-----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, IZ4V71/LwHB5IxFrJC5sWKT4nf3MeGQ7S40ki1yE1a+GYIm3C26CuH373EDjbdYx iZjVMtBuEcHCtEHE0K2nlA== 0000950123-97-008142.txt : 19970929 0000950123-97-008142.hdr.sgml : 19970929 ACCESSION NUMBER: 0000950123-97-008142 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970926 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGRAM CO LTD CENTRAL INDEX KEY: 0000088188 STANDARD INDUSTRIAL CLASSIFICATION: BEVERAGES [2080] IRS NUMBER: 000000000 STATE OF INCORPORATION: CA FISCAL YEAR END: 0701 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-02275 FILM NUMBER: 97686657 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 1 THE SEAGRAM COMPANY LTD. 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: JUNE 30, 1997 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) 849-5271 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 NEW YORK STOCK EXCHANGE OR PAR VALUE MONTREAL STOCK EXCHANGE TORONTO STOCK EXCHANGE VANCOUVER STOCK EXCHANGE LONDON 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 August 31, 1997 (64.5% of the outstanding common shares) was approximately $8 billion. At August 31, 1997, there were 356,445,718 common shares outstanding. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for the fiscal year ended June 30, 1997........... Parts I, II Proxy Circular for the Annual Meeting of Shareholders to be held on November 5, 1997.......................................................................... Parts I, III Annual Report on Form 10-K of E.I. du Pont de Nemours and Company for the year ended December 31, 1994....................................................... Part IV
================================================================================ 2 PART I ITEMS 1 AND 2. -- BUSINESS AND PROPERTIES The Seagram Company Ltd., a corporation organized under Canadian federal law on March 2, 1928, operates two core, global businesses: beverages and entertainment. The Corporation's beverage businesses are engaged principally in the production and marketing of distilled spirits, wines, fruit juices, coolers, beers and mixers. The Corporation's entertainment company, Universal Studios, Inc. (formerly MCA INC.), produces and distributes motion picture, television and home video products, and recorded music; and operates theme parks and retail stores. For information as to revenues, operating income and identifiable assets by business segment see Note 12 of Notes to Consolidated Financial Statements included in the Corporation's Annual Report to Shareholders for the fiscal year ended June 30, 1997 (the "Annual Report"). Unless the context otherwise requires, the term "Corporation", as used herein, refers collectively to The Seagram Company Ltd. and its subsidiaries and affiliates. Unless otherwise specified, all dollar amounts stated herein are expressed in U.S. currency. The Corporation's executive offices are located at 1430 Peel Street, Montreal, Quebec, Canada H3A 1S9 and its registered office is located at 592 Colby Drive, Waterloo, Ontario, Canada N2V 1A2. BEVERAGES The Corporation's beverage operations are divided into two principal worldwide business units -- The Seagram Spirits And Wine Group and Tropicana Beverage Group (previously known as The Seagram Beverage Group). The Seagram Spirits And Wine Group, directly and through affiliates and joint ventures in 41 countries and territories, produces, markets and distributes more than 240 brands of distilled spirits and more than 165 brands of wines, Champagnes, Ports and Sherries, which are sold in over 162 countries and territories. Some of these products are sold worldwide and others only in the geographic area where they are produced. In addition to marketing company-owned brands, the Group also distributes spirits and wines produced by others. Tropicana Beverage Group includes Tropicana Products, Inc. ("Tropicana"), a leading producer of high-quality branded fruit juices and juice beverages, and The Seagram Beverage Company, a producer, marketer and distributor of coolers, beers, mixers and other low-alcohol adult beverages. SPIRITS AND WINES Some of the Corporation's best-known brand names include Crown Royal and Seagram's V.O. Canadian whiskies; Seagram's 7 Crown blended whiskey; Four Roses bourbon; Chivas Regal, Royal Salute and Passport Scotch whiskies; The Glenlivet and Glen Grant single malt Scotch whiskies; Martell Cognacs; Seagram's Extra Dry Gin; and Captain Morgan and Myers's rums. The Corporation also distributes Absolut Vodka, which is owned by V&S Vin & Sprit Aktiebolag, in the United States and in most major international markets. The Corporation maintains distilleries and spirits bottling plants in 19 countries in North America, South America, Europe, Asia and Australia which have aggregate daily distillation capacities of approximately 271,000 U.S. proof gallons and aggregate daily bottling capacities of approximately 272,000 standard cases. As required by the nature of its business, the Corporation maintains large inventories of aging spirits in warehousing facilities located primarily in Canada, France, the United Kingdom and the United States. At June 30, 1997, such inventories aggregated approximately 499,000,000 U.S. proof gallons. The basic raw materials used in the production of the Corporation's spirits are grains, principally corn and barley, which are purchased from a large number of suppliers. Fluctuations in the prices of these commodities have not had a material effect upon operating results. The Corporation acquires substantially all of its American white oak barrels (used for the storage of whisky during the aging period) from one supplier in the United States. The Corporation purchases plastic bottles from two suppliers and glass bottles and 2 3 packaging materials from several suppliers. The Corporation believes that its relationships with its various suppliers are good. Among the wines produced by the Corporation are Mumm and Perrier-Jout French Champagnes; Sterling Vineyards wines; Mumm Cuvee Napa California sparkling wine; Sandeman Ports and Sherries; and Matheus Muller and Mumm German sekt. The Monterey Vineyard California wines and Barton & Guestier (B&G) French wines are produced for the Corporation. The Corporation imports fine wines, principally French wines and Champagnes, into the United States and markets premium California wines, including Sterling Vineyards wines, The Monterey Vineyard wines and Mumm Cuv e Napa California sparkling wines. The Corporation's wines, Champagnes and Cognacs are produced primarily from grapes grown by others. Grapes are, from time to time, adversely affected by weather and other forces which occasionally have limited production. The Corporation believes that its relationships with its growers are good. The Corporation operates wineries and wine bottling plants in 12 countries. At June 30, 1997, the Corporation's bulk wine inventory aggregated approximately 32,000,000 wine gallons. FRUIT JUICES AND OTHER Tropicana is a leading global producer and marketer of fruit juices and juice beverages. The portfolio consists of the best known trademarks in juice which includes Tropicana Pure Premium, Tropicana and Dole juices.(1) In addition to these global trademarks, Tropicana also produces and distributes several local brands including Tropicana Season's Best 100% juices and Tropicana Twister juice beverages in the U.S.; as well as Fruvita 100% juices, Juice Bowl 100% juices and Looza Nectars in Europe. Tropicana pioneered the Not-From-Concentrate orange juice segment in the United States when it introduced Tropicana Pure Premium, and has built this business both domestically as well as internationally. Growth has come from a combination of base business expansion, new distribution/new markets and new products. On May 19, 1995, the Corporation acquired the worldwide juice and juice beverage business of Dole Food Company, Inc., ("Dole") including juices and juice beverages sold under the Dole, Juice Bowl, Fruvita and Looza brand names, but excluding Dole's canned pineapple juice business. This acquisition significantly expanded Tropicana's juice business and production capabilities, especially outside the United States. Tropicana's products are available throughout the United States and Canada, as well as in 19 other countries in Europe, Asia Pacific and Latin America. Tropicana operates 7 production facilities: 4 in the U.S.; 2 in Europe and 1 in Asia. In addition, products are manufactured for Tropicana by third parties at 14 facilities in the U.S. and internationally. Tropicana acquires substantially all of its corrugated cardboard cases from a single supplier that purchased Tropicana's corrugated cardboard manufacturing assets in 1997. Tropicana acquires substantially all of its paperboard containers from a single supplier and substantially all of its plastic containers from another single supplier. Tropicana acquires most of its glass containers through a joint venture in which it is a partner. Tropicana utilizes 6 distribution facilities in the United States, some of which are owned and others which are third party, as well as a number of both owned and third party distribution centers internationally. Oranges are the largest single raw material purchased by Tropicana, and Tropicana is the largest processor of Florida oranges. Nearly all of its Florida oranges are provided by growers under agreements ranging from one to twenty years. In addition to oranges, Tropicana purchases fruit juice concentrate from several suppliers. Tropicana believes its relationships with its growers and suppliers are good. Prices of citrus fruit and fruit juice concentrate fluctuate due to various seasonal, climatic and economic factors, which generally affect Tropicana's competitors as well. - --------------- (1) The Dole brand name is licensed from Dole Food Company, Inc. 3 4 The Seagram Beverage Company markets low-alcohol and non-alcohol adult beverages. Seagram's Coolers are sold in a variety of fruit and mixed drink flavors. The Seagram's mixer line includes Ginger Ale, Club Soda, Tonic Water and Seltzer. The Seagram Beverage Company is the exclusive importer of Grolsch Beer which is owned by Royal Grolsch N.V.. It also distributes Devil Mountain beers. BEVERAGES -- MARKETING AND DISTRIBUTION The Corporation derives a significant portion of its revenues from its beverage operations outside of the United States and Canada. In recent years, the Corporation has sought to increase the presence of such beverage operations through internal expansion, joint ventures and acquisitions. The Corporation's foreign operations involve risks including governmental regulation, embargoes, expropriation, export controls, burdensome taxes, government price restraints, exchange controls and currency fluctuations. See Note 12 of the Notes to Consolidated Financial Statements for information as to sales and other income, operating income and total assets by geographic area. In the United States, spirits, wines, coolers and beers are sold to two general classes of customers. In 32 states and the District of Columbia, sales are made to approximately 370 wholesale distributors who also purchase and market other brands of distilled spirits, wines, coolers and beers. 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 and beers also are made to approximately 275 wholesale distributors. In Canada, sales are made exclusively to ten provincial and two territorial government liquor boards and commissions. Outside the United States and Canada, the Corporation's spirits and wines are marketed either through affiliates, joint ventures or independent distributors. Such affiliates and joint ventures are located in Argentina, Australia, Austria, Belgium, Brazil, Chile, the People's Republic of China, Colombia, Costa Rica, the Czech Republic, the Dominican Republic, France, Germany, Greece, Hungary, Hong Kong, India, Israel, Italy, Jamaica, Japan, Mexico, The Netherlands, New Zealand, Philippines, Poland, Portugal, Singapore, Slovakia, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Ukraine, the United Kingdom and Venezuela. Tropicana markets its products primarily through independent brokers or distributors in the United States and Canada, and direct sales forces, distributors and/or joint ventures internationally. Seagram's mixers are distributed through soft drink bottlers. During the fiscal year ended June 30, 1997, no independent customer (or group of related customers) of the Corporation's beverage operations accounted for as much as 10% of the Corporation's revenues. BEVERAGES -- COMPETITION The beverage industry is highly competitive. The trend toward retailer concentration in the spirits and wine industry, particularly in Europe, has resulted in powerful multinational retailers and buying groups. All marketers of beverage alcohol brands have confronted severe pricing pressure across Europe. During the last few years, these Eurobased multinational retailers and buying groups have expanded into certain markets in Asia and Latin America. In addition, the proposed merger of two of the Corporation's largest spirits and wine competitors, Grand Metropolitan PLC. and Guinness PLC., may present significant challenges for the Corporation's spirits and wine businesses in the future. The Corporation continues to address these competitive challenges by investing in its core brands and key growth markets. To maintain and improve the market position of its brands, the Corporation makes extensive use of magazine, newspaper and outdoor advertising. The Corporation also utilizes radio and television advertising, although the use of such advertising in connection with the sale of beverage alcohol is restricted in certain countries. 4 5 BEVERAGES -- REGULATION AND TAXES The 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, the Corporation must file or publish prices for its beverage alcohol products in some states as much as three months in advance of their implementation. 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. ENTERTAINMENT The Corporation acquired an 80% interest in Universal Studios Holding I Corp. (formerly MCA Holding I Corp.), the indirect parent of Universal Studios, Inc. (formerly MCA INC.), on June 5, 1995. Universal Studios, Inc. has three major business units: filmed entertainment, music entertainment and recreation. Unless the context otherwise requires, the term "Universal" as used herein refers collectively to Universal Studios, Inc. and its subsidiaries and affiliates. FILMED ENTERTAINMENT Universal's filmed entertainment business produces and distributes films worldwide in the theatrical, television, home video and pay television markets, engages in the licensing of merchandising rights and film property publishing rights and has interests in USA Networks, Cineplex Odeon Corporation, United Cinemas International Multiplex B.V. ("UCI"), Cinema International Corporation N.V. ("CIC"), United International Pictures ("UIP") and Cinema International B.V. ("CIBV"). Universal is currently engaged in the production of feature length films intended for initial theatrical exhibition ("theatrical films") and, through Universal Television and its interest in Brillstein-Grey Entertainment, in the production of motion picture films intended for initial exhibition on television ("television films"). Universal Television Enterprises, Inc. develops original programming for local television stations. Universal Television Entertainment, Inc. develops original programming for pay television, basic cable and home video, and network movies. Universal Family Entertainment, Inc. and Universal Cartoon Studios, Inc. produce animated and live action children's and family programming for networks, basic cable and local television stations as well as home video. Universal and Universal Television are headquartered at Universal City Studios, located at the Corporation's 415 acre property in Universal City, California. Production generally includes four steps: acquisition of story rights, pre-production, principal photography and post-production. The production/distribution cycle represents the period of time from acquisition of a property through distribution and varies depending upon such factors as type of product and release pattern. Production activities for both theatrical films and television films are centered in the Corporation's Universal City Studios. Production facilities are also leased to outside parties. Some motion picture and television films are produced, in whole or in part, at other locations both in and outside the United States. Universal produces film product for network primetime television. Programming consists of various weekly series, additional hours of special programming and "made for television" feature length films. In the initial telecast season, the network license provides for a minimum number of episodes, with the network having the option to order additional episodes for both the current and future television seasons. Network licenses give the networks the exclusive right to telecast, as well as select the time a series will be telecast, and the success of any one series may be influenced by the strength of the programs against which it competes. Generally, television films for the networks are produced under contracts which provide for license fees which cover only a portion of the anticipated production costs. The recoverability of the balance of the production costs and the realization of profits, if any, are dependent upon the success of foreign syndication licenses, additional network exhibition in non-primetime hours, subsequent domestic syndication licenses and other uses. 5 6 The arrangements under which Universal's theatrical films and television films are owned, produced and distributed vary widely. Other parties may participate in varying degrees in revenues or other contractually defined amounts. Generally, Universal or its affiliated companies control worldwide distribution except where they act as a subdistributor in specified territories or contract for specifically defined distribution rights. 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 Consumer Products, Inc. and its subsidiaries. Generally, theatrical films are first distributed in the theatrical, home video and pay television markets. Subsequently, theatrical films are made available for worldwide television network exhibition and/or television syndication. The license agreements with theater operators are on an individual picture basis, and rentals under these agreements are generally a percentage of the theater's receipts with, in some instances, a minimum guaranteed amount. Certain television films are initially licensed for network exhibition in the United States and are simultaneously syndicated in foreign countries. Subsequent to their network telecast, series may be licensed in the United States for airing on local television stations, airing on basic cable or for additional network exhibition in non-primetime hours. Certain films are produced and/or distributed for initial exhibition on local television. In addition, certain television films are distributed in the home video market. Licensing agreements are recognized in the period that the films are available for telecast. Theatrical product is distributed in the United States to motion picture theaters by Universal Film Exchanges, Inc. and in Canada by Universal Studios Filmed Entertainment Canada Inc. Theatrical distribution throughout the rest of the world is primarily conducted by UIP, which is equally owned by Universal, Metro-Goldwyn-Mayer Inc. and an affiliate of Viacom Inc. Pay television is distributed in the United States by Universal Studios Pay Television, Inc. and in Canada by Universal Studios Filmed Entertainment Canada Inc. Pay television distribution for the rest of the world is conducted by Universal Studios International B.V. Television distribution is handled by Universal Domestic Television in the United States and throughout the rest of the world primarily by Universal International Television. Videocassettes and videodiscs are marketed in the United States by Universal Home Video, Inc., in Canada by Universal Studios Canada Ltd. and outside the United States and Canada by CIBV, which is 49% owned by Universal and 49% by an affiliate of Viacom Inc. Certain Other Joint Ventures and Equity Interests. Universal has a more than 40% equity interest in Cineplex Odeon Corporation which owns and operates motion picture theaters and related food service concessions in the United States and Canada. Universal also has a 49% interest in UCI and CIC, joint ventures with affiliates of Viacom Inc. ("Viacom"), which operate motion picture theaters and distributes home video products outside the United States and Canada. At June 30, 1997, Universal owned 50% of USA Networks which owns and operates: USA Network, a general entertainment channel and Sci-Fi Channel, a science fiction channel. Universal also owns 50% of Sci-Fi Europe L.L.C., a science fiction channel. Pursuant to an agreement dated September 22, 1997, Universal has agreed to acquire the remaining 50% percent interest in USA Networks and Sci-Fi Europe L.L.C. from a subsidiary of Viacom for $1.7 billion in cash. The transaction is expected to close in the fourth calendar quarter of 1997 and is subject to customary closing conditions. See also, "Legal Proceedings." MUSIC ENTERTAINMENT The Universal Music Group encompasses record labels; United States manufacturing, sales, and distribution of recorded music and videos; music publishing; and live event and concert promotion. Universal's record companies create and market recorded music, principally on compact discs and cassettes. The Group's music appears on such labels as MCA Records, Universal Records, MCA Nashville, Geffen Records and DGC Records, GRP Records, Rising Tide, Uptown Records, Curb/Universal and Interscope Records (50 percent ownership). New labels marketed by Geffen Records include Almo Sounds, Outpost Records and DreamWorks Records. Universal Music and Video Distribution, Inc. manufactures and distributes recorded music for all of the labels in the group, affiliated label ventures, and others, and distributes video product for 6 7 Universal Home Video, Inc. and others in the United States. Universal Music International Limited administers Universal subsidiaries in major markets outside the United States for the release, marketing and sale of recorded music. In foreign countries other than Canada and the United Kingdom, Universal's record product is manufactured and distributed by third parties, principally BMG Music. The Corporation also releases soundtrack albums for motion pictures. MCA Music Publishing licenses music from a catalog of more than 175,000 copyrights for a wide variety of uses including recorded music, videocassettes, videodiscs, video games, radio, television and motion pictures. Concerts and live events are presented at and promoted by the Corporation's Universal Amphitheatre in Los Angeles, Fiddler's Green in Denver, Blossom Music Center in Cleveland and the Gorge Amphitheatre in George, Washington and through joint ventures at the Starplex Amphitheatre in Dallas, the Lakewood Amphitheatre in Atlanta and the Molson Amphitheatre in Toronto, Canada. In connection with the Corporation's music entertainment activities, Universal owns manufacturing facilities in New York and Illinois and an office building in Los Angeles. The Corporation leases warehouses at six facilities in the United States and Canada and leases office and/or warehouse space in 27 countries outside of the United States and Canada. RECREATION Universal, through a wholly owned subsidiary, owns and operates Universal Studios Hollywood, a theme park attraction based on the Corporation's filmed entertainment businesses located at Universal City California. Universal has a 50% interest in Universal City Florida Partners, a joint venture which owns Universal Studios Florida, a motion picture and television themed tourist attraction and production facility on approximately 440 acres owned by the joint venture in Orlando, Florida. Universal City Development Partners, a partnership in which Universal has a 50% interest, has begun development of an additional themed tourist attraction, Universal's Islands of Adventure, and related commercial real estate on approximately 385 acres of land owned by such partnership which is adjacent to Universal Studios Florida. Universal's Islands of Adventure is expected to open in 1999. In 1996, the Corporation announced plans for Universal Studios Japan in Osaka, the Corporation's first theme park venture outside the United States. It is anticipated that the Corporation will hold a 24% equity interest in Universal Studios Japan. Construction is expected to begin in 1998, with the opening expected in 2001. Universal owns, develops and manages commercial buildings with about 2.4 million rentable square feet of office space in Universal City, including Universal CityWalk and the 10 Universal City Plaza office building, which are occupied by the Corporation or leased to outside tenants; and owns the Sheraton Universal Hotel. Universal CityWalk, which is located on the Corporation's property in Universal City, is an integrated retail/entertainment zone which offers shopping, dining, cinemas and entertainment adjacent to Universal Studios Hollywood. Universal owns, on a fully-diluted basis, approximately 21% of SEGA GameWorks L.L.C. ("SEGA GameWorks") which designs, develops and operates location-based entertainment centers. SEGA GameWorks currently owns and operates three such centers in the United States which are located in Seattle, Washington, Las Vegas, Nevada and Ontario, California. In addition, Universal is involved in other businesses including the operation of retail gift stores and the development of entertainment software. Universal owns Spencer Gifts, Inc. which operates approximately 525 retail gift stores throughout the United States through three groups of stores: the Spencer, DAPY and Glow gift shops. Spencer, DAPY and Glow sell novelties, electronics, accessories, books and trend driven products. In connection with the activities of Spencer Gifts, Inc., the Corporation owns a building in New Jersey and leases approximately 525 stores in various cities in the United States and a warehouse in North Carolina. Universal Studios New Media, Inc. develops entertainment software, is responsible for the development and maintenance of Universal's websites and manages the Corporation's 48% interest (42% on a fully-diluted basis) in Interplay Productions, an entertainment software developer. On December 16, 1996 Universal completed the sale of The Putnam Berkley Group, Inc., its book publishing division for $330 million in cash. 7 8 ENTERTAINMENT -- COMPETITION Filmed Entertainment. The Corporation's filmed entertainment business competes with all other forms of entertainment. The Corporation competes with other major film studios and independent producers for creative talent and story products, essential ingredients of the Corporation's filmed entertainment business. The profitability of the Corporation's filmed entertainment business is dependent upon public taste which is volatile, shifts in demand, economic conditions and technological developments. Music Entertainment. 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 such artists and the recordings released in a particular year. The Corporation's music business competes for creative talent both from new artists and those artists who have already established themselves through another label. Overexpansion of retail outlets for recorded music over the past several years resulted in the closing of many such stores which is expected to further increase competition among recorded music companies. The recorded music business continues to be adversely affected by counterfeiting and piracy, in particular through the home taping of recorded music. Recreation. The Corporation's 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 which are not directly controllable by the Corporation such as economic conditions, amount of available leisure time, oil and transportation prices and weather patterns. 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. INTERESTS IN TIME WARNER AND DUPONT TIME WARNER On May 28, 1997, the Corporation sold 30 million shares of common stock of Time Warner Inc., a Delaware corporation ("Time Warner"), for $1.3875 billion in cash. At June 30, 1997, the Corporation owned approximately 26.8 million shares of Time Warner common stock which had a market value of approximately $1.3 billion as of such date. Time Warner has included information with respect to its business in its Annual Report on Form 10-K for the year ended December 31, 1996. DUPONT On July 24, 1996, the Company sold its 156 million equity warrants of E.I. du Pont de Nemours and Company, a Delaware corporation ("DuPont"), to DuPont for $500 million in cash. On June 12, 1997, the common stock of DuPont (the "DuPont Common Stock") was split two-for-one. At June 30, 1997, the Corporation owned approximately 16.4 million postsplit shares of DuPont Common Stock which had a market value of approximately $1.0 billion as of such date. DuPont has included information relating to its business in its Annual Report on Form 10-K for the year ended December 31, 1996. EMPLOYEES As of June 30, 1997, the Corporation had approximately 30,000 employees. The number of employees is subject to seasonal fluctuations. The Corporation has collective bargaining agreements with a number of labor unions governing wages and benefits, hours, working conditions and similar matters and covering approximately 13,200 of its employees in the United States and certain other countries. Such agreements expire at various times between 1998 and 2001. In general, the Corporation believes its labor relations are good. 8 9 ITEM 3. LEGAL PROCEEDINGS On April 29, 1996, Universal commenced an action entitled MCA INC. v. Viacom Inc., Viacom International Inc. and Eighth Century Corporation, C.A. No. 14971, in the Court of Chancery of the State of Delaware (the "Court of Chancery") alleging breaches by Viacom and affiliated entities of the USA Networks joint venture agreement between affiliates of Viacom and Universal, by reason, among others, of Viacom operating certain cable television networks in violation of the joint venture agreement and in competition with USA Networks. The action seeks, among other things, to enforce the joint venture agreement's exclusivity provision in the fields of advertiser-supported basic cable television and pay-per-view programming services. Shortly thereafter Viacom and Eighth Century Corporation, an indirect, wholly owned subsidiary of Viacom, commenced an action in the Court of Chancery entitled Viacom Inc. and Eighth Century Corporation v. The Seagram Company Ltd., MCA INC. and Universal City Studios, Inc., C.A. No. 14973, against the Corporation, Universal and Universal City Studios, Inc. The action alleges, among other things, that Universal sought to force Viacom to sell its 50 percent interest in USA Networks to Universal at an unfairly low price. Trial in these consolidated actions commenced on October 15, 1996 and concluded on December 6, 1996. In an opinion dated May 15, 1997, the Court of Chancery ruled that Viacom had breached its contractual and fiduciary obligations to the Corporation by operating the MTV Networks outside of the USA joint venture. The Court of Chancery rejected each of Viacom's claims and affirmative defenses. The Court of Chancery thereafter took the matter under submission for decision as to the appropriate remedy for Viacom's breaches. Pursuant to an agreement dated September 22, 1997, Universal agreed to purchase Viacom's 50 percent interest in USA Networks and Sci-Fi Europe L.L.C. for $1.7 billion in cash. If this transaction is consummated as contemplated by the agreement, the parties have agreed to terminate the litigation and release each other from all claims relating thereto. At the request of the parties, the Court of Chancery has agreed to stay the proceeding and to not render a decision as to remedy in these actions unless the agreement is terminated without the transaction being consummated. On November 17, 1995, a class action was filed in the Superior Court for the State of California, Los Angeles County, entitled The Estate of Jim Garrison, etc. v. Warner Bros., Inc. Paramount Pictures Corp., Twentieth Century Fox Film Corp., Universal City Studios, Inc., United Artists Corporation, Metro-Goldwyn-Mayer, Inc., Sony Pictures Entertainment, Inc., Columbia Pictures, Inc., The Walt Disney Company, Walt Disney Productions, Inc., Touchstone Pictures, Inc., Hollywood Pictures, Inc., Tristar Pictures, Inc., and Motion Picture Association of America, No. 95-8328-RMT. The plaintiffs are representatives of the Estate of Jim Garrison, who was the author of the book On the Trail of the Assassin, on which the motion picture JFK was based. JFK was distributed by Warner Bros. Universal had no involvement in the production or distribution of JFK. Plaintiffs allege that the major motion picture studios, including Universal, have conspired, in alleged violation of antitrust laws, to fix the terms of so-called "net profits" provisions in contracts between the studios and actors, writers, directors, producers and other talent. Plaintiffs have brought the lawsuit on behalf of a class of all "talent" who have entered into allegedly "standard" net profits agreements with one or more of the defendants during the period January 1, 1988 to the present. Plaintiffs seek three times their unspecified actual damages under the antitrust laws. Universal has denied the allegations of the complaint and intends vigorously to defend this action. The action was removed to the United States District Court for the Central District of California on December 15, 1995. On August 29, 1996, the District Court issued an order granting class certification for this action. On February 21, 1997, the United States Court of Appeals for the Ninth Circuit denied the defendants' request for permission to file an interlocutory appeal of the class certification. The defendants filed a motion for a re-hearing en banc on March 14, 1997. On July 15, 1997 the petition for re-hearing was denied. On May 30, 1995, a purported 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, UNI Distribution Corporation, 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 UNI Distribution Corporation, 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. 9 10 On July 8, 1996, a purported class action was filed in the Circuit Court of Blount County, Tennessee at Maryville, entitled Robinson and Silvey v. EMI Music Distribution, Inc., Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, UNI Distribution Corporation, Bertelsmann Music Group, Inc. and Polygram Group Distribution, Inc., No. L-10462. The action was brought on behalf of persons who, from June 26, 1992 to the present, purchased recorded music compact discs indirectly from the defendants in Tennessee, Alabama, California, Florida, Kansas, Maine, Michigan, Minnesota, Mississippi, New Mexico, North Dakota, South Dakota, West Virginia, Wisconsin and the District of Colombia, and alleges that the defendants are engaged in a conspiracy to fix the prices of compact discs, in violation of the antitrust, unfair trade practices and consumer protection statutes of each of those jurisdictions. On July 8, 1996, the Circuit Court issued an order conditionally granting class certification, subject to the defendants' right to move to decertify the class. On July 14, 1997, plaintiffs filed a motion to voluntarily dismiss this action without prejudice. No order has yet been entered relating to dismissal. On July 25, 1996, Universal Music & Video Distribution, Inc. was 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. By letter dated April 11, 1997, the Federal Trade Commission ("FTC") advised Universal Music & Video Distribution, Inc. that it is conducting a preliminary investigation to determine whether minimum advertised pricing programs used by major record distributors constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act. Universal Music & Video Distribution, Inc. received a supoena dated September 19, 1997 for the production of documents. No allegations of unlawful conduct have been made against Universal Music & Video Distribution, Inc. The Corporation 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. 10 11 PART II ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY -- AND RELATED SHAREHOLDER MATTERS Information as to the number of holders of record of the Corporation's common shares, the markets on which such common shares are traded, the quarterly high and low prices for such common shares on Canadian and New York stock exchanges and the quarterly dividends declared with respect thereto during the fiscal year ended June 30, 1997, the five-month transition period ended June 30, 1996 and the fiscal year ended January 31, 1996 is incorporated herein by reference to the Management's Discussion and Analysis section captioned "Return to Shareholders" on page 52 of the Annual Report. Payment of dividends by the Corporation to shareholders not resident in Canada is subject under Canadian law to Canadian withholding tax. For shareholders resident in the United States, 15% of the dividends must be withheld pursuant to currently existing treaty arrangements between the United States and Canada. For shareholders resident in other countries, the withholding rate varies depending upon the existence and terms of applicable treaties between each such other country and Canada. ITEM 6 -- SELECTED FINANCIAL DATA Selected financial data for the fiscal year ended June 30, 1997 and for the five-month transition period ended June 30, 1996 and for each of the four fiscal years ended January 31, 1996, 1995, 1994 and 1993 are incorporated herein by reference to the Financial Summary on pages 76 and 77 of the Corporation's Annual Report. ITEM 7. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations is incorporated herein by reference to pages 41 through 52 of the Corporation's Annual Report. ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures about market risk are incorporated herein by reference to page 51 of the Corporation's Annual Report. ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements, together with the report thereon of Price Waterhouse LLP dated August 13, 1997, and the supplementary quarterly data are incorporated herein by reference to pages 53 through 75 of the Corporation's Annual Report. ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 11 12 PART III ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information as to the Corporation's directors is incorporated by reference to pages 5 through 7 of the Proxy Circular for the Meeting of Shareholders to be held on November 5, 1997 (the "Proxy Circular") under the caption "Election of Directors -- Nominees for Directors". Set forth below is certain information with respect to the Corporation's executive officers.
