-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JsD2UnuwO8mHIxS+d0zbVFYRx4Li+o1SPf/hAnBgoz3Q0ovsnfElKvHJXnvPLHA5 B03b/GhrBhgggas5hX9PUw== /in/edgar/work/0000950123-00-009840/0000950123-00-009840.txt : 20001031 0000950123-00-009840.hdr.sgml : 20001031 ACCESSION NUMBER: 0000950123-00-009840 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20001030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGRAM CO LTD CENTRAL INDEX KEY: 0000088188 STANDARD INDUSTRIAL CLASSIFICATION: [2080 ] IRS NUMBER: 000000000 STATE OF INCORPORATION: CA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 001-02275 FILM NUMBER: 749122 BUSINESS ADDRESS: STREET 1: 1430 PEEL ST STREET 2: H3A 1S9 CITY: MONTREAL QUEBEC CANA STATE: A8 BUSINESS PHONE: 5148495271 MAIL ADDRESS: STREET 1: C/O JOSEPH E SEAGRAM & SONS INC STREET 2: 375 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10152 10-K405/A 1 y41463e10-k405a.txt THE SEAGRAMS COMPANY LTD. 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K/A AMENDMENT NO. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-2275 THE SEAGRAM COMPANY LTD. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CANADA NONE - -------------------------------------------- -------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1430 PEEL STREET, MONTREAL, QUEBEC, CANADA H3A 1S9 - -------------------------------------------- -------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (514) 987-5200 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- COMMON SHARES WITHOUT NOMINAL OR PAR VALUE NEW YORK STOCK EXCHANGE LONDON STOCK EXCHANGE TORONTO STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of common shares held by non-affiliates of the registrant as of October 23, 2000 (65.26% of the outstanding common shares) was approximately $14.9 billion. At October 23, 2000, there were 444,306,776 common shares outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PART I RECENT DEVELOPMENTS On June 20, 2000, the Company, Vivendi S.A. ("Vivendi") and Canal Plus S.A. ("Canal+") announced that they had entered into a merger agreement and related agreements providing for a strategic business combination among the three companies. The combined entity will be named "Vivendi Universal". Under the agreements, the Company's shareholders will receive a number of Vivendi Universal American Depositary Shares (ADSs) based on an exchange ratio. Each Vivendi Universal ADS will represent one Vivendi Universal ordinary share. Canadian resident shareholders of the Company may elect to receive exchangeable shares of a Canadian subsidiary of Vivendi Universal that will be exchangeable at the option of the holder for Vivendi Universal ADSs and will be substantially the economic equivalent of the Vivendi Universal ADSs. The exchange ratio is equal to U.S. $77.35 divided by the U.S. dollar equivalent of the average of the closing prices on the Paris Bourse of Vivendi's ordinary shares during a measuring period prior to the closing of the transactions. However, the exchange ratio will equal 0.8000 if that average is equal to or less than U.S. $96.6875 and 0.6221 if that average is equal to or exceeds U.S. $124.3369. The merger is expected to close by the end of the calendar year and is subject to customary closing conditions, including shareholder approval. There is no assurance that such conditions will be satisfied. As part of Vivendi Universal's overall strategy after completion of the proposed merger transactions, Seagram has commenced a process intended to lead to the sale of the Spirits and Wine business. No sale is expected to be completed until after the completion of the merger transactions, and the sale process is not expected to affect the timing of the merger transactions. There can be no assurance that the Spirits and Wine business will be sold, nor can the particular terms and conditions of any such sale be predicted. ITEMS 1 AND 2. BUSINESS AND PROPERTIES Seagram was organized under Canadian federal law on March 2, 1928, and operates in four global business segments: music, filmed entertainment, recreation and other and spirits and wine. The music business is conducted through Universal Music Group, which is the largest recorded music company in the world. Universal Music Group produces, markets and distributes recorded music throughout the world in all major genres. Universal Music Group also manufactures, sells and distributes video products in the United States and internationally, and licenses music copyrights. The filmed entertainment and recreation and other businesses are conducted through Universal Studios Group. The filmed entertainment business produces and distributes motion picture, television and home video products, operates and has ownership interests in a number of international cable channels and engages in the licensing of merchandising and film property rights. The recreation and other business operates theme parks and retail stores and is also involved in the development of entertainment software. At June 30, 2000, Matsushita Electric Industrial Co., Ltd. had an approximate 7.7% ownership interest in the entities that own Universal's music, filmed entertainment and recreation and other businesses. The spirits and wine business, directly and through affiliates and joint ventures, produces, markets and distributes distilled spirits, wines, Ports and Sherries, coolers, beers, other low-alcohol beverages and mixers. In addition to marketing owned brands, the spirits and wine business also distributes distilled spirits, wine, champagne and beer brands owned by others. For information as to revenues, operating income and identifiable assets by business segment, see Note 10 of Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. We use the term "Seagram" or "we" to refer to The Seagram Company Ltd. and its subsidiaries and affiliates unless otherwise specified. All dollar amounts are stated in U.S. currency unless otherwise specified. Our executive offices are located at 1430 Peel Street, Montreal, Quebec, Canada H3A 1S9 and our registered office is located at 592 Colby Drive, Waterloo, Ontario, Canada N2V 1A2. 1 3 BUSINESS SEGMENTS MUSIC Universal Music Group, the largest recorded music company in the world, was formed in December 1998 when we completed the acquisition of PolyGram N.V. and combined the music businesses of Universal and PolyGram. Universal Music Group develops, acquires, produces, markets and distributes recorded music through a network of subsidiaries, joint ventures and licensees in 63 countries around the world. We also produce, sell and distribute music videos in the United States and internationally and publish music. In fiscal 2000, Universal Music Group held the number one market position in every major region of the world. We also had 65 albums that reached worldwide sales in excess of one million units and 5 albums that sold over five million units. We have the largest music catalogue in the world and hold the leading position in the classical music market, accounting for approximately 40% of worldwide classical music sales in fiscal 2000. Our labels include: - popular labels such as A&M, Blue Thumb, Def Jam, Geffen, Interscope, Island, MCA, MCA Nashville, Mercury, Mercury Nashville, Motown, Polydor and Universal; - leading classical labels Decca/London, Deutsche Grammophon and Philips; and - leading jazz labels Verve, GRP and Impulse! Records. ARTISTS. The success of a music company depends to a significant degree on its ability to sign and retain artists who will appeal to popular tastes over a period of time. We believe that the scope and diversity of our popular music labels, repertoire and catalogues allow us to respond to shifts in audience tastes. The United States and the United Kingdom continue to be the source of approximately 60% of international popular repertoire. From time to time certain national acts, such as Andrea Bocelli from Italy, Aqua from Denmark and Bjork from Iceland, appeal to a wider international market. Including the United States and the United Kingdom, however, sales of locally-signed artists in their home territories still represent 70% of worldwide recorded music sales. Our leading local market position in almost every major region provides a critical competitive advantage. Artists who are currently under contract with Universal Music Group, directly or through third parties, for one or more important territories include, among others: Bryan Adams Sheryl Crow Sir Elton John Spitz Aqua DMX Diana Krall Sting Erykah Badu Dr. Dre ERA (Eric Levi) George Strait Beck Eminem Limp Bizkit E O Tchan The Bee Gees Melissa Etheridge LL Cool J Shania Twain Bjork Kirk Franklin Reba McEntire Texas Mary J. Blige Vince Gill Metallica McCoy Tyner Blink 182 Charlie Haden Nine Inch Nails U2 Blues Traveler Johnny Hallyday 98 Degrees Caetano Veloso Andrea Bocelli Herbie Hancock Florent Pagny Stevie Wonder Bon Jovi Hanson Luciano Pavarotti Trisha Yearwood Boyz II Men Joe Henderson Andre Rieu Rob Zombie Boyzone Dru Hill The Brian Setzer Orchestra The Cardigans Enrique Iglesias Sisqo The Cranberries Jay-Z Wayne Shorter
In addition to recently released recordings, we also market and sell recordings from our catalogue of prior releases. Sales from this catalogue account for a significant and stable part of our recorded music revenues 2 4 each year. We own the largest catalogue of recorded music in the world, with legendary performers from the United States, the United Kingdom and around the world, such as: ABBA John Coltrane Billie Holliday Diana Ross and the Supremes Louis Armstrong Ella Fitzgerald Buddy Holly Lord Andrew Lloyd Webber Jimmy Buffett Marvin Gaye Bob Marley and the Wailers The Who Patsy Cline Jimi Hendrix The Rolling Stones
ARTIST CONTRACTS, PRODUCTION, MARKETING AND DISTRIBUTION. We seek to contract with our popular artists on an exclusive basis for the marketing of their recordings (both audio and audio-visual) in return for a percentage royalty on the wholesale or retail selling price of the recording. We generally seek to obtain rights on a worldwide basis, although certain of our artists have licensed rights for certain countries or regions to other record companies. While exclusive classical artist contracts are common, and can extend over a long period, many artists and orchestral contracts are short in duration and refer only to specific recordings. Established artists command higher advances and royalty rates and it is not unusual for a recording company to renegotiate contract terms with a successful artist. A contract either provides for the artist to deliver completed recordings to us or for Universal Music Group to undertake the recording with the artist. For artists without a recording history, we are often involved in selecting producers, recording studios, additional musicians, and songs to be recorded, and we may supervise the output of recording sessions. For established artists, we are usually less involved in the recording process. Marketing involves advertising and otherwise gaining exposure for our recordings and artists through magazines, radio, television, Internet, other media and point-of-sale material. Public performances are also considered an important element in the marketing process, and we provide financing for concert tours by certain artists. Television marketing of both specially compiled products and new albums is becoming increasingly important. Marketing is carried out on a territory-by-territory basis, although global priorities and strategies for certain artists are set centrally. We employ sales representatives who obtain orders from wholesalers and retailers. In all major territories except Japan and Brazil we have our own distribution services for the storage and delivery of finished product to wholesalers and retailers. In certain territories we have entered into distribution joint ventures with other record companies. We also sell music product directly to the consumer, principally through two direct mail club organizations: Britannia Music in the United Kingdom and D.I.A.L. in France. E-COMMERCE AND ELECTRONIC DELIVERY. Universal Music Group is at the forefront of the development of music distribution through e-commerce and electronic delivery, which will permit consumers to sample music on the Web, order it, have it delivered and pay for it electronically. Universal Music Group has a long-term agreement with InterTrust Technologies Corporation to establish standards for the secure and convenient electronic delivery of music directly to the home, and we are actively participating in the Secure Digital Music Initiative (SDMI), a program which was created jointly by an extensive group of content, consumer electronics, hardware, software and internet companies to develop and define worldwide standards for the protection of music and other digitizeable intellectual property. Universal Music Group and BMG Entertainment formed GetMusic, a joint venture designed to create online communities of music fans, promote artists and sell CDs online through genre-based music channels. We expect GetMusic will have access to a combined database of 50 million customers worldwide, and will offer, among other features, exclusive artist information, exclusive interviews and the ability to chat online with artists and their fans. Universal Music Group has also entered into a joint agreement with AT&T, BMG Entertainment and Matsushita Electric Industrial Co. to develop and test technology for large-scale, secure music and media distribution. MUSIC PUBLISHING. Music publishing involves the acquisition of rights to, and licensing of, musical compositions (as compared to recordings). Our publishing catalogue includes more than 600,000 titles that we own or control, making Universal Music Group one of the world's largest music publishers. We enter into 3 5 agreements with composers and authors of musical compositions for the purpose of licensing the compositions for use in sound recordings, films, videos and by way of live performances and broadcasting. In addition, we license compositions for use in printed sheet music and song folios. We also license and acquire catalogues of musical compositions from third parties such as other music publishers and composers and authors who have retained or re-acquired rights. In August 2000, we purchased Rondor Music International, Inc., an independent music publisher for approximately $350 million in stock. MANUFACTURING AND OTHER FACILITIES. In connection with our music entertainment activities, we own manufacturing facilities in the United States, Germany and the United Kingdom and office buildings and warehouse facilities in various countries. In addition to our wholly-owned facilities, we also own a manufacturing facility in the United States through a joint venture. Where we do not own property, we lease warehouses and office space. COMPETITION. The music entertainment industry is highly competitive. The profitability of a company's recorded music business depends on its ability to attract and develop recording artists, the public acceptance of those artists and the recordings released in a particular period. Universal Music Group competes for creative talent both from new artists and those artists who have already established themselves through another label. Following a pattern established in the United States, European retailers have begun to consolidate, with increasing quantities of product being sold through multinational retailers and buying groups and other discount chains. This has increased competition for shelf space among the recorded music companies. The recorded music business continues to be adversely affected by counterfeiting, piracy and parallel imports, primarily in Eastern Europe, Asia and Latin America, and may be affected by the ability to download quality sound reproductions from the Internet without authorization. FILMED ENTERTAINMENT Universal Studios' filmed entertainment business: - produces and distributes films worldwide in the theatrical, home video and television markets; - produces and distributes episodic television and made-for-television programming; - operates and has ownership interests in a number of international channels which reach approximately 22 million households, including: - The Sci-Fi Channel U.K., reaching approximately 6 million subscribers in the U.K. and South Africa; - USA Network Latin America, which is distributed in 18 Latin American countries and reaches approximately 10 million subscribers; - 13th Street, The Action and Suspense Channel, launched in France, Germany and Spain, reaching approximately 4 million subscribers and featuring Universal television programming; and - Studio Universal, a movie channel launched in Italy, Germany and Spain, with approximately 2 million subscribers and featuring popular Universal theatrical titles; - engages in the licensing of merchandising rights and film property publishing rights; and - engages in certain other activities through its ownership of the joint venture and equity interests described below. PRODUCTION, MARKETING AND DISTRIBUTION. Universal Studios produces feature-length films intended for initial theatrical exhibition and television programming. Major motion pictures produced over the past several years include The Lost World: Jurassic Park, Liar, Liar, The Mummy and Notting Hill, and more recently, such box office hits as Erin Brockovich starring Julia Roberts, U-571 starring Matthew McConaughey, The Gladiator starring Russell Crowe, The Green Mile starring Tom Hanks and American Pie. In addition, we produce animated and live action children's and family programming for networks, basic cable and local television stations as well as home video. 4 6 The arrangements under which we produce, distribute and own theatrical films vary widely. Other parties may participate in varying degrees in revenues or other contractually defined amounts. We control worldwide distribution of our theatrical product, except where we act as a subdistributor in specified territories or contract for specified territories or for specifically defined distribution rights. Generally, we distribute theatrical films in the theatrical, home video and pay television markets. Subsequently, we make theatrical films available for broadcast on network and basic cable distribution throughout the world. The theatrical license agreements with theater operators are on an individual picture basis, and fees under these agreements are generally a percentage of the theater's receipts with, in some instances, a minimum guaranteed amount. The production/distribution cycle represents the period of time from acquisition of a property through distribution. The length of the cycle varies depending upon such factors as type of product and release pattern. Production generally includes four steps: acquisition of story rights, pre-production, principal photography and post-production. Production activities for theatrical films are generally based at Universal City, California. These production facilities are also leased to outside parties. Some motion picture films and television products are produced, in whole or in part, at other locations both inside and outside of the United States. We distribute our theatrical product in the United States and Canada to motion picture theaters. Theatrical distribution throughout the rest of the world is primarily conducted by United International Pictures, which is equally owned by Universal Studios, Metro-Goldwyn-Mayer Inc. and Paramount Pictures Corporation. Television distribution of our 24,000 episode library in the United States is handled by USANi LLC, a subsidiary of USA Networks, Inc. ("USA Networks"), and throughout the rest of the world primarily by Universal Studios. Universal Studios distributes television product produced by USANi LLC in international markets. Videocassettes and DVDs are distributed in the United States and Canada by wholly owned subsidiaries of Universal Studios. Outside of the United States and Canada, videocassettes are primarily distributed by Universal Pictures International, a wholly owned subsidiary of Universal Studios, while DVDs are primarily distributed by Columbia/Tri-Star Home Video under a short term sub-distribution arrangement that ends in 2002. Some DVD rights revert to Universal before then. The rights to use the characters, titles and other material and rights from television and theatrical films and other sources are licensed to manufacturers, retailers and others by Universal Studios. USA NETWORKS, OTHER EQUITY INTERESTS AND CERTAIN JOINT VENTURES. Universal Studios holds an effective 43% equity interest in USA Networks through its ownership of common stock and Class B common stock of USA Networks and shares of USANi LLC, which Universal can exchange for common stock and Class B common stock of USA Networks. USA Networks primarily engages in electronic and online retailing, network and first-run syndication television production, domestic distribution of its and Universal Studios' television productions and the operation of the USA Network and Sci-Fi Channel Cable Networks. Universal Studios also has an approximate 26% interest in Loews Cineplex Entertainment Corporation, which exhibits theatrical films principally in the United States and Canada, and a 49% interest in United Cinemas International Multiplex B.V. and Cinema International Corporation, which operate motion picture theaters outside of the United States and Canada. In addition to the wholly owned channels discussed above, Universal Studios has equity interests in a number of international joint venture channels, including: - USA Network Brazil, a joint venture with Globosat in Brazil. This basic service channel reaches approximately 2 million subscribers and features primarily the same programming as USA Network Latin America; - HBO Asia, a pan-regional joint venture in Asia with Time Warner, Sony and Paramount. The channels included under this joint venture reach approximately 6 million subscribers and feature the current theatrical releases from the joint venture partners; - Latin America Pay TV, a pan-regional joint venture in Latin America with Paramount, Fox, MGM and Sacsa (an Argentinean holding company). The channels included under this joint venture reach 5 7 approximately 10 million subscribers and feature current theatrical releases of the joint venture partners; and - Premiere Movies Partnership, an Australian joint venture with Fox, Sony, Paramount and TCI. COMPETITION. Our filmed entertainment business competes with all other forms of entertainment. We compete with other major film studios and independent producers for creative talent and story products, which are essential ingredients of our filmed entertainment products. The profitability of our filmed entertainment business is dependent upon public taste, which is volatile and shifts in demand and is affected by economic conditions and technological developments. RECREATION AND OTHER Universal owns and operates Universal City Hollywood, the world's largest movie studio and theme park, located in Universal City, California. Adjacent to Universal City Hollywood is CityWalk, an integrated retail/entertainment complex that offers shopping, dining, cinemas and entertainment. In April 2000, the expansion of CityWalk was completed, doubling its size with the addition of over 30 new venues, including a 3-D Imax movie screen, a multi-media bowling alley and a NASCAR virtual racing experience. Universal has a 50% interest in Universal City Development Partners, a joint venture in Orlando, Florida, which resulted from the January 2000 merger of Universal City Florida Partners and Universal City Development Partners. The joint venture owns Universal Studios, a theme park based on Universal Studios' filmed entertainment business, Islands of Adventure, a second theme park with five unique islands, and CityWalk, a complex that offers shopping, dining, cinemas and entertainment. Universal City Development Partners also has a 50% interest in a joint venture, which is currently developing three hotels adjacent to the Orlando theme parks. The first hotel, the Portofino Bay Hotel, a Loews hotel, opened in September 1999. The second hotel, the Hard Rock Hotel, also a Loews hotel, is expected to open in Winter 2000, and the third hotel is in the final design phase. The two theme parks, CityWalk and hotels together comprise Universal Orlando, the newest Orlando multi-day entertainment resort. Universal Orlando is developed on approximately 825 acres. Universal also owns Wet n' Wild, a water park which is adjacent to Universal Orlando. Since October 1998, construction has been underway for Universal Studios Japan in Osaka. Universal Studios Japan is owned by USJ Co., in which Universal own a 24% interest, and will be located on 133 acres of land leased by certain USJ Co. shareholders. Opening is scheduled for Spring 2001. Universal also owns a 37% interest in, and manages, Universal Studios Port Aventura, a theme park located on the Mediterranean coast of Spain near Barcelona. In October 1998, Universal opened Universal Studios Experience Beijing, a permanent exhibit featuring Universal Studios branded properties. Universal owns approximately 27% of SEGA GameWorks L.L.C., which designs, develops and operates location-based entertainment centers. SEGA GameWorks currently owns and operates twelve such centers throughout the United States. Universal Studios New Media, Inc. develops entertainment software including the Crash Bandicoot and Spyro game series, is responsible for the development and maintenance of Universal's websites and manages our approximate 16% interest in Interplay Entertainment Corp., an entertainment software developer. Universal owns, develops and manages commercial buildings with approximately 2.4 million rentable square feet of office space in Universal City, including Universal Studios CityWalk and the 10 Universal City Plaza office building, which are occupied by Universal Studios or leased to outside tenants, and Universal owns the Sheraton-Universal Hotel. Universal also owns a 100,000 square foot office building adjacent to the Universal City property. In addition, Universal is involved in other businesses including the operation of retail gift stores and the development of entertainment software. They own Spencer Gifts, Inc. which operates approximately 630 retail gift stores throughout North America through three groups of stores: Spencer, DAPY and Glow gift shops. 6 8 Spencer, DAPY and Glow sell novelties, electronics, accessories, books and trend driven products. In connection with the activities of Spencer Gifts, Inc., Universal owns a building in New Jersey and leases approximately 570 stores in various cities in the United States and a warehouse in North Carolina. COMPETITION. Our theme parks compete with other theme parks in their respective geographic regions and other leisure-time activities. The profitability of the leisure-time industry is influenced by various factors that are outside of our control such as economic conditions, amount of available leisure time, transportation prices and weather patterns. The Spencer, DAPY and Glow stores compete with numerous retail firms of various sizes throughout the United States, including department and specialty niche-oriented gift stores. SPIRITS AND WINE Our spirits and wine business produces, markets and/or distributes more than 225 brands of distilled spirits, more than 180 brands of wines, Ports and Sherries, and more than 40 brands of coolers, beers and other low-alcohol adult beverages and mixers. Our products are sold in over 190 countries and territories. The spirits and wine business is comprised of three operating units: The Seagram Spirits And Wine Group (SSWG), Seagram Chateau & Estate Wines Company (C&E) and The Seagram Beverage Company (SBC). SSWG produces and markets many of the world's best-known spirits brands, including: - Crown Royal and Seagram's V.O. Canadian Whiskies - Seagram's 7 Crown American Blended Whiskey - Four Roses Bourbon - Chivas Regal, Royal Salute, Windsor Premier and Passport Scotch Whiskies - The Glenlivet and Glen Grant Single Malt Scotch Whiskies - Martell Cognacs - Seagram's Extra Dry Gin - Captain Morgan, Montilla, Cacique and Myers's Rums - Don Julio and Margaritaville Tequila - Mumm Sekt - Sandeman Ports and Sherries SSWG also distributes ABSOLUT VODKA, owned by V&S Vin & Sprit Aktiebolag, in the United States and most major international markets, as well as Mumm and Perrier-Jouet Champagnes, owned by Hicks, Muse, Tate and Furst Incorporated and other investors, in most international markets. C&E produces and markets the wines of Sterling Vineyards, Tessara and The Monterey Vineyard and the sparkling wines of Mumm Curvee Napa, under license from G.H. Mumm. The group is the exclusive importer in the United States of Mumm and Perrier-Jouet Champagnes, Barton & Guestier wines, Brancott Vineyards wines from New Zealand and Sandeman Ports and Sherries, and is also the largest importer of classified Bordeaux in the United States. C&E's agency portfolio is completed by distribution rights for Dominus and Napanook from the Napa Valley, a collection of Burgundy estate-bottled wines, F.E. Trimbach wines from Alsace, Catello d' Albola in Chianti and several other European wines. SBC is responsible for the development, production and/or marketing of our premium lower- and non-alcohol beverages. The principal brands include Seagram's Coolers, Rick's Spiked Lemonade and Seagram's Mixers. SBC is also the exclusive importer in the United States for Grolsch (a Dutch beer, owned by Royal Grolsch N.V.) and Steinlager (a New Zealand beer, owned by Lion Nathan Limited). 7 9 Our spirits and wine business operates distilleries and bottling facilities in 18 countries in North America, Latin America, Europe and Asia. Our spirits aggregate daily distillation capacity approximates 253,000 U.S. proof gallons and aggregate daily bottling capacity approximates 275,000 standard cases. We maintain large inventories of aging spirits in warehousing facilities located primarily in Canada, France, the United Kingdom and the United States. Such inventories aggregated approximately 500 million U.S. proof gallons at June 30, 2000. Additionally, our bulk wine inventory aggregated approximately 28 million wine gallons at June 30, 2000. We purchase commodity raw materials, such as molasses and base wine for German sparkling wines on the open market at prices determined by market conditions. Grains (corn, rye and malt) are sourced from a variety of channels, including annual contracts with a number of third-party providers. We also participate in the bulk supply market as a buyer and seller of malt and grain spirits. Our wines and cognacs are produced primarily from grapes grown by others. Cognac grapes are purchased based on a multi-year contract with flexibility for wines and new distillates. Grapes are, from time to time, adversely affected by weather and other forces, which occasionally limit production. Rolling contracts to secure a continued supply of oak casks also exist. We acquire substantially all of our American white oak barrels (used for the storage of whisky during the aging period) from one supplier in the United States. Key packaging components such as glassware are purchased based on long-term agreements with strategic suppliers. Other packaging components are generally based on annual contracts with key suppliers. Fluctuations in the prices of these commodities have not had a material effect upon operating results. We believe that our relationships with our various suppliers are good. MARKETING AND DISTRIBUTION. Spirits and wine has developed sales and distribution networks appropriate for each of its markets, including affiliate and joint venture distribution operations in 38 countries and territories and third-party distribution arrangements in other key markets. In the United States, we generally sell spirits, wines, coolers, beers and other low-alcohol beverages to two categories of customers. In 32 states and the District of Columbia, sales are made to approximately 335 wholesale distributors who also purchase and market other brands of distilled spirits, wines, coolers, beers and other low-alcohol beverages. In 18 "control" states (where the state government engages in distribution), sales are made to state and local liquor boards and commissions; in certain of these states, sales of wines, coolers, beers and other low-alcohol beverages are also made to approximately 275 wholesale distributors. In Canada, sales are made exclusively to ten provincial and three territorial government liquor boards and commissions. In addition to the United States and Canada, our affiliates and joint ventures are located in: Argentina, Belgium, Brazil, Chile, the People's Republic of China, Colombia, Costa Rica, the Czech Republic, the Dominican Republic, France, Germany, Greece, Hong Kong, Hungary, India, Israel, Italy, Jamaica, Japan, Mexico, the Netherlands, Poland, Portugal, Romania, Singapore, the Slovak Republic, South Africa, South Korea, Spain, Switzerland, Thailand, Turkey, the Ukraine, the United Kingdom, Uruguay and Venezuela. A significant portion of spirits and wine revenues come from sales outside of North America. In addition to economic and currency risks, our foreign operations involve risks including governmental regulation, embargoes, expropriation, export controls, burdensome taxes, government price restraints and exchange controls. COMPETITION. The spirits and wine industry is highly competitive. Due to ongoing formation of multinational retailers and buying groups in Europe, all marketers in the industry have confronted severe pricing pressure across Europe. This has been heightened as a result of Wal-Mart's recent acquisitions in Germany and the United Kingdom. Euro-based multinational retailers and buying groups have also expanded into certain markets in Asia and Latin America. Additionally, the expansion of non-traditional distribution channels, e.g. eBusiness, has added a new dimension to the global marketplace. Diageo PLC, which resulted from the merger of two of the largest spirits and wine companies, Grand Metropolitan PLC and Guinness PLC, continues to be the largest global player. However, the spirits and wine industry has continued to evolve through mergers and the formation of alliances, e.g. Maxxium, and with the reemergence of strong local and regional brand owners. 