Periodic financial reporting in compliance with applicable accounting rules is part of the information that contributes to transparent trading, as required by the Federal Act on Stock Exchange and Securities Trading (Stock Exchange Act) and the SWX Listing Rules (LR). One of the tasks of the SWX is the enforcement of transparency rules imposed on issuers.
Unlike the production of an annual report, the obligation to produce an interim report derives exclusively from the SWX Listing Rules. A variety of legal proceedings in connection with the annual financial statements of SAirGroup, which are likely to be concluded in the next few years, are currently being dealt with by criminal prosecution authorities and civil courts.
In the light of events at SAirGroup in the spring of 2001 (communication of a loss for the year of CHF 2.885 bn.) and the press and media coverage that they attracted, the SWX initiated an examination of the compliance of SAirGroup's periodic financial reporting with the LR provisions pertaining to the presentation of accounts. The investigation proved to be complicated and time-consuming.
In an entirely different matter, the SWX also initiated sanction proceedings against SAirGroup in the spring of 2001 for the violation of the provisions governing ad hoc-publicity. On 21 December 2001, the Disciplinary Commission of the SWX Swiss Exchange determined that SAirGroup had violated the disclosure requirements of Art. 72 LR. The decision could initially not be published by SWX because SAirGroup lodged an appeal with the SWX Arbitral Tribunal. However, SAirGroup withdrew its appeal on 30 January 2003, before the Tribunal's decision was issued (see http://www.swx.com/admission/sanction_srgroup_en.pdf).
The present accounting-related sanction proceedings were suspended for the duration of the Arbitral Tribunal proceedings in the ad hoc-publicity case and did not resume until the legally binding termination of the latter proceeding. SAirGroup itself stated that it applied the International Financial Reporting Standards (IFRS, formerly IAS) as its accounting standard since 1996. Nonetheless, the 2000 interim report made no specific reference to IAS 34, which governs interim reporting. However, some parts of the interim report referred to certain IAS standards and it was stated that, in compliance with IAS, the financial reporting was subject to the same accounting principles as had been applied to the 1999 annual report, which was based exclusively on IAS. According to Admission Board Communiqué no. 8/2001 of 14 May 2001, issuers that have not specifically selected another accounting standard other than Swiss GAAP ARR (e.g. IAS) for their interim reports must comply with Swiss GAAP ARR 12 as a minimum standard. Consequently, the facts of the present case were examined by SWX in relation to both Swiss GAAP ARR and IAS.
The Committee of the Admission Board assessed the following two points in particular:
1) Failure to disclose contingent liabilities
In the course of 2000, SAirGroup entered into a put and call agreement, including a supplementary agreement, with Taitbout Antibes BV. The put and call agreement was a strategically important and complex agreement under the terms of which SAirGroup assumed a quantitatively unlimited purchase obligation in respect to the shares in AOM ("Air Outre-Mer") held by Taitbout Antibes BV, at a price to be set by Taitbout Antibes BV. The potential value of the transaction was several hundred million Swiss francs. SAirGroup neglected to disclose the contingent liabilities resulting from this agreement in the notes to the interim report, even though this unpublished information was substantial. In terms of both its quality and its quantity, it would have contributed to a well-founded assessment of the development of the activities and course of business of SAirGroup during the reporting period.
2) Absence of information on the reclassification of shareholdings
During the first half of 2000, SAirGroup reclassified shareholdings in Delta Airlines, Galileo and Equant as current assets and, as such, revalued them at their market values, without disclosing the amount of the resulting gain in the interim report.
According to Swiss GAAP ARR 12 section 6, the explanations must enable the recipient to form a reliable judgement about the development of the business of the company. Thus, inter alia, extraordinary income or expenses must be disclosed and quantified, insofar as they have a material effect on the reported profit or loss. Under the terms of IAS 34.16, the company must disclose in its interim report any events or transactions that are material to an understanding of the current interim reporting period. Major transactions must thus be both described and - as far as it is possible - quantified.
The Committee of the Admission Board has decided that each of the failings described constitutes a serious violation of the Listing Rules and of the applicable provisions of Swiss GAAP ARR and IAS, as the financial situation of SAirGroup as of 30 June 2000 could not be evaluated in its entirety in line with the scope and nature of the information that was not disclosed. SAirGroup has thus been reprimanded, with the corresponding publication, and will have to pay the costs of the proceedings.
