Swatch Group – annual report 2010 151

financial statements

financial
statements 2010
consolidated financial statements
financial statements of the holding
152 Swatch Group – annual report 2010
financial statements

Table of contents

Consolidated financial statements 152–213

Financial review 153

Consolidated income statement 160

Consolidated statement of comprehensive income 161

Consolidated balance sheet 162

Consolidated statement of cash flows 164

Consolidated statement of changes in equity 165

Notes to the consolidated financial statements 166–212

  1. General information 166

  2. Summary of significant accounting policies 166
  3. Financial risk management 177
  4. Critical accounting estimates and judgments 180
  5. Segment information 182
  6. Revenues and expenses 184
  7. Income taxes 185
  8. Earnings per share 187
  9. Dividends paid and proposed 187
10. Property, plant and equipment 188
11. Investment property 189
12. Intangible assets 190
13. Investments in associates and joint ventures 191
14. Business combinations 192
15. Other non-current assets 194
16. Inventories 194
17. Trade receivables 195
18. Other current assets 196
19. Marketable securities and derivative financial instruments 196
20. Cash and cash equivalents 197
21. Share capital and reserves 198
22. Financial debts and derivative financial instruments 199
23. Retirement benefit obligations 200
24. Provisions 202
25. Other current liabilities 203
26. Commitments and contingencies 203
27. Details to the consolidated statement of cash flows 204
28. Employee stock option plan 204
29. Related party transactions 205
30. Management compensation disclosures 207
31. Events after the balance sheet date 209
32. The Swatch Group Companies 210

Report of the statutory auditor on the consolidated financial statements 213

Financial statements of the Holding 214–224

 Swatch Group – annual report 2010 153
Consolidated financial statements

Financial review

Key financial developments in 2010

– Gross sales: Record year for the Swatch Group with Group sales of CHF 6 440 million, an increase
at constant exchange rates of 21.8% over 2009 and 12.7% over the previous record
year 2008, despite capacity bottlenecks and adverse exchange rates.

– Segments: The extraordinary strength of our brand portfolio was again reflected in an excellent
performance by the Watch segment in practically all markets and price segments,
with an increase in sales at constant exchange rates of 28.1%.

– Operating profit: Record operating profit of CHF 1 436 million, with an operating margin of 23.5%
(versus 17.6% in 2009).

– Net income: Net income of CHF 1 080 million, representing an increase of 41.5% on 2009 and of 6.4%
on the record year of 2007, despite currency losses.

– Earnings per share: Basic EPS of CHF 4.05 per registered share (2009: CHF 2.89) and CHF 20.27 per
bearer share (2009: CHF 14.47).

– Dividend: Proposed dividend increase of 25%, CHF 5.00 per bearer share (2009: CHF 4.00)
and CHF 1.00 per registered share (2009: CHF 0.80).

– Outlook: Promising start to 2011; prospects remain good for the year as a whole, despite the
current strength of the Swiss Franc.

Financial review
1. Operating results Key figures Group

(CHF million) 2010 2009 Change in %

at constant currency Total
rates effect

Gross sales 6 440 5 421 + 21.8% – 3.0% + 18.8%

Net sales 6 108 5 142 + 18.8%

Operating profit 1 436 903 + 59.0%

– in % of net sales 23.5% 17.6%

Net income 1 080 763 + 41.5%

– in % of net sales 17.7% 14.8%

Equity 7 101 5 981 + 18.7%

– as % of total assets 82.4% 77.6%

Average return on equity (ROE) 16.5% 13.3%

154 Swatch Group – annual report 2010
Consolidated financial statements

Financial review

Performance trends
(CHF million)

2010

2009

2008

0 200 400 600 800 1 000 1 200 1 400 1 500

Cash flow from operating activities

Operating profit
Net income

During 2010 the Swatch Group set new benchmarks and surpassed all previous records. With an improving economic environ-
ment and clear signs of market normalization, gross sales increased by 21.8% to CHF 6 440 million on a currency-adjusted basis.
Foreign currencies had an adverse impact on sales of CHF 164 million or –3%, primarily due to the weakness of the Euro and US
Dollar during the second half of 2010.

The operating margin rose from 17.6% to a strong 23.5% in the year under review, which corresponds to a record operating
profit of CHF 1 436 million (CHF 903 million in 2009). This significant improvement in performance was due not least to generally
higher capacity utilization and the Group’s usual cost discipline. Despite significant currency losses, net income also rose to a
record level of CHF 1 080 million, an increase of 41.5% on 2009.

With equity of CHF 7 101 million, and an equity ratio of 82.4%, the Swatch Group remains extremely solidly financed. In addition
to net income, the conversion of the convertible bond in October 2010 totaling CHF 385 million also contributed to this renewed
increase in equity. The average return on equity was a considerable 16.5% (13.3% in 2009). Operating cash flow has also
increased significantly. The Group can draw on high cash reserves, thus keeping all options open. As a result of the expansion
of production capacities as well as the expansion in the retail sector, Swatch Group created 1 600 new jobs during the past year,
increasing its number of employees to more than 25 000 worldwide.

The Board of Directors of the Swatch Group will propose the following dividend for 2010 to the Annual General Meeting on
31 May 2011: CHF 5.00 per bearer share and CHF 1.00 per registered share. This increase in the dividend payment to
shareholders of 25% versus 2009 is a result of the record results achieved in 2010 and underlines the optimistic outlook for
business performance going forward in 2011.
 Swatch Group – annual report 2010 155
Consolidated financial statements

Financial review

Segment performance

Watches & Jewelry

(CHF million) 2010 2009 Change in % 2009

at constant currency Total
restated * rates effect as reported

Gross sales
– Third parties 5 528 4 440 4 426
– Group 4 4 3
– Total 5 532 4 444 + 28.1% – 3.6% + 24.5% 4 429

Net sales 5 225 4 202 + 24.3% 4 187

Operating profit 1 221 802 + 52.2% 804

– in % of net sales 23.4% 19.1% 19.2%

* restated following integration of Piguet activities (Production segment) into Manufacture Blancpain (segment Watches & Jewelry)

The Swatch Group delivered another impressive performance in its core Watches and Jewelry segment in the 2010 financial
year. Gross sales reached CHF 5 532 million, which at constant exchange rates represents an increase of 28.1% over 2009 and
20.7% over the previous record year of 2008. This performance is again better than the export figures published by the Swiss
Watch Federation for 2010. The significant double-digit growth rates were not only achieved for the luxury brands, but across
the board in all price segments. All geographic regions contributed to this growth, with Asia clearly leading the way.

The segment’s operating profit increased by an above-average 52.2% to CHF 1 221 million, corresponding to an operating
margin of 23.4% (versus 19.1% in 2009). In addition to the volume effect, selective price adjustments and various efficiency
enhancements were responsible for these margin improvements. However, no cost cutting was made at the expense of
marketing activities. These targeted investments in the brands, together with the further expansion of retail activities, will
secure the Group’s long-term growth.
156 Swatch Group – annual report 2010
Consolidated financial statements

Financial review

Production

(CHF million) 2010 2009 Change in % 2009

at constant currency Total
restated * rates effect as reported

Gross sales
– Third parties 488 594 608
– Group 1 051 838 881
– Total 1 539 1 432 + 7.8% – 0.3% + 7.5% 1 489

Net sales 1 487 1 373 + 8.3% 1 429

Operating profit 169 96 + 76.0% 94

– in % of net sales 11.4% 7.0% 6.6%

* restated following integration of Piguet activities (Production segment) into Manufacture Blancpain (segment Watches & Jewelry)

The Production segment generated gross sales of CHF 1 539 million in 2010, an increase of 7.5% versus 2009. The extremely
strong growth in the watch segment impacted positively on orders received and sales in the production segment with the usual
time lag. This boosted capacity utilization to a greater extent and faster than expected, which in turn led to bottlenecks in
certain areas. The Group’s clear commitment to preserving jobs worldwide during the financial crisis proved to be very positive,
given this strong upturn.

The higher volumes also had a positive effect on the segment’s profitability. Operating profit increased by 76% to CHF 169 million,
corresponding to an operating margin of 11.4% (versus 7% in 2009). Increased costs for various raw materials prevented an even
better performance.

The largely full order books signal further double-digit growth for 2011. Further investments will also be made in order to ensure
sufficient production capacities over the mid to long term. Examples of this are the planned new production sites in Boncourt
(Canton Jura) and the expansion of production facilities in La Chaux-de-Fonds (Canton Neuchâtel).
 Swatch Group – annual report 2010 157
Consolidated financial statements

Financial review

Electronic Systems

(CHF million) 2010 2009 Change in %

at constant currency Total
rates effect

Gross sales
– Third parties 416 380
– Group 24 14
– Total 440 394 + 12.2% – 0.5% + 11.7%

Net sales 436 391 + 11.5%

Operating profit 57 24 + 137.5%

– in % of net sales 13.1% 6.1%

The market environment for the electronic systems segment improved during 2010 in the wake of the general economic
recovery. The segment’s gross sales rose to CHF 440 million, +11.7% versus 2009. With the divestment of the stepping motor
manufacturing unit of Microcomponents and the sale of its subsidiary Lasag, the Swatch Group continued its strategy of
focusing on core business.

The segment’s operating profit reached CHF 57 million in the year under review, which represents an operating margin of 13.1%
(versus 6.1% in 2009). The order entries registered at the end of 2010 and the beginning of 2011 mean that further growth can
also be expected in the electronic systems segment.

Segment share of net sales

2010 2009

Electronic Systems 7% Electronic Systems 7%

Corporate 0% Corporate 0%

Watches & Jewelry 85% Watches & Jewelry 82%

Production 8% Production 11%
158 Swatch Group – annual report 2010
Consolidated financial statements

Financial review

Segment share of operating profit

(CHF million)

Watches & Jewelry

Production

Electronic Systems

Corporate

–200 0 200 400 600 800 1 000 1 200 1 400

2010
2009

Financial result

An analysis of the net financial result of the Group shows the following:

(CHF million) 2010 2009

Interest income 4 4
Result from marketable securities and derivatives 30 58
Share of result from associates and joint ventures 9 5
Net currency result – 73 0
Interest expense and other financial expense – 8 – 21
Total net financial result – 38 46

The extremely volatile foreign currency development in 2010, especially with the weak Euro, US Dollar and other Dollar related
currencies, resulted in net currency losses for the Group of CHF 73 million (compared to a neutral net currency result in 2009).
Despite a positive result from marketable securities and derivatives of CHF 30 million, a lower interest expense and an improved
share of result from associates and joint ventures, the net financial result for the year 2010 was a loss of CHF 38 million.
Depending on the foreign currencies and given the fact that all marketable securities held by the Group are included in the
category «fair-value-through-profit-or-loss», the financial result will continue to be volatile in the future and influence the Group’s
net income.

Income tax
An analysis of the income tax charge is set out in Note 7 to the consolidated financial statements. The Group’s effective tax
rate increased from 19.6% in the previous year to 22.8% in the current year, which is partly due to an increased profitability of
various Group companies and to higher income tax rates in certain countries.

Proposed dividend
At the General Meeting on 31 May 2011, a dividend for the financial year 2010 of CHF 1.00 (2009: CHF 0.80) for registered shares
and CHF 5.00 (2009: CHF 4.00) for bearer shares will be proposed. This dividend, totalling CHF 278 million with an expected
cash-out impact of CHF 270 million, is not recognized as a liability in the consolidated financial statements at 31 December 2010.

Earnings per share

Basic earnings per share increased in the current year by 40% to CHF 4.05 (CHF 2.89 in 2009) for registered shares and CHF 20.27
(CHF 14.47 in 2009) for bearer shares respectively. The strong increase in net income compares to a slightly higher average
number of shares, which is mainly due to the conversion of the convertible bond into registered shares in October 2010. As in
previous years, dilution of earnings is not material. Detailed information can be found in Note 8.
 Swatch Group – annual report 2010 159
Consolidated financial statements

Financial review

2. Financial condition Liquidity and financial resources

In the record year 2010, the Group realized a strongly improved operating cash flow of CHF 1 353 million (2009: CHF 890 million).
Net investing activities were higher than in 2009, mainly due to increased investments in tangible assets, purchases of marke­
table securities as well as investments in subsidiaries and associates. The dividend was again the main item in the cash flow
from financing activities. Overall, the Group’s cash position increased in 2010 by CHF 727 million and achieved CHF 1 825 million
at year-end.

Asset and capital structure

The consolidated balance sheet continues to remain very solid. The record net income as well as the conversion of the
convertible bond in October 2010 were the main factors that contributed to a further improvement of the Group’s equity ratio to
82.4% (compared to 77.6% in 2009). Current liabilities are covered by current assets by a factor of 6.1 (4.4 in 2009).

3. Analysis of value added The breakdown of total operating revenues, more commonly referred to as total Group performance in calculations of value
added (using standard methods), is as follows:

(CHF million) 2010 2009

Overall Group performance 6 690 100.0% 5 435 100.0%
Material and services 3 431 51.3% 2 653 48.8%
Depreciation 222 3.3% 220 4.0%
Net added value 3 037 45.4% 2 562 47.2%
% change 18.5 – 3.7

The breakdown of value added between the different beneficiaries is as follows:

(CHF million) 2010 2009

Employees 1 634 53.8% 1 596 62.3%
Public authorities 318 10.5% 186 7.3%
Lenders 5 0.2% 18 0.7%
Shareholders 213 7.0% 226 8.8%
Company 867 28.5% 536 20.9%
Total 3 037 100.0% 2 562 100.0%

4. Outlook The strong uptrend seen in 2010 was confirmed again in January 2011. The current outlook for 2011 appears positive, despite
the unfavorable currency constellation at present, particularly the US Dollar and the Euro against the Swiss Franc. The Board of
Directors and Executive Group Management Board of the Swatch Group will continue to pursue a clear and healthy organic
growth strategy in this very positive environment, with the objective of achieving sales of ten billion Swiss Francs in the medium
term.

Thanks to very motivated employees, the strong geographic presence of the brands in all of the world’s major markets and its
comprehensive coverage of all market price segments, the Group is optimally placed to achieve this goal. In addition, further
investments in research and development will generate innovations and products, which can be introduced to the public on an
ongoing basis, some as soon as this year’s trade fair in Basel. To ensure the continuation of the Group’s sustainable growth,
further targeted investments will be made in the already comprehensive and efficient distribution network and, as already
mentioned, in the expansion of production capacities. Thanks to its very solid starting point as regards equity and liquidity, the
Group will be able to exploit interesting opportunities to increase its market share and presence.
160 Swatch Group – annual report 2010
Consolidated financial statements

Consolidated income statement

2010 2009
Notes CHF million % CHF million %

Gross sales 6 440 105.4 5 421 105.4

Sales reductions – 332 – 5.4 – 279 – 5.4

Net sales (5, 6a) 6 108 100.0 5 142 100.0

Other operating income (6b) 139 2.3 104 2.0

Changes in inventories 197 3.2 9 0.2
Material purchases – 1 471 – 24.1 – 1 103 – 21.4
Personnel expense (6c) – 1 634 – 26.8 – 1 596 – 31.0
Other operating expenses (6d) – 1 681 – 27.5 – 1 433 – 27.9
Depreciation, amortization and impairment charges (10, 11, 12, 18) – 222 – 3.6 – 220 – 4.3

Operating profit 1 436 23.5 903 17.6

Other financial income and expense (6f) – 42 – 0.6 59 1.2

Interest expense (6f) – 5 – 0.1 – 18 – 0.4
Share of result from associates and joint ventures (6f, 13) 9 0.1 5 0.1

Profit before taxes 1 398 22.9 949 18.5

Income taxes (7a) – 318 – 5.2 – 186 – 3.7

Net income 1 080 17.7 763 14.8

Attributable to equity holders of The Swatch Group Ltd 1 074 759

Attributable to non-controlling interests 6 4

Earnings per share (EPS) – expressed in CHF per share: (8)

Registered shares
Basic EPS 4.05 2.89
Diluted EPS 3.97 2.85

Bearer shares
Basic EPS 20.27 14.47
Diluted EPS 19.83 14.26

The accompanying notes form an integral part of the consolidated financial statements.
 Swatch Group – annual report 2010 161
Consolidated financial statements

Consolidated Statement of Comprehensive Income

2010 2009
CHF million CHF million
Net income 1 080 763

Other comprehensive income

Currency translation of foreign operations – 138 – 16

Income tax relating to currency translation 0 0

Other comprehensive income, net of tax – 138 – 16

Total comprehensive income, net of tax 942 747

Attributable to equity holders of The Swatch Group Ltd 936 743

Attributable to non-controlling interests 6 4

The accompanying notes form an integral part of the consolidated financial statements.
162 Swatch Group – annual report 2010
Consolidated financial statements

Consolidated balance sheet

31.12.2010 31.12.2009
Assets Notes CHF million % CHF million %

Non-current assets

Property, plant and equipment (10) 1 488 17.3 1 460 18.9

Investment property (11) 41 0.5 39 0.5
Intangible assets (12) 317 3.7 320 4.2
Investments in associates and joint ventures (13) 169 1.9 139 1.8
Other non-current assets (15) 145 1.7 125 1.6
Deferred tax assets (7d) 219 2.5 209 2.7

Total non-current assets 2 379 27.6 2 292 29.7

Current assets

Inventories (16) 2 869 33.3 2 743 35.6

Trade receivables (17) 716 8.3 761 9.9
Other current assets (18) 269 3.1 241 3.1
Current income tax assets (7c) 12 0.2 24 0.3
Marketable securities and derivative financial instruments (19) 542 6.3 547 7.1
Cash and cash equivalents (20) 1 827 21.2 1 098 14.3

Total current assets 6 235 72.4 5 414 70.3

Total assets 8 614 100.0 7 706 100.0

The accompanying notes form an integral part of the consolidated financial statements.
 Swatch Group – annual report 2010 163
Consolidated financial statements

Consolidated balance sheet

31.12.2010 31.12.2009
Equity and liabilities Notes CHF million % CHF million %

Equity

Share capital (21a) 125 125

Capital reserves 213 213
Treasury shares (21b) – 293 – 629
Other reserves (21c) – 286 – 133
Retained earnings 7 328 6 389

Equity of The Swatch Group Ltd shareholders 7 087 82.3 5 965 77.4

Non-controlling interests 14 0.1 16 0.2

Total equity 7 101 82.4 5 981 77.6

Non-current liabilities

Financial debts (22) 77 0.9 80 1.0

Deferred tax liabilities (7d) 353 4.1 337 4.4
Retirement benefit obligations (23) 26 0.3 27 0.4
Provisions (24) 37 0.4 40 0.5

Total non-current liabilities 493 5.7 484 6.3

Current liabilities

Trade payables 291 3.4 238 3.1

Other current liabilities (25) 479 5.6 429 5.5
Financial debts and derivative financial instruments (22) 31 0.4 438 5.7
Current income tax liabilities (7c) 156 1.8 76 1.0
Provisions (24) 63 0.7 60 0.8

Total current liabilities 1 020 11.9 1 241 16.1

Total liabilities 1 513 17.6 1 725 22.4

Total equity and liabilities 8 614 100.0 7 706 100.0

The accompanying notes form an integral part of the consolidated financial statements.
164 Swatch Group – annual report 2010
Consolidated financial statements

Consolidated statement of cash flows

2010 2009
Notes CHF million CHF million

Operating activities
Net income 1 080 763
Reversal of non-cash items (27a) 558 366
Changes in working capital and other items included in operating cash flow (27b) – 63 7
Dividends received from associated companies 2 2
Interest paid – 5 – 15
Interest received 6 4
Income tax paid (7c) – 225 – 237

Cash flow from operating activities 1 353 890

Investing activities
Investments in tangible assets (10, 11) – 265 – 220
Proceeds from sale of tangible assets 10 5
Investments in intangible assets (12) – 26 – 25
Proceeds from sale of intangible assets 5 0
Investments in other non-current assets (15) – 10 – 7
Proceeds from sale of other non-current assets 4 1
Acquisition of subsidiaries – net of cash (14) – 4 – 2
Divestments of businesses (14) 12 0
Investments in associated companies and joint ventures (13) – 30 – 12
Purchase of marketable securities – 246 – 149
Sale of marketable securities 221 174

