July 3, 2002 -- In a response to information published by Le Monde July 2, Vivendi Universal (VU) has strictly applied the required accounting treatment of the BSkyB disposal in its 2001 accounts.
The international entertainment conglomerate is being rocked by changes. In recent days, its CEO Jean-Marie Messier has agreed to leave. Le Monde newspaper has said the company was misreporting income amounting to about 1.5 billion euro. The story caused the company's stock price to drop almost 40 percent on the Paris Stock Exchange.
But in its published rebuttal, VU said it had applied the accounting treatment of the BskyB share disposal from 2001:
* As required under US GAAP for such transactions, which was reviewed by the SEC, and
* For French GAAP, VU has applied strictly the treatment recommended by the COB
In October 2001, VU entered into a transaction to enable VU to comply with the European Commission mandate that VU dispose of its BSkyB shares by October 2002.
The EC required that such disposal take place as a condition of its approval of VU's acquisition of The Seagram Company Ltd. The transaction enabled VU to dispose of the BSkyB shares at market without incurring the significant discount often associated with the disposal of a large block of shares, to reduce the tax costs of the disposal and maintain VU's participation in the economics of a portion of the transferred BSkyB shares.
The accounting for such a structure is specifically addressed under US GAAP principles; however, it was not clear to the company under French GAAP standards. Therefore, the company consulted with its auditors prior to and during the transaction in order to develop the acceptable accounting under both GAAP reporting standards. In November 2001, VU met with the Commission de Operations de Bourse (the 'COB', Vivendi Universal's French regulator) to discuss the company's proposed accounting for the BSkyB sale under French GAAP.
In March 2002, prior to the presentation of the 2001 annual results, the COB advised VU that under French GAAP, Vivendi Universal must account for the initial sale transaction as a borrowing secured by BSkyB shares. Additionally, the COB advised VU that a related December transaction, which reduced the company's financial exposure to a related Swap, be accounted for, not as a sale, but as a transaction that resulted in VU pretax income of approximately 1.1 billion euros. The company reflected these transactions in its 2001 accounts in a manner consistent with the COB's request (Note 2 of VU's 2001 financial statements).
Due to the significance of this transaction, the company also met with representatives of the U.S. Securities and Exchange Commission (SEC) to review the accounting for this transaction under US GAAP, which is discussed in Note 14 to the company's 2001 financial statements. The SEC advised the company that it did not object to the company's treatment of the BSkyB sale under US GAAP, as presented and disclosed.