OFFICE TITLE AND OTHER HELD NAME AGE INFORMATION SINCE - -------------------------------------- --- ----------------------------------------------- ---- Edgar M. Bronfman..................... 68 Chairman of the Board and Director. For more 1975 than five years prior to June 1994, he was also Chief Executive Officer. Charles R. Bronfman................... 66 Co-Chairman of the Board, Chairman of the 1986 Executive Committee and Director. Edgar Bronfman, Jr.................... 42 President, Chief Executive Officer and 1994 Director. From June 1989 to June 1994, he was President, Chief Operating Officer and Director. Robert W. Matschullat................. 49 Vice Chairman, Chief Financial Officer and 1995 Director. From January 1, 1992 to July 1, 1995, he was Managing Director and Head of Worldwide Investment Banking for Morgan Stanley & Co., Inc. and a director of Morgan Stanley Group Inc. From February 1986 to January 1992, he was Managing Director of Morgan Stanley & Co., Inc. Frank J. Biondi, Jr................... 52 Director and Chairman and Chief Executive 1996 Officer, Universal Studios, Inc. From July 1987 until January 1996, he was President, Chief Executive Officer and a director of Viacom Inc. John D. Borgia........................ 49 Executive Vice President, Human Resources. 1995 From March 1991 to April 1995, he was Senior Vice President, Human Resources & Administration, Bristol-Myers Squibb Pharmaceutical Group.
12 13
OFFICE TITLE AND OTHER HELD NAME AGE INFORMATION SINCE - ------------------------------ ------ ---------------------------------------------- -------- Steven J. Kalagher............ 54 Executive Vice President and President and 1995 Chief Executive Officer, The Seagram Spirits And Wine Group (a division of Joseph E. Seagram & Sons, Inc.). From May 1995 to September 1997, he was Executive Vice President and President, The Seagram Spirits And Wine Group. From May 1994 to May 1995, he was Reengineering Leader. From February 1993 to May 1995, he was also President, Seagram North America (a division of The Seagram Spirits And Wine Group). From March 1991 to January 1993, he was Executive Vice President, Staff Operations of The Seagram Spirits And Wine Group. Ellen R. Marram............... 50 Executive Vice President and President and 1993 Chief Executive Officer, Tropicana Beverage Group (a division of Joseph E. Seagram & Sons, Inc. formerly known as The Seagram Beverage Group). From April 1993 to September 1997, she was Executive Vice President and President, Tropicana Beverage Group. From June 1988 to April 1993, she was President of Nabisco Biscuit Company, an operating unit of RJR Nabisco Holdings Corp. Daniel R. Paladino............ 54 Executive Vice President, Legal and 1996 Environmental Affairs. From March 1993 to October 1996, he was Vice President, Legal and Environmental Affairs. From August 1986 to February 1993, he was Vice President, Legal Affairs. Gabor Jellinek................ 62 Vice President, Production and Executive Vice 1987 President, Manufacturing, The Seagram Spirits And Wine Group (a division of Joseph E. Seagram & Sons, Inc.) since February 1991. Arnold M. Ludwick............. 59 Vice President. 1982
13 14
OFFICE TITLE AND OTHER HELD NAME AGE INFORMATION SINCE - ------------------------------ ------ ---------------------------------------------- -------- John R. Preston............... 50 Vice President, Finance since January 29, 1997 1997. From 1994 to February 1997, he was Reengineering Financial Management/Post Merger Integration Team Leader. From 1993 to 1994, he was Executive Vice President, Staff Operations of The Seagram Spirits And Wine Group (a division of Joseph E. Seagram & Sons, Inc.). From 1990 to 1993, he was Treasurer of the Corporation. Michael C.L. Hallows.......... 56 Secretary. 1979
Pursuant to the Corporation's By-Laws, executive officers are chosen annually by the Board of Directors and hold office until they resign, are removed or otherwise become disqualified to serve. ITEM 11. -- EXECUTIVE COMPENSATION The information required hereunder is incorporated herein by reference to pages 11 through 19 of the Proxy Circular under the captions "Summary Compensation Table" through "Performance Graph". ITEM 12. -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL Owners and Management Information required hereunder as to the ownership of the Corporation's common shares by certain beneficial owners and management is incorporated herein by reference to pages 2 through 4 of the Proxy Circular under the caption "Share Ownership". ITEM 13. -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required hereunder is incorporated herein by reference to page 20 of the Proxy Circular under the captions "Human Resources Committee Interlocks and Insider Participation" and "Transactions with Directors and Others". 14 15 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(h) through 10(ee) 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 May 28, 1997 was filed to report under Item 5 the sale by the Corporation of 30 million shares of common stock of Time Warner Inc. 15 16 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) Date: September 26, 1997 By /s/ EDGAR BRONFMAN, JR. ---------------------------------------------- Edgar Bronfman, Jr. President and Chief Executive Officer (Principal Executive Officer)
16 17 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on September 26, 1997 by the following persons on behalf of the Registrant and in the capacities indicated.
SIGNATURE TITLE - --------------------------------------------- ----------------------------------------------- PRINCIPAL EXECUTIVE OFFICER: /s/ EDGAR BRONFMAN, JR. Director, President and Chief Executive Officer - --------------------------------------------- Edgar Bronfman, Jr. PRINCIPAL FINANCIAL OFFICER: /s/ R.W. MATSCHULLAT Director, Vice Chairman and Chief Financial - --------------------------------------------- Officer Robert W. Matschullat PRINCIPAL ACCOUNTING OFFICER: /s/ JOHN R. PRESTON Vice President, Finance - --------------------------------------------- John R. Preston DIRECTORS: Edgar M. Bronfman* Director, Chairman of the Board Director, Co-Chairman of the Board and Chairman The Hon. Charles R. Bronfman* of the Executive Committee Samuel Bronfman II* Director Matthew W. Barrett* Director Frank J. Biondi, Jr.* Director The Hon. William G. Davis* Director The Hon. Paul Desmarais* Director Michele J. Hooper* Director David L. Johnston* Director The Hon. E. Leo Kolber* Director Marie-Josee Kravis* Director C. Edward Medland* Director Lew R. Wasserman* Director John S. Weinberg* Director
- --------------- * By signing his name hereto, Robert W. Matschullat 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/ R.W. MATSCHULLAT --------------------------------- Robert W. Matschullat Attorney-in-fact 17 18 THE SEAGRAM COMPANY LTD. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997 INDEX TO FINANCIAL STATEMENTS 1. Consolidated Financial Statements for The Seagram Company Ltd. and subsidiary companies, together with the report thereon of Price Waterhouse LLP dated August 13, 1997, incorporated herein by reference to the Corporation's Annual Report to Shareholders for the fiscal year ended June 30, 1997 (the "Fiscal Year"): Consolidated Balance Sheet at June 30, 1997, June 30, 1996 and January 31, 1996; For the Fiscal Year, the five month transition period ended June 30, 1996, and the fiscal years ended January 31, 1996 and 1995: Consolidated Statement of Income; Consolidated Statement of Cash Flows; Consolidated Statement of Shareholders' Equity; Summary of Significant Accounting Policies; Notes to Consolidated Financial Statements; Independent Accountants' Report; 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 the Corporation's Consolidated Financial Statements or Notes thereto. 3. The Consolidated Financial Statements of E.I. du Pont de Nemours and Company (approximately 24.1% owned by the Corporation at January 31, 1995 and accounted for during the fiscal year then ended using the equity method), as listed under Item 14(a)1 of its Annual Report on Form 10-K for the year ended December 31, 1994, are incorporated herein by reference. 18 19 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 BALANCE BEGINNING COSTS AND AT END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD - --------------------------------------------- ---------- ---------- ---------- --------- Reserves Deducted from Receivables: Fiscal Year Ended June 30, 1997: Reserve for Doubtful Accounts.............. $ 88 $ 77 $ 34 $ 131 Reserve for Merchandise Returns and Allowances.............................. 269 221 307 183 ---- ---- ---- ---- $357 $298 $341 $ 314 ==== ==== ==== ==== Transition Period Ended June 30, 1996: Reserve for Doubtful Accounts.............. $ 78 $ 25 $ 15 $ 88 Reserve for Merchandise Returns and Allowances................................. 205 130 66 269 ---- ---- ---- ---- $283 $155 $ 81 $ 357 ==== ==== ==== ==== Fiscal Year Ended January 31, 1996*: Reserve for Doubtful Accounts.............. $ 47 $ 38 $ 7 $ 78 Reserve for Merchandise Returns and Allowances................................. 6 245 46 205 ---- ---- ---- ---- $ 53 $283 $ 53 $ 283 ==== ==== ==== ====
- --------------- * Universal results in fiscal year ended January 31, 1996 are from date of acquisition, June 5, 1995 through December 31, 1995. 20 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 referred to in our report dated August 13, 1997 appearing on page 74 of the Annual Report to Shareholders of The Seagram Company Ltd. for the fiscal year ended June 30, 1997 (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in the Index to Financial Statements appearing on page 24 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/ Price Waterhouse LLP PRICE WATERHOUSE LLP New York, New York August 13, 1997 21 THE SEAGRAM COMPANY LTD. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997 EXHIBIT INDEX
EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE -------------- ---------------------------------------------------------------------- 3 (a) Articles of Amalgamation dated February 1, 1995 between the Corporation and Centenary Distillers Ltd. (incorporated by reference to Exhibit 3(a) of the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1995), as amended by Certificate and Articles of Amendment dated May 31, 1995 (incorporated by reference to Exhibit 3(a) of the Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1995). (b) General By-Laws of the Corporation, as amended (incorporated by reference to Exhibit 3(b) to the Corporation'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. The Corporation agrees to furnish to the Commission on request a copy of any instrument defining the rights of holders of long-term debt of the Corporation 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 June 5, 1995 among the Corporation, Matsushita Electric Industrial Co., Inc., MEI Holding Inc. (formerly, Home Holding Inc.) and Universal Studios Holding I Corp. (formerly, Home Holding II Inc.) (incorporated by reference to the Exhibit 2(a) to the Corporation's Current Report on Form 8-K dated June 5, 1995). (b) Stockholders' Agreement dated as of June 5, 1995 among the Corporation, MEI Holding Inc. (formerly, Home Holding Inc.) and Universal Studios Holding I Corp. (formerly, Home Holding II Inc.) (incorporated by reference to the Exhibit 10(a) to the Corporation's Current Report on Form 8-K dated June 5, 1995). (c) 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. (d) Credit Agreement (the "Credit Agreement"), dated as of November 23, 1994, among Joseph E. Seagram & Sons, Inc., J.E. Seagram Corp., Bank of Montreal, Citibank N.A. and The Chase Manhattan Bank (formerly, Chemical Bank) and the banks named therein (incorporated by reference to Exhibit 10 (f) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1995). (e) First Amendment, dated as of June 14, 1996, to the Credit Agreement among Joseph E. Seagram & Sons, Inc., J.E. Seagram Corp., Bank of Montreal, Citibank N.A. and The Chase Manhattan Bank (formerly, Chemical Bank) and the banks named therein (incorporated by reference to Exhibit 10(d) to the Corporation's Transition Report on Form 10-K for the transition period ended June 30, 1996).
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EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE -------------- ---------------------------------------------------------------------- (f) 5-Year Credit Agreement (the "Five Year Credit Agreement") dated as of December 21, 1994, among The Seagram Company Ltd., Bank of Montreal and the banks named therein (incorporated by reference to Exhibit 10 (h) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1995). (g) First Amendment, dated as of June 14, 1996, to the 5-Year Credit Agreement among The Seagram Company Ltd., Bank of Montreal and the banks named therein (incorporated by reference to Exhibit 10(f) to the Corporation's Transition Report on Form 10-K for the transition period ended June 30, 1996). (h) 1983 Stock Appreciation Right and Stock Unit Plan of the Corporation, as amended (incorporated by reference to Exhibit 10(e) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1987). (i) Written description of Management Incentive Plan of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1994). (j) Senior Executive Long-Term Incentive Plan of the Corporation (incorporated by reference to Exhibit 10(f) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1990). (k) Form of Deferred Compensation Agreement, as amended, between Joseph E. Seagram & Sons, Inc. and certain of its executives (incorporated by reference to Exhibit 10(n) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (l) 1988 Stock Option Plan of the Corporation, as amended (incorporated by reference to Exhibit 10(f) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1992). (m) 1992 Stock Incentive Plan of the Corporation, as amended (incorporated by reference to Exhibit 10(g) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (n) 1996 Stock Incentive Plan of the Corporation (incorporated by reference to Exhibit 10(m) to the Corporation's Transition Report on Form 10-K for the transition period ended June 30, 1996). (o) Senior Executive Basic Life Insurance Program, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(i) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (p) Retirement Salary Continuation Plan, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(j) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (q) Benefit Equalization Plan, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(k) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993).
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EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE -------------- ---------------------------------------------------------------------- (r) Senior Executive Group Term Life Insurance Arrangement, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(k) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1992). (s) Personal Excess Liability Insurance Policy for Senior Executives of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(m) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (t) Flexible Perquisite Program for Seagram Senior Executives (incorporated by reference to Exhibit 10(s) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1994). (u) Senior Executive Disability Salary Continuation Arrangement of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10 (w) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1995). (u) Post Retirement Consulting Plan, as amended, of Joseph E. Seagram & Sons, Limited (incorporated by reference to Exhibit 10(r) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (w) Canadian Executive Pension Plan of Joseph E. Seagram & Sons, Limited, as amended (incorporated by reference to Exhibit 10(s) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (x) Executive Long-Term Incentive Arrangement among the Corporation, Joseph E. Seagram & Sons, Limited and Charles R. Bronfman dated February 4, 1982 (incorporated by reference to Exhibit 10(r) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1992). (y) Employment Agreement between Joseph E. Seagram & Sons, Inc. and Robert W. Matschullat dated July 3, 1995 (incorporated by reference to Exhibit 10(aa) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (z) Employment Agreement among Universal Studios, Inc. (formerly, MCA INC.), the Corporation and Frank J. Biondi, Jr. dated April 23, 1996 (incorporated by reference to Exhibit 10(bb) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (aa) Agreement between Universal Studios, Inc. and Frank J. Biondi, Jr. dated August 22, 1997. (bb) Agreement between Joseph E. Seagram & Sons, Inc. and Steven J. Kalagher dated December 28, 1995 (incorporated by reference to Exhibit 10(cc) to the Corporation's Annual Report on Form 10- K for the fiscal year ended January 31, 1996).
24
EXHIBIT NUMBER PER ITEM 601 OF REGULATION S-K DESCRIPTION OF DOCUMENT AND INCORPORATION REFERENCE WHERE APPLICABLE -------------- ---------------------------------------------------------------------- (cc) Employment Agreement between Joseph E. Seagram & Sons, Inc. and Ellen R. Marram dated April 12, 1993 (incorporated by reference to Exhibit 10(dd) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (dd) Employment Agreement between Universal Studios, Inc. (formerly, MCA INC.) and Lew R. Wasserman dated December 6, 1988 (incorporated by reference to Exhibit 10(ee) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (ee) Amendment to Employment Agreement between Universal Studios, Inc. (formerly, MCA INC.) and Lew R. Wasserman dated November 26, 1990 (incorporated by reference to Exhibit 10(ff) to the Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). 11 Computation of fully diluted earnings per share. 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. 13 Pages 41-77 of the Report to Shareholders for the fiscal year ended June 30, 1997. 21 Subsidiaries. 23 (a) Consent of Price Waterhouse LLP, independent accountants, as accountants for the Corporation. (b) Consent of Price Waterhouse LLP, independent accountants, as accountants for DuPont. 24 Power of Attorney. 27 Financial Data Schedule.
EX-10.C 2 USA NETWORKS PARTNERSHIP AGREEMENT 1 USA NETWORKS PARTNERSHIP INTEREST PURCHASE AGREEMENT by and among UNIVERSAL STUDIOS, INC. UNIVERSAL CITY STUDIOS, INC. VIACOM INC. VIACOM INTERNATIONAL INC. and EIGHTH CENTURY CORPORATION ---------------- Dated as of September 22, 1997 2 TABLE OF CONTENTS Page Number ARTICLE 1 Certain Definitions Section 1.1 Specific Definitions......................................... 1 Section 1.2 Other Terms.................................................. 4 ARTICLE 2 Actions To Be Taken Following Execution Section 2.1 Announcement................................................. 4 Section 2.2 Suspension of Litigation..................................... 5 Section 2.3 Program Licensing Agreement; Satellite Subleases............. 5 Section 2.4 Disposition of Confidential Materials........................ 6 ARTICLE 3 Purchase of Partnership Interest; Closing Section 3.1 Purchase..................................................... 6 Section 3.2 Redemption or Purchase of Viacom Interest in Sci-Fi Europe......................................... 7 Section 3.3 Undistributed Current Year Partnership Earnings.............. 7 Section 3.4 Delivery of Purchase Price................................... 7 Section 3.5 Litigation Releases.......................................... 8 Section 3.6 Vacatur Application.......................................... 8 Section 3.7 Time and Place of Closing.................................... 8 ARTICLE 4 Representations and Warranties of the Universal Parties Section 4.1 Incorporation; Authorization; No Conflict; etc............... 8 Section 4.2 Consents and Approvals....................................... 9 Section 4.3 Brokers, Finders, etc........................................ 9 Section 4.4 Investment Intent............................................ 9 Section 4.5 Financing.................................................... 9 3 ARTICLE 5 Representations and Warranties of the Viacom Parties Section 5.1 Incorporation; Authorization; No Conflict; etc............... 9 Section 5.2 No Encumbrances..............................................10 Section 5.3 Consents and Approvals.......................................10 Section 5.4 Brokers, Finders, etc........................................10 ARTICLE 6 Covenants Section 6.1 Conduct of Business of the Partnership.......................11 Section 6.2 Obligations of Viacom........................................11 Section 6.3 Efforts; Obtaining Consents; Further Assurances..............11 Section 6.4 Public Announcements.........................................12 Section 6.5 Non-Solicitation of Employees................................12 Section 6.6 Tax Allocation...............................................12 Section 6.7 Partnership Tax Election.....................................12 Section 6.8 Tax Matters ...............................................13 Section 6.9 Indemnification..............................................13 Section 6.10 Ongoing Obligation of Confidentiality........................13 Section 6.11 Non-Registration of Trademarks...............................14 ARTICLE 7 Non-Competition Section 7.1 Non-Competition..............................................14 ARTICLE 8 Post-Closing Payment of Undistributed Pre-Closing Partnership Earnings Section 8.1 Post-Closing Payment.........................................18 -ii- 4 ARTICLE 9 Conditions Section 9.1 Mutual Conditions............................................19 Section 9.2 Conditions of the Universal Parties' Obligation to Close.....19 Section 9.3 Conditions of the Viacom Parties' Obligation to Close........20 ARTICLE 10 Termination Section 10.1 Termination ...............................................20 Section 10.2 Procedure and Effect of Termination..........................21 ARTICLE 11 Miscellaneous Section 11.1 Expenses ....................................................21 Section 11.2 Notices, Etc. ...............................................21 Section 11.3 Amendment....................................................22 Section 11.4 Waiver; Effect of Waiver.....................................22 Section 11.5 Successors and Assigns.......................................22 Section 11.6 Survival of Representations, Warranties, Covenants and Agreements...........................................23 Section 11.7 Specific Performance.........................................23 Section 11.8 Entire Agreement.............................................23 Section 11.9 Viacom Released from Joint Venture Agreement.................23 Section 11.10 Interpretation; Absence of Presumption.......................23 Section 11.11 Headings.....................................................24 Section 11.12 Severability.................................................24 Section 11.13 Remedies Cumulative..........................................24 Section 11.14 Time of the Essence..........................................24 Section 11.15 Governing Law................................................24 Section 11.16 Counterparts.................................................24 -iii- 5 Exhibits A. Press Releases B. Letter to Court C. Litigation Releases D. Stipulation of Dismissal E. Letter Requesting Resumption of Proceedings F. Terms and Conditions for Programming License Agreement G. Terms and Conditions for Satellite Capacity Subleases H. Programming Rights Embodied in Non-Executed Agreements I. Certain Trade Marks, Service Marks and Logos -iv- 6 THIS PARTNERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement"), dated as of September 22, 1997, is by and among Universal Studios, Inc., a Delaware corporation ("Universal"), Universal City Studios, Inc., a Delaware corporation and a wholly owned subsidiary of Universal ("UCS"), Viacom Inc., a Delaware corporation ("Viacom"), Viacom International Inc., a Delaware corporation ("Viacom International"), and Eighth Century Corporation, a Delaware corporation and an indirect wholly owned subsidiary of Viacom ("ECC"). WHEREAS, one or more of the Universal Parties (as defined herein), on the one hand, and one or more of the Viacom Parties (as defined herein), on the other, are the sole partners (together, the "Partners"), each having in the aggregate 50% of the interest in USA Networks, an unincorporated joint venture established as a partnership under the laws of the State of New York (the "Partnership"), and collectively having 100% of such interests; and WHEREAS, the Partnership has been engaged in the business of operating television programming services since 1981, and currently operates the USA Network and the Sci-Fi Channel; and WHEREAS, Universal and UCS (together, the "Universal Parties"), on the one hand, and Viacom, Viacom International and ECC (together, the "Viacom Parties"), on the other, have certain claims against each other as articulated in the Litigation (as defined herein); and WHEREAS, the parties hereto desire to terminate the Litigation and, in connection therewith, desire that ECC sell to Universal, and that Universal purchase from ECC, all of the Viacom Partnership Interests (as defined herein), and that the Viacom Parties terminate their participation in the Partnership, as more fully provided for herein; NOW THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE 1 Certain Definitions Section 1.1 Specific Definitions. As used in this Agreement the following terms shall have the following respective meanings: "Affiliate" shall mean, with respect to any person, any other person that directly, or through one or more intermediaries, controls or is controlled by or is under common control 7 with such first person, and, if such a person is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any person who is controlled by any such member or trust; provided that no Universal Party shall be deemed to be an Affiliate of any Viacom Party or, prior to the Closing, of the Partnership, and no Viacom Party shall be deemed to be an Affiliate of any Universal Party or the Partnership, in each case by virtue of any such person's participation in the Partnership. As used in this definition, "control" (including, with correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). "Agreement" shall have the meaning set forth in the first paragraph hereof. "Applicable Law" shall mean all applicable provisions of all (a) constitutions, treaties, statutes, laws (including the common law), rules, regulations, ordinances or codes of any Governmental Authority, and (b) orders, decisions, injunctions, judgments, awards and decrees of or agreements with any Governmental Authority. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day in which banking institutions in New York are authorized or obligated by law or executive order to close. Any event the scheduled occurrence of which would fall on a day which is not a Business Day shall be deferred until the next succeeding Business Day. "Closing" shall mean the consummation of the Purchase, which shall occur as soon as practicable following, and in any event within three Business Days of, the first date on which all of the conditions to Closing hereunder (other than those to be performed or determined as of the Closing) shall have been satisfied or waived. "Closing Date" shall mean the date on which the Closing occurs. "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor thereto. "Communications Act" shall mean the Communications Act of 1934, as amended. "Confidential Materials" and "Designating Party" shall have the same meanings as in the Stipulation and Order Governing the Protection and Exchange of Confidential Information signed by the parties to the Litigation and dated May 31, 1996. "Confidential Materials" shall include all documents and other materials produced or created in connection with the Litigation bearing the legend "Confidential" and/or "Confidential/Counsel Only", except to the extent they have become public or are otherwise no longer confidential without the fault of any party seeking to use such Confidential Material. -2- 8 "ECC" shall have the meaning set forth in the first paragraph of this Agreement. "Encumbrances" shall mean mortgages, liens, encumbrances, security interests, covenants, conditions, restrictions, claims, charges, options, rights of first refusal, rights of use or occupancy or other legal or equitable encumbrances and any other matters affecting title or any other interest in property (including, in the case of real property, rights-of-way, easements, and encroachments). "Estimated Allocable Current Year Earnings" shall mean that portion of the Partnership's Undistributed Current Year Earnings allocable to ECC's account as determined in good faith by the management of the Partnership based on the most recent monthly year-to-date financial statements prepared by the management of the Partnership and on such management's good faith estimate of financial results for any additional period prior to the Closing. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Government Authority" shall mean any nation or government, any state or other political subdivision thereof, any person exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including any government authority, agency, department, board, commission or instrumentality of the United States, any State of the United States or any political subdivision thereof, and any tribunal or arbitrator(s) of competent jurisdiction, and any self-regulatory organization. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Joint Venture Agreement" shall mean that certain Amended and Restated Joint Venture Agreement among Time Video Holdings Inc., Eighth Century Corporation and MCA Cable Services, Inc., as amended from time to time. "Litigation" shall mean (i) that certain action in the Court of Chancery of the State of Delaware in and for New Castle County styled Universal Studios Inc. v. Viacom Inc., et al. C.A. No. 14971, and (ii) that certain action in the Court of Chancery of the State of Delaware in and for New Castle County styled Viacom International Inc., et al., v. The Seagram Company Ltd., et al., C.A. No. 14973, together. "Litigation Releases" shall mean the releases by and between the Universal Parties and the Viacom Parties, true and complete copies of which are attached as Exhibit C. "person" shall mean any individual, corporation, partnership, joint venture, trust, unincorporated organization, other form of business or legal entity or Government Authority. "Sci-Fi Europe" shall mean Sci-Fi Channel Europe, L.L.C., a limited liability company organized under the laws of the State of Delaware. -3- 9 "Sci-Fi Europe Stock" shall mean the membership interests of Sci-Fi Europe. "Undistributed Current Year Earnings" shall mean earnings of the Partnership (increased by any net earnings and decreased by any net loss of Sci-Fi Europe) in respect of all financial periods commencing after December 31, 1996 through the Closing Date (such earnings to be determined as if the fiscal year of the Partnership and of Sci-Fi Europe had begun on January 1, 1997 and had ended on the Closing Date) and which have not theretofore been distributed by or contributed to the Partnership or Sci-Fi Europe. "Universal" shall have the meaning set forth in the first paragraph of this Agreement. "Universal Broker" shall have the meaning set forth in Section 4.3. "Universal Parties" shall have the meaning set forth in the recitations. "Universal Sci-Fi Europe Stock" shall mean all of the Sci-Fi Europe Stock owned by Universal or any of its Affiliates. "Viacom" shall have the meaning set forth in the first paragraph of this Agreement. "Viacom Broker" shall have the meaning set forth in Section 5.4. "Viacom International" shall have the meaning set forth in the first paragraph of this Agreement. "Viacom Parties" shall have the meaning set forth in the recitations. "Viacom Partnership Interests" shall mean ECC's 50% interest in the Partnership. "Viacom Sci-Fi Europe Stock" shall mean all of the Sci-Fi Europe Stock owned by Viacom or any of its Affiliates. Section 1.2. Other Terms. Other terms may be defined elsewhere in this Agreement and, unless otherwise indicated, shall have such meaning throughout this Agreement. ARTICLE 2 Actions To Be Taken Following Execution Section 2.1 Announcement. Promptly following execution of this Agreement, the parties shall issue press releases in the forms attached as Exhibit A. -4- 10 Section 2.2 Suspension of Litigation (a) Upon the execution of this Agreement, the parties will execute and promptly deliver to the Court in the Litigation a letter, in the form attached as Exhibit B (the "Letter to Court"), requesting that such Court not issue any new ruling, order or judgment in respect of the Litigation until the earlier of the Closing Date or its receipt of the Letter Requesting Resumption of Proceedings. The parties further agree that while this Agreement remains in effect, and provided that no new ruling, order or judgment in respect of the Litigation is issued or ordered except to the extent specifically provided in this Agreement, no further or other litigation (including any appeal) relating to the subject matter of the Litigation (but excluding any action to enforce or arising out of this Agreement) will be instituted in any forum by any party or by any Affiliate of any party. (b) Upon execution of this Agreement, the parties will execute (i) the Litigation Releases in the forms attached as Exhibit C, which shall become effective only in accordance with Section 3.5, (ii) the Stipulation of Dismissal in the form attached as Exhibit D, which shall be filed with the Court in the Litigation only in accordance with Section 3.5, and (iii) the Letter Requesting Resumption of Proceedings in the form attached as Exhibit E, which shall be delivered to the Court in the Litigation only in accordance with Section 10.2(b). (c) The parties further agree notwithstanding any claim of any oral or written understanding or representation by any party to this Agreement, neither the Litigation Releases nor the Stipulation of Dismissal nor anything related to this Agreement, including the fact of this Agreement, any of the terms herein, or any discussions or documents relating to the negotiations between the parties, including the negotiation of this Agreement, shall (i) be used as evidence or referred to in the Litigation or in any other case or litigation in which any of the parties hereto are adverse to each other (except any action to enforce or arising out of this Agreement), or (ii) in any way constitute an admission with respect to any fact, claim or defense as to any of the parties, or (iii) in the event the Closing does not occur (including as a result of any termination of this Agreement), in any way be taken into account by any investment banking firm that is chosen or retained pursuant to the provisions of Article VIII of the Joint Venture Agreement, notwithstanding any provisions of the Joint Venture Agreement; provided, however, that nothing in this paragraph shall preclude any party hereto or its Affiliates from using the Litigation Releases or Stipulation of Dismissal as a defense to any subsequent claim, suit, action or litigation against it. Section 2.3 Program Licensing Agreement; Satellite Subleases. (a) Simultaneously with the execution of this Agreement, Viacom agrees to execute, and the parties hereto agree to cause the Partnership to execute, (i) a term sheet, in the form attached hereto as Exhibit F (the "Program License Term Sheet"), which shall become binding upon the parties as of the Closing, providing for the licensing by the Partnership of product of Viacom or certain of its Affiliates, and (ii) a term sheet, in the form attached hereto as Exhibit G (the "Satellite Sublease Term Sheet"), which shall become binding upon the parties as of the Closing, providing for the sublease of transmission capacity on certain satellites (or transponders on such satellites) specified in such Exhibit G. -5- 11 (b) From and after the date of this Agreement, Viacom and Universal agree to, and agree to cause the Partnership to, negotiate in good faith and to use all commercially reasonable efforts (i) to cause the Partnership and Viacom to execute as promptly as possible, definitive long-form documentation (whether in one or more agreements, the "Program License Agreements") of the agreements and provisions contained in the Program License Term Sheet, to be effective as of