Notes to the Financial Statements

1. INTRODUCTION

The financial statements of Chocoladefabriken Lindt & Sprüngli AG, with registered office in Kilchberg, were prepared in accordance with the Swiss accounting legislation of the Swiss Code of Obligations (CO).

Chocoladefabriken Lindt & Sprüngli AG is presenting consolidated financial statements according to an internationally accepted reporting standard. Therefore, these financial statements and notes do not include additional disclosures, cash flow statement, and management report, according to Art. 961d, paragraph 1 CO.

2. ACCOUNTING POLICIES

Non-current assets

Non-current assets are valued at historical cost less impairment. Intangible assets mainly consist of the intellectual property rights of Russell Stover Chocolates, LLC, acquired in 2014.

Treasury shares

Treasury shares are recognized at acquisition cost and are presented as a deduction from shareholder’s equity. Upon sale of treasury shares, the realized gain or loss is recognized through the income statement as income or expense from financial assets.

Financial liabilities

Financial liabilities are recognized at nominal value. Agios and disagios as well as bond issuance costs are recognized in the income statement.

Dividends and other income from subsidiaries

Dividend income resulting from financial investments is recorded upon approval of the dividend distribution.

“Other income from subsidiaries” mainly consist of license fees, which are recognized in the period they fall due.

Foreign currency translation

The foreign exchange rates are listed here. In deviation to the table here transactions in the income statement are booked at the respective month-end rate.

3. Liabilities arising from guarantees and pledges in favor of THIrd parties

Contingent liabilities as at December 31, 2016, amounted to CHF 287.2 million (CHF 271.5 million in 2015). This figure comprises guarantees given to counterparties providing credit lines for borrowings to subsidiaries.

The companies, Chocoladefabriken Lindt & Sprüngli AG, Chocoladefabriken Lindt & Sprüngli (Schweiz) AG, Lindt & Sprüngli Financière AG, Lindt & Sprüngli (International) AG, and Indestro AG together form a Swiss-VAT group. Accord- ing to Art. 15, paragraph 1, item c of the Swiss Value Added Tax Law and Art. 22, paragraphs 1 and 2 of the Swiss Value Added Tax Ordinance, all members participating in VAT-group taxation are jointly liable for all taxes owed by the VAT group (including interest), which arose during their period of membership.

4. Investments

The investments in subsidiaries are listed here.

5. Bonds

In September 2014 Chocoladefabriken Lindt & Sprüngli AG placed bonds of CHF 1 billion in order to finance the acquisition of Russell Stover Chocolates, LLC. The bonds consist of the following three tranches:

CHF 250 million floating rate bond with a term of 3 years and a floating interest rate based on 3-month CHF LIBOR plus 0.18% per annum. The interests are paid quarterly. The tranche is due for repayment in October 2017;
CHF 500 million bond with a term of 6 years and a fixed coupon of 0.5% per annum. The interests are paid annually on October 8; and
CHF 250 million bond with a term of 10 years and a fixed coupon of 1.0% per annum. The interests are paid annually on October 8.

CHF million	Interest rate	Term	Notional amount

Floating rate bond	variable	2014–2017	250.0
Straight bond	0.5%	2014–2020	500.0
Straight bond	1.0%	2014–2024	250.0
Total			1,000.0

6. Acquisition and sale of registered shares and participation certificates

		2016		2015
Inventory of treasury stock	Registered shares	Participation certificates	Registered shares	Participation certificates

Inventory as at January 1	2,584	–	2,558	12,730
Additions	150	–	139	–
Retirements	– 825	–	– 90	–
Cancellation of shares	–	–	– 23	– 12,730
Inventory as at December 31	1,909	–	2,584	–

Average cost of additions (in CHF)	66,889	–	72,316	–
Average sales price of retirements (in CHF)	68,079	–	58,171	–
Average cost of cancellation of shares (in CHF)	–	–	50,076	4,200

7. Reserves

	Reserves from capital contribution				Special reserves
CHF thousand	Requested	Approved	Not approved ¹	Total	Total