Cash flow from investing activities – 329 – 235

Financing activities
Dividend paid to shareholders (9) – 210 – 223
Dividend paid to non-controlling interests – 3 – 3
Sale of treasury shares 1 1
Change in non-current financial debts – 5 – 11
Change in current financial debts – 27 3
Repurchase of convertible bonds (22) 0 – 2
Repurchase of non-controlling interests (14) – 5 0

Cash flow from financing activities – 249 – 235

Net impact of foreign exchange rate differences on cash – 48 – 2

Change in cash and cash equivalents 727 418

Change in cash and cash equivalents

– At beginning of year 1 098 680
– At end of year (20) 1 825 727 1 098 418

The accompanying notes form an integral part of the consolidated financial statements.
 Swatch Group – annual report 2010 165
Consolidated financial statements

Consolidated statement of changes in equity

Attributable to The Swatch Group Ltd shareholders Non- Total

Share Capital Treasury Other Retained Total controlling equity
capital reserves shares reserves earnings interests
(CHF million) (Note 21) (Note 21) (Note 21)
Balance at 31.12.2008 125 213 – 629 – 117 5 844 5 436 15 5 451

Total comprehensive income 2009 – 16 759 743 4 747

Dividends paid – 223 – 223 – 3 – 226

Share-based compensation (Note 28):
– Value of employee services (net of tax) 8 8 8
– Proceeds from sale of shares 1 1 1

Balance at 31.12.2009 125 213 – 629 – 133 6 389 5 965 16 5 981

Total comprehensive income 2010 – 138 1 074 936 6 942

Dividends paid – 210 – 210 – 3 – 213

Share-based compensation (Note 28):
– Value of employee services (net of tax) 10 10 10
– Proceeds from sale of shares 1 1 1
Conversion of convertible bond at maturity (Note 22) 336 – 15 64 385 385
Changes in non-controlling interests (Note 14) 0 – 5 – 5

Balance at 31.12.2010 125 213 – 293 – 286 7 328 7 087 14 7 101

The accompanying notes form an integral part of the consolidated financial statements.
166 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

1. General information
The Swatch Group Ltd (the Company) and its subsidiaries (collectively the Group) is active worldwide and represented in the
finished watches and jewelry sector with 19 brands in all market and price brackets. In addition, it holds an out­s tanding
industrial position with a high degree of verticalization in the sector of watch movements and components production as well
as in the electronic systems sector. During the year, no major changes occurred in the Group structure.
The Company is a limited company incorporated and domiciled in Switzerland. Its registered office is located in Neuchâtel,
Faubourg de l’Hôpital 3. The administrative headquartears are in Biel, Seevorstadt 6.
The shares of The Swatch Group Ltd are listed in Switzerland on the Main Market of the SIX Swiss Exchange, under the
security numbers 1 225 514 (registered shares) and 1 225 515 (bearer shares). Bearer shares are included in the indices SMI,
SPI as well as SLI and registered shares in the indices SPI Extra and SMIM. In addition, Swatch Group shares are also listed
on the BX Berne eXchange.
These consolidated financial statements were approved for issue by the Board of Directors by the end of February 2011 and
will be submitted to the Annual General Meeting of Shareholders for approval on 31 May 2011.

2. Summary of significant accounting policies

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These
policies have been consistently applied to all the years presented, unless otherwise stated.

a. Basis of preparation The Group’s consolidated financial statements have been prepared on a historical cost basis, except for certain items such as
financial instruments at fair value through profit or loss and derivatives, as disclosed in the accounting policies below. The
consolidated financial statements are presented in Swiss Francs (CHF) and all values are rounded to the nearest million, unless
otherwise stated.
The consolidated financial statements of the Swatch Group have been prepared in accordance with International Financial
Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB).
The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies.
The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements, are disclosed in Note 4.
The annual closing date for all the individual company accounts is 31 December. For all the companies consolidated, the financial
year corresponds to the calendar year.

b. Consolidation policy The subsidiaries are those entities controlled directly or indirectly by The Swatch Group Ltd, where control is defined as the
power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. This control is
generally evidenced by the holding of more than one half of the voting rights of a company’s share capital. The existence and
effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group
controls another entity. Companies are fully consolidated from the date on which control is transferred to the Group, and
subsidiaries to be divested are included up to the date on which control ceases.
The acquisition method of accounting is used to account for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by
the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-
by-acquisition basis, the Group recognizes any non-controlling interest in the acquiree either at fair value or at the non-
controlling interest's proportionate share of the acquiree's net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date
fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded
as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the
difference is recognized directly in the income statement.
Non-controlling interests in equity and net income are disclosed separately in the consolidated balance sheet and the
consolidated income statement. Changes in ownership interests in subsidiaries are accounted for as equity transactions
provided that control continues.
 Swatch Group – annual report 2010 167
Consolidated financial statements

Notes to the consolidated financial statements

Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated in full.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the
Group.
Associates are all entities over which the Group has significant influence but not control. This is generally evidenced when the
Group owns 20% to 50% of the voting rights or potential voting rights of the company. Investments in associates are accounted
for using the equity method and are initially recognized at cost. Unrealized gains and losses resulting from transactions with
associates are eliminated to the extent of the Group’s interest in the associate. Accounting policies of ­associates have been
changed where necessary to ensure consistency with the policies adopted by the Group.
The Group’s interests in jointly controlled entities (joint ventures) are also reported using the equity method.
At the end of 2010, the Group’s consolidated financial statements included 159 legal entities (compared with 162 in the previous
year), of which two were joint ventures (one in 2009) and seven were associates (seven in 2009). A full list of consolidated
companies is provided in Note 32.

c. Changes in The Group has adopted those new or amended International Financial Reporting Standards (IFRS) and interpretations (IFRIC)
accounting policies mandatory for accounting periods beginning on or after 1 January 2010. The principal effects of these changes in policies are
described below.

IFRS 3 (revised) Business combinations and IAS 27 (revised) Consolidated and separate financial statements
The revised standards are applicable to business combinations of the Group for which the acquisition date is on or after 1 January
2010. IFRS 3 introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill
recognized, the reported results in the period of acquisition and future reported results. IAS 27 requires that a change in the
ownership interest of a subsidiary (without loss of control) is accounted for as an equity transaction. Furthermore, the revised
standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. As there were
no significant transactions in 2010, the changes did not materially affect the figures of the financial year 2010.

The following amended standards and new interpretations are mandatory for the first time for accounting periods beginning
on or after 1 January 2010, but have no material impact or are currently not relevant for the Group:

• IAS 39 (amendment) Financial instruments: Recognition and measurement – Eligible hedged items (effective from 1 July 2009)
• IFRIC 17 Distributions of Non-cash Assets to Owners (effective from 1 July 2009)
• IFRIC 18 Transfers of Assets from Customers (effective from 1 July 2009)
• Improvements to IFRSs 2009 (effective from 1 January 2010)

Standards, interpretations and amendments to existing standards that are not yet effective
Certain new standards, interpretations and amendments to existing standards have been published until the end of 2010 that
are mandatory for the Group’s accounting periods beginning on or after 1 January 2011 or later periods, but which the Group
has not early adopted.

The principal expected effects of these changes are as follows:

IFRS 9 Financial instruments

IFRS 9 was issued in November 2009 and will become effective for financial years beginning on or after 1 January 2013. Early
application is permitted. It replaces the multiple classification and measurement models in IAS 39 with a single model that
has only two classification categories: amortized cost and fair value. Classification under IFRS 9 is driven by the entity's
business model for managing the financial instruments and the contractual characteristics of the financial instruments. The
Group will early adopt this standard on 1 January 2011 without restatement of the prior-year period (in accordance with the
transitional requirements of the standard). The impact on the consolidated financial statements will not be significant.
 168 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

The Group expects that the adoption of the following pronouncements will have no impact on the Group’s financial statements
in the period of initial application:

• IAS 12 (amendment) Income taxes - Deferred tax: Recovery of underlying assets (effective from 1 January 2012)
• IAS 24 (amendment) Related party disclosures (effective from 1 January 2011)
• IFRIC 14 (amendment) Prepayments of a minimum funding requirement (effective from 1 January 2011)
• IFRIC 19 Extinguishing financial liabilities with equity instruments (effective from 1 July 2010)
• Improvements to IFRSs 2010 - various standards (effective mostly from 1 January 2011)

d. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Management Board.
Although the Group’s operations are worldwide, the product perspective remains the main managerial focus. This is reflected
by the Group’s divisional management and organizational structure and the Group’s internal financial reporting systems.

The Group’s activities are organized into numerous individual business units (Profit Centers) which are aggregated in the
following three reportable operating segments:

– Watches & Jewelry Sale of finished watches and jewelry

– Production Manufacture of watches, watch movements and jewelry
– Electronic Systems Design, production and commercialization of electronic components, Sports timing activities

The reportable operating segments derive their revenue mainly from the manufacture and sale of products to third parties or
to other segments.
Corporate services do not qualify as segment according to IFRS 8 but are shown separately. They include the activities of the
Group’s holding, finance, research and development, real estate and several other companies, none of which is of a sufficient
size to require separate presentation. Elimination of inter-segment sales, income and expense as well as assets and liabilities
is shown in the column «Elimination».
Group Management assesses the performance of the operating segments based on net sales and operating profit. Sales to
third-party customers are presented separately from sales to other operating divisions, and internal Group sales are recognized
at arm’s length. Segment expenses are those that can be directly attributed to the segment.
The assets of the segments mainly consist of land and buildings, equipment and machinery, intangible assets, inventories,
trade accounts receivable and cash and cash equivalents. Segment liabilities include operating commitments.
For the geographical presentation, sales are reported according to the destinations that appear on the invoices. Non-current
assets presented in the geographical information are broken down by location. They include all non-current assets except
deferred tax assets and pension plan assets.

e. Foreign currency translation Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary
economic environment in which the entity operates (the functional currency). The consolidated financial statements are
presented in Swiss Francs, which is the Company’s presentation currency.
Transactions in foreign currencies are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Any gains and losses resulting from these transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated income
statement, except when deferred in other comprehensive income as qualifying cash flow hedges.
Income statements of Group entities with a functional currency different from the Swiss Franc are translated at average
exchange rates as an approximation of exchange rates prevailing at the date of the transaction; balance sheets are translated
at the year-end exchange rate. All resulting translation differences are recognized in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to other
comprehensive income. When a foreign operation is sold, such exchange differences are recognized in the income statement
as part of the gain or loss on the sale.
In the reporting periods, none of the Group entities has the currency of a hyperinflationary economy.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the year-end rate.
 Swatch Group – annual report 2010 169
Consolidated financial statements

Notes to the consolidated financial statements

The main exchange rates used are:

Currency Unit Average rates Prevailing rates Average rates Prevailing rates
2010 31.12.2010 2009 31.12.2009
CHF CHF CHF CHF
CNY 1 0.1544 0.1425 0.1595 0.1521
EUR 1 1.3754 1.2540 1.5122 1.4880
HKD 1 0.1345 0.1210 0.1406 0.1339
JPY 100 1.1980 1.1540 1.1662 1.1215
USD 1 1.0443 0.9400 1.0893 1.0380

f. Revenue recognition Revenue is recognized as follows:

Goods and services

Net sales comprise the fair value for the sale of goods and services, net of value-added tax and sales reductions (such as
rebates and discounts). Intercompany sales are eliminated on consolidation.
Revenue is recognized when a Group entity has transferred to the customer the significant risks and rewards of ownership of
the products and the collectibility of the related receivables is reasonably assured. Accruals for discounts granted to clients
are established during the same period as the sales which gave rise to the discounts under the terms of the contract. Revenue
from services is recognized in the accounting period in which the service is rendered.

Interest income
Interest income is recognized on a time-proportion basis using the effective interest method.

Dividend income
Dividend income is recognized when the right to receive payment is established.

g. Property, plant and Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment in value. Historical
equipment cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the
asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic
benefits will flow to the Group and the cost can be measured reliably. All other repairs and maintenance are charged to the
income statement during the financial period in which they are incurred.

Land is not depreciated. Depreciation on other assets is calculated on a straight-line basis over the estimated useful life of the
asset, as follows:

– Furniture, office machinery, motor vehicles 5 to 8 years

– IT equipment 3 to 5 years
– Measuring instruments, tools, equipment for non-mechanical processing automation components 5 to 9 years
– Machines and mechanical production systems, workshop equipment 9 to 15 years
– Factories and workshop buildings 30 years
– Administrative buildings 40 years

The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each balance sheet date.
An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount. These are included in the
income statement.
The position «construction in progress» includes buildings under construction, unrecoverable and attributed down payments on
land and buildings as well as attributable borrowing costs.
170 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

h. Investment property Investment properties comprise mainly residential properties. They are held for long-term rental yields and are not occupied by
the Group. Some land reserves are held with undetermined use. Investment property is carried at historical cost less accumulated
depreciation and any impairment in value. The useful life of residential properties is estimated at 50 years.
Fair values are disclosed in Note 11. They are determined by capitalization of rental income for rented buildings plus an estimated
market value of land reserves.

i. Intangible assets Goodwill

Goodwill represents the excess of the acquisition price over the fair value of the Group’s share of net identifiable assets of
the acquired company at the date of acquisition. Goodwill is tested annually for impairment and in addition, when indications
of impairment exist, and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units (CGU) for the purpose of impairment testing. The CGU represents the lowest
level within the Group at which the goodwill is monitored for internal management purposes and is not larger than an operating
segment (see Note 12).

Capitalized development costs

Research costs are not capitalized but expensed when incurred. Development costs are capitalized if they can be identified
as an intangible asset that is expected to generate future economic benefits, and the cost can be measured reliably. Other
development costs are expensed as incurred. Once a product enters into commercial production, the capitalized development
costs are amortized on a straight-line bases over the estimated useful life (maximum five years).

Other intangible assets

In addition, the heading intangible assets includes:

– Licenses purchased granting rights to use new technologies or software. They are amortized over their useful life.
– Internally developed software and software implementation costs. These costs are recognized as an intangible asset if it is
probable that they generate future economic benefits. The costs include software development employee costs and an
appropriate portion of related overheads. The capitalized costs are amortized on a straight-line basis over the estimated
useful life (maximum five years).
– Key money paid for strategically located retail shops. If their value can be demonstrated by the presence of a market, they
are capitalized as intangible assets. They are not amortized but tested for impairment at least annually. On the other hand,
key money that is not refundable or refundable only upon certain conditions being met is treated as prepaid rent and
included in "Other non-current assets" (see Note 15).
– Customer relationships and unpatented technologies acquired in business combinations. They are amortized over a ­p eriod
of up to 15 years.

j. Impairment of assets Non-financial assets that have an indefinite useful life - for example, goodwill or intangible assets not yet ready for use - are
not subject to amortization and are tested annually for impairment. Assets that are subject to amortization as well as tangible
assets not yet ready for use are tested for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in
use. The latter is calculated by estimating the future cash flows generated by the asset and discounting them with a risk-
adjusted pre-tax interest rate. For the purposes of assessing impairment, assets are grouped at the lowest levels for which
there are separately identifiable cash flows (cash-generating units).
 Swatch Group – annual report 2010 171
Consolidated financial statements

Notes to the consolidated financial statements

k. Financial assets Regular purchases and sales of investments are based on the settlement date principle. Marketable securities are initially
recorded at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial
assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in
the income statement.
The Group classifies its financial assets, principally investments, in the following categories: financial assets at fair value
through profit or loss (FVTPL) as well as loans and receivables. The classification depends on the purpose for which the
investments were acquired.

Financial assets at fair value through profit or loss (FVTPL)

All the Group’s current investments are classified as financial assets at fair value. Some of these financial assets have been
designated by management as FVTPL. All other investments are classified as financial assets held for trading. A financial
asset is classified in this sub-category if acquired principally for the purpose of selling in the short term. Derivatives are also
categorized as held for trading unless they are specifically designated as hedges. All realized and unrealized gains and losses
arising from changes in the fair value are recognized in the income statement.
The category financial assets at fair value through profit or loss consists of marketable securities and derivative financial
instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading
the receivable. They are measured at cost less appropriate impairment losses.
The category loans and receivables consists of trade receivables, other current receivables, security deposits as well as other
financial assets.

Summary of financial assets

The following table shows the carrying amount and the fair value of Group assets that are considered as financial assets:

31.12.2010 31.12.2009
Carrying Fair Carrying Fair
(CHF million) amount value amount value
Security deposits (Note 15) 29 29 28 28
Other financial assets (Note 15) 5 5 5 5
Trade receivables (Note 17) 716 716 761 761
Other current receivables (Note 18) 113 113 87 87
Loans and receivables 863 863 881 881
Marketable securities designated as FVTPL 18 18 16 16
Marketable securities held-for-trading 520 520 528 528
Derivative financial assets 4 4 3 3
Financial assets at fair value (Note 19) 542 542 547 547
Cash and cash equivalents (Note 20) 1 827 1 827 1 098 1 098
Cash and cash equivalents 1 827 1 827 1 098 1 098
Total financial assets 3 232 3 232 2 526 2 526

The Group applies the following 3-level hierarchy to its financial assets at fair value. The fair value of financial assets that are
quoted in active markets (level 1) is determined based on current bid prices. The fair value of unquoted financial assets is
determined by valuation models on the basis of observable market data or benchmarking to comparable instruments (level 2).
Valuation upon theoretical assumptions is used where market data or benchmarking is not available (level 3), which is the case
for the Group's private equity investments.
172 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

The following table summarizes the fair value levels of the Group's financial assets at fair value:

31.12.2010 31.12.2009
(CHF million) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
Marketable securities designated as FVTPL 5 0 13 18 4 0 12 16
Marketable securities held-for-trading 520 0 0 520 528 0 0 528
Marketable securities at fair value 525 0 13 538 532 0 12 544
Derivative financial assets 0 4 0 4 0 3 0 3
Financial assets at fair value 525 4 13 542 532 3 12 547

In 2010 and 2009, there were no material purchases, sales or transfers of financial assets at fair value categorized in level 3.

l. Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average price
method. Some companies, particularly those in the Production segment, value their inventories using the standard cost method.
As these costs are regularly reviewed and adjusted, this method approximates the results of the weighted average price
method. The valuation of spare parts for customer service is confined to those units that are considered likely to be used, based
on historical demand.
Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and
the applicable variable selling expenses.

m. Non-current assets Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale
held for sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and
the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the
sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets’ previous carrying
amount and fair value less costs to sell.

n. Trade receivables Trade receivables are recognized and carried at the original invoice amount less an allowance for any impaired receivables,
which approximates amortized cost. Provision is made for balances overdue more than 12 months or for receivables where
specific risks have been identified. Bad debts are written off when there is objective evidence that the Group will not be able
to collect the receivables.

o. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise petty cash, cash at banks and short-term deposits with an original
maturity of three months or less. For the purpose of the cash flow statement, cash and cash equivalents consist of cash and
cash equivalents as defined above, net of short-term bank overdrafts.

p. Share capital and Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
treasury shares shown in equity as a deduction, net of tax, from the proceeds. Share capital consists of registered shares each with a nominal
value of CHF 0.45 and of bearer shares each with a nominal value of CHF 2.25. Other than the higher voting power of registered
shares, no differences in terms of shareholder rights exist between the two categories.
Own equity instruments that are reacquired (treasury shares) are deducted from equity. No gain or loss is recognized in profit
or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.
 Swatch Group – annual report 2010 173
Consolidated financial statements

Notes to the consolidated financial statements

q. Financial debts Financial debts are initially recognized at fair value, including transaction costs incurred. Financial debts are subsequently
stated at amortized cost.
The fair value of the liability component of a convertible bond is determined using a market interest rate for an equivalent
­non-convertible bond. This amount is recorded as a liability on an amortized cost basis until extinguished on conversion or
maturity of the bonds. The remainder of the proceeds is allocated to the conversion option and recognized in equity, net of
income tax effects. Transaction costs are apportioned between the liability and equity components of the convertible bonds,
based on the allocation of proceeds to the liability and equity components when the instruments are first recognized.
Financial debts are classified as current liabilities unless the Group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.