the later of the Closing Date and the date of their execution, and (ii) to cause the Partnership and Viacom to execute as promptly as possible, definitive leases, subleases or agreements, as applicable (whether in one or more leases, subleases or agreements, the "Satellite Subleases"), documenting the agreements and provisions of the Satellite Sublease Term Sheet, to be effective as of the later of the Closing Date and the date of their execution. Except as otherwise provided in the Program License Term Sheet, the Program License Agreements are to be consistent with prior similar agreements between the Partnership and Viacom, if any. (c) In the event (i) the Program License Agreements have not been executed as of the Closing Date, the Program License Term Sheet shall be effective and binding upon the parties thereto from and after the Closing Date, and (ii) the Satellite Subleases have not been executed as of the Closing Date, the Satellite Sublease Term Sheet shall be effective and binding upon the parties thereto from and after the Closing Date. Section 2.4 Disposition of Confidential Materials. Promptly, but in no event more than 10 days after the Stipulation of Dismissal is entered, the parties shall either return all Confidential Materials to counsel for the producing party or certify in writing to counsel for the producing party that such Confidential Materials have been destroyed, except that outside counsel may retain one copy of litigation materials which have been filed with the Court, regardless of whether they include Confidential Materials. Counsel shall make reasonable efforts to ensure that all experts and consultants it has retained abide by this provision and shall be responsible for any failure of such experts and consultants to so abide. No party or its Affiliates or its counsel may use Confidential Materials (including, but not limited to, Confidential Materials in court papers, in deposition testimony given in connection with the Litigation and in confidential documents bearing bates-numbers or trial exhibit numbers produced during the Litigation (including, but not limited to, any extracts, exhibits, full or partial copies and representations of such Confidential Materials)) for any purpose whatsoever. Neither the parties nor their Affiliates will seek to lift the confidentiality designation from Confidential Materials, or assist another in doing so. Nothing herein shall limit a party's ability to use any document or other material which it created or produced in discovery or at trial (except insofar as any such document or material refers to or incorporates Confidential Materials of another Designating Party). ARTICLE 3 Purchase of Partnership Interest; Closing Section 3.1 Purchase. On the basis of the representations, warranties, covenants and agreements set forth in this Agreement, at the Closing, ECC shall sell to Universal (or its -6- 12 designee pursuant to Section 12.5, and Universal (or its designee pursuant to Section 12.5) shall purchase from ECC, all of the Viacom Partnership Interests (the "Purchase") for a purchase price of $1,600,000,000 (the "USA Purchase Price"), and thereafter neither ECC nor Viacom or any of its Affiliates shall have any further rights or obligations with respect to the Partnership, and the Partnership shall have no further rights or obligations with respect to ECC or Viacom or any of its Affiliates, in each case except as otherwise provided for herein. Section 3.2 Redemption or Purchase of Viacom Interest in Sci-Fi Europe. (a) At the Closing, concurrently with the Purchase, in Universal's sole discretion, either (i) the Viacom Parties and the Universal parties shall cause Sci-Fi Europe to redeem, in accordance with the constituent documents of Sci-Fi Europe and the laws of its jurisdiction of incorporation, all of the Viacom Sci-Fi Europe Stock, or (ii) Universal or one of its Affiliates shall purchase from the person holding the Viacom Sci-Fi Europe Stock all of the shares of Viacom Sci-Fi Europe Stock, in each case in consideration of $100,000,000 (the "Sci-Fi Europe Purchase Price", and together with the USA Purchase Price, the "Purchase Price"). In the event the Viacom Sci-Fi Europe Stock is redeemed, then from and after the Closing Date, each share of Viacom Sci-Fi Europe Stock shall be canceled and no holder or former holder thereof shall have any rights or obligations with respect thereto. In the event the Viacom Sci-Fi Europe Stock is purchased, then from and after the Closing Date no former holder thereof shall have any rights or obligations with respect thereto. (b) On the Closing Date prior to the Closing, the person holding the Universal Sci-Fi Europe Stock may, in its sole discretion, transfer shares of Sci-Fi Europe Stock to and among the Universal Parties and their Affiliates, and the Viacom Parties and their Affiliates will (at such time, or in advance if necessary) cooperate with the foregoing in all respects, including by granting any necessary consents or waivers or by voting of the Viacom Sci-Fi Europe Stock. (c) At the Closing, Viacom shall deliver certificates representing shares of Viacom Sci-Fi Europe Stock, which shall be canceled, if being redeemed, or accompanied by stock powers, if being purchased. Section 3.3 Undistributed Current Year Partnership Earnings. In addition to the Purchase Price, ECC shall also be entitled to receive from the Partnership all Undistributed Current Year Earnings of the Partnership allocable or allocated to the account of ECC as of the Closing Date. The parties hereto agree and acknowledge that payments pursuant to this Section 3.3 and Article 8 are in respect of Partnership income and are not part of the purchase price for or any part of the consideration in respect of the Viacom Partnership Interests or the Viacom Sci-Fi Europe Stock or the agreement set forth in Article 7. Section 3.4 Delivery of Purchase Price. At the Closing, upon satisfaction of all of the conditions set forth in this Agreement to Universal's obligation to consummate the Purchase, (i) Universal will wire transfer an amount equal to the Purchase Price, and (ii) the parties hereto will cause the Partnership will wire transfer an amount equal to the Estimated Allocable Current Year Earnings, in each case in immediately available funds to the account specified by Viacom prior to the Closing Date. -7- 13 Section 3.5 Litigation Releases. The Litigation Releases shall, without any further act on the part of any party hereto or any other person, become fully and completely effective and binding upon the Releasors referred to therein immediately following the Closing, but shall not have any force or effect prior thereto. Promptly after the Closing Date, the parties will file with the Court in the Litigation the Stipulation of Dismissal. Section 3.6 Vacatur Application. In the event the Viacom Parties seek to vacate the judgment or opinion entered in the Litigation on May 15, 1997, the Universal Parties and their Affiliates will neither support nor oppose such application. Section 3.7 Time and Place of Closing. The Closing shall take place on the Closing Date at 10:00 A.M., New York City time, at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019. ARTICLE 4 Representations and Warranties of the Universal Parties Each of the Universal Parties hereby represents and warrants to each of the Viacom Parties as follows: Section 4.1 Incorporation; Authorization; No Conflict; etc. Each of Universal and UCS is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware. Each of Universal and UCS has full corporate power and authority to execute and deliver this Agreement and the other agreements contemplated hereby, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement, the performance of Universal's and UCS' obligations hereunder and the consummation of the transactions contemplated hereby by Universal and UCS have been duly and validly authorized by the boards of directors of Universal and UCS, respectively, and no other corporate or stockholder proceedings or actions on the part of Universal, UCS or their respective boards of directors or stockholders are necessary therefor. The execution, delivery and performance of this Agreement will not (i) violate any provision of the charter or by-laws or similar organizational instrument of Universal or UCS, or (ii) violate or conflict with any statute, rule or regulation applicable to Universal, UCS or any of their properties or assets or any other material restriction of any kind or character to which Universal or UCS is subject, that would prohibit or make unlawful the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by Universal and UCS, and, assuming the due execution hereof by the Viacom Parties, this Agreement constitutes the legal, valid and binding obligation of each of Universal and UCS, enforceable against Universal and UCS, respectively, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether in equity or at law). -8- 14 Section 4.2 Consents and Approvals. Other than as may be required under the HSR Act, the Communications Act and the Exchange Act, there are no registrations, filings, applications, notices, consents, approvals, orders, qualifications and waivers required to be made, filed, given or obtained by any of the Universal Parties with, to or from any Governmental Authority or other person in connection with the consummation of the Purchase and the other transactions contemplated hereby, Section 4.3 Brokers, Finders, etc. No Universal Party has employed any broker, finder, consultant or other intermediary in connection with the transactions contemplated hereby (a "Universal Broker") who would have a valid claim for a fee or commission from any Viacom Party or the Partnership in connection herewith or any such transaction. In the event any Universal Broker at any time has a valid claim for a fee or commission from any Viacom Party or the Partnership, Universal agrees to fully indemnify and hold Viacom and/or the Partnership harmless against such claim. Section 4.4. Investment Intent. Universal has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its purchase of the Viacom Partnership Interests and, if purchased, the Viacom Sci-Fi Europe Stock. Universal is acquiring the Viacom Partnership Interests and, if purchased, the Viacom Sci-Fi Europe Stock, for investment and not with a view toward or for sale in connection with any public distribution thereof. Section 4.5 Financing. Universal has the financial wherewithal to fund the Purchase and to enable Universal and the other Universal Parties to comply with each and all of their other obligations hereunder. ARTICLE 5 Representations and Warranties of the Viacom Parties Each of the Viacom Parties hereby represents and warrants to each of the Universal Parties as follows: Section 5.1 Incorporation; Authorization; No Conflict; etc. Each of the Viacom Parties is a corporation duly incorporated, validly existing and in good standing under the laws of Delaware. Each of the Viacom Parties has full corporate power and authority to execute and deliver this Agreement and the other agreements contemplated hereby, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement, the performance of each of the Viacom Parties' obligations hereunder, and the consummation of the transactions contemplated hereby by each Viacom Party have been duly and validly authorized by the boards of directors of each Viacom Party, respectively, and no other corporate or stockholder proceedings or actions on the part of any Viacom Party or their respective boards of directors or stockholders are necessary therefor. The execution, delivery and performance of this Agreement will not (i) violate any provision of the -9- 15 charter or by-laws or similar organizational instrument of any Viacom Party, or (ii) ) subject to obtaining the consents and approvals referred to in Section 5.3, violate or conflict with any statute, rule or regulation applicable to any Viacom Party or any of their properties or assets or any other material restriction of any kind or character to which any of the Viacom Parties is subject, that would prohibit or make unlawful the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by each Viacom Party, and, assuming the due execution hereof by the Universal Parties, this Agreement constitutes the legal, valid and binding obligation of each Viacom Party, enforceable against each such Viacom Party, respectively, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting the rights and remedies of creditors generally and to general principles of equity (regardless of whether in equity or at law). Section 5.2 No Encumbrances. (a) ECC is the owner of and has and will deliver at the Closing good title to the Viacom Partnership Interests and holds such interests and will deliver such interests free and clear of all Encumbrances (other than those created by Universal and its Affiliates); the sale thereof to Universal shall not give rise to or create any right in any person (other than Universal and its Affiliates) with respect to the Viacom Partnership Interests, and upon the sale thereof, neither ECC nor any of its Affiliates nor any other person (other than Universal) will have any right or interest in the Partnership (other than those created by Universal and its Affiliates). (b) Viacom or an Affiliate is the owner of and has and has and ,if the Viacom Sci-Fi Europe Stock is purchased rather than redeemed pursuant to Section 3.2, will deliver at the Closing good title to all of the Viacom Sci-Fi Europe Stock and holds such stock and, if the Viacom Sci-Fi Europe Stock is purchased rather than redeemed pursuant to Section 3.2, will deliver such stock free and clear of all Encumbrances (other than those created by Universal and its Affiliates), the transfer thereof hereunder shall not give rise to or create any right in any person with respect to the Viacom Sci-Fi Europe Stock (other than those created by Universal and its Affiliates), and upon the transfer thereof hereunder, neither Viacom nor any of its Affiliates, nor any other person (other than Universal) will have any right or interest an the Viacom Sci-Fi Europe Stock (other than those created by Universal and its Affiliates). Section 5.3 Consents and Approvals. Other than as may be required under the HSR Act, the Communications Act and the Exchange Act, and except for third party consents required with respect to the Satellite Subleases, there are no registrations, filings, applications, notices, consents, approvals, orders, qualifications and waivers required to be made, filed, given or obtained by any of the Viacom Parties with, to or from any Governmental Authority or other person in connection with the consummation of the Purchase and the other transactions contemplated hereby, Section 5.4 Brokers, Finders, etc. No Viacom Party has employed any broker, finder, consultant or other intermediary in connection with the transactions contemplated hereby (a "Viacom Broker") who would have a valid claim for a fee or commission from any Universal Party or the Partnership in connection herewith or any such transaction. In the event any Viacom Broker at any time has a valid claim for a fee or commission from any Universal Party or the Partnership, Viacom agrees to fully indemnify and hold Universal and/or the Partnership harmless against such claim. -10- 16 ARTICLE 6 Covenants Section 6.1 Conduct of Business of the Partnership. From the date hereof through the Closing Date, except as specifically provided for in this Agreement, (a) neither any Universal Party nor any Viacom Party shall take any action or omit to take any action that would cause the Partnership or Sci-Fi Europe to conduct its businesses other than in the ordinary course, consistent with past practices (including with respect to all matters as to programming, advertising, affiliate relations, inventory management, billing and collection) or other than consistent in all respects with the existing terms, conditions and limitations of the Partnership's and Sci-Fi Europe's constituent documents all of which will remain in effect until the Closing Date, and (b) the Universal Parties and the Viacom Parties shall use commercially reasonable efforts to cause each of the Partnership and Sci-Fi Europe to conduct its businesses in the ordinary course, consistent with past practices (including with respect to all of the foregoing matters) and consistent in all respects with the existing terms, conditions and limitations of the Partnership's and Sci-Fi Europe's constituent documents. Section 6.2 Obligations of Viacom. (a) From the date hereof through the Closing Date, ECC agrees that it shall not, and Viacom agrees that it shall not, directly or indirectly cause ECC to, convey, sell, transfer or hypothecate to any person or entity, or otherwise dispose of any of the Viacom Partnership Interests or the Viacom Sci-Fi Europe Stock. (b) Viacom acknowledges the existence of the programming rights set forth on Exhibit H hereto as if such programming rights were embodied in executed agreements, and Viacom agrees that, from and after the Closing, it will, and will cause its Affiliates to, honor all of the such programming rights as if such programming rights were valid, executed agreements. Section 6.3 Efforts; Obtaining Consents; Further Assurances. (a) Subject to the terms and conditions hereof, each party hereto agrees to use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated hereby, and to cooperate in good faith with the other parties in connection with the foregoing, including using all reasonable efforts (i) to obtain all consents, approvals and authorizations that are required to be obtained under any federal, state, local or foreign law or regulation, (ii) to lift or rescind any injunction or restraining order or other order adversely affecting the ability of the parties hereto to consummate the transactions contemplated hereby, (iii) as promptly as possible, but in no event later than the tenth Business Days of the date of this Agreement, to make initial filings under the HSR Act, (iv) to effect all necessary registrations and filings including, but not limited to, filings under the HSR Act and submissions of information requested by any Government Authority, and (v) to fulfill all conditions to this Agreement. -11- 17 (b) Each party hereto shall promptly inform each other party of any material communication from the Federal Trade Commission, the United States Department of Justice or any other Government Authority regarding any of the matters or transactions contemplated hereby. (c) Each of the Viacom Parties and the Universal Parties agrees that, from time to time, whether at or after the Closing Date, each of them will execute and deliver such further instruments and other documents and take such other action as may be necessary or desirable to carry out the terms of this Agreement, including as may be necessary or desirable to assure that all of the property, rights and interests of the Partnership and Sci-Fi Europe (including trademarks, service marks and other intellectual property) survive the consummation of the transactions contemplated hereby without impairment and remain the property, rights and interests of the Partnership or Sci-Fi Europe, as the case may be. Section 6.4 Public Announcements. Prior to the Closing, except as provided for in this Agreement or as required by Applicable Law, each party hereto shall not, and shall not permit its Affiliates to, make any public announcement in respect of this Agreement or the transactions contemplated hereby without the prior written consent of Viacom, in the case of Universal and its Affiliates, or Universal, in the case of Viacom and its Affiliates. Section 6.5 Non-Solicitation of Employees. Without the prior written consent of Universal, the Viacom Parties agree that, for a period of 6 months from the date of this Agreement, none of the Viacom Parties and their subsidiaries, nor any representative or agent of any of them, shall actively or directly solicit any key employee of the Partnership identified in writing prior to or on the date hereof to become employed by the any of the Viacom Parties or any of their subsidiaries, except that the Viacom Parties shall not be precluded from hiring any such employee who (i) initiates discussions regarding such employment without solicitation by any Viacom Party or subsidiary, (ii) responds to any advertisement placed by any Viacom Party or subsidiary (provided that such advertisement was a general solicitation not directed toward employees of the Partnership), or (iii) has been terminated by the Partnership. Section 6.6 Tax Allocation. Universal shall allocate the USA Purchase Price between the Viacom Partnership Interests and the covenants contained in Article 7 and shall provide a copy of such allocation in writing (the "Tax Allocation") to Viacom. The Tax Allocation shall be binding upon the parties hereto, and each party hereto shall prepare and file all federal, state and local tax returns and reports in a manner consistent with the allocation contained in any such agreement. Section 6.7 Partnership Tax Election. The Viacom Parties and the Universal Parties shall cause an election to be made for the Partnership with respect to the Purchase under Section 754 of the Code and any comparable provision of state, local or foreign tax law and shall not seek to revoke such election. In the event that Universal elects to purchase or to cause one of its Affiliates to purchase all of the shares of Viacom Sci-Fi Europe Stock under Section 3.2, the Viacom Parties and the Universal Parties shall cause an election to be made for Sci-Fi Europe under Section 754 of the Code and any comparable provision of state, local or foreign tax law and shall not seek to revoke such election. -12- 18 Section 6.8. Tax Matters. The Viacom Parties will have the right to participate in any tax audit or administrative or judicial proceeding or of any demand or claim relating to the Partnership or to Sci-Fi Europe which affects any taxable period ending on or before or including the Closing Date to the same extent the Viacom Parties have such rights prior to the Closing. After the Closing, Universal shall promptly notify Viacom in writing of the commencement of any such tax audit, administrative or judicial proceeding or demand or claim. Such notice shall contain factual information (to the extent known) describing the asserted tax matter in reasonable detail and shall include copies of any notice or other document received from any tax authority in respect of such tax matter. Section 6.9 Indemnification. Universal covenants and agrees to indemnify and hold harmless the Viacom Parties from and after the Closing against any and all liabilities and obligations of the Partnership for which the Viacom Parties may be liable as general partners of the Partnership, other than any liabilities arising out of activities prior to the Closing Date which, at the Closing Date, were known to any of the Viacom Parties and not known by any of the Universal Parties. In the case of any claim asserted by a third party against a Viacom Party entitled to indemnification under this Agreement, notice shall be given by the Viacom Party to Universal promptly after such Viacom Party has knowledge of any claim as to which indemnity may be sought, and the Viacom Party shall permit Universal (at its expense) to assume (or to cause the Partnership to assume) the defense of any claim or any litigation resulting therefrom, provided that (a) the Viacom Party may participate in such defense at such Viacom Party's expense, and (b) the delay or omission by any Viacom Party to give notice as provided herein shall not relieve Universal of its indemnification obligation under this Agreement except to the extent Universal shall have been prejudiced as a result of such delay or omission. Except with the prior written consent of the Viacom Party, neither Universal nor the Partnership, in the defense of any such claim or litigation, shall consent to entry of any judgment or enter into any settlement that provides for injunctive or other nonmonetary relief affecting the Viacom Party. Universal and the Partnership and the Viacom Party shall cooperate in the defense of any claim or litigation subject to this Section and the records of each shall be available to the other with respect to such defense. Section 6.10 Ongoing Obligation of Confidentiality. The Viacom Parties hereby agree that none of them nor any of their directors, officers, employees, shareholders, agents, Affiliates or representatives (collectively, "Representatives") shall disclose any Information (as defined below) or use any Information in any way detrimental to or in competition with the Partnership; provided, however, that above prohibition shall not apply to the extent that disclosure is required by Applicable Law or any rule of any stock exchange. The term "Information" shall mean all information (whether in oral, written or any other form or medium) concerning the Partnership and its operations, but shall not include any information which (i) is or becomes generally available to the public other than by reason of any breach by the Viacom Parties or Representative of its confidentiality obligations hereunder, (ii) is or becomes available to Viacom Parties or any Representative after the Closing Date on a non-confidential basis from a source which shall not have been prohibited from disclosing such information to the Viacom -13- 19 Parties by a legal, contractual or fiduciary obligation of which any of the Viacom Parties are aware, or (iii) is independently developed by a Viacom Party. Section 6.11 Non-Registration of Trademarks. Each of the Viacom Parties agrees, during the period from the Closing Date through the first anniversary of the Closing Date, to take no action to register any of the trade marks, service marks or logos set forth on Exhibit I hereto for television or related uses anywhere in the world (whether or not such mark or logo is currently so registered). ARTICLE 7 Non-Competition Section 7.1 Non-Competition. (a) Each Viacom Party agrees that, during the period commencing on the Closing Date and terminating on the fourth anniversary of the Closing Date (the "Effective Period"), neither it nor any of its Affiliates will, directly or indirectly, beneficially own any interest (including through any option, warrant or convertible security) in, or be the operator of, or otherwise control, any Science Fiction Channel which is authorized to be or is otherwise distributed anywhere in the 50 United States by means of cable (whether wire, co-axial or fiber of any material), MDS, MMDS, scrambled UHF or VHF (but excluding digital or advanced TV), MATV or SMATV or direct-to-home satellite of any type (but excluding any Pay Television Service); provided that nothing in the foregoing shall prevent the Viacom Parties and their Affiliates collectively from owning or holding, with respect to any person, up to 5% in the aggregate of the outstanding equity securities of such person that are listed for trading on any national securities exchange or automated quotation service; and provided that the Viacom Parties shall not in any event be in breach of this Article 7 with respect to any unauthorized distribution of any such Science Fiction Channel which the Viacom Parties are taking reasonable efforts to prevent or any de minimis unauthorized distribution; and provided that the re-transmission of standard terrestrial UHF or VHF television signals (but excluding any "super-station") or the transmission of United Paramount Network programming shall not in any event be prohibited. (b) For purposes of this Agreement, the term "Science Fiction Channel" shall mean either: (1) any channel (such as MTV, Nick at Nite, the Sci-Fi Channel, etc.): (i) that is identified by a trademark, service mark, logo or name including the words "science fiction", "fantasy" or "horror" or a derivative thereof (such as, without limitation, "Sci-Fi"), or (ii) that is advertised, promoted, branded, marketed or otherwise publicized in a manner that principally associates such channel with the Sci Fi Genre, or -14- 20 (iii) a preponderance of the programming time of which (and including at least one programming hour (i.e., shows, movies or specials that would typically, together with related advertising, interstitials, etc., be considered to be one hour) in the science fiction genre) is of the Sci Fi Genre during either: (x) the period between 8 a.m. to midnight; (y) the period between 6 p.m. to midnight; or (z) any 24-hour period provided that no such programming shall render a channel a Science Fiction Channel unless such programming is exhibited on such channel: (A) more than three times per week (or, if such programming service shall include any Part Time Service described in Section 7.1(b)(2)(A), such lesser number of times per week as equals three less the number of days in which such Part Time Service occurs) at least 40 weeks in any 52-week period (or, regardless of whether such number of weeks shall yet have occurred, if there shall be an authorized disclosure that such activity will or is expected to continue for such period); it being understood and agreed that the parties hereto intend that the Effective Period not be shortened by such 40-week period; or (B) if such programming service includes any Part Time Service described in Section 7.1(b)(2)(A), on any day adjacent to two days of programming in the Sci Fi Genre of such Part Time Service if any of such three days is a weekend day (i.e. Friday, Saturday or Sunday); but excluding not more than four Stunts per year (and not more than two in any quarter); or (2) any Part Time Service that (A) (i) is identified by a trademark, service mark, logo or name including the words "science fiction", "fantasy" or "horror" or a derivative thereof (such as, without limitation, "Sci-Fi"), or (ii) is advertised, promoted, branded, marketed or otherwise publicized in a manner that principally associates such Part Time Service with the Sci Fi Genre, and (B) includes (x) more than two days per week or (y) on two consecutive nights per week if either is a weekend (i.e. Friday, Saturday and Sunday) or (z) on two weekend nights (i.e. Friday, Saturday and Sunday) per week, more than one contiguous element of programming (such as a show, movie or special, but excluding promotional or interstitial elements) in the Sci Fi Genre (and excluding not more than four Stunts per year, not more than two in any quarter). -15- 21 (c) The Viacom Parties agree that this covenant is reasonable with respect to its duration, geographical area and scope. If, at the time of enforcement of this Article 7, a court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the period, scope, or geographical area legally permissible under such circumstances will be substituted for the period, scope or area stated herein. (d) Nothing contained in this Article 7 shall prohibit a merger, acquisition, or other business combination ("Combination") pursuant to which any of the Viacom Parties, or any of their Affiliates, acquires, is acquired by, or is consolidated with or into any other person, or pursuant to which any person acquires an equity interest in a Viacom Party or an Affiliate (in all cases, any such person (other than Viacom or such Affiliate) being a "Combination Entity") which, together with its Affiliates, has beneficial ownership of any interest in, or operates or controls, a Science Fiction Channel the fair market value of which (or interest therein) (net of any attributable indebtedness) is not more than 10% of the fair market value of the Combination Entity (net of any attributable indebtedness) immediately prior to the Combination; provided, however, that following any such Combination, each Viacom Party agrees that neither it nor any of its Affiliates (determined immediately prior to such Combination) will, directly or indirectly, provide infrastructure, operational support, distribution (including any bundled, cooperative, joint or other advertising or affiliate sales effort), promotion or product (except, in each case, pursuant to any arrangement entered into prior to the Combination and not in connection with or in anticipation thereof) to any such Science Fiction Channel during the Effective Period (or transfer any of its assets, properties or personnel used in such areas to, or combine the same with those of, the Combination Entity). (e) Nothing in this Article 7 shall in any event, whether during or after the Effective Period, reduce, diminish, derogate or act as a waiver with respect to any intellectual property rights of the Partnership or Sci-Fi Europe (including trade marks, service marks, and copyrights). (f) Notwithstanding anything to the contrary herein, no action or activity shall be a violation of this Article 7 unless Universal shall first have provided Viacom with a notice that it believes Viacom is violating the provisions of this Article 7 and such action, activity or violation shall not have ceased within 30 days thereafter. (g) The following terms shall have the following definitions for the purposes of this Article: (i) "Part Time Service" shall mean any regularly scheduled programming within any programming service (or that shares a particular location on a receiving device (e.g., a channel number, etc.) with any programming service) that is advertised, promoted, branded, marketed or otherwise publicized (including by the use of interstitial or other distinctive marketing, promotional or sales devices) in such a way as to be intended to or likely to establish such programming as a recognizable channel. -16- 22 (ii) A "Pay Television Service" shall mean any subscription programming service that consists of an encrypted (other than in a free-preview period) transmission of programming to a television by means of cable (whether wire, co-axial or fiber of any material), MDS, MMDS, scrambled UHF or VHF (but excluding digital or advanced TV), MATV, SMATV or direct-to-home satellite of any type) that (a) is free from third-party commercial advertising (and as to which no authorized disclosure has been made of a plan to accept such advertising in the future) (it being understood, by way of example, that TV Land would not satisfy the test set forth in this clause (a)), (b) is available for purchase alone or in a package of other programming services for which consumers are required to pay on a periodic basis a fee that is separate and distinct from the fee payable by consumers for the most widely distributed package of programming services generally offered and marketed to consumers by programming distributors (other than the package or tier of services commonly referred to as "lifeline" service) , (c) is not available for reception on any kind of a Pay-per-view Basis or VOD Basis, and (d) (A) exhibits a significant quantity of motion pictures (i.e., 24 or more per year) in the premium television window or (B) so long as the requirements of clauses (a) and (b) above are satisfied, is "Showtime", "The Movie Channel", "FLIX" or "Sundance Channel", in each case for so long as they continue to be fundamentally in nature as they currently are. "Pay-per-view Basis" shall mean the mode of television exhibition whereby individuals in substance and effect are (a) provided with the limited right to view single or multiple exhibitions of a single program on a scheduled basis only and (b) charged a distinct, incremental fee for such right. "VOD Basis" shall mean a mode of television exhibition whereby individuals in substance and effect are (a) provided with the right, at their sole discretion, to select the commencement time for an otherwise unscheduled viewing of a single program and (b) charged a distinct, incremental fee for such right. (iii) "Sci Fi Genre" shall mean science fiction, para-normal, fantasy, horror or similar genre (in each case of the type currently offered by the Sci-Fi Channel, it being understood that (x) any Star Trek programming shall be deemed to be of such type, and (y) comedy shows, movies or specials that may involve some science fiction, para-normal, fantasy, horror or similar genre element such as "My Favorite Martian" or "Mork and Mindy" shall not be deemed to be of such type); provided that programming which, taken together, does not include any show, movie or special in the science fiction genre shall not be deemed to be of the Sci Fi Genre. (iv) "Stunt" shall mean any special programming, including in the Sci Fi Genre, during a period of not more than one week, without regard to the number of hours of such programming, or any other characteristics, including