8 10 We continue to address these competitive challenges by investing in brand equity building behind our core brands in key established and development markets. We use magazine, newspaper and outdoor advertising, as well as interactive marketing, to maintain and improve our brands' market position. We also utilize radio and television advertising, although the use of such advertising in connection with the sale of beverage alcohol is restricted by law or commercial practice in certain countries, including the United States. REGULATION AND TAXES. Our beverage alcohol business is subject to strict governmental regulation covering virtually every aspect of operations, including production, marketing, pricing, labeling, packaging and advertising. In the United States, we must file or publish prices for our beverage alcohol products in some states as much as three months before they go into effect. In the United States, Canada and many other countries, beverage alcohol products are subject to substantial excise taxes or custom duties and additional taxation by governmental subdivisions. INTEREST IN DUPONT At June 30, 2000, we owned approximately 16.4 million shares of common stock of E.I. du Pont de Nemours and Company which had a market value of approximately $719 million as of such date. EMPLOYEES As of June 30, 2000, we employed approximately 34,000 people. The number of employees is subject to seasonal fluctuations. ITEM 3. LEGAL PROCEEDINGS On May 30, 1995, a purported retailer class action was filed in the United States District Court for the Central District of California, entitled Digital Distribution Inc. d/b/a Compact Disc Warehouse v. CEMA Distribution, Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc. and PolyGram Group Distribution, Inc., No. 95-3596 JSL. The plaintiffs brought the action on behalf of direct purchasers of compact discs alleging that defendants, including Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), and PolyGram Group Distribution, Inc., violated the federal and/or state antitrust laws and unfair competition laws by engaging in a conspiracy to fix prices of compact discs, and seek an injunction and treble damages. The defendants' motion to dismiss the amended complaint was granted and the action was dismissed, with prejudice, on January 9, 1996. Plaintiffs filed a notice of appeal on February 12, 1996. By an order filed July 3, 1997, the Ninth Circuit reversed the District Court and remanded the action. Upon reinstatement of this litigation by the Ninth Circuit, a number of related actions were filed, which all arise out of the same claims and subject matter. These related actions are captioned: Chandu Dani d/b/a Compact Disc Warehouse and Record Revolution, et al., v. EMI Music Distribution (formerly known as CEMA Distribution), Sony Music Entertainment, Inc.; Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group Distribution, Inc., No. CV 97-7226 (JSL), filed on September 30, 1997 in the U.S. District Court for the Central District of California; Third Street Jazz and Rock Holding Corporation, et al., v. EMI Music Distribution (formerly known as CEMA Distribution), Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group Distribution, Inc., No. CV 97-8864 JSL (VAPx), filed on October 21, 1997 in the U.S. District Court for the Central District of California; T. Obie, Inc. d/b/a Chestnut Hill Compact Disc v. EMI Music Distribution (formerly known as CEMA Distribution), Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group Distribution, Inc., No. 97 Civ. 7764 LMM, filed on October 21, 1997 in the U.S. District Court for the Southern District of New York; Nathan Muchnick, Inc., et al., v. Sony Music Entertainment, Inc., PolyGram Group Distribution, Inc., Bertelsmann Music Group, Inc., 9 11 Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Warner Elektra Atlantic Corporation, and EMI Music Distribution, Inc./Capitol Records, Inc., No. 98 Civ. 0612, filed on January 28, 1998 in the U.S. District Court for the Southern District of New York. The Digital Distribution, Chandu Dani, and Third Street Jazz matters have been set for trial on February 15, 2000. On February 17, 1998, a purported consumer class action was filed in the Circuit Court for Cocke County, Tennessee, Civil Action No., 24,885 II, entitled Doris D. Ottinger, et al., v. EMI Music Distribution, Inc., Sony Music Entertainment, Inc., Warner Elektra Atlantic Corp., Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group Distribution, Inc. A motion to dismiss was filed on May 11, 1998, and is pending. The trial date of February 15, 2000 was vacated and no new trial date has been set. On or about July 25, 1996, Universal Music & Video Distribution, Inc. and PolyGram Group Distribution, Inc. were served with an antitrust civil investigation demand from the Office of the Attorney General of the State of Florida that calls for the production of documents in connection with an investigation to determine whether there "is, has been or may be" a "conspiracy to fix the prices" of compact discs or conduct consisting of "unfair methods of competition" or "unfair trade practices" in the sale and marketing of compact discs. No allegations of unlawful conduct have been made against Universal Musical & Video Distribution, Inc. or PolyGram Group Distribution, Inc. By letter dated April 11, 1997, the Federal Trade Commission ("FTC") advised Universal Music and Video Distribution Corp. (formerly Universal Music & Video Distribution, Inc.) ("UMVD") and PolyGram Group Distribution, Inc. ("PGDI") that it is conducting a preliminary investigation to determine whether minimum advertised pricing ("MAP") policy used by major record distributors constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act. UMVD and PGDI received a subpoena dated September 19, 1997 for the production of documents. No allegations of unlawful conduct have been made against UMVD or PGDI. On May 1, 2000 UMVD (PGDI has merged into UMVD) and UMG Recordings, Inc. ("UMGR") (which owns substantially all of the Company's record labels) signed a Consent Agreement with the staff of the FTC. The Company anticipates that the Consent Agreement will resolve the FTC's investigation of the MAP policy. Among other things, UMVD and UMGR have agreed that (i) for seven years they shall not make the receipt of any cooperative advertising funds for their prerecorded music product contingent upon the price or price level at which such product is advertised or promoted, (ii) for twenty years they shall not make the receipt of any cooperative advertising funds for their prerecorded music product contingent upon the price or price level at which such product is advertised or promoted where the dealer does not seek any contribution from UMVD or UMGR for the cost of the advertisement or promotion, and (iii) for five years they shall not announce resale or minimum advertised prices of their prerecorded music product and unilaterally terminate those who fail to comply because of such failure. On August 30, 1999, the Australian Competition and Consumer Commission ("ACCC") commenced proceedings against Universal Music Australia Pty Limited (formerly PolyGram Pty Limited) and three former employees of PolyGram, alleging violations of the Australian Trade Practices Act, the statute which governs competition law in Australia. The ACCC alleges that Universal has taken certain unlawful steps to restrict parallel imports into Australia to reduce price competition in the sale of sound recordings. Separate proceedings making similar allegations have also been commenced against certain other record companies in Australia and their current or former employees, and against two industry trade associations in Australia. The ACCC seeks injunctive relief to eliminate any unlawful restrictions on parallel imports into Australia and the imposition of fines against Universal and the three individuals who were employees of PolyGram. Universal and the three individuals are vigorously defending these proceedings. Universal has received Answers to its Request for Particulars from the ACCC along with an amended Statement of Claim. Universal and the three individuals continue to vigorously defend these proceedings. On February 4, 1999, the Antitrust Division issued a civil investigative demand to Universal as well as to a number of other motion picture film distributors and exhibitors as part of a civil investigation into compliance with the consent decrees entered in U.S. v. Paramount Pictures, et al. and various other practices in the motion picture distribution and exhibition industry. The civil investigative demands require the distributors and exhibitors to provide documents and other information to the Antitrust Division. The scope of 10 12 the investigation and the extent, if any, to which it may relate to Universal is not known at this time. Universal has responded to the government's demand. On December 15, 1999, an action was filed in the Superior Court for the County of Los Angeles entitled KirchMedia GmbH & Co. KGaA v. Universal Studios, Inc. and Universal Studios International B.V., case no. BC 221645. The plaintiff is a German company that entered into several agreements with Universal in 1996 involving the licensing of film and television programming. The contracts also required the plaintiff to allocate to Universal two channels on its German pay television service. Plaintiff alleges that it is entitled to terminate its agreements with Universal on the ground that certain decisions by European regulatory authorities have materially impaired its business and constitute events of "force majeure." Plaintiff also alleges that Universal has breached its obligations under the parties' licensing agreements by allegedly failing to provide plaintiff with the quality and/or quantity of film and television programming anticipated by plaintiff. Plaintiff asserts claims for declaratory relief, breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of fiduciary duty. Plaintiff seeks an order requiring the return of all monies paid by plaintiff under the parties' agreements, as well as purported damages in excess of $500,000,000. Plaintiff also seeks punitive damages on its breach of fiduciary duty claim. Universal has denied the allegations of the complaint and intends vigorously to defend this action. On February 3, 2000, Universal filed a cross-complaint in this action alleging that KirchMedia had breached certain of its obligations under the parties' Channel Carriage Agreement and that certain entities related to KirchMedia were obligated to indemnify Universal for all damages sustained as a result of KirchMedia's breach of that agreement. On August 11, 2000, the Court granted Universal's motion for judgment on the pleadings on the ground that plaintiff's complaint did not state facts sufficient to constitute a claim. The Court granted the plaintiff leave to file an amended complaint that identified specific films that Universal supposedly should have licensed to plaintiff under the parties' agreements. The Court ruled that its grant of leave to amend did not extend to plaintiff's other purported claims. Kirch has filed a motion for leave to file an amended complaint seeking to reallege certain claims dismissed by the Court. An amended complaint has not yet been filed. No trial date has been set. In May, June, and July of 2000, ninety-four purported consumer class action law suits were filed in various state and federal courts across the country against Universal Music & Video Distribution Corp., UMG Recordings, Inc. and PolyGram Group Distribution, Inc. as well as Sony Music Entertainment Inc., Time Warner Inc., Bertelsmann Music Group, and Capitol Records Inc. (along with companies affiliated with these defendants). Certain recorded music retailers are also named as defendants in some of these actions. Plaintiffs in each of these actions allege that the defendants violated the federal and/or state antitrust laws and unfair competition laws by conspiring to fix the wholesale and/or retail prices of compact discs. Plaintiffs in each of these actions further allege that the purported conspiracy was related in some fashion to the minimum advertised price ("MAP") policies adopted by each of the record distributor defendants, including Universal Music & Video Distribution Corp. and PolyGram Group Distribution, Inc. Plaintiffs in these cases seek treble damages and/or restitution as well as attorney's fees and costs. With respect to the federal cases, there is currently pending before the Judicial Panel for Multi-District Litigation a motion to consolidate and transfer. The Judicial Panel heard the motion on September 22, 2000 and subsequently ruled that the federal cases should be consolidated in Portland, Maine. With respect to the eighteen state cases pending in California, on September 11, 2000, the Court ordered that these cases be coordinated for pretrial proceedings. With respect to the five state cases pending in Florida, on August 31, 2000, the Circuit Court of the 11th Judicial Circuit dismissed them with leave to amend for failure to state a claim upon which relief may be granted. In addition to the consumer actions, on August 8, 2000, the Attorneys General for 28 states and 2 territories filed a parens patriae action in the federal district court in the Southern District of New York entitled State of Florida, et al. v. BMG Music, Bertelsmann Music Group Inc., Capitol Records, Inc. dba EMI Music Distribution, Virgin Records America, Inc., Priority Records, LLC, MTS Inc. dba Tower Records, Musicland Stores Corporation, Sony Music Entertainment Inc., Trans World Entertainment Corporation, Universal Music & Video Distribution Corp., UMG Recordings, Inc., Warner-Elektra-Atlantic Corporation, Warner Music Group, Inc., Warner Bros. Records, Inc., Atlantic Recording Corporation, Elektra Entertainment Group, Inc. and Rhino Entertainment Company. The Attorneys General brought this suit on behalf of consumers in their respective states or territories, and they allege that the defendants violated 11 13 the federal and state antitrust laws and unfair competition laws by conspiring to fix the retail prices of compact discs. The Attorneys General seek treble damages, civil penalties, attorney's fees, and costs. Cleveland, et al. v. Viacom, et al., Civil Action No. SA-99-CA-0783-EP, in the United States District Court for the Western District of Texas, San Antonio Division. In July 1999, a small video retailer located in San Antonio, Texas filed a lawsuit in the federal district court in San Antonio alleging that the home video divisions of the major movie studios, including Universal Studios Home Video, Inc., had conspired with one another and with Blockbuster Inc., a video rental retailer, and with Viacom, Inc., in violation of the federal antitrust laws. The action was filed on behalf of a proposed class of all "independent" video retailers that compete with Blockbuster. Since its original filing, the complaint has gone through several substantive changes, including the substitution of new proposed class representatives, and the addition of claims arising under California law. The core allegation, however, has remained the same: plaintiffs allege that the studios have entered direct revenue sharing agreements with Blockbuster that include terms that are unavailable to independent video retailers, and that give Blockbuster an unfair competitive advantage. Plaintiffs seek monetary and injunctive relief. Plaintiffs have filed a motion asking that the court certify the proposed class. Universal and the other defendants have opposed the motion, arguing that the case is not amenable to class treatment. All briefing regarding class certification has been filed. Seagram and its subsidiaries and affiliates are defendants or respondents in a number of other actions arising in the ordinary course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The Company's common shares are listed on the New York, Toronto and London Stock Exchanges. The following sets forth the high and low closing prices for the fiscal periods indicated:
FISCAL YEARS ENDED JUNE 30, --------------------------------------------------------------------------- 2000 1999 1998 ----------------------- ----------------------- ----------------------- HIGH LOW HIGH LOW HIGH LOW ---------- ---------- ---------- ---------- ---------- ---------- New York Stock Exchange First Quarter......... U.S.$57.19 U.S.$43.00 U.S.$41.94 U.S.$28.69 U.S.$41.13 U.S.$33.94 Second Quarter........ 49.94 36.63 38.38 25.13 37.63 30.25 Third Quarter......... 65.19 43.06 51.25 37.81 39.75 31.44 Fourth Quarter........ 63.13 43.69 65.00 48.81 46.69 36.81 Toronto Stock Exchange First Quarter......... C$ 85.40 C$ 63.35 C$ 62.25 C$ 43.80 C$ 56.70 C$ 46.45 Second Quarter........ 73.40 54.50 59.50 38.65 52.30 43.25 Third Quarter......... 94.95 63.05 77.35 58.00 56.50 44.70 Fourth Quarter........ 92.60 65.90 98.00 72.00 67.50 52.65
12 14 The Company had 5,959 registered shareholders at October 23, 2000. In the fiscal years ended June 30, 2000, 1999 and 1998, the Company paid dividends of $0.165 per share per quarter. Payment of dividends to our shareholders who are not residents of Canada is subject under Canadian law to Canadian withholding tax. Dividends paid to shareholders residing in the United States is subject to 15% withholding pursuant to currently existing treaty arrangements between the United States and Canada. For shareholders who are residents of other countries, the withholding rate varies depending upon the existence and terms of applicable treaties between each such other country and Canada. 13 15 ITEM 6. SELECTED FINANCIAL DATA
FISCAL TRANSITION YEAR FISCAL YEARS ENDED JUNE 30, PERIOD ENDED ENDED ------------------------------------- JUNE 30, JANUARY 31, 2000 1999 1998 1997 1996 1996 ------- ------- ------- ------- ------------ ----------- U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS INCOME STATEMENT Revenues.................................................... $15,686 $12,312 $ 9,474 $10,354 $ 4,112 $ 7,787 Operating income (loss)..................................... $ 753 $ (250) $ 553 $ 719 $ 93 $ 435 Interest, net and other expense............................. $ 661 $ 457 $ 228 $ 147 $ 99 $ 195 Gain on sale of businesses.................................. $ 98 $ -- $ -- $ -- $ -- $ -- Gain on USA transactions.................................... $ -- $ 128 $ 360 $ -- $ -- $ -- Gain on sale of Time Warner shares.......................... $ -- $ -- $ 926 $ 154 $ -- $ -- Income (loss) from continuing operations before cumulative effect of accounting change............................... $ 124 $ (383) $ 880 $ 445 $ 67 $ 144 Income (loss) from discontinued Tropicana operations, after tax....................................................... -- (3) 66 57 18 30 Gain on sale of discontinued Tropicana operations, after tax....................................................... -- 1,072 -- -- -- -- Discontinued DuPont activities, after tax................................................. -- -- -- -- -- 3,232 ------- ------- ------- ------- ------- ------- Income before cumulative effect of accounting change........ 124 686 946 502 85 3,406 Cumulative effect of accounting change, after tax........... (84) -- -- -- -- -- ------- ------- ------- ------- ------- ------- Net income................................................ $ 40 $ 686 $ 946 $ 502 $ 85 $ 3,406 ======= ======= ======= ======= ======= ======= FINANCIAL POSITION Current assets.............................................. $ 7,799 $ 8,881 $ 6,971 $ 6,131 $ 6,307 $ 6,194 Common stock of DuPont...................................... 719 1,123 1,228 1,034 651 631 Common stock of USAi........................................ 529 501 306 -- -- -- Common stock of Time Warner................................. -- -- -- 1,291 2,228 2,356 Other noncurrent assets..................................... 23,761 24,506 11,940 10,257 10,328 10,230 Net assets of discontinued Tropicana operations............. -- -- 1,734 1,734 1,693 1,549 ------- ------- ------- ------- ------- ------- Total assets........................................ $32,808 $35,011 $22,179 $20,447 $21,207 $20,960 ======= ======= ======= ======= ======= ======= Current liabilities......................................... $ 6,722 $ 8,146 $ 4,709 $ 3,087 $ 4,383 $ 3,557 Long-term debt.............................................. $ 7,378 $ 7,468 $ 2,225 $ 2,478 $ 2,562 $ 2,889 Total liabilities before minority interest.................. $18,697 $20,245 $10,948 $ 9,174 $10,163 $ 9,788 Minority interest........................................... 1,882 1,878 1,915 1,851 1,839 1,844 Shareholders' equity........................................ 12,229 12,888 9,316 9,422 9,205 9,328 ------- ------- ------- ------- ------- ------- Total liabilities & shareholders' equity............ $32,808 $35,011 $22,179 $20,447 $21,207 $20,960 ======= ======= ======= ======= ======= ======= CASH FLOW DATA Cash flow provided by (used for) operating activities....... $ 798 $ 935 $ (241) $ 664 $ 315 $ 222 Capital expenditures........................................ $ (607) $ (531) $ (410) $ (393) $ (245) $ (349) Other investing activities, net............................. $ 327 $(5,605) $ 1,109 $ 2,101 $ (346) $ 2,260 Dividends paid.............................................. $ (287) $ (247) $ (231) $ (239) $ (112) $ (224) PER SHARE DATA EARNINGS (LOSS) PER SHARE -- BASIC Continuing operations....................................... $ 0.28 $ (1.01) $ 2.51 $ 1.20 $ 0.18 $ 0.38 Discontinued Tropicana operations, after tax................................................. -- (0.01) 0.19 0.16 0.05 0.08 Gain on sale of discontinued Tropicana operations, after tax....................................................... -- 2.83 -- -- -- -- Discontinued DuPont activities, after tax................... -- -- -- -- -- 8.67 ------- ------- ------- ------- ------- ------- Income before cumulative effect of accounting change........ 0.28 1.81 2.70 1.36 0.23 9.13 Cumulative effect of accounting change, after tax........... (0.19) -- -- -- -- -- ------- ------- ------- ------- ------- ------- Net income................................................ $ 0.09 $ 1.81 $ 2.70 $ 1.36 $ 0.23 $ 9.13 ======= ======= ======= ======= ======= ======= EARNINGS (LOSS) PER SHARE -- DILUTED Continuing operations....................................... $ 0.28 $ (1.01) $ 2.49 $ 1.20 $ 0.18 $ 0.38 Discontinued Tropicana operations, after tax................ -- (0.01) 0.19 0.15 0.05 0.08 Gain on sale of discontinued Tropicana operations, after tax....................................................... -- 2.83 -- -- -- -- Discontinued DuPont activities, after tax................... -- -- -- -- -- 8.54 ------- ------- ------- ------- ------- ------- Income before cumulative effect of accounting change........ 0.28 1.81 2.68 1.35 0.23 9.00 Cumulative effect of accounting change, after tax........... (0.19) -- -- -- -- -- ------- ------- ------- ------- ------- ------- Net income................................................ $ 0.09 $ 1.81 $ 2.68 $ 1.35 $ 0.23 $ 9.00 ======= ======= ======= ======= ======= ======= Dividends paid.............................................. $ 0.66 $ 0.66 $ 0.66 $ 0.645 $ 0.30 $ 0.60 Shareholders' equity........................................ $ 27.97 $ 29.80 $ 26.84 $ 25.79 $ 24.67 $ 24.91 End of year share price New York Stock Exchange (U.S.$)........................... $ 58.00 $ 50.38 $ 40.94 $ 40.25 $ 33.63 $ 36.38 Toronto Stock Exchange (C$)............................... $ 87.00 $ 73.35 $ 59.95 $ 55.50 $ 45.75 $ 49.75 Average shares outstanding (thousands)...................... 434,544 378,193 349,874 369,682 373,858 373,117 Shares outstanding at year end (thousands).................. 437,227 432,555 347,132 365,281 373,059 374,462
14 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our Company operates in four global business segments: music, filmed entertainment, recreation and other and spirits and wine. The music business is conducted through Universal Music Group, which is the largest recorded music company in the world. Universal Music Group produces, markets and distributes recorded music throughout the world in all major genres. Universal Music Group also manufactures, sells and distributes video products in the United States and internationally, and licenses music copyrights. The filmed entertainment and recreation and other businesses are conducted through Universal Studios Group. Our filmed entertainment business produces and distributes motion picture, television and home video products worldwide, operates and has ownership interests in a number of international cable channels and engages in the licensing of merchandising and film property rights. The recreation and other business operates theme parks and retail stores and is also involved in the development of entertainment software. The spirits and wine business, directly and through affiliates and joint ventures, produces, markets and distributes distilled spirits, wines, Ports and Sherries, coolers, beers, mixers and other low-alcohol beverages. In addition to marketing owned brands, the spirits and wine business also distributes distilled spirits, wine, champagne, and beer brands owned by others. Management's discussion and analysis of our results of operations and liquidity should be read in conjunction with the accompanying financial statements. VIVENDI UNIVERSAL On June 20, 2000, Seagram, Vivendi and Canal+ announced that they had entered into a merger agreement and related agreements providing for the combination of the three companies into Vivendi Universal. The agreements provide for the completion of a series of transactions, under which our shareholders will receive a number of Vivendi Universal American Depositary Shares (ADSs) based on an exchange ratio. Each Vivendi Universal ADS will represent one Vivendi Universal ordinary share. Our Canadian resident shareholders may elect to receive exchangeable shares of a Canadian subsidiary of Vivendi Universal that are substantially the economic equivalent of the Vivendi Universal ADSs. The exchange ratio is equal to U.S.$77.35 divided by the U.S. dollar equivalent of the average of the closing prices on the Paris Bourse of Vivendi's ordinary shares during a measuring period prior to the closing of the transactions. However, the exchange ratio will equal 0.8000 if that average is equal to or less than U.S.$96.6875 and 0.6221 if that average is equal to or exceeds U.S.$124.3369. The merger is expected to close by the end of the calendar year and is subject to customary closing conditions, including shareholder approval. There is no assurance that such conditions will be satisfied. COMPARABILITY The discussion presented below includes an analysis of total Seagram and business segment results prepared in accordance with U.S. generally accepted accounting principals (GAAP), which conforms in all material respects to Canadian GAAP. The supplemental financial data includes modified EBITDA (EBITDA). As defined by Seagram, EBITDA consists of operating earnings (losses) before depreciation, amortization, corporate expenses and restructuring activities. Because of the significant assets and goodwill associated with our acquisitions, we believe EBITDA is an appropriate measure of operating performance. However, you should note that EBITDA is not a substitute for operating income, net income, cash flows and other measures of financial performance as defined by GAAP and may be defined differently by other companies. Investments in companies that are not consolidated with the results of Seagram are reported as "equity earnings from unconsolidated companies". This discussion includes, as supplemental financial data, information about our share of the results of revenues and EBITDA related to these investments. As several significant transactions have realigned our businesses and impacted the comparability of our financial statements, financial information for the 1999 and 1998 fiscal years is also presented on a pro forma basis. We believe that pro forma results represent meaningful information for assessing earnings trends because the pro forma results include comparable operations in each year presented. The discussion of the recreation and other and spirits and wine business segments does not include pro forma comparisons, since the 15 17 pro forma adjustments did not impact those segments. The pro forma results are not necessarily indicative of the combined results that would have occurred had the following transactions actually occurred at the beginning of our 1998 fiscal year. We believe this information will help you to better understand our business results. ACQUISITION OF POLYGRAM -- On December 10, 1998, we acquired 99.5 percent of the outstanding shares of PolyGram N.V. (PolyGram), a global music and entertainment company, for $8,607 million in cash and approximately 47.9 million common shares of Seagram. Substantially all of the common shares were issued to Koninklijke Philips Electronics N.V., which had owned 75 percent of the PolyGram shares. The results of the operations of PolyGram are included in the results of our music and filmed entertainment segments from the date of acquisition. DISPOSITION OF TROPICANA -- On August 25, 1998, we completed the sale of Tropicana, consisting of Tropicana Products, Inc. and our global juice business (Tropicana) for $3,288 million in cash, which resulted in a pre-tax gain of $1,445 million ($1,072 million after tax). As a result of this disposal, we reported the results of Tropicana as discontinued operations for all periods presented. USA TRANSACTIONS -- On October 21, 1997, Universal acquired the remaining 50 percent interest in the USA Networks partnership from Viacom Inc. for $1.7 billion in cash. On February 12, 1998, Universal sold its acquired 50 percent interest in USA Networks to USA Networks, Inc. (USAi) and contributed its original 50 percent interest in USA Networks, the majority of its television assets and 50 percent of the international operations of USA Networks to USANi LLC. As a result of this transaction, Universal received $1,332 million in cash, a 10.7 percent interest in USAi and a 45.8 percent exchangeable interest in USANi LLC. Universal recognized a gross gain of $583 million, before taking into consideration the effect of the transactions, which impaired certain remaining television assets and transformed various related contractual obligations into adverse purchase commitments. The impairment losses and adverse purchase commitments arising from the transactions aggregated $223 million and were reflected in the net gain of $360 million ($222 million after tax). In fiscal 1999, we recognized a $128 million pre-tax gain from the USA transactions reflecting the reversal of accrued costs due to the favorable settlement of certain contractual obligations and adverse purchase commitments. 16 18 RESULTS OF OPERATIONS EARNINGS SUMMARY
PRO FORMA ACTUAL TWELVE MONTHS ENDED TWELVE MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------- 2000 1999 1998 1999 1998 -------- -------- -------- -------- -------- U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS REVENUES................................................ $15,686 $12,312 $ 9,474 $15,344 $14,587 ======= ======= ======= ======= ======= OPERATING INCOME (LOSS)................................. $ 753 $ (250) $ 553 $ 281 $ 274 Interest, net and other expense......................... 661 457 228 682 598 Gain on sale of businesses.............................. 98 -- -- -- -- Gain on USA transactions................................ -- 128 360 128 360 Gain on sale of Time Warner shares...................... -- -- 926 -- 926 Provision (benefit) for income taxes.................... 158 (33) 638 61 493 Minority interest....................................... 17 (26) 48 4 16 Equity earnings (losses) from unconsolidated companies............................................. 109 137 (45) 130 (6) ------- ------- ------- ------- ------- INCOME (LOSS) FROM CONTINUING OPERATIONS................ 124 (383) 880 (208) 447 Income (loss) from discontinued Tropicana operations, after tax............................................. -- (3) 66 -- -- Gain on sale of discontinued Tropicana operations, after tax................................................... -- 1,072 -- -- -- Cumulative effect of change in accounting principle, after tax............................................. (84) -- -- -- -- ------- ------- ------- ------- ------- NET INCOME (LOSS)....................................... $ 40 $ 686 $ 946 $ (208) $ 447 ======= ======= ======= ======= ======= EARNINGS PER SHARE -- BASIC Income (loss) from continuing operations.............. $ 0.28 $ (1.01) $ 2.51 $ (0.52) $ 1.12 Income (loss) from discontinued operations, after tax................................................ -- (0.01) 0.19 -- -- Gain on sale of discontinued operations, after tax.... -- 2.83 -- -- -- Cumulative effect of accounting change, after tax..... (0.19) -- -- -- -- ------- ------- ------- ------- ------- NET INCOME (LOSS)..................................... $ 0.09 $ 1.81 $ 2.70 $ (0.52) $ 1.12 ======= ======= ======= ======= ======= EARNINGS PER SHARE -- DILUTED Income (loss) from continuing operations.............. $ 0.28 $ (1.01) $ 2.49 $ (0.52) $ 1.11 Income (loss) from discontinued operations, after tax................................................ -- (0.01) 0.19 -- -- Gain on sale of discontinued operations, after tax.... -- 2.83 -- -- -- Cumulative effect of accounting change, after tax..... (0.19) -- -- -- -- ------- ------- ------- ------- ------- NET INCOME (LOSS)..................................... $ 0.09 $ 1.81 $ 2.68 $ (0.52) $ 1.11 ======= ======= ======= ======= ======= Net cash provided by (used for) operating activities.... $ 798 $ 935 $ (241) Net cash (used for) provided by investing activities.... $ (280) $(6,136) $ 699 Net cash (used for) provided by financing activities.... $ (821) $ 5,563 $ 159 SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies................................ $15,686 $12,312 $ 9,474 $15,344 $14,587 Unconsolidated companies.............................. 2,644 2,202 1,722 2,202 2,081 ------- ------- ------- ------- ------- $18,330 $14,514 $11,196 $17,546 $16,668 ======= ======= ======= ======= ======= EBITDA Consolidated companies................................ $ 1,872 $ 1,028 $ 1,142 $ 1,478 $ 1,555 Charge for Asia....................................... -- -- (60) -- (60) ------- ------- ------- ------- ------- 1,872 1,028 1,082 1,478 1,495 Unconsolidated companies.............................. 504 449 220 449 326 ------- ------- ------- ------- ------- 2,376 1,477 1,302 1,927 1,821 Adjustment for unconsolidated companies............... (504) (449) (220) (449) (326) Depreciation and amortization......................... (1,067) (773) (416) (1,097) (1,108) Corporate expenses.................................... (111) (100) (113) (100) (113) Restructuring (charge) credit......................... 59 (405) -- -- -- ------- ------- ------- ------- ------- OPERATING INCOME (LOSS)................................. $ 753 $ (250) $ 553 $ 281 $ 274 ======= ======= ======= ======= =======
17 19 2000 VERSUS 1999 Actual In addition to the significant transactions discussed above, several other items also affect the comparability of our annual results. In fiscal 1999, these items included a $405 million pre-tax restructuring charge associated with the integration of PolyGram into our existing music and film operations (discussed in Note 3 to the consolidated financial statements), and a $128 million pre-tax gain from the USA transactions reflecting the reversal of accrued costs due to the favorable settlement of certain contractual obligations and adverse purchase commitments. In the current fiscal year, these items include the reversal of $59 million of the restructuring accruals due to the favorable settlement of certain contractual and employee severance obligations, the sale of our concert operations for a pre-tax gain of $98 million, the sale of our Champagne operations for $310 million in cash, an amount which approximated the book value of those operations, and an $84 million non-cash after-tax cumulative effect of a change in accounting principle related to start-up activities. In addition to these one-time items, our results are impacted on an ongoing basis by foreign exchange rate fluctuations, particularly in our music and spirits and wine businesses where a significant portion of sales are transacted in local currencies. In fiscal 1999, the impact of foreign currency exchange was not significant, however, our fiscal 2000 results were negatively impacted by foreign exchange rate fluctuations as illustrated in the discussion of operating results, presented below. Revenues increased 27 percent (30 percent on a constant U.S. dollar basis) to $15.7 billion, primarily due to our reporting of a full twelve-month results of the acquired PolyGram operations in the current year, combined with improved sales in all business segments. Operating income was $753 million compared with an operating loss of $250 million in the prior year. The significant improvement reflects the impact of the PolyGram acquisition, the restructuring activities discussed above and improved earnings in all business segments. EBITDA from consolidated companies increased 82 percent (89 percent on a constant U.S. dollar basis) to $1.9 billion. Interest, net and other expense included net interest expense of $684 million, offset by $23 million of dividend income from DuPont. The increase of $204 million primarily reflects the increased interest costs associated with funding the PolyGram acquisition. The effective tax rate was 83 percent in fiscal 2000, compared with six percent in the prior year. The provision for 2000 includes $38 million of taxes on the sale of Universal Concerts, Inc. and $21 million for the restructuring charge reversal. The 1999 tax provision included $45 million of taxes on the USA transactions and a $140 million benefit for the restructuring charge. The tax rate for continuing operations, excluding these items, increased largely due to the increased goodwill expense for which there is no associated tax benefit. Minority interest was an expense of $17 million compared to income of $26 million in 1999, which included $21 million associated with the restructuring charge. The equity in earnings of unconsolidated companies decreased to $109 million from $137 million in 1999. The decrease primarily reflects increased depreciation and interest expense at Universal Orlando since the opening of Islands of Adventure, pre-opening development costs at Universal Studios Japan, partially offset by improved operating results at USANi LLC. Net income from continuing operations of $124 million or $0.28 per share (basic and diluted) was earned in fiscal 2000, compared to a net loss from continuing operations of $383 million or $1.01 per share (basic and diluted) in 1999. The net income from continuing operations, excluding the restructuring activities, the gain on the sale of Universal Concerts, Inc. and the impact of the USA transactions, was $34 million or $0.08 per share (basic and diluted) in fiscal 2000, compared with a loss of $215 million or $0.57 per share (basic and diluted) in 1999. Pro Forma Revenues increased two percent (five percent on a constant U.S. dollar basis), as growth in the film, recreation and other and spirits and wine businesses was partially offset by a slight decline in music revenues. Operating income, excluding restructuring activities, more than doubled, while EBITDA from consolidated companies increased 27 percent year-on-year (31 percent on a constant U.S. dollar basis). These increases 18 20 reflect a significant improvement in the performance of all our business segments. Interest, net and other expense declined three percent, primarily as a result of the lower average debt outstanding during the current year. The effective income tax rate was 83 percent compared to 22 percent in the prior year. The minority interest charge increased $13 million primarily due to the improved performance of our film business. Equity in earnings of unconsolidated companies declined 16 percent for the reasons discussed above. Net income of $40 million or $0.09 per share (basic and diluted) was earned in fiscal 2000, compared with a net loss of $208 million or $0.52 per share (basic and diluted) in 1999. Excluding the restructuring activities, the gain on the sale of Universal Concerts, Inc., the impact of the USA transactions and the cumulative effect of a change in accounting principle, net income was $34 million or $0.08 per share (basic and diluted), a significant improvement over the prior year when a pro forma net loss of $284 million or $0.71 per share (basic and diluted) was incurred. 1999 VERSUS 1998 Actual Our fiscal 1999 results compared favorably to fiscal 1998 results, which were severely impacted by the economic and currency crises in Asia which hampered business performance and resulted in a $60 million charge to spirits and wine operations. Revenues increased 30 percent to $12.3 billion, primarily due to the PolyGram acquisition and improved sales in all business segments. Operating income declined from $553 million in 1998 to a loss of $250 million in 1999, driven by the restructuring charge, higher amortization and depreciation expense and disappointing motion picture results. EBITDA from consolidated companies decreased five percent to $1,028 million. The impact of foreign currency exchange on 1999 was not significant. Interest, net and other expense increased $229 million reflecting the interest costs associated with funding the PolyGram acquisition. In fiscal 1999, a gain from the USA transactions was recognized reflecting the reversal of $128 million of accrued costs due to the favorable settlement of certain contractual obligations and adverse purchase commitments. In fiscal 1998, we recognized a pre-tax gain on the sale of the remaining Time Warner shares of $926 million and a pre-tax gain on the USA transactions of $360 million. The effective tax rate was six percent in fiscal 1999, compared with 40 percent in the prior year. The underlying effective tax rate for continuing operations (excluding the impact of the restructuring charge, USA transactions, sale of Time Warner shares and spirits and wine charge) was 21 percent compared with 48 percent in 1998. The decrease in the rate results from increased goodwill expense for which there is no associated tax benefit and taxes on earnings from unconsolidated equity investments. Minority interest for 1999 was income of $26 million compared to an expense of $48 million in the prior year, primarily due to losses in our film business and the restructuring charge. The equity in earnings of unconsolidated companies increased to $137 million in fiscal 1999 from a loss of $45 million in fiscal 1998. The increase in equity earnings primarily reflected the improved operating results at USANi LLC and the impact of the USA transactions. Earnings from our investment in USANi LLC were included in equity earnings from unconsolidated companies for all of 1999. In 1998, we had a 100 percent interest in USA Networks from October 1997 until February 1998, during which time the results were consolidated. A net loss from continuing operations of $383 million or $1.01 per share (basic and diluted) was incurred in 1999, compared with net income from continuing operations of $880 million or $2.51 per basic share and $2.49 per share on a diluted basis for 1998. The net loss from continuing operations, excluding the restructuring charge, the gains on the sales of Time Warner shares and the USA transactions and a charge for spirits and wine operations in Asia, was $215 million or $0.57 per share (basic and diluted) in 1999 compared with income of $141 million or $0.40 per share (basic and diluted) in 1998. For the period to August 25, 1998, the loss from discontinued Tropicana operations, after tax, was $3 million or $0.01 per share (basic and diluted). During 1999, we recorded a pre-tax gain of $1,445 million ($1,072 million after tax or $2.83 per share, basic and diluted) on the sale of Tropicana. Net income including discontinued operations was $686 million or $1.81 per basic and diluted share in the fiscal year ended June 30, 1999, compared with $946 million or $2.70 per basic share and $2.68 per diluted share in the prior fiscal year. 19 21 Pro Forma Revenues increased five percent to $15.3 billion with growth in all business segments. Operating income was $281 million compared with $274 million in 1998. EBITDA from consolidated companies decreased one percent year-on-year. Increases in EBITDA outside the filmed entertainment segment were more than offset by disappointing performance of our film business. The effective income tax rate for the year was 22 percent compared with 51 percent in the prior year. The minority interest charge for 1999 was $4 million compared with $16 million in the prior year due to losses in our film business. Equity in earnings of unconsolidated companies shows a similar improvement as the actual results, increasing to $130 million in 1999 from a loss of $6 million in 1998. A net loss of $208 million or $0.52 per share (basic and diluted) was incurred in fiscal 1999, compared with net income of $447 million or $1.12 per basic share and $1.11 per share on a diluted basis in 1998. Excluding the gains on the sales of Time Warner shares and the USA transactions and the prior year charge for spirits and wine operations in Asia, the pro forma net loss was $284 million or $0.71 per share (basic and diluted) in the current year, a slight improvement over the prior year when a net loss of $292 million or $0.73 per share (basic and diluted) was incurred. BUSINESS SEGMENT RESULTS MUSIC