Summary of financial liabilities

The following table shows the carrying amount and the fair value of Group liabilities that are considered as financial l­iabilities:

31.12.2010 31.12.2009
Carrying Fair Carrying Fair
(CHF million) amount value amount value
Non-current financial debts (Note 22) 77 78 80 82
Trade payables 291 291 238 238
Other current payables (Note 25) 101 101 82 82
Current financial debts (Note 22) 31 31 437 445
Financial liabilities measured at amortized cost 500 501 837 847
Derivative financial instruments (Note 22) 0 0 1 1
Financial liabilities at fair value 0 0 1 1
Total financial liabilities 500 501 838 848

All fair values of the Group's financial liabilities at fair value are based on observable market data (level 2).

r. Accounting for derivative Derivatives are initially recognized at fair value and related transaction costs expensed in the income statement. The method
financial instruments and of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so,
hedging activities the nature of the item being hedged. Certain derivatives can be designated as hedges of a risk associated with a highly
probable forecast transaction (cash flow hedge).
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items,
as well as its risk management objectives and strategy. The Group also documents its assessment, both at hedge inception
and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items.
The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the
hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged
item is less than 12 months. Trading derivatives are classified as a current asset or liability.

Cash flow hedge

The Group can hedge cash flows of forecasted intragroup transactions. In this case, the effective portion of changes in the
fair value of derivatives that are designated and qualify as cash flow hedges are recognized in equity. The gain or loss relating
to the ineffective portion is recognized immediately in the income statement respectively within the financial result.
Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item affects profit or
loss. The gain or loss relating to the effective portion of derivatives hedging purchases is recognized in the income statement
within material purchases.
When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is i­ mmediately
transferred to the income statement.

Derivatives at fair value through profit or loss

Derivatives not designated as hedging instruments are accounted for at fair value through profit or loss. Changes in the fair
value of these derivative instruments are recognized immediately in the income statement.
174 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

s. Income taxes The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the
extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also
recognized in other comprehensive income or directly in equity, respectively.

Current income tax

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from
or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted by the balance sheet date.

Deferred tax
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes. If the deferred tax arises from initial recognition of
an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither
accounting nor taxable profit or loss, it is not accounted for.
Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet
date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.
Deferred tax assets are recognized for all deductible temporary differences, tax loss carryforwards and tax credits to the
extent that it is probable that future taxable profits will be available against which they can be utilized.
Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the
timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference
will not reverse in the foreseeable future.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets
against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

t. Pensions and other Pension obligations

post-employment benefits Group companies operate various pension schemes. The schemes are generally funded through payments to insurance
companies or trustee-administered funds, determined by periodic actuarial calculations. The Group has both defined benefit
and defined contribution plans. A defined benefit plan is a pension plan that defines the amount of pension benefit that an
­employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group
has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all
­employees the benefits relating to employee service in the current and prior periods. Group pension plans in Switzerland are
accounted for as defined benefit plans.
Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and
losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit
obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average
­remaining working lives of the employees participating in the plans.
Past service costs are recognized immediately in income, unless the changes to the pension plan are conditional on the
­employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are
amortized on a straight-line basis over the vesting period.
The net asset / liability recognized in the balance sheet in respect of defined benefit plans is the present value of the defined
benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognized
actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries,
using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the
­estimated future cash outflows.
 Swatch Group – annual report 2010 175
Consolidated financial statements

Notes to the consolidated financial statements

Other post-employment benefits

A small number of Group companies provide post-retirement medical care benefits to their employees. The entitlement to these
benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum
service period. The expected costs of these benefits are accrued over the period of employment, similar to the accounting for
defined benefit plans.

Termination benefits
Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee
accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits when it is
demonstrably committed to either terminating the employment of current employees according to a detailed formal plan
without possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary
redundancy. Benefits falling due more than 12 months after the balance sheet date are discounted to present value.

u. Provisions Provisions are recognized:

– when the Group has a present legal or constructive obligation as a result of past events
– when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and
– when a reliable estimate of the amount of the obligation can be made

Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement
is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is
presented in the income statement, net of any reimbursement. If the effect of the time value of money is material, provisions are
discounted, using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is
used, the increase in the provision due to the passage of time is recognized as a borrowing cost.

v. Share-based payment The Group operates an equity-settled, share-based compensation plan. Under the terms of this plan, share options are granted
transactions to managers and employees who distinguished themselves by a particular strong commitment to the company or an above-
average performance. The fair value of the employee services received in exchange for the grant of the options is recognized
as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the
options granted (calculated using the «Black-Scholes» model), excluding the impact of any non-market vesting conditions (for
example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number
of options that are expected to vest. At each balance sheet date, the Group revises its estimates of the number of options that
are expected to become exercisable. It recognizes the impact of the revision of original estimates, if any, in the income
statement, and a corresponding adjustment to equity.
A tranche of treasury shares has been specifically reserved for this stock option plan. No new shares were issued under this
plan. Equity increases by the corresponding amounts of employee service cost over the vesting period. The proceeds received
net of any transaction cost are credited to equity when the options are exercised.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share
(see Note 8).
176 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

w. Leases Finance leases

A finance lease is where the lessor transfers to the lessee substantially all the risks and rewards incidental to ownership of
the leased item. At the inception of the lease, finance leases are capitalized at the fair value of the leased property or, if lower,
at the present value of the minimum lease payments. Each lease payment is apportioned between the finance charges and
the reduction of the lease liability, so as to achieve a constant rate of interest on the remaining balance of the liability. Finance
charges are charged directly against income statement. Capitalized leased assets are depreciated over the shorter of the
lease term and the estimated useful life of the asset.

Operating leases
An operating lease is where a significant portion of the risks and rewards of ownership are retained by the lessor. Operating
lease payments are recognized as expenses in the income statement on a straight-line basis over the lease term.

x. Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s share­
holders.

y. Comparatives Certain prior-year figures have been extended from the version presented in the prior year annual report, in order to take into
account current year presentational changes. There was no impact on the balance sheet and income statement in the years
under review.
 Swatch Group – annual report 2010 177
Consolidated financial statements

Notes to the consolidated financial statements

3. Financial risk management

a. Financial risk factors In view of the global and varied nature of its activities, the Group is exposed to financial market risk (including foreign currency
risk, fair value and cash flow interest rate risk and price risk), credit risk and liquidity risk.
The Group’s financial risk management is essentially focused on identifying and analyzing exchange rate risk, with the aim of
minimizing its impact on Group earnings before taxes and net income. In order to hedge exchange rate risk, the Group uses
derivative financial instruments such as forward currency contracts or currency options.
Risk management is conducted by the central treasury department (Group Treasury), which follows the directives issued by
the Group’s management bodies. Risks are assessed in collaboration with the operating units and the hedging methods are
decided and implemented under the regular supervision of the Group’s Top Management.

1. Market risk
The Group is exposed to market risk, primarily related to foreign exchange, interest rates and the market value of investments
of liquid funds. The Group actively monitors these exposures. To manage the volatility relating to these exposures, the Group
uses a variety of derivative financial instruments, such as foreign exchange forward contracts or options. The Group’s
objective is to reduce, where it deems appropriate to do so, fluctuations in earnings and cash flows associated with changes
in interest rates, foreign currency rates and market rates of investments of liquid funds. It is the Group’s policy and practice
to use derivative financial instruments to manage exposures and to enhance the yield on the investment of liquid funds.

1.1 Foreign exchange risk

The Group’s consolidated financial statements are published in Swiss Francs. As foreign exchange risks are managed ­centrally
by the treasury department (Group Treasury), the local entities are not significantly exposed to specific foreign exchange risks.
The foreign exchange risks arise primarily from fluctuation of currencies against the Swiss Franc, mainly the Euro, the US Dollar,
the Chinese Yuan as well as the Japanese Yen. Consequently, the Group may enter into various contracts that reflect the
changes in the value of foreign exchange rates to preserve the value of assets, commitments and anticipated transactions. The
Group may also use forward contracts and foreign currency option contracts to hedge certain anticipated net revenues in
foreign currencies. Group companies enter into special exchange rate agreements with the Group’s treasury department
guaranteeing a standard exchange rate for a term of one month. The treasury department, for its part, is responsible for
hedging net positions in foreign currencies with external counterparties.

Sensitivity analysis on foreign exchange risk

Financial instruments affected by foreign exchange risk include trade and other receivables, trade and other payables, financial
debts, derivatives, marketable securities, cash and cash equivalents including third party as well as intercompany transactions.
The size of the exposure sensitive to changes in the exchange rates can fluctuate significantly, so the position at the balance
sheet date may not be representative for the financial period on average.
The illustrative effect on earnings after tax that would result from reasonably possible changes in exchange rates can be
summarized as follows:

31.12.2010 31.12.2009
Change on Income statement Change on Income statement
exchange rate CHF million exchange rate CHF million
Currency +/- + – +/- + –
CNY / CHF 5% 3 – 3 5% 1 – 2
EUR / CHF 5% 12 – 8 5% 10 – 7
HKD / CHF 5% 0 0 5% 1 – 1
JPY / CHF 5% 1 0 5% 1 1
USD / CHF 5% 5 – 5 5% 3 – 3

As no items are recognized directly in equity, the illustrative impact on equity of the changes in exchange rates shown above
is zero.
178 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

1.2 Price risk

1.2.1 Commodities
The Group has a certain exposure to commodity price risk relating to the purchase of precious metals and gems, which are used
in its manufacturing processes. The Group does not enter into significant commodity futures, forward and option contracts to
manage fluctuations in prices of anticipated purchases.

1.2.2 Equity investment risk

The Group purchases equity instruments as investments of its liquid funds. Such instruments are recognized as marketable
securities. Potential investments need to comply with the asset allocation and portfolio limit structure defined by the Group’s
management bodies. According to its policy, the Group limits its holdings in equity investments to 10% of its liquid funds. They
are thoroughly analyzed in respect to their past financial track record (mainly cash flow return on investment), their market
potential, their management and their competitors. Call options are written on equities that the Group owns and put options
are written on equities that the Group wants to buy and for which cash has been reserved. In 2010 and 2009, over 80% of the
Group's equity investments were related to shares listed on a main index (SMI/SPI, Dow Jones EURO STOXX 50, S&P 500,
Nikkei).

Sensitivity analysis on equity investment risk

The table below summarizes the impact of increases/decreases of the main equity indexes on the Group’s earnings after tax
for the year. There is no impact exclusively on equity as none of the equity investments are classified in a financial assets
category where the result is recognized directly in equity. The analysis is based on the assumption that the equity indexes had
increased/decreased by a certain percentage with all other variables held constant and that all the Group’s equity instruments
moved according to the historical correlation with the index.

31.12.2010 31.12.2009
Change on Income statement Change on Income statement
index CHF million index CHF million
Index +/- + – +/- + –
Dow Jones EURO STOXX 50 5% 2 – 2 5% 2 – 2
SMI + SPI 5% 3 – 3 5% 4 – 4

Earnings after tax for the year would increase/decrease as a result of gains/losses on equity securities classified as at fair value
through profit or loss.

1.3 Interest rate risk

Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose
the Group to fair value interest rate risk. The Group manages its net exposure to interest rate risk through the proportion of
fixed rate debt and variable rate debt in its total debt portfolio.
Due to a comfortable liquidity situation and, as most of the financial debts are issued at fixed rates, interest rate fluctuations
do not have a major impact on the Group’s financial results.
In the context of balance sheet liabilities management, the Group has not used interest rate swaps during the two years under
review, and there are no outstanding positions relating to interest rate swaps in the Group’s financial statements.

Sensitivity analysis on bond investment risk

Changes in the market interest rates affect the fair value of bond securities classified in the category financial assets at fair
value through profit or loss. The sensitivity analysis presented below is based on the assumption that the interest rates had
increased/decreased by 100 basis points for all currencies with all other variables held constant.
At 31 December 2010, an increase of interest rates by 100 basis points would have reduced Group profit after tax by CHF 11 million
(2009: CHF 9 million). On the other hand, a decrease of interest rates by 100 basis points would have increased Group profit after
tax by CHF 11 million (2009: CHF 9 million).
 Swatch Group – annual report 2010 179
Consolidated financial statements

Notes to the consolidated financial statements

2. Credit risk
Credit risks in respect of customers arise when they may not be able to settle their obligations as agreed. The credit standing
of commercial partners defined in the Group’s client credit policy is periodically reviewed at Group level. As there is no
independent rating for most customers, their credit quality is assessed by local credit control departments taking into account
their financial position, past experience and other factors. There is no concentration of credit risk with respect to trade
receivables, as the Group has a large number of customers, internationally dispersed.
In the context of securities trading, the Group guards against the risk of default by implementing directives that impose
minimum credit ratings for investments in tradable securities. In general, issuer risk is minimized by only buying securities
which are investment grade rated. As at 31 December 2010, over 95% of investments in bonds were investment grade rated
(2009: over 90%). An exception in the overall fixed income management is the high yield portfolio, which amounted to
approximately CHF 10 million in 2010 (2009: about CHF 35 million). The Group’s management regularly monitors strict
compliance with these directives.
Counterparty risk is also minimized by ensuring that all derivative financial instruments, money market investments and
current account deposits are placed with financial institutions whose credit standings are usually at least A-. Exposure to this
type of risk is closely monitored by Group management and is contained within strict and pre-determined limits.
Given the very high standards of creditworthiness applied to the commercial and financial partners, the default risks to which
the Group is exposed are estimated to be limited.

3. Liquidity risk
Liquidity risk is defined as the risk that the Group could not be able to meet its financial obligations on time. The close monitoring
of liquidity at Group level and of the allocation of resources allows the Group’s treasury department to maintain adequate levels
of liquidity at all times. In order to meet any exceptional liquidity requirements, the Group maintains lines of credit with a
number of financial institutions.

As at the balance sheet date, the available liquidity can be summarized as follows:

(CHF million) 31.12.2010 31.12.2009

Cash and cash equivalents 1 827 1 098
Marketable securities 538 544
Liquidity reserves 2 365 1 642
Committed credit facilities 405 418
./. Utilized credit facilities – 103 – 127
Total liquidity reserves and non-utilized credit facilities 2 667 1 933

The table below analyses the Group’s financial liabilities that will be settled on a gross basis into relevant maturity groupings
based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are
the contractual undiscounted cash flows.

(CHF million) less than 1 year 1 – 5 years over 5 years

Non-current financial debts 2 31 56
Trade payables 291
Other current payables 101
Current financial debts 31
Derivative financial instruments 0
Total at 31.12.2010 425 31 56

Non-current financial debts 2 5 86

Trade payables 238
Other current payables 82
Current financial debts 447
Derivative financial instruments 1
Total at 31.12.2009 770 5 86
180 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

b. Capital management The primary objective of the Group with regard to capital management is to preserve a strong equity base in order to maintain
investor, creditor and market confidence and to sustain future development of the business. As at 31 December 2010, equity
represented 82.4% (31 December 2009: 77.6%) of total assets.
The Group’s Top Management reviews the capital structure of the Group and the equity of its subsidiaries on a regular basis.
As part of the review, management considers the evolution of the capital structure and the risks a­ ssociated with each of its
classes.
To preserve or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to
shareholders, issue new debt or redeem existing debt. There were no changes in the Group’s approach to capital management
during the year. Neither The Swatch Group Ltd nor any of its subsidiaries are subject to externally imposed capital requirements.

4. Critical accounting estimates and judgments

The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting
estimates and judgments. Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates. Management continuously reviews and - if necessary - adapts the estimates and
underlying assumptions. Any changes are recognized in the period in which the estimate is revised.

a. Critical accounting The key estimates and assumptions about the future that have a significant risk of causing a m­ aterial adjustment to the
estimates and judgments carrying amounts of assets and liabilities within the next twelve months are described below.

Inventory abatements
At 31 December 2010, inventories total CHF 2 869 million, as set out in Note 16. In determining net realizable values of
inventory, management needs to assess whether or not inventory abatements are required. Estimates are made for spare
parts used in customer service as well as for some watch components and finished goods in order to determine a realistic
value for these inventory items. In 2010, the Group recorded write-downs of CHF 24 million. Unexpected changes in fashion,
technology and customer needs could lead to situations where the actual inventory abatements would need to be modified.

Allowance for impaired receivables

To cover any shortfalls from current trade receivables, the Group records an allowance for impaired receivables based on
historical information and on estimates in regard to the solvency of customers. At 31 December 2010, gross trade receivables
amounted to CHF 735 million and the allowance for impaired receivables to CHF 19 million (see Note 17). Unexpected financial
problems of major customers could lead to a situation where the recorded allowance is insufficient.

Impairment of assets
The Group has property, plant and equipment with a carrying value of CHF 1 488 million as disclosed in Note 10, and intangible
assets (including goodwill) amounting to CHF 317 million (see Note 12). All of these assets are reviewed for impairment as
described in Note 2j. To assess whether any impairment may exist, impairment tests are made based on future cash flows and
the economic benefits of the assets. Actual outcomes could vary significantly from such estimates. Changes in factors such
as the planned use of fixed assets, technology or market development could lead to different economic values. In the period
under review, no significant impairments had to be recorded.

Warranty claims
The Group generally offers a two-year warranty for watches. The related provision for anticipated warranty claims amounts
to CHF 74 million, as disclosed in Note 24. Management estimates this provision mainly based on historical warranty claim
statistics. Factors that could impact these estimates include the success of the Group’s quality initiatives, parts and labour
costs as well as customer behaviour. Any material change of these factors could result in higher or lower warranty costs for
the Group.
 Swatch Group – annual report 2010 181
Consolidated financial statements

Notes to the consolidated financial statements

Legal claims
Some Group companies are involved in litigation and disputes arising from the ordinary course of their business. Legal
provisions at 31 December 2010 total CHF 7 million (see Note 24). Management estimated the outcome of these lawsuits on
the basis of currently available information. However, there are inherent risks within legal claims depending on court and
adversary party behaviour and opinion. Moreover, the Group being listed on the Swiss Stock Exchange also finds itself under
permanent review regarding the observation of all rules and regulations. Despite the considerable effort to fully comply with
the ­increasing number of laws, rules and regulations at all times and on all levels in all countries in which the Group develops
activities, there remains a certain risk of oversight which could impact future earnings.

Taxes and duties

The Group is subject to various taxes, levies and duties in numerous jurisdictions. In this respect the Group and its subsidiary
companies are regularly exposed to audits and interpretations by the various governmental bodies and authorities, where the
outcome of findings particularly in the area of transfer pricing depends very often on individual judgments. Considerable
judgment is required in determining tax provisions. Liabilities for anticipated tax audit issues are recognized based on
estimates of whether additional taxes will be due. These estimates rely on exogenous factors and therefore include some
uncertainties, which in a negative scenario could lead to additional tax liabilities in the future.
Furthermore, the capitalization of deferred tax assets is based on assumptions about the future profitability of certain Group
companies. There is an inherent risk that these estimates made by management may turn out to be too optimistic or too
pessimistic.

b. Critical judgments in In the process of applying the Group’s accounting policies, management may be required to make judgments, apart from those
applying the entity’s ­involving estimates, which can have a significant effect on the amounts recognized in the consolidated financial statements.
accounting policies These include, but are not limited to, the following:

Consolidation of subsidiaries and associates

The Group sometimes undertakes transactions that may involve obtaining the right to control or significantly influence the
operations of other entities. Such transactions include the acquisition of a part or 100% of the equity of other entities (share
deal) or the purchase of net assets of other entities (asset deal). In such cases, management makes an assessment as to
whether the Group has the right to control or significantly influence the other entities' operations. Based on this judgment, the
stake in the new entity can be fully consolidated, considered an associate or treated as a financial investment. In making this
judgment, management considers the underlying economic substance of the transaction and not only the contractual terms.