the manner of branding or promotion, or the use of service marks or trademarks. -17- 23 ARTICLE 8 Post-Closing Payment of Undistributed Pre-Closing Partnership Earnings Section 8.1 Post-Closing Payment. (a) Within 90 days after the Closing Date, Universal shall, or shall cause the Partnership to, prepare and deliver to Viacom (i) an audited balance sheet as of the Closing Date (the "Closing Balance Sheet") prepared from the books and records of the Partnership, certified by the Partnership's independent auditors, (ii) an audited statement of profit and loss for the then current fiscal year of the Partnership (the "Closing P&L") prepared from the books and records of the Partnership as if the fiscal year of the Partnership had begun on January 1, 1997 and had ended on the Closing Date, certified by the Partnership's independent auditors, and (iii) a statement (the "Closing Statement") setting forth the Undistributed Current Year Earnings allocable to ECC's account, together with a certificate of the Partnership's independent auditors confirming the earnings and allocations shown thereon. The Closing Balance Sheet and the Closing P&L shall be prepared in accordance with generally accepted accounting principles applied on a basis consistent with the preparation of the Partnership's audited financial statements for the year ended December 31, 1996. (b) During the 30-day period following Viacom's receipt of the Closing Balance Sheet, the Closing P&L and the Closing Statement, Viacom and its independent auditors shall be permitted to review the working papers of the Partnership's independent auditors relating to the Closing Balance Sheet, the Closing P&L and the Closing Statement. The Closing Statement shall become final and binding upon the parties on the 30th day following Viacom's receipt thereof, unless Viacom gives written notice of its disagreement with the Closing Statement (a "Notice of Disagreement") to Universal prior to such date. Any Notice of Disagreement shall specify in reasonable detail the nature of any disagreement so asserted. If a Notice of Disagreement is received by Universal in a timely manner, then the Closing Statement (as revised in accordance with clauses (A) or (B) below) shall become final and binding on the earlier of (A) the date Universal and Viacom resolve in writing any differences they have with respect to the matters specified in the Notice of Disagreement or (B) the date any disputed matters are finally resolved in writing by the Accounting Firm (as defined below). (c) During the 30-day period following delivery of a Notice of Disagreement Universal and Viacom shall seek in good faith to resolve in writing any differences which they may have with respect to the matters specified in the Notice of Disagreement. At the end of such 30-day period (or such longer period as the parties may agree), Universal and Viacom shall submit to an independent accounting firm (the "Accounting Firm") for review and resolution any and all matters which remain in dispute and which were included in the Notice of Disagreement. The Accounting Firm shall be a nationally recognized independent public accounting firm agreed upon by Universal and Viacom in writing. Universal and Viacom shall jointly use all reasonable efforts to cause the Accounting Firm to render a decision within 30 days following submission. Universal and Viacom agree that judgment may be entered upon the determination of the Accounting Firm in any court having jurisdiction over the party against which such -18- 24 determination is to be enforced. Each of the parties shall bear their own costs of dispute resolution hereunder, and costs, fees and expenses of the Accounting Firm pursuant to this Section shall be borne by equally by Universal and Viacom. The fees and expenses of Universal's independent auditors in connection with their review of any Notice of Disagreement shall be borne by Universal, and the fees and expenses of Viacom's independent auditors incurred in connection with their review of the Closing Statement shall be borne by Viacom. (d) If the portion of the Undistributed Current Year Earnings allocable to ECC's account as shown on the final Closing Statement (the "Actual Earnings Amount") is greater than the Estimated Allocable Current Year Earnings, Universal shall cause the Partnership to, and if the Actual Earnings Amount is less than Estimated Allocable Current Year Earnings, Viacom shall, within 10 days after the Closing Statement becomes final and binding on the parties, make payment by wire transfer of immediately available funds to an account designated by Viacom or the Partnership, as applicable, of the amount of such difference, together with interest thereon at the prime rate, as reported from time to time in the Wall Street Journal, from the Closing Date to the date of actual payment, calculated on the basis of the actual number of days elapsed divided by 365. (e) The parties hereto agree and acknowledge that payments pursuant to this Article 8 are in respect of Partnership income and are not part of the purchase price for or any part of the consideration in respect of the Viacom Partnership Interests or the Viacom Sci-Fi Europe Stock or the agreement set forth in Article 7. ARTICLE 9 Conditions Section 9.1 Mutual Conditions. The obligation of each of the parties hereto to consummate the transactions contemplated hereby shall be subject to the satisfaction on or prior to the Closing Date, or waiver by such parties of all of the following conditions: (a) No Injunction. At the Closing Date, there shall be no injunction, restraining order or decree of any nature of any court or Government Authority of competent jurisdiction that is in effect that restrains, prohibits or makes unlawful the consummation of the transactions contemplated hereby; (b) Waiting Periods. All waiting periods applicable pursuant to the HSR Act shall have expired or been terminated and any approval required by any Government Authority to consummate the transactions contemplated hereby shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect thereof shall have expired; Section 9.2 Conditions of the Universal Parties' Obligation to Close. The obligation of each of Universal and UCS to consummate the transactions contemplated hereby -19- 25 shall be subject to the satisfaction on or prior to the Closing Date or waiver by such parties of all of the following condition: (a) Representations, Warranties and Covenants. The representations and warranties of the each of the Viacom Parties contained in this Agreement shall be true and correct in all material respects as of the date hereof and shall be repeated and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date. Each Viacom Party shall have duly performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date. Each Viacom Party shall have delivered to Universal a certificate, dated the Closing Date and signed by a duly authorized officer, to the foregoing effect. Section 9.3 Conditions of the Viacom Parties' Obligation to Close. The obligation of each Viacom Party to consummate the transactions contemplated hereby shall be subject to the satisfaction on or prior to the Closing Date, or waiver by such parties of all of the following condition: (a) Representations, Warranties and Covenants. The representations and warranties of the each of the Universal Parties contained in this agreement shall be true and correct in all material respects as of the date hereof and shall be repeated and shall be true and correct in all material respects on and as of the Closing Date with the same effect as though made on and as of the Closing Date. Each Universal Party shall have duly performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date. Each Universal Party shall have delivered to Viacom a certificate, dated the Closing Date and signed by a duly authorized officer, to the foregoing effect. ARTICLE 10 Termination Section 10.1 Termination. This Agreement may be terminated at any time prior to the Closing by: (a) written agreement of Universal and Viacom; or (b) either Universal or Viacom if the Closing has not occurred by the close of business on 120 days from the date hereof and if the failure to consummate the transactions contemplated hereby on or before such date did not result from the failure by the party seeking termination of this Agreement to fulfill any covenant, undertaking or commitment provided for herein that is required to be fulfilled prior to Closing; or -20- 26 (c) either Universal or Viacom if any Government Authority of competent jurisdiction shall have issued a final nonappealable order permanently enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement. Section 10.2 Procedure and Effect of Termination. (a) In the event of termination of this Agreement by either or both of Universal or Viacom pursuant to Section 10.1, written notice thereof shall forthwith be given by the terminating party to the other parties hereto, and this Agreement shall thereupon terminate and become void and have no effect, and the transactions and matters contemplated hereby shall be abandoned without further action by the parties hereto; provided, however, that such termination shall not relieve any party hereto of any liability for any willful breach or violation of this Agreement; and provided, further, that Section 2.2(c) of this Agreement shall survive any such termination and shall remain in full force and effect. (b) In the event of termination of this Agreement by either or both of Universal or Viacom pursuant to Section 10.1, the Letter Requesting Resumption of Proceedings will shall be delivered promptly to the Court in the Litigation. ARTICLE 11 Miscellaneous Section 11.1 Expenses. Except as otherwise specifically provided in this Agreement, each party shall bear and pay its own expenses, including the fees and expenses of any attorneys, accountants or other persons engaged by it, incurred in connection with this Agreement and the transactions contemplated hereby, and no such expenses shall be borne or paid by the Partnership. Section 11.2 Notices, etc. All notices, requests, demands or other communications required by or otherwise with respect to this Agreement shall be in writing and shall be deemed to have been duly given to any party when delivered personally (by courier service or otherwise), or when delivered by telecopy and confirmed by return telecopy, in each case to the applicable addresses set forth below: (a) if to any Universal Party: Universal Studios, Inc. 100 Universal City Plaza Universal City, California 91608 Attention: Karen Randall, Esq. Telecopy: (818) 866-3444 Telephone: (818) 777-1000 -21- 27 with a copy (which shall not constitute notice) to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Adam O. Emmerich, Esq. Telecopy: (212) 403-2234 Telephone: (212) 403-1234 (b) If to any Viacom Party: Viacom, Inc. 1515 Broadway, 27th Floor New York, New York 10036 Attention: Phillipe Dauman, Esq. Telecopy: (212) 258-6000 Telephone: (212) 258-6996 with a copy (which shall not constitute notice) to: Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, Delaware 19801 Attention: Richard L. Easton, Esq. Telecopy: (302) 651-3001 Telephone: (302) 651-3000 or such other address as any such party shall have designated by notice given in accordance with the above to the other parties. Section 11.3 Amendment. This Agreement may not be amended, modified, superseded, canceled, renewed or extended except by a written instrument signed by the party to be charged therewith. Section 11.4 Waiver; Effect of Waiver. No provision of this Agreement may be waived except by a written instrument signed by the party waiving compliance. No waiver by any party hereto of any of the requirements hereof or of any of such party's rights hereunder shall release the other parties from full performance of their remaining obligations stated herein. No failure to exercise or delay in exercising on the part of any party hereto any right, power or privilege of such party shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege by such party. Section 11.5 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; -22- 28 provided, however, that no party hereto shall be entitled to assign its rights or delegate its obligations under this Agreement without the express prior written consent of the other parties hereto. The foregoing notwithstanding, Universal may, in its sole discretion, assign its right to be the purchaser in the Purchase to any one or more Affiliates of Universal. In the event of any assignment pursuant to the foregoing sentence, all references to Universal herein in its capacity as the purchaser of the Viacom Partnership Interests shall be deemed to be references to such Affiliate-assignee, but no such assignment shall relieve Universal of its obligations hereunder. Any purported assignment or delegation made in violation of this Section shall be null and void and of no effect. Section 11.6 Survival of Representations, Warranties, Covenants and Agreements. All of the representations, warranties, covenants and agreements made herein by the parties hereto shall survive the Closing. Section 11.7 Specific Performance. The parties hereto each acknowledge that, in view of the uniqueness of the subject matter hereof, the parties hereto would not have an adequate remedy at law for money damages in the event that this Agreement were not performed in accordance with its terms, and therefore agree that the parties hereto shall be entitled to specific enforcement of the terms hereof in addition to any other remedy to which the parties hereto may be entitled at law or in equity. Section 11.8 Entire Agreement. Except as otherwise provided herein, this Agreement (together with any Exhibits, agreements contemplated hereby and any other contemporaneous written agreements) embodies the entire agreement and understanding between the parties relating to the subject matter hereof and supersedes (I) all prior agreements and understandings relating to such subject matter, whether written or oral, and (ii) all purportedly contemporaneous oral agreements and understandings relating to such subject matter. Section 11.9 Viacom Released from Joint Venture Agreement. The parties hereto acknowledge that from and after the Closing, neither Viacom, ECC nor any of their Affiliates will be a party to or bound or obligated by, or enjoy any rights under, the Joint Venture Agreement. Section 11.10 Interpretation; Absence of Presumption. (a) For the purposes hereof, (I) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires, (ii) the terms "hereof", "herein", and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Exhibits hereto) and not to any particular provision of this Agreement, and Article, Section, paragraph, and Exhibit references are to the Articles, Sections, paragraphs and Exhibits to this Agreement unless otherwise specified, (iii) the word "including" and words of similar import when used in this Agreement shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified, (iv) the word "or" shall not be exclusive, (v) provisions shall apply, when appropriate, to successive events and transactions, and (vi) all references to any period of days shall be deemed to be to the relevant number of calendar days. -23- 29 (b) This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting or causing any instrument to be drafted. Section 11.11 Headings. The name assigned this Agreement and the Section, Article and other headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement. Section 11.12 Severability. If any term of this Agreement or the application thereof to any party or circumstance shall be held invalid or unenforceable to any extent, the remainder of this Agreement and the application of such term to the other parties or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by Applicable Law. Section 11.13 Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. Section 11.14 Time of the Essence. The parties hereto agree and acknowledge that time is of the essence in the performance of this Agreement. Section 11.15 Governing Law. This Agreement and all disputes hereunder shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to principles of conflicts of law thereof. Section 11.16 Counterparts. This Agreement may be executed in any number of counterparts, all of which shall be considered one and the same agreement, and shall become effective when counterparts have been signed by each party hereto and delivered to each other party. Copies of executed counterparts transmitted by telecopy or other electronic transmission service shall be considered original executed counterparts for purposes of this Section, provided receipt of copies of such counterparts is confirmed. -24- 30 IN WITNESS WHEREOF, each of the undersigned, intending to be legally bound, has caused this Agreement to be duly executed and delivered on the date first set forth above. UNIVERSAL STUDIOS, INC. By: /s/ Brian C. Mulligan ------------------------------------- Name: Brian C. Mulligan Title Senior Vice President UNIVERSAL CITY STUDIOS, INC. By: /s/ Brian C. Mulligan ------------------------------------- Name: Brian C. Mulligan Title Senior Vice President VIACOM INC. By: /s/ Phillipe P. Daumann ------------------------------------- Name: Phillipe P. Daumann Title Deputy Chairman, Executive Vice President, General Counsel and Chief Administrative Officer VIACOM INTERNATIONAL INC. By: /s/ Phillipe P. Daumann ------------------------------------- Name: Phillipe P. Daumann Title Executive Vice President and Secretary EIGHTH CENTURY CORPORATION By: /s/ Phillipe P. Daumann ------------------------------------- Name: Phillipe P. Daumann Title Executive Vice President and Secretary -25- EX-10.AA 3 AGREEMENT 1 Exhibit 10(aa) AGREEMENT AGREEMENT, dated as of August 22, 1997 between Universal Studios Inc., a Delaware corporation ("Universal"), and Frank J. Biondi, Jr. (the "Executive"). WHEREAS, the Executive is currently employed by Universal as its Chairman and Chief Executive Officer pursuant to an agreement dated as of April 23, 1996 between Universal and the Executive (the "Employment Agreement"); WHEREAS, Universal has agreed to pay certain costs in connection with the construction of a screening room and related facilities ("Screening Room") at the Executive's residence located at 102-110 North Rockingham Ave., Los Angeles, CA 90049 (the "Residence"), and provide the necessary equipment and furnishing that will enable the Executive to review dailies, rushes, motion pictures and other audiovisual materials in order that the Executive may more effectively render his services to Universal under the Employment Agreement; and WHEREAS, the construction of the Screening Room and the providing of the equipment and furnishings for Executive's use is being done solely at the request and for the convenience of Universal. NOW, THEREFORE, the parties hereto agree as follows: 1. Executive authorizes Universal to proceed with the construction of the Screening Room as contemplated by this Agreement. Universal shall advance all costs in connection therewith. All commitments or expenses shall be approved by Universal. 2. Universal shall maintain records relating to the construction of the Screening Room sufficient to show the following total costs on an aggregate basis: (a) cost of construction of the Screening Room and of the non-removable equipment and furnishings relating thereto (the "Construction Costs"); (b) cost of all motion picture projection equipment and related audio visual equipment for the Screening Room (the "Projection Equipment"); and (c) cost of all removable furnishings for the Screening Room (the "Furnishings"). 3. Universal will maintain separate depreciation accounts for Construction Costs, Projection Equipment and Furnishings. Construction Costs will be depreciated on a straight line basis by 2 Universal over a period of 20 years. The Projection Equipment and Furnishings will be depreciated on a straight line basis by Universal over a period of 7 years. Universal will commence depreciating these items on the date the Screening Room becomes operative. Universal will thereafter deliver to the Executive an inventory of the Projection Equipment and Furnishings (the "Inventory"). 4. The Screening Room, Projection Equipment and Furnishings shall remain the sole property of Universal. Universal shall indemnify and hold harmless Executive from and against any losses, claims, damages, liabilities or actions arising from the construction or use of the Screening Room. Universal shall be responsible for all repairs and maintenance and for fire, theft and extended coverage insurance for the Screening Room, Projection Equipment and Furnishings. Universal shall make Executive an additional insured under its policies, and such insurance shall be primary in the event of any other applicable insurance. Upon advance notice, and subject to a strike or other labor problem that precludes Universal from doing so, Universal will provide Executive with an operator for the Projection Equipment. Universal's obligations under this paragraph 4 shall terminate upon the occurrence of a Triggering Event (as defined in paragraph 5); provided that Universal's indemnification obligation as described in the first sentence of this paragraph 4 shall, with respect to any act, event or occurrence on or prior to the date of a Triggering Event, survive and continue indefinitely following the occurrence of such Triggering Event. 5. Upon the occurrence of any of the following events (a "Triggering Event"), the Executive or his estate shall pay to Universal a sum equal to the depreciated book value of the Construction Costs as shown on the books of Universal determine as of the date of the Triggering Event: (i) the termination of Executive's employment, other than due to the Executive's death; provided, however, that this clause (i) shall not apply, and there shall be no Triggering Event, if Executive remains associated or affiliated with Universal, in which case the Triggering Event shall be the termination of Executive's association or affiliation with Universal ("Termination"); (ii) the sale of the Residence; or (iii) the Executive's death. In the event of Termination, payment of the depreciated book value of the Construction Costs shall be made the earlier of (a) one year after the termination date or (b) sixty days after the date Executive shall become employed by any other employer. In the event the Residence is sold, payment shall be made within thirty days after transfer of ownership. In the event of the Executive's death, his estate shall make such payment to Universal the earlier of (a) thirty 2 3 days after transfer of ownership of the Residence or (b) one year after the Executive's death. 6. Notwithstanding anything to the contrary contained in this Agreement, upon the occurrence of a Triggering Event the Executive (or his estate) shall have the option, in lieu of paying Universal the depreciated book value of the Construction Costs, of requiring Universal at its sole expense promptly, and in no event later than ninety days after exercise of the option, to remove the Screening Room and restore that portion of the site affected by the construction to substantially the same condition as existed prior to construction both physically and aesthetically. Upon exercising such option, Executive shall have no further obligation to Universal to pay for the Screening Room regardless of whether Universal complies with its obligation to remove and restore as provided above. Universal shall forfeit its right to the Screening Room if it fails to so comply. This option must be exercised in writing and shall not be assignable or transferable by the Executive (or his estate), other than to the Executive's estate in the event of his death. The option must be exercised as follows: In the event of Termination, within sixty days of the termination date; in the event the Residence is sold, not less than sixty days prior to the date of transfer of ownership; and in the event of Executive's death, within one year of the date of death. 7. Upon the occurrence of a Triggering Event, the Executive or his estate shall have the option to purchase all or any portion of the Projection Equipment and Furnishing for the depreciated book value of such property as shown on the books of Universal determined as of the date of the Triggering Event. This option must be exercised in writing and must be accompanied by the full amount of the purchase price which Universal will supply promptly upon request. This option shall not be assignable or transferable by the Executive (or his estate), other than to the Executive's estate in the event of his death. The option must be exercised as follows: In the event of Termination, within sixty days of the termination date; in the event the Residence is sold, not less than sixty days prior to the date of transfer of ownership; and in the event of Executive's death, not less than sixty days prior to the date of transfer of ownership of the Residence or within one year of the Executive's death, whichever occurs first. In the event that more than one Triggering Event occurs, the earliest time period applicable, as set forth in paragraphs 5-7, shall control. 8. In the event Executive or his estate does not exercise the option to purchase the Projection Equipment and Furnishings, Universal shall have the right upon reasonable notice to enter the 3 4 Residence and remove at its sole expense all items identified on the Inventory not purchased. 9. The Executive shall be responsible for and hereby agrees to pay all real and personal property taxes in connection with and attributable to the Screening Room, the Projection Equipment and the Furnishings. Prior to the occurrence of a Triggering Event, the Executive shall be entitled to reimbursement of such costs from Universal upon submission to Universal of adequate proof of the amount of such taxes paid by Executive. 10. All notices or communications hereunder shall be in writing, addressed as follows: To Universal: Universal Studios Inc. 100 Universal City Plaza Universal City, CA 91608 Attention: General Counsel Copy To: Vice President and Controller To the Executive: Frank J. Biondi, Jr. xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx Any such notice or communication shall be sent overnight delivery or certified or registered mail, return receipt requested, postage prepaid, addressed as above (or to such other address as such party may designate in writing from time to time), and shall be deemed delivered when so sent. 11. If any provision of this Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect. 12. This Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive and the assigns and successors of Universal, but neither this Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation (a) by Universal except in connection with the sale or other transfer of all or substantially all the assets and business of Universal or (b) by the Executive, except by operation of law and other than to the Executive's estate in the event of his death. 13. This Agreement represents the entire agreement of the parties with respect to the subject matter hereof and shall supersede any and all previous contracts, arrangements or understandings between Universal and the Executive with respect to such subject matter. The Agreement may be 4 5 amended at any time by mutual written agreement of the parties hereto. 14. This Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of New York, without reference to rules relating to conflicts of law. IN WITNESS WHEREOF, Universal has caused this Agreement to be executed and the Executive has executed this Agreement as of the day and year first above written. UNIVERSAL STUDIOS INC. By /s/ Bruce L. Hack -------------------------- Bruce L. Hack /s/ Frank J. Biondi, Jr. -------------------------- Frank J. Biondi, Jr. 5 EX-11 4 COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE 1 EXHIBIT 11 THE SEAGRAM COMPANY LTD. EXHIBIT WITH RESPECT TO COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE EFFECT OF CONVERSION OF LIQUID YIELD OPTION NOTES (LYONs) AND EXERCISE OF STOCK OPTIONS ON FULLY DILUTED EARNINGS PER SHARE
TRANSITION FISCAL PERIOD YEAR ENDED FISCAL YEARS ENDED JUNE ENDED JANUARY 31, RESTATEMENT OF SHARES (IN JUNE 30, 30, ----------------------- THOUSANDS): 1997 1996 1996 1995 ------------------------------------ -------- ------- ---------- -------- (1) Shares used in computing earnings 369,682 373,858 373,117 372,499 per share........................... (2) Additional shares deemed outstanding: (a) Upon exercise of stock option 4,102 2,983 4,734 2,880 plans............................... 484 691 1,175 1,274 (b) Upon conversion of LYONs........ -------- ------- ---------- -------- (3) Shares assumed to be outstanding for 374,268 377,532 379,026 376,653 fully diluted computation........... ======== ======= ========== ======== RESTATEMENT OF EARNINGS (in thousands, except earnings per share): (4) Net earnings applicable to $502,457 $85,268 $3,405,877 $735,863 common stock........................ 1,043 924 3,300 2,182 (a) LYONs interest expense.......... (b) LYONs amortization of 80 33 80 80 discount and fees................... -------- ------- ---------- -------- (5) Pro forma earnings applicable to $503,580 $86,225 $3,409,257 $738,125 Common Stock........................ ======== ======= ========== ======== (6) Pro forma fully diluted earnings per $ 1.35 $ 0.23 $ 8.99 $ 1.96 share............................... (7) Reported per share:................. $ 1.36 $ 0.23 $ 9.13 $ 1.98 (8) Dilution:........................... 0.74% 0.00% 1.53% 1.01%
In view of the above percentages, the effect of assumed issuance pursuant to stock plans, options, and conversion of LYONs was considered not dilutive in accordance with Footnote 2 to paragraph 14 of APB Opinion #15. EX-12.A 5 COMPUTATION OF EARNINGS - SEAGRAM COMPANY LTD. 1 EXHIBIT 12(A) THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (MILLIONS)
FISCAL TRANSITION YEAR ENDED PERIOD ENDED FISCAL YEARS ENDED JANUARY 31, JUNE 30, JUNE 30, ------------------------------- DESCRIPTION 1997 1996 1996 1995 1994 1993 - --------------------------------------------------------- ---------- ------------ ---- ---- ---- ---- Earnings before income taxes (restated for discontinued operations)............................................ $ 899 $ 65 $349 $363 $435 $453 Add (deduct): Equity in net earnings of less than 50% owned affiliates............................................. (28) (4) (20) -- -- -- Dividends from less than 50% owned affiliates............ 12 9 4 -- -- -- Fixed charges............................................ 398 183 426 436 378 369 Interest capitalized, net of amortization................ (2) (4) (2) (1) 0 (5) ------ ---- ---- ---- ---- ---- Earnings available for fixed charges..................... $1,279 $249 $757 $798 $813 $817 ====== ==== ==== ==== ==== ==== Fixed charges: Interest expense......................................... $ 326 $151 $378 $408 $351 $341 Proportionate share of 50% owned companies fixed charges................................................ 16 8 6 -- -- -- Portion of rental expense deemed to represent interest factor................................................. 56 24 42 28 27 28 ------ ---- ---- ---- ---- ---- Fixed charges............................................ $ 398 $183 $426 $436 $378 $369 ====== ==== ==== ==== ==== ==== Ratio of earnings to fixed charges....................... 3.21 1.36 1.78 1.83 2.15 2.21
EX-12.B 6 COMPUTATION-JOSEPH E. SEAGRAM & SONS, INC. 1 EXHIBIT 12(b) JOSEPH E. SEAGRAM & SONS, INC. AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (MILLIONS)
TRANSITION FISCAL PERIOD FISCAL YEARS ENDED JANUARY YEAR ENDED ENDED 31, JUNE 30, JUNE 30, ---------------------------- DESCRIPTION 1997 1996 1996 1995 1994 1993 - ----------------------------------------------------- ---------- ---- ---- ---- ---- Earnings before income taxes (restated for discontinued operations)................. $151 (30) $ 84 $190 $194 $168 Add (deduct): Fixed charges.............................. 176 72 169 186 166 157 Interest capitalized, net of amortization............................. (1) -- -- (1) -- (1) ---- ---- ---- ---- ---- ---- Earnings available for fixed charges....... $326 $ 42 $253 $375 $360 $324 ==== ==== ==== ==== ==== ==== Fixed charges: Interest expense........................... $159 $ 65 $145 $163 $146 $137 Portion of rental expense deemed to represent interest factor.......................... 17 7 24 23 20 20 ---- ---- ---- ---- ---- ---- Fixed charges.............................. $176 $ 72 $169 $186 $166 $157 ==== ==== ==== ==== ==== ==== Ratio of earnings to fixed charges......... 1.85 --(a) 1.50 2.02 2.17 2.06
- --------------- (a) Fixed charges exceeded earnings by $30 million for the Transition Period ended June 30, 1996. EX-13 7 PAGES 41-77 OF REPORT TO SHAREHOLDERS 1 MANAGEMENT'S DISCUSSION AND ANALYSIS Effective June 30, 1996, the Company changed its fiscal year-end from January 31 to June 30. The financial results for the twelve months ended June 30, 1997 represent the first full fiscal year on the new basis. The financial results for the period from February 1, 1996 to June 30, 1996 (the "Transition Period") are also included in this Report. Results for the Transition Period are not necessarily indicative of operations for a full year. Several events this fiscal year have impacted the comparability of Seagram's financial statements. Sale of the 156 Million DuPont Equity Warrants: On July 24, 1996, the Company sold its 156 million equity warrants of E.I. du Pont de Nemours and Company ("DuPont") to DuPont for $500 million in cash. The Company had an after-tax gain of $39 million and after-tax net proceeds of $479 million. Sale of Putnam Berkley: On December 16, 1996, the Company completed the sale of The Putnam Berkley Group, Inc. ("Putnam"), the book publishing division of Universal Studios, Inc. for $330 million in cash. The Company had a $64 million pretax gain on the sale but no after-tax gain due to the write-off of goodwill allocated to Putnam, which has no associated tax benefit. Sale of Time Warner Shares: On May 28, 1997, Seagram sold 30 million shares of Time Warner Inc. ("Time Warner") common stock for $1.39 billion in cash. The Company had an after-tax gain of $100 million and after-tax net proceeds of $1.33 billion. The Company continues to hold 26.8 million Time Warner shares. The following analysis is comprised of two sections for each fiscal period presented: An overview of revenues and operating income for the Company's two business segments, Beverages and Entertainment, and a more detailed discussion of the five lines of business within these two segments - Spirits and Wine, Fruit Juices and Other, Filmed Entertainment, Music, and Recreation and Other. This discussion will address attributed revenues and attributed earnings before interest, taxes, depreciation and amortization ("EBITDA"). These amounts include Seagram's proportionate share of the revenues and EBITDA, respectively, of its equity companies. The adjustment for equity companies eliminates the proportionate share of the revenues or EBITDA of equity companies, and reflects the equity income as reported under U.S. generally accepted accounting principles. The Company believes cash flow, as defined by EBITDA, is an appropriate measure of the Company's operating performance, given the goodwill associated with the Company's acquisitions. In addition, financial analysts generally consider EBITDA to be an important measure of comparative operating performance. However, EBITDA should be considered in addition to, not as a substitute for, operating income, net income, cash flows and other measures of financial performance in accordance with generally accepted accounting principles. The following detailed analysis of operations should be read in conjunction with the Consolidated Financial Statements of the Company found on pages 53 to 73. REPORTED REVENUES U.S. Dollars in Millions
Fiscal Years Ended June 30, January 31, 1997 1996(2) 1996(3) 1995 ---- ---- ---- ---- Beverages(1) $ 6,967 $ 6,933 $6,694 $6,399 Entertainment 5,593 5,112 3,053 -- ------- ------- ------ ------ $12,560 $12,045 $9,747 $6,399 ======= ======= ====== ======
(1) Reported Revenues includes excise taxes of $808 million, $822 million, $812 million and $836 million, respectively (2) Twelve month comparative period (3) Universal results in fiscal year ended January 31, 1996 are from date of acquisition June 5, 1995 EBITDA U.S. dollars in millions