PRO FORMA ACTUAL TWELVE MONTHS TWELVE MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------------------- ---------------- 2000 1999 1998 1999 1998 ------- ------- ------- ------ ------ U.S. DOLLARS IN MILLIONS REVENUES...................................... $6,236 $3,751 $1,461 $6,336 $6,108 ====== ====== ====== ====== ====== Operating income (loss) before restructuring (charge) credit............................. $ 288 $ (126) $ (44) $ 75 $ (124) Restructuring (charge) credit................. 40 (313) -- -- -- ------ ------ ------ ------ ------ OPERATING INCOME (LOSS)....................... $ 328 $ (439) $ (44) $ 75 $ (124) ====== ====== ====== ====== ====== Equity earnings (losses) from unconsolidated companies................................... $ (16) $ 4 $ 4 $ (3) $ (7) ====== ====== ====== ====== ====== SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies...................... $6,236 $3,751 $1,461 $6,336 $6,108 Unconsolidated companies.................... 89 61 68 61 68 ------ ------ ------ ------ ------ $6,325 $3,812 $1,529 $6,397 $6,176 ====== ====== ====== ====== ====== EBITDA Consolidated companies...................... $1,018 $ 347 $ 84 $ 861 $ 708 Unconsolidated companies.................... (12) 5 6 5 6 ------ ------ ------ ------ ------ 1,006 352 90 866 714 Adjustment for unconsolidated companies..... 12 (5) (6) (5) (6) Depreciation and amortization............... (730) (473) (128) (786) (832) Restructuring (charge) credit............... 40 (313) -- -- -- ------ ------ ------ ------ ------ OPERATING INCOME (LOSS)....................... $ 328 $ (439) $ (44) $ 75 $ (124) ====== ====== ====== ====== ======
20 22 2000 VERSUS 1999 Consolidated Operations Actual -- Revenues increased 66 percent, EBITDA more than doubled and operating income (excluding restructuring activities) of $288 million was earned in the current year, compared to a loss of $126 million incurred in the prior year. These significant increases primarily reflect the acquisition and successful integration of PolyGram, partially offset by investments in our electronic business initiatives. In fiscal 2000, over 64 percent of product sales were from new releases. Major album sales included those by Shania Twain, Eminem, Dr Dre, Limp Bizkit, Sisqo, Sting, Enrique Iglesias, Blink 182, DMX, Andrea Bocelli, Bon Jovi, Boyzone and the soundtrack from the Universal feature film Notting Hill, among others. We continue to hold strong chart positions in all music genres and major markets, including the United States, United Kingdom, France, Germany and Brazil. Internationally, we continue to maintain a strong local repertoire presence. In fiscal 2000, revenues generated in North America accounted for 43 percent of the total music revenues of $6,236 million. The European market accounted for 41 percent, Asia Pacific contributed 12 percent and Latin America accounted for the remaining four percent. An important aspect of our music business relates to electronic business initiatives. We believe that emerging technologies will be strategically important to the future of the music business. Evolving technology allows consumers to experience music in new electronic mediums and formats. Through a variety of strategic alliances and independent initiatives, we continue to invest resources in the technology and electronic commerce areas. Our investments include internal infrastructure, which includes hardware and software that will allow the music business to be conducted over the Internet, such as bluematter.com and Jimmy and Doug's Farm Club, as well as investments in, GetMusic, ARTISTdirect, InterTrust Technologies, ReplayTV, eritmo.com and others. Pro Forma -- Revenues declined two percent in fiscal 2000 primarily due to the impact of unfavorable foreign exchange, label consolidation and our effort to continually refine our artist roster, partially offset by strong chart positions. In fiscal 2000, 65 albums reached worldwide sales in excess of one million units and 5 albums sold over five million units compared with 2 in 1999. North American revenues increased 10 percent, reflecting higher volume and average prices. International revenues declined two percent (but increased two percent on a constant U.S. dollar basis) due to the soft music market in several territories including Latin America, Japan and France. Operating income, excluding restructuring activities, more than tripled and EBITDA increased 18 percent (24 percent on a constant U.S. dollar basis) to over $1 billion. The improvements in operating income and EBITDA reflect higher volumes in North America, strong performances in the United Kingdom and Germany, lower European marketing spend and worldwide cost savings achieved from the integration of PolyGram, partially offset by investments in our electronic business initiatives. Unconsolidated Operations The equity in earnings from unconsolidated companies was a loss of $16 million in fiscal 2000 as income of $3 million from concert operations sold in the first quarter was more than offset by losses from electronic business initiatives. 1999 VERSUS 1998 Consolidated Operations Actual -- In fiscal 1999, revenues more than doubled. This increase reflected the acquisition of PolyGram with its strong presence in local repertoire and our strength in the U.S. market. An operating loss of $126 million (excluding restructuring activities) was incurred compared to a loss of $44 million in fiscal 1998. EBITDA, at $347 million, more than quadrupled in 1999. The significant increase in EBITDA reflected the PolyGram acquisition. The decline in operating income was principally driven by higher goodwill amortization. In fiscal 1999, revenues generated in North America accounted for 45 percent of the total music revenues of $3,751 million. The European market accounted for 40 percent, Asia Pacific and Japan contributed 11 percent and Latin America accounted for the remaining four percent. 21 23 Pro Forma -- Revenues increased four percent to $6.3 billion, driven by solid performances from U2, Shania Twain, Jay-Z, Andrea Bocelli, Bee Gees and Sheryl Crow, among others, along with increases in higher priced units. In total, 69 albums reached worldwide sales in excess of one million units compared with 52 in 1998. Operating income was $75 million for 1999, compared to a loss of $124 million in 1998. EBITDA increased 22 percent in 1999 compared to 1998. These improvements were due to a strong release schedule worldwide and the elimination of duplicate costs achieved from the integration of PolyGram. Unconsolidated Operations The equity in earnings from unconsolidated companies, consisting primarily of concert operations, was $4 million in 1999, unchanged from 1998. FILMED ENTERTAINMENT
PRO FORMA ACTUAL TWELVE MONTHS TWELVE MONTHS ENDED JUNE 30, ENDED JUNE 30, ----------------------------- ---------------- 2000 1999 1998 1999 1998 ------- ------- ------- ------ ------ U.S. DOLLARS IN MILLIONS REVENUES...................................... $3,480 $2,931 $2,793 $3,378 $3,259 ====== ====== ====== ====== ====== Operating income (loss) before restructuring (charge) credit............................. $ (158) $ (206) $ 229 $ (281) $ 30 Restructuring (charge) credit................. 19 (92) -- -- -- ------ ------ ------ ------ ------ OPERATING INCOME (LOSS)....................... $ (139) $ (298) $ 229 $ (281) $ 30 ====== ====== ====== ====== ====== Equity earnings (losses) from unconsolidated companies................................... $ 197 $ 148 $ (28) $ 148 $ 22 ====== ====== ====== ====== ====== SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies...................... $3,480 $2,931 $2,793 $3,378 $3,259 Unconsolidated companies.................... 1,908 1,689 1,133 1,689 1,492 ------ ------ ------ ------ ------ $5,388 $4,620 $3,926 $5,067 $4,751 ====== ====== ====== ====== ====== EBITDA Consolidated companies...................... $ (61) $ (136) $ 316 $ (200) $ 105 Unconsolidated companies.................... 414 343 147 343 253 ------ ------ ------ ------ ------ 353 207 463 143 358 Adjustment for unconsolidated companies..... (414) (343) (147) (343) (253) Depreciation and amortization............... (97) (70) (87) (81) (75) Restructuring (charge) credit............... 19 (92) -- -- -- ------ ------ ------ ------ ------ OPERATING INCOME (LOSS)....................... $ (139) $ (298) $ 229 $ (281) $ 30 ====== ====== ====== ====== ======
2000 VERSUS 1999 Consolidated Operations Actual -- The performance of our filmed entertainment business improved year-on-year. Revenues increased 19 percent, EBITDA improved $75 million and the operating loss (excluding restructuring activities) of $158 million was a $48 million improvement over the prior year. These results primarily reflect the solid performance of the motion picture business versus a disappointing prior year. The theatrical success of The Mummy, Notting Hill, American Pie, The Bone Collector, The Green Mile, Erin Brockovich, U-571, Gladiator and Best Man, combined with strong DVD and video sales of The Mummy, Notting Hill and American Pie resulted in improved earnings. Additionally, the development of programs designed to manage 22 24 production, marketing, participation and overhead and development costs also contributed to filmed entertainment results. Included in EBITDA and operating income are the costs of our continued investment in the international network business, where the creation of new digital delivery technologies in many markets have created significant growth opportunities. International television networks not only provide a dual revenue stream from advertising and subscription but also provide a captive outlet for our extensive film and television libraries. Over the last fiscal year, excluding the impact of new channel launches, total subscribers for owned and operated networks have grown approximately 20 percent. Pro Forma -- 1999 pro forma filmed entertainment included the results of PolyGram Filmed Entertainment (PFE). Revenues increased three percent while operating income, excluding restructuring activities, and EBITDA improved by $123 million and $139 million, respectively. The current year results compare favorably to the prior year, which included a $64 million loss largely due to the start-up of PFE domestic film distribution operations. Unconsolidated Operations Unconsolidated companies principally include USANi LLC, Loews Cineplex Entertainment Corporation, United Cinemas International Multiplex B.V. and Cinema International Corporation. Year-on-year results primarily reflect improved operating results at USANi LLC. 1999 VERSUS 1998 Consolidated Operations Actual -- Filmed entertainment revenues increased five percent in fiscal 1999. Operating income, excluding restructuring activities, decreased from income of $229 million in 1998 to a loss of $206 million in 1999. The 1998 results included operating income of $76 million for USA Networks from October 21, 1997 until February 12, 1998. In 1999 the contribution of USANi LLC was included in equity earnings from unconsolidated companies rather than consolidated operations. The results of the motion picture business declined because of the disappointing box office performance of fiscal 1999 releases such as Babe: Pig in the City, Meet Joe Black, Virus and edTV. Also, comparisons with 1998 results were difficult since those results benefited from the positive carryover of the successful releases of The Lost World: Jurassic Park and Liar, Liar. International television and library results declined year-on-year due to the loss of profit on products transferred in the USA transactions and lower profitability on television library sales. EBITDA declined from $316 million in 1998 to a loss of $136 million in 1999. The 1998 results included $97 million of EBITDA related to USA Networks, which was consolidated from October 21, 1997 until February 12, 1998. There was no contribution from USA Networks in consolidated EBITDA in 1999. Pro Forma -- Pro forma filmed entertainment included the results of PolyGram Filmed Entertainment and the 1998 results reflected the USA transactions as though they had both occurred at the beginning of our 1998 fiscal year. On a pro forma basis, revenues increased four percent in fiscal 1999 to $3.4 billion. EBITDA was a loss of $200 million in 1999 compared to income of $105 million in 1998. Operating income decreased from income of $30 million in 1998 to a loss of $281 million in 1999. The results declined primarily due to the weak performance of current year releases discussed above. Unconsolidated Operations The equity in earnings from unconsolidated companies increased from a loss of $28 million for 1998 to income of $148 million in 1999. Revenues from unconsolidated companies increased 49 percent year-on-year, EBITDA more than doubled in the same period. The significant improvement was due primarily to improved operating results at USANi LLC and the impact of the USA transactions. In fiscal 1999, subsequent to the USA transactions, the results of USANi LLC were included in equity earnings from unconsolidated companies for the entire year. In the 1998 fiscal year, we had a 100 percent interest in USA Networks from October 1997 until February 1998, during which time the results were included in consolidated operations. We also benefited from improved operating results at Loews Cineplex in 1999 compared to Cineplex Odeon Corporation (owned in the prior year). In addition to USANi LLC and Loews Cineplex, the unconsolidated 23 25 companies principally included United Cinemas International Multiplex B.V. and Cinema International Corporation N.V. RECREATION AND OTHER
ACTUAL TWELVE MONTHS ENDED JUNE 30, ------------------------------ 2000 1999 1998 -------- -------- ------ U.S. DOLLARS IN MILLIONS REVENUES.................................................... $ 862 $ 818 $695 ====== ====== ==== OPERATING INCOME............................................ $ 83 $ 45 $ 24 ====== ====== ==== Equity losses from unconsolidated companies................. $ (76) $ (17) $(22) ====== ====== ==== SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies.................................... $ 862 $ 818 $695 Unconsolidated companies.................................. 468 290 289 ------ ------ ---- $1,330 $1,108 $984 ====== ====== ==== EBITDA Consolidated companies.................................... $ 188 $ 133 $ 99 Unconsolidated companies.................................. 92 92 60 ------ ------ ---- 280 225 159 Adjustment for unconsolidated companies................... (92) (92) (60) Depreciation and amortization............................. (105) (88) (75) ------ ------ ---- OPERATING INCOME............................................ $ 83 $ 45 $ 24 ====== ====== ====
2000 VERSUS 1999 Consolidated Operations Revenues increased five percent, EBITDA rose 41 percent and operating income increased over 80 percent as compared to the prior year. Revenue growth was due to increased management fees generated from the expansion of Universal Orlando, increased retail sales at Spencer Gifts, and a full twelve months of Wet n' Wild results, which was purchased in September 1998. Additionally, operating income and EBITDA increased as the result of improved earnings at Universal City Hollywood and lower overhead and improved margins at interactive games. At Universal City Hollywood, EBITDA increased 15 percent primarily due to improved cost management and a four percent increase in total visitor spending, due principally to higher admission charges. Increased earnings at the park were partially offset by a two percent decline in paid attendance, since fiscal 1999 included one additional week compared to fiscal 2000. Excluding the impact of the additional week, attendance would have increased one percent year-on-year. Unconsolidated Operations Unconsolidated companies principally include Universal Orlando, Universal Studios Japan, Universal Studios Port Aventura and Sega GameWorks. Equity in earnings from unconsolidated companies declined from a loss of $17 million last year to a loss of $76 million this year. This decline is largely due to increased depreciation and interest expense at Universal Orlando since the opening of Islands of Adventure and the pre-opening development costs at Universal Studios Japan. In addition, the prior year comparatives included a gain recognized by Sega GameWorks on the sale of its game sales operation to Sega in the first quarter. Revenues from unconsolidated companies increased 61 percent reflecting the opening of Islands of Adventure, Hard Rock Live, CityWalk and the Portofino Bay Hotel (a Loews hotel) at Universal Orlando. EBITDA from unconsolidated companies was flat at $92 million as increased earnings at Universal Orlando were offset 24 26 by pre-opening development costs at Universal Studios Japan. At Universal Orlando, EBITDA increased 21 percent reflecting a 51 percent increase in attendance since the opening of the new attractions discussed above and a two percent increase in total visitor spending, partially offset by a continued investment in marketing and other non-recurring costs associated with the expansion. 1999 VERSUS 1998 Consolidated Operations In fiscal 1999, revenues increased 18 percent, operating income almost doubled to $45 million and EBITDA increased 34 percent. These increases reflected the success of the Crash Bandicoot and Spyro video games, improved sales by Spencer Gifts and additional management fees from the expansion of Universal Orlando and the acquired Universal Studios Port Aventura. These increases were partially offset by a five percent decline in paid attendance at Universal City Hollywood, largely due to reduced Asian tourism. Increased operating expenses at the park were partially offset by a one percent increase in total visitor spending. Unconsolidated Operations The equity in earnings from unconsolidated companies improved from a loss of $22 million in fiscal 1998 to a loss of $17 million in fiscal 1999. Revenues from unconsolidated companies were flat year-on-year while EBITDA increased 53 percent. The improved results were due to the expansion at Universal Orlando, Universal Studios Port Aventura and a gain recognized by Sega GameWorks, on the sale of its game sales operation to Sega in the first quarter. At Universal Studios Orlando, the opening of Islands of Adventure, Hard Rock Live and CityWalk contributed to a 12 percent increase in paid attendance and a two percent increase in total visitor spending. 25 27 SPIRITS AND WINE
ACTUAL TWELVE MONTHS ENDED JUNE 30, ----------------------------- 2000 1999 1998 ------- ------- ------- U.S. DOLLARS IN MILLIONS REVENUES.................................................... $5,108 $4,812 $4,525 ====== ====== ====== Operating income before charge for Asia..................... $ 602 $ 552 $ 524 Charge for Asia........................................... -- -- (60) ------ ------ ------ OPERATING INCOME............................................ $ 602 $ 552 $ 464 ====== ====== ====== Equity earnings from unconsolidated companies............... $ 4 $ 2 $ 1 ====== ====== ====== SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies.................................... $5,108 $4,812 $4,525 Unconsolidated companies.................................. 179 162 232 ------ ------ ------ $5,287 $4,974 $4,757 ====== ====== ====== EBITDA Consolidated companies.................................... $ 727 $ 684 $ 643 Charge for Asia........................................... -- -- (60) ------ ------ ------ 727 684 583 Unconsolidated companies.................................. 10 9 7 ------ ------ ------ 737 693 590 Adjustment for unconsolidated companies................... (10) (9) (7) Depreciation and amortization............................. (125) (132) (119) ------ ------ ------ OPERATING INCOME............................................ $ 602 $ 552 $ 464 ====== ====== ======
2000 VERSUS 1999 Consolidated Operations Revenues increased six percent (ten percent on a constant U.S. dollar basis), EBITDA rose six percent (10 percent on a constant U.S. dollar basis) and operating income increased nine percent (13 percent on a constant U.S. dollar basis) as compared to the prior year. Adjusting for the sale of the Champagne production operations, operating income increased 15 percent and EBITDA increased 12 percent. The improved year-on-year results were driven by continued momentum in the global spirits and wine business, the impact of the millennium and earnings growth in all regions. In North America, higher volumes and prices, partially offset by increased marketing investment contributed to the growth. Europe benefited from growth in most major markets, particularly Germany, driven by a recovery in Mumm Sekt sales, and the United Kingdom. The continued economic recovery in Asia, specifically in Greater China, facilitated improvement in that region. In Latin America, growth was driven by Brazil, Venezuela and Don Julio in Mexico. Of the $5,108 million total spirits and wine revenues, 46 percent were generated in North America, the European and African markets accounted for 33 percent, Asia Pacific contributed 13 percent and Latin America generated the remaining eight percent. Total spirits and wine case volumes, including unconsolidated companies, increased seven percent year-on-year, driven by growth in Crown Royal, Captain Morgan, ABSOLUT VODKA (which is owned by V&S Vin & Sprit AB), Mumm Sekt and Royal Salute. In fiscal 2000, cost of goods sold as a percentage of revenues increased to 54.2 percent from 53.3 percent in the prior year. This increase was offset by a decrease in selling, general and administrative expenses as a percentage of revenues, which declined to 34.0 percent from 34.7 percent in the prior year. On a constant U.S. dollar basis, global marketing expense increased in excess of 20 percent in order to sustain the momentum 26 28 established in our core brands and to support the millennium trade activity earlier in the year. Brand equity build also increased in excess of 20 percent on a constant U.S. dollar basis as we continued to invest for future growth by supporting our brands in key markets, particularly North America. Unconsolidated Operations In the current fiscal year there is only one spirits and wine unconsolidated company, Kirin-Seagram Limited in Japan. In fiscal 1999, the unconsolidated companies also included Seagram (Thailand) Limited for nine months to March 1999, at which time we increased our investment in Thailand and began to consolidate that affiliate. In fiscal 2000, the equity in earnings of unconsolidated companies increased $2 million and revenues and EBITDA from unconsolidated companies increased 10 and 11 percent, respectively. The year- on-year variances are primarily due to the entities that are included in unconsolidated companies. 1999 VERSUS 1998 Consolidated Operations Revenues increased six percent and operating income increased 19 percent in 1999. Operating income in 1998 included a $60 million charge related to operations in Asia. Excluding the impact of this charge, operating income increased five percent. Asia Pacific's revenues increased 79 percent, principally due to the June 1998 acquisition of the remaining shares of our Korean affiliate, Doosan Seagram Co., Ltd., and the inclusion of their results in consolidated operations in 1999. Additionally, an improvement in the difficult economic conditions experienced in the region in 1998 also contributed to the increase. Revenues in North America increased four percent reflecting higher volumes and pricing. Europe's revenues increased four percent year-on-year. In Latin America, revenues declined six percent due to the difficult economic conditions in the region, particularly in Brazil. In fiscal 1999, cost of goods sold as a percentage of revenues increased to 53.3 percent from 52.7 in 1998. Selling, general and administrative expenses as a percentage of revenues decreased to 34.7 percent from 35.9 percent due to slight reductions in both brand spending and overhead expenses coupled with improved revenues. On a constant U.S. dollar basis, total brand spending declined two percent in 1999 and brand equity spending increased one percent as we continued to invest for future growth by supporting our brands in key markets. The brand equity growth reflected an increased emphasis on the consumer and was focused behind core strategic brands, particularly Crown Royal Canadian Whisky and ABSOLUT VODKA in North America and Chivas Regal and Martell globally. Spirits and wine case volumes, including unconsolidated companies, increased one percent in 1999 as the performance of our global brands was mixed. Volumes in North America were strong, in particular for Crown Royal Canadian Whisky and Captain Morgan Rum. Globally, volumes for Crown Royal Canadian Whiskey and Captain Morgan Rum increased five and 14 percent, respectively. ABSOLUT VODKA, had a nine percent increase in volume. Case volumes of several global brands declined including Martell and Chivas which were down three and nine percent, respectively. EBITDA increased 17 percent. Excluding the impact of the $60 million charge for Asia Pacific from the prior year results, EBITDA would have increased six percent. Unconsolidated Operations The equity in earnings of unconsolidated companies was $2 million in 1999 compared to $1 million in 1998. Revenues from unconsolidated companies declined by 30 percent and EBITDA increased 29 percent. The year-on-year variances were primarily due to changes in the entities that were included in unconsolidated companies. In 1999, the results included Kirin-Seagram Limited in Japan for the entire twelve months and Seagram (Thailand) Limited for nine months to March 1999 at which time we increased our investment in Thailand and began to consolidate that affiliate. In 1998, the unconsolidated companies also included Doosan Seagram Co., Ltd. in Korea. As a result of an additional investment in Doosan Seagram Co., Ltd. at the end of June 1998, that affiliate's results are now consolidated. 27 29 LIQUIDITY AND CAPITAL RESOURCES Financial Position -- Current assets of $7.8 billion at June 30, 2000 were $1.1 billion lower than at June 30, 1999. Current liabilities decreased $1.4 billion to $6.7 billion at June 30, 2000. The improvement in working capital was primarily due to a reduction in short-term borrowings. Shareholders' equity was $12.2 billion at June 30, 2000 compared to $12.9 billion at June 30, 1999. Our total long- and short-term debt, net of cash and short-term investments, decreased to $6.6 billion at June 30, 2000 from $7.0 billion at June 30, 1999 reflecting the reduction in short-term borrowings discussed above. Our ratio of net debt to total capitalization (including minority interest) remained unchanged at 32 percent. Cash Flows from Operating Activities -- Net cash provided by operating activities totaled $798 million in the 2000 fiscal year, a decrease of $137 million from fiscal 1999. Payments towards restructuring, exit and other accruals in fiscal 2000 and the monetization of acquired PolyGram receivables in fiscal 1999 more than offset the $507 million year-on-year increase in income from continuing operations. In 1999, operating activities provided net cash of $935 million, following net cash used of $241 million in 1998. The increased cash requirements in the 1998 fiscal year reflected reduced income from continuing operations (excluding the gains on the USA transactions and the Time Warner share sales) and higher working capital requirements. Cash Flows from Investing Activities -- Net cash used for investing activities was $280 million in fiscal year 2000. The $310 million proceeds from the Champagne operations disposition combined with $190 million proceeds from the sale of Universal Concerts, Inc., were more than offset by an additional $242 million investment in USANi LLC and capital expenditures of $607 million. The capital expenditures by business segment were music $263 million, filmed entertainment $113 million, recreation and other $101 million and spirits and wine $130 million. In 1999, net cash used for investing activities was $6.1 billion. The $3.3 billion pre-tax proceeds from the Tropicana disposition were more than offset by the use of $8.6 billion of cash for the PolyGram acquisition, an additional investment in USANi LLC and USA Networks, Inc. of $243 million and capital expenditures of $531 million. The capital expenditures by business segment were music $135 million, filmed entertainment $134 million, recreation and other $134 million and spirits and wine $128 million. In 1998, net cash provided by investing activities was $699 million. The net cash provided included $1.3 billion gross proceeds from the USA transactions and $1.9 billion proceeds from the sales of 26.8 million Time Warner shares. Partially offsetting these proceeds were the $1.7 billion acquisition of the incremental 50 percent interest in USA Networks and capital expenditures of $410 million, broken down by business segment as follows: music $31 million, filmed entertainment $94 million, recreation and other $115 million and spirits and wine $170 million. In addition, $386 million of cash was used for sundry investments including investments in Doosan Seagram Co., Ltd., our spirits and wine affiliate in Korea, Universal Studios Port Aventura, a theme park located in Spain, and Loews Cineplex Entertainment Corporation. Cash Flows from Financing Activities -- Financing activities in fiscal 2000 used $821 million. A $787 million decrease in short-term borrowings, a $108 million repayment of long-term debt and dividend payments of $287 million were partially offset by a $75 million supplemental issuance of Adjustable Conversion-rate Equity Security Units, $187 million issuance of shares upon exercise of stock options and conversion of LYONs and a $99 million issuance of long-term debt. In fiscal 1999, financing activities provided $5.6 billion, an increase of $5.4 billion over the prior year, primarily used to finance the PolyGram acquisition. Contributing to the significant increase were a $1.4 billion common share issuance, a $900 million issuance of Adjustable Conversion-rate Equity Security Units and long-term debt issuance's and other borrowings totaling $5.1 billion. In 1999, we made dividend payments of $247 million. In fiscal 1998, financing activities provided $159 million. An increase in short-term borrowings of $1.1 billion was used to finance the acquisition of the incremental 50 percent interest in USA Networks, offsetting this were dividend payments of $231 million and $753 million used to repurchase common shares. In fiscal 1999, cash used by the discontinued Tropicana operations to the disposition date of August 25, 1998 was $3 million as compared to the cash provided by discontinued Tropicana operations of $67 million in fiscal 1998. Working Capital -- Our working capital position is reinforced by available credit facilities of $5.5 billion. These facilities are used to support our commercial paper borrowings and are available for general corporate 28 30 purposes. We believe our access to external capital resources together with internally generated liquidity will be sufficient to satisfy existing commitments and plans, and to provide adequate financial flexibility. In order to effectively manage our capital needs and costs in the film business, we utilize a variety of arrangements, including co-production, insurance, contingent profit participation and the sale of certain distribution rights. In connection with our review of capital needs and costs, we have entered into an agreement with an independent third party to sell substantially all completed feature films produced over the period 1997 - 2000. Films under the agreement are sold at our cost and no revenue or expense from the initial sale of the films is recognized. We distribute these films and maintain an option to reacquire the films at fair value, based on a formula considering the remaining estimated total gross revenues, net of costs, at the time of reacquisition. No films have been reacquired as of June 30, 2000. Following the sale to the third-party, we accrue participations due to the third-party. As a distributor, we have recorded, in our statement of income, the revenues received from and operating expenses related to the films in all markets where we bear financial risk for film performance, and, in interest, net and other expense, certain other costs relating to the agreement. YEAR 2000 ISSUE During the year, we completed our efforts to minimize the risk of business disruption associated with the Year 2000 (Y2K) issue. To date, we have not experienced any material business disruptions or system failures as a result of Y2K issues, nor are we aware of Y2K issues affecting our critical third party vendors and customers that could have a significant impact on our business or operations. However, Y2K compliance has many elements and potential consequences, some of which may not be foreseeable or may be realized in future periods. Consequently, there can be no assurance that unforeseen circumstances may not arise, or that we will not in the future identify equipment, systems or third parties which are not Y2K compliant. The total costs related to our Y2K remediation efforts approximate $65 million, substantially all of which have been incurred as of June 30, 2000. These costs do not include the costs of redeployed internal resources or the costs of internally developed software or hardware which is being replaced or developed in the normal course of business. All costs associated with our Y2K efforts were funded through operations. Statements concerning Y2K issues that contain more than historical information may be considered forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements, and our Y2K discussion should be read in conjunction with our statement on forward-looking statements which appears below. EURO CONVERSION In January 1999, certain member countries of the European Union began operating with a new common currency, the euro, which was established by fixing conversion rates between their existing currencies and the euro. The euro may be used in business transactions along with existing currencies until June 2002, at which time the existing currencies will be removed from circulation. We conduct business in member countries and accordingly continue to evaluate the effects of the euro conversion on our European operations, principally in the music and spirits and wine businesses. We have established processes to address the issues raised by this currency conversion, including the impact on information technology and other systems, currency risk, financial instruments, taxation and competitive implications. Based upon progress to date, we believe that the introduction of the euro and phasing out of existing currencies will not have a material impact on our financial position or results of operations. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This report contains statements that are "forward-looking statements," in that they include statements regarding the intent, belief or current expectations of our management with respect to our future operating performance. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements that express forecasts, expectations and projections with respect to future matters, including the launching or prospective development of new business initiatives and products, anticipated music or motion picture releases, Internet or theme park projects, euro conversion 29 31 and "Year 2000" remediation efforts and anticipated cost savings or synergies are forward-looking statements within the meaning of the Act. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from our forward-looking statements as a result of certain risks and uncertainties, many of which are outside of our control, including but not limited to: - Changes in global and localized economic and political conditions, which may affect attendance and spending at our theme parks, purchases of our consumer products and the performance of our filmed entertainment operations. - Changes in financial and equity markets, including significant interest rate and foreign currency rate fluctuations, which may affect our access to, or increase the cost of financing for our operations and investments. - Increased competitive product and pricing pressures and unanticipated actions by competitors that could impact our market share, increase expenses and hinder our growth potential. - Changes in consumer preferences and tastes, which may affect all our business segments. - Adverse weather conditions or natural disasters, such as hurricanes and earthquakes, which may, among other things, impair performance at our theme parks in California, Florida and Spain. - Legal and regulatory developments, including changes in accounting standards, taxation requirements, such as the impact of excise tax increases with respect to the spirits and wine business, and environmental laws. - Technological developments that may affect the distribution of our products or create new risks to our ability to protect our intellectual property rights. - The uncertainties of litigation and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to changes in financial market conditions in the normal course of business because we conduct business in many foreign currencies and engage in ongoing investing and funding activities in many countries. Market risk is the uncertainty to which future earnings or asset/liability values are exposed due to operating cash flows denominated in foreign currencies and various financial instruments used in the normal course of operations. We have established policies, procedures and internal processes governing management of market risks and the use of financial instruments to manage our exposure to such risks. We are also exposed to changes in interest rates primarily as a result of our borrowing and investing activities that include short-term investments and borrowings and long-term debt used to maintain liquidity and fund business operations. We continue to utilize U.S. dollar-denominated commercial paper and bank borrowings to fund seasonal working capital requirements in the United States and Canada and also borrow in different currencies from other sources to meet the borrowing needs of our affiliates. The nature and amount of our long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. Operating cash flows denominated in foreign currency as a result of our international business activities and certain of its borrowings are exposed to changes in foreign exchange rates. We continually evaluate our foreign currency exposure (primarily the British pound, euro, Canadian dollar and Japanese yen), based on current market conditions and the business environment. In order to mitigate the effect of foreign currency risk, we engage in hedging activities. The magnitude and nature of such hedging activities are explained in Note 6 to the financial statements. We employ a variance/covariance approach in our calculation of Value at Risk (VaR), which measures the potential losses in fair value or earnings that could arise from changes in market conditions, using a 95 percent confidence level and assuming a one-day holding period. The VaR, which is the potential loss in 30 32 fair value, attributable to those interest rate sensitive exposures associated with our exposure to interest rates at June 30, 2000 was $41 million. This exposure is primarily related to long-term debt with fixed interest rates. The VaR, which is the potential loss in earnings associated with our exposure to foreign exchange rates, primarily to hedge cash flow exposures denominated in foreign currencies, was $3 million at June 30, 2000. These exposures include intercompany trade accounts, service fees, intercompany loans and third party debt. We are subject to other foreign exchange market risk exposure as a result of non-financial instrument anticipated foreign currency cash flows which are difficult to reasonably predict, and have therefore not been included in the Company's VaR calculation. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements on page 58. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 31 33 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table contains the principal occupation and certain other information about Seagram's board of directors, based on information obtained from each director. All directors have been engaged in the occupation or employment described immediately next to their names for more than five years, except where indicated.
