Case 10-1 Swisscom AG Swisscom AG, the principal provider of telecommunications in Switzerland, pre- pares consolidated financial statements in accordance with International Financial Reporting Standards (IFRS). Until 2007, Swisscom also reconciled its net income and stockholders' equity to U.S. GAAP. Swisscom's consolidated financial state- ments from a recentannual report are presented in their original format in Column 1 of the following worksheet. Note 27, Differences between International Financial Reporting Standards and U.S. Generally Accepted Accounting Principles, which includes Swisscom's U.S. GAAP reconciliation, also is provided Required 1. Use the information in Note 27 to restate Swisscom's consolidated financial statements in accordance with U.S. GAAP. Begin by constructing debit/credit entries for each reconciliation item, and then post these entries to columns 2 and 3 in the worksheets provided. 2. Calculate each of the following ratios under both IFRS and U.S. GAAP and determine the percentage differences between them, using IFRS ratios as the base: Net income/Net revenues Operating income/Net revenues Operating income/Total assets Net income/Total shareholders' equity Operating income/Total shareholders' equity Reconalin AdustnsUs IFRS Debit Cradit GAAP Non-current assats 11453 1,238 220 Proparty, plant and oquipmont Other non-curront assets Total non-curront assets Total assats Liabilities and sharaholdars' oquity Curront liabilitias Short-torm dobt Trade accounts payabla Accruad ponsion cost Othor current Tabilties Total curront lisbilitios.-.... Long-tarm liabilitias Long-term dobt Financo loase obligation _.. . .-._...1,178 889 789 2,213 5,069 abilitios 6,200 439 1,488 Accruad Fabilitio Total long-torm liabilities Total liabilitias Sharcholders' oquity Rotained carnings Unrealizod markt value adjustmmont 9,174 for sao Curmulative translation adjustmont.161 on securitios available f 39 Total sharaholdors oquity Total liabilities and sharaholders .1230 15,473 27. Differences between International Flnanclal Reporting Standards and U.S. Generally Accepted Accounting Princples The consolidated finandal statements of Swsscom have been prepared in accordance with Internationall Financlal Reporting Standards (IFRS), which differ In certain respects from generally accepted accounting prindples in the United States (U.S GAAP). Application of U.s. GAAP would have affected the balance sheet and net Income loss) to the extent described below. A description of the material differences beween IFRS and U.S. GAAP as they relate to Swisscom are discussed in further detall below Recondillation of net Income (loss) from IFRS to U.S. GAAP The folowng schedule Illustrates the significant adjustments to reconclle net Income (loss) in accordance with U.S. GAAP to the amounts determined under IFRS, for the current year ended December 31 Current Year Ended Dacember 31 CHF in millions) Net income loss) according to IFRS U.S. GAAP adjustments ) Capitaization of intarest cost b Restructuring charga 415) 205 d) Capitalization of saftware o) Restructuring chargas by affi iates Not income according to US. GAAP Reconciliation of sharaholdars oquity from IFRS to US. GAAP 182 50 The following is a racondiiation of the significant adjustmants necessary to reconcilo sharoholdars' equity in accordance with US. GAAP to the amounts datorminod undor IFRS as at Docomber 31 of the curront yosr Current Year Endad Docembor 31 CHF in millions) Sharaholdars' equity according to IFRS U.S. GAAP adjustments )Copitalization of interest cast b) Restructuring chargas . 1,230 54 205 d) Capitalization of softwaro )Restructuring chargas by affiliates Sharaholdars' equity according to US. GAAP 475 50 009 a) Capitalization of intorest cost Swisscom xpenses al intorest costs as incurrod. U.S GAAP roquires intorast costs incurred during the conetruction of property, plant and equipment to be capitalined. Undor US. GAAP Swiscom would have capitalinod CHF 13 milion and amortizod CHF5 milian for the curment yoar b) Rastructuring charges During the current yoar, Swisscom nocognined under FRS restructuring chargas totaing CHF 1,726 milion. The folowing schodula ilustrates adjustments necessary to reconcio thase charges to amount determined under U.S. GAAP Current Year CHF in millions Restructuring charges in accordanco with IFRS: 1,326 316 WdoweneahIFRS Write-down of long-ived accets. Miscellansous restructuring chargas... Total in accordance with IFRS Adjustments to restructuring chargas to accord with U.S. GAAP Rastructuring chargos in accordance with U.S. GAAP 1,726 Currant Yoar (CHF in millions) Raconciliation of rastructuring chargas Restructuring charges according to U.S. GAAP are comprisod of the following: 1,228 209 84 Miscelianeous restructuring charges Restructuring charges in accordance with U.S. GAAP 1,521 Assume the coudarpart to the parsonnal restructuring charge atfects "athar long-tarm lablibes d Dapreciation Expanso Due to the difficrence in carrying value of lang-livad as aftor write-downs described in (b), thare is a difference in the amount of doprociation axpense taken undor IFRS and US. GAAP An adjustment made for the curent yoar to rocced an additionsl CHF 5 milion of deprociation undar U.S. GAAP d) Capitalization of softwara Swisscom has cxpansed software costs as incurred. For US GAAP purposes extemal consultant costs incurred in the dovelopmant of software for internal use have boen capitaized. These costs aro boing amortined over a throe yoar penod. The cion af software costs acconds with common practice in tho U.S. telacommunicatiors industry Swiesscom has capitaliod, as dsclosod in tho roconciliation of nat income loss) and sharoholdors' equity to U.S. GAAP CHF 220 milion and smortizod CHF 37 milion in the provious yoar and capitalined CHF 370 milion and amortined CHF 188 milion in the current yoar. o) Restructuring chargas of affiliates During the rrent year Swascom s share of personnel and other restructuring charges recorded by affiiates amounted to CHF 50 million These restructuring chargas do nat moot all the racognition critoria containod in EITE 94-3 and therefore cannot be cxparnsed in the curont year, undor ULS. GAAP