Fiscal Years Ended June 30, January 31, 1997 1996(1) 1996(2) 1995 ---- ---- ---- ---- Beverages $1,048 $ 956 $ 959 $968 Entertainment 603 550 420 -- ------- ------- ------ ---- $1,651 $1,506 $1,379 $968 ======= ======= ====== ====
(1) Twelve month comparative period (2) Universal results in fiscal year ended January 31, 1996 are from date of acquisition June 5, 1995 OPERATING INCOME U.S. Dollars in Millions
Fiscal Years Ended June 30, January 31, 1997 1996(1) 1996 1995 ---- ---- ---- ---- $933(2) $507(3) $584(3,4) $725
(1) Twelve month comparative period (2) Includes pre-tax gain on sale of Putnam $64 million (3) Includes $290 million charge related to reengineering activities (3) Includes Universal results from date of acquisition June 5, 1995 41 2 EARNINGS SUMMARY
Twelve Months Five Months Fiscal Years U.S. Dollars in Millions, Ended June 30, Ended June 30, Ended January 31, Except Per Share Amounts 1997 1996 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------------------------- Attributed Revenues $ 13,748 $ 13,185 $ 5,558 $ 2,909 $ 10,536 $ 6,653 Reported Revenues 12,560 12,045 5,013 2,715 9,747 6,399 EBITDA 1,651 1,506 518 391 1,379 968 Operating Income Beverages 823 441 225 240 456 781 Entertainment 242 174 1 32 205 -- Corporate (132) (108) (47) (16) (77) (56) --------------------------------------------------------------- Operating Income 933 507 179 256 584 725 Interest, net and other 34 276 114 73 235 362 Provision (benefit) for income taxes 385 75 (15) 63 153 169 Minority interest charge (credit) 12 14 (5) 3 22 -- --------------------------------------------------------------- Income Before Discontinued DuPont Activities and Cumulative Effect of Accounting Change $ 502 $ 142 $ 85 $ 117 $ 174 $ 194 Per Share $ 1.36 $ .37 $ .23 $ .32 $ .46 $ .52 Discontinued DuPont activities -- -- -- 3,232 3,232 617 --------------------------------------------------------------- Income before cumulative effect of accounting change $ 502 $ 142 $ 85 $ 3,349 $ 3,406 $ 811 Cumulative effect of accounting change -- -- -- -- -- (75) --------------------------------------------------------------- Net Income $ 502 $ 142 $ 85 $ 3,349 $ 3,406 $ 736 =============================================================== Net Income Per Share $ 1.36 $ .37 $ .23 $ 8.99 $ 9.13 $ 1.98 - --------------------------------------------------------------------------------------------------------------
Note: The Company's reported financial results for the five-month periods ended June 30, 1996 and 1995 include six months of Universal (from January 1, 1996 to June 30, 1996) and one month of Universal (from the acquisition date of June 5, 1995 to June 30, 1995), respectively. The Company's results for the fiscal year ended January 31, 1996 include seven months of Universal (from June 5, 1995 to December 31, 1995). RESULTS OF OPERATIONS Fiscal Year Ended June 30, 1997 vs. Comparable Period Ended June 30, 1996: Reported revenues and attributed revenues of $12.6 billion and $13.7 billion, respectively, increased from $12.0 billion and $13.2 billion, respectively, last year. Excluding the revenues of Putnam which was sold in December 1996, reported revenues and attributed revenues both increased five percent year-on-year. EBITDA was $1.65 billion compared with $1.5 billion last year. Excluding the contribution of Putnam, EBITDA increased 11 percent. Fruit Juices and Other EBITDA increased 14 percent and Spirits and Wine EBITDA was eight percent higher. Entertainment EBITDA was 13 percent above last year, excluding the contribution of Putnam. Operating income, including a $64 million pretax gain on the sale of Putnam, was $933 million, up substantially from the prior year which included a $290 million pretax reengineering charge for the Beverage operations. Excluding the unusual items, operating income rose nine percent year-on-year reflecting the growth in operations which was partially offset by higher depreciation and amortization and higher corporate expenses. The incremental depreciation and amortization principally results from higher goodwill amortization related to the Brillstein-Grey Entertainment, Interscope Records and Multimedia Entertainment acquisitions. The increase in corporate expenses to $132 million is largely due to the increase in the market value of the Company's shares during the fiscal year ended June 30, 1997 which resulted in the recognition of additional expenses associated with stock-based compensation. Interest, net and other in the fiscal year ended June 30, 1997 is net of the pretax gains on the sales of the DuPont warrants ($60 million) and the Time Warner shares ($154 million). Net interest expense of $288 million is also partially offset by $40 million of dividend income from Time Warner and DuPont. In the twelve months ended June 30, 1996, net interest expense of $315 million was partially offset by $39 million of dividend income. The net interest expense decrease largely reflects the repayment of debt with a portion of the proceeds from the sales of the DuPont warrants and Time Warner shares. 42 3 The underlying effective income tax rate for ongoing operations for the fiscal year ended June 30, 1997 was 40 percent compared with 42 percent in the comparable prior period. The income tax provision in fiscal 1997 includes $21 million of taxes on the gain on the sale of the DuPont warrants, $64 million of taxes on the gain on the sale of Putnam and $54 million of taxes on the gain on the sale of the Time Warner shares. In the prior year, the income tax provision included a $79 million benefit on the reengineering charge and a $67 million benefit related to a settlement with the U.S. government regarding the recognition of a capital loss on the Company's 1981 exchange of shares of Conoco Inc. for common stock of DuPont. Net income was $502 million or $1.36 per share in the fiscal year ended June 30, 1997, compared with $142 million or $0.37 per share in the comparable prior period. Excluding the after-tax gains on the sales of the DuPont warrants and the Time Warner shares, net income in fiscal year 1997 was $363 million or $0.98 per share. In the comparable prior period, excluding the reengineering charge and the benefit associated with the tax settlement, net income was $286 million or $0.77 per share. BEVERAGES In the fiscal year ended June 30, 1997, the reported revenues of the Beverages segment increased slightly to almost $7.0 billion. The operating income of $823 million was substantially higher than last year's operating income of $441 million, which included a $290 million charge related to reengineering activities. Spirits and Wine: Revenues were adversely affected by difficult market conditions in both Europe and Asia Pacific. Attributed revenues declined two percent, while reported revenues were one percent weaker than last year. Excluding the impact of unfavorable foreign exchange, revenues would have been essentially even with last year. EBITDA increased eight percent to $813 million, driven largely by strong North American performance. The foreign exchange impact on EBITDA was negligible. EBITDA as a percent of attributed revenues rose from 14.4 percent to 15.9 percent reflecting benefits from reengineering and other cost-saving initiatives. Case volumes decreased two percent in fiscal year 1997 as the performance of the Company's global brands was mixed. Volumes in North America were strong, in particular for Crown Royal Canadian Whisky, for which shipments grew eight percent, and Captain Morgan Rum, which increased volumes by 14 percent. Absolut Vodka, for which the Company gained distribution rights in major international markets beginning in 1994, had an 11 percent increase in shipments reflecting strong growth in all markets. SPIRITS AND WINE EBITDA Twelve Months Ended June 30,
Europe & Asia Latin North Africa Pacific America America -------- ------- ------- ------- 1997 22% 24% 8% 46% 1996 26% 26% 9% 39%
TROPICANA BEVERAGES WORLDWIDE REVENUES Twelve Months Ended June 30,
Not From Concentrate Other ----------- ----- 1997 59% 41% 1996 56% 44%
43 4 BEVERAGES
Twelve Months Five Months Fiscal Years Ended June 30, Ended June 30, Ended January 31, U.S. Dollars in Millions 1997 1996 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------- Attributed Revenues Spirits and Wine $ 5,121 $ 5,199 $ 1,947 $ 1,841 $ 5,093 $ 5,061 Fruit Juices and Other 2,113 2,035 839 702 1,898 1,592 ---------------------------------------------------------- Attributed revenues 7,234 7,234 2,786 2,543 6,991 6,653 Adjustment for equity companies (267) (301) (133) (129) (297) (254) ---------------------------------------------------------- Reported Revenues* $ 6,967 $ 6,933 $ 2,653 $ 2,414 $ 6,694 $ 6,399 ========================================================== EBITDA Spirits and Wine $ 813 $ 750 $ 250 $ 263 $ 763 $ 809 Fruit Juices and Other 235 206 72 62 196 159 ---------------------------------------------------------- EBITDA 1,048 956 322 325 959 968 Reengineering charge -- (290) -- -- (290) -- Adjustment for equity companies (10) (10) (5) (3) (8) (7) Depreciation and amortization (215) (215) (92) (82) (205) (180) ---------------------------------------------------------- Operating Income $ 823 $ 441 $ 225 $ 240 $ 456 $ 781 - ------------------------------------------------------------------------------------------- *Reported revenues include excise taxes of $808 million and $822 million in the twelve months ended June 30, 1997 and 1996, respectively, $296 million and $317 million in the five-month periods ended June 30, 1996 and 1995, respectively, and $812 million and $836 million for the fiscal years ended January 31, 1996 and 1995, respectively.
The $63 million EBITDA increase reflects significant growth in the Americas, which is partially offset by declines in the other geographic regions. The double-digit increase in the Americas was driven by strong volumes in North America, improvements in Brazil, Argentina and certain nonaffiliated markets, and benefits realized from the reengineering initiatives. EBITDA for Europe & Africa declined seven percent primarily due to the difficult conditions in the German and Italian markets. On a positive note, the U.K., Greece and Portugal all achieved growth year-on-year. In Asia Pacific, EBITDA declined five percent as difficult trading conditions in Greater China more than offset growth and reengineering savings in Japan and Korea. Attributed revenues and EBITDA generated outside of North America accounted for approximately 65 percent and 54 percent of total attributed revenues and EBITDA, respectively. Europe & Africa accounts for 34 percent of Spirits and Wine attributed revenues and 22 percent of EBITDA. Asia Pacific represents 21 percent of the total attributed revenues and 24 percent of EBITDA. Latin America accounts for the remaining 10 percent of attributed revenues and eight percent of EBITDA. (This geographic breakdown, which is used by management to measure the performance of marketing affiliates, excludes excise taxes, assigns sales to the region in which the purchaser is located and includes our proportionate share of the revenues and EBITDA of equity company affiliates. The geographic data contained in Note 12 of the Notes to the Consolidated Financial Statements include excise taxes as well as the Company's other operations, and are based upon the location of the legal entity which invoices the sale.) Despite the revenue decline, we continued to invest for future growth by supporting our brands. While total brand spending declined, in line with our volume shortfall, advertising rose six percent. The advertising growth reflects our increased emphasis on the consumer and is focused behind our core strategic brands and in key markets including the U.S., Greater China and Germany. Depreciation and amortization of assets was $97 million in fiscal year 1997 and $100 million in the comparable prior period. Amortization of goodwill was $20 million and $22 million in the twelve-month periods ended June 30, 1997 and 1996, respectively. Spirits and Wine capital expenditures were $170 million in fiscal year 1997 and total assets were $4,922 million at June 30, 1997. 44 5 Fruit Juices and Other: Tropicana Beverage Group benefited from the ongoing strength of its flagship brand, Tropicana Pure Premium. Attributed and reported revenues both increased four percent. Revenues in Tropicana North America increased seven percent. International revenues were slightly below the prior year, primarily as a result of unfavorable foreign exchange. Excluding the foreign exchange impact, international revenues would have increased five percent. Tropicana Beverage Group's unit volume increased two percent. Tropicana Pure Premium led the way once again with 10 percent volume growth in North America. Tropicana North America had an over 40 percent share of the total U.S. chilled orange juice market and its share of the more important not-from-concentrate orange juice market increased to 71 percent. North America experienced volume declines in some from-concentrate and beverage products as margins were strengthened to improve overall profitability. Internationally, unit volumes increased five percent with significant growth in Asia Pacific. In the low-alcohol division, cooler volumes declined largely as a result of the discontinuation of certain brands. EBITDA climbed 14 percent to $235 million. EBITDA as a percent of attributed revenues increased one percentage point from 10.1 percent to 11.1 percent even with double-digit increases in marketing support. Reengineering initiatives and margin enhancement programs strongly contributed to this improvement. Depreciation and amortization of assets was $67 million in fiscal year 1997 and $64 million in the comparable prior period. Amortization of goodwill was $31 million and $29 million in the twelve-month periods ended June 30, 1997 and 1996, respectively. Capital expenditures for Fruit Juices and Other were $131 million in fiscal year 1997 and total assets were $2,507 million at June 30, 1997. ENTERTAINMENT In the fiscal year ended June 30, 1997, Universal contributed $5.6 billion to reported revenues, up nine percent from the $5.1 billion contributed in the comparable prior period. Operating income, including the $64 million gain on the sale of Putnam, rose 39 percent to $242 million in fiscal year 1997. Excluding the operating contribution of Putnam and the gain on the sale, reported revenues and operating income increased 12 percent and four percent, respectively. Filmed Entertainment: In fiscal year 1997, attributed revenues increased seven percent and reported revenues increased six percent. The motion picture group accounted for over 60 percent of the $3.9 billion of attributed revenues, while television accounted for approximately 20 percent. EBITDA declined slightly to $373 million. EBITDA as a percent of attributed revenues declined from 10.3 to 9.5 percent. ENTERTAINMENT EBITDA
Twelve Months Fiscal Year Ended June 30, Ended January 31, 1997 1996 1996* ---- ---- ----- Filmed Entertainment 62% 69% 57% Music 12% 4% 14% Recreation & Other 26% 27% 29%
*Universal results in fiscal year ended January 31, 1996 are from date of acquisition June 5, 1995 45 6 ENTERTAINMENT
Fiscal Year Six Months Twelve Months Twelve Months Five Months Ended Ended Ended Ended June 30, Ended June 30, January 31, June 30, December 31, U.S. Dollars in Millions 1997 1996 1996 1995 1996 1995 1995 1994 - ------------------------------------------------------------------------------------------------------------------- Attributed Revenues Filmed Entertainment $ 3,917 $ 3,671 $ 1,740 $ 193 $ 2,124 $ 1,556 $ 3,487 $ 3,313 Music 1,500 1,205 537 85 753 589 1,257 1,293 Recreation and Other 1,097 1,075 495 88 668 448 1,028 965 ---------------------------------------------------------------------------------- Attributed revenues 6,514 5,951 2,772 366 3,545 2,593 5,772 5,571 Gain on sale of Putnam 64 -- -- -- -- -- -- -- Adjustment for equity companies (985) (839) (412) (65) (492) (372) (798) (753) ---------------------------------------------------------------------------------- Reported Revenues $ 5,593 $ 5,112 $ 2,360 $ 301 $ 3,053 $ 2,221 $ 4,974 $ 4,818 ================================================================================== EBITDA Filmed Entertainment $ 373 $ 379 $ 176 $ 37 $ 240 $ 89 $ 292 $ 176 Music 72 24 (24) 11 59 75 123 192 Recreation and Other 158 147 44 18 121 75 178 165 ---------------------------------------------------------------------------------- EBITDA 603 550 196 66 420 239 593 533 ================================ Gain on sale of Putnam 64 -- -- -- -- Adjustment for equity companies (97) (92) (47) (11) (56) Depreciation and amortization (328) (284) (148) (23) (159) ------------------------------------------------- Operating Income $ 242 $ 174 $ 1 $ 32 $ 205 ================================================================================== Note: The Company's reported financial results for the five-month period ended June 30, 1996 include six months of Universal (from January 1, 1996 to June 30, 1996) and one month of Universal in the prior period (from the acquisition date of June 5, 1995 to June 30, 1995). The Company's results for the fiscal year ended January 31, 1996 include seven months of Universal (from June 5, 1995 to December 31, 1995). Universal's results for the six months ended June 30, 1995 and the twelve months ended December 31, 1995 and December 31, 1994 are provided for comparative purposes.
Five Months Fiscal Year Twelve Months Twelve Months Ended Ended Ended Ended June 30, June 30, January 31, December 31, U.S. Dollars in Millions 1997 1996 1996 1996 1995 1994 - ---------------------------------------------------------------------------------------- Capital Expenditures Filmed Entertainment $ 44 $ 52 $ 33 $ 40 $ 59 $ 66 Music 47 37 24 26 33 30 Recreation and Other 115 180 79 109 137 123 --------------------------------------------------------- $206 $269 $136 $175 $229 $219 - ---------------------------------------------------------------------------------------- Note: Capital expenditures for the five-month period ended June 30, 1996 include six months of Universal (from January 1, 1996 to June 30, 1996). Capital expenditures for the fiscal year ended January 31, 1996 include seven months of Universal (from June 5, 1995 to December 31, 1995). Universal's capital expenditures for the twelve months ended December 31, 1995 and December 31, 1994 are provided for comparative purposes.
The motion picture group's EBITDA was down despite the successful theatrical release of The Nutty Professor, Liar Liar and The Lost World: Jurassic Park, the latter two of which were released relatively late in the fiscal year. The results were negatively impacted by several disappointing releases, including Dante's Peak and McHale's Navy, and a one-time charge associated with the termination of The Bubble Factory production deal. The television group's results were even with last year as the contribution from the international pay and free television agreements and the Multimedia Entertainment and Brillstein-Grey Entertainment acquisitions were offset by higher deficit spending on new television series and the cancellation of several series which were in a profitable position, including Murder, She Wrote and Dream On. The EBITDA of our 50 percent-owned joint venture, USA Networks, was essentially even with the prior year. Music: In fiscal year 1997, the music group revenues benefited from the substantial investment in new artists and labels in the past two years. Attributed revenues and reported revenues increased 24 percent and 22 percent, respectively. The results reflect a considerably improved chart position. In the U.S., the music group's share of the current album releases rose more than six percentage points to over 14 percent in the first half of calendar year 1997. Major albums in release in 1997 included those by No Doubt, Bush, BLACKstreet, The Wallflowers, Counting Crows and Nirvana. Music EBITDA tripled to $72 million. EBITDA as a percent of attributed revenues rose from 2.0 percent to 4.8 percent. The margins in both periods were adversely impacted by the continued investment spending for new artists and labels and international expansion. 46 7 Recreation and Other: Attributed revenues for Recreation and Other increased two percent while reported revenues decreased three percent. EBITDA increased seven percent to $158 million. The comparison is impacted by the sale of Putnam during fiscal year 1997. Excluding the contribution of Putnam from both years, attributed revenues rose over 20 percent, reported revenues increased 18 percent and EBITDA climbed 22 percent. The recreation group's strong growth was driven by the successful opening of two new attractions: Jurassic Park - The Ride at Universal Studios Hollywood in June 1996, and Terminator 2: 3-D at Universal Studios Florida, its 50 percent-owned joint venture, in May 1996. Attendance and per capita spending rose at both theme parks. In Hollywood, attendance grew 18 percent and per capita spending rose eight percent. In Florida, attendance rose four percent while per capita spending increased eight percent. Spencer Gifts continued its strong performance during the period due to new store openings and a four percent increase in comparable store sales. The Universal Studios New Media Group had strong video game sales, principally Crash Bandicoot, offset by increased losses from the Company's equity investment in Interplay Productions. Also, the group incurred start-up costs in connection with the on-line and in-house software development operations in fiscal 1997. Transition Period vs. Comparable Period Ended June 30, 1995: Revenues were significantly higher than the comparable prior period reflecting the timing of the closing of the Dole* juice and Universal acquisitions in May and June 1995, respectively. EBITDA increased 32 percent to $518 million in the Transition Period. Entertainment EBITDA was $196 million compared with $66 million in the prior period, which represented one month of Universal results. Operating income declined to $179 million in the Transition Period reflecting a substantial increase in the depreciation and amortization expense associated with the Universal and Dole juice acquisitions. Interest, net and other in the Transition Period was $114 million, $41 million higher than in the five months ended June 30, 1995. The prior period was net of $76 million of interest income largely earned from the temporary investment of the full proceeds from the DuPont redemption from April 1995 until the funding of the Universal acquisition in June 1995. The income tax provision in the Transition Period included the $67 million benefit related to a settlement with the U.S. government regarding the 1981 exchange of shares of Conoco Inc. for common stock of DuPont. Excluding this tax benefit, the effective income tax rate of 80 percent was significantly higher than the prior year rate of 34 percent because of the non-deductibility of the goodwill amortization associated with the Universal and Dole juice acquisitions and lower taxable earnings. Net income was $85 million or $0.23 per share in the Transition Period. Excluding the benefit associated with the tax settlement of $67 million or $0.18 per share, net income was $18 million or $0.05 per share. In the five months ended June 30, 1995, earnings before the discontinued DuPont activities were $117 million or $0.32 per share. Due to the redemption of most of the Company's DuPont shares on April 6, 1995, the Company discontinued accounting for its investment in DuPont under the equity method effective February 1, 1995. Earnings related to the DuPont investment are presented as discontinued activities in the prior period and include a $3.2 billion after-tax gain on the redemption of the 156 million shares and $68 million of after-tax dividend income earned on such shares prior to the redemption transaction. In the five months ended June 30, 1995, net income was $3.3 billion or $8.99 per share. BEVERAGES In the Transition Period, the Beverages segment contributed $2.7 billion to reported revenues, which is 10 percent greater than the prior period. The operating income contribution of $225 million was $15 million below the operating income in the period ended June 30, 1995. Spirits and Wine: Attributed and reported revenues each grew six percent largely driven by improvement in Europe. In the Transition Period, EBITDA decreased five percent to $250 million primarily reflecting a decline in North America, which more than offset improvement in Europe & Africa and a substantial recovery in several Latin American affiliates. Asia Pacific's results were essentially unchanged. Case volumes rose almost four percent in the Transition Period. Most of the Company's key premium brands grew, including Martell Cognac, Chivas Regal Scotch Whisky, Crown Royal Canadian Whisky, Mumm Sekt Sparkling Wines and Absolut Vodka. * The Dole brand name is licensed from Dole. 47 8 Fruit Juices and Other: Attributed and reported revenues for Fruit Juices and Other each climbed 20 percent. Excluding the juice beverage operations acquired from Dole (the five months ended June 30, 1995 included approximately one month of Dole juice beverage results), Tropicana's attributed revenues grew nine percent and EBITDA rose 16 percent to $72 million. Tropicana Beverages' unit volume increased 21 percent driven largely by an eight percent increase in Pure Premium unit volume in North America and a 40 percent increase in international unit volume. ENTERTAINMENT In the Transition Period, which includes Universal results from January 1, 1996 to June 30, 1996, Universal contributed $2.4 billion to reported revenues and $1 million to operating income, after significant amortization and depreciation expense. In the period ended June 30, 1995, the Company's results included one month of Universal from the acquisition date of June 5, 1995 until June 30, 1995. During that time, Universal had reported revenues of $301 million and operating income of $32 million. In order to provide a basis of comparison, the discussion that follows is based upon Universal results for the six months ended June 30, 1996 compared with the results for the six months ended June 30, 1995. Filmed Entertainment: In the six-month period ended June 30, 1996, attributed revenues and reported revenues each rose 12 percent and EBITDA almost doubled to $176 million versus the prior period. The motion picture group was driven by higher worldwide profits from prior year releases, particularly Babe and Casper. The television group had improved results mainly because of the cancellation of several series which were in a deficit position. EBITDA of its 50 percent-owned joint venture, USA Networks, was essentially even with the prior period. Music: In the six-month period ended June 30, 1996, attributed and reported revenues each declined nine percent, while EBITDA was a loss of $24 million compared to income of $75 million in the comparable prior period. Lower revenues and EBITDA reflect difficult comparisons with the prior period as the six months ended June 30, 1995 included significant carryover business from the very strong fourth quarter of 1994. EBITDA was affected by a substantial investment program in 1996, which included increased spending for international expansion and investment in new artists and label ventures including Universal Records and Rising Tide/Nashville, and the acquisition of a 50 percent interest in Interscope Records. Recreation and Other: Attributed revenues increased 10 percent and reported revenues increased eight percent during the six-month period ended June 30, 1996 but EBITDA declined from $75 million to $44 million. Attendance and per capita spending at both theme parks were higher in the period ended June 30, 1996 than the prior period. This is due in part to the successful openings of Terminator 2: 3-D at Universal Studios Florida, the Company's 50 percent-owned joint venture, in May 1996 and Jurassic Park - The Ride at Universal Studios Hollywood in June 1996. Recreation EBITDA was down substantially due largely to higher marketing spending and the timing of that spending in advance of the new attractions which opened comparatively late in the period. Year Ended January 31, 1996 vs. Year Ended January 31, 1995: Both reported revenues and attributed revenues were up substantially over the prior year largely due to the inclusion of partial year results of Universal and the Dole juice business. EBITDA was $1.4 billion compared with $968 million in the prior year. Entertainment contributed $420 million, and Fruit Juices and Other increased 23 percent, while Spirits and Wine declined six percent. Corporate expenses increased to $77 million largely because the increase in the market value of the Company's shares in the year ended January 31, 1996 resulted in the recognition of additional expenses associated with stock-based compensation. Operating income, after a $290 million reengineering charge, declined to $584 million. Excluding this charge, operating income rose 21 percent to $874 million reflecting the contribution from Entertainment and higher Fruit Juices and Other, partially offset by weaker Spirits and Wine results. 48 9 The interest, net and other decrease in the year ended January 31, 1996 largely reflected the repayment of debt with a portion of the proceeds from the DuPont redemption and interest income earned from the temporary investment of the DuPont proceeds from April 1995 until the funding of the Universal Studios Holding I Corp. acquisition in June 1995. The effective income tax rate on continuing operations for the fiscal year ended January 31, 1996 was 44 percent compared with 29 percent (exclusive of the $65 million charge for the Company's 1981 exchange of shares of Conoco Inc. for common stock of DuPont) in the prior period. The higher effective tax rate resulted from the non-deductibility of goodwill amortization and the charge for reengineering activities, for which a tax benefit was not recognized in some countries where the charge was incurred. In the fiscal year ended January 31, 1996, income from discontinued DuPont activities included a $3.2 billion after-tax gain on the redemption of the 156 million DuPont shares and $68 million of after-tax dividend income. In the fiscal year ended January 31, 1995, income from the discontinued DuPont activities included $264 million of after-tax dividend income and $353 million of unremitted earnings (Seagram's share of DuPont's earnings not received as cash dividends). Earnings before the discontinued DuPont activities were $174 million or $0.46 per share in the year ended January 31, 1996 compared with $194 million or $0.52 per share in the prior year. Net income was $3.4 billion or $9.13 per share, including the discontinued DuPont activities, compared with $736 million or $1.98 per share in the prior year, which included a $75 million after-tax charge for the cumulative effect of the adoption of FAS 112, relating to postemployment benefits. BEVERAGES In the fiscal year ended January 31, 1996, the Beverages segment contributed $6.7 billion to reported revenues and $456 million to operating income, after a $290 million charge related to reengineering activities. Spirits and Wine: Attributed revenues increased slightly while EBITDA decreased six percent. EBITDA as a percent of attributed revenues declined from 16.0 percent to 15.0 percent. Case volumes declined three percent in the year ended January 31, 1996 principally from the reduction of trade inventories in Europe, in particular for Mumm Sekt Sparkling Wines. However, a number of the Company's premium brands showed strong unit gains, including Chivas Regal Scotch Whisky, Martell Cognac and Crown Royal Canadian Whisky. Absolut Vodka showed growth in shipments in the U.S. and globally as the Company continued to expand its distribution of the brand. The EBITDA decline was attributable to a 20 percent shortfall in Europe & Africa, partially mitigated by strong performances in Asia Pacific and the Americas. The weakness in Europe & Africa resulted primarily from difficult trading conditions in Germany, Spain and Portugal. Asia Pacific continued its broad-based profit growth, particularly in Greater China and South Korea. North America's results were driven largely by growth in Crown Royal Canadian Whisky, Captain Morgan Original Spiced Rum and Absolut Vodka. The improved contribution from Latin America was mainly the result of significantly higher profits in Venezuela. Fruit Juices and Other: Attributed revenues for the total unit increased 19 percent to $1.9 billion as Tropicana Beverages had 22 percent higher revenues, including the partial year results of the juice beverage business acquired from Dole. Tropicana's attributed revenues rose eight percent, excluding revenues from the acquired Dole operations. EBITDA, before the reengineering charge, rose 23 percent to $196 million reflecting strong performances in the Tropicana base businesses and the acquisition of the Dole juice beverage business. Excluding the operations acquired from Dole, Tropicana's unit volume increased eight percent driven largely by an 11 percent increase in Pure Premium in North America and a 71 percent increase in international revenues. Reengineering Activities: In connection with a program to better position its beverage operations for strategic growth, the Company recorded a pretax charge of $290 million in the quarter ended October 31, 1995. The charge related principally to the Company's global spirits and wine manufacturing, financial, marketing and distribution systems. After giving effect to the charge, the Beverages segment reported operating income of $456 million compared with $781 million in the prior year. 49 10 ENTERTAINMENT In the year ended January 31, 1996, Universal contributed $3.1 billion to reported revenues and $205 million to operating income, which represented Universal's results since the Company acquired its 80 percent interest in Universal in June 1995. Although the Company's reported financial results reflected only the partial year of Universal operations, in order to provide a basis of comparison, the discussion that follows is based upon Universal results for the 12 months ended December 31, 1995 compared with the prior year. Filmed Entertainment: Attributed revenues grew five percent to $3.5 billion, and EBITDA increased to $292 million from $176 million. The motion picture group was driven by the successful worldwide performance of Casper, Apollo 13 and Babe. Television operations benefited from higher sales of library product at improved margins, in addition to reduced losses on fewer new network and first-run syndication series. EBITDA of the Company's 50 percent-owned joint venture, USA Networks, increased substantially due to higher advertising revenues, increased subscriber revenues and lower programming costs. Music: The music group faced difficult comparisons due to an exceptionally strong performance in 1994. Attributed revenues declined three percent to $1,257 million, while EBITDA fell 36 percent to $123 million. New releases in 1995 included albums by Live and White Zombie, and the Dangerous Minds soundtrack, following successful new albums in 1994 by The Eagles, Counting Crows, Aerosmith and Nirvana. Recreation and Other: Attributed revenues increased seven percent to $1,028 million in 1995, while EBITDA grew to $178 million from $165 million. Theme parks were solid, despite competitive pressure from new attractions and aggressive marketing efforts at other theme parks. Universal Studios Hollywood had a four percent increase in per capita spending and one percent growth in attendance. Per capita spending at Universal Studios Florida was up slightly and attendance was essentially unchanged. Book publishing was higher due to successful new releases by a number of authors including Tom Clancy, Patricia Cornwell, Amy Tan and Charles Kuralt. Spencer Gifts had a very strong year, with comparable store sales up over nine percent. LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK The Company's financial position strengthened during the fiscal year ended June 30, 1997. Net cash provided by ongoing operations was $2,146 million, following net cash provided of $903 million in the five months ended June 30, 1996. The results for the fiscal year included significant non-cash charges such as amortization of film costs, depreciation and amortization of assets and amortization of excess of cost over fair value of assets. In addition, cash was generated by a reduction in working capital requirements. Net cash provided by investing activities was $242 million in fiscal year 1997. The net cash provided includes gross proceeds from the sale of 30 million Time Warner shares ($1.39 billion), the sale of the DuPont warrants ($500 million) and the sale of Putnam ($330 million). These cash proceeds were partially offset by film production costs of $1.36 billion and capital expenditures of $507 million: Beverages - $301 million and Entertainment - $206 million. In the Transition Period, net cash used for investing activities was $1.3 billion. The major items which required cash included the investment in Interscope Records of $200 million, the investment in Brillstein-Grey Entertainment of $81 million and investments in unconsolidated companies including Cineplex Odeon Corporation and SEGA GameWorks. In addition, film production costs were $626 million and total capital expenditures were $305 million: Beverages - $168 million, Universal - $136 million and Corporate - $1 million. 50 11 The Company has entered into an arrangement to sell to a third party substantially all films produced or acquired during the term of the agreement for amounts which approximate cost. The Company will serve as sole distributor and earn a distribution fee, which is variable and contingent upon the films' performance. In addition, the Company has the option to purchase the films at certain future dates. In the fiscal year ended June 30, 1997, the net result of cash provided by ongoing operations and investing activities, the payment of $239 million of dividends and the repurchase of $416 million of the Company's common shares was a decrease in net debt of $1.9 billion. This reflects a decline in short-term debt of $1,589 million and a $225 million increase in cash and short-term investments. In the five months ended June 30, 1996, net debt increased by $562 million largely due to the funding of entertainment investments. The Company's total long- and short-term debt, net of cash and short-term investments, decreased to $2.2 billion at June 30, 1997 from $4.1 billion at June 30, 1996. The Company's ratio of net debt to total capitalization (including minority interest) declined from 27 percent to 17 percent, reflecting the lower debt outstanding. In addition, the Company's liquidity is enhanced by the ownership of 26.8 million shares of Time Warner common stock which had a market value of $1.3 billion on June 30, 1997. As previously indicated, the Company does not view its remaining investment in Time Warner as a strategic asset. The Company's working capital position is reinforced by available credit facilities of $3.8 billion. These facilities are used to support the Company's commercial paper borrowings and are available for general corporate purposes. The Company believes its internally-generated liquidity together with access to external capital resources will be sufficient to satisfy existing commitments and plans, and to provide adequate financial flexibility to take advantage of potential strategic business opportunities should they arise. The Company is exposed to changes in financial market conditions in the normal course of its business operations due to its operations in different foreign currencies and its ongoing investing and funding activities. 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. The Company has established policies, procedures and internal processes governing its management of market risks and the use of financial instruments to manage its exposure to such risks. The Company is exposed to changes in interest rates primarily as a result of its borrowing and investing activities which include short-term investments and borrowings and long-term debt used to maintain liquidity and fund its business operations. The Company continues to utilize U.S. dollar-denominated commercial paper to fund seasonal working capital requirements in the U.S. and Canada. The Company also borrows in different currencies from other sources to meet the borrowing needs of its affiliates. The nature and amount of the Company's long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. NET DEBT* AS A PERCENTAGE OF TOTAL CAPITAL**