DIRECTOR NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION SINCE - ---- --- ------------------------------------------ -------- Edgar M. Bronfman.................... 71 Chairman of the Board of Seagram................. 1955 The Honourable Charles R. Bronfman, P.C., C.C. ........................ 69 Co-Chairman of the Board and Chairman of the Executive Committee of Seagram. Mr. Bronfman is also Chairman of Koor Industries Ltd. ........... 1958 Edgar Bronfman, Jr. ................. 45 President and Chief Executive Officer of Seagram. Mr. Bronfman is also a director of USA Networks, Inc. ............................................ 1988 Samuel Bronfman II................... 47 President of Chateau & Estate Wines Company (a division of JES) and, since July 1998, Chairman of The Seagram Beverage Company (a division of JES)............................................. 1991 Stephen R. Bronfman.................. 36 Chairman of Claridge SRB Investments Inc. (a private holding company) since 1998. From July 1995 to March 1999, he was the Deputy Chairman of Netstar Communications Inc. Previously, he was an executive with Claridge Properties Ltd........... 1999 Matthew W. Barrett, O.C.............. 56 Group Chief Executive of Barclays PLC (a financial institution) since October 1, 1999. From February to July 1999, he was Chairman of the Board of Bank of Montreal prior to which he was also Chief Executive Officer. Mr. Barrett is also a director of Barclays Bank PLC and Molson Inc.............................................. 1995 Laurent Beaudoin, C.C................ 62 Chairman of the Board and Chairman of the Executive Committee of Bombardier Inc. (a transportation, aerospace and motorized products company) since February 1, 1999. Previously, he was also Chief Executive Officer of Bombardier Inc. ............................................ 1997 Cornelis Boonstra.................... 62 Chairman of the Board of Management and President of Koninklijke Philips Electronics N.V. ("Philips") (an electronics company) since October 1996. From June 1, 1994, he was Executive Vice President of Philips and, from July 1, 1994 until April 1, 1995, he was also President and Chief Executive Officer of Philips Lighting Holding B.V. Mr. Boonstra is also a director of Hunter Douglas International, N.V., Koninklijke Ahdd N.V., Sara Lee/DE N.V. and NBM-Amstelland N.V. ............................................ 1998
32 34
DIRECTOR NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION SINCE - ---- --- ------------------------------------------ -------- Richard H. Brown..................... 53 Chairman of the Board and Chief Executive Officer of Electronic Data Systems Corporation (an information technology company) since January 1, 1999. From July 1996 to December 1998 he was Chief Executive of Cable and Wireless plc. From May 1995 to July 1996 he served as President and Chief Executive Officer of H & R Block, Inc. and from January 1993 to April 1994 he was Vice Chairman of Ameritech Corporation. Mr. Brown is also a director of Home Depot Inc. .............. 1997 Andre Desmarais...................... 43 President and Co-Chief Executive Officer of Power Corporation of Canada (a holding and management company) and Deputy Chairman of Power Financial Corporation since May 1996. From May 1994 to May 1996 he was Chairman of Power Pacific Corporation Limited. Previously, he was President and Chief Operating Officer of Power Corporation of Canada. Mr. Desmarais is also a director of Audiofina S.A., Bombardier Inc., CLT-UFA, Citic Pacific Limited, Groupe Bruxelles-Lambert S.A., Great-West Lifeco Inc., The Great-West Life Assurance Company, Investors Group Inc., London Insurance Group Inc. and Pargesa Holding S.A. ... 1997 Barry Diller......................... 58 Chairman and Chief Executive Officer of USA Networks, Inc. (a diversified media and electronic commerce company) or its predecessors since August 1995. Mr. Diller is also a director of Ticketmaster Online-CitySearch, Inc. and The Washington Post Company.......................... 1998 Michele J. Hooper.................... 49 Corporate Director since July 2000. Previously she was President and Chief Executive Officer of Voyager Expanded Learning (an educational development company) from August 1999 to July 2000. From July 1998 to November 1998 she was President and Chief Executive Officer of Stadtlander Drug Co., Inc. From November 1992 to June 1998 she served as Corporate Vice President of Caremark International Inc. She also served as President of the International Business Group of Caremark International Inc. from November 1992 to June 1998. Ms. Hooper is also a director of PPG Industries and Target Corporation................ 1996 David L. Johnston, C.C. ............. 59 President of University of Waterloo (an educational institution) since July 1999. From July 1994 to June 1999 he was Professor of Law at McGill University. Previously, he was also Principal and Vice-Chancellor. Mr. Johnston is also a director of CT Financial Services Inc., Emco Limited, The CGI Group Inc and Lifestyle Furnishings International Ltd. .................. 1987
33 35
DIRECTOR NAME AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION SINCE - ---- --- ------------------------------------------ -------- Marie-Josee Kravis, O.C. ............ 51 Senior Fellow of Hudson Institute Inc. (a non-profit economics research institute) since March 1994. Previously, she was Executive Director of The Hudson Institute of Canada Inc. Mrs. Kravis is also a director of Canadian Imperial Bank of Commerce, Compagnie UniMedia Inc., Hasbro, Inc., Hollinger International Inc., Ford Motor Company and StarMedia Network, Inc. ............................................ 1985 Samuel Minzberg...................... 51 President and Chief Executive Officer of Claridge Inc. (a management company) since January 1, 1998. Previously, he was a partner and Chairman of the Montreal office of Goodman Phillips & Vineberg (attorneys). Mr. Minzberg is also a director of Koor Industries Ltd., Reitmans (Canada) Limited and USA Networks, Inc. and is of counsel to the Montreal office of Goodman Phillips & Vineberg.............................. 1998 John S. Weinberg..................... 43 Managing Director of Goldman, Sachs & Co. (investment bankers) since December 1996. Previously, he was a general partner of Goldman, Sachs & Co. ..................................... 1995
Set forth below is certain information with respect to our executive officers.
TITLE AND OTHER OFFICE HELD NAME AGE INFORMATION SINCE - ---- --- --------------- ----------- Edgar M. Bronfman.................... 71 Chairman of the Board and Director............. 1975 Charles R. Bronfman.................. 69 Co-Chairman of the Board, Chairman of the Executive Committee and Director............... 1986 Edgar Bronfman, Jr. ................. 45 President, Chief Executive Officer and Director....................................... 1994 John D. Borgia....................... 52 Executive Vice President, Human Resources since May 1995. Previously, he was Senior Vice President, Human Resources in Administration, Bristol-Myers Squibb Pharmaceutical Group...... 1993 Tod R. Hullin........................ 57 Executive Vice President, Corporate Communications and Public Policy since June 2000. From November 1998 to May 2000, he was Senior Vice President, Corporate Communications and Public Affairs. Previously, he was Senior Vice President, Communications and Public Affairs, Time Warner, Inc...................... 2000 Brian C. Mulligan.................... 41 Executive Vice President and Chief Financial Officer since January 2000. From July 1, 1999 to December 1999 he was Chairman of the Universal Motion Picture Group. From November 1, 1998 to June 1999 he was Executive Vice President Operations and Finance of Universal Studios, Inc. From January 1997 to October 1998 he was Senior Vice President Corporate Business Development and Strategic Planning of Universal Studios, Inc. Previously he was Vice President Corporate Development of Universal Studios, Inc............................................ 2000
34 36
TITLE AND OTHER OFFICE HELD NAME AGE INFORMATION SINCE - ---- --- --------------- ----------- Daniel R. Paladino................... 57 Executive Vice President, Legal and Environmental Affairs since October 1996. Previously, he was Vice President, Legal and Environmental Affairs.......................... 1996 Kevin Conway......................... 52 Senior Vice President, Tax since January 2000. Previously he was Vice President, Taxes and Chief Tax Officer of United Technologies Corporation.................................... 2000 Frank Mergenthaler................... 39 Senior Vice President of Finance and Chief Accounting Officer since September 1, 2000. From April 2000 to August 2000, he was Vice President, Controller and Chief Accounting Officer. From July 1997 to March 2000 he was Vice President, Controller for Joseph E. Seagram & Sons, Inc. From January 1996 to June 1997 he was Assistant Treasurer, International of Joseph E. Seagram & Sons, Inc. Previously he was a Partner at Price Waterhouse since 1995........................................... 2000 John R. Preston...................... 53 Senior Vice President of Treasury and Strategic Planning since September 1, 2000. From June 1998 to August 2000, he was Vice President and Treasurer. From January 1997 to June 1998, he was Vice President, Finance. Previously, he was Reengineering Financial Management/Post Merger Integration Team Leader........................ 2000 Michael C. L. Hallows................ 59 Secretary...................................... 1979
Our Board of Directors chooses our executive officers annually. Once chosen, these executive officers hold office until they resign, are removed or otherwise become disqualified to serve. 35 37 ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE This table shows the compensation of Seagram's Chief Executive Officer and each of Seagram's five other most highly compensated executive officers with respect to the fiscal years ended June 30, 2000, June 30, 1999 and June 30, 1998.
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------------------------ ------------------------------------ AWARDS PAYOUTS -------------------------- ------- OTHER RESTRICTED SECURITIES ANNUAL STOCK UNDERLYING LTIP SALARY BONUS COMPENSATION AWARD OPTIONS/ SARS PAYOUTS NAME AND PRINCIPAL POSITION YEAR (U.S.$) (U.S.$) (U.S.$) (#) (#) (U.S.$) - --------------------------- ------------- --------- --------- ------------ ---------- ------------- ------- Edgar M. Bronfman............... June 30, 2000 825,006 1,237,500 355,274(2) 0 0 0 Chairman of the Board June 30, 1999 812,505 750,750 276,642 0 80,000 0 of Seagram and of JES June 30, 1998 750,000 750,000 370,083 0 80,000 0 Charles R. Bronfman............. June 30, 2000 659,997 990,000 63,132(3) 0 69,200 0 Co-Chairman of the Board of June 30, 1999 649,998 600,600 125,984 0 69,200 0 Seagram and of JES and June 30, 1998 600,000 600,000 66,684 0 69,200 0 Chairman of the Executive Committee of Seagram Edgar Bronfman, Jr.............. June 30, 2000 1,000,000 6,000,000 38,068 0 650,000 0 President and Chief Executive June 30, 1999 1,000,000 2,730,000 31,458 0 1,500,000 0 Officer of Seagram and of JES June 30, 1998 1,000,000 3,000,000 30,289 0 0 0 Brian C. Mulligan(4)............ June 30, 2000 1,124,583 2,500,000 22,559(5) 0 600,000 0 Executive Vice President and Chief Financial Officer of Seagram and of JES John D. Borgia.................. June 30, 2000 526,680 742,500 20,715(6) 0 225,000 0 Executive Vice President, June 30, 1999 480,000 393,120 312,981 0 75,000 0 Human Resources of June 30, 1998 442,674 360,000 307,469 0 150,000 0 Seagram and of JES Robert W. Matschullat(7)........ June 30, 2000 1,000,000 2,341,500 39,854(8) 0 0 0 Formerly Vice Chairman and June 30, 1999 1,000,000 2,068,200 26,296 0 0 0 Chief Financial Officer of June 30, 1998 920,015 2,250,000 9,934 0 1,500,000 0 Seagram and of JES ALL OTHER COMPENSATION(1) NAME AND PRINCIPAL POSITION (U.S.$) - --------------------------- --------------- Edgar M. Bronfman............... 21,964 Chairman of the Board 21,841 of Seagram and of JES 111,206 Charles R. Bronfman............. 0 Co-Chairman of the Board of 0 Seagram and of JES and 0 Chairman of the Executive Committee of Seagram Edgar Bronfman, Jr.............. 8,363 President and Chief Executive 8,370 Officer of Seagram and of JES 18,929 Brian C. Mulligan(4)............ 5,760 Executive Vice President and Chief Financial Officer of Seagram and of JES John D. Borgia.................. 6,120 Executive Vice President, 5,760 Human Resources of 1,125 Seagram and of JES Robert W. Matschullat(7)........ 4,300 Formerly Vice Chairman and 5,760 Chief Financial Officer of 1,125 Seagram and of JES
- --------------- (1) Reflects the aggregate value of the contributions by Seagram's subsidiaries under the Retirement Savings and Investment Plan for Employees of JES and Affiliates and the current dollar value benefit of the premiums paid under the JES Insurance and Salary Continuation Programs. (2) Other annual compensation for the 2000 fiscal year includes U.S.$87,471 for financial counseling services. (3) Other annual compensation for the 2000 fiscal year includes U.S.$19,355 imputed income on Seagram's payment of group life insurance premiums. (4) Mr. Mulligan became Executive Vice President and Chief Financial Officer of Seagram and of JES on January 1, 2000. (5) Other annual compensation for the 2000 fiscal year includes U.S.$1,437 imputed income on Seagram's payment of group life insurance premiums. (6) Other annual compensation for the 2000 fiscal year includes U.S.$2,721 imputed income on Seagram's payment of group life insurance premiums. (7) Mr. Matschullat was Vice Chairman of Seagram and of JES until May 31, 2000 and Chief Financial Officer of Seagram and of JES until December 31, 1999. (8) Other annual compensation for the 2000 fiscal year includes U.S.$5,033 imputed income on Seagram's payment of group life insurance premiums. 36 38 OPTION/SAR GRANTS IN 2000 FISCAL YEAR
NUMBER OF SECURITIES % OF TOTAL UNDERLYING OPTIONS/ SARS EXERCISE OPTIONS/ SARS GRANTED TO OR BASE GRANTED EMPLOYEES IN PRICE EXPIRATION 0% NAME (#) FISCAL YEAR (U.S.$) DATE (U.S.$) - ---- ------------- ------------- -------- ----------------- ------- Edgar M. Bronfman............ 0 N/A N/A N/A N/A Charles R. Bronfman.......... 69,200(1) 1% 61.4375 February 14, 2010 0 Edgar Bronfman, Jr........... 650,000(1) 7% 61.4375 February 14, 2010 0 Brian C. Mulligan............ 500,000(2) 5% 47.0938 November 2, 2009 0 100,000(1) 1% 61.4375 February 14, 2010 0 John D. Borgia............... 225,000(1) 2% 61.4375 February 14, 2010 0 Robert W. Matschullat........ 0 N/A N/A N/A N/A All Shareholders(3).......... 0 Gain to Named Executive Officers as a Percentage of Gain to all Shareholders... 0% POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION FOR OPTION TERM 5% 10% NAME (U.S.$) (U.S.$) - ---- -------------- -------------- Edgar M. Bronfman............ N/A N/A Charles R. Bronfman.......... 2,673,729 6,775,760 Edgar Bronfman, Jr........... 25,114,505 63,645,140 Brian C. Mulligan............ 14,808,500 37,527,700 3,863,770 9,791,560 John D. Borgia............... 8,693,483 22,031,010 Robert W. Matschullat........ N/A N/A All Shareholders(3).......... 15,948,242,676 40,415,981,594 Gain to Named Executive Officers as a Percentage of Gain to all Shareholders... 0% 0%
- --------------- (1) Options to purchase shares were granted on February 15, 2000 and become exercisable in equal installments over a three-year period beginning on the first anniversary of the date of grant. (2) Options to purchase shares were granted on November 3, 1999 and become exercisable in equal installments over a five-year period that began on January 1, 2000. (3) The potential realizable gain to all shareholders is calculated based on 437,226,845 shares outstanding and a fair market value of U.S.$58.00 per share on June 30, 2000. AGGREGATED OPTION/SAR EXERCISES IN 2000 FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY ACQUIRED ON VALUE OPTIONS/SARS AT OPTIONS/SARS AT EXERCISE REALIZED FISCAL YEAR-END FISCAL YEAR-END NAME (#) (U.S.$) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ---- ----------- ---------- ------------------------- ------------------------- Edgar M. Bronfman.......... 115,600 4,822,635 696,601/ 79,999 18,612,664/ 1,089,146 Charles R. Bronfman........ 0 0 592,301/ 138,399 15,796,183/ 942,109 Edgar Bronfman, Jr......... 99,600 3,278,058 3,686,000/2,050,000 99,346,755/30,180,095 Brian C. Mulligan.......... 0 0 185,949/ 623,331 2,559,373/ 6,304,205 John D. Borgia............. 10,400 293,557 322,900/ 325,000 7,515,231/ 1,537,495 Robert W. Matschullat...... 0 0 1,195,500/ 900,000 22,121,439/14,109,330
PENSION, BENEFIT EQUALIZATION, RETIREMENT SALARY CONTINUATION AND SEVERANCE PLANS Pension Plan Seagram, through JES, maintains a pension plan for employees (including Edgar M. Bronfman, Charles R. Bronfman, Edgar Bronfman, Jr., Brian C. Mulligan, John D. Borgia and other officers) of JES and certain other U.S. subsidiaries. The pension plan was amended on January 1, 1999 to migrate from a final average pay plan to a new retirement account design in which JES applies annual contribution credits as a percent of pay and annual fixed interest rate credits to participants' account balances. JES also maintains an executive supplemental pension plan to provide additional payments on an unfunded basis to certain managers and executives (including Edgar M. Bronfman, Charles R. Bronfman, Edgar Bronfman, Jr., Brian C. Mulligan, John D. Borgia and other officers). Beginning in the year after any pension plan participant who is also a beneficial owner of 5% of the subject company has reached the age of 70 1/2, distributions with respect to JES's qualified pension plan are required to be made to the participant under the Internal Revenue Code of 37 39 1986. In accordance with that requirement, Edgar M. Bronfman received his first pension distribution of U.S.$11,082 in April 2000. Benefit Equalization Plan A benefit equalization plan provides for additional payments on an unfunded basis for certain senior executives of JES, including Edgar M. Bronfman, Charles R. Bronfman, Edgar Bronfman, Jr., and John D. Borgia. Senior executive employees participating in this plan are granted credit for one year of additional service (up to a maximum of 15 years) for each year of actual service, up to a combined aggregate of 35 years of service (up to 40 years under certain circumstances), if such employees have attained the age of 65 (or earlier under certain circumstances) and have accumulated at least ten years of service for purposes of the pension plan. The following table shows the estimated annual pension benefits (calculated on a straight-life basis) payable on retirement to eligible employees at or after age 65. Benefits are shown using an average compensation which is calculated using the five most highly compensated years during the last ten years of employment. PENSION PLAN TABLE
FIVE-YEAR AVERAGE ANNUAL PENSION FOR REPRESENTATIVE FINAL COMPENSATION YEARS OF CONTINUOUS SERVICE - ------------------ ----------------------------------------------------- 5 10 20 30 40 - ------------------ ------- ------- --------- --------- --------- U.S.$ 800,000 60,000 120,000 240,000 359,000 479,000 1,200,000 90,000 180,000 360,000 539,000 719,000 1,600,000 120,000 240,000 480,000 719,000 959,000 2,000,000 150,000 300,000 600,000 899,000 1,199,000 2,400,000 180,000 360,000 720,000 1,079,000 1,439,000 2,800,000 210,000 420,000 840,000 1,259,000 1,679,000 3,200,000 240,000 480,000 960,000 1,439,000 1,919,000 3,600,000 270,000 540,000 1,080,000 1,619,000 2,159,000 4,000,000 300,000 600,000 1,200,000 1,799,000 2,399,000 4,400,000 330,000 660,000 1,320,000 1,979,000 2,639,000 4,800,000 360,000 720,000 1,440,000 2,159,000 2,879,000
At June 30, 2000, Edgar M. Bronfman was credited with 40 years (the maximum years permitted under the benefit equalization plan), Charles R. Bronfman was credited with 42 months, Edgar Bronfman, Jr. was credited with 18 years and John D. Borgia was credited with five years for purposes of the benefit equalization plan. JES has agreed with John D. Borgia that upon his retirement, the total yearly pension payable to him shall not be less than the sum of U.S.$30,000 multiplied by the number of years (or portion of years) of his continuous service with Seagram, up to the maximum benefit that would be payable to him under the terms of the pension plan and the benefit equalization plan or replacement plans at age 60. JES has agreed with Robert W. Matschullat that when he reaches age 60 he will receive an annual pension benefit of U.S.$50,000 multiplied by the number of years (or portion of years) of his actual service to Seagram. RETIREMENT SALARY CONTINUATION PLAN JES maintains a program that provides retirement salary continuation benefits for Edgar M. Bronfman and Edgar Bronfman, Jr. and certain other executives of JES. If a participant retires after the age of 55 with 38 40 ten or more years of service, he will receive an amount payable annually for ten years of up to 35% of the sum of his base salary in the last year of employment plus the highest management incentive award previously received. As of 1988, no new participants are being accepted into this program and, subject to the terms of the program, existing participants will receive payments based on their compensation levels at January 31, 1988. OTHER RETIREMENT PLANS Joseph E. Seagram & Sons, Limited, a Canadian subsidiary of Seagram, maintains registered pension, unfunded pension and post-retirement consulting plans for certain of Seagram's executive employees, including Charles R. Bronfman. These plans are substantially equivalent to the pension, benefit equalization and retirement salary continuation plans of JES. As of 1988, no new participants are being accepted into the post-retirement consulting plan and, subject to the terms of the program, existing participants will receive payments based on their compensation levels at January 31, 1988. The estimated aggregate annual pension benefits payable at normal retirement age, at or after age 60, under the registered and unfunded plans are shown below. The benefits shown use an average salary and cash bonus which is calculated using the five most highly compensated years of the last ten years of employment. PENSION PLAN TABLE
ANNUAL PENSION FOR REPRESENTATIVE YEARS OF CONTINUOUS SERVICE FIVE-YEAR AVERAGE ----------------------------------------------------------- FINAL COMPENSATION 5 10 20 30 40 50 ------------------ ------- ------- ------- ------- ------- --------- (CANADIAN DOLLARS) $ 600,000 90,000 180,000 270,000 360,000 405,000 450,000 800,000 120,000 240,000 360,000 480,000 540,000 600,000 1,000,000 150,000 300,000 450,000 600,000 675,000 750,000 1,200,000 180,000 360,000 540,000 720,000 810,000 900,000 1,400,000 210,000 420,000 630,000 840,000 945,000 1,050,000
At June 30, 2000, Charles R. Bronfman was credited with 35 years of service for purposes of the registered pension plan (the maximum years permitted by such plan) and 46 years of service for purposes of the unfunded pension plan. SEVERANCE PLAN JES maintains a severance pay plan for certain non-union employees of JES and certain of its U.S. subsidiaries, including Edgar M. Bronfman, Charles R. Bronfman and Edgar Bronfman, Jr. The named executives are entitled to receive benefits under the severance pay plan only if their employment is terminated due to a permanent and complete closing of a location, a job elimination, or a failure to consistently perform at a level that meets minimum acceptable requirements. The severance pay plan provides benefits to eligible employees equal to one-twelfth of their annual rate of base salary for each year of service, subject to a maximum amount. The maximum period of time over which benefits may be provided under the severance pay plan is 24 months. EMPLOYMENT AND CONSULTING AGREEMENTS EDGAR BRONFMAN, JR. Seagram has entered into a termination protection agreement with Edgar Bronfman, Jr., its president and chief executive officer. See "Termination Protection Agreements" below for a summary of the payments and benefits under this agreement. Additionally, Seagram has agreed to enter into an employment agreement with Mr. Bronfman that will be guaranteed by Vivendi Universal. The employment agreement will have a four-year term beginning at the effective time of the arrangement and will automatically be extended for additional one-year periods unless Seagram or Mr. Bronfman provides 120 days' written notice of termination prior to the next extension date. The agreement provides that Mr. Bronfman will be the sole vice chairman of Vivendi 39 41 Universal and Seagram, and will report to Vivendi Universal's chairman, who will be the only executive senior to Mr. Bronfman. Mr. Bronfman's duties under the employment agreement will include primary responsibility for music and spirits and wine. In addition, the operating head(s) of Vizzavi, Vivendi Net and other Internet investments and activities will report directly to Mr. Bronfman Under the employment agreement, Mr. Bronfman will continue to receive an annual base salary of U.S.$1,000,000 and have an annual target bonus equal to 300% of his base salary payable upon achievement of annual performance targets. However, Mr. Bronfman will receive a minimum annual bonus of U.S.$2,000,000 for the first two years of the agreement. Mr. Bronfman will also participate in all Vivendi Universal and Seagram employee benefit plans at the levels afforded to other senior executives of Vivendi Universal, but not less than the levels currently afforded to Mr. Bronfman by Seagram, and will receive additional perquisites. At the beginning of the term of the agreement, Vivendi Universal will grant Mr. Bronfman options to purchase 500,000 Vivendi Universal ADSs, and the chairman of Vivendi Universal will recommend that the compensation committee grant Mr. Bronfman options to purchase an additional 500,000 Vivendi Universal ADSs at the compensation committee's first meeting after the effective time of the arrangement. The exercise price for those options will be the fair market value of the Vivendi Universal ADSs on the date of grant. The options will vest and become exercisable in equal annual installments on each of the first three anniversaries of the effective time of the arrangement, subject to Mr. Bronfman's continued employment. Mr. Bronfman will also be entitled to future option grants at the discretion of the compensation committee consistent with those awarded to Vivendi Universal's other senior executives. If Mr. Bronfman's employment is terminated by Vivendi Universal or Seagram (including by a failure to extend the employment agreement) other than for "cause" or by Mr. Bronfman for "good reason," in each case generally as defined in his termination protection agreement, which is described under "Termination Protection Agreements," Mr. Bronfman will be entitled to the severance benefits provided under the termination protection agreement. However, if Mr. Bronfman terminates his employment for good reason based solely on his right to resign during the thirteenth month following the effective time of the arrangement, the new options granted under the employment agreement will not accelerate. Seagram will also indemnify Mr. Bronfman to the fullest extent permitted by applicable law and will provide him with customary directors' and officers' liability insurance. Amounts payable to Mr. Bronfman will be increased in the event he becomes subject to any U.S. excise tax upon a subsequent change of control or to any French tax. BRIAN C. MULLIGAN Seagram has entered into an employment agreement with Brian C. Mulligan, its Executive Vice President and Chief Financial Officer. The employment agreement has a five-year term, and provides for an annual base salary of U.S.$1,000,000 and participation in all benefit plans and arrangements generally applicable to Seagram senior executives. His target annual cash incentive bonus for the fiscal year ended June 30, 2000 was U.S.$1.1 million and his target bonus for each fiscal year through June 30, 2004 will be U.S.$1.5 million, plus certain cost of living-based adjustments. His bonus amount for the six-month final period of his employment term will equal the target bonus for the last fiscal year ending June 30, 2004, plus those adjustments. Mr. Mulligan was guaranteed a minimum bonus for the fiscal year ended June 30, 2000 of U.S.$737,500 and will be guaranteed a minimum annual bonus each full fiscal year thereafter of one-half of his annual target bonus amount. He also received a discretionary supplemental bonus of U.S.$500,000 payable on September 1, 2000. On November 3, 1999, Mr. Mulligan was granted options to purchase 500,000 Seagram common shares, which become exercisable in five equal annual installments beginning January 1, 2000 and expire ten years from the date of grant unless terminated earlier upon the occurrence of certain events. Under the terms of his employment agreement, Seagram will recommend that the Human Resources Committee of Seagram's board of directors grant Mr. Mulligan options to purchase 100,000 Seagram common shares per year during his employment term, beginning in fiscal year 2000. 40 42 If Mr. Mulligan terminates his employment with "good reason," as defined in the contract, or Seagram terminates his employment without "cause" as defined in the contract, (i) all options held by him will become exercisable in full; (ii) he will be entitled to receive a discounted lump sum payment of all accrued and unpaid salary and bonus, any unpaid supplemental bonus, his base salary and 100% of each remaining annual bonus target payable through the expiration of his original employment term (or if longer, 12 months); and (iii) he will be entitled to continuation of medical coverage until the earlier of the date he obtains new employment, or the original expiration date of the term (or if later, 12 months after termination of his employment). The employment agreement also provides for certain payments and benefits if, within three years following a change of control of Seagram, as defined in the employment agreement, Mr. Mulligan terminates his employment with good reason, Seagram terminates his employment without cause, or his employment is terminated in anticipation of a change of control that subsequently occurs. See "Termination Protection Agreements" below for a summary of these payments and benefits. JOHN D. BORGIA Seagram has entered into an employment agreement with John D. Borgia, its Executive Vice President, Human Resources. The employment agreement has a three-and-one-half-year term beginning January 1, 2000. Mr. Borgia's employment agreement provides that he is paid an annual base salary of U.S.$550,000 during the first year of his employment with U.S.$25,000 annual increases thereafter. Mr. Borgia participates in all benefit plans and arrangements generally applicable to Seagram senior executives. He also has the opportunity to earn an annual cash incentive bonus for each fiscal year ending during his employment term equal to a target amount of 90% of his annual base salary. On February 15, 2000, Mr. Borgia was granted options to purchase 225,000 Seagram common shares, which become exercisable in three equal annual installments beginning on the first anniversary of the date of grant. Under the terms of his employment agreement, Mr. Borgia will also be considered for a grant of options in 2003. If Seagram terminates Mr. Borgia's employment without cause, as defined in the contract, (i) all options held by him will become exercisable in full, and (ii) he will be entitled to receive all accrued and unpaid salary and bonus; his base salary and 100% of each remaining annual bonus target payable through the expiration of his original employment term; and continuation of medical, dental, life and disability insurance coverage in effect for senior executive officers until the earlier of the date he obtains new employment, or the original expiration date of his employment term. The foregoing benefits will not be provided in the event Mr. Borgia's employment is terminated without cause in relation to a change of control of Seagram. In that case, he is entitled to receive the amounts provided under his termination protection agreement as described below under "Termination Protection Agreements." ROBERT W. MATSCHULLAT In connection with his previous employment as Vice Chairman and Chief Financial Officer and a director of Seagram, Robert W. Matschullat and Seagram entered into an amended and restated employment agreement dated November 1, 1999. The employment agreement provided that Mr. Matschullat would continue as Chief Financial Officer of Seagram until December 31, 1999 and as Vice Chairman and a director of Seagram through May 31, 2000, at an annual salary rate of U.S.$1 million. Thereafter, Mr. Matschullat agreed to continue his employment as an advisor to Seagram through March 31, 2001 at a salary of U.S.$20,000 per month. He has received an annual bonus of U.S.$2,341,500 for the fiscal year ended June 30, 2000. Mr. Matschullat will be paid all annual bonus amounts deferred by him, in addition to any earnings on those bonus amounts in accordance with applicable deferral arrangements, in eight installments beginning on July 1, 2005. Mr. Matschullat will participate in all benefit plans and arrangements generally applicable to Seagram senior executives through March 31, 2001, except that his medical, dental and life insurance benefits will continue until the earlier of June 30, 2002, or the date he becomes eligible for coverage with a new employer. If Mr. Matschullat terminates his employment or dies, or Seagram terminates his employment at the end of the employment term or upon his obtaining other employment, he will be entitled to receive: (i) all accrued 41 43 and unpaid salary, bonus or other compensation otherwise payable under his employment agreement; (ii) a lump sum payment of U.S.$6,683,000; (iii) continued medical, dental and life insurance coverage; and (iv) a lifetime pension of not less than U.S.$50,000 per year, times his years of service with Seagram, with payments beginning at age 60. TERMINATION PROTECTION AGREEMENTS Under the terms of termination protection agreements currently in effect between Seagram and some of its executive officers and other senior executives, including Edgar Bronfman, Jr., Brian C. Mulligan and John D. Borgia, those executives are entitled to severance and other benefits upon the occurrence of a change of control followed by a termination of the executive's employment without cause or a resignation by the executive for "good reason." The completion of the arrangement would constitute a change of control for purposes of the termination protection agreements. If an executive party to a termination protection agreement is also subject to an employment or other agreement that provides for higher payments or benefits, that agreement will control in lieu of the termination protection agreement to the extent of those greater benefits. In the case of the termination protection agreement with Edgar Bronfman, Jr., good reason includes any voluntary termination by the executive during the thirteenth month following the change of control, which will occur at the effective time of the arrangement. In the case of the agreements with certain other Seagram executives, good reason includes voluntary termination by the executive during the fourteenth month following the change of control, but only if the executive is not an executive officer of Vivendi Universal or has experienced a diminution of title or reporting relationship or a substantial diminution of responsibilities. Each termination protection agreement entitles the relevant executive to severance payments equal to (1) two times (or three times in the case of some executives) the sum of the executive's annual base salary and target bonus in effect on the date of the change of control or the termination date, whichever is higher, plus (2) a pro rata portion of the executive's target bonus for the year of termination. In addition, each agreement provides the following additional severance payments and benefits: - all unvested stock options outstanding on the date of a change of control, and all options granted upon conversion or substitution of those options, will become fully exercisable and will remain exercisable for the period applicable to vested options under the applicable option agreement; except that, with respect to Edgar Bronfman, Jr. only, any termination of employment (other than for cause or by reason of death or disability) will be treated as a retirement for purposes of options and other stock-based plans and agreements; - the continuation of all medical, life insurance and disability benefits for a period of two years (or three years, in the case of some executives) following the termination date, except that those benefits will become secondary to any benefits granted by a new employer; - the executive's years of service for retirement plan eligibility and certain other purposes will be increased by two years (or three years, in the case of some executives); - all unfunded pension benefits will become fully vested; - reimbursement of reasonable expenses incurred for outplacement services during the two-year period (or three-year period, in the case of some executives) following the executive's termination date; - the executive will retain all rights to indemnification under applicable law and Seagram's charter and by-laws as in effect from time to time; and - directors' and officers' liability insurance coverage of the executive will be maintained at the same level for a period of two years (or three years, in the case of some executives) following the termination date. In the event of an executive party to a termination protection agreement becomes subject to any excise tax, the agreement entitles the executive to payment in an amount sufficient to ensure a net after-tax benefit to the executive that is the same as if no excise tax had been charged. 