ITEM 14: MATERIAL MODIFICATIONS Not applicable.
ITEM 15: CONTROLS AND PROCEDURES
Swisscom performed an evaluation of the effectiveness of its disclosure controls and procedures effective as of year-end 2005. The evaluation was conducted by Swisscom’s disclosure committee, which consists of appropriate members of Swisscom’s management and is headed by Swisscom’s Chief Financial Officer and Chief Executive Officer. In designing and evaluating the disclosure controls and procedures, management and the disclosure committee recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, rather than absolute, assurance of achieving the desired control objectives, and that management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, Swisscom’s CEO and CFO
concluded as of the end of the period covered by this report that Swisscom’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information Swisscom is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms.
There have been no changes in Swisscom’s internal control over financial reporting that occurred during fiscal year 2005 that have materially affected, or are reasonably likely to materially affect, Swisscom’s internal control over financial reporting.
ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT
Swisscom’s Board of Directors has determined that Othmar Vock qualifies as a financial expert within the meaning of Section 407 of the Sarbanes-Oxley Act of 2002.
ITEM 16B: CODE OF ETHICS
On November 18, 2003, Swisscom adopted a code of ethics that applies to the CEO and CFO of Swisscom AG, the CEOs and CFOs of its group companies, the members of the Disclosure Committee and other specified senior financial, accounting or controlling officer of Swisscom. The code of ethics is published on Swisscom’s website in the section for Investor Relations Investor Relations – Corporate Governance.
(http://www.swisscom.com/ghq/content/investor_relations/corporate_governance/)
146 ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table shows, in respect of each of the last two fiscal years, information concerning the fees billed for professional services rendered by KPMG, Swisscom’s principal accountant for fiscal year 2005 and fiscal year 2004.
CHF in thousands Year Ended December 31,
2005 2004 Audit Fees... 5,906 3,600
Audit-Related Fees ... 536 648 Tax Fees... 21 3
All Other Fees... 215 39 Total ... 6,678 4,290
“Audit Fees” consisted of fees billed by KPMG for services rendered in connection with the audit of
Swisscom’s consolidated annual financial statements, review of interim financial statements, and other services usually provided in connection with statutory and regulatory filings.
“Audit-Related Fees” consisted of fees billed by KPMG for assurance and related services that traditionally are performed by the independent accountant, such as due diligence related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, internal control review, attest services that are not required by statute or regulation and consultation concerning financial accounting and reporting standards.
“Tax Fees” consisted of fees billed by KPMG for tax compliance and tax planning services, and other tax services.
“All Other Fees” consisted of fees billed by KPMG for special training services regarding new developments in financial accounting and reporting standards and providing support for reporting processes.
Under Swiss law, a company’s independent auditor must be elected and can only be removed by the shareholders at the Annual General Meeting. The Board of Directors has delegated to the Audit Committee responsibility for engaging the auditor, setting the terms of the engagements and administering the engagement on a day-to-day basis. The Audit Committee is also responsible for the design of the supervisory and control instruments employed by the Board of Directors to evaluate the independent auditor’s work.
Under its charter, the Audit Committee is responsible for pre-approving all audit and non-audit services to be performed by Swisscom’s independent auditor. The Audit Committee has adopted guidelines for the pre-approval of these services. Under these guidelines, Swisscom’s independent auditor may not perform any audit or permitted non-audit service unless the Audit Committee or a designated member of the Audit Committee has pre-approved the engagement. The guidelines also set forth policies and procedures for the pre-approval of audit and permitted non-audit services. Under these policies and procedures, which are reviewed regularly and updated at least once annually, Swisscom’s independent auditor may be engaged to perform designated services in each of three categories: audit services, audit-related services, and other permitted non-audit services. The policies and procedures provide that the fee for each individual engagement in respect of a particular designated service may not exceed a Swiss franc amount, which varies in accordance with the service. In addition, the policies and procedures limit the total amount of fees that may be charged for services pre-approved in each of the four categories. If the fee for any engagement exceeds that maximum fee pre-approved for the particular service or would cause the aggregate amount of fees pre-approved for services in any category to exceed the maximum amount pre-approved for such category, the engagement must be pre-approved by the Audit Committee or a designated member of the Audit Committee.
ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Swisscom does not currently avail itself of any exemption from the listing standards contained in Rules 10A-3(b)(1)(iv), 10A-3(c)(3) or 10A-3(a)(3) of the Exchange Act for its Audit Committee.
ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS (1) A total of 155 shares have been purchased by Swisscom Finance Ltd. in Jersey (Channel Island) within a passive
asset management mandate in the Swiss Market Index.
(2) 102,620 shares have been purchased for distribution in connection with the various stock option plans for management and employees. See “Item 6: Directors, Senior Management and Employees – Share Ownership”.
(3) On March 10, 2005, Swisscom announced a share repurchase program, in which it repurchased 4,764,200 shares in an aggregate amount of CHF 2 billion. On December 19, 2005, Swisscom completed this share repurchase program representing 7.75% of its share capital. A resolution to reduce Swisscom’s share capital accordingly will be proposed to the Annual General Meeting to be held on April 25, 2006. For more information see “Item 8: Financial
Information – Dividend Policy”.
148 PART III
ITEM 17: FINANCIAL STATEMENTS