Fiscal Years Ended June 30, January 31, 1997 1996 1996 1995 ---- ---- ---- ---- 17% 27% 24% 48%
* Net of cash and short-term securities ** Net debt, Minority interest and Shareholders equity 51 12
QUARTERLY HIGH AND LOW SHARE PRICES Fiscal Year Ended Five-Month Period June 30, 1997 Ended June 30, Fiscal Years Ended January 31, 1996 1996 1995 High Low High Low High Low High Low - -------------------------------------------------------------------------------------------------------------------------- QUARTERLY HIGH AND LOW SHARE PRICES New York Stock Exchange First Quarter US$38 3/8 US$30 7/8 US$38 3/8 US$31 3/4 US$32 3/8 US$25 5/8 US$31 US$27 Second Quarter 41 7/8 35 1/4 36 3/8 32 1/2 36 3/4 26 3/4 32 28 1/8 Third Quarter 42 3/4 38 38 1/8 34 1/4 32 5/8 29 1/8 Fourth Quarter 41 7/8 35 3/4 39 1/2 34 1/4 30 3/4 27 1/8 Canadian Stock Exchanges (Canadian Dollars) First Quarter C$52 1/4 C$42 1/4 C$52 1/2 C$43 1/8 C$45 1/4 C$35 1/2 C$42 1/2 C$37 1/4 Second Quarter 57 4/10 47 1/2 49 3/4 44 2/5 50 36 1/4 43 7/8 38 3/4 Third Quarter 57 3/10 51 9/10 52 46 1/4 44 5/8 39 1/4 Fourth Quarter 58 1/10 50 53 1/4 46 7/8 43 1/8 37 3/8 - --------------------------------------------------------------------------------------------------------------------------
The Company's operating cash flows denominated in foreign currency as a result of its international business activities and certain of its borrowings are exposed to changes in foreign exchange rates. The Company continually evaluates its foreign currency exposure (primarily British pound, French franc, German mark and Swiss franc), based on current market conditions and the business environment. In order to mitigate the effect of foreign currency risk, the Company engages in hedging activities. The magnitude and nature of such hedging activities are explained further in Note 8 to the financial statements. The Company employs a variance/covariance approach in its 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 fair value, attributable to those interest rate sensitive exposures associated with the Company's exposure to interest rates was $12 million at June 30, 1997 and the average VaR for the year then ended was $14 million. This exposure is primarily related to long-term debt with fixed interest rates. The VaR, which is the potential loss in earnings, at June 30, 1997 and the average VaR for the year then ended associated with the Company's exposure to foreign exchange rates primarily as a result of its foreign currency denominated debt was $2 million. The Company is 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. RETURN TO SHAREHOLDERS The Company had 7,586 registered shareholders at August 15, 1997. The Company's common shares are listed on the New York, Toronto, Montreal, Vancouver and London Stock Exchanges. Closing prices at June 30, 1997, on the New York and Toronto Stock Exchanges were $40.25 and C$55.50, respectively. In the fiscal year ended June 30, 1997, the Company paid dividends of $0.15 per share in the first quarter and $0.165 per share in each of the final three quarters. In the Transition Period dividends paid were $0.15 per share per quarter. In the year ended January 31, 1996, the Company also paid dividends of $0.15 per share in each of the four quarters. Dividends paid to shareholders totaled $239 million in fiscal year 1997, $112 million in the Transition Period and $224 million and $216 million in the years ended January 31, 1996 and 1995, respectively. 52 13 CONSOLIDATED STATEMENT OF INCOME
Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, U.S. Dollars in Millions, Except Per Share Amounts 1997 1996 1996 1995 - ----------------------------------------------------------------------------------------------------------- Revenues $12,560 $ 5,013 $ 9,747 $ 6,399 Cost of revenues 7,683 3,186 6,122 3,654 Selling, general and administrative expenses 3,944 1,648 3,041 2,020 -------------------------------------------------- Operating Income 933 179 584 725 Interest, net and other 34 114 235 362 -------------------------------------------------- 899 65 349 363 Provision (benefit) for income taxes 385 (15) 153 169 Minority interest charge (credit) 12 (5) 22 -- -------------------------------------------------- Income Before Discontinued DuPont Activities and Cumulative Effect of Accounting Change 502 85 174 194 -------------------------------------------------- Discontinued DuPont Activities: Dividends, after tax -- -- 68 264 Unremitted earnings -- -- -- 353 Gain on redemption of 156 million shares, after tax -- -- 3,164 -- -------------------------------------------------- -- -- 3,232 617 Income Before Cumulative Effect of Accounting Change 502 85 3,406 811 Cumulative effect of accounting change, after tax -- -- -- (75) -------------------------------------------------- Net Income $ 502 $ 85 $ 3,406 $ 736 ================================================== Earnings Per Share Income before discontinued DuPont activities and cumulative effect of accounting change $ 1.36 $ .23 $ .46 $ .52 Discontinued DuPont activities, after tax -- -- 8.67 1.66 -------------------------------------------------- Income Before Cumulative Effect of Accounting Change 1.36 .23 9.13 2.18 Cumulative effect of accounting change, after tax -- -- -- (.20) -------------------------------------------------- Net Income $ 1.36 $ .23 $ 9.13 $ 1.98 - -----------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 53 14 CONSOLIDATED BALANCE SHEET
June 30, June 30, January 31, U.S. Dollars in Millions 1997 1996 1996 - --------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and short-term investments at cost $ 504 $ 279 $ 254 Receivables, net 2,015 1,770 2,276 Inventories 2,974 3,142 2,914 Film costs, net of amortization 538 471 510 DuPont warrants -- 440 -- Deferred income taxes 521 402 361 Prepaid expenses and other current assets 402 382 325 -------------------------------- Total Current Assets 6,954 6,886 6,640 -------------------------------- Common stock of DuPont 1,034 651 631 DuPont warrants -- -- 440 Common stock of Time Warner 1,291 2,228 2,356 Film costs, net of amortization 840 783 790 Artists' contracts, advances and other entertainment assets 645 680 721 Deferred charges and other assets 714 736 737 Property, plant and equipment, net 3,125 2,951 2,806 Investments in unconsolidated companies 2,097 2,162 1,936 Excess of cost over fair value of assets acquired 4,236 4,551 4,298 -------------------------------- $ 20,936 $ 21,628 $ 21,355 -------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings and indebtedness payable within one year $ 255 $ 1,850 $ 936 Accrued royalties and participations 865 602 642 Payables and accrued liabilities 2,083 2,086 2,164 Income and other taxes 314 149 112 -------------------------------- Total Current Liabilities 3,517 4,687 3,854 -------------------------------- Long-term indebtedness 2,494 2,562 2,889 Accrued royalties and participations 364 388 404 Deferred income taxes 2,461 2,163 2,185 Other credits 827 784 851 Minority interest 1,851 1,839 1,844 Shareholders' Equity Shares without par value 809 725 709 Cumulative currency translation adjustments (427) (246) (268) Cumulative gain on equity securities, after tax 781 337 407 Retained earnings 8,259 8,389 8,480 -------------------------------- Total Shareholders' Equity 9,422 9,205 9,328 -------------------------------- $ 20,936 $ 21,628 $ 21,355 - ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. Approved by the Board /s/ Edgar M. Bronfman /s/ C.E. Medland Edgar M. Bronfman C.E. Medland DIRECTOR DIRECTOR 54 15
CONSOLIDATED STATEMENT OF CASH FLOWS Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, U.S. Dollars in Millions 1997 1996 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Income Before Discontinued DuPont Activities and Cumulative Effect of Accounting Change $ 502 $ 85 $ 174 $ 194 ------------------------------------------------- Adjustments to Reconcile Income Before Discontinued DuPont Activities and Cumulative Effect of Accounting Change to Net Cash Provided: Amortization of film costs 1,050 524 642 -- Depreciation and amortization of assets 353 158 255 138 Amortization of excess of cost over fair value of assets acquired 194 84 113 46 Gain on sale of Time Warner shares, DuPont warrants and Putnam, before tax (278) -- -- -- Minority interest charged (credited) to income 12 (5) 22 -- Sundry 147 70 46 17 Changes in assets and liabilities: Receivables, net (213) 532 (172) (157) Inventories (8) (212) (137) (23) Prepaid expenses and other current assets (65) (59) (19) (36) Artists' contracts, advances and other entertainment assets (2) 1 66 -- Payables and accrued liabilities 322 (243) 140 363 Income and other taxes payable 161 55 (105) 38 Deferred income taxes (52) 15 14 (114) Other credits 23 (102) (14) 53 ------------------------------------------------- 1,644 818 851 325 ------------------------------------------------- Net Cash Provided by Continuing Operations 2,146 903 1,025 519 ------------------------------------------------- INVESTING ACTIVITIES Film production (1,356) (626) (684) -- Capital expenditures (507) (305) (433) (172) Proceeds from sale of Time Warner shares, DuPont warrants and Putnam 2,217 -- -- -- Investment in Interscope Records -- (200) -- -- Investment in Brillstein-Grey Entertainment -- (81) -- -- Discontinued DuPont activities: Dividends, net of taxes paid -- -- 68 264 Proceeds from redemption of shares, net of taxes paid -- -- 7,729 -- Purchase of 80 percent interest in Universal -- -- (5,523) -- Purchase of Dole juice beverage business -- -- (273) -- Purchase of Time Warner common stock -- -- -- (474) Increase in DuPont investment related to 1981 transaction -- -- -- (162) Sundry (112) (117) (9) (93) ------------------------------------------------- Net Cash Provided by (Used for) Investing Activities 242 (1,329) 875 (637) ------------------------------------------------- FINANCING ACTIVITIES Dividends paid (239) (112) (224) (216) Issuance of shares upon exercise of stock options and conversion of LYONs 107 20 72 22 Shares purchased and retired (416) (68) (18) (23) Increase in long-term indebtedness 3 36 214 3 Decrease in long-term indebtedness (29) (341) (251) (252) (Decrease) increase in short-term borrowings and indebtedness payable within one year (1,589) 916 (1,596) 610 ------------------------------------------------- Net Cash (Used for) Provided by Financing Activities (2,163) 451 (1,803) 144 ------------------------------------------------- Net Increase in Cash and Short-term Investments $ 225 $ 25 $ 97 $ 26 - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 55 16
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Common Shares Cumulative Cumulative Without Par Value Currency Gain (Loss) Number Translation on Equity Retained U.S. Dollars in Millions, Except Per Share Amounts (thousands) Amount Adjustments Securities Earnings - ----------------------------------------------------------------------------------------------------------------------------------- January 31, 1994 372,489 $ 617 $(479) $ 46 $4,817 Fiscal year ended January 31, 1995 Net income before cumulative effect of accounting change 811 Cumulative effect of accounting change (75) Dividends paid ($.58 per share) (216) Change in currency translation adjustments 120 Change in market value of equity securities, net of $70 tax benefit (131) Shares issued -- exercise of stock options 827 21 -- conversion of LYONs 31 1 Shares purchased and retired (810) (1) (22) -------------------------------------------------------------------------- January 31, 1995 372,537 638 (359) (85) 5,315 Fiscal year ended January 31, 1996 Net income 3,406 Dividends paid ($.60 per share) (224) Change in currency translation adjustments 91 Change in market value of equity securities, net of $265 tax 492 Shares issued -- exercise of stock options 2,056 57 -- conversion of LYONs 550 15 Shares purchased and retired (681) (1) (17) -------------------------------------------------------------------------- January 31, 1996 374,462 709 (268) 407 8,480 Transition period ended June 30, 1996 Net income 85 Dividends paid ($.30 per share) (112) Change in currency translation adjustments 22 Change in market value of equity securities, net of $38 tax benefit (70) Shares issued -- exercise of stock options 612 18 -- conversion of LYONs 57 2 Shares purchased and retired (2,072) (4) (64) -------------------------------------------------------------------------- June 30, 1996 373,059 725 (246) 337 8,389 Fiscal year ended June 30, 1997 Net income 502 Dividends paid ($.645 per share) (239) Change in currency translation adjustments (181) Change in market value of equity securities, net of $239 tax 444 Shares issued -- exercise of stock options 3,243 98 -- conversion of LYONs 296 9 Shares purchased and retired (11,317) (23) (393) -------------------------------------------------------------------------- June 30, 1997 365,281 $ 809 $(427) $ 781 $8,259 - -----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 56 17 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Seagram Company Ltd. operates in two global business segments: beverages and entertainment. The beverage businesses are engaged principally in the production and marketing of distilled spirits, wines, fruit juices, coolers, beers and mixers. The entertainment company, Universal Studios, Inc. ("Universal"), formerly known as MCA INC., produces and distributes motion picture, television and home video products, and recorded music; and operates theme parks and retail stores. The Company sold its book publishing unit during the fiscal year ended June 30, 1997 (Note 4). More than 50 percent of the Company's shares are held by U.S. residents and, therefore, the Company has prepared its consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) which, in their application to the Company, conform in all material respects to Canadian GAAP. Differences between U.S. and Canadian GAAP and the magnitude thereof are discussed in Note 17. Should a material difference arise in the future, financial statements will be provided under both U.S. and Canadian GAAP. Principles of Consolidation: The consolidated financial statements include the accounts of The Seagram Company Ltd. and its subsidiaries. The equity method is used to account for unconsolidated affiliates owned 20 percent or more. In conformity with GAAP, management has made estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. Foreign Currency Translation: Except for operations in highly inflationary economies, affiliates outside the U.S. operating in the beverages segment 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. Affiliates outside the U.S. operating in the entertainment segment principally use the U.S. dollar as the functional currency. Inventories: Inventories are stated at cost, which is not in excess of market, and consist principally of spirits, wines and fruit juices. The cost of spirits, wines and fruit juices inventories is determined by either the last-in, first-out (LIFO) method or the identified cost method. The cost of music, publishing, retail and home video inventories is determined by the first-in, first-out (FIFO) method. In accordance with industry practice, current assets include spirits and wines which, in the Company's normal business cycle, are aged for varying periods of years. Revenues and Costs Film: 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. Generally, television films are first licensed for network exhibition and foreign syndication or home video, and subsequently for domestic syndication or cable television. Certain television films are produced and/or distributed directly for initial exhibition by local television stations, advertiser-supported cable television, pay television and/or home video. Revenues from the theatrical 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. Revenues from the sale of home video product, net of provision for estimated returns and allowances, are recognized upon availability of product for retail sale. Generally, the estimated ultimate costs of completed theatrical and television film productions (including applicable capitalized overhead) are amortized and participation expenses are accrued for each production in the proportion of revenue recognized by the Company during the year to the total estimated future revenue to be received from all sources, under the individual film forecast method. Estimated ultimate revenues and costs are reviewed quarterly and revisions to amortization rates or write-downs to net realizable value may occur. Film costs, net of amortization, classified as current assets include the portion of unamortized costs of completed theatrical films allocated to theatrical, home video and pay television distribution markets; television films in production which are under contract of sale; and a portion of costs of completed television films. The allocated portion of released film costs expected to be realized from secondary markets or other exploitation is reported as a noncurrent asset. 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. Abandoned story and development costs are charged to film production overhead. Film costs are stated at the lower of unamortized cost or estimated net realizable value as periodically determined on a film-by-film basis. Approximately $300 million of the cost of the Universal acquisition was allocated to the film library and is being amortized on a straight-line basis principally over a 20 year life. 57 18 Recorded Music and Book Publishing: Revenues from the sale of recorded music and books, net of provision for estimated returns and allowances, are recognized upon shipment. Advances to established recording artists and writers and direct costs associated with the creation of record masters and books 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 recouped from royalties to be earned. Approximately $400 million of the cost of the Universal acquisition was allocated to artists' contracts, music catalogs and copyrights and is being amortized, on an accelerated basis, over a 14 to 20 year life. Property, Plant and Equipment: Property, plant and equipment is carried at cost. Depreciation is determined for financial reporting purposes using the straight-line method over estimated useful asset lives, generally at annual rates of 2-10 percent for buildings, 4-33 percent for machinery and equipment and 2-20 percent for other assets. Excess of Cost Over Fair Value of Assets Acquired and Other Intangible Assets: The unallocated excess of cost of purchased businesses over the fair value of assets acquired, the excess of investments in unconsolidated companies over the underlying equity in tangible net assets acquired and other intangible assets are being amortized on a straight-line basis over various periods from six to 40 years from the date of acquisition. The Company reviews the carrying value of goodwill for impairment 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 of the goodwill to the net carrying value of goodwill. Income Taxes: 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. Deferred taxes are not provided for that portion of undistributed earnings of foreign subsidiaries which is considered to be permanently reinvested. Benefit Plans: Retirement pensions are provided for substantially all of the Company's employees through either 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; pension benefits under defined benefit plans generally are based on years of service and compensation levels near the end of employee service. 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. 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. 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 stock 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. Financial Instruments: The Company occasionally uses foreign exchange contracts to hedge a portion of its foreign indebtedness. In addition, the Company hedges foreign currency risk on intercompany payments through currency forwards and options 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. Comprehensive Income: The Financial Accounting Standards Board recently issued FAS 130, Reporting Comprehensive Income, which is effective for the Company's fiscal year beginning July 1, 1998. The Company is still evaluating the presentation requirements of this pronouncement. Reclassifications: Certain prior period amounts in the financial statements and notes have been reclassified to conform with the current year presentation. 58 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS TIME WARNER INC. ("TIME WARNER") INVESTMENT-NOTE 1 On May 28, 1997, the Company sold 30 million of its 56.8 million shares of Time Warner common stock for pretax proceeds of $1.39 billion. The gain on the sale of the shares, included in interest, net and other, was $154 million ($100 million after tax) in accordance with the specific identification method. At June 30, 1997, the Company's remaining 26.8 million Time Warner shares, which are accounted for at market value, had a total cost of $937 million. DUPONT SHARE REDEMPTION AND REMAINING DUPONT INVESTMENT-NOTE 2 On April 6, 1995, E.I. du Pont de Nemours and Company ("DuPont") redeemed 156 million shares of its common stock owned by the Company for $8.336 billion plus share purchase warrants which the Company valued as of the date of the transaction at $440 million. The Company received after-tax proceeds of approximately $7.7 billion from the transaction. The $3.2 billion gain on the transaction was net of a $2 billion tax provision of which $1.5 billion was deferred. The Company has retained 16.4 million shares of DuPont common stock, post-split (on June 12, 1997, DuPont common stock was split two-for-one), which were carried at their market value of $1.03 billion at June 30, 1997. The underlying historical value of the remaining DuPont shares is $187 million which represents the historical cost of the retained shares plus unremitted earnings related to those shares. The warrants were sold to DuPont for $500 million on July 24, 1996. The gain on the sale of the warrants was $60 million ($39 million after tax) and is reflected in interest, net and other in the fiscal year ended June 30, 1997. During the fiscal year ended January 31, 1995, the Company owned 164.2 million shares, pre-split, (approximately 24 percent) of the outstanding common stock of DuPont and accounted for its interest in DuPont using the equity method, whereby its proportionate share of DuPont's earnings was included in income. Financial information for DuPont for its year ended December 31, 1994 follows. DUPONT FINANCIAL INFORMATION Millions Year Ended December 31, 1994 - -------------------------------------------------------------------------------- Sales and other income $ 40,259 Cost of goods sold and all other expenses 35,877 Provision for income taxes 1,655 -------- Net income $ 2,727 - -------------------------------------------------------------------------------- ACQUISITION OF 80 PERCENT INTEREST IN UNIVERSAL STUDIOS HOLDING I CORP.-NOTE 3 On June 5, 1995, the Company completed its purchase of an 80 percent interest in Universal Studios Holding I Corp. ("Universal"), formerly MCA Holding I Corp., the indirect parent of Universal Studios, Inc., formerly MCA INC., from Matsushita Electric Industrial Co., Ltd. ("Matsushita") for $5.7 billion. Matsushita retains a 20 percent interest in Universal. The acquisition has been accounted for under the purchase method of accounting. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. This valuation resulted in $2.6 billion of unallocated excess of cost over fair value of assets acquired which is being amortized over 40 years. The unaudited condensed pro forma income statement data which follows assumes the Universal acquisition and the redemption of 156 million shares of DuPont common stock occurred at the beginning of each period presented. The unaudited condensed pro forma income statement data were prepared based upon the historical consolidated income statements of the Company for the fiscal years ended January 31, 1996 and 1995, and of Universal for the five months ended May 31, 1995 and the twelve months ended December 31, 1994, adjusted to reflect purchase accounting. Financial results for Universal for the seven-month period June 1995 through December 1995 were included in the Company's results for the fiscal year ended January 31, 1996. The unaudited pro forma information is not necessarily indicative of the combined results of operations of the Company and Universal that would have resulted if the transactions had occurred on the dates previously indicated, nor is it necessarily indicative of future operating results of the Company. 59 20 PRO FORMA INCOME STATEMENT DATA Fiscal Years Ended January 31, Millions, Except Per Share Amounts (Unaudited) 1996 1995 - ------------------------------------------------------------------------------- Revenues $ 11,667 $ 11,217 ------------------- Income before cumulative effect of accounting change $ 154 $ 346 Cumulative effect of accounting change -- (75) ------------------- Net income $ 154 $ 271 =================== Per share data: Income before cumulative effect of accounting change $ .41 $ .93 Cumulative effect of accounting change -- (.20) ------------------- Net income $ .41 $ .73 - ------------------------------------------------------------------------------- The above pro forma presentation excludes the $3.2 billion after-tax gain on the redemption of the DuPont shares. SALE OF PUBLISHING-GROUP NOTE 4 On December 16, 1996, the Company completed the sale of its book publishing unit, The Putnam Berkley Group, Inc. ("Putnam"). Proceeds from the sale were $330 million, resulting in a $64 million pretax gain on the disposition. There was no after-tax gain or loss due to the write-off of non-tax-deductible goodwill associated with Putnam. The operating results of Putnam through December 16, 1996 are included in operating income. ACQUISITION OF THE JUICE BEVERAGE BUSINESS OF THE DOLE FOOD COMPANY, INC. ("DOLE")-NOTE 5 On May 19, 1995, the Company acquired the worldwide juice and juice beverage business of Dole for $276 million. The transaction excluded Dole's canned pineapple juice business. The reported operating results for the fiscal year ended January 31, 1996 reflect the results of operations of the acquired business from the acquisition date. The acquisition has been accounted for under the purchase method of accounting. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. This valuation resulted in $134 million of unallocated excess cost over fair value of assets acquired which is being amortized over 40 years. The impact of this acquisition was not material to the consolidated results of the Company. INVESTMENTS IN UNCONSOLIDATED COMPANIES-NOTE 6 The Company has a number of investments in unconsolidated companies which are 50 percent or less owned or controlled and are carried in the consolidated balance sheet on the equity method. Entertainment Segment: Significant investments at June 30, 1997 include USA Networks, owner of three advertiser-supported cable television services, USA Network, the Sci-Fi Channel, and Sci-Fi Europe (50 percent owned); Cineplex Odeon Corporation, primarily engaged in theatrical exhibition of motion pictures in the U.S. and Canada (42 percent owned); United International Pictures, a distributor of theatrical and pay television product outside the U.S. and Canada (33 percent owned); Cinema International BV, primarily engaged in marketing of home video product outside the U.S. and Canada (49 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); Brillstein-Grey Entertainment (49.5 percent owned) which owns 50 percent of Brillstein-Grey Communications, a producer of network television series; Universal City Florida Partners, which owns Universal Studios Florida, a motion picture and television themed tourist attraction and production facility in Orlando, Florida (50 percent owned); Universal City Development Partners, which has begun development on land adjacent to Universal Studios Florida of an additional themed tourist attraction, Universal Islands of Adventure, and commercial real estate (50 percent owned); USJ Co., Ltd., which has begun development of a motion picture themed tourist attraction, Universal Studios Japan, and commercial real estate in Osaka, Japan (11 percent owned at June 30, 1997; ownership increased to 21 percent in July 1997 and is committed to increase further to 24 percent in fiscal 1998); SEGA GameWorks, which designs, develops and operates location-based entertainment centers (31 percent owned); and Interplay Productions, an entertainment software developer (48 percent owned). Beverages Segment: Significant investments at June 30, 1997 include Doosan Seagram Co., Ltd., which is engaged in the production and marketing of whisky products in South Korea (50 percent owned); Seagram (Thailand) Limited, an importer and distributor of spirits and wines (49 percent owned); Kirin-Seagram Limited, engaged in the manufacture, sale and 60 21 distribution of distilled beverage alcohol and wines in Japan (50 percent owned); and Kirin-Tropicana Inc., engaged in the manufacture, sale and distribution, import and export of fruit juice beverages (50 percent owned). Summarized financial information, derived from unaudited historical financial information, is presented below for the Company's investments in unconsolidated companies. SUMMARIZED BALANCE SHEET INFORMATION June 30, June 30, January 31, Millions 1997 1996 1996 - ------------------------------------------------------------------------------- Current assets $1,414 $1,290 $1,102 Noncurrent assets 2,569 2,317 2,219 ------------------------------ Total assets $3,983 $3,607 $3,321 ------------------------------ Current liabilities $1,205 $1,049 $ 920 Noncurrent liabilities 1,427 1,219 1,254 Equity 1,351 1,339 1,147 ------------------------------ Total liabilities and equity $3,983 $3,607 $3,321 ============================== Proportionate share of net assets of unconsolidated companies $ 624 $ 612 $ 549 - ------------------------------------------------------------------------------- Approximately $1.5 billion of the cost of the Universal acquisition was allocated to the investment in unconsolidated companies and is being amortized on a straight-line basis over 40 years. SUMMARIZED STATEMENT OF OPERATIONS Fiscal Year Transition Fiscal Year Ended Period Ended Ended June 30, June 30, January 31, Millions 1997 1996 1996 - ------------------------------------------------------------------------------- Revenues $4,920 $2,168 $2,851 Earnings before interest and taxes 357 188 214 Net income 235 129 137 - ------------------------------------------------------------------------------- The Company's operating income includes $127 million, $57 million and $72 million in equity in the earnings of unconsolidated companies for the fiscal year ended June 30, 1997, the transition period ended June 30, 1996, and the fiscal year ended January 31, 1996, respectively, principally in the entertainment segment. LONG-TERM INDEBTEDNESS AND CREDIT ARRANGEMENTS-NOTE 7 LONG-TERM INDEBTEDNESS
June 30, June 30, January 31, Millions 1997 1996 1996 - ---------------------------------------------------------------------------------------------------------- 9% Debentures due December 15, 1998 (C$200 million)* $ 156 $ 156 $ 156 Unsecured term bank loans, due 1997 to 1999, with a weighted average interest rate of 4.77% 190 251 267 6.5% Debentures due April 1, 2003 200 200 200 8.35% Debentures due November 15, 2006 200 200 200 8 3/8% Guaranteed Debentures due February 15, 2007 200 200 200 7% Guaranteed Debentures due April 15, 2008 200 200 200 8 7/8% Guaranteed Debentures due September 15, 2011 223 223 223 9.65% Guaranteed Debentures due August 15, 2018 249 249 249 9% Guaranteed Debentures due August 15, 2021 198 198 198 8.35% Debentures due January 15, 2022 199 199 199 6.875% Debentures due September 1, 2023 200 200 200 6% Swiss Franc Bonds due September 30, 2085 (SF 250 million) 171 200 206 Sundry 147 217 444 -------------------------------------------- 2,533 2,693 2,942 Indebtedness payable within one year (39) (131) (53) -------------------------------------------- $ 2,494 $ 2,562 $ 2,889 - ---------------------------------------------------------------------------------------------------------- * All principal and interest payments for these 9% Debentures were converted at issuance through a series of currency exchange contracts from Canadian dollars to U.S. dollars with an effective interest rate of 7.7%.