42 44 The employment agreement between Seagram and Brian C. Mulligan provides for equivalent severance payments, benefits and protections upon a change of control as those provided in the termination protection agreements described above; however, Mr. Mulligan's employment agreement provides that, if it would produce a greater benefit to Mr. Mulligan, in lieu of multiplying the annual base salary and target bonus payments by three, Mr. Mulligan will be entitled to a discounted lump sum payment of his unpaid salary, supplemental bonus and target bonus through the end of his employment term (or 12 months if longer) and will be entitled to the continuation of medical coverage through the end of his employment term (or 12 months, if longer). REPORT ON EXECUTIVE COMPENSATION The following report on executive compensation is provided by the Human Resources Committee of Seagram's board of directors, which consists of non-employee directors. Seagram uses the guidelines and methodology described below to determine the appropriate compensation levels for its executives. However, executive officers covered by employment agreements may have compensation terms that differ from the guidelines. The terms of these employment agreements can be found above under the heading "Employment and Consulting Agreements." Seagram periodically reviews compensation data from surveys conducted by independent compensation consultants in order to assess and assure the market competitiveness of its executive compensation. The comparison group from which the data is collected comprises a broad range of Fortune 500 and similar international companies in general industry. In the case of Seagram's Chief Executive Officer, the comparison group comprises 12 Fortune 500 and similar international consumer product and entertainment companies. Companies of varying sizes engaged in the beverage alcohol and entertainment businesses, some of which are included in the comparison group, make up the peer group included in the performance graph; however, the Committee believes the comparison group more accurately reflects Seagram's competitors for executive talent. Taking into account the comparison group compensation data, the Committee determines the various components of compensation for each executive officer. Seagram seeks to place each executive's total compensation, including base salary, annual incentive awards and stock option grants, at approximately the 75th percentile of the total compensation paid for similar positions in the comparison group. A subcommittee consisting of the following members: Marie-Josee Kravis Laurent Beaudoin Richard H. Brown Andre Desmarais approves awards and administers the Senior Executive Short-Term Incentive Plan and the 1996 Stock Incentive Plan described below. The Human Resources Committee determines compensation for the executive officers, which consists primarily of the following three components: - salary - annual incentive compensation - stock-based compensation Salary. Each executive's salary is based on the executive's responsibilities, skills and sustained performance. Executive officers' salaries are maintained at competitive levels within relevant labor markets and are reviewed annually to maintain this competitive position. In the 2000 fiscal year, Seagram targeted base salaries at the 50th to 75th percentile of the comparison group for similar positions. 43 45 Annual Incentive Compensation. Seagram pays annual incentive awards to executive officers participating in Seagram's Senior Executive Short-Term Incentive Plan or Seagram's Management Incentive Plan. For the 2000 fiscal year, target awards under the Senior Executive Short-Term Incentive Plan and Management Incentive Plan were based upon Seagram or its applicable operating unit achieving prescribed objectives for earnings before interest, taxes, depreciation and amortization ("EBITDA"). Under the plans, target annual incentive awards for executive officers ranged from approximately 40% to 300% of salary for the 2000 fiscal year. Awards under the Senior Executive Short-Term Incentive Plan may be reduced for any reason including the Committee's assessment of individual performance or of the financial performance of Seagram or its operating units. Management Incentive Plan awards may be reduced or increased based on an assessment of the individual executive's performance. Awards to officers under the plans at the end of the 2000 fiscal year ranged from 150% to 200% of targets. Executives may elect to receive their Management Incentive Plan awards on a deferred basis in the form of cash or Seagram shares. Stock-Based Compensation. Seagram's 1996 Stock Incentive Plan allows participating executive officers and other participating employees to benefit from appreciation in the value of Seagram common shares. Options to purchase Seagram common shares are an important element of the total compensation program. Options granted under the 1996 Incentive Plan produce value for recipients only if the price of Seagram common shares increases from the price on the grant date. Seagram grants options to executive officers annually. The options have ten-year terms (subject to early termination in certain circumstances) and generally have three-year vesting periods (subject to acceleration in certain circumstances). The 1996 Incentive Plan, however, permits the subcommittee to grant options with different vesting periods. In determining the option grants in a given year, Seagram generally does not take into account the amount and terms of outstanding options held by executive officers. Compensation for the Chief Executive Officer. For the 2000 fiscal year, the base salary for Edgar Bronfman, Jr. remained at U.S.$1,000,000 and his target annual incentive award was set at 300% of salary. Mr. Bronfman was awarded 200% of his target annual incentive award under the Senior Executive Short-Term Incentive Plan for the 2000 fiscal year. Under the five-year equity award program renewed by the Committee in 1998, Mr. Bronfman has the opportunity to receive stock option grants should Seagram common shares outperform the broader market, measured at the end of each calendar year during the five-year period. As of the end of the first year under the renewed program, Seagram's common share performance authorized such an award. Taking this into account, along with the Committee's judgment concerning the Company's strategic and operating progress, the Committee granted Mr. Bronfman an option award in February 2000 covering 650,000 common shares. Section 162(m) of the Internal Revenue Code of 1986. Section 162(m) of the Internal Revenue Code of 1986 limits the deductibility of certain types of compensation in excess of U.S.$1 million paid to persons named in the Summary Compensation Table. Seagram believes that compensation paid under the Senior Executive Short-Term Incentive Plan and awards of stock options under Seagram's 1996 Stock Incentive Plan satisfy the requirements of Section 162(m). However, Section 162(m) may limit Seagram's or its affiliates' ability to deduct some other types of compensation paid to individuals named in the Summary Compensation Table. We believe Seagram should maintain the flexibility to design compensation strategies that can respond quickly to the marketplace and Seagram's needs even if such compensation is not fully deductible. HUMAN RESOURCES COMMITTEE Marie-Josee Kravis, Chairman Laurent Beaudoin Richard H. Brown Andre Desmarais John S. Weinberg 44 46 PERFORMANCE GRAPH -- COMPARISON The following graph compares the cumulative five-year total return of Seagram common shares with the S&P 500, the Toronto Stock Exchange 300 Composite Index ("TSE 300") and its peer group. The peer group comprises companies included in the S&P Beverages (Alcoholic) Index, certain non-U.S. competitors that compete with Seagram's beverage alcohol business and certain entertainment companies that compete with Seagram's entertainment business. In addition to Seagram, the members of the peer group are Allied Domecq PLC, Brown-Forman Corporation, Diageo plc, EMI Group plc, Fox Entertainment Group, Inc., Time Warner Inc., Viacom Inc. and The Walt Disney Company. The returns of each company have been weighted according to their respective market capitalization as well as the respective revenues from Seagram's entertainment and spirits and wine business segments. The performance graph assumes that U.S.$100 was invested on June 30, 1995 in Seagram common shares, the S&P 500, the TSE 300 and the peer group and that all dividends were reinvested. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG SEAGRAM VS. S&P 500, TSE 300, AND PEER GROUP (TWELVE MONTHS ENDED JUNE 30) VIVENDI BAR GRAPH
SEAGRAM S&P 500 TSE 300 PEER GROUP ------- ------- ------- ---------- 1995 100.00 100.00 100.00 100.00 1996 99.00 126.00 114.00 98.00 1997 120.00 170.00 148.00 117.00 1998 125.00 221.00 172.00 163.00 1999 156.00 271.00 167.00 182.00 2000 182.00 291.00 246.00 196.00
45 47 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL HOLDERS OF SHARES As of October 23, 2000, descendants of the late Samuel Bronfman, and trusts established for their benefit, beneficially owned directly or indirectly a total of 106,359,757 Seagram common shares, which constituted approximately 24% of the outstanding Seagram common shares. The holders in the following table are the only holders that, to Seagram's knowledge, own beneficially, or exercise control or direction over, more than 5% of the outstanding Seagram common shares of Seagram as of October 23, 2000. Descendants of the late Samuel Bronfman also hold options to acquire an additional 4,778,736 Seagram common shares that are exercisable on or within 60 days of October 23, 2000.
PERCENTAGE NUMBER OF SHARES BENEFICIAL OWNER OF SHARES OUTSTANDING - ---------------- ------------ ----------- The Edgar Miles Bronfman Trust.............................. 60,104,604(1) 13.53% The C. Bronfman Family Trust, The Charles Rosner Bronfman Family Trust, The CB Family Trust, The Charles R. Bronfman Discretionary Trust CRB Associates, Limited Partnership....................... 41,286,760(2) 9.29% Koninklijke Philips Electronics N.V. ....................... 47,831,952(3) 10.77% Capital Research and Management Company..................... 32,105,700(4) 7.23%
- --------------- (1) Includes 58,618,088 shares owned indirectly by The Edgar Miles Bronfman Trust, 375 Park Avenue, New York, New York, a trust established for the benefit of Edgar M. Bronfman and his descendants (EMBT), through its 99% interest in Bronfman Associates, a partnership of which Edgar M. Bronfman is the managing general partner, and 1,486,516 shares owned directly by the PBBT/Edgar Miles Bronfman Family Trust, a trust established for the benefit of Edgar M. Bronfman and his descendants (PBBT/EMBFT). The trustees of the EMBT and the PBBT/EMBFT include Edgar M. Bronfman, Edgar Bronfman, Jr. and John S. Weinberg. (2) Includes 14,320,000 shares owned directly by The C. Bronfman Family Trust (C.BFT), c/o Messrs. Bergman, Horowitz and Reynolds, whose address is 157 Church Street, New Haven, Connecticut, 20,364,000 shares owned by the Charles Rosner Bronfman Family Trust (CRBFT), c/o Goodman Phillips & Vineberg, 1501 McGill College Avenue, Montreal, Quebec, 5,000,000 shares owned by the CB Family Trust (CBFT), c/o Codan Trust Company Limited, Richmond House, 12 Par-La-Ville Road, Hamilton, Bermuda, and 302,760 shares owned by The Charles R. Bronfman Discretionary Trust (CRBDT) and 1,300,000 shares owned by CRB Associates, Limited Partnership (CRB Associates), each c/o Messrs. Bergman, Horowitz and Reynolds, 157 Church Street, New Haven, Connecticut. The general partners of CRB Associates are the CRBFT, which hold a 51.04% general partnership interest, and Claridge Israel LLC, which holds a 48% general partnership interest. Stephen R. Bronfman indirectly holds a 0.96% limited partnership interest in CRB Associates and is a trustee of the CRBFT. The managers of Claridge Israel LLC include Charles R. Bronfman. The members of Claridge Israel LLC are The Charles R. Bronfman Trust (CR.BT) and The Charles Bronfman Trust (CBT). The C.BFT, the CRBFT, the CBT, the CBFT, the CR.BT and the CRBDT are trusts established for the benefit of Charles R. Bronfman and his descendants. (3) The address of the principal executive offices of Philips is Rembrandt Tower, Amstelplein 1, 1096 HA Amsterdam, The Netherlands. A description of certain voting arrangements between Philips and Seagram can be found under "Item 13 -- Transactions with Directors and Others." (4) Based on a Schedule 13G filed by Capital Research and Management Company on February 14, 2000. The address of the principal executive offices of Capital Research and Management Company is 333 South Hope Street, Los Angeles, California. Of the shares beneficially owned, 3,693,700 are shares the beneficial ownership of which Capital Research and Management Company has the right to acquire. In addition, as of October 23, 2000, trusts for the benefit of the family of the late Minda de Gunzburg and members of her immediate family owned, directly or indirectly, a total of 1,237,212 shares. Edgar M. Bronfman, Charles R. Bronfman and the late Minda de Gunzburg are siblings. Edgar M. Bronfman and Charles R. Bronfman are directors and officers of Seagram. Edgar Bronfman, Jr. is a son of Edgar M. Bronfman and a director and officer of Seagram. Samuel Bronfman II is a son of Edgar M. Bronfman and a director of Seagram. Stephen R. Bronfman is the son of Charles R. Bronfman and a director of Seagram. Under a voting trust agreement dated August 3, 1984, as amended, Charles R. Bronfman is the voting trustee for certain shares beneficially owned directly or indirectly by the EMBT, the PBBT/EMBFT, the C.BFT, the CRBFT, the CBFT, CRB Associates and two charitable foundations. Charles R. Bronfman is a director of the two charitable foundations, which together owned 3,334,164 shares as of October 23, 2000. The 46 48 voting trust agreement has a term of 20 years and contains no restrictions on the right of the voting trustee to vote the deposited shares. As of October 23, 2000, the Bronfman voting trust agreement covered 104,398,768 shares. Under a voting trust agreement dated as of May 15, 1986, Edgar M. Bronfman, Charles R. Bronfman, Stanley N. Bergman, Guido Goldman and Leonard M. Nelson are voting trustees for shares beneficially owned directly or indirectly by trusts for the benefit of the family of the late Minda de Gunzburg and members of her immediate family. Messrs. Bergman, Goldman and Nelson, whose address is c/o First Spring Corporation, 499 Park Avenue, New York, New York, are the trustees of the trusts. The de Gunzburg voting trust agreement has a term of 15 years and contains no restrictions on the right of the voting trustees to vote the deposited shares. As of October 23, 2000, the de Gunzburg voting trust agreement covered 1,236,332 shares. An agreement, entered into as of August 3, 1984, as amended, governs the dispositions of shares that the EMBT, the PBBT/EMBFT, the C.BFT, the CRBFT, the CRBDT, CRB Associates, the trusts established for the benefit of the family of the late Minda de Gunzburg and members of her immediate family and three charitable foundations (including the charitable foundations referred to above) beneficially own, directly or indirectly. The agreement has a term of 20 years and permits each of the branches of the family to transfer shares within its family group. However, transfers to third parties are subject to a right of first refusal in favor of the other branches of the family. 47 49 SHARE OWNERSHIP OF MANAGEMENT The following table shows the number of shares which each of the directors of Seagram, each of the persons named in the "Summary Compensation Table" and the directors and executive officers of Seagram as a group owned beneficially, or exercised control or direction over, as of October 23, 2000. Each trustee of a trust or a charitable foundation may be deemed to be the beneficial owner of the shares held by the trust or foundation. Because certain persons listed below serve as trustees of the same trusts or charitable foundations, there are substantial duplications in the number of shares and percentages shown in the table.
PERCENTAGE DEFERRED NUMBER OF SHARES SHARE BENEFICIAL OWNER OF SHARES OUTSTANDING UNITS (1) - ---------------- ----------- ----------- --------- Edgar M. Bronfman........................................ 62,396,173(2) 14.02% -- The Hon. Charles R. Bronfman, P.C., C.C.................. 106,528,757(3) 23.94% -- Edgar Bronfman, Jr....................................... 63,685,509(4) 14.23% -- Samuel Bronfman II....................................... 390,314(5) * -- Stephen R. Bronfman...................................... 24,998,760(6) 5.62% 999 Matthew W. Barrett, O.C.................................. 1,000 * 6,279 Laurent Beaudoin, C.C.................................... -- -- 4,416 Cornelis Boonstra........................................ 1,611 * 347 John D. Borgia........................................... 322,900(7) * -- Richard H. Brown......................................... 1,000 * 4,887 Andre Desmarais.......................................... 5,000 * 2,621 Barry Diller............................................. 1,000(8) * 3,205 Michele J. Hooper........................................ 4,093 * -- David L. Johnston, C.C................................... 400 * 6,268 Marie-Josee Kravis, O.C.................................. 400 * 5,105 Robert W. Matschullat.................................... 1,295,500(9) * -- Brian C. Mulligan........................................ 209,458(10) * -- Samuel Minzberg.......................................... -- -- 4,128 John S. Weinberg......................................... 60,111,104(11) 13.53% 6,549 Directors and executive officers as a group.............. 112,402,446(12) 24.90% 44,804
- --------------- (*) Less than 1% (1) Under The Seagram Company Ltd. Stock Plan for Non-Employee Directors, each non-employee director may elect to receive either 50% or 100% of his or her annual retainer in Seagram common shares or deferred share units. If a director elects to receive shares, his or her annual retainer (net of withholding taxes) is used to purchase shares for the director on the open market. If a director elects to receive deferred share units, units representing the value of shares are credited to the director's account based on the market value of the shares on the annual crediting date. Deferred share units are paid to the director, along with the value of dividends as if reinvested in additional shares, after termination of board service. Payments are made in shares or cash, net of tax withholding, based on the then market value of the shares. Fees for attending board and committee meetings and/or for serving as a board committee chairman may also be received in deferred share units at the election of non-employee directors. (2) Includes 58,618,088 shares owned indirectly by the EMBT and 1,486,516 shares owned directly by the PBBT/EMBFT, trusts for which Mr. Bronfman serves as a trustee, 115,840 shares owned directly by Mr. Bronfman, 696,601 shares issuable upon the exercise of currently exercisable options, 1,840 shares owned by Mr. Bronfman's spouse, 600 shares owned directly by his children (other than Edgar Bronfman, Jr. and Samuel Bronfman II), and 240,356 shares owned by two charitable foundations of 48 50 which Mr. Bronfman is among the trustees. Mr. Bronfman disclaims beneficial ownership of the foregoing shares, except to the extent of his beneficial interest in the EMBT and the PBBT/EMBFT and with respect to shares owned directly by him. In addition, Mr. Bronfman serves as a voting trustee with respect to the 1,236,332 shares subject to the de Gunzburg voting trust agreement with respect to which Mr. Bronfman disclaims beneficial ownership. (3) Includes 14,320,000 shares owned directly by the C.BFT, 20,364,000 shares owned directly by the CRBFT, 5,000,000 shares owned directly by the CB Family Trust and 1,300,000 shares owned directly by CRB Associates, entities for which Mr. Bronfman serves as the voting trustee or in which he has a beneficial interest, 1,000 shares owned directly by Mr. Bronfman, 592,301 shares issuable upon exercise of currently exercisable options, 12,000 shares owned indirectly by Mr. Bronfman's spouse, 24,000 shares owned directly by his daughter, and 3,574,520 shares owned by four charitable foundations of which Mr. Bronfman is among the directors or trustees. Mr. Bronfman disclaims beneficial ownership of the foregoing shares, except to the extent of his beneficial interest in the foregoing entities and with respect to shares owned directly by him. In addition, Mr. Bronfman serves as the voting trustee with respect to 60,104,604 shares held by the EMBT and the PBBT/EMBFT subject to the Bronfman voting trust agreement and as a voting trustee with respect to 1,236,332 shares subject to the de Gunzburg voting trust agreement with respect to which Mr. Bronfman disclaims beneficial ownership. (4) Includes 58,618,088 shares owned indirectly by the EMBT and 1,486,516 shares owned directly by the PBBT/EMBFT, trusts for which Mr. Bronfman serves as a trustee, 240 shares owned directly by Mr. Bronfman, 3,340,000 shares issuable upon exercise of options which are currently exercisable or become exercisable within 60 days, 240,000 shares owned by a charitable foundation of which Mr. Bronfman is among the trustees and 665 shares in which Mr. Bronfman has an indirect interest through an investment in the Retirement Savings and Investment Plan for Employees of Joseph E. Seagram & Sons, Inc. and Affiliates (based on the value of such investment as of October 23, 2000). Mr. Bronfman disclaims beneficial ownership of the foregoing shares, except to the extent of his beneficial interest in the EMBT and the PBBT/EMBFT and with respect to shares owned directly by him. (5) Includes 240 shares owned directly by Mr. Bronfman, 149,834 shares issuable upon exercise of currently exercisable options and 240,000 shares owned by a charitable foundation of which Mr. Bronfman is among the trustees. Mr. Bronfman disclaims beneficial ownership of the foregoing shares except the shares owned directly by him. (6) Includes 20,364,000 shares owned directly by the CRBFT, a trust for which Mr. Bronfman serves as a trustee, 1,300,000 shares owned directly by CRB Associates, and 3,334,760 shares owned directly by four charitable foundations of which Mr. Bronfman is among the directors. Mr. Bronfman disclaims beneficial ownership of the foregoing shares, except to the extent of his beneficial interest in the CRBFT and CRB Associates. (7) These shares are issuable upon exercise of options which are currently exercisable or become exercisable within 60 days. (8) These shares are held by Ranger Investments, L.P., a limited partnership in which Mr. Diller owns a 99% interest. (9) Includes 100,000 shares owned directly by Mr. Matschullat and 1,195,500 shares issuable upon exercise of options which are currently exercisable or become exercisable within 60 days. See "Item 11. Executive Compensation -- Employment and Consulting Agreements." (10) Includes 3,087 shares owned directly by Mr. Mulligan, 402 shares held by a trustee under the Universal Incentive Program, which will vest April 1, 2001 and 205,949 shares issuable upon exercise of options which are currently exercisable or become exercisable within 60 days. (11) Includes 58,618,088 shares owned indirectly by the EMBT and 1,486,516 shares owned directly by the PBBT/EMBFT, trusts for which Mr. Weinberg serves as a trustee, 1,000 shares owned directly by Mr. Weinberg and 5,500 shares owned by a trust established for the benefit of Mr. Weinberg for which 49 51 he serves as a trustee. Mr. Weinberg disclaims beneficial ownership of the foregoing shares, except to the extent of his beneficial interest in the trust established for his benefit and with respect to the shares owned directly by him. (12) Includes 7,116,655 shares issuable upon exercise of options which are currently exercisable or become exercisable within 60 days. CHANGES IN CONTROL On June 20, 2000, the Company, Vivendi and Canal+ announced that they had entered into a merger agreement and related agreements providing for a strategic business combination among the three companies. See "Recent Developments" in Part I for a discussion of the proposed combination. In connection with the execution and delivery of the merger agreement, Vivendi entered into a voting agreement with Edgar Bronfman, Jr., Seagram's president and chief executive officer, and certain other Seagram shareholders that are members or affiliates of the Bronfman family (the "Bronfman shareholders") under which these shareholders agreed to vote shares representing approximately 24% of the Seagram common shares in favor of the arrangement and against any action that would impede or discourage the arrangement. In connection with the execution and delivery of the merger agreement, Vivendi and Vivendi Universal entered into a governance agreement with the Bronfman shareholders. Pursuant to the governance agreement, upon the completion of the arrangement, Vivendi Universal will be required to use its best efforts to appoint and thereafter to continue for a specified period to have serve on its board of directors a specified number of designees (initially five) initially chosen by Seagram's board of directors. Three of the five designees will be members of the Bronfman family who are parties to the governance agreement. The governance agreement requires that the number of directors on Vivendi Universal's board of directors be reduced to 18 by the second anniversary of the completion of the arrangement. The governance agreement also restricts the transfer of Vivendi Universal securities held by the Seagram shareholders that are parties to the voting agreement and contains other provisions relating to the ownership, holding, transfer and registration of Vivendi Universal securities. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION All five members of the Human Resources Committee of Seagram's board of directors are "outside" directors. Described below, however, is information regarding certain entities with which certain of such directors have relationships. During the 2000 fiscal year, Seagram agreed to purchase an airplane from Bombardier Inc. for approximately U.S.$37,700,000. Laurent Beaudoin, a Seagram director, is Chairman of the Board, Chairman of the Executive Committee and a director of Bombardier Inc. Goldman, Sachs & Co. performs investment banking services and provides investment advice to Seagram and its subsidiaries, including acting as financial advisor to Seagram in connection with the merger transactions, as managing underwriter or participating underwriter in connection with the sale of securities of Seagram and JES, as a dealer in the sale of commercial paper issued by JES, as a market maker in certain securities of JES and as a broker in connection with Seagram's share purchase program. John S. Weinberg, a member of the Human Resources Committee, is a Managing Director of Goldman, Sachs & Co. TRANSACTIONS WITH DIRECTORS AND OTHERS During the 2000 fiscal year, Claridge Inc. reimbursed a subsidiary of Seagram for the use of aircraft owned by such subsidiary in the amount of U.S.$199,777. The payment represented Claridge's pro rata share of the applicable operating expenses of the aircraft. During the 2000 fiscal year, Seagram paid or accrued rent 50 52 and reimbursed expenses to Claridge in the amount of Cdn.$99,320 (and Cdn.$84,000 during the current fiscal year to October 23, 2000) for the use by Seagram of office and parking space and secretarial services. The CRBFT owns all of the shares of Claridge. Charles R. Bronfman and Samuel Minzberg are among the directors and officers of Claridge. During the 2000 fiscal year, The Andrea & Charles Bronfman Philanthropies, Inc., a charitable organization, paid or accrued rent and reimbursed Seagram in the amount of U.S.$67,368 (and approximately U.S.$21,000 during the current fiscal year to October 23, 2000) for use by such organization of office space in Seagram's offices in New York. Andrea Bronfman and Charles R. Bronfman are directors of The Andrea & Charles Bronfman Philanthropies, Inc. Since the beginning of the last fiscal year, Frank Alcock, the father-in-law of Edgar Bronfman, Jr., has provided consulting services to affiliates of Seagram for U.S.$6,250 per month. Samuel Minzberg is of counsel to the Montreal office of Goodman Phillips & Vineberg, a law firm which provided legal services to Seagram during the 2000 fiscal year. Barclays extends credit and provides other services to Seagram and its subsidiaries, including serving as a lender under several credit agreements. Matthew W. Barrett, a Seagram director, is Group Chief Executive of Barclays PLC and a director of Barclays PLC and Barclays Bank PLC. Universal owns approximately 26% of the common stock of Loews Cineplex Entertainment Corporation, based on the information as of May 15, 2000 set forth in the proxy statement of Loews Cineplex dated May 25, 2000 and based on shares outstanding as of August 31, 2000, as set forth in the quarterly report on Form 10-Q of Loews Cineplex for the quarter ended August 31, 2000. In the normal course of its business, Universal receives certain film licensing fees from Loews Cineplex and pays Loews Cineplex distribution fees. Entities and persons related to Charles R. Bronfman hold approximately 7% of the common stock of Loews Cineplex based on shares outstanding as of August 31, 2000 as set forth in the quarterly report on Form 10-Q of Loews Cineplex for the quarter ended August 31, 2000. In connection with Seagram's acquisition of PolyGram, Seagram and Philips entered into a stockholders agreement providing for certain arrangements relating to Philips' ownership of shares following consummation of the acquisition. Under the stockholders agreement, Seagram agreed to use its best efforts to cause the election of the chief executive officer of Philips to the Seagram board of directors for so long as Philips beneficially owns at least 5% of the shares. As of October 23, 2000, Philips owned approximately 10.77% of Seagram's common shares, which it acquired as part of Seagram's acquisition of PolyGram in fiscal 1999. Cornelis Boonstra, a director of Seagram, is Chairman of the Board of Management and President of Philips. In addition, the agreement provides that at any time Philips is entitled to designate a director, Philips will also be entitled to appoint one ex officio member of the board of directors. The ex officio member will receive notice of and attend board meetings and receive all information circulated or made available to the board of directors. However, the ex officio member is not a member of the board for purposes of determining a quorum or for any other purpose, and does not have the right to vote on any matter voted on by the board. Under the stockholders agreement, subject to certain conditions, Philips will vote its shares to cause each of the nominees designated by the board of directors to be elected to the board. In connection with any vote of Seagram shareholders relating to any other matter, unless Seagram otherwise consents in writing, Philips will vote its shares, at its option, either proportionately on the same basis as the other shareholders vote or as recommended by the board of directors. The stockholders agreement also: - restricts Philips from transferring its shares; - prohibits Philips from acquiring any additional shares or participating in certain extraordinary transactions involving Seagram or any material portion of its business; and - grants to Philips customary demand and piggyback rights for the registration of its shares. Philips and subsidiaries of Seagram are parties to intellectual property and distribution arrangements containing normal business terms and conditions. 51 53 Universal holds an effective 43% interest in USA Networks, Inc. ("USA Networks"), based on shares outstanding as of July 31, 2000, as set forth in the quarterly report on Form 10-Q of USA Networks for the quarter ended June 30, 2000, through its ownership of common stock and class B common stock of USA Networks and shares of USANi LLC, a subsidiary of USA Networks, which Universal can exchange for common stock and class B common stock of USA Networks. Universal is party to a governance agreement among USA Networks, Universal, Liberty Media and Barry Diller. The governance agreement: - limits Universal from acquiring additional equity securities of USA Networks; - restricts Universal from transferring USA Networks securities; - provides for representation by Universal and Liberty Media on USA Networks' board of directors; and - lists fundamental actions that require the consent of Universal, Liberty Media and Mr. Diller before USA Networks can take those actions. In addition, Universal has entered into a stockholders agreement among Universal, Liberty Media, Mr. Diller, USA Networks and Seagram. The stockholders agreement: - governs the acquisition of additional USA Networks securities by Liberty Media; - restricts the transfer of shares; and - generally grants Mr. Diller voting control over all of the USA Networks capital stock owned by Universal and Liberty Media except with respect to the fundamental actions discussed above. Universal is also party to a spinoff agreement among Universal, Liberty Media and USA Networks providing for interim management arrangements in the event that Mr. Diller ceases to be Chief Executive Officer of USA Networks or becomes disabled. In addition, Universal has entered into agreements with USA Networks providing for various ongoing business arrangements, including: - an international distribution agreement granting Universal the right to distribute internationally, programs produced by USA Networks for a fee; - a domestic distribution agreement granting USA Networks the right to distribute specific Universal programming, including Universal's library of television programs, for a fee; - a 50-50 joint venture managed by Universal and governing the development and exhibition of the USA Network, the Sci-Fi Channel and Universal's new action/suspense channel, 13th Street, outside of the United States; and - a transition services agreement and agreements relating to merchandising, music administration and music publishing, home video distribution, the use by USA Networks of Universal's studio facilities and certain other matters. The parties negotiated these ongoing arrangements, which contain normal business terms and conditions, on an arms' length basis. Under the agreement governing Universal's investment in USA Networks, at various times since March 1998 Universal and Liberty Media have exercised their preemptive rights to purchase additional shares of USANi LLC shares following issuances of common stock by USA Networks. Universal and Liberty Media may continue to exercise these preemptive rights from time to time in the future. Mr. Diller is the Chairman of the Board and Chief Executive Officer of USA Networks and, based on the information as of January 31, 2000 set forth in the proxy statement of USA Networks dated March 6, 2000, owns or has the right to vote, pursuant to the stockholders agreement, approximately 14% of the outstanding USA Networks common stock and 100% of the outstanding USA Networks class B common stock and has approximately 75% of the outstanding total voting power of USA Networks common stock and USA Networks class B common stock. On May 28, 1999, USA Networks acquired from Universal Studios Holding I Corp. all of the capital stock of PolyGram Filmed Entertainment, Inc. ("PFE"), including the domestic motion picture and home 52 54 video distribution organization conducted as PolyGram Films, PolyGram Video, PolyGram Filmed Entertainment Canada, Gramercy Pictures, Interscope Communications and Propaganda Films. Universal acquired PFE in December 1998 as part of Seagram's approximately U.S.$10.6 billion acquisition of PolyGram. At the time of the sale of PFE to USA Networks, USA Networks agreed to pay or assume certain liabilities relating to the acquired businesses, and Universal and USA Networks entered into agreements providing for various ongoing business arrangements between Universal and USA Networks, including, among others: - a domestic theatrical distribution agreement, pursuant to which USA Networks made a U.S.$200 million interest bearing loan to Universal's parent which is due in approximately eight years unless repaid earlier from receipts arising from distribution of specified motion pictures which USA Networks has the exclusive right to distribute theatrically, on television and on video in the United States and Canada for a fee; - an ancillary services agreement, pursuant to which the parties will provide certain customary transitional services to each other during the six months following the closing; - a videogram fulfillment agreement, pursuant to which Universal or one of its affiliates will provide certain "pick, pack and ship" and related fulfillment services in the United States and Canada with respect to videos containing motion pictures of USA Networks; and - a music administration agreement, pursuant to which, subject to certain specified exceptions, USA Networks appointed Universal-MCA Music Publishing to be the exclusive administrator for 15 years of USA Networks' interest in certain music publishing rights to music compositions owned or controlled by USA Networks which are written for or used in motion pictures and videos following the closing. These arrangements were negotiated by the parties on an arms' length basis and contain customary business terms and conditions. In the ordinary course of business, and otherwise from time to time, Seagram and Vivendi Universal may determine to enter into other agreements with USAi and its subsidiaries. Seagram considers the amounts paid or received in the transactions described under "Human Resources Committee Interlocks and Insider Participation" to be reasonable and competitive and management believes they are comparable to those which would have been paid to or received from others. Seagram maintains directors' and officers' liability insurance, which insures the directors and officers of Seagram and its subsidiaries against losses from certain claims brought against its directors and officers. The policy has an aggregate limit of U.S.$100 million with a deductible of U.S.$500,000. The annual premium is U.S.$537,256, which has been paid for the policy year ending October 2000. Charles R. Bronfman's principal residence is in Palm Beach, Florida, Edgar Bronfman, Jr.'s principal residence is in New York, New York, Samuel Minzberg's principal residence is in Westmount, Quebec, Frank Alcock's principal residence is in Caracas, Venezuela, Matthew W. Barrett's principal residence is in London, England, Cornelis Boonstra's principal residence is in Amsterdam, the Netherlands and Barry Diller's principal residence is in Clearwater, Florida. 53 55 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)1&2. Financial Statements and Financial Statement Schedules The financial statements and schedules filed as part of or incorporated by reference in this Report are listed in the accompanying Index to Financial Statements. 3. Exhibits The exhibits filed as part of or incorporated by reference in this Report are listed in the accompanying Exhibit Index. Exhibits 10(s) through 10(ww) listed in the accompanying Exhibit Index identify management contracts or compensatory plans or arrangements. (b) Current Reports on Form 8-K 1. A Current Report on Form 8-K dated June 26, 2000 was filed to report under Item 5 and file under Item 7 a press release announcing that the Corporation had agreed to enter into a strategic business combination with Vivendi S.A. and Canal Plus S.A. 2. A Current Report on Form 8-K dated August 17, 2000 was filed to report under Item 5 and file under Item 7 Seagram's consolidated financial statements for the fiscal year ended June 30, 2000 together with management's discussion and analysis of financial condition and results of operations.