Business combinations
Where the Group acquires control of another business, the consideration transferred needs to be allocated to the identifiable
assets acquired, the liabilities assumed and any non-controlling interest in the acquired business, with any residual recorded
as goodwill. This process requires an assessment of the fair value of items such as intangible assets, contingencies or existing
tax losses. In all cases, management makes an assessment based on the underlying economic substance of the items in
question, and not only on the contractual terms, in order to fairly present these items.
182 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

5. Segment information
a. Operating segment Income statement
information
2010 Watches & Production Electronic Corporate Elimination Total
(CHF million) Jewelry Systems
– Third parties 5 528 488 416 8 6 440
– Group 4 1 051 24 3 – 1 082 0
Gross sales 5 532 1 539 440 11 – 1 082 6 440
– Third parties 5 221 467 412 8 6 108
– Group 4 1 020 24 3 – 1 051 0
Net sales 5 225 1 487 436 11 – 1 051 6 108
Operating profit 1 221 169 57 – 11 1 436
– As a % of net sales 23.4 11.4 13.1 23.5
– As a % of total 85.0 11.8 4.0 – 0.8 100.0

2009 Watches & Production * Electronic Corporate Elimination Total

(CHF million) Jewelry * Systems
– Third parties 4 440 594 380 7 5 421
– Group 4 838 14 4 – 860 0
Gross sales 4 444 1 432 394 11 – 860 5 421
– Third parties 4 198 562 377 5 5 142
– Group 4 811 14 4 – 833 0
Net sales 4 202 1 373 391 9 – 833 5 142
Operating profit 802 96 24 – 19 903
– As a % of net sales 19.1 7.0 6.1 17.6
– As a % of total 88.8 10.6 2.7 – 2.1 100.0

* restated following integration of Piguet activities (Production segment) into Manufacture Blancpain (segment Watches & Jewelry)

Balance sheet and other information

2010 Watches & Production Electronic Corporate Elimination Total

(CHF million) Jewelry Systems
Balance sheet
– Segment assets 5 057 1 701 623 3 095 – 2 031 8 445
– Equity in associated companies
and joint ventures 5 164 169
Total assets 5 062 1 701 623 3 259 – 2 031 8 614
Total liabilities – 1 761 – 586 – 99 – 1 098 2 031 – 1 513
Net assets 3 301 1 115 524 2 161 0 7 101

Other information
Capital expenditure 131 126 10 24 291
Depreciation on tangible assets – 64 – 106 – 29 – 7 – 206
Amortization on intangible assets – 9 – 4 – 2 – 1 – 16
Impairment charges 0 0 0 0 0
Interest income 4 0 0 12 – 12 4
Interest expenses – 11 – 3 – 1 – 2 12 – 5
Share of result from associates and
joint ventures 1 0 0 8 9
Income taxes – 268 – 37 – 7 – 6 – 318
 Swatch Group – annual report 2010 183
Consolidated financial statements

Notes to the consolidated financial statements

2009 Watches & Production * Electronic Corporate Elimination Total

(CHF million) Jewelry * Systems
Balance sheet
– Segment assets 4 517 1 568 695 2 523 – 1 736 7 567
– Equity in associated companies
and joint ventures 139 139
Total assets 4 517 1 568 695 2 662 – 1 736 7 706
Total liabilities – 1 609 – 530 – 153 – 1 169 1 736 – 1 725
Net assets 2 908 1 038 542 1 493 0 5 981

Other information
Capital expenditure 84 116 24 25 249
Depreciation on tangible assets – 64 – 106 – 31 – 6 – 207
Amortization on intangible assets – 5 – 4 – 3 – 1 – 13
Impairment charges 0 0 0 0 0
Interest income 3 1 0 15 – 15 4
Interest expenses – 14 – 4 – 1 – 14 15 – 18
Share of result from associates and
joint ventures 5 5
Income taxes – 161 – 16 – 2 – 7 – 186

* restated following integration of Piguet activities (Production segment) into Manufacture Blancpain (segment Watches & Jewelry)

b. Information on 2010 2009

geographical regions Net Non-current Net Non-current
(CHF million) sales assets sales assets
Switzerland 892 1 417 914 1 378
Other Europe 1 520 229 1 412 259
Total Europe 2 412 1 646 2 326 1 637
Greater China 2 037 156 1 430 121
Other Asia 1 062 234 843 236
Total Asia 3 099 390 2 273 357
Total America 478 31 424 20
Total Oceania 70 2 71 2
Total Africa 49 3 48 3
Total 6 108 2 072 5 142 2 019

Non current assets under the caption "Other Asia" include CHF 197 million (previous year CHF 197 million) relating to Japan,
consisting mainly of the investment in the N. G. Hayek Building in Tokyo.

c. Significant customers The Group has a large number of customers; no single external customer accounts for more than 10% of the Group's net sales.
184 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

6. Revenues and expenses

a. Analysis of sales revenue (CHF million) 2010 2009
Sale of goods 6 052 5 109
Rendering of services 56 33
Total net sales 6 108 5 142

b. Other operating income In 2010, other operating income amounted to CHF 139 million (2009: CHF 104 million). The increase is mainly due to the
timekeeping services rendered in 2010 for the Olympics.

c. Personnel expense (CHF million) 2010 2009

Wages and salaries 1 355 1 316
Social security costs 220 213
Share-based compensation (Note 28) 10 8
Pension costs – defined benefit plans (Note 23) 43 53
Pension costs – defined contribution plans (Note 23) 6 6
Other post-employment benefits (Note 23) 0 0
Total personnel expense 1 634 1 596

The development of the headcount is summarized in the following table:

(Unaudited) 2010 2009

Average annual headcount 24 240 23 727
Total headcount at 31 December 25 197 23 562
Men 11 276 10 703
Women 13 921 12 859
Swiss contracts 13 357 12 766
Non-Swiss contracts 11 840 10 796

Headcount is expressed as the number of employment contracts. The number of employees includes home workers, trainees
and auxiliary staff.

d. Other operating expenses (CHF million) 2010 2009

Marketing, sales and administration 863 775
Subcontracting and other direct costs of sales 281 250
Maintenance, rents and energy 426 374
Other operating expenses 111 34
Total other operating expenses 1 681 1 433

e. Research and Research and development (R&D) costs amounted to CHF 151 million in 2010, representing 2.5% of net sales (compared with
development costs CHF 149 million or 2.9% in 2009).

f. Net financial result (CHF million) 2010 2009

Interest income 4 4
Result from marketable securities designated as FVTPL 2 – 3
Result from marketable securities held-for-trading and derivatives 28 61
Net currency result – 73 0
Other financial expense – 3 – 3
Other financial income and expense – 42 59

Interest on convertible bond 0 – 13

Other interest – 5 – 5
Interest expense – 5 – 18

Share of result from associates and joint ventures 9 5

Net financial result – 38 46

 Swatch Group – annual report 2010 185
Consolidated financial statements

Notes to the consolidated financial statements

7. Income taxes
a. Income tax expenses (CHF million) 2010 2009
Current income taxes 320 199
Adjustments recognized for current income taxes of prior periods 1 – 2
Deferred taxes – 3 – 11
Total income taxes 318 186

b. Reconciliation of the Since the Group operates worldwide, it is subject to income taxes in many different tax jurisdictions. The Group calculates its
Group’s effective tax rate average expected tax rate as a weighted average of tax rates in the relevant tax jurisdictions.

2010 2009
% %
Group’s average expected tax rate 21.4 19.6
Tax effect of:
– Change in the applicable tax rate on temporary differences – 0.1 – 0.1
– Recognition of tax losses not recognized in prior years 0.0 0.0
– Utilization of previously unrecognized tax losses – 0.1 – 0.1
– Unrecognized current year tax losses 1.0 1.2
– Non-taxable income – 0.2 – 0.3
– Non-tax-deductible expenses 0.7 0.3
– Items taxable at reduced rates – 0.4 – 0.4
– Adjustments recognized for current taxes of prior periods 0.1 – 0.2
– Other items 0.4 – 0.4
Group’s effective tax rate 22.8 19.6

c. Current income tax (CHF million) 2010 2009

Net current income tax liability
Balance at 1 January – 52 – 91
Recognized in income statement – 321 – 197
Recognized in equity 0 – 1
Income taxes paid 225 237
Translation differences 4 0
Balance at 31 December – 144 – 52
thereof current income tax assets 12 24
thereof current income tax liabilities – 156 – 76

d. Deferred tax Deferred tax assets and liabilities are offset within legal entities when there is a legally enforceable right to offset current
tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.

The position of net deferred tax liability can be reconciled as follows:

(CHF million) 2010 2009

Net deferred tax liability
Balance at 1 January – 128 – 137
Recognized in income statement 3 11
Recognized in equity 0 0
Business combinations (Note 14) 0 0
Divestment of businesses (Note 14) 0 0
Translation differences – 9 – 2
Balance at 31 December – 134 – 128
thereof deferred tax assets 219 209
thereof deferred tax liabilities – 353 – 337
186 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

Deferred tax assets resulting from deductible temporary differences, tax credits or tax loss carryforwards are recognized only
to the extent that realization of the related tax benefit is probable. Temporary differences associated with investments in
subsidiaries, for which no deferred tax liabilities have been recognized, as the differences are permanent in nature, amounted
to CHF 828 million (previous year: CHF 766 million).

The deferred tax assets and liabilities relate to the following balance sheet items:

31.12.2010 31.12.2009
Source (CHF million) Assets Liabilities Net amount Assets Liabilities Net amount
Inventories 157 – 224 – 67 152 – 218 – 66
Trade and other receivables 4 – 13 – 9 4 – 11 – 7
Property, plant and equipment 11 – 80 – 69 13 – 78 – 65
Intangible assets 3 – 7 – 4 6 – 6 0
Provisions 6 – 20 – 14 6 – 17 – 11
Retirement benefit obligations 3 – 19 – 16 3 – 13 – 10
Tax losses 33 33 37 37
Other 26 – 14 12 21 – 27 – 6
Total deferred tax assets (liabilities) 243 – 377 – 134 242 – 370 – 128
Deferred tax assets on the balance sheet 219 209
Deferred tax liabilities on the balance sheet – 353 – 337

The gross value of unused tax loss carryforwards which have, or have not, been recognized as deferred tax assets, with their
expiry dates is as follows:

(CHF million) Not recognized Recognized Total 2010

One year 4 0 4
Two years 12 0 12
Three years 16 2 18
Four years 32 10 42
Five years 22 17 39
Six years 14 27 41
More than six years 125 64 189
Total at 31.12.2010 225 120 345

(CHF million) Not recognized Recognized Total 2009

One year 10 3 13
Two years 7 3 10
Three years 12 4 16
Four years 15 2 17
Five years 25 25 50
Six years 16 12 28
More than six years 65 79 144
Total at 31.12.2009 150 128 278
 Swatch Group – annual report 2010 187
Consolidated financial statements

Notes to the consolidated financial statements

8. Earnings per share

a. Basic 2010 2009
Net income attributable to equity holders of The Swatch Group Ltd
(CHF million) 1 074 759
Percentage of registered shares outstanding in comparison with the
share capital outstanding 42.7% 42.1%
Percentage of bearer shares outstanding in comparison with the
share capital outstanding 57.3% 57.9%

Registered shares
Net income attributable to registered shareholders (CHF million) 459 320
Average number of shares outstanding 113 103 548 110 446 207
Basic earnings per share (in CHF) 4.05 2.89

Bearer shares
Net income attributable to bearer shareholders (CHF million) 615 439
Average number of shares outstanding 30 335 000 30 335 000
Basic earnings per share (in CHF) 20.27 14.47

b. Diluted 2010 2009

Net income attributable to equity holders of The Swatch Group Ltd
(CHF million) 1 074 759
Interest expense on convertible debt (CHF million) 0 13
Net income used to determine diluted EPS (CHF million) 1 074 772
Percentage of diluted registered shares in comparison with the
diluted share capital outstanding 44.0% 44.0%
Percentage of diluted bearer shares outstanding in comparison
with the diluted share capital outstanding 56.0% 56.0%

Registered shares
Net income attributable to registered shareholders (CHF million) 473 340
Average number of shares outstanding – basic (as above) 113 103 548 110 446 207
Potentially dilutive number of shares from convertible bond 5 804 783 8 398 368
Potentially dilutive number of shares from options outstanding 218 081 198 511
Average number of shares outstanding – diluted 119 126 412 119 043 086
Diluted earnings per share (in CHF) 3.97 2.85

Bearer shares
Net income attributable to bearer shareholders (CHF million) 601 432
Average number of shares outstanding 30 335 000 30 335 000
Diluted earnings per share (in CHF) 19.83 14.26

9. Dividends paid and proposed

On 12 May 2010, the Annual General Meeting approved the distribution of a dividend of CHF 0.80 per registered share and
CHF 4.00 per bearer share. The distribution to holders of outstanding shares totaled CHF 210 million (2009: CHF 223 million)
and has been recorded against retained earnings in 2010.

At the Annual General Meeting on 31 May 2011, payment of the following dividends for 2010 will be proposed:

Registered Bearer
Dividend per share CHF 1.00 CHF 5.00
Total dividend CHF 124 045 000 CHF 154 200 000

The financial statements ending 31 December 2010 do not take into account this proposed dividend. Dividends will be treated
as a distribution of available earnings during the financial year 2011.
188 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

10. Property, plant and equipment

Land and Plant and Other Advances and Total
buildings machinery fixtures and construction
(CHF million) fittings in progress
Historical cost, 1 January 2010 1 130 2 715 392 9 4 246
Translation differences – 3 – 31 – 12 – 46
Business combinations (Note 14) 1 1
Divestments of businesses (Note 14) – 9 – 1 – 10
Additions 33 169 37 15 254
Disposals – 4 – 58 – 19 – 81
Derecognized items1) – 13 – 230 – 46 – 289
Transfers 2 – 4 11 – 10 – 1
Historical cost, 31 December 2010 1 145 2 553 362 14 4 074

Accumulated depreciation, 1 January 2010 – 507 – 2 024 – 255 0 – 2 786
Translation differences 2 23 9 34
Annual depreciation – 23 – 147 – 35 – 205
Impairment 0
Depreciation on disposals 57 18 75
Depreciation on divestments of businesses 7 1 8
Depreciation on derecognized items1) 13 230 46 289
Transfers 3 – 4 – 1
Accumulated depreciation, 31 December 2010 – 515 – 1 851 – 220 0 – 2 586

Net book value, 31 December 2010 630 702 142 14 1 488

1) 
During the course of process improvements in the area of property, plant and equipment, fully depreciated and physically disposed of items still disclosed in historical cost and accumulated
depreciation were identified. This issue has been resolved by a one-time derecognition of historical cost and accumulated depreciation in 2010. The derecognition does not affect either net book
values or profit or loss.

Insured value 5 183

Net book value of property, plant and equipment under finance lease contracts 0
Total non-current assets pledged to guarantee the commitments of Group companies 81

Land and Plant and Other Advances and Total

buildings machinery fixtures and construction
(CHF million) fittings in progress
Historical cost, 1 January 2009 1 084 2 626 393 31 4 134
Translation differences – 11 – 1 – 1 – 13
Additions 31 147 33 6 217
Disposals – 1 – 71 – 17 – 89
Transfers 27 14 – 16 – 28 – 3
Historical cost, 31 December 2009 1 130 2 715 392 9 4 246

Accumulated depreciation, 1 January 2009 – 482 – 1 938 – 248 – 1 – 2 669
Translation differences 1 1 1 3
Annual depreciation – 25 – 147 – 34 – 206
Impairment 0
Depreciation on disposals 68 15 83
Transfers – 1 – 8 11 1 3
Accumulated depreciation, 31 December 2009 – 507 – 2 024 – 255 0 – 2 786

Net book value, 31 December 2009 623 691 137 9 1 460

Insured value 5 002

Net book value of property, plant and equipment under finance lease contracts 0
Total non-current assets pledged to guarantee the commitments of Group companies 83
 Swatch Group – annual report 2010 189
Consolidated financial statements

Notes to the consolidated financial statements

11. Investment property

(CHF million) 2010 2009
Historical cost, 1 January 68 67
Additions 1 0
Disposals – 7 0
Transfers 1 1
Historical cost, 31 December 63 68

Accumulated depreciation, 1 January – 29 – 28

Annual depreciation – 1 – 1
Impairment 0 0
Depreciation on disposals 7 0
Transfers 1 0
Accumulated depreciation, 31 December – 22 – 29

Net book value, 31 December 41 39

Rental income 4 4
Direct operating expenses arising from investment properties that generated
rental income – 3 – 3
Direct operating expenses arising from investment properties that did not
generate rental income 0 0

Based on capitalized rental income for rented buildings plus an estimated market value for land reserves, the fair value of the
investment properties is estimated at CHF 77 million at 31 December 2010 compared to CHF 76 million at 31 December 2009.
No external independent valuation has been performed.
190 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

12. Intangible assets

Goodwill Capitalized Other Total
development intangible
(CHF million) costs assets
Historical cost, 1 January 2010 206 53 163 422
Translation differences – 2 – 1 – 11 – 14
Business combinations (Note 14) 3 3
Divestments of businesses (Note 14) – 1 – 1 – 2
Additions 12 14 26
Disposals – 4 – 8 – 12
Transfers 0
Historical cost, 31 December 2010 207 59 157 423

Accumulated amortization, 1 January 2010 0 – 18 – 84 – 102

Translation differences 3 3
Annual amortization – 6 – 10 – 16
Impairment 0
Amortization on disposals 3 4 7
Amortization on divestments of businesses 1 1 2
Transfers 0
Accumulated amortization, 31 December 2010 0 – 20 – 86 – 106

Net book value, 31 December 2010 207 39 71 317

Goodwill Capitalized Other Total

development intangible
(CHF million) costs assets
Historical cost, 1 January 2009 204 44 168 416
Translation differences 0
Business combinations (Note 14) 2 2
Additions 13 12 25
Disposals – 4 – 19 – 23
Transfers 2 2
Historical cost, 31 December 2009 206 53 163 422

Accumulated amortization, 1 January 2009 0 – 17 – 91 – 108

Translation differences 0
Annual amortization – 3 – 10 – 13
Impairment 0
Amortization on disposals 2 19 21
Transfers – 2 – 2
Accumulated amortization, 31 December 2009 0 – 18 – 84 – 102

Net book value, 31 December 2009 206 35 79 320

There are no accumulated impairment losses in goodwill. Within intangible assets, only goodwill is assumed to have an
indefinite life.
 Swatch Group – annual report 2010 191
Consolidated financial statements

Notes to the consolidated financial statements

Goodwill impairment testing Goodwill is allocated to the Group’s cash-generating units (CGUs), which correspond to the profit centers for the segment
«Watches & Jewelry» and the reportable segments for the business segments «Production» and «Electronic Systems».
A segment-level summary of the goodwill allocation is presented below:

(CHF million) 31.12.2010 31.12.2009

Watches & Jewelry 159 159
Production 38 36
Electronic Systems 10 11
Total 207 206

The recoverable amount of a cash-generating unit is determined based on value-in-use calculations. These calculations use
cash flow projections covering a five-year period. Cash flows beyond the five-year period are extrapolated using a steady
growth rate. The discount rates used are derived from a capital asset pricing model using data from Swiss capital markets
and reflect specific risks relating to the relevant segments. This is then adjusted to a pre-tax rate.

Ranges of key assumptions used

2010 2009
Watches Production Electronic Watches Production Electronic
& Jewelry Systems & Jewelry Systems
Estimated growth rate beyond
five-year period 1% 0.5% 0% 1% 0.5% 0%
Expected gross margin 51%- 62% 26%- 29% 32%- 35% 48%- 62% 27%- 30% 31%- 35%
Pre-tax discount rate 8.6% 9.9% 10.3% 8.8% 9.6% 9.9%

No impairment charge for goodwill had to be recorded in 2010 and 2009. Management estimates that any reasonably possible
change in any of the key assumptions would not cause that the recoverable amount falls below the carrying value of goodwill.