The Company's unused lines of credit totaled $3.8 billion and have varying terms of up to five years. At June 30, 1997, short-term borrowings comprised $216 million of bank borrowings bearing interest at market rates. 61 22 Interest expense on long-term indebtedness was $218 million in the fiscal year ended June 30, 1997, $96 million in the transition period ended June 30, 1996, and $236 million and $246 million in the fiscal years ended January 31, 1996 and 1995, respectively. Annual repayments and redemptions of long-term indebtedness for the five fiscal years subsequent to June 30, 1997 are: 1998 - $39 million; 1999 - $289 million; 2000 - $30 million; 2001 - $1 million; and 2002 - $0. Joseph E. Seagram & Sons, Inc. ("JES"), the Company's U.S. spirits and wine subsidiary, has outstanding $10 million of Liquid Yield Option Notes (LYONs), which 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 holder's option, into 18.44 of the Company's common shares (353,146 shares at June 30, 1997). The Company has guaranteed the LYONs on a subordinated basis. In addition, the Company has unconditionally guaranteed JES's 8 3/8 percent Debentures due February 15, 2007, 7 percent Debentures due April 15, 2008, 8 7/8 percent Debentures due September 15, 2011, 9.65 percent Debentures due August 15, 2018 and 9 percent Debentures due August 15, 2021. Summarized below is the JES financial information:
Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, Millions 1997 1996 1996 1995 - ------------------------------------------------------------------------------------------------ Revenues $ 3,754 $ 1,362 $ 4,031 $ 4,566 Cost of revenues 2,790 1,062 2,976 3,125 Income before discontinued DuPont activities and cumulative effect of accounting change 87 57 43 60 Discontinued DuPont activities, after tax -- -- 3,232 617 Cumulative effect of accounting change -- -- -- (56) ------------------------------------------------- Net income $ 87 $ 57 $ 3,275 $ 621 - ------------------------------------------------------------------------------------------------
June 30, June 30, January 31, 1997 1996 1996 - ---------------------------------------------------------------------------------- Current assets $ 957 $ 1,348 $ 1,412 Noncurrent assets 12,666 11,702 11,442 ----------------------------------- $13,623 $13,050 $12,854 =================================== Current liabilities $ 671 $ 1,028 $ 720 Noncurrent liabilities 3,809 3,175 3,357 Shareholders' equity 9,143 8,847 8,777 ----------------------------------- $13,623 $13,050 $12,854 - ----------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS AND EQUITY SECURITIES-NOTE 8 The Company selectively uses foreign currency forward and option contracts to offset the effects of exchange rate changes on cash flow exposures denominated in foreign currencies. These exposures include intercompany trade accounts, service fees, intercompany loans and third-party debt. The Company does not use derivative financial instruments for trading or speculative purposes. The notional amount of forward exchange contracts and options is the amount of foreign currency bought or sold at maturity and is not a measure of the Company's exposure through its use of derivatives. At June 30, 1997, 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 totalling $781 million ($304 million at June 30, 1996). The notional amounts of these contracts, which mature at various dates through December 1998, are summarized below: June 30, 1997 June 30, 1996 Millions Buy Sell Buy Sell - -------------------------------------------------------------------------------- Canadian dollar $164 $ -- $177 $ -- British pound -- 126 -- 14 U.S. dollar -- 244 42 3 New Zealand dollar 25 -- 20 -- French franc -- 131 -- 6 Japanese yen -- 38 -- -- Italian lira -- 22 -- 20 German mark -- 9 -- 8 Other currencies -- 22 -- 14 ------------------------------------- $189 $592 $239 $ 65 - -------------------------------------------------------------------------------- 62 23 The Company minimizes its credit exposure to counterparties 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. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments. Cash and short-term investments: The carrying amount reported in the balance sheet for cash and short-term investments approximates their fair value. Foreign currency exchange contracts: The fair value of forward exchange contracts is based on quoted market prices from banks. Short- and long-term debt: The carrying amounts of commercial paper and short-term bank loans approximate their fair value. The fair value of the Company's long-term debt is estimated based on the quoted market prices for similar issues. June 30, 1997 June 30, 1996 Carrying Fair Carrying Fair Millions Amount Value Amount Value - ------------------------------------------------------------------------------- Cash and short-term investments $ 504 $ 504 $ 279 $ 279 Foreign currency exchange contracts (10) (13) (15) (15) Short-term debt 255 255 1,850 1,850 Long-term debt 2,494 2,695 2,562 2,741 - ------------------------------------------------------------------------------- EQUITY SECURITIES The following is a summary of available-for-sale securities comprised of the common stock of DuPont and Time Warner and DuPont warrants: June 30, June 30, January 31, Millions 1997 1996 1996 - -------------------------------------------------------------------------------- Cost $ 1,124 $ 2,357 $ 2,357 Gross Unrealized Gain 1,201 522 630 Fair Value 2,325 2,879 2,987 - -------------------------------------------------------------------------------- COMMON SHARES, EARNINGS PER SHARE AND STOCK OPTIONS-NOTE 9 The Company is authorized to issue an unlimited number of common and preferred shares without nominal or par value. At June 30, 1997, 33,314,272 common shares were potentially issuable upon the conversion of the LYONs and the exercise of employee stock options. The dilutive effect on earnings per share from the assumed issuance of these shares would be less than three percent. Net income per share was based on the following weighted average number of shares outstanding during the fiscal period ended June 30, 1997 - 369,682,224; June 30, 1996 - 373,857,915; January 31, 1996 - 373,116,794 and 1995 - 372,499,060. In the fiscal year ended January 31, 1996, the Company granted 66,500 restricted shares with a weighted average grant-date fair value of $35.69 per share. These shares have voting and dividend rights; however, sale of the shares is restricted prior to vesting. Restrictions on 33,250 of the restricted shares lapsed on October 1, 1996; the balance will lapse on October 1, 1997. The Company plans to implement FAS 128, Earnings per Share, effective with the second quarter of the fiscal year ending June 30, 1998. Had FAS 128 been implemented as of July 1, 1996, the Company would have reported Basic earnings per share of $1.36 and Diluted earnings per share of $1.35 for the fiscal year ended June 30, 1997. 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 10 years after the grant date. 63 24 The Company has adopted FAS 123, Accounting for Stock-Based Compensation. In accordance with the provisions of FAS 123, the Company applies APB 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 consistent with the fair value methodology prescribed by FAS 123, the Company's net income and earnings per share would be reduced to the pro forma amounts indicated below: Fiscal Transition Fiscal Year Ended Period Ended Year Ended June 30, June 30, January 31, Millions, Except Per Share Amounts 1997 1996 1996 - ------------------------------------------------------------------------------- Net Income: As reported $ 502 $ 85 $ 3,406 Pro forma 469 73 3,383 Earnings per common share: As reported $ 1.36 $ .23 $ 9.13 Pro forma 1.27 .19 9.07 - ------------------------------------------------------------------------------- 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 year ended June 30, 1997, the transition period ended June 30, 1996 and the fiscal year ended January 31, 1996, respectively: dividend yields of 1.6, 1.8 and 1.9 percent; expected volatility of 24, 22 and 20 percent; risk-free interest rates of 6.7, 6.0 and 6.6 percent; and expected life of six years for all periods. The weighted average fair value of options granted during the fiscal year ended June 30, 1997, the transition period ended June 30, 1996 and the fiscal year ended January 31, 1996 for which the exercise price equals the market price on the grant date was $12.18, $9.70 and $9.23, respectively. The weighted average fair value of options granted during the transition period ended June 30, 1996 for which the exercise price exceeded the market price on the grant date was $6.91. 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 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 Description Outstanding Outstanding - -------------------------------------------------------------------------------- Balance, January 31, 1994 16,274,027 $24.40 Granted 3,677,695 30.56 Exercised (827,040) 23.42 Cancelled (219,880) 28.85 -------------------------- Balance, January 31, 1995 18,904,802 25.59 Granted 6,293,023 31.94 Exercised (2,055,830) 24.37 Cancelled (140,840) 29.96 -------------------------- Balance, January 31, 1996 23,001,155 27.45 Granted 6,757,978 35.41 Exercised (611,855) 25.97 Cancelled (61,040) 31.56 -------------------------- Balance, June 30, 1996 29,086,238 29.33 Granted 7,366,978 38.97 Exercised (3,242,766) 25.93 Cancelled (249,324) 33.02 -------------------------- Balance, June 30, 1997 32,961,126 31.79 - -------------------------------------------------------------------------------- 64 25 The following table summarizes information concerning currently outstanding and exercisable stock options: Weighted Average Weighted Weighted Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price - -------------------------------------------------------------------------------- $10-$20 2,319,117 2.2 yrs. $ 18.15 2,319,117 $ 18.15 $20-$30 9,370,980 5.1 27.03 8,480,980 26.97 $30-$40 20,486,029 8.6 34.91 8,197,735 31.59 $40-$50 785,000 8.8 47.37 150,000 47.70 ---------- ---------- 32,961,126 19,147,832 - -------------------------------------------------------------------------------- INCOME TAXES-NOTE 10 The following tables summarize the sources of pretax income and the resulting income tax expense.
GEOGRAPHIC COMPONENTS OF PRETAX INCOME Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, Millions 1997 1996 1996 1995 - --------------------------------------------------------------------------------------- U.S. $ 255 $ (133) $ 82 $ (24) Canada 70 (24) 17 15 Other jurisdictions 574 222 250 372 ----------------------------------------------- Income before minority interest and discontinued DuPont activities 899 65 349 363 Discontinued DuPont activities -- -- 5,283 637 ----------------------------------------------- Income before minority interest $ 899 $ 65 $ 5,632 $ 1,000 - ---------------------------------------------------------------------------------------
COMPONENTS OF INCOME TAX EXPENSE Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, Millions 1997 1996 1996 1995 - -------------------------------------------------------------------------------------------- Income tax expense (benefit) applicable to: Continuing operations $ 385 $ 52 $ 153 $ 104 1981 transaction* -- (67) -- 65 Discontinued DuPont activities -- -- 2,051 20 ------------------------------------------- Total income tax expense (benefit) $ 385 $ (15) $2,204 $ 189 - -------------------------------------------------------------------------------------------- * The 1981 transaction relates to a loss disallowed by the U.S. Tax Court on the exchange of common stock of Conoco Inc. for DuPont. In June, 1996, the Company and the IRS reached a settlement whereby a portion of the original loss was allowed.
- -------------------------------------------------------------------------------------------- Current Continuing operations Federal $ 224 $ (14) $ 26 $ (12) State and local 43 6 19 -- 1981 transaction -- (105) -- 188 Other jurisdictions 170 83 94 107 ------------------------------------------- 437 (30) 139 283 ------------------------------------------- Discontinued DuPont activities -- -- 612 20 ------------------------------------------- 437 (30) 751 303 ------------------------------------------- Deferred Continuing operations Federal (24) (8) 39 4 State and local (19) (2) (2) -- 1981 transaction -- 38 -- (123) Other jurisdictions (9) (13) (23) 5 ------------------------------------------- (52) 15 14 (114) ------------------------------------------- Discontinued DuPont activities -- -- 1,439 -- ------------------------------------------- (52) 15 1,453 (114) ------------------------------------------- Total income tax expense (benefit) $ 385 $ (15) $2,204 $ 189 - --------------------------------------------------------------------------------------------
65 26 COMPONENTS OF NET DEFERRED TAX LIABILITY June 30, June 30, January 31, Millions 1997 1996 1996 - ------------------------------------------------------------------------------- Basis and amortization differences $ 547 $ 471 $ 428 DuPont share redemption 1,540 1,540 1,489 Time Warner and DuPont investments 420 183 220 Unremitted foreign earnings 59 27 17 Other, net 20 86 80 ------------------------------ Deferred tax liabilities 2,586 2,307 2,234 ------------------------------ Deferred revenue (132) -- -- Employee benefits (117) (102) (101) Tax credit carryovers (49) (172) (150) Valuation, doubtful accounts and return reserves (262) (323) (269) Other, net (128) (99) (24) ------------------------------ Deferred tax assets (688) (696) (544) Valuation allowance 42 150 134 ------------------------------ (646) (546) (410) ------------------------------ Net deferred tax liability $ 1,940 $ 1,761 $ 1,824 - ------------------------------------------------------------------------------- The Company has U.S. tax credit carryovers of $49 million, $13 million of which has no expiration date and $36 million of which have expiration dates through 2009. The valuation allowance arises from uncertainty as to the realization of certain U.S. tax credit carryforwards. If realized, these benefits would be applied to reduce the Universal unallocated excess purchase price. EFFECTIVE INCOME TAX RATE - CONTINUING OPERATIONS Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, 1997 1996 1996 1995 - ------------------------------------------------------------------------------- U.S. statutory rate 35% 35% 35% 35% 1981 transaction -- (103) -- 18 State and local 2 4 3 -- Dividends received deduction (1) (7) (3) (3) Goodwill amortization 7 45 11 4 Other -- 3 (2) (7) --------------------------------- Effective income tax rate -- continuing operations 43% (23%) 44% 47% - ------------------------------------------------------------------------------- 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. BENEFIT PLANS-NOTE 11 PENSION Pension costs were $48 million for the fiscal year ended June 30, 1997, $27 million for the transition period ended June 30, 1996 and $45 million and $24 million for the fiscal years ended January 31, 1996 and 1995, respectively. The Company has defined benefit pension plans which cover certain U.S. employees. The net cost of the Company's U.S. pension plans was based on an expected long-term return on plan assets of 10.75 percent for the fiscal year ended June 30, 1997, 10 percent for the transition period ended June 30, 1996 and 10.75 percent for each of the fiscal years ended January 31, 1996 and 1995. A discount rate of 7.75 percent was used in determining the actuarial present value of the projected benefit obligation at June 30, 1997 and 1996; a discount rate of 7.0 percent was used at January 31, 1996. The assumed rates of increase in future compensation levels were five to six percent for the fiscal year ended June 30, 1997 and the transition period ended June 30, 1996, 4.5 to 5.5 percent for the fiscal year ended January 31, 1996, and six to seven percent for the fiscal year ended January 31, 1995. Plans outside the U.S. used assumptions in determining the actuarial present value of projected benefit obligations that reflect the economic environments within the various countries, and therefore are consistent with (but not identical to) those of the U.S. plans. 66 27 The majority of the pension arrangements for the Company's employees of affiliates outside the U.S., the United Kingdom and Canada are either insured or government sponsored. In those affiliates outside of the U.S. where defined benefit plans exist (United Kingdom, Canada and France), the net periodic pension cost was $6 million for the fiscal year ended June 30, 1997, $3 million for the transition period ended June 30, 1996 and $6 million for each of the fiscal years ended January 31, 1996 and 1995. At June 30, 1997, the present value of these plans' projected benefit obligation was $309 million, $283 million of which was for vested benefits; the fair value of plan assets was $361 million. NET COST OF U.S. DEFINED BENEFIT PENSION PLANS
Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, Millions 1997 1996 1996 1995 - ----------------------------------------------------------------------------------------- Service cost-- benefits earned during the period $ 20 $ 8 $ 17 $ 18 Interest cost on Projected Benefit Obligation 54 22 52 47 Return on plan assets Actual (gain) loss (174) (55) (204) 11 Deferred actuarial gain (loss) 94 26 147 (75) Net amortization 2 2 4 4 -------------------------------------- Net pension (income) cost $ (4) $ 3 $ 16 $ 5 - -----------------------------------------------------------------------------------------
STATUS OF U.S. DEFINED BENEFIT PENSION PLANS
June 30, 1997 June 30, 1996 January 31, 1996 Assets Exceed Accumulated Assets Exceed Accumulated Assets Exceed Accumulated Accumulated Benefits Accumulated Benefits Accumulated Benefits Millions Benefits Exceed Assets Benefits Exceed Assets Benefits Exceed Assets - ----------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of Vested Benefit Obligation $(517) $ (82) $(501) $ (78) $(532) $ (82) ---------------------------------------------------------------------------------------- Accumulated Benefit Obligation $(543) $ (85) $(525) $ (81) $(559) $ (84) ---------------------------------------------------------------------------------------- Projected Benefit Obligation $(625) $(110) $(609) $(105) $(648) $(110) Plan assets at fair value, principally equity securities 892 -- 757 -- 715 -- ---------------------------------------------------------------------------------------- Plan assets in excess of (less than) Projected Benefit Obligation 267 (110) 148 (105) 67 (110) Deferred net actuarial (gain) loss (195) 35 (95) 38 (20) 46 Unamortized prior service cost 7 5 7 6 6 6 Unamortized transition obligation -- 2 -- 3 -- 3 Recognition of minimum liability -- (17) -- (23) -- (30) ---------------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 79 $ (85) $ 60 $ (81) $ 53 $ (85) - -----------------------------------------------------------------------------------------------------------------------------------
The Company has defined contribution plans covering certain U.S. employees. Contributions made to these plans are included in consolidated pension costs. POSTRETIREMENT The Company provides retiree health care and life insurance benefits covering certain retirees. Certain U.S. salaried and certain hourly employees are eligible for benefits upon retirement and completion of a specified number of years of service. The components of net periodic postretirement benefit cost are as follows:
Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, Millions 1997 1996 1996 1995 - --------------------------------------------------------------------------------------------------- Service cost-- benefits earned during the period $ 4 $ 2 $ 3 $ 3 Interest cost on accumulated postretirement benefit obligation 14 6 14 11 Amortization of prior service cost (4) (2) (4) (4) ------------------------------------------------ Net postretirement benefit cost $ 14 $ 6 $ 13 $ 10 - ---------------------------------------------------------------------------------------------------
67 28 The accumulated postretirement benefit obligation, included in other credits in the accompanying balance sheet, comprises the following: June 30, June 30, January 31, Millions 1997 1996 1996 - ------------------------------------------------------------------------------- Retirees $ 113 $ 125 $ 132 Fully eligible active plan participants 28 25 27 Other active plan participants 48 46 50 Unrecognized: Actuarial gain (loss) 15 3 (11) Prior service cost 33 37 39 ------------------------------ Accrued postretirement benefit obligation $ 237 $ 236 $ 237 - ------------------------------------------------------------------------------- Future benefit costs were estimated assuming medical costs would increase at an 8.8 percent annual rate, decreasing to a 5.5 percent annual growth rate ratably over the next five years, and then remaining at a 5.5 percent growth rate thereafter. A one-percentage-point increase in this annual trend rate would have increased the postretirement benefit obligation at June 30, 1997 by $11 million ($7 million after tax), with an increase in pretax expense of $1 million for the fiscal year ended June 30, 1997. The weighted average discount rate used to estimate the accumulated postretirement benefit obligation was 7.75 percent at June 30, 1997 and 1996 and 7.0 percent at January 31, 1996. POSTEMPLOYMENT The Company adopted Financial Accounting Standard No. 112, Employers' Accounting for Postemployment Benefits (FAS 112), in the first quarter of the fiscal year ended January 31, 1995, resulting in a $75 million charge, net of $40 million of deferred tax benefit. FAS 112 requires that the expected cost of postemployment benefits be recognized when they are earned rather than when they are paid. The postemployment obligation was increased to reflect the reengineering activities described in Note 14. 68 29 BUSINESS SEGMENT AND GEOGRAPHIC DATA-NOTE 12 BUSINESS SEGMENT DATA
Millions Beverages Entertainment Corporate(1) Total - -------------------------------------------------------------------------------------- June 30, 1997 Revenues $ 6,967 $ 5,593 $ -- $ 12,560 Depreciation and amortization of assets 164 185 4 353 Amortization of goodwill 51 143 -- 194 Operating income (expense) 823 242 (132) 933 Identifiable assets 7,429 10,670 2,837 20,936 Capital expenditures 301 206 -- 507 June 30, 1996 (Transition period) Revenues $ 2,653 $ 2,360 $ -- $ 5,013 Depreciation and amortization of assets 70 86 2 158 Amortization of goodwill 22 62 -- 84 Operating income (expense) 225 1 (47) 179 Identifiable assets 7,665 10,269 3,694 21,628 Capital expenditures 168 136 1 305 January 31, 1996 Revenues $ 6,694 $ 3,053 $ -- $ 9,747 Depreciation and amortization of assets 154 97 4 255 Amortization of goodwill 51 62 -- 113 Operating income (expense) 456(2) 205 (77) 584 Identifiable assets 7,603 9,997 3,755 21,355 Capital expenditures 257 175 1 433 January 31, 1995 Revenues $ 6,399 $ -- $ 6,399 Depreciation and amortization of assets 134 4 138 Amortization of goodwill 46 -- 46 Operating income (expense) 781 (56) 725 Identifiable assets 7,028 5,964 12,992 Capital expenditures 156 16 172 - --------------------------------------------------------------------------------------
(1) Includes (i) corporate expenses and assets not identifiable with either business segment, and (ii) DuPont and Time Warner holdings, which represented 82%, 90%, 91%, and 96% of corporate assets at June 30, 1997 and 1996 and January 31, 1996 and 1995, respectively. (2) Includes a $290 million charge related to reengineering activities. The Financial Accounting Standards Board recently issued FAS 131, Disclosures about Segments of an Enterprise and Related Information, which is effective for the Company's fiscal year beginning July 1, 1998. The Company is still evaluating the impact of adopting this pronouncement. 69 30 GEOGRAPHIC DATA Revenues(1) Unrelated Inter- Operating Total Millions Parties company Income Assets(2) - ----------------------------------------------------------------------------- June 30, 1997 U.S. $ 7,057 $ 172 $ 132 $ 13,150 Europe 3,679 390 544 4,168 Asia Pacific 960 -- 46 559 Latin America 480 27 37 355 Canada 384 235 174 379 ---------------------------------------- $ 12,560 $ 824 $ 933 $ 18,611 ======================================== June 30, 1996 (Transition period) U.S. $ 2,735 $ 73 $ (105) $ 12,773 Europe 1,588 176 239 4,402 Asia Pacific 395 -- (8) 429 Latin America 147 13 22 288 Canada 148 61 31 417 ---------------------------------------- $ 5,013 $ 323 $ 179 $ 18,309 ======================================== January 31, 1996 U.S. $ 5,185 $ 167 $ 131 $ 12,171 Europe 3,026 464 276 4,585 Asia Pacific 860 -- 30 463 Latin America 415 29 14 324 Canada 261 212 133 385 ---------------------------------------- $ 9,747 $ 872 $ 584 $ 17,928 ======================================== January 31, 1995 U.S. $ 2,818 $ 112 $ 160 $ 2,510 Europe 2,254 400 365 3,749 Asia Pacific 750 -- 15 395 Latin America 440 30 43 388 Canada 137 207 142 237 ---------------------------------------- $ 6,399 $ 749 $ 725 $ 7,279 - ----------------------------------------------------------------------------- (1) Revenues are classified based upon the location of the legal entity which invoices the customer rather than the location of the customer. Revenues among geographic areas include intercompany transactions on a current market price basis. (2) Excludes DuPont and Time Warner holdings. FISCAL YEAR CHANGE-NOTE 13 Effective June 30, 1996, the Company changed its fiscal year-end from January 31 to June 30. Accordingly, the consolidated financial statements include the results of operations for the transition period, which are not necessarily indicative of operations for a full year. Results for the comparable prior year period are summarized below. Five Months Ended Millions, Except Per Share Amounts (Unaudited) June 30, 1995 - -------------------------------------------------------------------------------- Revenues $2,715 Operating income 256 Provision for income taxes 63 Income before discontinued DuPont activities 117 Discontinued DuPont activities, after tax 3,232 Net income 3,349 EARNINGS PER SHARE Income before discontinued DuPont activities $ .32 Discontinued DuPont activities, after tax 8.67 Net income 8.99 - -------------------------------------------------------------------------------- 70 31 REENGINEERING ACTIVITIES-NOTE 14 In connection with a program to better position its beverage operations to achieve their strategic growth objectives, the Company recorded a pretax charge of $290 million in the fiscal year ended January 31, 1996. The charge related principally to the Company's global spirits and wine manufacturing, financial, marketing and distribution systems and includes rationalization of facilities in the U.S. and Europe and other costs related to the redesign of processes associated with the fulfillment of customer orders and the organizational structure under which the spirits and wine business operates. The components of the $290 million charge reflected approximately a $100 million provision for severance costs, $120 million for asset write-downs/impairments and $70 million for facility rationalization, including lease terminations, and other reengineering programs. ADDITIONAL FINANCIAL INFORMATION-NOTE 15 INCOME STATEMENT AND CASH FLOW DATA
Fiscal Transition Year Ended Period Ended Fiscal Years June 30, June 30, Ended January 31, Millions 1997 1996 1996 1995 - --------------------------------------------------------------------------------------- INTEREST, NET AND OTHER Interest expense $ 326 $ 151 $ 378 $ 408 Interest income (34) (13) (102) (10) Dividend income (40) (19) (38) (34) Capitalized interest (4) (5) (3) (2) Gain on sale of Time Warner shares (154) Gain on sale of DuPont warrants (60) ------------------------------------------ $ 34 $ 114 $ 235 $ 362 ========================================== EXCISE TAXES (included in revenues and cost of revenues) $ 808 $ 296 $ 812 $ 836 CASH FLOW DATA Interest paid, net $ 293 $ 113 $ 262 $ 361 Income taxes paid (refunded) $ 138 $ (37) $ 1,083 $ 101 - ---------------------------------------------------------------------------------------