54 56 FORWARD-LOOKING STATEMENTS This Form 10-K contains statements that are "forward-looking statements," in that they include statements regarding the intent, belief or current expectations of our management with respect to our future operating performance. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements that express forecasts, expectations and projections with respect to future matters, including the launching or prospective development of new business initiatives and products, anticipated music or motion picture releases, Internet or theme park projects, euro conversion and "Year 2000" remediation efforts and anticipated cost savings or synergies are forward-looking statements within the meaning of the Act. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from our forward-looking statements as a result of certain risks and uncertainties, many of which are outside of our control, including but not limited to: - Changes in global and localized economic and political conditions, which may affect attendance and spending at our theme parks, purchases of our consumer products and the performance of our filmed entertainment operations. - Changes in financial and equity markets, including significant interest rate and foreign currency rate fluctuations, which may affect our access to, or increase the cost of financing for, our operations and investments. - Increased competitive product and pricing pressures and unanticipated actions by competitors that could impact our market share, increase expenses or hinder our growth potential. - Changes in consumer preferences and tastes, which may affect all our business segments. - Adverse weather conditions or natural disasters, such as hurricanes and earthquakes, which may, among other things, impair performance at our theme parks in California, Florida or Spain. - Legal and regulatory developments, including changes in accounting standards, taxation requirements, such as the impact of excise tax increases with respect to the spirits and wine business, and environmental laws. - Technological developments that may affect the distribution of our products or create new risks to our ability to protect our intellectual property rights. - The uncertainties of litigation and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission. 55 57 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE SEAGRAM COMPANY LTD. (Registrant) By /s/ FRANK MERGENTHALER ------------------------------------ Frank Mergenthaler Senior Vice President of Finance and Chief Accounting Officer Date: October 30, 2000 56 58 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on October 30, 2000 by the following persons on behalf of the Registrant and in the capacities indicated. Principal Executive Officer: * Director, President and Chief Executive Officer - --------------------------------------------------- Edgar Bronfman, Jr. Principal Financial Officer: /s/ BRIAN C. MULLIGAN Executive Vice President and Chief Financial - --------------------------------------------------- Officer Brian C. Mulligan Principal Accounting Officer: /s/ FRANK MERGENTHALER Senior Vice President of Finance and Chief - --------------------------------------------------- Accounting Officer Frank Mergenthaler Directors: Edgar M. Bronfman* Director, Chairman of the Board The Hon. Charles R. Bronfman* Director, Co-Chairman of the Board and Chairman of the Executive Committee Samuel Bronfman II* Director Stephen R. Bronfman * Director Matthew W. Barrett* Director Laurent Beaudoin* Director Cornelis Boonstra* Director Richard H. Brown* Director Andre Desmarais* Director Barry Diller* Director Michele J. Hooper* Director David L. Johnston* Director Marie-Josee Kravis* Director Samuel Minzberg* Director John S. Weinberg* Director
- --------------- * By signing his name hereto, Brian C. Mulligan signs this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. By /s/ BRIAN C. MULLIGAN ------------------------------------------------------- Brian C. Mulligan, Attorney-in-fact 57 59 THE SEAGRAM COMPANY LTD. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2000 INDEX TO FINANCIAL STATEMENTS 1. FINANCIAL STATEMENTS Consolidated Statement of Income for the Fiscal Years ended June 30, 2000, 1999 and 1998 Consolidated Balance Sheet at June 30, 2000 and June 30, 1999 Consolidated Statement of Cash Flows for the Fiscal Years ended June 30, 2000, 1999 and 1998 Consolidated Statement of Shareholders' Equity for the Fiscal Years ended June 30, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Management's Report Report of Independent Accountants Quarterly Data (Unaudited) 2. FINANCIAL STATEMENT SCHEDULES AND REPORT: Report of Independent Accountants on Financial Statement Schedule; Schedule for The Seagram Company Ltd. and Subsidiary Companies: II. Valuation and Qualifying Accounts. Schedules not included have been omitted because they are not applicable or the required information is shown in our Consolidated Financial Statements or Notes thereto. 58 60 CONSOLIDATED STATEMENT OF INCOME
FISCAL YEARS ENDED JUNE 30, ------------------------------------- 2000 1999 1998 ---------- ---------- --------- U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS Revenues.................................................... $15,686 $12,312 $9,474 Cost of revenues............................................ 9,006 7,337 5,525 Selling, general and administrative expenses................ 5,986 4,820 3,396 Restructuring charge (credit)............................... (59) 405 -- ------- ------- ------ Operating income (loss)..................................... 753 (250) 553 Interest, net and other expense............................. 661 457 228 Gain on sale of businesses.................................. 98 -- -- Gain on USA transactions.................................... -- 128 360 Gain on sale of Time Warner shares.......................... -- -- 926 ------- ------- ------ 190 (579) 1,611 Provision (benefit) for income taxes........................ 158 (33) 638 Minority interest........................................... 17 (26) 48 Equity earnings (losses) from unconsolidated companies...... 109 137 (45) ------- ------- ------ Income (loss) from continuing operations.................... 124 (383) 880 Income (loss) from discontinued Tropicana operations, after tax....................................................... -- (3) 66 Gain on sale of discontinued Tropicana operations, after tax....................................................... -- 1,072 -- Cumulative effect of change in accounting principle, after tax....................................................... (84) -- -- ------- ------- ------ Net income.................................................. $ 40 $ 686 $ 946 ======= ======= ====== EARNINGS PER SHARE -- BASIC Income (loss) from continuing operations.................. $ 0.28 $ (1.01) $ 2.51 Discontinued Tropicana operations, after tax.............. -- 2.82 0.19 Cumulative effect of change in accounting principle, after tax.................................................... (0.19) -- -- ------- ------- ------ Net income................................................ $ 0.09 $ 1.81 $ 2.70 ======= ======= ====== EARNINGS PER SHARE -- DILUTED Income (loss) from continuing operations.................. $ 0.28 $ (1.01) $ 2.49 Discontinued Tropicana operations, after tax.............. -- 2.82 0.19 Cumulative effect of change in accounting principle, after tax.................................................... (0.19) -- -- ------- ------- ------ Net income................................................ $ 0.09 $ 1.81 $ 2.68 ======= ======= ======
The accompanying notes are an integral part of these statements. U.S. GAAP 59 61 CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS ASSETS Cash and cash equivalents................................... $ 1,230 $ 1,533 Receivables, net of allowances.............................. 2,697 2,985 Inventories................................................. 2,422 2,627 Other current assets........................................ 1,450 1,736 ------- ------- TOTAL CURRENT ASSETS.............................. 7,799 8,881 Investments................................................. 5,603 5,663 Film costs, net of amortization............................. 991 1,251 Music catalogs, artists' contracts and advances............. 2,803 3,348 Property, plant and equipment, net.......................... 3,099 3,158 Goodwill and other intangible assets........................ 11,814 11,871 Other assets................................................ 699 839 ------- ------- $32,808 $35,011 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings and current portion of long-term debt...................................................... $ 499 $ 1,053 Payables and accrued liabilities............................ 3,960 4,808 Accrued royalties and participations........................ 2,263 2,285 ------- ------- TOTAL CURRENT LIABILITIES......................... 6,722 8,146 Long-term debt.............................................. 7,378 7,468 Accrued royalties and participations........................ 575 434 Deferred income taxes....................................... 2,696 2,698 Other liabilities........................................... 1,326 1,499 Minority interest........................................... 1,882 1,878 ------- ------- TOTAL LIABILITIES................................. 20,579 22,123 ------- ------- Shareholders' Equity Shares without par value.................................. 4,762 4,575 Retained earnings......................................... 8,460 8,707 Accumulated other comprehensive income.................... (993) (394) ------- ------- TOTAL SHAREHOLDERS' EQUITY........................ 12,229 12,888 ------- ------- $32,808 $35,011 ======= =======
The accompanying notes are an integral part of these statements. Approved by the Board /s/ EDGAR M. BRONFMAN /s/ MATTHEW W. BARRETT - --------------------------------------------- --------------------------------------------- Edgar M. Bronfman Matthew W. Barrett Director Director
U.S. GAAP 60 62 CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, ---------------------------- 2000 1999 1998 ------ ------- ------- U.S. DOLLARS IN MILLIONS OPERATING ACTIVITIES Income (loss) from continuing operations.................... $ 124 $ (383) $ 880 Adjustments to reconcile income (loss) from continuing operations to net cash provided: Depreciation and amortization of assets................... 720 527 289 Amortization of goodwill.................................. 347 246 127 Gain on sale of businesses................................ (98) -- -- Gain on sale of Time Warner shares........................ -- -- (926) Gain on USA transactions.................................. -- (128) (360) Minority interest in income (loss) of subsidiaries........ 17 (26) 48 Equity earnings from unconsolidated companies (in excess of) less than dividends received....................... (35) (45) 101 Deferred income taxes..................................... 83 92 447 Other..................................................... 69 120 (69) Changes in assets and liabilities, net of effect of acquisitions and dispositions: Receivables, net of allowances......................... (60) 952 (324) Inventories............................................ (101) (85) 14 Other current assets................................... 390 6 (524) Music catalogs, artists' contracts and advances........ 50 (2) (88) Payables and accrued liabilities....................... (574) (69) (7) Other liabilities...................................... (134) (270) 151 ------ ------- ------- 674 1,318 (1,121) ------ ------- ------- Net cash provided by (used for) operating activities........ 798 935 (241) ------ ------- ------- INVESTING ACTIVITIES Acquisition of PolyGram..................................... -- (8,607) -- Sale of Tropicana........................................... -- 3,288 -- Sale of Champagne operations................................ 310 -- -- Sale of Universal Concerts.................................. 190 -- -- Sale of Time Warner shares.................................. -- -- 1,863 USA transactions............................................ (242) (243) (368) Capital expenditures........................................ (607) (531) (410) Other....................................................... 69 (43) (386) ------ ------- ------- Net cash (used for) provided by investing activities........ (280) (6,136) 699 ------ ------- ------- FINANCING ACTIVITIES Dividends paid.............................................. (287) (247) (231) Issuance of shares.......................................... -- 1,417 -- Issuance of shares upon exercise of stock options and conversion of LYONs....................................... 187 314 86 Issuance of Adjustable Conversion-rate Equity Security Units..................................................... 75 900 -- Issuance of long-term debt.................................. 99 5,086 41 Repayment of long-term debt................................. (108) (1,066) (37) Shares purchased and retired................................ -- -- (753) (Decrease) increase in short-term borrowings and current portion of long-term debt................................. (787) (841) 1,053 ------ ------- ------- Net cash (used for) provided by financing activities........ (821) 5,563 159 ------ ------- ------- Net cash (used for) provided by continuing operations....... (303) 362 617 ------ ------- ------- Net cash (used for) provided by discontinued operations..... -- (3) 67 ------ ------- ------- Net (decrease) increase in cash and cash equivalents........ (303) 359 684 Cash and cash equivalents at beginning of period............ 1,533 1,174 490 ------ ------- ------- Cash and cash equivalents at end of period.................. $1,230 $ 1,533 $ 1,174 ====== ======= =======
The accompanying notes are an integral part of these statements. U.S. GAAP 61 63 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON SHARES WITHOUT PAR VALUE ACCUMULATED --------------------- OTHER TOTAL NUMBER RETAINED COMPREHENSIVE SHAREHOLDERS' (THOUSANDS) AMOUNT EARNINGS INCOME EQUITY ----------- ------ -------- ------------- ------------- U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS BALANCE AT JUNE 30, 1997............... 365,281 $ 809 $8,259 $ 354 $ 9,422 Components of comprehensive income: Net income........................... 946 946 Currency translation adjustments..... (72) (72) Unrealized holding loss in equity securities, net of $44 tax benefit............................ (82) (82) ------- Total comprehensive income........... 792 ------- Dividends paid ($.66 per share)...... (231) (231) Shares issued -- exercise of stock options............................ 2,751 84 84 -- conversion of LYONs.............................. 48 2 2 Shares purchases and retired......... (20,948) (47) (706) (753) ------- ------ ------ ----- ------- BALANCE AT JUNE 30, 1998............... 347,132 848 8,268 200 9,316 Components of comprehensive income: Net income........................... 686 686 Currency translation adjustments..... (599) (599) Unrealized holding gain in equity securities, net of $8 tax.......... 5 5 ------- Total comprehensive income........... 92 ------- Dividends paid ($.66 per share)...... (247) (247) Shares issued -- exercise of stock options and other compensation........ 8,493 312 312 -- conversion of LYONs.............................. 26 2 2 -- issuance of common shares............................. 76,904 3,413 3,413 ------- ------ ------ ----- ------- BALANCE AT JUNE 30, 1999............... 432,555 4,575 8,707 (394) 12,888 Components of comprehensive income: Net income........................... 40 40 Currency translation adjustments..... (348) (348) Unrealized holding loss in equity securities, net of $140 tax benefit............................ (251) (251) ------- Total comprehensive income........... (559) ------- Dividends paid ($.66 per share)...... (287) (287) Shares issued -- exercise of stock options and other compensation........ 4,585 183 183 -- conversion of LYONs.............................. 87 4 4 ------- ------ ------ ----- ------- BALANCE AT JUNE 30, 2000............... 437,227 $4,762 $8,460 $(993) $12,229 ======= ====== ====== ===== =======
The accompanying notes are an integral part of these statements. U.S. GAAP 62 64 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business The Seagram Company Ltd. operates in four global business segments: music, filmed entertainment, recreation and other, and spirits and wine. The music business is conducted through Universal Music Group, which produces, markets and distributes recorded music throughout the world in all major genres. Universal Music Group also manufactures, sells and distributes video products in the United States and internationally, and licenses music copyrights. The filmed entertainment and recreation and other businesses are conducted through Universal Studios Group. The filmed entertainment business produces and distributes motion picture, television and home video products worldwide, operates and has ownership interests in a number of international cable channels and engages in the licensing of merchandising and film property rights. The recreation and other business operates theme parks and retail stores and is also involved in the development of entertainment software. The spirits and wine business, directly and through affiliates and joint ventures, produces, markets and distributes distilled spirits, wines, Ports and Sherries, coolers, beers, mixers and other low-alcohol beverages. In addition to marketing owned brands, the spirits and wine business also distributes distilled spirits, wine, champagne and beer brands owned by others. Summary of Significant Accounting Policies BASIS OF PRESENTATION The Seagram Company Ltd. is headquartered in Canada, and more than 50 percent of the Company's shares are held by U.S. residents. As a result, the Company has prepared its consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). U.S. GAAP applicable to the Company conforms, in all material respects, to Canadian GAAP. Differences between U.S. and Canadian GAAP affecting these financial statements are discussed in Note 13. Should a material difference between the two accounting principles arise in the future, financial statements would be provided under both U.S. and Canadian GAAP. PRINCIPLES OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENTS The consolidated financial statements include the accounts of The Seagram Company Ltd. and its subsidiaries. All intercompany accounts, transactions and profits have been eliminated. Investments in certain other companies in which Seagram has significant influence, but less than a controlling interest, are accounted for using the equity method. Investments in companies in which Seagram does not have significant influence are accounted for at market value if the investments are publicly traded, or at cost if not publicly traded. USE OF ESTIMATES The preparation of the financial statements requires management to make informed estimates, assumptions and judgments, with consideration given to materiality, that affect the reported amounts of assets, liabilities, revenues and expenses. For example, estimates are used in management's forecast of anticipated revenues in the music and filmed entertainment businesses and in determining valuation allowances for uncollectible trade receivables and deferred income taxes. Actual results could differ from those estimates. REVENUES AND COSTS Music Revenues from the sale of recorded music, net of a provision for estimated returns and allowances, are recognized upon shipment to third parties. Advances to established recording artists and direct costs associated with the creation of record masters are capitalized and are charged to expense as the related royalties are earned, or when the amounts are determined to be unrecoverable. The advances are expensed when past performance or current popularity does not provide a sound basis for estimating that the advance will be recovered from future royalties. U.S. GAAP 63 65 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Filmed Entertainment Generally, theatrical films are first distributed in the worldwide theatrical and home video markets. Subsequently, theatrical films are made available for worldwide pay television, network exhibition, television syndication and basic cable television. Television films from the Company's library may be licensed for domestic and foreign syndication, cable or pay television and home video. Theatrical revenues from the distribution of films are recognized as the films are exhibited. Revenues from television and pay television licensing agreements are recognized when the films are available for telecast, and all other conditions of the sale have been met. Home video product revenues, less a provision for estimated returns and allowances, are recognized upon availability of product for retail sale. Film costs are stated at the lower of cost, less accumulated amortization, or net realizable value. The estimated total film production and participation costs are expensed based on the ratio of the current period's gross revenues to estimated total gross revenues from all sources on an individual production basis. Estimates of total gross revenues and costs can change significantly due to a variety of factors, including the level of market acceptance of film and television products. Accordingly, revenue and cost estimates are reviewed quarterly and revisions to amortization rates or write-downs to net realizable value may occur. Film costs, net of amortization, for completed theatrical films intended for distribution in the worldwide theatrical, home video and pay television distribution markets are classified as other current assets. The portion of released film costs expected to be realized from secondary markets such as network exhibition, television syndication and basic cable television are reported as noncurrent assets. Other costs relating to film production, including the purchase price of literary properties and related film development costs, and the film library are classified as noncurrent assets. In order to effectively manage our capital needs and costs in the film business, we may utilize a variety of arrangements, including co-production, insurance, contingent profit participation and the sale of certain distribution rights. In connection with our review of capital needs and costs, the Company has entered into an agreement with an independent third-party to sell substantially all completed feature films produced over the period 1997 - 2000. Films under the agreement are sold at our cost and no revenue or expense from the initial sale of the films is recognized. The Company distributes these films and maintains an option to reacquire the films at fair value, based on a formula considering the remaining estimated total gross revenues, net of costs, at the time of reacquisition. No films have been reacquired as of June 30, 2000. Following the sale to the third-party, we accrue participations due to the third-party in the same manner that the Company has historically amortized film costs under Financial Accounting Standard (SFAS) No. 53, Financial Reporting by Producers and Distributors of Motion Picture Films. As a distributor, the Company has recorded, in its statement of income, the revenues received from and operating expenses related to the films in all markets where we bear financial risk for film performance, and, in interest, net and other expense, certain other costs relating to the agreement. Recreation and Other Revenues at theme parks are recognized at the time of visitor attendance. Revenues for retail operations are recognized at point-of-sale. Spirits and Wine Revenues from the sale of spirits and wines are recognized when products are shipped. The Company establishes provisions for estimated returns and allowances at the time of shipment. Accruals for customer discounts and rebates are recorded when revenues are recognized. FOREIGN CURRENCY TRANSLATION For operations in highly inflationary economies the U.S. dollar is utilized as the functional currency. Affiliates outside the U.S. generally use the local currency as the functional currency. For affiliates in countries considered to have a highly inflationary economy, inventories and property, plant and equipment are translated at historical exchange rates and translation effects are included in net income. The cumulative currency translation adjustment balance was $(1,446) million, $(1,098) million and $(499) million at June 30, 2000, 1999 and 1998, respectively. U.S. GAAP 64 66 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CASH AND CASH EQUIVALENTS Cash equivalents include time deposits and highly liquid investments with original maturities of three months or less. INVENTORIES Inventories consist principally of spirits and wines and are stated at cost, which is not in excess of market. The cost of spirits and wines inventories is determined by either the last-in, first-out (LIFO) method or the identified cost method. In accordance with industry practice, current assets include spirits and wines inventories which are aged for varying periods of years. The cost of music, retail and home video inventories is determined by the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost. Depreciation is determined using the straight-line method based on the estimated useful lives of the assets, generally at annual rates of 2 1/2 - 10 percent for buildings, 4 - 33 percent for machinery and equipment and 10 - 50 percent for other assets. GOODWILL AND INTANGIBLE ASSETS The Company has significant acquired intangible assets, including goodwill, music catalogs, artists' contracts, music publishing assets, film libraries, copyrights and trademarks. Artists' contracts and music catalogs are amortized on an accelerated basis over 14 and 20 years, respectively. From the date of acquisition, the acceleration results in 80 percent of artists' contracts being amortized within the first eight years and 50 percent of music catalogs being amortized within the first five years. Music publishing assets, film libraries and copyrights are amortized on a straight-line basis over 20 years. Goodwill is amortized on a straight-line basis over periods up to 40 years. The Company reviews the carrying value of goodwill and intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Measurement of any impairment would include a comparison of discounted estimated future operating cash flows anticipated to be generated during the remaining amortization period to the net carrying value. Music catalogs, artists' contracts, music publishing assets and copyrights includes $400 million of the cost of the 1995 Universal acquisition and approximately $2.8 billion of the cost of the December 1998 PolyGram acquisition. A film library acquired in connection with the Universal acquisition was valued at $300 million. STOCK-BASED COMPENSATION Compensation cost attributable to stock option and similar plans is recognized based on the difference, if any, between the quoted market price of the Company's common shares on the date of grant over the exercise price of the option. The Company does not issue options at prices below market value at date of grant. DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign currency and interest rate derivative contracts for the purpose of minimizing risk. The Company uses currency forwards and options to hedge firm commitments and a portion of its foreign indebtedness. In addition, the Company hedges foreign currency risk on intercompany payments and receipts through currency forwards, options and swaps which offset the exposure being hedged. Gains and losses on forward contracts are deferred and offset against foreign exchange gains and losses on the underlying hedged transaction. Gains and losses on forward contracts used to hedge foreign debt and intercompany payments are recorded in the income statement in selling, general and administrative expenses. The Company uses interest rate swaps and swaptions to manage net exposure to interest rate movements related to its borrowings and to lower its overall borrowing costs. Net payments or receipts are recorded as adjustments to interest expense. Interest rate instruments generally have the same life as the underlying interest rate exposure. Gains or losses on the early termination of interest rate instruments are recognized over the remaining life, if any, of the underlying exposure as an adjustment to interest expense. NEW ACCOUNTING GUIDANCE Start-Up Costs It has been the Company's policy to capitalize one-time, direct incremental costs incurred prior to the initial opening of major recreation facilities, including sales and marketing, park set-up U.S. GAAP 65 67 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and training. Capitalized start-up costs were amortized over a twelve-month period upon the opening of the facility. At June 30, 1999, capitalized costs were $141 million. Amortization of start-up costs were $14 million and $1 million in fiscal 1999 and 1998, respectively. On July 1, 1999, the Company adopted the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AcSEC) Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities, which requires that costs of start-up activities and organization costs be expensed as incurred. The adoption of SOP 98-5 resulted in an $84 million non-cash after-tax charge in fiscal 2000, which was recorded as a cumulative effect of a change in accounting principle. Financial Instruments SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, issued by the Financial Accounting Standards Board (FASB), will require the Company to recognize all derivatives in the financial statements at fair value beginning July 1, 2000. Changes in the fair value of all derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether the derivative is used to hedge fair-value or cash-flow transactions. The ineffective portion of all hedges will be recognized in current-period earnings. The adoption of SFAS 133 will not have a material effect on the Company's financial statements. Film Accounting In June 2000, the AcSEC issued SOP 00-2, Accounting by Producers or Distributors of Films. The SOP supersedes current film accounting standards related to the recognition of revenues, costs and expenses and film cost valuation and will be adopted by the Company on July 1, 2000. The SOP requires that advertising costs for theatrical and television product be expensed as incurred. Additionally, the SOP requires that certain abandoned project costs, which were previously capitalized as film costs, be expensed on an accelerated basis. Film costs are also required to be presented on the balance sheet as noncurrent assets. In connection with the adoption of SOP 00-2, the Company will expense story costs as incurred. The adoption of SOP 00-2 will result in an approximate $360 million non-cash after-tax charge to reduce the carrying value of film inventory, which will be reported as a cumulative effect of a change in accounting principle. RECLASSIFICATIONS Certain prior period amounts in the financial statement notes have been reclassified to conform with the current year presentation. NOTE 2 SIGNIFICANT TRANSACTIONS Acquisition of PolyGram On December 10, 1998, the Company acquired 99.5 percent of the outstanding shares of PolyGram N.V. (PolyGram), a global music and entertainment company, for $8,607 million in cash and approximately 47.9 million common shares of the Company. Substantially all of the common shares were issued to Koninklijke Philips Electronics N.V., which had owned 75 percent of the PolyGram shares. The acquisition has been accounted for under the purchase method of accounting, and accordingly the results of the operations of PolyGram are included in the results of the Company's music and filmed entertainment segments from the date of acquisition. The acquisition was financed through both short-term and long-term borrowings Allocation of Purchase Price -- The Company completed a purchase price study related to its acquisition of PolyGram in order to assess and allocate the purchase price among tangible and intangible assets acquired U.S. GAAP 66 68 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and liabilities assumed, based on fair values at the acquisition date. The final allocation of purchase price follows:
U.S. DOLLARS IN MILLIONS ------------------------ Identifiable intangible assets.............................. $ 2,774 Goodwill.................................................... 9,616 Accrual for exit activities................................. (510) All other, net.............................................. (1,080) ------- $10,800 =======
Intangible Assets -- Identifiable intangible assets consist of music catalogs, artists' contracts, music publishing assets, distribution networks and customer relationships. Acquired music catalogs, artists' contracts and music publishing assets are amortized over periods ranging from 14 to 20 years, on an accelerated basis, and other intangibles are amortized over a 40-year period, on a straight-line basis. Goodwill is the excess of purchase price over the fair value of assets acquired and liabilities assumed, and is amortized on a straight-line basis over a 40-year period. Accrual for Exit Activities -- In connection with the integration of PolyGram and Seagram, management developed a formal exit activity plan that was committed to by management and communicated to employees shortly after the acquisition was consummated. The accrual for exit activities consists principally of facility elimination costs, including leasehold termination payments and incremental facility closure costs, contract terminations, relocation costs and the severance of approximately 1,700 employees. The utilization of the accrual for exit activities to date follows:
UTILIZED ----------------- BALANCE AT EXIT ACTIVITIES CASH NON-CASH JUNE 30, 2000 --------------- ----- -------- ------------- U.S. DOLLARS IN MILLIONS Facility elimination costs............. $ 45 $ (23) $ (1) $ 21 Contract terminations.................. 68 (44) (13) 11 Severance or relocation................ 397 (207) (15) 175 ---- ----- ---- ---- $510 $(274) $(29) $207 ---- ----- ---- ----
As of June 30, 2000, remaining exit activities relate principally to contractual obligations, facility elimination and severance payments to be made in future periods. Disposition of Tropicana On August 25, 1998, the Company completed the sale of Tropicana Products, Inc. and the Company's global fruit juice business (Tropicana) for approximately $3,288 million in cash, which resulted in a pre-tax gain of $1,445 million ($1,072 million after tax). Tropicana produced and marketed Tropicana, Dole and U.S. GAAP 67 69 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) other branded fruit juices and beverages. Summarized financial information related to the discontinued Tropicana business follows:
PERIOD ENDED FISCAL YEAR ENDED AUGUST 25, 1998 JUNE 30, 1998 --------------- ----------------- U.S. DOLLARS IN MILLIONS Revenues.............................................. $337 $1,986 Cost of revenues...................................... 266 1,394 Selling, general and administrative expenses.......... 68 423 ---- ------ Operating income...................................... 3 169 Interest expense...................................... 3 39 Provision for income taxes............................ 3 64 ---- ------ Income (loss) from discontinued operations............ $ (3) $ 66 ==== ======
Interest expense above represents allocations based on the ratio of net assets of discontinued operations to consolidated net assets. USA Transactions On October 21, 1997, Universal acquired from Viacom Inc. the remaining 50 percent interest in the USA Networks partnership for $1.7 billion in cash. This purchase was in addition to Universal's original 50 percent interest in USA Networks. The acquisition was accounted for under the purchase method of accounting. The cost of the acquisition was allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. This transaction resulted in $1.6 billion of goodwill which was being amortized over 40 years. On February 12, 1998, Universal sold its acquired 50 percent interest in USA Networks to USA Networks, Inc. (USAi) and contributed its original 50 percent interest in USA Networks, the majority of its television assets and 50 percent of the international operations of USA Networks to USANi LLC. In this transaction, Universal received $1,332 million in cash, a 10.7 percent interest in USAi and a 45.8 percent exchangeable interest in USANi LLC. Universal recognized a gross gain of $583 million, before taking into consideration the effect of the transaction, which impaired certain remaining television assets and transformed various related contractual obligations into adverse purchase commitments. The fair value of these items was determined based on expected future cash flows. The impairment losses and adverse purchase commitments arising from the transaction aggregated $223 million and were reflected in the net gain of $360 million ($222 million after tax). During 1999, $128 million of accrued costs were reversed as a result of the favorable settlement of certain contractual obligations and adverse purchase commitments. The transactions resulted in $82 million of goodwill, which is being amortized over 40 years. The investment in the 18.2 million shares of USAi common stock held by Universal at June 30, 2000 is accounted for at market value ($393 million at June 30, 2000) and has an underlying historical cost of $211 million. The investment in 13.4 million shares of Class B common stock of USAi is carried at its historical cost of $136 million. The investment in the LLC is accounted for under the equity method. Pro Forma Financial Information The unaudited condensed pro forma income statement data presented below assume the PolyGram acquisition, the sale of Tropicana and the USA transactions occurred at the beginning of the 1998 fiscal year. The pro forma information is not necessarily indicative of the combined results of operations of the Company that would have occurred if the transactions had occurred on the date previously indicated, nor is it necessarily indicative of future operating results of the Company. U.S. GAAP 68 70 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FISCAL YEARS ENDED JUNE 30, -------------------------- 1999 1998 ----------- ----------- U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS Revenues.................................................... $15,344 $14,587 Net income (loss)........................................... $ (208) $ 447 Earnings (loss) per share: Basic..................................................... $ (0.52) $ 1.12 Diluted................................................... $ (0.52) $ 1.11
Other Transactions Disposition of Concert Operations On September 10, 1999, the Company completed the sale of Universal Concerts, Inc. for proceeds of approximately $190 million. This transaction resulted in a pre-tax gain of $98 million. Disposition of Champagne Operations On July 2, 1999, the Company completed the sale of its Mumm and Perrier-Jouet Champagne operations for approximately $310 million. The sale price approximated book value and therefore no gain or loss was recognized. Through agreements with the purchaser, Seagram has retained global distribution rights for Mumm and Perrier-Jouet Champagnes for a ten-year period. Time Warner Shares On February 5, 1998, the Company sold 15 million shares of Time Warner common stock for pre-tax proceeds of $958 million. On May 27, 1998, the Company sold its remaining 11.8 million shares of Time Warner common stock for pre-tax proceeds of $905 million. The aggregate gain on the sale of the shares was $926 million ($602 million after tax). NOTE 3 RESTRUCTURING CHARGE Management developed and committed to a formal plan that was communicated to employees to restructure its music and filmed entertainment operations after the acquisition of PolyGram. This plan resulted in a fiscal 1999 pre-tax restructuring charge of $405 million. The charge related entirely to the Company's existing global music and film production, financial, marketing and distribution operations and included severance, elimination of duplicate facilities and labels, termination of artists' and distribution contracts and costs related to exiting film production arrangements and properties in development. The major components of the charge were:
FILMED MUSIC ENTERTAINMENT TOTAL ----- ------------- ----- U.S. DOLLARS IN MILLIONS Severance and other employee-related costs.............. $111 $15 $126 Facilities and labels................................... 124 4 128 Contract termination and other costs.................... 78 73 151 ---- --- ---- $313 $92 $405 ---- --- ----
The severance and other employee-related costs provided for a reduction of approximately 1,200 employees worldwide related to facility closures, duplicate position eliminations and streamlining of operations related to cost reduction initiatives. The facilities and labels elimination costs provided for domestic and international lease and label terminations and the write-off of the net book value of furniture, fixtures and equipment and leasehold improvements for vacated properties. The costs of contract terminations were comprised primarily of artists' contracts, distribution contracts, story property commitments and filmed entertainment term deals. The cash and non-cash elements of the restructuring charge approximated $318 U.S. GAAP 69 71 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) million and $87 million, respectively. Many restructuring activities are complete or near completion. Due to the favorable settlement of certain contractual and employee severance obligations, $59 million of the original restructuring charge was credited to income in the second quarter of fiscal 2000. The utilization of the restructuring charge to date follows:
UTILIZED ORIGINAL RESTRUCTURING ---------------- BALANCE AT CHARGE CREDIT CASH NON-CASH JUNE 30, 2000 -------- ------------- ----- -------- ------------- U.S. DOLLARS IN MILLIONS Severance and other employee-related costs............................... $126 $(12) $ (74) $ (3) $ 37 Facilities and labels................. 128 (35) (9) (56) 28 Contract termination and other costs............................... 151 (12) (75) (28) 36 ---- ---- ----- ---- ---- $405 $(59) $(158) $(87) $101 ==== ==== ===== ==== ====
As of June 30, 2000, essentially all of the employees provided for under the restructuring initiative have separated from the Company. Remaining restructuring activities relate principally to contractual obligations and severance payments to be made in future periods. NOTE 4 INVESTMENTS The Company's investments consist of:
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS Equity method investments: USANi LLC................................................ $2,719 $2,329 Other.................................................... 1,568 1,710 ------ ------ 4,287 4,039 ------ ------ Cost and fair-value investments: DuPont................................................... 719 1,123 USAi common stock........................................ 393 365 USAi Class B common stock................................ 136 136 Other.................................................... 68 -- ------ ------ 1,316 1,624 ------ ------ $5,603 $5,663 ====== ======
Equity method investments The Company has a number of investments in unconsolidated companies which are 50 percent or less owned or controlled, that are accounted for using the equity method. The most significant of these is USANi LLC, which is part of our filmed entertainment business and is engaged in network and first run syndication television production, domestic distribution of its and Universal's television production and operation of the USA Network and SCI-FI Channel cable networks (49 percent equity interest). Other filmed entertainment equity investments include Loews Cineplex Entertainment Corporation, primarily engaged in theatrical exhibition of motion pictures in the U.S. and Canada (26 percent owned); Cinema International Corporation and United Cinemas International, both engaged in theatrical exhibition of motion pictures in territories outside the U.S. and Canada (49 percent owned), and several other equity investments primarily related to our international television networks. Significant investments in the recreation and other business include Universal City Development Partners, (50 percent owned) which owns Universal Orlando, a themed tourist attraction in Orlando, Florida, that includes Universal Studios, Islands of Adventure, CityWalk, Hard Rock Live and a 50 percent interest in the Portofino Bay Hotel (a Loews hotel); U.S. GAAP 70 72 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) USJ Co., Ltd., which has begun development of a motion picture themed tourist attraction, Universal Studios Japan, and owns commercial real estate in Osaka, Japan (24 percent owned); Universal Studios Port Aventura, a theme park located in Spain (37 percent owned); SEGA GameWorks LLC, which designs, develops and operates location-based entertainment centers (27 percent owned); and Interplay Entertainment Corp., an entertainment software developer (16 percent owned). In the music business, the most significant equity investment is GetMusic, an online music alliance to create Internet sites that promote and sell music (50 percent owned). The spirits and wine business has an investment in Kirin-Seagram Limited, which is engaged in the manufacture, sale and distribution of distilled beverage alcohol and wines in Japan (49 percent owned). Summarized financial information for the Company's investments in unconsolidated companies, derived from unaudited historical financial results, follows: SUMMARIZED BALANCE SHEET INFORMATION
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS Current assets............................................. $ 2,250 $ 1,897 Noncurrent assets.......................................... 12,781 11,928 ------- ------- $15,031 $13,825 ======= ======= Current liabilities........................................ $ 2,123 $ 1,991 Noncurrent liabilities..................................... 4,693 3,883 Equity..................................................... 8,215 7,951 ------- ------- $15,031 $13,825 ======= ======= Proportionate share of net assets of unconsolidated companies................................................ $ 3,392 $ 3,691 ======= =======
Approximately $700 million of the cost of the 1995 Universal acquisition was allocated to goodwill related to investments in unconsolidated companies and is being amortized on a straight-line basis over 40 years. SUMMARIZED STATEMENT OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, ----------------------------- 2000 1999 1998 ------- ------- ------- U.S. DOLLARS IN MILLIONS Revenues................................................. $6,117 $5,294 $4,561 Earnings before interest and taxes....................... $ 286 $ 351 $ 366 Net income............................................... $ 241 $ 314 $ 173
The equity earnings (losses) of unconsolidated companies in the consolidated statement of income includes goodwill amortization related to unconsolidated companies of $17 million, $35 million and $81 million for the fiscal years ended June 30, 2000, 1999 and 1998, respectively, principally in the filmed entertainment and recreation and other segments. Additionally, operating income for the fiscal year ended June 30, 1998 includes $76 million of income from USA Networks for the period from October 21, 1997 to February 12, 1998 when the Company owned 100 percent of USA Networks as described in Note 2. Cost and fair-value investments DuPont -- At June 30, 2000, the Company owned 16.4 million shares of the outstanding common stock of E.I. du Pont de Nemours and Company (DuPont). The Company accounts for the investment at market U.S. GAAP 71 73 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) value which was $719 million at June 30, 2000. The underlying historical book value of the DuPont shares is $187 million, which represents the historical cost of the shares plus unremitted earnings related to those shares. USAi -- At June 30, 2000, the Company owned 18.2 million shares of the outstanding common stock of USAi. The investment, which is accounted for at market value ($393 million at June 30, 2000), has an underlying cost of $211 million. At June 30, 2000, the Company also owned 13.4 million shares of USAi Class B common stock which is carried at its historical cost of $136 million. Other -- Other cost and fair-value investments at June 30, 2000, are primarily related to our music electronic business initiatives. NOTE 5 LONG-TERM DEBT AND CREDIT ARRANGEMENTS LONG-TERM DEBT
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS 6.5% Debentures due 2003.................................... $ 200 $ 200 8.35% Debentures due 2006................................... 200 200 8.35% Debentures due 2022................................... 200 200 6.875% Debentures due 2023.................................. 200 200 6% Swiss Franc Bonds due 2085 (SF 250 million).............. 153 162 7.50% Adjustable Conversion-rate Equity Security Units(1)... 1,004 927 Other....................................................... 293 208 ------ ------ 2,250 2,097 ------ ------ Joseph E. Seagram & Sons, Inc. (JES), guaranteed by Company: 5.79% Senior Notes due 2001............................... 250 250 6.25% Senior Notes due 2001............................... 600 600 6.4% Senior Notes due 2003................................ 400 400 6.625% Senior Notes due 2005.............................. 475 475 8.375% Debentures due 2007................................ 200 200 7% Debentures due 2008.................................... 200 200 6.8% Senior Notes due 2008................................ 450 450 8.875% Debentures due 2011................................ 223 223 9.65% Debentures due 2018................................. 249 249 7.5% Senior Debentures due 2018........................... 875 875 9% Debentures due 2021.................................... 198 198 7.6% Senior Debentures due 2028........................... 700 700 8.00% Senior Quarterly Income Debt Securities due 2038 (QUIDS)................................................ 550 550 Liquid Yield Option Notes (LYONs)(2)...................... 9 9 ------ ------ 5,379 5,379 ------ ------ 7,629 7,476 Current portion of long-term debt........................... (251) (8) ------ ------ $7,378 $7,468 ====== ======
- --------------- (1) In June 1999, the Company issued 18,500,000 units of the 7.5% Adjustable Conversion-rate Equity Security Units at a stated price of $50.125 for an aggregate initial offering price of $927 million. In U.S. GAAP 72 74 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) July 1999, the Company issued additional 1,525,000 units of the 7.5% Adjustable Conversion-rate Equity Security Units at a stated price of $50.125 for $77 million. Each unit consists of a contract to purchase common shares of the Company and a subordinated deferrable note of its subsidiary, Joseph E. Seagram & Sons, Inc., that is guaranteed by the Company. Under the purchase contracts, on June 21, 2002, the unit holders will purchase for $50.125 not more than one and not less than 0.8333 of one share of the Company's common shares per unit, depending on the average trading price of the common shares during a specified trading period in June 2002. The junior subordinated deferrable notes have a principle amount equal to the stated amount of the units and an interest rate of 7.62%. The interest rate on the note is subject to adjustment at March 21, 2002 and the note matures on June 21, 2004. The holders of the units are required to pay contract fees to the Company at an annual rate of .12%. These payments will be funded out of payments made in respect of the notes so that the net distributions on the notes will be 7.5%. (2) LYONs are zero coupon notes with no interest payments due until maturity on March 5, 2006. Each $1,000 face amount LYON may be converted, at the option of the holder, into 18.44 of the Company's common shares (189,106 shares at June 30, 2000). The Company has guaranteed the LYONs on a subordinated basis. The Company's unused lines of credit totaled $5.5 billion and have varying terms of up to two years. At June 30, 2000, short-term borrowings comprised $248 million of bank borrowings bearing interest at market rates. Interest expense on long-term debt was $576 million, $380 million and $226 million in the fiscal years ended June 30, 2000, 1999 and 1998, respectively. Annual repayments and redemptions of long-term debt for the five fiscal years subsequent to June 30, 2000 are: 2001 -- $251 million; 2002 -- $674 million; 2003 -- $203 million; 2004 -- $1,407 million; and 2005 -- $9 million. Summarized financial information for JES and its subsidiaries is presented below. Separate financial statements and other disclosures related to JES are not provided because management has determined that such information does not provide additional meaningful information to holders of JES debt securities.
FISCAL YEARS ENDED JUNE 30, ----------------------------- 2000 1999 1998 ------- ------- ------- U.S. DOLLARS IN MILLIONS Revenues.................................................... $2,438 $2,242 $2,144 Cost of revenues............................................ $1,514 $1,390 $1,356 Loss from continuing operations............................. $ (37) $ (8) $ (8) Discontinued Tropicana operations........................... -- -- (17) ------ ------ ------ Net loss.................................................... $ (37) $ (8) $ (25) ====== ====== ======
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS Current assets.............................................. $ 2,232 $ 1,674 Noncurrent assets........................................... 18,377 18,602 ------- ------- $20,609 $20,276 ======= ======= Current liabilities......................................... $ 879 $ 1,099 Noncurrent liabilities...................................... 10,889 10,014 Shareholders' equity........................................ 8,841 9,163 ------- ------- $20,609 $20,276 ======= =======
U.S. GAAP 73 75 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 6 FINANCIAL INSTRUMENTS The carrying value of cash, cash equivalents, receivables, short-term borrowings, current portion of long-term debt and payables approximate fair value because maturities are less than one year in duration. The Company's remaining financial instruments consisted of the following:
ASSET (LIABILITY) ------------------------------------------------------------ JUNE 30, 2000 JUNE 30, 1999 ---------------------------- ---------------------------- CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE -------------- ---------- -------------- ---------- U.S. DOLLARS IN MILLIONS NONDERIVATIVES Investments (Note 4)...................... $ 431 $ 1,130 $ 398 $ 1,488 Long-term debt............................ $(7,378) $(7,239) $(7,468) $(7,600) DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING Foreign exchange forwards................. $ -- $ 6 $ -- $ 50 Interest rate swaps....................... -- (41) -- 13 ------- ------- ------- ------- $ -- $ (35) $ -- $ 63 ======= ======= ======= =======
Fair value of investments was determined based on quoted market value of these securities as traded on stock exchanges. Fair value of long-term debt was estimated using quoted market prices for similar issues. The fair value for foreign exchange and interest rate instruments was based on market prices as quoted from financial institutions. The Company, as the result of its global operating and financing activities, is exposed to changes in interest rates and foreign currency exchange rates that may adversely affect its results of operations and financial position. In seeking to minimize the risks and costs associated with such activities, the Company manages the impact of interest rate changes and foreign currency changes on earnings and cash flows by entering into derivative contracts. The Company does not use derivative financial instruments for trading or speculative purposes. At June 30, 2000, the Company held interest rate swap contracts that had notional amounts of $2,250 million ($500 million at June 30, 1999). These swap agreements expire in one to seven years. At June 30, 2000, the Company held foreign currency forward contracts and options to purchase and sell foreign currencies, including cross-currency contracts and options to sell one foreign currency for another currency, with notional amounts totaling $1,972 million ($4,539 million at June 30, 1999). The forward contracts and options are primarily used to hedge the exchange rate exposure to foreign currency forecasted cash flows. The forecasted cash flows are principally related to intercompany sales, royalties, licenses and service fees. These derivatives have varying maturities not exceeding two years. The principal currencies hedged are the euro, British pound, Canadian dollar and Japanese yen. The Company minimizes its credit exposure to counter-parties by entering into contracts only with highly-rated commercial banks or financial institutions and by distributing the transactions among the selected institutions. Although the Company's credit risk is the replacement cost at the then-estimated fair value of the instrument, management believes that the risk of incurring losses is remote and that such losses, if any, would not be material. The market risk related to the foreign exchange agreements should be offset by changes in the valuation of the underlying items being hedged. NOTE 7 COMMON SHARES, EARNINGS PER SHARE AND STOCK OPTIONS The Company is authorized to issue an unlimited number of common and preferred shares without nominal or par value. At June 30, 2000, 58,202,953 common shares were potentially issuable upon the U.S. GAAP 74 76 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) conversion of the LYONs, the exercise of employee stock options, the conversion of deferred share units and the early settlement of the contracts to purchase shares under the Adjustable Conversion-rate Equity Security Units. Basic net income per share was based on the following weighted average number of shares outstanding during the fiscal years ended June 30, 2000 -- 434,544,033; June 30, 1999 -- 378,193,043; and June 30, 1998 -- 349,874,259. Diluted net income per share was based on the following weighted average number of shares outstanding during the fiscal years ended June 30, 2000 -- 441,366,684; and June 30, 1998 -- 353,604,553. Average shares of 4,933,249 were not included in the computation of 1999 diluted net income per share because to do so would have been anti-dilutive. STOCK OPTION PLANS Under the Company's employee stock option plans, options may be granted to purchase the Company's common shares at not less than the fair market value of the shares on the date of the grant. Currently outstanding options become exercisable one to five years from the grant date and expire ten years after the grant date. The Company has adopted SFAS 123, Accounting for Stock-Based Compensation. In accordance with the provisions of SFAS 123, the Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its plans and does not recognize compensation expense for its stock-based compensation plans other than for restricted stock. If the Company had elected to recognize compensation expense based upon the fair value at the grant date for awards under these plans utilizing the methodology prescribed by SFAS 123, the Company's net income and earnings per share would be reduced to the pro forma amounts indicated below:
FISCAL YEARS ENDED JUNE 30, --------------------------------- 2000 1999 1998 --------- -------- -------- U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS Net income (loss): As reported............................................... $ 40 $ 686 $ 946 Pro forma................................................. (49) 622 892 Basic earnings (loss) per common share: As reported............................................... $ 0.09 $1.81 $2.70 Pro forma................................................. (0.11) 1.64 2.55 Diluted earnings (loss) per common share: As reported............................................... $ 0.09 $1.81 $2.68 Pro forma................................................. (0.11) 1.64 2.52
These pro forma amounts may not be representative of future disclosures. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the fiscal years ended June 30, 2000, 1999 and 1998, respectively: dividend yields of 1.1, 1.5 and 1.8 percent; expected volatility of 29, 30 and 25 percent; risk-free interest rates of 6.7, 5.1 and 5.6 percent; and expected life of six years for all periods. The weighted average fair value of options granted during the fiscal years ended June 30, 2000, 1999 and 1998 for which the exercise price equals the market price on the grant date was $22.39, $15.25 and $10.92, respectively. The weighted average fair value of options granted during the fiscal year ended June 30, 1998 for which the exercise price exceeded the market price on the grant date was $7.44. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models U.S. GAAP 75 77 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Transactions involving stock options are summarized as follows:
WEIGHTED AVERAGE EXERCISE PRICE STOCK OPTIONS OF OPTIONS OUTSTANDING OUTSTANDING ------------- -------------- BALANCE, JUNE 30, 1997...................................... 32,961,126 $31.79 Granted..................................................... 8,160,909 38.32 Exercised................................................... (2,751,832) 26.14 Cancelled................................................... (752,284) 38.53 ---------- ------ BALANCE, JUNE 30, 1998...................................... 37,617,919 33.49 Granted..................................................... 11,674,558 45.40 Exercised................................................... (8,489,374) 31.50 Cancelled................................................... (3,234,811) 34.79 ---------- ------ BALANCE, JUNE 30, 1999...................................... 37,568,292 37.53 Granted..................................................... 9,299,360 59.97 Exercised................................................... (4,583,749) 31.36 Cancelled................................................... (977,503) 49.31 ---------- ------ BALANCE, JUNE 30, 2000...................................... 41,306,400 42.99 ========== ======
The following table summarizes information concerning currently outstanding and exercisable stock options:
WEIGHTED AVERAGE REMAINING WEIGHTED WEIGHTED NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE RANGE OF EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ------------------------ ----------- ----------- -------------- ----------- -------------- under $30................... 5,451,676 2.7 $27.18 5,385,010 $27.17 $30 - $40................... 19,352,833 6.5 35.67 14,654,396 35.40 $40 - $50................... 5,562,122 8.6 47.66 1,782,782 47.71 $50 - $60................... 3,329,141 8.9 57.37 867,488 57.22 $60 - $70................... 7,610,628 9.6 61.44 -- -- ---------- ---------- 41,306,400 22,689,676
U.S. GAAP 76 78 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8 INCOME TAXES The following tables summarize the sources of pre-tax income and the resulting income tax expense: GEOGRAPHIC COMPONENTS OF PRETAX INCOME
FISCAL YEARS ENDED JUNE 30, --------------------------- 2000 1999 1998 ------ ------ ------- U.S. DOLLARS IN MILLIONS U.S. ....................................................... $(458) $(545) $1,192 Canada...................................................... 93 39 51 Other jurisdictions......................................... 555 (73) 368 ----- ----- ------ Income (loss) from continuing operations, before tax........ 190 (579) 1,611 Discontinued Tropicana operations........................... -- 1,445 130 ----- ----- ------ Income before tax........................................... $ 190 $ 866 $1,741 ===== ===== ======
COMPONENTS OF INCOME TAX EXPENSE
FISCAL YEARS ENDED JUNE 30, --------------------------- 2000 1999 1998 ------ ------- ------ U.S. DOLLARS IN MILLIONS Income tax expense (benefit) applicable to: Continuing operations....................................... $158 $ (33) $638 Discontinued Tropicana operations........................... -- 376 64 ---- ----- ---- Total income tax expense.................................... $158 $ 343 $702 ==== ===== ==== Current Continuing operations Federal................................................ $ -- $(256) $134 State and local........................................ 8 3 (20) Other jurisdictions.................................... 67 128 77 ---- ----- ---- 75 (125) 191 Discontinued Tropicana operations......................... -- 376 58 ---- ----- ---- 75 251 249 ---- ----- ---- Deferred Continuing operations Federal................................................ (35) 130 351 State and local........................................ (2) 2 34 Other jurisdictions.................................... 120 (40) 62 ---- ----- ---- 83 92 447 Discontinued Tropicana operations......................... -- -- 6 ---- ----- ---- 83 92 453 ---- ----- ---- Total income tax expense.................................... $158 $ 343 $702 ==== ===== ====
U.S. GAAP 77 79 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COMPONENTS OF NET DEFERRED TAX LIABILITY
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS Basis and amortization differences.......................... $ 969 $ 1,016 DuPont share redemption..................................... 1,540 1,540 DuPont and USAi investments................................. 471 613 Unremitted foreign earnings................................. 102 89 Other, net.................................................. 106 193 ------- ------- Deferred tax liabilities.................................... 3,188 3,451 ------- ------- Employee benefits........................................... (17) (114) Tax credit and net operating loss carryovers................ (515) (256) Valuation, doubtful accounts and return reserves............ (23) (259) Other, net.................................................. (703) (697) ------- ------- Deferred tax assets......................................... (1,258) (1,326) Valuation allowance......................................... 270 82 ------- ------- (988) (1,244) ------- ------- Net deferred tax liability.................................. $ 2,200 $ 2,207 ======= =======
The Company has U.S. tax credit carryovers of $56 million, $13 million of which has no expiration date and $43 million of which have expiration dates through 2009. In addition, the Company has approximately $1,309 million of net operating loss carryovers, the majority of which have expiration dates through 2020. A portion of the valuation allowance arises from uncertainty as to the realization of certain of these tax credit and net operating loss carryovers. If realized, these benefits would be applied to reduce the unallocated purchase price. Deferred tax assets and liabilities are recognized based on differences between the financial statement and tax bases of assets and liabilities using presently enacted tax rates. Provision is made for income taxes which may be payable on foreign subsidiary earnings to the extent that the Company anticipates that they will be remitted. Unremitted earnings of foreign subsidiaries which have been, or are intended to be, permanently reinvested and for which no income tax has been provided, approximated $6,400 million at June 30, 2000. It is not practicable to estimate the additional tax that would be incurred, if any, if these amounts were repatriated. EFFECTIVE INCOME TAX RATE -- CONTINUING OPERATIONS
FISCAL YEARS ENDED JUNE 30, -------------------- 2000 1999 1998 ---- ---- ---- U.S. statutory rate......................................... 35% (35)% 35% Goodwill amortization....................................... 58 11 1 Equity income............................................... 25 10 -- Foreign tax at other than U.S. statutory rate............... (39) 5 4 State and local............................................. 2 -- 1 Other....................................................... 2 3 (1) --- --- -- Effective income tax rate -- continuing operations.......... 83% (6)% 40% === === ==
U.S. GAAP 78 80 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Various taxation authorities have proposed or levied assessments for additional income taxes of prior years. Management believes that settlements will not have a material effect on the results of operations, financial position or liquidity of the Company. NOTE 9 BENEFIT PLANS Retirement pensions are provided for substantially all of the Company's employees through defined benefit or defined contribution plans sponsored by the Company or unions representing employees. For Company-sponsored defined benefit plans, pension expense and plan contributions are determined by independent consulting actuaries. The funding policy for tax-qualified pension plans is consistent with statutory funding requirements and regulations. Contributions to defined contribution plans are funded and expensed currently. Postretirement health care and life insurance are provided to a majority of nonunion employees in the U.S. Eligibility for benefits is based upon retirement, age and completion of a specified number of years of service. Postemployment programs, principally severance, are provided for the majority of nonunion employees. The cost of these programs is accrued based on actuarial studies. There is no advance funding for postretirement or postemployment benefits. The following tables pertain to the Company's defined benefit pension or postretirement plans principally in the U.S., the U.K., Canada, France, Germany and Japan, and provide reconciliations of the changes in benefit obligations, fair value of plan assets and funded status for the two-year period ending June 30, 2000:
POSTRETIREMENT PENSION BENEFITS BENEFITS ---------------- -------------- 2000 1999 2000 1999 ------ ------ ----- ----- U.S. DOLLARS IN MILLIONS CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year.................. $1,339 $1,070 $ 182 $ 172 Service cost............................................. 54 48 2 2 Interest cost............................................ 81 81 13 12 Plan amendements and acquisitions........................ 41 220 (1) 5 Actuarial (gain) loss, net............................... (77) 21 (12) 1 Benefits paid............................................ (101) (81) (11) (10) Translation.............................................. (12) (20) -- -- ------ ------ ----- ----- Benefit obligation at end of year........................ $1,325 $1,339 $ 173 $ 182 ====== ====== ===== ===== FAIR VALUE OF PLAN ASSETS Fair value of plan assets at beginning of year........... $1,365 $1,271 $ -- $ -- Actual return on plan assets............................. 91 127 -- -- Acquisition.............................................. -- 45 -- -- Contributions............................................ 16 15 11 10 Benefits paid............................................ (95) (80) (11) (10) Translation.............................................. (9) (13) -- -- ------ ------ ----- ----- Fair value of plan assets at end of year................. $1,368 $1,365 $ -- $ -- ====== ====== ===== =====
U.S. GAAP 79 81 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POSTRETIREMENT PENSION BENEFITS BENEFITS ---------------- -------------- 2000 1999 2000 1999 ------ ------ ----- ----- U.S. DOLLARS IN MILLIONS FUNDED STATUS Funded status at end of year............................. $ 43 $ 26 $(173) $(182) Unrecognized actuarial gain.............................. (212) (203) (18) (3) Unrecognized prior service (benefit) cost................ 55 15 (13) (16) Unrecognized net transition (asset) obligation........... (2) 4 -- -- ------ ------ ----- ----- Accrued pension liability................................ $ (116) $ (158) $(204) $(201) ====== ====== ===== =====
Amounts recognized in the Company's consolidated balance sheet at June 30 consist of:
POSTRETIREMENT PENSION BENEFITS BENEFITS ---------------- -------------- 2000 1999 2000 1999 ------ ------ ----- ----- U.S. DOLLARS IN MILLIONS Prepaid benefit cost...................................... $ 198 $ 181 $ -- $ -- Accrued benefit liability................................. (314) (339) (204) (201) ----- ----- ----- ----- Net liability recognized.................................. $(116) $(158) $(204) $(201) ===== ===== ===== =====
Net periodic pension and other postretirement benefit costs for the fiscal years ended June 30 include the following components:
PENSION BENEFITS POSTRETIREMENT BENEFITS ----------------------- ----------------------- 2000 1999 1998 2000 1999 1998 ----- ----- ----- ----- ----- ----- U.S. DOLLARS IN MILLIONS Service cost................................. $ 54 $ 48 $ 25 $ 2 $ 2 $ 2 Interest cost................................ 81 81 70 13 12 11 Expected return on plan assets............... (125) (116) (107) -- -- -- Amortization of prior service costs.......... 8 3 3 (3) (3) (3) Amortization of actuarial gains.............. (7) (6) (6) -- -- (1) ----- ----- ----- --- --- --- Net benefit cost (credit).................... $ 11 $ 10 $ (15) $12 $11 $ 9 ===== ===== ===== === === ===
The weighted average rates and assumptions utilized in accounting for these plans for the fiscal years ended June 30 were:
PENSION BENEFITS POSTRETIREMENT BENEFITS -------------------- ----------------------- 2000 1999 1998 2000 1999 1998 ---- ---- ---- ----- ----- ----- Discount rate..................................... 8.0% 7.3% 7.0% 8.0% 7.3% 7.0% Expected return on plan assets.................... 10.0% 10.0% 10.8% -- -- -- Rate of compensation increase..................... 5.0% 4.5% 4.3% 5.0% 4.5% 4.3%
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $212 million, $184 million and $13 million, respectively as of June 30, 2000, and $218 million, $196 million and $15 million, respectively as of June 30, 1999. For postretirement benefit measurement purposes, the Company assumed growth in the per capita cost of covered health care benefits (the health care cost trend rate) would gradually decline from 8.2 percent and 7.2 percent in the pre-age 65 and post-age 65 categories, respectively in 1998 to 6 percent and 5 percent, pre- U.S. GAAP 80 82 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) age 65 and post-age 65, respectively in 2002. In fiscal 2000, a one-percentage-point increase in the annual trend rate would have increased the postretirement benefit obligation by $7 million and the pre-tax expense by $1 million; conversely, a one-percentage-point decrease in the annual trend rate would have decreased the postretirement benefit obligation by $6 million and the pre-tax expense by $1 million. During 1999, the Company amended the pension plan for certain U.S. employees from a final pay plan to a cash balance pension plan. Under the new plan, participants accrue benefits based on a percentage of pay plus interest. The new cash balance plan allows lump sum benefit payments in addition to annuities. This change did not have a significant impact on the Company's net periodic pension costs for the fiscal year ended June 30, 1999. NOTE 10 BUSINESS SEGMENT AND GEOGRAPHIC DATA BUSINESS SEGMENT DATA The Company's four reportable segments are: music, filmed entertainment, recreation and other, and spirits and wine. Each reportable segment defined by the Company is a strategic business unit that offers different products and services that are marketed through different channels. Segments are managed separately because of their unique customers, technology, marketing and distribution requirements. The Company evaluates the performance of its segments and allocates resources to them based on several performance measures, including modified EBITDA (EBITDA). As defined by the Company, EBITDA consists of operating earnings (losses) before depreciation, amortization, corporate expenses and restructuring activities from consolidated companies. While not a standard measurement under GAAP, the Company believes EBITDA is an appropriate measure of operating performance, given the significant assets and goodwill associated with the Company's acquisitions. However, EBITDA could be defined differently by other companies and should be considered in addition to, not as a substitute for, other measures of financial performance including revenues and operating income. There are no intersegment revenues; however, corporate headquarters allocates a portion of its costs to each of its operating segments. The Company does not allocate interest income, interest expense, income taxes or unusual items to segments. U.S. GAAP 81 83 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FILMED RECREATION SPIRITS MUSIC ENTERTAINMENT AND OTHER AND WINE CORPORATE TOTAL ------- ------------- ---------- -------- --------- ------- U.S. DOLLARS IN MILLIONS JUNE 30, 2000 Revenues.................. $ 6,236 $3,480 $ 862 $5,108 $ -- $15,686 EBITDA.................... $ 1,018 $ (61) $ 188 $ 727 $ -- $ 1,872 Depreciation and amortization............ (730) (97) (105) (125) (10) (1,067) Corporate expenses........ -- -- -- -- (111) (111) Restructuring credit...... 40 19 -- -- -- 59 ------- ------ ------ ------ ------ ------- Operating income (loss)... $ 328 $ (139) $ 83 $ 602 $ (121) $ 753 ======= ====== ====== ====== ====== ======= Segment assets............ $16,082 $7,624 $2,568 $4,521 $2,013(1) $32,808 Equity method investments............. $ 18 $3,177 $1,037 $ 55 $ -- $ 4,287 Capital expenditures...... $ 263 $ 113 $ 101 $ 121 $ 9 $ 607 JUNE 30, 1999 Revenues.................. $ 3,751 $2,931 $ 818 $4,812 $ -- $12,312 EBITDA.................... $ 347 $ (136) $ 133 $ 684 $ -- $ 1,028 Depreciation and amortization............ (473) (70) (88) (132) (10) (773) Corporate expenses........ -- -- -- -- (100) (100) Restructuring charge...... (313) (92) -- -- -- (405) ------- ------ ------ ------ ------ ------- Operating income (loss)... $ (439) $ (298) $ 45 $ 552 $ (110) $ (250) ======= ====== ====== ====== ====== ======= Segment assets............ $16,392 $7,735 $3,029 $5,165 $2,690(2) $35,011 Equity method investments............. $ 26 $2,810 $1,151 $ 52 $ -- $ 4,039 Capital expenditures...... $ 135 $ 134 $ 134 $ 128 $ -- $ 531 JUNE 30, 1998 Revenues.................. $ 1,461 $2,793 $ 695 $4,525 $ -- $ 9,474 EBITDA.................... $ 84 $ 316 $ 99 $ 583 $ -- $ 1,082 Depreciation and amortization............ (128) (87) (75) (119) (7) (416) Corporate expenses........ -- -- -- -- (113) (113) ------- ------ ------ ------ ------ ------- Operating income (loss)... $ (44) $ 229 $ 24 $ 464 $ (120) $ 553 ======= ====== ====== ====== ====== ======= Segment assets............ $ 2,902 $6,638 $3,044 $5,594 $4,001(3) $22,179 Equity method investments............. $ 24 $2,431 $ 961 $ 21 $ -- $ 3,437 Capital expenditures...... $ 31 $ 94 $ 115 $ 170 $ -- $ 410
- --------------- (1) Comprised of corporate assets not identifiable with reported segments ($1,294) and DuPont holdings ($719). (2) Comprised of corporate assets not identifiable with reported segments ($1,567) and DuPont holdings ($1,123). (3) Comprised of corporate assets not identifiable with reported segments ($1,039), DuPont holdings ($1,228) and net assets of discontinued Tropicana operations ($1,734). U.S. GAAP 82 84 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GEOGRAPHIC DATA The following table presents revenues and long-lived assets by geographic area for the 2000, 1999 and 1998 fiscal years. Revenues are classified based upon the location of the customer. In addition to Canada, the Company's country of domicile, individual countries are specified if revenues or long-lived assets exceed 10 percent of the total.