13. Investments in associates and joint ventures

(CHF million) 2010 2009
Balance at 1 January 139 127
Share of result from associates and joint ventures 9 5
Dividends received – 2 – 2
Investments 28 12
Translation differences – 5 – 3
Balance at 31 December 169 139

All associates and joint ventures are recognized using the equity method. They have been listed in Note 32.
Despite having less than 20% of the voting power of Hengdeli Holdings and Rivoli Group LLC (Dubai), the Swatch Group can
exercise significant influence due to representation on the Board of Directors, access to current financial information and the
strategic character of the investment. Therefore, these two investments are considered as associates.

Investments in 2010 relate in part to an increase in the stake in Hengdeli Holdings from 8.92% in 2009 to 9.05%. In addition,
in the period under review, the Group participated in a capital increase of the associate Belenos Clean Power Holding Ltd.
Furthermore, the Group acquired a 50% stake of Beijing Xin Yu Heng Rui Watch & Clock Ltd, a real estate company located in
Beijing (China). This participation meets the criteria of a joint venture.

At 31 December 2010, the fair value of the investment in Hengdeli Holdings was CHF 225 million (2009: CHF 140 million). Sales
to and purchases from associates and joint ventures amounted to CHF 584 million (2009: CHF 398 million) and CHF 10 million
(2009: CHF 6 million) respectively.
192 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

The following amounts represent the Group’s share of assets, liabilities, revenues and net income of associates and joint
ventures:

(CHF million) 31.12.2010 31.12.2009

Assets 162 112
Liabilities 70 42
Revenues 167 133
Net income 9 5

At the balance sheet date, contingent liabilities of associates and joint ventures amounted to CHF 1 million (previous year:
CHF 1 million).

14. Business combinations

In 2010, the Group did not enter in any significant business combinations. In July 2010, the business activities of Tanzarella
Ltd, a small entity in Southern Switzerland active in the assembly of watch movements, have been acquired. Net assets were
transferred into the newly founded company Assemti Ltd.
At the end of March 2009, the Group had acquired the remaining 90% of the issued capital of Swiss Precision Watches (Pty)
Ltd, a watch distribution company domiciled in Johannesburg (South Africa). The company was subsequently renamed The
Swatch Group (South Africa) (Pty) Ltd.

The following table summarizes the recognized amounts of assets acquired and liabilities assumed at the acquisition date, as
well as the consideration paid and the goodwill arising on acquisitions:

2010 2009
(CHF million) Notes Fair value Fair value
Property, plant and equipment (10) 1 0
Intangible assets (12) 0 0
Other non-current assets (15) 0 0
Current assets 1 5
Cash and cash equivalents 0 2
Provisions (24) 0 0
Deferred tax liabilities (7d) 0 0
Other non-current liabilities 0 – 3
Current liabilities – 2 – 2
Net assets acquired 0 2
Goodwill (capitalized) (12) 3 2
Total purchase consideration 3 4
Cash and cash equivalents acquired 0 – 2
Consideration payable 0 0
Consideration paid for prior year acquisitions 1 0
Cash outflow on acquisitions 4 2

The total purchase consideration basically represented the cash payments made to the vendors. The acquisition-related costs
of less than CHF 1 million were charged to the income statement (included in other operating expenses). In 2009, the costs
directly attributable to the acquisitions were below CHF 1 million.
The goodwill arising from the acquisitions is attributable to the expected operating synergies from the combinations, the
acquired know-how and the extended production capacity in the Group's core business. None of the goodwill recognized is
expected to be deductible for income tax purposes.
The operating results contributed by the acquired entities in the period between the date of acquisition and the balance sheet
date were below CHF 1 million (2009: below CHF 1 million). Furthermore, if the acquisitions had taken place at 1 January 2010
(1 January 2009), the Group’s revenue would not have been different (2009: CHF 2 million higher), and the impact on profit
would have been less than CHF 1 million (2009: less than CHF 1 million).
 Swatch Group – annual report 2010 193
Consolidated financial statements

Notes to the consolidated financial statements

Divestment of businesses

In 2010, the Group sold the step motor activities of Microcomponents Ltd and the Group company Lasag Ltd for a total
consideration of CHF 12 million. The profit realized on these divestments amounted to CHF 2 million, it was included in other
operating income.
No businesses had been divested in 2009.

The net assets disposed of and the net cash inflow on divestments were as follows:

(CHF million) Notes 2010 2009

Property, plant and equipment (10) 2 0
Intangible assets (12) 0 0
Goodwill (12) 0 0
Current assets 24 0
Cash and cash equivalents 0 0
Provisions (24) 0 0
Deferred tax liabilities (7d) 0 0
Other non-current liabilities 0 0
Current liabilities – 16 0
Net assets disposed of 10 0
Accumulated currency translation gains recognized in equity 0 0
Profit on divestment of businesses 2 0
Total disposal consideration 12 0
Cash and cash equivalents disposed of 0 0
Net Cash inflow on divestment 12 0

Repurchase of non-controlling interests

In July 2010 the Group acquired the remaining 5 percent interest in its subsidiaries in Singapore and Malaysia for a total
consideration of CHF 5 million in cash, increasing its ownership from 95 to 100 percent. The resulting difference amounted to
less than CHF 1 million and was recognized in equity.
194 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

15. Other non-current assets

Key Security Other financial Pension Total
(CHF million) money deposits assets assets
Balance at 1 January 2010 28 28 5 64 125
Translation differences – 3 – 2 – 5
Additions 5 4 1 23 33
Disposals – 2 – 1 – 1 – 4
Transfers to “Other current assets" – 4 – 4
Balance at 31 December 2010 24 29 5 87 145

Term 1 – 5 years 21 25 5 51

Term >5 years 3 4 87 94
Balance at 31 December 2010 24 29 5 87 145

Key Security Other financial Pension Total

(CHF million) money deposits assets assets
Balance at 1 January 2009 37 23 5 48 113
Translation differences – 1 – 1
Additions 7 16 23
Disposals – 1 – 1
Transfers to “Other current assets" – 9 – 9
Balance at 31 December 2009 28 28 5 64 125

Term 1 – 5 years 24 24 5 53

Term >5 years 4 4 64 72
Balance at 31 December 2009 28 28 5 64 125

Security deposits as well as other financial assets are considered as financial instruments (category loans and receivables).
Key money that the Group pays when renting shops in strategic locations is recognized as prepaid rent when recovery at the
end of the contract is not certain. The non-current portion is recognized under «Other non-current assets», while the current
component is transferred to «Other current assets». Detail to the pension assets can be found in Note 23.

16. Inventories
(CHF million) 31.12.2010 31.12.2009
Raw materials 226 219
Work in progress 383 287
Semi-finished goods 1 141 1 084
Finished goods 950 985
Spare parts for customer service 169 168
Total inventories 2 869 2 743

The cost of inventories recognized as an expense in 2010 amounted to CHF 2 577 million (2009: CHF 2 316 million).
Inventories with risk of obsolescence have been adjusted to their net realizable value. In 2010, the Group recognized write-downs
of CHF 26 million (previous year: CHF 17 million) and reversals of write-downs of CHF 2 million (previous year: CHF 4 million). The
net impact of these adjustments was a charge to the income statement of CHF 24 million (2009: CHF 13 million).
 Swatch Group – annual report 2010 195
Consolidated financial statements

Notes to the consolidated financial statements

17. Trade receivables

(CHF million) 31.12.2010 31.12.2009
Trade receivables – gross 735 780
Allowance for impaired receivables – 19 – 19
Total trade receivables – net 716 761

The evolution of the allowance for impaired receivables can be summarized as follows:

(CHF million) 2010 2009

Balance at 1 January – 19 – 23
Translation differences 1 0
Utilization 2 6
Reversal 2 3
Creation – 5 – 5
Balance at 31 December – 19 – 19

The individually impaired receivables mainly relate to amounts overdue more than 12 months and to customers with ­solvency
risks.

The following table provides details of the age of trade receivables that are past due but not impaired:

(CHF million) 31.12.2010 31.12.2009

Neither past due nor impaired 625 649

<3 months 81 97
3 – 6 months 6 10
6 – 12 months 3 5
>12 months 1 0
Total past due but not impaired 91 112

Total trade receivables 716 761

Based on past experience with the quality of trade receivables, no material increase in credit losses is expected.

Net trade receivables are recognized in the following major currencies:

(CHF million) 31.12.2010 31.12.2009

CHF 198 181
CNY 64 86
EUR 181 204
HKD 51 43
JPY 21 26
USD 65 77
Other currencies 136 144
Total trade receivables – net 716 761

Invoices are essentially issued in the currency of the primary economic environment in which the entity operates.
The maximum exposure to credit risk at the balance sheet date is the fair value of trade receivables. The Group does not hold
any collateral as security.
196 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

18. Other current assets

(CHF million) 31.12.2010 31.12.2009
Other current receivables
VAT to be refunded 96 47
Other receivables 17 40
Total other current receivables 113 87

Prepayments
Key money 6 10
Other prepayments and accrued income 150 144
Total prepayments 156 154

Total other current assets 269 241

Current income tax assets are reported on a separate balance sheet line and are also included in Note 7 Income taxes. No
impairments were recognized on other receivables (none in 2009). Except for prepayments, other current assets are considered
as financial instruments.

19. Marketable securities and derivative financial instruments

(CHF million) 31.12.2010 31.12.2009
Equity securities 105 138
Bond securities 390 365
Investment funds and other investments 25 25
Marketable securities held-for-trading 520 528

Marketable securities designated as FVTPL 18 16

Derivative financial instruments 4 3

Total marketable securities and derivative financial instruments 542 547

All marketable securities and derivative financial assets are classified in the category «financial assets at fair value through
profit or loss». Changes in fair values are recorded in the income statement (see Note 6f).

The table below gives an overview of the contract values and fair values of derivative financial instruments by type of contract.

31.12.2010 31.12.2009
Type Contract Positive Negative Contract Positive Negative
value fair fair value fair fair
(CHF million) value value value value
Forward foreign exchange rate contracts 311 4 0 521 3 – 1
Currency options 0 0 0 0 0 0
Options on equity securities 0 0 0 0 0 0
Total trading 311 4 0 521 3 – 1

Forward foreign exchange rate contracts 0 0 0 0 0 0

Currency options 0 0 0 0 0 0
Total hedge accounting 0 0 0 0 0 0

Total 311 4 0 521 3 – 1

 Swatch Group – annual report 2010 197
Consolidated financial statements

Notes to the consolidated financial statements

At the end of 2009 and 2010, no hedges were outstanding. No amounts were recycled from equity as a result of the application
of hedge accounting. The derivative financial liabilities are included in current financial debts.

The detail by currency of the contract values of derivative financial instruments can be summarized as follows:

2010
Type EUR JPY HKD USD SGD CNY Other Total
(CHF million)
Forward foreign exchange contracts 176 54 0 18 0 0 63 311
Currency options 0 0 0 0 0 0 0 0
Options on equity securities 0 0 0 0 0 0 0 0
Total trading 176 54 0 18 0 0 63 311

Forward foreign exchange contracts 0 0 0 0 0 0 0 0

Currency options 0 0 0 0 0 0 0 0
Total hedge accounting 0 0 0 0 0 0 0 0

Total 176 54 0 18 0 0 63 311

2009
Type EUR JPY HKD USD SGD CNY Other Total
(CHF million)
Forward foreign exchange contracts 229 70 0 72 27 49 74 521
Currency options 0 0 0 0 0 0 0 0
Options on equity securities 0 0 0 0 0 0 0 0
Total trading 229 70 0 72 27 49 74 521

Forward foreign exchange contracts 0 0 0 0 0 0 0 0

Currency options 0 0 0 0 0 0 0 0
Total hedge accounting 0 0 0 0 0 0 0 0

Total 229 70 0 72 27 49 74 521

At 31 December 2010, the contracts have a term of up to one year. The maximum exposure to credit risk at the ­reporting date
is the fair value of the derivative assets in the balance sheet.

20. Cash and cash equivalents

(CHF million) 31.12.2010 31.12.2009
Current accounts and liquid assets 639 388
Short-term deposits with financial institutions 1 188 710
Total 1 827 1 098

The average yield on short-term bank deposits corresponds to the average interest rate on an investment on the money
markets with a term of up to three months.

For the purposes of the consolidated statement of cash flows, cash and cash equivalents include the following items:

(CHF million) 31.12.2010 31.12.2009

Cash and cash equivalents 1 827 1 098
Current account overdrafts (Note 22) – 2 0
Total 1 825 1 098
198 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

21. Share capital and reserves

a. Share capital Over the past three years, the share capital of The Swatch Group Ltd has changed as follows:

Balance sheet date Registered shares Bearer shares Share capital in CHF
31.12.2007 128 100 000 at CHF 0.45 31 660 000 at CHF 2.25 128 880 000.00
Cancellation1) –4 055 000 at CHF 0.45 –820 000 at CHF 2.25 – 3 669 750.00
31.12.2008 124 045 000 at CHF 0.45 30 840 000 at CHF 2.25 125 210 250.00
31.12.2009 124 045 000 at CHF 0.45 30 840 000 at CHF 2.25 125 210 250.00
31.12.2010 124 045 000 at CHF 0.45 30 840 000 at CHF 2.25 125 210 250.00

1)
Buyback of shares on the Group’s 2 nd trading line and cancellation following the decision of the AGM of 21 May 2008.

At year-end 2010 as well as 2009, there was no authorized or conditional capital. All issued shares are fully paid. No benefit
certificates exist. In accordance with the articles of incorporation of the Swatch Group, the Board of Directors shall refuse a
registered share ownership of more than 5% per shareholder. In exceptional cases, the Board of Directors may consent to an
exception to this rule.

b. Treasury shares Changes in shares of The Swatch Group Ltd held by the Group (treasury shares) are presented in the following table:

Registered shares Bearer shares

Quantity Value Quantity Value Total
CHF million CHF million CHF million

Balance at 31.12.2008 13 700 159 497 505 000 132 629

Acquisitions 0 0 0 0 0
Disposals 1) – 215 730 0 0 0 0
Cancellations 0 0 0 0 0
Balance at 31.12.2009 13 484 429 497 505 000 132 629

Acquisitions 0 0 0 0 0
Disposals 1) – 230 822 0 0 0 0
Cancellations 0 0 0 0 0
Conversions – 7 895 551 – 336 0 0 – 336
Balance at 31.12.2010 5 358 056 161 505 000 132 293

1) 
The disposals relate mainly to the employee stock option plan. Details to the share options issued in connection with the employee stock option
plan are given in Note 28.

Treasury shares are recognized in the consolidated financial statements at their historical cost. The value of these shares is
charged against consolidated equity.

c. Other reserves (CHF million) 31.12.2010 31.12.2009

Equity component of convertible bond 0 15
Translation differences – 286 – 148
Total other reserves – 286 – 133
 Swatch Group – annual report 2010 199
Consolidated financial statements

Notes to the consolidated financial statements

22. Financial debts and derivative financial instruments

(CHF million) 31.12.2010 31.12.2009
Other non-current debt 77 80
Total non-current financial debts 77 80

Current account overdrafts 2 0

Short-term leasing commitments 0 0
Short-term bank debt 29 52
Convertible bond 0 385
Total current financial debts 31 437

Derivative financial instruments 0 1

Total current financial debts and derivative financial instruments 31 438

Total financial debts 108 518

The exposure of the Group’s financial debts to interest rate changes is limited as most of these debts have fixed interest rates.
The contractual repricing dates at the balance sheet date are as follows:

(CHF million) less than 1 year 1 – 5 years over 5 years Total
At 31.12.2010 31 25 52 108
At 31.12.2009 438 0 80 518

The carrying amounts of the Swatch Group’s financial debts are denominated in the following currencies:

(CHF million) 31.12.2010 31.12.2009

Swiss Franc (CHF) 15 389
Japanese Yen (JPY) 89 107
Euro (EUR) 1 3
Other currencies 3 19
Total 108 518

Convertible bond On 15 October 2003, The Swatch Group Finance (Luxembourg) SA issued convertible bonds valid from 15 October 2003 to
15 October 2010, with a coupon of 2.625% and a nominal value of CHF 5 000 per bond, for a total of CHF 412 million. In prior
years, the Group repurchased convertible bonds with a value of CHF 24 million. At maturity date, the remaining liability was
settled by the conversion of 7 895 551 registered shares in the amount of CHF 387 million (conversion price of CHF 49.00 per
share) and by a cash payment of CHF 1 million.
Additionally, costs directly attributable to the convertible bond in the amount of CHF 2 million have been recognized through
equity. Therefore, the total equity impact of the conversion amounts to CHF 385 million (refer to the consolidated statement
of changes in equity).

The convertible bond was recognized as follows:

(CHF million) 2010 2009

Liability component at 1 January 385 384
Coupon interest at market rate 3 13
Coupon interest at 2.625% 0 – 10
Partial repurchase of convertible bonds against cash 0 – 2
Conversion into registered shares – 387 0
Settlement in cash at maturity date – 1 0
Liability component at 31 December 0 385
200 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

23. Retirement benefit obligations

a. Defined benefit plans The Group has numerous independent pension plans. Defined benefit pension plans cover a significant number of the Group’s
employees. The Group’s Swiss pension fund is also treated as a defined benefit pension plan. Other defined benefit plans are
located in Japan, Korea, Italy, Taiwan, Germany, UK and the USA. The defined benefit obligations and related assets are
reassessed annually by independent actuaries. The following is a summary of the status of the Group’s defined benefit
pension plans:

(CHF million) 2010 2009

Present value of funded obligations – 3 543 – 3 228
Fair value of plan assets 3 299 3 171
Excess of assets/(liabilities) at 31 December – 244 – 57
Present value of unfunded obligations – 12 – 14
Unrecognized actuarial loss 322 111
Unrecognized past-service cost 0 0
Net asset / (liability) in the balance sheet at 31 December 66 40

Periodic pension cost for defined benefit plans

(CHF million) 2010 2009

Current service cost – 128 – 123
Interest cost – 104 – 101
Expected return on plan assets 134 119
Actuarial gains/(losses) – 1 – 3
Past-service cost 0 0
Employee contributions 56 56
Gains/(losses) on curtailment 0 – 1
Total periodic pension cost – 43 – 53

Movement in the fair value of plan assets

(CHF million) 2010 2009

1 January 3 171 2 814
Expected return on plan assets 134 119
Actuarial gains/(losses) 42 289
Exchange differences – 5 0
Employer contributions 67 68
Employee contributions 56 56
Benefits paid – 166 – 175
31 December 3 299 3 171

Pension plan assets include the company’s registered shares with a fair value of CHF 507 million (2009: CHF 280 million) and
the company’s bearer shares with a fair value of below CHF 1 million (2009: CHF 53 million). Furthermore, buildings occupied
by the Group amounting to CHF 12 million (previous year CHF 12 million) were included in the pension plan assets.

The expected return on plan assets was determined by considering the expected returns available on the assets underlying
the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields at the
balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced
in the respective markets.

The actual return on plan assets was a gain of CHF 176 million (2009: gain of CHF 408 million). The Group expects to contribute
CHF 68 million to its post-employment benefit plans in 2011.
 Swatch Group – annual report 2010 201
Consolidated financial statements

Notes to the consolidated financial statements

Asset allocation of plan assets

31.12.2010 31.12.2009
CHF million % CHF million %
Equity 1 236 37.5 1 036 32.7
Bonds 1 002 30.4 1 156 36.5
Real estate 612 18.5 591 18.6
Other assets 449 13.6 388 12.2
Total 3 299 100.0 3 171 100.0

Movement in the present value of defined benefit obligation

(CHF million) 2010 2009

1 January – 3 242 – 3 139
Current service cost – 128 – 124
Interest cost – 104 – 101
Actuarial gains/(losses) – 257 – 55
Exchange differences 9 1
Benefits paid 167 177
Curtailments 0 – 1
Settlements 0 0
31 December – 3 555 – 3 242

Principal actuarial assumptions used

2010 2009
% %
Weighted average Weighted average
Discount rate 2.75 3.25
Expected return on plan assets 4.25 4.25
Expected rates of salary increases (incl. inflation) 2.00 2.00
Future pension increases due to inflation 0 0

Assumptions regarding future mortality experience are set based on advice in accordance with published statistics and
experience in each territory.