71 32 BALANCE SHEET DATA June 30, June 30, January 31, Millions 1997 1996 1996 - ------------------------------------------------------------------------------- RECEIVABLES Trade $ 1,899 $ 1,860 $ 2,370 Other 430 267 189 -------------------------------- 2,329 2,127 2,559 Allowance for doubtful accounts and other valuation accounts (314) (357) (283) -------------------------------- $ 2,015 $ 1,770 $ 2,276 ================================ INVENTORIES Beverages $ 2,704 $ 2,789 $ 2,600 Materials, supplies and other 270 353 314 -------------------------------- $ 2,974 $ 3,142 $ 2,914 ================================ LIFO INVENTORIES Estimated replacement cost $ 631 $ 680 $ 473 Excess of replacement cost over LIFO carrying value (169) (175) (180) -------------------------------- $ 462 $ 505 $ 293 ================================ FILM COSTS, NET OF AMORTIZATION THEATRICAL FILM COSTS Released $ 468 $ 490 $ 588 In process and unreleased 501 386 295 -------------------------------- 969 876 883 -------------------------------- TELEVISION FILM COSTS Released 368 368 391 In process and unreleased 41 10 26 -------------------------------- 409 378 417 -------------------------------- $ 1,378 $ 1,254 $ 1,300 - ------------------------------------------------------------------------------- Unamortized costs related to released theatrical and television films aggregated $836 million at June 30, 1997. 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 81 percent of the unamortized released film costs will be amortized under the individual film forecast method during the three years ending June 30, 2000. June 30, June 30, January 31, Millions 1997 1996 1996 - ------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT Land $ 543 $ 544 $ 528 Buildings and improvements 1,577 1,367 1,297 Machinery and equipment 1,634 1,531 1,456 Furniture and fixtures 338 348 355 Construction in progress 343 294 226 -------------------------------- 4,435 4,084 3,862 Accumulated depreciation (1,310) (1,133) (1,056) -------------------------------- $ 3,125 $ 2,951 $ 2,806 ================================ PAYABLES AND ACCRUED LIABILITIES Trade $ 457 $ 576 $ 596 Other 1,626 1,510 1,568 -------------------------------- $ 2,083 $ 2,086 $ 2,164 - ------------------------------------------------------------------------------- 72 33 COMMITMENTS AND CONTINGENCIES NOTE-16 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 has entered into an arrangement to sell to a third party substantially all films produced or acquired during the term of the agreement for amounts which approximate cost. The Company will serve as sole distributor and earn a distribution fee, which is variable and contingent upon the films' performance. In addition, the Company has the option to purchase the films at certain future dates. 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. DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES-NOTE 17 Differences between U.S. and Canadian GAAP for these financial statements are: (i) The common stock in DuPont and Time Warner would be carried at cost under Canadian GAAP, thereby reducing shareholders' equity by $781 million or eight percent at June 30, 1997. There is no effect on net income. (ii) The gain on the sale of the Time Warner shares would be computed according to the average cost method under Canadian GAAP. The after-tax gain would be increased by $58 million under this method. (iii) The deferred tax liability at June 30, 1997 under Canadian GAAP, rather than under FAS 109, would be approximately $30 million lower and shareholders' equity $30 million higher. (A draft accounting standard has been issued in Canada which, if adopted, will eliminate this difference.) (iv) Proportionate consolidation of joint ventures under Canadian GAAP would increase assets and liabilities by approximately $1.02 billion and increase working capital by approximately $110 million at June 30, 1997. There is no effect on net income. (v) The cumulative effect of the accounting change in the fiscal year ended January 31, 1995 would be excluded from net income and taken directly to retained earnings under Canadian GAAP. (vi) Other differences between U.S. and Canadian GAAP are immaterial. 73 34 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, Price Waterhouse 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/ Robert W. Matschullat EDGAR BRONFMAN, JR. ROBERT W. MATSCHULLAT PRESIDENT AND VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER August 13, 1997 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, 1997 and 1996 and January 31, 1996 and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal year ended June 30, 1997, the transition period ended June 30, 1996 and for each of the two fiscal years in the period ended January 31, 1996. 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 generally accepted auditing standards in the U.S. 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 audited by us present fairly, in all material respects, the financial position of the Company and its subsidiaries as of June 30, 1997 and 1996 and January 31, 1996 and the results of their operations and their cash flows for the fiscal year ended June 30, 1997, the transition period ended June 30, 1996 and for each of the two fiscal years in the period ended January 31, 1996, in accordance with generally accepted accounting principles in the U.S. which, in their application to the Company, conform in all material respects with generally accepted accounting principles in Canada. The Company changed its accounting for postemployment benefits other than pensions, under generally accepted accounting principles in the U.S., during the fiscal year ended January 31, 1995, as described in Note 11. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP New York, New York August 13, 1997 74 35 QUARTERLY DATA
Fiscal Year Ended U.S. Dollars in Millions, First Second Third Fourth June 30, Except Per Share Amounts (Unaudited) Quarter Quarter Quarter Quarter 1997 - ------------------------------------------------------------------------------------------------- Revenues $ 2,944 $ 3,749 $ 2,847 $ 3,020 $12,560 Operating income 285 401 126 121 933 Net income $ 166(1) $ 161 $ 27 $ 148(2) $ 502 Net income per share $ .45 $ .43 $ .07 $ .40 $ 1.36(3) - ------------------------------------------------------------------------------------------------- Two Months Transition Period First Ended June 30, Ended June 30, Quarter 1996 1996 - ------------------------------------------------------------------------------------------------- Revenues $ 2,520 $ 2,493 $ 5,013 Operating income 140 39 179 Net income $ 23 $ 62(4) $ 85 Net income per share $ .06 $ .17 $ .23 - ------------------------------------------------------------------------------------------------- Fiscal Year Ended First Second Third Fourth June 30, Quarter Quarter Quarter(5) Quarter 1996 - ------------------------------------------------------------------------------------------------- Revenues $ 1,282 $ 1,883 $ 2,917 $ 3,665 $ 9,747 Operating income 150 179 21 234 584 Income (Loss) before discontinued DuPont activities 59 89 (55) 81 174 Discontinued DuPont activities 3,232 -- -- -- 3,232 ---------------------------------------------------------- Net Income (Loss) $ 3,291 $ 89 $ (55) $ 81 $ 3,406 ========================================================== Earnings Per Share Income before discontinued DuPont activities $ .16 $ .24 $ (.15) $ .21 $ .46 Discontinued DuPont activities 8.67 -- -- -- 8.67 ---------------------------------------------------------- Net Income (Loss) $ 8.83 $ .24 $ (.15) $ .21 $ 9.13 - -------------------------------------------------------------------------------------------------
(1) Includes a $39 million after-tax gain on the sale of DuPont warrants. (2) Includes a $100 million after-tax gain on the sale of Time Warner shares. (3) Each quarter is calculated as a discrete period and the sum of the four quarters does not equal the full year amount. (4) Includes a $67 million tax benefit relating to a settlement with the U.S. government regarding the recognition of a capital loss on the Company's 1981 exchange of shares of Conoco Inc. for common stock of DuPont. (5) Includes a $290 million pretax charge for reengineering activities. 75 36 FINANCIAL SUMMARY
Fiscal Transition Year Ended Period Ended June 30, June 30, Fiscal Years Ended January 31, U.S. Dollars in Millions, Except Per Share Amounts 1997 1996 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT Revenues $ 12,560 $ 5,013 $ 9,747 $ 6,399 $ 6,038 $ 6,101 Gain on divestitures, net -- -- -- -- -- -- Operating income 933 179 584 725 754 762 Interest, net and other 34 114 235 362 319 312 Income before discontinued DuPont activities and cumulative effect of accounting change 502 85 174 194 283 293 Discontinued DuPont activities, after tax -- -- 3,232 617 96 181 --------------------------------------------------------------------- Income Before Cumulative Effect of Accounting Change 502 85 3,406 811 379 474 Cumulative effect of accounting change, after tax -- -- -- (75) -- (1,374) --------------------------------------------------------------------- Net Income (Loss) $ 502 $ 85 $ 3,406 $ 736 $ 379 $ (900) --------------------------------------------------------------------- FINANCIAL POSITION Current assets $ 6,954 $ 6,886 $ 6,640 $ 4,265 $ 3,794 $ 3,836 Common stock of DuPont 1,034 651 631 3,670 3,154 3,315 Common stock of Time Warner 1,291 2,228 2,356 2,043 1,769 -- Other noncurrent assets 11,657 11,863 11,728 3,014 3,001 2,953 Total assets 20,936 21,628 21,355 12,992 11,718 10,104 Current liabilities 3,517 4,687 3,854 4,091 2,996 2,003 Long-term indebtedness 2,494 2,562 2,889 2,841 3,053 2,559 Total liabilities 9,663 10,584 10,183 7,472 6,717 5,174 Minority interest 1,851 1,839 1,844 11 -- -- Shareholders' equity 9,422 9,205 9,328 5,509 5,001 4,930 Total liabilities and shareholders' equity 20,936 21,628 21,355 12,992 11,718 10,104 CASH FLOW DATA Cash flow from continuing operations 2,146 903 1,025 519 470 310 Capital expenditures (507) (305) (433) (172) (163) (168) Other investing activities, net 749 (1,024) 1,308 (465) (1,567) 184 Dividends paid (239) (112) (224) (216) (209) (205) PER SHARE DATA Continuing operations $ 1.36 $ .23 $ .46 $ .52 $ .76 $ .78 Discontinued DuPont activities -- -- 8.67 1.66 .26 .48 --------------------------------------------------------------------- Income Before Cumulative Effect of Accounting Change 1.36 .23 9.13 2.18 1.02 1.26 Cumulative effect of accounting change, after tax -- -- -- (.20) -- (3.64) --------------------------------------------------------------------- Net Income (Loss) $ 1.36 $ .23 $ 9.13 $ 1.98 $ 1.02 $ (2.38) --------------------------------------------------------------------- Dividends paid $ .645 $ .30 $ .60 $ .58 $ .56 $ .545 Shareholders' equity 25.79 24.67 24.91 14.79 13.43 13.19 End-of-year share price New York Stock Exchange 40.25 33.63 36.38 28.75 30.75 25.13 Canadian Stock Exchanges C$ 55.50 C$ 45.75 C$ 49.75 C$ 40.50 C$ 40.63 C$ 32.00 Average shares outstanding (thousands) 369,682 373,858 373,117 372,499 373,051 375,871 Shares outstanding at year-end (thousands) 365,281 373,059 374,462 372,537 372,489 373,690 - ---------------------------------------------------------------------------------------------------------------------------
76
Fiscal Years Ended January 31, U.S. Dollars in Millions, Except Per Share Amounts 1992 1991 1990 1989 1988 - ---------------------------------------------------------------------------------------------------------- INCOME STATEMENT Revenues $ 6,345 $ 6,127 $ 5,582 $ 5,056 $ 3,815 Gain on divestitures, net 201 -- -- -- -- Operating income 961 708 574 425 286 Interest, net and other 320 325 289 229 71 Income before discontinued DuPont activities and cumulative effect of accounting change 430 241 171 125 151 Discontinued DuPont activities, after tax 297 515 540 464 370 ----------------------------------------------------- Income Before Cumulative Effect of Accounting Change 727 756 711 589 521 Cumulative effect of accounting change, after tax -- -- -- -- -- ----------------------------------------------------- Net Income (Loss) $ 727 $ 756 $ 711 $ 589 $ 521 ----------------------------------------------------- FINANCIAL POSITION Current assets $ 4,327 $ 3,970 $ 3,289 $ 3,182 $ 2,950 Common stock of DuPont 4,566 4,504 4,216 3,879 3,587 Common stock of Time Warner -- -- -- -- -- Other noncurrent assets 2,983 3,003 2,708 2,636 1,006 Total assets 11,876 11,477 10,213 9,697 7,543 Current liabilities 1,896 3,130 2,491 1,994 1,394 Long-term indebtedness 3,013 2,038 2,011 2,330 1,058 Total liabilities 5,393 5,525 4,856 4,723 3,086 Minority interest -- -- -- -- -- Shareholders' equity 6,483 5,952 5,357 4,974 4,457 Total liabilities and shareholders' equity 11,876 11,477 10,213 9,697 7,543 CASH FLOW DATA Cash flow from continuing operations 543 (28) 71 101 (59) Capital expenditures (215) (309) (206) (142) (89) Other investing activities, net 190 168 238 (1,768) 196 Dividends paid (189) (174) (135) (113) (100) PER SHARE DATA Continuing operations $ 1.14 $ .64 $ .44 $ .33 $ .39 Discontinued DuPont activities .78 1.37 1.40 1.20 .97 ----------------------------------------------------- Income Before Cumulative Effect of Accounting Change 1.92 2.01 1.84 1.53 1.36 Cumulative effect of accounting change, after tax -- -- -- -- -- ----------------------------------------------------- Net Income (Loss) $ 1.92 $ 2.01 $ 1.84 $ 1.53 $ 1.36 ----------------------------------------------------- Dividends paid $ .50 $ .463 $ .35 $ .294 $ .263 Shareholders' equity 17.08 15.87 14.03 12.66 11.76 End-of-year share price New York Stock Exchange 29.94 22.25 18.72 17.78 13.78 Canadian Stock Exchanges C$ 35.06 C$ 25.81 C$ 22.22 C$ 21.13 C$ 17.50 Average shares outstanding (thousands) 378,839 376,664 385,524 385,460 381,912 Shares outstanding at year-end (thousands) 379,480 374,972 381,820 392,856 379,144 - ----------------------------------------------------------------------------------------------------------
77 EX-21 8 SUBSIDIARIES 1 Exhibit Number 21 Per Item 601 of Regulation S-K THE SEAGRAM COMPANY LTD. ANNUAL REPORT ON FORM 10-K SUBSIDIARIES LIST AS OF AUGUST 31, 1997 The following is a list of subsidiaries of the Corporation as of August 31, 1997, prepared in accordance with Item 601 of Regulation S-K.
Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ----- THE SEAGRAM COMPANY LTD. Canada -- - ------------------------ J.E. Seagram Corp. Delaware 100% Seagram Enterprises, Inc. Delaware 100% Seagram Inc. Delaware 100% Tropicana Products, Inc. Delaware 100% Tropicana Progress Services, Inc. Florida 100% B&H Project, Inc. Florida 100% TPI Urban Renewal Corp. New Jersey 100% Juice Bowl, Inc. Florida 100% Duo Juice Company Delaware 100% Joseph E. Seagram & Sons, Inc. Indiana 100% Distillers Products Sales Corporation Massachusetts 100% Seagold Leasing Inc. Delaware 100% Seagram Capital Investments, Inc. Delaware 100% JES Developments, Inc. Delaware 100% JES Developments Finance, Inc. Delaware 100% Barton & Guestier S.A. France 100% Kirin-Seagram Limited Japan 49.44% Doosan-Seagram Co., Ltd. South Korea 50% Seagram do Brasil Industria e Comercio Ltda. Brazil 100% Seagram Developments, Inc. Delaware 100% Universal Studios Holding I Corp. Delaware 80% Universal Studios Holding II Corp. Delaware 100% Universal Studios Holding III Corp. Delaware 100% Universal Studios, Inc. Delaware 100% MCA - Champion Music Corporation New York 100% Cinema International Corporation N.V. Netherlands 49% Cineplex Odeon Corporation Canada 41.5% MCA - Duchess Music Corporation California 100% Geffen Records, Inc. California 100% Geffen/Outpost Record Ventures, Inc. California 100%
2 THE SEAGRAM COMPANY LTD. SUBSIDIARIES LIST (continued)
Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ----- GRP Records, Inc. New York 100% Interplay Productions California 49% Universal Studios Holdings (UK) Limited United Kingdom 100% Universal Music International Limited United Kingdom 100% MCA Music Limited United Kingdom 100% Universal Studios Canada Ltd. Canada 100% MCA Caravelle Music France SARL France 100% Universal Concerts, Inc. California 100% Universal Concerts II, Inc. California 100% Universal/PACE Amphitheatres Group, L.P. (partnership) Delaware 67.5% Universal Studios Development Venture One California 100% Universal Studios Filmed Entertainment Canada Inc. Canada 100% Universal Studios Foreign Sales Corporation B.V. Netherlands 100% Universal Home Video, Inc. California 100% Universal Studios Home Video, Inc. California 100% Universal Studios International B.V. Netherlands 100% Cinema International B.V. (partnership) Netherlands 49% Universal Studios Finance B.V. Netherlands 100% Universal Studios TV Channel Poland B.V. Netherlands 95% United Cinemas International Multiplex B.V. (partnership) Netherlands 49.02% United International Pictures B.V. (partnership) Netherlands 33.3% MCA Japan, Ltd. Japan 100% MCA Music Australia Pty. Limited Australia 100% MCA Music G.m.b.H. Germany 100% Universal Music G.m.b.H. Germany 100% MCA Music Italy S.r.l. Italy 100% MCA Music KK Japan 100% MCA Records, Inc. California 100% Universal Music Asia Pacific Limited Hong Kong 100% Universal Music Limited Hong Kong 100% Universal Music Australia Limited Australia 100% Universal Music S.A. Argentina 100% Universal Music, S.A. de C.V. Mexico 100% MCA Record Ventures, Inc. Delaware 100% 510 Records (joint venture) California 50% MCA/Interscope Partner, Inc. California 100% Interscope Records (partnership) California 50% Universal Television Entertainment, Inc. California 100% Universal Television Enterprises, Inc. Delaware 100%
2 3 THE SEAGRAM COMPANY LTD. SUBSIDIARIES LIST (continued)
Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ---------- ----------- MCA/G-A Record Ventures, Inc. California 100% Gasoline Alley (joint venture) California 55% MCA/R Record Ventures, Inc. California 100% Radioactive Records (joint venture) California 60% Universal Studios Hotel, Inc. Delaware 100% Universal Rank Hotel Partners (general partnership) Florida 50% Universal Studios Consumer Products, Inc. California 100% Music Corporation of America, Inc. California 100% Sci-Fi Channel Europe, LLC (limited liability company) Delaware 50% Spencer Gifts, Inc. Delaware 100% Terra Properties, Inc. California 100% U-Talk Enterprises, Inc. Delaware 100% Universal Music & Video Distribution, Inc. New York 100% Universal Cartoon Studios, Inc. California 100% Universal City Property Management Company Delaware 100% Universal City Florida Partners (partnership) Florida 50% Universal City Property Management Company II Delaware 100% Universal City Development Partners (general partnership) Florida 50% Universal City Studios Productions, Inc. Delaware 100% Universal City Studios, Inc. Delaware 100% Forbrooke Enterprises, Inc. California 100% Imagine Films Entertainment, Inc. Delaware 100% OFI Holdings, Inc. Delaware 51% Universal Film Distribution, Inc. California 100% Universal Film Exchanges, Inc. Delaware 100% Universal Studios Pay Television, Inc. California 100% Universal Studios Pay Television Australia, Inc. California 100% Universal Studios TV1 Australia, Inc. California 100% Universal Television, Incorporated California 100% USA Networks (partnership) New York 50% Universal Studios Entertainment Japan Investment Company California 100% USJ Co., Ltd. Japan 21.47% Universal Family Entertainment, Inc. California 100% Universal Studios New Media, Inc. California 100% Universal Interactive Studios, Inc. California 100% Universal Studios Pay-Per-View, Inc. California 100%
3 4 THE SEAGRAM COMPANY LTD. SUBSIDIARIES LIST (continued)
Approximate Percentage Organize Directly or Under Indirectly Laws of Owned ----------- ---------- Universal Records, Inc. California 100% 3BG Holdings L.L.C. Delaware 50% Brillstein-Grey Entertainment (partnership) California 99% Brillstein-Grey Communications (partnership) California 50% Seagram Holdings Limited United Kingdom 100% Seagram Distillers PLC United Kingdom 100% Chivas Brothers Limited United Kingdom 100% The Glenlivet Distillers Limited United Kingdom 100% Seagram United Kingdom Limited United Kingdom 100% The House of Seagram Ltd. United Kingdom 100% Sandeman & Ca. S.A. Portugal 100% Sandeman - Coprimar S.A. Spain 100% Gulfstream Insurance (Ireland) Limited Ireland 100% Gulfstream Reinsurance (Ireland) Limited Ireland 100% Gulfstream Insurance (Barbados) Limited Barbados 100% Centenary Investments Inc. Canada 100% Centenary Holdings Ltd. Bermuda 100% Seagram C.I. (Taiwan) Co., Ltd. Hong Kong 90% Centenary S.a.r.L. Luxemborg 100% Seagram International B.V. Netherlands 100% Seagram Europa B.V. Netherlands 100% Bodegas y Vinedos Crillon S.A.I.C. Argentina 100% Seagram de Argentina, S.A.I.C. Argentina 100% Seagram European Business Services Limited United Kingdom 100% Seagram International Holdings Limited United Kingdom 100% Seagram European Customer Service Center Limited United Kingdom 100% The Seagram Finance Company Limited United Kingdom 100% G.H. Mumm & Cie France 99% Seagram France Distribution France 100% Champagne Perrier-Jouet S.A. France 99% Martell S.A. France 99% Martell & Co. France 99% Tropicana Looza France S.A. France 100% Seagram Holding-und Handelsgesellschaft mbh Germany 100% Seagram Deutschland GmbH Germany 100% Burgeff & Co. Sektkellereien GmbH Germany 100% Matheus Muller Sektkellereien GmbH Germany 100% Looza Distribution N.V. Belgium 100% Looza N.V. Belgium 100% Tropicana Products (Europe) GmbH Germany 100% Lupak S.A. Greece 100% Seagram India Private Limited India 100%
4 5 THE SEAGRAM COMPANY LTD. SUBSIDIARIES LIST (continued)
Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ----------- ---------- Seagram Manufacturing Private Limited India 100% Seagram Italia S.p.A. Italy 100% Seagram Netherlands Antilles N.V. Netherlands 100% Martell Far East Trading Limited Hong Kong 100% Tropicana Beverages Greater China Ltd. Hong Kong 100% Tropicana Beverages Hong Kong Ltd. Hong Kong 75% Myers Rum Company Limited Bahamas 100% Associated Liquor Distributors (S) Pte. Ltd. Singapore 100% Tianjin Seagram Limited PRC 70% Seagram Australia Holdings Pty. Limited Australia 100% Seagram Australia Pty. Limited Australia 100% Seagram Wine Estates Pty. Limited Australia 100% Vintners Imports Pty. Limited Australia 50% C.A. Seagram de Venezuela Venezuela 100% Licorerias Unidas, S.A. Venezuela 100% C.A. Circulo de Conocedores Seagram Venezuela 100% Seagram (China) Ltd. Canada 100% Tropicana China Investments Ltd. Hong Kong 51% Tropicana China Beihai Food Company Limited PRC 51% Shanghai Seagram Limited PRC 60% Tropicana Beverages (Canada) Ltd. Canada 100% Kirin-Tropicana, Inc. Japan 50% Tropicana UK Ltd. United Kingdom 100% J.D.C., S.A. de C.V. Mexico 75% Seagram (New Zealand) Limited New Zealand 100% Canadian Distillers Ltd. Canada 100% Seagram (Thailand) Ltd. Thailand 49%
5 EX-23.A 9 CONSENT OF PRICE WATERHOUSE 1 EXHIBIT 23(a) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of The Seagram Company Ltd. Registration Statements on Form S-3 (Numbers 2-99681, 33-42959, 33-42877, 33-67772, 333-4134 and 333-4136) and the Registration Statements on Form S-8 (Numbers 33- 27194, 33-2043, 33-49096, 33-60606, 33-99122 and 333-19059) of our report dated August 13, 1997 appearing on Page 74 of the Annual Report to the Shareholders of The Seagram Company Ltd. for the fiscal year ended June 30, 1997, which is incorporated by reference in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on Page 26 of this Form 10-K. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP New York, N.Y. September 26, 1997 EX-23.B 10 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23(b) CONSENT OF INDEPENDENT ACCOUNTANTS E.I. DU PONT DE NEMOURS AND COMPANY We hereby consent to the incorporation by reference in the Prospectuses constituting part of The Seagram Company Ltd. Registration Statements on Form S-3 (Numbers 2-99681, 33-42959, 33-42877, 33-67772, 333-4134 and 333-4136) and the Registration Statements of Form S-8 (Numbers 33- 27194, 33-2043, 33-49096, 33-60606, 33-99122 and 333-19059) of our report dated February 16, 1995, which appears on Page 38 of the 1994 Annual Report to Stockholders of E.I. du Pont de Nemours and Company, which is incorporated by reference in the E.I. du Pont de Nemours and Company Annual Report on Form 10-K for the year ended December 31, 1994. The Consolidated Financial Statements of E.I. du Pont de Nemours and Company, as listed under Item 14(a)1 of its Annual Report on Form 10-K for the year ended December 31, 1994, are incorporated by reference in The Seagram Company Ltd. Annual Report on Form 10-K for the fiscal year ended June 30, 1997. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Philadelphia, Pennsylvania September 26, 1997 EX-24 11 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that the undersigned, THE SEAGRAM COMPANY LTD., a Canadian corporation (the "Corporation"), and each of the undersigned directors and officers of the Corporation, hereby constitute and appoint EDGAR M. BRONFMAN, CHARLES R. BRONFMAN, EDGAR BRONFMAN, JR., ROBERT W. MATSCHULLAT, MICHAEL C.L. HALLOWS AND DANIEL R. PALADINO and each of them severally, his true and lawful attorneys and agents, with power to act with or without the others and with full power of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents and each of them may deem necessary or desirable to enable the Corporation to comply with the U.S. Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the U.S. Securities and Exchange Commission thereunder in connection with the Corporation's Annual Report on Form 10-K for the fiscal year ended June 30, 1997, (the Annual Report including specifically, but without limiting the generality of the foregoing, power and authority to sign the name of the Corporation and the name of the undersigned, individually and in his capacity as a director or officer of the Corporation, to the Annual Report as filed with the U.S. Securities and Exchange Commission, to any and all amendments thereto, and to any and all instruments or documents filed as part thereof or in connection therewith) and each of the undersigned hereby ratifies and confirms all that said attorneys and agents and each of them shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF each of the undersigned has subscribed these presents on the date set opposite his name.
SIGNATURE DATE - --------------------------------------------- ---------------------------------------------- /s/ EDGAR M. BRONFMAN August 13, 1997 - --------------------------------------------- THE SEAGRAM COMPANY LTD. Edgar M. Bronfman Chairman of the Board
2
SIGNATURE DATE - --------------------------------------------- ---------------------------------------------- /s/ EDGAR M. BRONFMAN August 13, 1997 - --------------------------------------------- Edgar M. Bronfman /s/ CHARLES R. BRONFMAN August 13, 1997 - --------------------------------------------- Charles R. Bronfman /s/ EDGAR BRONFMAN, JR. August 13, 1997 - --------------------------------------------- Edgar Bronfman, Jr. /s/ SAMUEL BRONFMAN II August 13, 1997 - --------------------------------------------- Samuel Bronfman II /s/ MATTHEW W. BARRETT August 13, 1997 - --------------------------------------------- Matthew W. Barrett /s/ FRANK J. BIONDI, JR. August 13, 1997 - --------------------------------------------- Frank J. Biondi, Jr. /s/ WILLIAM G. DAVIS August 13, 1997 - --------------------------------------------- William G. Davis /s/ PAUL DESMARAIS August 13, 1997 - --------------------------------------------- Paul Desmarais
3
SIGNATURE DATE - --------------------------------------------- ---------------------------------------------- /s/ MICHELE J. HOOPER August 13, 1997 - --------------------------------------------- Michele J. Hooper /s/ DAVID L. JOHNSTON August 13, 1997 - --------------------------------------------- David L. Johnston /s/ E. LEO KOLBER August 13, 1997 - --------------------------------------------- E. Leo Kolber /s/ MARIE-JOSEE KRAVIS August 13, 1997 - --------------------------------------------- Marie-Josee Kravis /s/ R.W. MATSCHULLAT August 13, 1997 - --------------------------------------------- Robert W. Matschullat /s/ C. EDWARD MEDLAND August 13, 1997 - --------------------------------------------- C. Edward Medland /s/ LEW R. WASSERMAN August 13, 1997 - --------------------------------------------- Lew R. Wasserman /s/ JOHN S. WEINBERG August 13, 1997 - --------------------------------------------- John S. Weinberg
EX-27 12 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF THE SEAGRAM COMPANY LTD. FOR THE FISCAL YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 U.S. DOLLARS 12-MOS JUN-30-1996 JUL-01-1996 JUN-30-1997 1 504 0 2,015 0 2,974 6,954 4,435 (1,310) 20,936 3,517 2,494 0 0 809 8,613 20,936 0 12,560 7,683 7,683 3,944 0 34 899 385 502 0 0 0 502 1.36 1.35
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