FISCAL YEARS ENDED JUNE 30, ---------------------------- 2000 1999 1998 ------- ------- ------ U.S. DOLLARS IN MILLIONS REVENUES United States............................................... $ 7,285 $ 5,917 $4,977 United Kingdom.............................................. 1,763 1,277 769 Canada...................................................... 438 325 285 Other countries............................................. 6,200 4,793 3,443 ------- ------- ------ $15,686 $12,312 $9,474 ======= ======= ======
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS LONG-LIVED ASSETS United States............................................... $14,872 $15,093 United Kingdom.............................................. 1,654 1,905 Canada...................................................... 459 456 Other countries............................................. 8,024 8,676 ------- ------- $25,009 $26,130 ======= =======
NOTE 11 ADDITIONAL FINANCIAL INFORMATION Income Statement and Cash Flow Data
FISCAL YEARS ENDED JUNE 30, --------------------------- 2000 1999 1998 ------ ------- ------ U.S. DOLLARS IN MILLIONS INTEREST, NET AND OTHER EXPENSE Interest expense............................................ $745 $ 592 $318 Interest income............................................. (58) (109) (59) Dividend income............................................. (23) (23) (27) Capitalized interest........................................ (3) (3) (4) ---- ----- ---- $661 $ 457 $228 ==== ===== ==== EXCISE TAXES (included in revenues and cost of revenues).... $883 $ 865 $726 CASH FLOW DATA Interest paid, net.......................................... $728 $ 643 $265 Income taxes paid........................................... $133 $ 471 $144
U.S. GAAP 83 85 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Balance Sheet Data
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS RECEIVABLES Trade....................................................... $3,071 $3,227 Other....................................................... 433 432 ------ ------ 3,504 3,659 Allowance for doubtful accounts and other valuation accounts.................................................. (807) (674) ------ ------ $2,697 $2,985 ====== ====== INVENTORIES Beverages................................................... $2,009 $2,233 Materials, supplies and other............................... 413 394 ------ ------ $2,422 $2,627 ====== ====== LIFO INVENTORIES Estimated replacement cost.................................. $ 381 $ 395 Excess of replacement cost over LIFO carrying value......... (190) (187) ------ ------ $ 191 $ 208 ====== ====== OTHER CURRENT ASSETS Film cost, net of amortization.............................. $ 142 $ 356 Artists' contracts.......................................... 222 247 Deferred income taxes....................................... 496 491 Prepaid expenses and other current assets................... 590 642 ------ ------ $1,450 $1,736 ====== ====== FILM COSTS, NET OF AMORTIZATION Theatrical Film Costs Released.................................................... $ 174 $ 320 In process and unreleased................................... 700 1,058 ------ ------ 874 1,378 ------ ------ Television Film Costs Released.................................................... 205 176 In process and unreleased................................... 54 53 ------ ------ 259 229 ------ ------ 1,133 1,607 Less: current portion....................................... 142 356 ------ ------ $ 991 $1,251 ====== ======
Unamortized costs related to released theatrical and television films aggregated $379 million at June 30, 2000. Excluding the portion of the purchase price allocated to the film library which is being amortized over a 20-year life, the Company currently anticipates that approximately 75 percent of the unamortized released film costs will be amortized under the individual film forecast method during the three years ending June 30, 2003. U.S. GAAP 84 86 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000 JUNE 30, 1999 ------------- ------------- U.S. DOLLARS IN MILLIONS PROPERTY, PLANT AND EQUIPMENT Land........................................................ $ 636 $ 645 Buildings and improvements.................................. 1,498 1,646 Machinery and equipment..................................... 1,678 1,432 Furniture and fixtures...................................... 602 476 Construction in progress.................................... 272 286 ------- ------- 4,686 4,485 Accumulated depreciation.................................... (1,587) (1,327) ------- ------- $ 3,099 $ 3,158 ======= ======= PAYABLES AND ACCRUED LIABILITIES Trade....................................................... $ 774 $ 843 Income and other taxes...................................... 227 378 Other....................................................... 2,959 3,587 ------- ------- $ 3,960 $ 4,808 ======= =======
Minority interest At June 30, 2000, Matsushita Electric Industrial Co., Ltd. had an approximate 7.7 percent ownership interest in the entities which own Universal's music, filmed entertainment and recreation and other assets, which was reflected as minority interest in the Company's financial statements. NOTE 12 COMMITMENTS AND CONTINGENCIES The Company has various commitments for the purchase or construction of property, plant and equipment, materials, supplies and items of investment related to the ordinary conduct of business. The Company is involved in various lawsuits, claims and inquiries. Management believes that the resolution of these matters will not have a material adverse effect on the results of operations, financial position or liquidity of the Company. NOTE 13 DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Differences between U.S. and Canadian GAAP for these financial statements are: (i) The common stock of DuPont and USAi, and certain other publicly traded companies in which we hold an interest, would be carried at cost under Canadian GAAP, thereby reducing shareholders' equity by $453 million or approximately four percent at June 30, 2000. There is no effect on net income. (ii) Proportionate consolidation of joint ventures under Canadian GAAP would increase assets and liabilities by approximately $1,007 million and decrease working capital by approximately $40 million at June 30, 2000. There is no effect on net income. (iii) There are no other significant differences between U.S. and Canadian GAAP. U.S. GAAP 85 87 THE SEAGRAM COMPANY LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14 RECENT EVENTS On June 20, 2000, the Company, Vivendi and Canal+ announced that they had entered into a merger agreement and related agreements providing for the combination of the three companies into Vivendi Universal. The agreements provide for the completion of a series of transactions, under which the Company's shareholders will receive a number of Vivendi Universal American Depositary Shares (ADSs) based on an exchange ratio. Each Vivendi Universal ADS will represent one Vivendi Universal ordinary share. Canadian resident shareholders of the Company may elect to receive exchangeable shares of a Canadian subsidiary of Vivendi Universal that are substantially the economic equivalent of the Vivendi Universal ADSs. The exchange ratio is equal to U.S. $77.35 divided by the U.S. dollar equivalent of the average of the closing prices on the Paris Bourse of Vivendi's ordinary shares during a measuring period prior to the closing of the transactions. However, the exchange ratio will equal 0.8000 if that average is equal to or less than U.S. $96.6875 and 0.6221 if that average is equal to or exceeds U.S. $124.3369. The merger is expected to close by the end of the calendar year and is subject to customary closing conditions, including shareholder approval and all necessary regulatory approvals. There is no assurance that such approvals will be obtained. On August 2, 2000, the Company entered into an agreement to purchase Rondor Music, an independent music publishing company, for approximately $350 million in stock. U.S. GAAP 86 88 MANAGEMENT'S REPORT The Company's management is responsible for the preparation of the accompanying financial statements in accordance with generally accepted accounting principles, including the estimates and judgments required for such preparation. The Company has a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and financial records underlying the financial statements properly reflect all transactions. The system contains self-monitoring mechanisms, including a program of internal audits, which allow management to be reasonably confident that such controls, as well as the Company's administrative procedures and internal reporting requirements, operate effectively. Management believes that its long-standing emphasis on the highest standards of conduct and business ethics, as set forth in written policy statements, serves to reinforce the system of internal accounting controls. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error or the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. The Company's independent accountants, PricewaterhouseCoopers LLP, review the system of internal accounting controls to the extent they consider necessary to evaluate the system as required by generally accepted auditing standards. Their report covering their audits of the financial statements is presented below. The Audit Committee of the Board of Directors, solely comprising Directors who are not officers or employees of the Company, meets with the independent accountants, the internal auditors and management to ensure that each is discharging its respective responsibilities relating to the financial statements. The independent accountants and the internal auditors have direct access to the Audit Committee to discuss, without management present, the results of their audit work and any matters they believe should be brought to the Committee's attention. /s/ EDGAR BRONFMAN, JR. /s/ BRIAN C. MULLIGAN /s/ FRANK MERGENTHALER - ------------------------------------ ------------------------------------ ------------------------------------ Edgar Bronfman, Jr. Brian C. Mulligan Frank Mergenthaler President and Chief Executive Vice President and Chief Vice President Controller and Chief Executive Officer Financial Officer Accounting Officer
August 16, 2000 87 89 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders of The Seagram Company Ltd. We have audited the accompanying consolidated balance sheet of The Seagram Company Ltd. and its subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended June 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States and Canada. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Seagram Company Ltd. and its subsidiaries at June 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 2000, in accordance with accounting principles generally accepted in the United States which, in their application to the Company, conform in all material respects with generally accepted accounting principles in Canada. /s/ PRICEWATERHOUSECOOPERS LLP -------------------------------------- PricewaterhouseCoopers LLP New York, New York August 16, 2000 88 90 QUARTERLY DATA FISCAL 2000
FISCAL YEAR FIRST SECOND THIRD FOURTH ENDED QUARTER QUARTER QUARTER QUARTER JUNE 30, 2000(3) -------- -------- -------- -------- ----------------- U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS (UNAUDITED) Revenues............................................. $3,643 $4,970 $3,375 $3,698 $15,686 Operating income (loss).............................. $ 72 $ 566 $ (1) $ 116 $ 753 Income (loss) from continuing operations, after tax................................................ $ (40)(1) $ 557(2) $ (265) $ (128) $ 124 Cumulative effect of change in accounting principle, after tax.......................................... (84) -- -- -- (84) ------ ------ ------ ------ ------- Net income (loss).................................... $ (124) $ 557 $ (265) $ (128) $ 40 ====== ====== ====== ====== ======= PER SHARE DATA EARNINGS (LOSS) PER SHARE -- BASIC Continuing operations................................ $(0.09) $ 1.29 $(0.61) $(0.29) $ 0.28 Cumulative effect of change in accounting principle, after tax.......................................... (0.20) -- -- -- (0.19) ------ ------ ------ ------ ------- Net income (loss).................................... $(0.29) $ 1.29 $(0.61) $(0.29) $ 0.09 ====== ====== ====== ====== ======= EARNINGS (LOSS) PER SHARE -- DILUTED Continuing operations................................ $(0.09) $ 1.27 $(0.61) $(0.29) $ 0.28 Cumulative effect of change in accounting principle, after tax.......................................... (0.20) -- -- -- (0.19) ------ ------ ------ ------ ------- Net income (loss).................................... $(0.29) $ 1.27 $(0.61) $(0.29) $ 0.09 ====== ====== ====== ====== =======
FISCAL 1999
FISCAL YEAR FIRST SECOND THIRD FOURTH ENDED QUARTER QUARTER QUARTER QUARTER JUNE 30, 1999(3) -------- -------- -------- -------- ----------------- U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS (UNAUDITED) Revenues............................................. $2,247 $ 3,327 $3,215 $ 3,523 $12,312 Operating income (loss).............................. $ 179 $ (219) $ (163) $ (47) $ (250) Income (loss) from continuing operations, after tax................................................ $ 95 $ (226)(4) $ (199) $ (53)(5) $ (383) Loss from discontinued Tropicana operations, after tax................................................ (3) -- -- -- (3) Gain on sale of discontinued Tropicana operations, after tax.......................................... 1,072 -- -- -- 1,072 ------ ------- ------ ------- ------- Net income (loss).................................... $1,164 $ (226) $ (199) $ (53) $ 686 ====== ======= ====== ======= ======= PER SHARE DATA EARNINGS (LOSS) PER SHARE -- BASIC Continuing operations................................ $ 0.27 $ (0.63) $(0.50) $ (0.13) $ (1.01) Discontinued Tropicana operations, after tax......... (0.01) -- -- -- (0.01) Gain on sale of discontinued Tropicana operations, after tax.......................................... 3.09 -- -- -- 2.83 ------ ------- ------ ------- ------- Net income (loss).................................... $ 3.35 $ (0.63) $(0.50) $ (0.13) $ 1.81 ====== ======= ====== ======= ======= EARNINGS (LOSS) PER SHARE -- DILUTED Continuing operations................................ $ 0.27 $ (0.63) $(0.50) $ (0.13) $ (1.01) Discontinued Tropicana operations, after tax......... (0.01) -- -- -- (0.01) Gain on sale of discontinued Tropicana operations, after tax.......................................... 3.07 -- -- -- 2.83 ------ ------- ------ ------- ------- Net income (loss).................................... $ 3.33 $ (0.63) $(0.50) $ (0.13) $ 1.81 ====== ======= ====== ======= =======
- --------------- (1) Includes a $55 million gain on sale of businesses, after tax and minority interest. (2) Includes a $35 million restructuring credit, after tax and minority interest. (3) For earnings per share data, each quarter is calculated as a discrete period and the sum of the four quarters does not necessarily equal the full year amount. (4) Includes a $244 million restructuring charge, after tax and minority interest. (5) Includes a $76 million gain on the USA transactions, after tax and minority interest. 89 91 SCHEDULE II THE SEAGRAM COMPANY LTD. (INCORPORATED UNDER THE CANADA BUSINESS CORPORATIONS ACT) AND SUBSIDIARY COMPANIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS (U.S. DOLLARS IN MILLIONS)
ADDITIONS BALANCE AT CHARGED TO CUMULATIVE BALANCE AT BEGINNING COSTS AND TRANSLATION END OF PERIOD EXPENSES ACQUISITION DEDUCTIONS ADJUSTMENT OF PERIOD ---------- ---------- ----------- ---------- ----------- ---------- Reserves Deducted from Receivables: Fiscal Year Ended June 30, 2000 Reserves for Doubtful Accounts....... $283 $102 $ -- $ (72) $ -- $313 Reserves for Merchandise Returns and Allowances......................... 391 399 -- (296) -- 494 ---- ---- ---- ----- ---- ---- $674 $501 $ -- $(368) $ -- $807 ==== ==== ==== ===== ==== ==== Fiscal Year Ended June 30, 1999 Reserves for Doubtful Accounts....... $155 $115 $126 $(104) $ (9) $283 Reserves for Merchandise Returns and Allowances......................... 171 563 214 (551) (6) 391 ---- ---- ---- ----- ---- ---- $326 $678 $340 $(655) $(15) $674 ==== ==== ==== ===== ==== ==== Fiscal Year Ended June 30, 1998 Reserves for Doubtful Accounts....... $127 $ 68 $ -- $ (40) $ -- $155 Reserves for Merchandise Returns and Allowances......................... 183 185 -- (197) -- 171 ---- ---- ---- ----- ---- ---- $310 $253 $ -- $(237) $ -- $326 ==== ==== ==== ===== ==== ====
90 92 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of The Seagram Company Ltd. Our audits of the consolidated financial statements of The Seagram Company Ltd. referred to in our report dated August 16, 2000 appearing in this Form 10-K also included an audit of the financial statement schedule listed in Item 14(a) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PRICEWATERHOUSECOOPERS LLP -------------------------------------- PricewaterhouseCoopers LLP New York, New York August 16, 2000 91 93 THE SEAGRAM COMPANY LTD. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 2000 EXHIBIT INDEX
EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE - --------------- -------------------------------------------------------------------- 2 (a) Investment Agreement, dated as of October 19, 1997, as amended and restated as of December 18, 1997, among Universal Studios, Inc., for itself and on behalf of certain of its subsidiaries, HSN, Inc., Home Shopping Network, Inc. and Liberty Media Corporation, for itself and on behalf of certain of its subsidiaries (incorporated by reference to Exhibit 10 to the Quarterly Report on Form 10-Q for the quarter ended December 31, 1997). (b) Merger Agreement dated as of June 19, 2000 among Vivendi S.A., Canal Plus S.A., Sofiee S.A., 3744531 Canada Inc. and The Seagram Company Ltd. (incorporated by reference to Exhibit 2.1 to Seagram's Current Report on Form 8-K dated June 26, 2000). (c) Form of Plan of Arrangement (incorporated by reference to Exhibit 2.2 to Seagram's Current Report on Form 8-K dated June 26, 2000). 3 (a)* Articles of Amalgamation dated February 1, 1995 between The Seagram Company Ltd. and Centenary Distillers Ltd. (incorporated by reference to Exhibit 3(a) of Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1995), as amended by the Certificate and Articles of Amendment dated May 31, 1995. (b) General By-Laws of The Seagram Company Ltd., as amended (incorporated by reference to Exhibit 3(b) to Seagram's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1996). 4 Long-term debt instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Seagram agrees to furnish to the Commission on request a copy of any instrument defining the rights of holders of long-term debt of Seagram and of any subsidiary for which consolidated or unconsolidated financial statements are required to be filed. 10 (a)* Amended and Restated Stock Purchase Agreement dated as of April 9, 1995 among The Seagram Company Ltd., Matsushita Electric Industrial Co., Inc., MEI Holding Inc. (formerly, Home Holding Inc.) and Universal Studios Holding I Corp. (formerly, Home Holding II Inc.). (b)* Amended and Restated Stockholders' Agreement dated as of December 9, 1998 among Universal Studios Holding I Corp., MEI Holding Inc., The Seagram Company Ltd. and Seagram Developments, Inc. (c)* Stockholders' Agreement dated as of December 9, 1998 among Centenary Holding N.V., MHI Investment Corporation and Seagram International B.V. (d)* Amendment to Subscription and Redemption Agreement, Amended and Restated Stockholders' Agreement and Stockholders' Agreement dated as of December 9, 1998 among The Seagram Company Ltd., Centenary Holding N.V., Universal Studios Holding I Corp., MEI Holding Inc., MHI Investment Corporation, Seagram Developments, Inc. and Seagram International B.V.
92 94
EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE - --------------- -------------------------------------------------------------------- (e) USA Networks Partnership Interest Purchase Agreement dated as of September 22, 1997 by and among Universal Studios, Inc., Universal City Studios, Inc., Viacom Inc. and Eighth Century Corporation (incorporated by reference to Exhibit 10(c) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). (f) Offer Agreement dated as of June 21, 1998 among The Seagram Company Ltd., PolyGram N.V. and Koninklijke Philips Electronics N.V. (incorporated by reference to Exhibit 2.1 to Seagram's Current Report on Form 8-K/A dated July 2, 1998). (g) Tender Agreement dated as of June 21, 1998 between The Seagram Company Ltd. and Koninklijke Philips Electronics N.V. (incorporated by reference to Exhibit 2.2 to Seagram's Current Report on Form 8-K/A dated July 2, 1998). (h) Voting Agreement dated June 21, 1998 between The Seagram Company Ltd. and Koninklijke Philips Electronics N.V. (incorporated by reference to Exhibit 2.3 to Seagram's Current Report on Form 8-K dated June 22, 1998). (i) Stockholders Agreement dated June 21, 1998 between The Seagram Company Ltd. and Koninklijke Philips Electronics N.V. (incorporated by reference to Exhibit 10.1 to Seagram's Current Report on Form 8-K dated June 22, 1998). (j) Stock Purchase Agreement dated as of July 20, 1998 among The Seagram Company Ltd., Seagram Enterprises, Inc. and PepsiCo, Inc. (incorporated by reference to Exhibit 2 to Seagram's Current Report on Form 8-K dated July 20, 1998). (k) Governance Agreement, dated as of October 19, 1997, among Universal Studios, Inc., HSN, Inc., Liberty Media Corporation and Barry Diller (incorporated by reference to Exhibit 33 to Schedule 13D/A dated February 23, 1998 of TeleCommunications, Inc., The Seagram Company Ltd., Universal Studios, Inc., Barry Diller, BDTV Inc., BDTV II INC., BDTV III INC., and BDTV IV INC. (the "Schedule 13D")). (l) Stockholders Agreement, dated as of October 19, 1997, among Universal Studios, Inc., HSN, Inc., Liberty Media Corporation, Barry Diller and The Seagram Company Ltd. (incorporated by reference to Exhibit 34 to the Schedule 13D). (m) Agreement, dated as of October 19, 1997, among Universal Studios, Inc., HSN, Inc. and Liberty Media Corporation (incorporated by reference to Exhibit 35 to the Schedule 13D). (n) Exchange Agreement, dated as of October 19, 1997, among Universal Studios, Inc., HSN, Inc. and Liberty Media Corporation (incorporated by reference to Exhibit 36 to the Schedule 13D). (o) Amended and Restated LLC Operating Agreement, dated as of February 12, 1998, among USA Networks, Inc., Universal Studios, Inc., Liberty Media Corporation and Barry Diller (incorporated by reference to Exhibit 37 to the Schedule 13D). (p) Amendment and Restatement Agreement dated as of October 20, 1999, in respect of the US $6,500,000,000 Credit Agreement dated as of October 21, 1998, among Joseph E. Seagram & Sons, Inc., The Seagram Company Ltd., J.E. Seagram Corp., the Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, Citibank, N.A., as Syndication Agent, and Bank of America NT&SA and Bank of Montreal, as Co-Documentation Agents (incorporated by reference to Exhibit 10.6 to Seagram's Current Report on Form 8-K dated June 26, 2000).
93 95
EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE - --------------- -------------------------------------------------------------------- (q) Amendment and Restatement Agreement dated as of October 20, 1999, in respect of the US $1,100,000,000 Credit Agreement dated as of December 21, 1994, as amended and restated as of October 23, 1998, The Seagram Company Ltd., the Lenders party thereto, and Bank of Montreal, as Administrative Agent (incorporated by reference to Exhibit 10.7 to Seagram's Current Report on Form 8-K dated June 26, 2000). (r) Amendment and Restatement Agreement dated as of October 20, 1999, in respect of the US $2,000,000,000 Credit Agreement dated as of November 23, 1994, as amended and restated as of October 21, 1998, among Joseph E. Seagram & Sons, Inc., The Seagram Company Ltd., J.E. Seagram Corp., the Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, Citibank, N.A., as Syndication Agent, and Bank of Montreal, as Documentation Agent (incorporated by reference to Exhibit 10.8 to Seagram's Current Report on Form 8-K dated June 26, 2000). (s) 1983 Stock Appreciation Right and Stock Unit Plan of The Seagram Company Ltd., as amended (incorporated by reference to Exhibit 10(n) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). (t)* Written description of Management Incentive Plan of Joseph E. Seagram & Sons, Inc. (u) Senior Executive Short-Term Incentive Plan of The Seagram Company Ltd. (incorporated by reference to Exhibit 10(p) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). (v) Form of Deferred Compensation Agreement, as amended, between Joseph E. Seagram & Sons, Inc. and certain of its executives (incorporated by reference to Exhibit 10(q) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). (w) Stock Plan for Non-Employee Directors of The Seagram Company Ltd. (incorporated by reference to Exhibit 10(r) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). (x)* 1988 Stock Option Plan of The Seagram Company Ltd., as amended. (y)* 1992 Stock Incentive Plan of The Seagram Company Ltd., as amended. (z) 1996 Stock Incentive Plan of The Seagram Company Ltd., as amended (incorporated by reference to Exhibit 4(d) to Seagram's Registration Statement on Form S-8 dated April 27, 2000). (aa)* Senior Executive Basic Life Insurance Program, as amended, of Joseph E. Seagram & Sons, Inc. (bb)* Retirement Salary Continuation Plan, as amended, of Joseph E. Seagram & Sons, Inc. (cc)* Benefit Equalization Plan, as amended, of Joseph E. Seagram & Sons, Inc. (dd)* Senior Executive Group Term Life Insurance Arrangement, as amended, of Joseph E. Seagram & Sons, Inc. (ee)* Personal Excess Liability Insurance Policy for Senior Executives of Joseph E. Seagram & Sons, Inc. (ff)* Flexible Perquisite Program for Seagram Senior Executives. (gg)* Senior Executive Disability Salary Continuation Arrangement of Joseph E. Seagram & Sons, Inc.
94 96
EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE - --------------- -------------------------------------------------------------------- (hh)* Post Retirement Consulting Plan, as amended, of Joseph E. Seagram & Sons, Limited. (ii)* Canadian Executive Pension Plan of Joseph E. Seagram & Sons, Limited, as amended. (jj) Letter dated April 27, 1995 from Joseph E. Seagram & Sons, Inc. to John D. Borgia (incorporated by reference to Exhibit 10(jj) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998.) (kk) Letter dated September 9, 1998 from Joseph E. Seagram & Sons, Inc. to Tod R. Hullin (incorporated by reference to Exhibit 10(hh) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1999.) (ll) Letter dated November 23, 1999 from Joseph E. Seagram & Sons, Inc. to Kevin Conway (incorporated by reference to Exhibit 10.2 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 1999.) (mm)* Letter Agreement dated as of January 1, 2000 from Joseph E. Seagram & Sons, Inc. to Brian Mulligan. (nn) Agreement dated March 14, 2000 between Joseph E. Seagram & Sons, Inc. and John D. Borgia (incorporated by reference to Exhibit 10.1 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.) (oo) Agreement effective March 17, 2000 between Joseph E. Seagram & Sons, Inc. and Kevin Conway (incorporated by reference to Exhibit 10.2 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.) (pp) Agreement effective March 17, 2000 between Joseph E. Seagram & Sons, Inc. and Daniel Paladino (incorporated by reference to Exhibit 10.3 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.) (qq) Agreement effective March 17, 2000 between Joseph E. Seagram & Sons, Inc. and Tod Hullin (incorporated by reference to Exhibit 10.4 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.) (rr) Agreement effective March 17, 2000 between Joseph E. Seagram & Sons, Inc. and Frank Mergenthaler (incorporated by reference to Exhibit 10.5 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.) (ss) Agreement effective March 17, 2000 between Joseph E. Seagram & Sons, Inc. and Michael Hallows (incorporated by reference to Exhibit 10.6 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.) (tt) Agreement effective March 17, 2000 between Joseph E. Seagram & Sons, Inc. and John Borgia (incorporated by reference to Exhibit 10.7 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.) (uu) Agreement effective March 17, 2000 between Joseph E. Seagram & Sons, Inc. and John Preston (incorporated by reference to Exhibit 10.8 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000.) (vv)* Agreement effective June 15, 2000 between Joseph E. Seagram & Sons, Inc. and Edgar Bronfman, Jr. (ww)* Agreement effective June 16, 2000 between Joseph E. Seagram & Sons, Inc. and Samuel Bronfman II. 12 (a)* Computation of ratio of earnings to fixed charges -- The Seagram Company Ltd. (b)* Computation of ratio of earnings to fixed charges -- Joseph E. Seagram & Sons, Inc.
95 97
EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE - --------------- -------------------------------------------------------------------- 13 Not Applicable. 21* Subsidiaries. Consent of PricewaterhouseCoopers LLP, independent accountants, as 23** accountants for Seagram. 24* Power of Attorney. 27* Financial Data Schedule. 99 (a) Option Agreement dated as of June 19, 2000 between Vivendi S.A. and The Seagram Company Ltd. (incorporated by reference to Exhibit 99.1 to Seagram's Current Report on Form 8-K dated June 26, 2000). (b) Shareholder Voting Agreement dated as of June 19, 2000 between Vivendi S.A. and certain shareholders of The Seagram Company Ltd. (incorporated by reference to Exhibit 99.2 to Seagram's Current Report on Form 8-K dated June 26, 2000). (c) Shareholder Governance Agreement dated as of June 19, 2000 among Vivendi S.A., Sofiee S.A. and certain shareholders of The Seagram Company Ltd. (incorporated by reference to Exhibit 99.3 to Seagram's Current Report on Form 8-K dated June 26, 2000). (d) Form of Arrangement Resolution (incorporated by reference to Exhibit 99.4 to Seagram's Current Report on Form 8-K dated June 26, 2000). (e) Form of Custody Agreement (incorporated by reference to Exhibit 99.5 to Seagram's Current Report on Form 8-K dated June 26, 2000). (f) Form of Exchange Trust Agreement (incorporated by reference to Exhibit 99.6 to Seagram's Current Report on Form 8-K dated June 26, 2000). (g) Form of Support Agreement (incorporated by reference to Exhibit 99.7 to Seagram's Current Report on Form 8-K dated June 26, 2000). (h) Description of Proposed Vivendi/Canal Transactions (incorporated by reference to Exhibit 99.8 to Seagram's Current Report on Form 8-K dated June 26, 2000).
- --------------- * Previously filed. ** Filed herewith. (C)The Seagram Company Ltd. 2000 96 EX-23 2 y41463ex23.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Numbers 2-99681, 33-42959, 33-42877, 33-67772, 333-4134, 333-4136, 333-78393, 333-78395 and 333-86385) and the Registration Statements on Form S-8 (Numbers 33-27194, 33-2043, 33-49096, 33-60606, 33-99122, 333-19059 and 333-85485) of The Seagram Company Ltd. of our reports dated August 16, 2000 relating to the consolidated financial statements and financial statement schedule which appear in this Form 10-K/A. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP New York, New York October 26, 2000 -----END PRIVACY-ENHANCED MESSAGE-----