Balance as at January 1, 2015	72,794	3,225	10,168	86,187	629,646
Reserve from retained earnings	–	–	–	–	120,000
Additions during the year	101,726	–	1,508	103,234	– 1,508
Approved reserves from capital contribution
FTA approval March 19, 2015	– 72,794	72,794	–	–	–
FTA approval February 16, 2016	– 101,726	101,726	–	–	–
Share buy-back program	–	–	–	–	– 54,615
Cancellation of shares	–	–	–	–	130
Reclassification of valuation of treasury shares	–	–	–	–	– 39,670
Proposed dividend distribution	–	– 75,308	–	– 75,308	–
Undistributed dividends on own registered shares and participation certificates	–	1,229	–	1,229	–
Options exercised from January 1 to April 29, 2015	–	– 486	–	– 486	–

Balance as at December 31, 2015	–	103,180	11,676	114,856	653,983

Reserve from retained earnings	–	–	–	–	120,000
Additions during the year	63,737	–	910	64,647	– 910
Approved reserves from capital contribution
FTA approval February 27, 2017	– 63,737	63,737	–	–	–
Proposed dividend distribution	–	– 93,974	–	– 93,974	–
Undistributed dividends on own registered shares and participation certificates	–	1,013	–	1,013	–
Options exercised from January 1 to April 26, 2016	–	– 663	–	– 663	–

Balance as at December 31, 2016	–	73,293	12,586	85,879	773,073

1 The Swiss federal tax administration (FTA) has not yet approved the capital transaction costs of TCHF 12,586 as reserves from capital contribution. This practice may be changed in the future.

8. Mandatory disclosure of interest positions pursuant to Art. 663c CO

As of December 31, 2016, Chocoladefabriken Lindt & Sprüngli AG disclosed the following shareholders known to the Company (in accordance with Art. 663c CO and the articles of association), which own voting shares of more than 4%: “Fonds für Pensionsergänzungen of Chocoladefabriken Lindt & Sprüngli AG”, “Finanzierungsstiftung für die Vorsorgeeinrichtungen der Chocoladefabriken Lindt & Sprüngli AG”, “Lindt Cocoa Foundation” and “Lindt Chocolate Competence Foundation”. As a group they held 20.23% of the voting rights of the Company (20.21% in 2015).

The participation of the Board of Directors, Group Management, and Extended Group Management as at December 31, 2016, according to Art. 663c CO is as follows:

		Number of registered shares (RS)		Number of participation certificates (PC)		Number of options
		2016	2015	2016	2015	2016	2015

E. Tanner	Chairman and CEO until 30.09.2016, as of 01.10.2016 Executive Chairman	3,122	3,103	8,400	9,000	14,750	12,250
A. Bulgheroni	Member of the Board	1,000	1,000	–	–	1,900	1,900
Dkfm E. Gürtler	Member of the Board	1	1	50	50	–	–
Dr R. K. Sprüngli	Member of the Board	1,090	1,092	–	–	–	–
Dr T. Rinderknecht	Member of the Board	–	–	–	–	–	–
P. Schadeberg-Herrmann	Member of the Board	127	115	–	–	–	–
U. Sommer	Group Management	1	12	–	40	5,400	6,150
Dr D. Weisskopf	Group Management	7	7	2,400	2,400	7,650	7,475
A. Pfluger	Group Management	5	5	30	30	6,483	5,100
R. Fallegger	Group Management	5	5	654	1,154	4,088	4,088
K. Kitzmantel	Extended Group Management	5	5	–	5	3,838	4,088
Dr A. Lechner	Extended Group Management	7	6	56	56	5,150	5,178
T. Linemayr ¹	Extended Group Management	–	4	–	77	–	4,967
Total		5,370	5,355	11,590	12,812	49,259	51,196

1 Mr. T. Linemayr left the Lindt & Sprüngli Group in 2016, therefore no participation is reported for 2016.

All other disclosures relating to the remuneration of the Board of Directors, Group Management, and Extended Group Management are provided in the Compensation Report.

9. Number of Employees

Chocoladefabriken Lindt & Sprüngli AG has no employees.