Defined benefit plans: summary

(CHF million) 2010 2009 2008 2007 2006

Present value of defined benefit obligation – 3 555 – 3 242 – 3 139 – 3 282 – 3 106
Fair value of plan assets 3 299 3 171 2 814 3 590 3 464
Over/(under) funding – 256 – 71 – 325 308 358
Experience adjustments on plan liabilities - loss / (gain) 8 6 29 133 70
Experience adjustments on plan assets - gain / (loss) 42 289 – 872 39 130

b. Post-employment medical The Group operates a post-employment medical scheme in the USA. It represents a defined benefit obligation at 31 December
benefits plan 2010 of CHF 3 million (2009: CHF 3 million). This plan is included in the defined benefit obligations presented above. The
method of accounting and the frequency of valuation are similar to those used for benefit pension schemes. A one percentage
point increase or decrease in assumed medical cost trend rates would lead to an absolutely insignificant change in the defined
benefit obligation.
202 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

c. Other post-employment In addition to the defined benefit pension plans, the Group has liabilities for other post-employment benefits for employees
benefit obligations working abroad. At 31 December 2010, these liabilities amounted to CHF 5 million (31 December 2009: CHF 3 million).

d. Reconciliation The reconciliation of the balance sheet amount of pension assets and retirement benefit obligations is as follows:

(CHF million) 31.12.2010 31.12.2009

Defined benefit plan asset 87 64
Total pension asset (Note 15) 87 64
Defined benefit plan liability – 21 – 24
Other post-employment benefit obligations – 5 – 3
Total retirement benefit obligations – 26 – 27

e. Defined contribution Amounts recognized in the consolidated income statement relating to contributions to defined contribution plans represent
plans the employer’s contributions and are calculated according to the regulations of various pension institutions. In 2010, these
contributions amounted to CHF 6 million (CHF 6 million in 2009).

24. Provisions
(CHF million) Warranties Litigation Other Total

Balance at 31.12.2008 77 11 20 108

Translation differences 0
Additional provisions 67 2 5 74
Reversal of provisions – 3 – 2 – 3 – 8
Acquisitions / divestments 0
Provisions used during the year – 70 – 2 – 2 – 74
Balance at 31.12.2009 71 9 20 100
Current provisions 50 3 7 60
Non-current provisions 21 6 13 40

Translation differences – 6 – 2 – 8

Additional provisions 75 3 7 85
Reversal of provisions – 8 – 2 – 3 – 13
Acquisitions / divestments 0
Provisions used during the year – 58 – 3 – 3 – 64
Balance at 31.12.2010 74 7 19 100
Current provisions 51 4 8 63
Non-current provisions 23 3 11 37

a. Warranty In the majority of cases, the Group offers a two-year warranty covering the repairs or replacement of products that do not
perform to customers’ satisfaction. The provision made at year-end to cover anticipated warranty costs is based on past
experience with respect to the volume of repairs and returns.

b. Legal risks Some Group companies are involved in litigation arising from the ordinary course of their business. Management estimated
the outcome of these lawsuits on the basis of currently available information and recorded adequate provisions. However,
there are inherent risks within legal claims depending on court and adversary party behaviour and opinion that may cause a
significant outflow of economic benefits.

c. Other Other provisions relate to various present legal or constructive obligations of the Group companies toward third parties.
 Swatch Group – annual report 2010 203
Consolidated financial statements

Notes to the consolidated financial statements

25. Other current liabilities

(CHF million) 31.12.2010 31.12.2009
Advance payments 15 12
VAT due 16 13
Other payables 70 57
Total other current payables 101 82

Accrued expenses and deferred income 378 347

Total other current liabilities 479 429

Current income tax liabilities are reported on a separate balance sheet line and are also included in Note 7 Income taxes.
Except for accrued expenses and deferred income, other current liabilities are considered as financial instruments.

26. Commitments and contingencies

a. Guarantees and sureties At 31 December 2010, guarantees to third parties as security for commitments of Group companies amounted to less than
CHF 1 million (less than CHF 1 million at end-2009).
Total current assets pledged by Group companies to guarantee their commitments amounted to CHF 29 million at 31 December
2010 (CHF 28 million at end-2009).

b. Leasing, rental and other Operating leasing commitments for the Group not recognized in the balance sheet are as follows:
commitments
(CHF million) 31.12.2010 31.12.2009
Less than 1 year 164 149
Between 1 and 5 years 374 357
Over 5 years 221 229
Total 759 735
Proportion of contracts with renewal option (% of total amount) 59.3 65.6
Maximum risk (% of total amount) 93.8 93.5

The figures in the preceding table include all rental contracts for buildings, a major part of which relate to the Group’s retail
business, and to all other standard rental contracts existing at 31 December 2010. Leasing costs amounting to CHF 163 million
were recognized in the 2010 income statement (CHF 152 million in 2009). A sublease clause is included in a large number of
rental contracts for retail shops. Moreover, if the need arises, the Group may negotiate early termination of a lease contract
with exit terms considerably more favorable than the payment of the entire commitment specified in the initial contract. The
maximum risk as disclosed above considers any exit clauses and potential related penalties.
Other commitments relating to investments in tangible fixed assets entered into by the Group, and ongoing at 31 December 2010,
amounted to CHF 30 million (CHF 7 million in the previous year).

c. Contingent assets Some Group companies have contingent liabilities in respect of legal claims arising from the ordinary course of business and
and liabilities they may be liable to pay compensation. It is not expected that any material liabilities will arise from these contingent
liabilities other than those provided for (see Note 24b).
In some cases the Group is defending its rights where there is also an inherent chance of inflows of economic benefits if the
cases are successful.
204 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

27. Details to the consolidated statement of cash flows

a. Non-cash items (CHF million) Notes 2010 2009
Reversal of non-cash items
Share of result from associates and joint ventures (13) – 9 – 5
Income taxes (7a) 318 186
Depreciation of tangible assets (10, 11) 206 207
Amortization of intangible assets (12) 16 13
Divestment gain from disposal of subsidiaries (14) – 2 0
Profit on sale of fixed assets – 6 – 2
Loss on sale of fixed assets 2 2
Fair value gains on marketable securities – 20 – 66
Fair value losses on marketable securities 54 33
Interest income (6f) – 4 – 4
Interest expense (6f) 5 18
Expenses for equity-settled equity compensation plan (28) 10 8
Changes in provisions 10 – 8
Changes in pensions and other retirement benefits – 22 – 16
Total 558 366

b. Changes in working (CHF million) Notes 2010 2009

capital Changes in working capital and other items included in
cash flow from operating activities
Inventories – 198 – 12
Trade and other receivables – 51 15
Trade payables and other current liabilities 141 – 3
Other items included in cash flow from operating activities 45 7
Total – 63 7

28. Employee stock option plan

When the Hayek Pool acquired control of the Swatch Group, a block of shares was reserved in 1986 for an equity-settled
management stock option plan.
Under the terms of this plan, share options are granted to managers and employees who distinguished themselves by a
particular strong commitment to the company or an above-average performance. One-third of the options granted can be
exercised immediately, one-third after 12 months, and the remaining third after 24 months (European style). Options are
conditional on the employee completing the service until the respective date of exercise. Options are not transferable and only
exercisable by the employee. The Group has no legal or constructive obligation to repurchase or settle the options in cash. A
tranche of treasury shares has been specifically reserved for this stock option plan. No new shares were issued under this
plan. When the options are exercised, Group equity increases by the corresponding amounts.
At the end of 2010, this portfolio comprised 2 125 677 registered shares (2 356 309 at the end of 2009). In 2010, 230 632
registered shares were exercised at a preferential price of CHF 4.00 per registered share.

Movements in the number of share options outstanding were as follows:

2010 2009
Options Options
Options outstanding at 1 January 221 928 218 570
Granted 244 450 221 590
Forfeited or lapsed – 2 674 – 2 502
Exercised – 230 632 – 215 730
Options outstanding at 31 December 233 072 221 928

All options included in the table above have an exercise price of CHF 4.00.
 Swatch Group – annual report 2010 205
Consolidated financial statements

Notes to the consolidated financial statements

Share options outstanding at the end of the year have the following expiry date:
Share options
Expiry date 31.12.2010 31.12.2009
2010 148 470
2011 153 141 73 458
2012 79 931
Total 233 072 221 928

The fair value of the options granted during the period was determined by using the Black-Scholes option pricing model. The
expected volatility has been set by reference to the implied volatility of options available on Swatch Group shares in the open
market, as well as historical patterns of volatility. The following table shows the assumptions on which the valuation of share
options granted in 2010 and 2009 was based:

2010 2009
Tranche Tranche Tranche Tranche
exercisable exercisable exercisable exercisable
in 1 year in 2 years in 1 year in 2 years
Grant date 13 July 2010 13 July 2010 10 July 2009 10 July 2009
Expiration date 13 July 2011 13 July 2012 10 July 2010 10 July 2011
Closing share price on grant date CHF 58.30 CHF 58.30 CHF 33.70 CHF 33.70
Exercise price CHF 4.00 CHF 4.00 CHF 4.00 CHF 4.00
Volatility 38.6% 38.6% 37.0% 37.0%
Expected dividend yield CHF 1.00 CHF 1.00 CHF 0.80 CHF 0.80
Risk-free interest rate 0.42% 0.65% 0.35% 0.83%
Market value of option at grant date CHF 53.32 CHF 52.35 CHF 28.91 CHF 28.17

The first tranche that was immediately exercisable had the same assumptions as shown above (2010: grant date 13 July 2010,
share price at grant date CHF 58.30, exercise price CHF 4.00; 2009: grant date 10 July 2009, share price at grant date CHF 33.70,
exercise price CHF 4.00). The weighted average share price at exercise date was CHF 61.54 in 2010 (2009: CHF 44.84).

The personnel expense recorded in the 2010 income statement as a result of applying IFRS 2 calculation amounted to
CHF 10 million (2009: CHF 8 million).

29. Related party transactions

a. Principal shareholders On 31 December 2010, the Hayek Pool and its related companies, institutions and individuals held 64 385 225 registered
shares and 1 025 bearer shares, equivalent to 41.6% of the shares issued (previous year: 41.0%) of The Swatch Group Ltd,
which is the parent company of the Group.
In the context of the pool, the group of the community of heirs of N. G. Hayek and related parties controlled in total 40.8% of the
shares issued. At the end of year 2009, the group of Mr. N. G. Hayek and related parties controlled 40.2% of the shares issued.
Mrs. Esther Grether’s group controlled 7.2% of the shares issued (compared with 7.5% a year earlier).

In 2010, the Hayek Group, owned by the community of heirs of N. G. Hayek, invoiced an amount of CHF 10.1 million to the Swatch
Group (compared with CHF 9.4 million in 2009). This amount primarily covered support for Group Management in the following
areas of ­activity:

(CHF million) 2010 2009

Audit, feasibility studies and process optimization 3.0 3.0
Provision of managers and filling important, vacant functions 1.1 1.3
Project management in the construction sector 3.6 3.0
Support for projects in the materials and surface
treatment technology sector 0.5 0.2
Leasing a store in the center of Cannes (France) in a building
of a subsidiary of the Hayek Group 0.4 0.4
Various services relating to the assessment of investment projects,
cost control, IT consulting, etc. 1.5 1.5
Total 10.1 9.4
206 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

b. Key management In addition to the members of the Board of Directors, the members of the Group Management Board and of the Extended
personnel Management Board are considered as key management personnel (according to IAS 24.9).
The total compensation of key management personnel using IAS 19 and IFRS 2 rules for accounting for share-based compensation
was as follows:

(CHF million) 2010 2009

Short-term employee benefits 26.6 26.2
– of which in salaries 8.6 9.3
– of which in bonus 17.9 16.8
– of which in other benefits 0.1 0.1
Post-employment benefits 0.8 0.8
Termination benefits 0.0 0.0
Share-based compensation 6.8 5.0
Total 34.2 32.0

No remuneration was paid to former members of management bodies for their former functions.

c. Share ownership At 31 December 2010, the executive members of the Board of Directors and the members of the Management Board of the
company as well as the persons close to them held directly or indirectly a total of 56 293 903 registered shares and 590 bearer
shares, representing 36.4% of the voting rights (previous year: 36.4%).
In addition, at 31 December 2010, all the non-executive members of the Board of Directors as well as the persons close to them
held 11 101 700 registered shares and 114 000 bearer shares, representing 7.2% of the voting rights (previous year: 8.7%).

d. Loans to members of the The employees of the company may take out a mortgage loan with the Swatch Group Pension Fund for the construction or
governing bodies acquisition of property in Switzerland (primary residence). The conditions for these mortgage loans are set by the Swatch
Group Pension Fund Foundation Board. These conditions are applied in the same manner to all employees.
In 2010 and 2009, no loans were granted to current or former members of the Board of Directors, the Management Board or
the ­Extended Management Board. At the end of 2010, one loan to a member of the Group Management Board for a total of
CHF 0.9 million with an interest rate of 2.6% existed (unchanged from previous year).

e. Associated companies The Group has transactions with associates, joint ventures and other related parties. A listing of the associated companies
and other related parties and joint ventures is included in the list of the Swatch Group companies (Note 32).

2010 2009
(CHF million) Purchases Sales Purchases Sales
Associates and joint ventures 10 584 6 398
Other related parties 0 0 0 0

At the end of 2010, receivables from related parties amounted to CHF 55 million (2009: CHF 57 million), and ­p ayables to related
parties were CHF 5 million (2009: CHF 3 million). In addition, in 2010 the Group held guarantees from associated companies in
the amount of CHF 47 million (2009: CHF 7 million). Furthermore, at 31 December 2010 the Group had granted loans to related
parties in the amount of USD 1 million (2009: USD 1 million) with an interest rate of 3.25%.
 Swatch Group – annual report 2010 207
Consolidated financial statements

Notes to the consolidated financial statements

30. Management compensation disclosures (required by Swiss Law)

This note has been prepared in accordance with the requirements of articles 663b and 663c al. 3 of the Swiss Code of Obligations
(SCO). It differs in several aspects from the compensation disclosures given in Note 29, mainly due to different valuation and
expense recognition rules applied.

Compensation to Board of Directors and Group Management (Art. 663b SCO)

a. Board of Directors (BoD) 2010 Function Compensation Base compen- Bonus2) Other Total4)
for functions sation compen-
Name in the BoD1) for executive sation3)
function1)
(CHF) (CHF) (CHF) (CHF) (CHF)
Dr. h.c. Nicolas G. Hayek 5) Chairman
& Delegate 350 946 835 000 116 722 1 302 668
Nayla Hayek 6) Chairwoman 145 845 751 566 1 300 000 877 605 3 075 016
Dr. Peter Gross Vice-Chairman 115 060 115 060
Esther Grether Member 104 518 104 518
Georges Nicolas Hayek 7) Member 65 893 65 893
Prof. Dr. h.c. Claude Nicollier Member 104 518 104 518
Johann N. Schneider-Ammann 8) Member 88 896 88 896
Dr. Jean-Pierre Roth9) Member 65 323 65 323
Ernst Tanner Member 106 667 106 667
Total 796 720 1 102 512 2 135 000 994 327 5 028 559

2009 Function Compensation Base compen- Bonus2) Other Total4)

for functions sation compen-
Name in the BoD1) for executive sation3)
function1)
(CHF) (CHF) (CHF) (CHF) (CHF)
Dr. h.c. Nicolas G. Hayek Chairman
& Delegate 701 892 1 670 000 2 371 892
Dr. Peter Gross Vice-Chairman 114 957 114 957
Esther Grether Member 104 425 104 425
Nayla Hayek Member 105 318 501 564 1 000 000 387 455 1 994 337
Prof. Dr. h.c. Claude Nicollier Member 106 440 106 440
Johann N. Schneider-Ammann Member 106 440 106 440
Ernst Tanner Member 106 440 106 440
Total 644 020 1 203 456 2 670 000 387 455 4 904 931

1) 
Total annual fee paid in cash, not including any reimbursement for travel and other business expenses incurred.
2) 
Cash bonuses according to the accrual principle.
3)
Other compensation includes pension benefits and share options. In 2010, 15 000 share options with a value of CHF 816 045 were granted to Mrs.
N. Hayek (2009: 10 000 share options with a value of CHF 325 895), according to the conditions described in Note 28 Employee stock option plan.
Each option gives the right to conversion in one registered share.
4) 
All amounts are gross amounts (i.e. including social security due by the employee). The employer’s share of social security contributions is not
included.
5)
BoD Chairman until June 2010 (†).
6)
BoD Chairwoman as of July 2010.
7)
BoD Member as of May 2010. The compensation for his executive functions is included in Note 30 b.
8)
BoD Member until October 2010.
9)
BoD Member as of May 2010.
208 Swatch Group – annual report 2010
Consolidated financial statements

Notes to the consolidated financial statements

b. Management Board (MB) 2010 Function Sala- Bonus2) Share Share Other Total5)
and Extended Manage- ries1) options3) options3) compen-
ment Board (EMB) Name sation4)
(CHF) (CHF) (number) (CHF) (CHF) (CHF)
Georges Nicolas Hayek MB President
/ CEO 1 471 561 3 200 000 23 500 1 278 468 61 560 6 011 589
Total other members 5 276 878 12 506 000 122 450 6 661 613 714 894 25 159 385
Total 6 748 439 15 706 000 145 950 7 940 081 776 454 31 170 974

2009 Function Sala- Bonus2) Share Share Other Total5)

ries1) options 3) options 3) compen-
Name sation4)
(CHF) (CHF) (number) (CHF) (CHF) (CHF)
Georges Nicolas Hayek MB President
/ CEO 1 471 561 2 900 000 22 000 716 975 61 560 5 150 096
Total other members 5 928 726 11 238 000 111 350 3 633 798 837 012 21 637 536
Total 7 400 287 14 138 000 133 350 4 350 773 898 572 26 787 632

In 2010, total salaries and bonuses paid to Group Management (including CEO) amounted to CHF 22 454 439 or 4.25% higher than
the previous year, but 0.4% and 1.8% lower than 2008 and 2007 respectively.
1) 
Total annual base compensation paid in cash, not including any reimbursement for travel and other business expenses incurred.
2) 
Cash bonuses according to the accrual principle.
3) 
Share options granted in the years under review, according to the conditions described in Note 28 Employee stock option plan. For the valuation
of the share options, tax values were used for the part exercised in the current year. The options exercisable in the following years were valued
using the Black Scholes method. Each option gives the right to conversion in one registered share.
The increase in CHF is mainly due to the higher average value per option, which was CHF 54.40 in 2010 compared to CHF 32.63 in 2009.
4) 
Other salary elements such as pension benefits, company cars and other benefits.
5) 
All amounts are gross amounts (i.e. including social security due by the employee). The employer’s share of social security contributions is not
included.

c. Loans and other payments In 2010 and 2009, no loans were granted to current or former members of the Board of Directors, the Management Board or
to Board of Directors and the ­Extended Management Board. At the end of 2010, one loan granted by the Group’s Pension Fund to a member of the Group
Group Management Management Board for a total of CHF 0.9 million with an interest rate of 2.6% existed (unchanged to previous year).
In 2010 and 2009, no compensation other than mentioned in the compensation tables above was accorded to current or former
­members of the Board of Directors, Management Board and Extended Board or to persons closely linked to them.
 Swatch Group – annual report 2010 209
Consolidated financial statements

Notes to the consolidated financial statements

Ownership of Swatch Group shares and options by Board of Directors and Group Management

As of 31 December 2010 and 2009, the members of the Board of Directors, the Management Board and the Extended Manage-
ment Board, including persons closely linked to them, held the following number of Swatch Group shares and options:

Registered Bearer Options

Name Function Shares Shares
(number) (number) (number)
2010 2009 2010 2009 2010 2009
Dr. h.c. Nicolas G. Hayek1) BoD Chairman
& Delegate 55 704 144 550
Community of heirs N. G. Hayek
represented by Marianne Hayek 55 704 144 550
Nayla Hayek 2) BoD Chairwoman 14 876 6 543 13 334 6 667
Dr. Peter Gross BoD Vice-Chairman 7 200 21 200
Esther Grether BoD Member 11 094 500 11 454 500 112 000 112 000
Prof. Dr. h.c. Claude Nicollier BoD Member
Dr. Jean-Pierre Roth3) BoD Member
Johann N. Schneider-Ammann 4) BoD Member 1 827 372
Ernst Tanner BoD Member 2 000 2 000
Georges Nicolas Hayek 5) BoD Member / CEO 71 363 55 249 23 001 22 001
Arlette E. Emch MB Member 47 334 37 334 15 000 15 000
Florence Ollivier-Lamarque MB Member 44 000 44 216 11 002 11 002
Dr. Mougahed Darwish MB Member 50 470 69 470 6 000 6 000
Marc A. Hayek MB Member 46 233 36 900 9 667 9 000
Dr. Hanspeter Rentsch MB Member / CLO 95 022 138 988 18 202 18 202
Roland Streule MB Member 24 466 33 216 7 001 7 335
François Thiébaud MB Member 62 458 53 125 9 667 9 000
Dr. Thierry Kenel EMB Member / CFO 8 586 5 302 5 668 1 452
Matthias Breschan EMB Member 1 834 1 500
Pierre-André Bühler EMB Member 9 068 9 345 4 000 2 668
Yann Gamard EMB Member 5 002 5 002
Walter von Känel EMB Member 21 309 17 643 40 40 4 084 3 500
Thomas Meier EMB Member 2 900 1 400 1 300
Kevin Rollenhagen EMB Member 29 483 23 482 6 667 5 668
Rudolf Semrad6) EMB Member 12 601 2 100
Dr. Peter Steiger EMB Member 43 591 40 924 5 834 5 501
Stephen Urquhart EMB Member 21 500 17 351 6 168 5 501
Total 67 395 603 69 611 805 114 590 114 590 153 531 138 399

1)
BoD Chairman until June 2010 (†).
2)
BoD Chairwoman as of July 2010.
3)
BoD Member as of May 2010.
4)
BoD Member until October 2010.
5)
BoD Member as of May 2010.
6)
EMB Member until April 2010.

