated as a cash flow hedge for hedge accounting. As of 31 December 2010, these interest
rate swaps were recorded with a negative fair value of CHF 1 million. CHF 2 million pre-tax was
recorded in the hedging reserve within consolidated equity for these hedging instruments.
In 2006 and 2007, interest rate swaps were entered into to hedge the interest rate risk of a total
of CHF 2,935 million of the variable Swiss-franc denominated bank loans. These hedges were designated
as cash flow hedges. In 2009 and 2010, Swisscom terminated interest rate swaps of an
aggregate CHF 1,100 million (prior year: CHF 1,835 million). The cumulative revaluation losses of
CHF 34 million (prior year: CHF 96 million) for prematurely repaid interest rate swaps of CHF 1,300
million (prior year: CHF 1,635 million) were transferred from other reserves within equity and
recognised as other financial expense in the income statement. As of 31 December 2010, none of
hedging instruments designated as cash flow hedges for bank loans arising in 2006 and 2007 were
recorded in the hedging reserve within consolidated equity (prior year: CHF 36 million). The remaining
interest rate swaps aggregating CHF 400 million with a duration until 2011 presented negative
fair values aggregating CHF 9 million as of 31 December 2010 (prior year: CHF 41 million). These
hedging instruments are thus no longer designated for hedge accounting.