The terms of the share options are disclosed in Note 28. Each option gives the right to conversion in one registered share. Each
share (registered or bearer) represents one voting right. The principal shareholders are disclosed in Note 29 Related party
transactions. Except for the community of heirs of N. G. Hayek and Mrs. E. Grether, no member of the Board of Directors,
Management Board and Extended Management Board, together with persons closely linked to them, owned as of 31 December
2010, either directly or through share options, more than 1% of the outstanding Swatch Group shares (as of 31 December 2009:
Mr. Nicolas G. Hayek, Mrs. E. Grether and Mr. J. N. Schneider-Ammann).

31. Events after the balance sheet date

On 19 January 2011, the Group finalized the acquisition of Novi SA, a manufacturer of finished watches and assembler of watch
movements with 133 employees in the canton of Jura (Switzerland). The purchase price allocation is expected to be completed
in the first half of 2011. The impact on the Group’s financial statements will not be material.
There were no other significant events after the balance sheet date.
210 Swatch Group – annual report 2010
Consolidated financial statements

32. The Swatch Group Companies – as at 31.12.2010

Company name, Registered offices Field of Activity Capital Swatch Group Consoli- Segment
in millions Shareholdings dation
%
Europe
Switzerland
The Swatch Group SA, Neuchâtel Holding CHF 125.21 ▼
Assemti SA, Locarno Assembly CHF 0.10 100 • ▲
Asulab SA, La Tène Research and development CHF 0.10 100 • ▼
Atlantic Immobilien AG Bettlach, Bettlach Real estate CHF 0.70 100 • ▼
Belenos Clean Power Holding SA, Bienne Holding CHF 42.00 42 • ▼
Blancpain SA, Le Chenit Watches CHF 0.10 100 • ◼
Blancpain Les Boutiques SA, Le Chenit Retail CHF 0.10 100 • ◼
Breguet Les Boutiques SA, L’Abbaye Retail CHF 0.50 100 • ◼
Certina AG, Le Locle Watches CHF 3.50 100 • ◼
Cité du Temps SA, Genève Communication CHF 0.10 100 • ▼
cK Watch & Jewelry Co., Ltd., Bienne Watches CHF 5.00 90 • ◼
Comadur SA, Le Locle Products in hard materials CHF 7.86 100 • ▲
Compagnie des Montres Longines, Francillon SA, Saint-Imier Watches CHF 10.00 100 • ◼
Danyack SA, La Chaux-de-Fonds Real estate CHF 0.06 29 • ▼
Dernier Batz SA, Neuchâtel Real estate CHF 10.00 100 • ▼
Diantus Watch SA, Mendrisio Watches, movements CHF 10.00 100 • ▲
Distico SA, Torricella-Taverne Distribution CHF 3.00 100 • ◼
Dress your body SA, Corcelles-Cormondrèche Jewelry CHF 0.10 100 • ▲
EM Microelectronic-Marin SA, La Tène Microelectronics CHF 25.00 100 • ◆
Endura AG, Bienne Watches CHF 2.00 100 • ◼
ETA SA Manufacture Horlogère Suisse, Grenchen Watches, movements and components CHF 6.20 100 • ▲
François Golay SA, Le Chenit Manufacture of watch wheels CHF 0.10 100 • ▲
Hamilton International AG, Bienne Watches CHF 3.00 100 • ◼
ICB Ingénieurs Conseils en Brevets SA, Neuchâtel Patents CHF 0.20 100 • ▼
Jaquet Droz Les Boutiques SA, La Chaux-de-Fonds Retail CHF 0.10 100 • ◼
Le Foyer SA, Saint-Imier Real estate CHF 0.13 100 • ▼
Léon Hatot Les Boutiques SA, Auvernier Retail CHF 0.10 100 • ◼
Léon Hatot SA, Auvernier Watches CHF 0.10 100 • ◼
Louis Jeanneret-Wespy SA, La Chaux-de-Fonds Real estate CHF 0.05 100 • ▼
Maeder-Leschot SA, Bienne Real estate CHF 0.70 100 • ▼
Manufacture Favre et Perret SA, La Chaux-de-Fonds Watch cases CHF 30.00 100 • ▲
Manufacture Ruedin SA, Bassecourt Watch cases CHF 2.40 100 • ▲
Meco SA, Grenchen Watch crowns CHF 0.48 100 • ▲
Microcomponents AG, Grenchen Components for the automobile industry CHF 11.00 100 • ◆
Micro Crystal AG, Grenchen Miniature low-frequency quartz crystals CHF 4.00 100 • ◆
Mido AG, Le Locle Watches CHF 1.20 100 • ◼
MOM le Prélet SA, Les Geneveys-sur-Coffrane Watch dials CHF 0.30 100 • ▲
Montres Breguet SA, L’Abbaye Watches CHF 10.00 100 • ◼
Montres Jaquet Droz SA, La Chaux-de-Fonds Watches CHF 12.00 100 • ◼
Nivarox-FAR SA, Le Locle Watch components and thin wires CHF 4.00 100 • ▲
Omega Electronics AG, Bienne Inactive CHF 1.50 100 • ▼
Omega SA, Bienne Watches CHF 50.00 100 • ◼
Oscilloquartz SA, Neuchâtel High-stability frequency sources CHF 2.00 100 • ◆
Rado Uhren AG, Lengnau Watches CHF 2.00 100 • ◼
Record Watch Co. SA, St-Imier Inactive CHF 0.10 100 • ▼
Renata AG, Itingen Miniature batteries CHF 0.50 100 • ◆
Rubattel et Weyermann SA, La Chaux-de-Fonds Watch dials CHF 0.15 100 • ▲
S.I. Grand-Cernil 2, Les Brenets, SA, Les Brenets Real estate CHF 0.12 100 • ▼
S.I. Grand-Cernil 3, Les Brenets, SA, Les Brenets Real estate CHF 0.12 100 • ▼
S.I. Les Corbes SA, Savagnier Real estate CHF 0.10 34 • ▼
S.I. L’Etang SA, Les Brenets, Les Brenets Real estate CHF 0.05 100 • ▼
S.I. Rue de la Gare 2, Les Brenets, SA, Les Brenets Real estate CHF 0.24 100 • ▼
SSIH Management Services AG, Bienne Services and licences CHF 0.05 100 • ▼
Swatch AG, Bienne Watches CHF 2.00 100 • ◼
Swatch Retail AG, Bienne Retail CHF 2.00 100 • ◼
Swiss Timing Ltd, Corgémont Sports timing & information display systems CHF 2.00 100 • ◆
Technocorp Holding SA, Le Locle Holding CHF 6.00 100 • ▼
Terbival SA, Courchapoix Watch case polishing CHF 0.10 45 • ▲
The Swatch Group Assembly SA, Genestrerio Assembly CHF 6.00 100 • ▲
The Swatch Group Far East Distribution Ltd, Bienne Distribution CHF 0.10 100 • ◼
The Swatch Group Immeubles SA, Neuchâtel Real estate project & property management CHF 0.50 80 • ▼
The Swatch Group Les Boutiques SA, Le Grand-Saconnex Retail CHF 3.00 100 • ◼
The Swatch Group Management Services SA, Bienne Services and licences CHF 0.05 100 • ▼
The Swatch Group Recherche et Développement SA, La Tène Research and development CHF 0.10 100 • ▼
The Swatch Group Services SA, Bienne Logistics, distribution and services CHF 1.00 100 • ◼
Tiffany Watch Co. Ltd, Bienne Watches CHF 20.00 100 • ◼
Time Flagship AG, Zürich Retail CHF 6.00 100 • ◼
Tissot SA, Le Locle Watches CHF 5.00 100 • ◼
Universo SA, La Chaux-de-Fonds Watch hands CHF 0.67 100 • ▲
Vica Sàrl, Paudex Watches CHF 0.20 100 • ◼

Germany
Altweiler Grundstücks-GmbH, Lörrach Real estate EUR 0.03 95 • ▼
Deutsche Zifferblatt Manufaktur GmbH, Pforzheim Watch dials EUR 0.10 100 • ▲
Glashütter Uhrenbetrieb GmbH, Glashütte Watches EUR 0.51 100 • ◼
ST Innovation GmbH, Leipzig Sports timing technology & equipment EUR 0.05 100 • ◆
ST Sportservice GmbH, Leipzig Sports timing technology & equipment EUR 3.47 100 • ◆
Swiss Prestige Uhren Handel GmbH, Eschborn Retail EUR 0.08 100 • ◼
The Swatch Group Customer Service (Europe) GmbH, Glashütte Customer service EUR 0.50 100 • ◼
The Swatch Group (Deutschland) GmbH, Eschborn Distribution EUR 1.28 100 • ◼
The Swatch Group (Deutschland) Les Boutiques GmbH, Eschborn Retail EUR 0.20 100 • ◼
Union Uhrenfabrik GmbH, Glashütte Watches EUR 0.10 100 • ◼

Legend: • Fully
consolidated • Equity
method ◼ Watches & Jewelry ▲ Production ◆ Electronic Systems ▼ Corporate
 Swatch Group – annual report 2010 211
Consolidated financial statements

32. The Swatch Group Companies – as at 31.12.2010

Company name, Registered offices Field of Activity Capital Swatch Group Consoli- Segment
in millions Shareholdings dation
%
Austria
The Swatch Group (Oesterreich) GmbH, Wien Distribution EUR 0.04 100 • ◼

Belgium
The Swatch Group (Belgium) SA, Anderlecht Distribution EUR 1.75 100 • ◼
The Swatch Group Participation SA, Anderlecht Holding EUR 2.09 100 • ▼

Spain
The Swatch Group (España) SA, Alcobendas Distribution EUR 0.45 100 • ◼

France
Breguet, Paris Inactive EUR 0.04 100 • ◼
Fabrique de Fournitures de Bonnétage FFB, Villers-le-Lac Watch components and precision parts EUR 0.29 100 • ▲
Frésard Composants, Charquemont Watch components EUR 1.80 100 • ▲
SAS Centre Européen de Service Horloger, Besançon Customer service EUR 0.70 100 • ▲
Société Européenne de Fabrication d’Ebauches d’Annemasse Watch components and electronic assembly EUR 0.67 100 • ▲
(SEFEA), Annemasse
Tech Airport Développement, Paris Retail EUR 0.30 100 • ◼
Tech Airport Holding, Paris Holding EUR 16.00 100 • ◼
Tech Airport Nice, Paris Retail EUR 5.00 100 • ◼
Tech Airport Orly, Paris Retail EUR 1.00 100 • ◼
Tech Airport Roissy, Paris Retail EUR 2.25 100 • ◼
The Swatch Group (France) SAS, Paris Distribution EUR 15.00 100 • ◼
The Swatch Group (France) Les Boutiques, Paris Retail EUR 45.13 100 • ◼

Great Britain
The Swatch Group (UK) Ltd, London Distribution GBP 2.00 100 • ◼
The Swatch Group (UK) Les Boutiques Ltd, London Retail GBP 0.00 100 • ◼

Greece
Alkioni SA, Athens Retail EUR 0.10 100 • ◼
The Swatch Group (Greece) SA, Athens Distribution EUR 0.06 100 • ◼

Italy
Lascor S.p.A, Sesto Calende Watch cases and bracelets EUR 1.00 100 • ▲
The Swatch Group Europe Services S.r.l., Milano Administration EUR 0.01 100 • ◼
The Swatch Group (Italia) S.p.A., Rozzano Distribution EUR 23.00 100 • ◼

Luxembourg
The Swatch Group Finance (Luxembourg) SA, Alzingen Finance company CHF 1 000.00 100 • ▼
The Swatch Group Financial Services (Luxembourg) SA, Alzingen Finance company EUR 5.00 100 • ▼
The Swatch Group Re (Luxembourg) SA, Alzingen Reinsurance EUR 1.23 100 • ▼

Netherlands
The Swatch Group (Netherlands) BV, Maastricht Distribution EUR 0.70 100 • ◼

Poland
The Swatch Group (Polska) Sp.zo.o., Warszawa Distribution PLN 5.00 100 • ◼

Portugal
The Swatch Group (Europa) – Sociedade Unipessoal SA, Funchal Distribution EUR 24.14 100 • ◼
The Swatch Group (Europa II) Retail – Sociedade Unipessoal SA,Funchal Retail EUR 0.10 100 • ◼

Russia
Swiss Watch Le Prestige OOO Russia, Moscow Distribution RUB 0.20 100 • ◼
The Swatch Group (RUS) OOO, Moscow Distribution RUB 1 636.23 100 • ◼

Sweden
The Swatch Group (Nordic) AB, Stockholm Distribution SEK 0.50 100 • ◼

Czech Republic
ASICentrum spol. s.r.o., Praha Microelectronics CZK 2.01 51 • ◆
ST Software s.r.o., Liberec Sports timing technology & equipment CZK 0.10 80 • ◆

Africa
South Africa
The Swatch Group (South Africa) (Proprietary) Ltd, Sandton Distribution ZAR 0.00 100 • ◼

America
Brazil
SGA Administração de Imóvies SA, Manaus Inactive BRL 4.93 100 • ◼
SGB Serviços e Comércio de Peças Ltda, São Paulo Customer service BRL 14.05 100 • ◼
SMH do Brasil Administração de Bens Ltda, São Paulo Inactive BRL 2.74 100 • ▼

Canada
The Swatch Group (Canada) Ltd, Toronto Distribution CAD 4.50 100 • ◼

United States
EM Microelectronic – US Inc., Colorado Springs Microelectronics USD 0.04 100 • ◆
e-swatch-us Inc., Wilmington, Delaware e-Commerce USD 0.00 100 • ◼
HiPoint Technology Inc., Colorado Springs Microelectronics USD 0.17 25 • ◆
The Swatch Group (U.S.) Inc., Wilmington, Delaware Distribution USD 168.90 100 • ◼
The Swatch Group Les Boutiques (U.S.) Inc., Wilmington, Delaware Retail USD 0.00 100 • ◼
Time Sales Inc., Dover, Delaware Retail USD 1.00 50 • ◼

Legend: • Fully consolidated • Equity method ◼ Watches & Jewelry ▲ Production ◆ Electronic Systems ▼ Corporate
212 Swatch Group – annual report 2010
Consolidated financial statements

32. The Swatch Group Companies – as at 31.12.2010

Company name, Registered offices Field of Activity Capital Swatch Group Consoli- Segment
in millions Shareholdings dation
%
Mexico
Prestadora de Servicios Relojeros SA de CV, Mexico DF Watch services MXN 1.50 100 • ◼
The Swatch Group Mexico SA de CV, Mexico DF Distribution MXN 43.65 100 • ◼

Panama
The Swatch Group Panama SA, Panama City Commercial services USD 0.01 100 • ◼

Asia
Greater China
Beijing Xin Yu Heng Rui Watch & Clock Co., Ltd., Beijing Real estate CNY 40.00 50 • ◼
Hengdeli Holdings Limited, Hong Kong Retail CNY 22.20 9 • ◼
Lanco Watches Ltd, Hong Kong Inactive USD 0.07 100 • ◼
O Grupo Swatch (Macau) Limitada, Macau Retail MOP 1.50 100 • ◼
Shanghai Ruihengqi Watch Commerce Co. Ltd., Shanghai Retail CNY 30.00 50 • ◼
Shanghai Rui Jing Retail Co., Ltd., Shanghai Retail CNY 20.25 100 • ◼
Shanghai Rui Wan Retail Co. Ltd., Shanghai Retail CNY 4.00 100 • ◼
Shanghai SMH Watch Service Center Co. Ltd, Shanghai Customer service CNY 48.37 100 • ◼
Shanghai Swatch Art Centre Co. Ltd., Shanghai Retail / art center CNY 148.41 90 • ◼
SMH Les Boutiques (Shanghai) Co. Ltd, Shanghai Retail CNY 99.69 100 • ◼
SMH Swiss Watch Trading (Shanghai) Co. Ltd, Shanghai Distribution CNY 7.12 90 • ◼
SMH Technical Services (Shenzhen) Co. Ltd., Shenzhen Commercial services CNY 10.45 100 • ◼
Techdura Ltd, Hong Kong Commercial services HKD 0.00 100 • ◼
The Swatch Group (China) Ltd, Shanghai Distribution CNY 14.88 100 • ◼
The Swatch Group (Hong Kong) Ltd, Hong Kong Distribution HKD 5.00 100 • ◼
The Swatch Group (Taiwan) Ltd, Taipei Distribution TWD 28.00 100 • ◼
Zhuhai SMH Watchmaking Co. Ltd, Zhuhai Components CNY 74.57 100 • ▲

South Korea
The Swatch Group (Korea) Ltd, Seoul Distribution KRW 4 300.00 100 • ◼

United Arab Emirates

Rivoli Investments L.L.C., Dubai Retail AED 24.02 15 • ◼
Swatch Group Retail Middle East L.L.C., Dubai Retail AED 0.30 49 • ◼

India
Swatch Group (India) Private Ltd, New Delhi Distribution INR 1 030.00 100 • ◼

Japan
The Swatch Group (Japan) KK, Tokyo Distribution JPY 3 700.00 100 • ◼

Malaysia
Micromechanics (M) Sdn Bhd, Ipoh Assembly, watch components MYR 35.00 100 • ▲
Swiss Luxury Watch & Jewelry Sdn Bhd, Kuala Lumpur Retail MYR 7.00 51 • ◼
The Swatch Group (Malaysia) Sdn Bhd, Kuala Lumpur Distribution MYR 0.50 100 • ◼

Singapore
The Swatch Group S.E.A. (S) Pte Ltd, Singapore Distribution SGD 4.00 100 • ◼
The Swatch Group S.E.A. Retail Pte Ltd, Singapore Retail SGD 0.50 100 • ◼

Thailand
ETA (Thailand) Co. Ltd, Samut Prakan Movements and components THB 504.50 100 • ▲
The Swatch Group Trading (Thailand) Ltd, Bangkok Distribution THB 400.00 100 • ◼

Oceania
Australia
The Swatch Group (Australia) Pty Ltd, Glen Iris Distribution AUD 0.40 100 • ◼

Legend: • Fully consolidated • Equity method ◼ Watches & Jewelry ▲ Production ◆ Electronic Systems ▼ Corporate
 Swatch Group – annual report 2010 213
Consolidated financial statements

Report of the statutory auditor to the general meeting

of The Swatch Group Ltd, Neuchâtel
Report of the statutory As statutory auditor, we have audited the consolidated financial statements of The Swatch Group Ltd, which comprise the
auditor on the consolidated consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated
financial statements statement of cash flows, consolidated statement of changes in equity and notes to the consolidated financial statements
(pages 160 to 212), for the year ended 31 December 2010.

Board of Directors’ Responsibility

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with the International Financial Reporting Standards (IFRS) and the requirements of Swiss law. This responsibility
includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of
Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates
that are reasonable in the circumstances.

Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our
audit in accordance with Swiss law and Swiss Auditing Standards as well as the International Standards on Auditing. Those
standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial
statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of
the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes
evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements for the year ended 31 December 2010 give a true and fair view of the
financial position, the results of operations and the cash flows in accordance with the International Financial Reporting
Standards (IFRS) and comply with Swiss law.

Report on other We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence
legal requirements (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists which has been designed for the preparation of consolidated financial statements according to the instructions
of the Board of Directors.

We recommend that the consolidated financial statements submitted to you be approved.

PricewaterhouseCoopers AG

Thomas Brüderlin Roy Bächinger

Audit expert Audit expert
Auditor in charge

Basel, 28 February 2011

214 Swatch Group – annual report 2010
Financial statements of the Holding

Table of contents

Financial statements of the Holding 2010 214–224

Income statement of the Holding 215

Balance sheet of the Holding 216

Notes to the financial statements of the Holding 218

Proposed appropriation of available earnings 222

Report of the statutory auditor on the financial statements 223

The Swatch Group Ltd securities 224

 Swatch Group – annual report 2010 215
Financial statements of the Holding

Income Statement of the Holding

2010 2009
Notes CHF million CHF million

Income from investments in subsidiaries (1) 621 479

Financial income (2) 41 45
Other income 17 10

Total income 679 534

Personnel expense – 49 – 48

General expense – 18 – 12
Depreciation and impairment – 23 – 33
Interest expense (3) – 2 – 7
Exchange differences and other financial expenses (4) – 4 1
Taxes – 2 – 2

Total expenses – 98 – 101

Net income 581 433

216 Swatch Group – annual report 2010
Financial statements of the Holding

Balance sheet of the Holding

Assets 31.12.2010 31.12.2009

Notes CHF million % CHF million %

Non-current assets

Property, plant and equipment 11 0.4 14 0.5

Financial assets
– Long-term loans to Group companies 81 2.8 120 4.3
– Investments in subsidiaries (5) 2 091 72.0 2 063 74.2

Total non-current assets 2 183 75.2 2 197 79.0

Current assets

Receivables from Group companies 55 1.9 47 1.7

Other receivables and accrued income 56 2.0 37 1.3
Marketable securities and precious metals (6) 563 19.4 469 16.9
Cash and cash equivalents 44 1.5 30 1.1

Total current assets 718 24.8 583 21.0

Total assets 2 901 100.0 2 780 100.0

 Swatch Group – annual report 2010 217
Financial statements of the Holding

Balance sheet of the Holding

Equity and liabilities 31.12.2010 31.12.2009

Notes CHF million % CHF million %

Equity

Share capital 125 4.3 125 4.5

General reserve 67 2.3 67 2.4
Reserve for treasury shares 293 10.1 629 22.6
Special reserve 1 573 54.2 1 007 36.2
– Profit brought forward 27 33
– Net profit for the year 581 433
Available earnings 608 21.0 466 16.8

Total equity (7) 2 666 91.9 2 294 82.5

Liabilities

Provisions 147 5.1 155 5.6

Payables to Group companies 57 2.0 307 11.1
Other liabilities 4 0.1 4 0.1
Accrued expenses 27 0.9 20 0.7

Total liabilities 235 8.1 486 17.5

Total equity and liabilities 2 901 100.0 2 780 100.0

218 Swatch Group – annual report 2010
Financial statements of the Holding

Notes to the financial statements

General
The financial statements of The Swatch Group Ltd comply with the requirements of the Swiss law for companies, the Code of
­Obligations (SCO).

Risk management
The Board of Directors, the Executive Group Management Board as well as all key members of The Swatch Group Ltd have
always considered the aspect of risk monitoring in their regular entrepreneurial function and in their decisions. Their constant
process relating to all aspects of the business also includes a close attention to any impacts on the financial reporting. For
this purpose, appropriate tools and measures are in place which permit a pro-active and constant flow of information, building
the basis for timely decisions as required in a dynamic environment.

Valuation principles
On the balance sheet, assets and liabilities are recorded at net realizable values. Exceptions to this rule are investments in
subsidiaries, which are shown at their acquisition cost less appropriate write-downs, and treasury shares reserved for the
management stock option plan as well as shares bought back by the company that are shown at lower of cost or market.
All assets and liabilities denominated in foreign currencies are translated according to the exchange rates applicable on the
­balance sheet date. Income and expenses denominated in foreign currencies and all foreign exchange transactions are
translated at the exchange rates prevailing on their respective transaction dates. Resulting foreign exchange differences are
recognized in the income statement.

Details to specific items

1. Income from investments (CHF million) 2010 2009
in subsidiaries Dividends 564 431
Other income 57 48
Total 621 479

This item includes dividends from Group companies and other income from investments in subsidiaries as well as management
fees from Group companies.

2. Financial income (CHF million) 2010 2009

Interest income 4 4
Income and gains on securities 37 41
Total 41 45

The company recorded capital gains on its investment portfolio of CHF 37 million. This figure was partly offset by losses of
CHF 11 million (see Note 4).

3. Interest expense In 2010, interest expense decreased by CHF 5 million compared with 2009. The lower interest expense reflects the decrease
of the average amount of borrowings.

4. Exchange differences and Thanks to currency hedging contracts taken out to protect the Group’s companies, the currency translation item was positive
other financial expenses by CHF 7 million (2009: CHF 7 million). The loss recorded on the securities portfolio, including other financial expenses,
amounted to CHF 11 million (2009: CHF 6 million).

5. Investments in The list of 158 legal entities, including minority investments, held directly or indirectly by the company and consolidated at
subsidiaries Swatch Group level, is published in Note 32 of the consolidated financial statements in this report.
Investments in subsidiaries accounted for 72.0% of total assets at 31 December 2010 versus 74.2% at end-2009. In absolute
terms, the value of investments in subsidiaries amounted to CHF 2 091 million at end-2010. This amount corresponds to
consolidated investments and investments in associates, and is CHF 28 million higher than in 2009.
 Swatch Group – annual report 2010 219
Financial statements of the Holding

Notes to the financial statements

6. Marketable securities (CHF million) 31.12.2010 31.12.2009

and precious metals Marketable securities 265 227
Own shares 225 225
Precious metals 73 17
Total 563 469

Marketable securities increased in 2010 by CHF 38 million, mainly due to new investments. The position “Own shares” includes
the treasury shares bought back in 2008 as well as the registered treasury shares destined for the special management stock
option plan. The item “Precious metals” consists mainly of a strategic long position in gold.

7. Equity The total value of treasury shares held by The Swatch Group Ltd and its subsidiaries at 31 December 2010 corresponded to
2.9% (versus 5.8% at end-2009) of the nominal value of total share capital.
See table on page 220 showing changes in The Swatch Group Ltd’s treasury stock.
The table below shows the changes in equity:

Share General Reserve Special Available Total

capital reserve for treasury reserve earnings equity
(CHF million) shares
Balance at 31.12.2009 125 67 629 1 007 466 2 294
Allocated in 2010 230 – 230 0
Dividend paid out – 210 – 210
Transfer – 336 336 1 1
Net income for the year 581 581
Balance at 31.12.2010 125 67 293 1 573 608 2 666

Compared with end-2009, equity increased by CHF 372 million to CHF 2 666 million in 2010. In percentage of total assets the
equity ratio increased to 91.9% at 31 December 2010 (versus 82.5% in the previous year). CHF 336 million have been trans-
ferred to the special reserve after conversion of the convertible bond.

Share capital
At 31 December 2010, share capital consisted of 124 045 000 registered shares each with a nominal value of CHF 0.45, and of
30 840 000 bearer shares each with a nominal value of CHF 2.25 (unchanged from the previous year).

Balance sheet date Registered shares Bearer shares Share capital in CHF
31.12.2009 124 045 000 at CHF 0.45 30 840 000 at CHF 2.25 125 210 250.00
31.12.2010 124 045 000 at CHF 0.45 30 840 000 at CHF 2.25 125 210 250.00

Principal shareholders at 31 December 2010

At 31 December 2010, the Hayek Pool, its related companies, institutions and individuals held 64 385 225 registered shares
and 1 025 bearer shares, equivalent to 41.6% of the shares issued at this date (previous year: 41.0%). The Hayek Pool com-
prises the following members:

Name / Company Location Beneficial owners

Community of heirs of N.G. Hayek Community of heirs
represented by Marianne Hayek of N. G. Hayek
WAT Holding AG Meisterschwanden Community of heirs
of N. G. Hayek
Ammann Group Holding AG c / o Ernst & Young AG, Bern Descendants U. Ammann-
Schellenberg sen.
Swatch Group Pension Fund Neuchâtel –
220 Swatch Group – annual report 2010
Financial statements of the Holding

Notes to the financial statements

The companies, institutions and individuals associated with the Hayek Pool, but which do not formally belong to the Hayek
Pool are as follows:

Name / Company Location Beneficial owners

Hayek Holding AG Meisterschwanden Community of heirs
of N. G. Hayek
Community of heirs of N. G. Hayek Community of heirs
and family members of N. G. Hayek
Personalfürsorgestiftung der Hayek Engineering AG Meisterschwanden –
Ammann families (pension funds, c / o Ernst & Young AG, Bern Represented by
foundations and individuals, Madisa AG) Daniela Schneider1)
Fondation d’Ébauches SA et des maisons affiliées Neuchâtel –
Wohlfahrtsstiftung der Renata AG Itingen –
Fonds de prévoyance d’Universo SA Neuchâtel –
1)
since 1.11.2010 (until 31.10.2010 J.N. Schneider-Ammann)

In the context of the pool, the group of the community of heirs of N. G. Hayek and related parties controlled in total 40.8% of
the shares issued at end-2010 (40.2% of the shares issued were controlled by the group of Mr. N. G. Hayek at end-2009).
Mrs. Esther Grether’s group controlled 7.2% of the shares issued (compared with 7.5% a year earlier).
At 31 December 2010, the Swatch Group was not aware of any other group or individual shareholder having an interest of more
than 5% of the total share capital.

Reserve for treasury shares

The reserve for treasury shares was valued using the weighted average purchase price method. On the Holding balance sheet,
it amounted to CHF 293 million on 31 December 2010 (previous year CHF 629 million), and thereby covers the treasury shares
­recognized as assets on the balance sheets of Group companies at year-end.
The number of treasury shares held directly or indirectly by The Swatch Group Ltd changed in 2010 as shown in the table
below:

Shares held by: Registered shares Bearer shares

Quantity 1) Quantity
The Swatch Group Ltd
Balance at 31.12.2009 5 086 061 505 000
Acquisitions in 2010
Disposals in 2010 2) – 230 822
Cancellations in 2010
Balance at 31.12.2010 4 855 239 505 000

Other consolidated companies

Balance at 31.12.2009 8 398 368 0
Acquisitions in 2010
Conversions in 2010 – 7 895 551
Balance at 31.12.2010 502 817 0
Total balance at 31.12.2010 5 358 056 505 000
1)
of which at 31 December 2010 a total of 2 125 677 registered shares were reserved for the management stock option plan (2 356 309 registered
shares in 2009).
2)
The disposals in 2010 related mainly to the management stock option plan.

Available earnings
In compliance with the resolution approved at the Annual General Meeting of 12 May 2010, a dividend of CHF 0.80 per
registered share and of CHF 4.00 per bearer share was appropriated from available earnings as at 31 December 2009. The
total dividend amount paid to shareholders in 2010 came to CHF 88 514 576 on the registered shares and CHF 121 340 000 on
the bearer shares. In accordance with the resolution relating to the use of available earnings approved by the above-mentioned
AGM, no dividends were paid on the treasury shares held by the Swatch Group. This amount, which would have totaled
CHF 12  741 424, thus constituted an integral part of equity at 31 December 2010. Finally, CHF 230 million was appropriated
from available earnings at 31 December 2009 and allocated to the special reserve.
 Swatch Group – annual report 2010 221
Financial statements of the Holding

Notes to the financial statements

Off-balance-sheet items
Contingent liabilities
At end-2010, guarantees provided by The Swatch Group Ltd amounted to CHF 582 000 (compared with CHF 422 992 400 a year
earlier). This item relates to a guarantee of GBP 400 000 to cover a lease commitment taken out by one of the Group’s companies
(unchanged to 2009). In the prior year, a guarantee of CHF 422 322 400 was given relating to a convertible bond issued by The
Swatch Group Finance (Luxembourg) SA. The guarantee ended at maturity date (15 October 2010).

Fire insurance values

At 31 December 2010, the fire insurance value of property, plant and equipment amounted to CHF 39 273 700 (CHF 40 995 100
at end-2009).

Assets pledged
None of the company’s assets are pledged.

Commitments
Other commitments entered into by the company and open at 31 December 2010 amounted to CHF 1 million (versus CHF 1 million
in the previous year), corresponding to investment commitments in financial assets.

Financial derivative instruments

The following table shows the contract and replacement values of derivative financial instruments at 31 December 2010.

Type Contract value Positive Negative

replacement value replacement value
Third Group Total Third Group Total Third Group Total
(CHF million) party party party
Forward contracts 307 264 571 4 2 6 0 – 9 – 9
Options 0 0 0 0 0 0 0 0 0
Total at 31.12.2010 307 264 571 4 2 6 0 – 9 – 9
Total at 31.12.2009 454 271 725 3 1 4 – 1 – 3 – 4

Derivative financial instruments are recognized at fair value. Positions outstanding at 31 December 2010 serve to hedge
operations relating to exchange rate risk and market volatility. Forward contracts outstanding at 31 December 2010 relate to
31 positions held in precious metals and in foreign currencies (previous year: 30). Intra-Group contracts relate to agreements
between The Swatch Group Ltd and Group companies for the hedging of risk associated with intra-group financial trans­actions.
At 31 December 2010, there was no option outstanding (none in the previous year).

Liabilities to pension plans

The balance sheet as at end-2010 contained a liability of CHF 269 359 to pension plans (no liability to pension in 2009).

Management compensation disclosures

The disclosures required by the Swiss Code of Obligations on management compensation are shown in Note 30 of the
­c onsolidated financial statements.
222 Swatch Group – annual report 2010
Financial statements of the Holding

Proposed appropriation of available earnings

The Board of Directors proposes to the Annual General Meeting that available earnings be appropriated as follows:

2010 2009
CHF CHF

Net income for the year 581 132 549 432 821 927
Profit brought forward from previous year 26 464 284 33 496 933

Available earnings 607 596 833 466 318 860

Allocation to special reserve – 300 000 000 – 230 000 000

Payment on share capital of CHF 125 210 250.00

of a 2009 dividend, i.e.:
– CHF 0.80 per registered share with a par value of CHF 0.45 – 99 236 000
– CHF 4.00 per bearer share with a par value of CHF 2.25 – 123 360 000

Payment on share capital of CHF 125 210 250.001)

of a 2010 dividend, i.e.:
– CHF 1.00 per registered share with a par value of CHF 0.45 – 124 045 000
– CHF 5.00 per bearer share with a par value of CHF 2.25 – 154 200 000

Dividends not paid out on own shares held by the Group 2) 12 741 424

Balance carried forward 29 351 833 26 464 284

1)
It is planned not to pay dividends on own shares held by the Group. 
2)
Based on the decision of the Annual General Meeting of 12 May 2010, the dividend due on own shares held by the Group was not paid out. 
 Swatch Group – annual report 2010 223
Financial statements of the Holding

Report of the statutory auditor to the general meeting

of The Swatch Group Ltd, Neuchâtel
Report of the statutory As statutory auditor, we have audited the financial statements of The Swatch Group Ltd, which comprise the income
auditor on the financial statement, balance sheet and notes (pages 215 to 221), for the year ended 31 December 2010.
statements
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of
Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining
an internal control system relevant to the preparation of financial statements that are free from material misstatement,
whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting
policies and making a­ ccounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in
accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial
statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used
and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial
statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.

Opinion
In our opinion, the financial statements for the year ended 31 December 2010 comply with Swiss law and the company’s
articles of incorporation.

Report on other We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence
legal requirements (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists which has been designed for the preparation of financial statements according to the instructions of the Board
of Directors.

We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s
articles of incorporation. We recommend that the financial statements submitted to you be approved.

PricewaterhouseCoopers AG

Thomas Brüderlin Roy Bächinger

Audit expert Audit expert
Auditor in charge

Basel, 28 February 2011

224 Swatch Group – annual report 2010
Financial statements

The Swatch Group Ltd securities

Average number of shares outstanding/ 2010 2009 2008 2007 2006

Average share capital basic basic basic basic basic
Number of registered shares of CHF 0.45 113 103 548 110 446 207 111 605 632 115 882 234 118 110 673
Number of bearer shares of CHF 2.25 30 335 000 30 335 000 30 596 542 31 485 875 31 981 500
Total average number of shares outstanding 143 438 548 140 781 207 142 202 174 147 368 109 150 092 173
Share capital registered shares of CHF 0.45 50 896 597 49 700 793 50 222 534 52 147 005 53 149 803
Share capital bearer shares of CHF 2.25 68 253 750 68 253 750 68 842 220 70 843 219 71 958 375
Total average share capital 119 150 347 117 954 543 119 064 754 122 990 224 125 108 178

Key data per registered share (nom CHF 0.45) in CHF 2010 2009 2008 2007 2006
Consolidated net income 4.05 2.89 3.15 3.70 2.97
Cash flow from operating activities 5.11 3.39 1.93 3.20 3.18
Consolidated shareholders’ equity 26.77 22.74 20.55 19.43 17.83
Dividend 1.001) 0.80 0.85 0.85 0.70

Key data per bearer share (nom CHF 2.25) in CHF 2010 2009 2008 2007 2006
Consolidated net income 20.27 14.47 15.75 18.49 14.87
Cash flow from operating activities 25.55 16.99 9.67 16.01 15.89
Consolidated shareholders’ equity 133.83 113.85 102.73 97.13 89.17
Dividend 5.001) 4.00 4.25 4.25 3.50

Stock price of registered shares (adjusted) High 78.50 51.70 66.75 76.50 54.95
Low 50.40 23.05 23.20 53.90 38.50
31.12. 75.40 49.40 28.50 66.85 54.50

Stock price of bearer shares (adjusted) High 434.80 268.75 340.00 397.00 274.00
Low 262.20 118.50 115.50 266.25 184.10
31.12. 416.80 261.90 145.80 341.25 269.25

Market capitalization (CHF million) 31.12. 22 207 14 205 8 032 19 367 15 882

Key ratios (year-end) 2010 2009 2008 2007 2006

Average return on equity % 16.5 13.3 15.5 19.7 17.3
Dividend yield registered shares % 1.3 1.6 3.0 1.3 1.3
Dividend yield bearer shares % 1.2 1.5 2.9 1.2 1.3
Price / earnings ratio – registered shares 18.6 17.1 9.0 18.1 18.3
Price / earnings ratio – bearer shares 20.6 18.1 9.3 18.5 18.1

Reuters
Securities Securities no. Symbol
The Swatch Group Ltd registered shares 1 225 514 UHRN.S
The Swatch Group Ltd bearer shares 1 225 515 UHR.VX

The securities are listed on the Swiss Stock Exchange (SIX) and on the BX Berne eXchange
1)
Board of Directors’ proposal.

Evolution of the Swatch Group Ltd registered shares and the Swiss Market Index (1988–2010)
80

70
The Swatch Group Ltd
60
Swiss Market Index
50

40

30

20

10
0
88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10