-----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, CM1Mz6nuDqJVQdPL5rTQqJvCRd6oeZcm2C9MhyHqXaQH49KNitm+2Pt8RBJgXy5t NVtJ5D69S6OOaxzN0DNyWw== 0000950123-99-008884.txt : 19991227 0000950123-99-008884.hdr.sgml : 19991227 ACCESSION NUMBER: 0000950123-99-008884 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 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: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-02275 FILM NUMBER: 99718306 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 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1999 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 Vancouver Stock Exchange or par value Montreal Stock Exchange London Stock Exchange Toronto Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of common shares held by non-affiliates of the registrant as of August 31, 1999 (64.31% of the outstanding common shares) was approximately $14.8 billion. At August 31, 1999, there were 433,103,343 common shares outstanding. DOCUMENTS INCORPORATED BY REFERENCE Annual Report to Shareholders for the fiscal year ended June 30, 1999. Parts I, II Proxy Circular for the Annual Meeting of Shareholders to be held on November 3, 1999. Parts I, III
2 PART I Items 1 and 2. - Business and Properties Seagram was organized under Canadian federal law on March 2, 1928, and operates in four global business segments: music, filmed entertainment, recreation and other, and spirits and wine. The music business is conducted through Universal Music Group which is the largest recorded music company in the world. Universal Music Group produces, markets and distributes recorded music throughout the world in all major genres. Universal Music Group also manufactures, sells and distributes video product in the United States and internationally, and is engaged in the acquisition and licensing of music copyrights. The filmed entertainment business produces and distributes motion picture, television and home video products, operates and has ownership interests in a number of international cable channels and engages in the licensing of merchandising and film property rights. The recreation and other business operates theme parks and retail stores and is also involved in the development of entertainment software. Matsushita Electric Industrial Co., Ltd. has an approximate 8% ownership interest in the entities which own Universal Music Group, our filmed entertainment business and our recreation and other business. The spirits and wine business, directly and through affiliates and joint ventures, produces, markets and distributes distilled spirits, wines, Ports and Sherries, and coolers, beers and other low-alcohol adult beverages and mixers. In addition to marketing owned brands, the spirits and wine business also distributes distilled spirits, wine, Champagne and beer brands owned by others. For information as to revenues, operating income and identifiable assets by business segment, see Note 10 of Notes to Consolidated Financial Statements included in our Annual Report to Shareholders for the fiscal year ended June 30, 1999 (the "Annual Report"). We use the term "Seagram" to refer to The Seagram Company Ltd. and its subsidiaries and affiliates unless otherwise specified. All dollar amounts are stated in U.S. currency unless otherwise specified. Our executive offices are located at 1430 Peel Street, Montreal, Quebec, Canada H3A 1S9 and our registered office is located at 592 Colby Drive, Waterloo, Ontario, Canada N2V 1A2. Note that throughout this 10-K Report, we "incorporate by reference" certain information in parts of other documents filed with the Securities and Exchange Commission ("SEC"). The SEC allows us to disclose important information by referring to it in that manner. Please refer to that information. BUSINESS SEGMENTS MUSIC Universal Music Group is the largest recorded music company in the world. Universal Music Group was formed in December 1998 when we completed the acquisition of PolyGram N.V. and combined the music businesses of Universal and PolyGram. Universal Music Group develops, acquires, produces, markets and distributes recorded music through a network of subsidiaries, joint ventures and licensees in 59 countries around the world. We also produce, sell and distribute music videos in the United States and internationally and publish music. 2 3 In fiscal 1999, Universal Music Group held the number one market position in every major region of the world. We also had more than 60 albums with sales of over one million units each. We have the largest music catalogue in the world and hold the leading position in the classical music market, accounting for approximately 40% of worldwide classical music sales in fiscal 1999. Our labels include: - popular labels such as A&M, Blue Thumb, Def Jam, Geffen, Interscope, Island, MCA, MCA Nashville, Mercury, Mercury Nashville, Motown, Polydor and Universal; - leading classical labels Decca/London, Deutsche Grammophon and Philips; and - leading jazz labels Verve, GRP and Impulse! Records. ARTISTS. The success of a music company depends to a significant degree on its ability to sign and retain artists who will appeal to popular tastes over a period of time. We believe that the scope and diversity of our popular music labels, repertoire and catalogues allow us to respond to shifts in audience tastes. The United States and the United Kingdom continue to be the source of approximately 60% of international popular repertoire. From time to time certain national acts, such as Andrea Bocelli from Italy, Aqua from Denmark and Bjork from Iceland, appeal to a wider international market. Including the United States and the United Kingdom, however, sales of locally-signed artists in their home territories still represent 70% of worldwide recorded music sales. Our leading local market position in almost every major region provides a critical competitive advantage. Artists who are currently under contract with Universal Music Group, directly or through third parties, for one or more important territories include, among others: Bryan Adams The Cranberries ERA (Eric Levi) E O Tchan Aqua Sheryl Crow LL Cool J Shania Twain Erykah Badu Melissa Etheridge Reba McEntire Texas Beck Kirk Franklin Metallica McCoy Tyner The Bee Gees Vince Gill Nine Inch Nails U2 Bjork Charlie Haden 98 Degrees Caetano Veloso Mary J. Blige Herbie Hancock Florent Pagny Stevie Wonder Blues Traveler Hanson Luciano Pavarotti Trisha Yearwood Andrea Bocelli Joe Henderson Andre Rieu Rob Zombie Bon Jovi Dru Hill The Brian Setzer Orchestra Boyz II Men Jay-Z Wayne Shorter Boyzone Sir Elton John Sting The Cardigans Diana Krall George Strait In addition to recently released recordings, we also market and sell recordings from our catalogue of prior releases. Sales from this catalogue account for a significant and stable part of our recorded music revenues each year. We own the largest catalogue of recorded music in the world, with legendary performers from the United States, the United Kingdom and around the world, such as: ABBA John Coltrane Billie Holliday Diana Ross and the Supremes Louis Armstrong Ella Fitzgerald Buddy Holly Lord Andrew Lloyd Webber Jimmy Buffett Marvin Gaye Bob Marley and the Wailers The Who Patsy Cline Jimi Hendrix The Rolling Stones
3 4 ARTIST CONTRACTS, PRODUCTION, MARKETING AND DISTRIBUTION. We seek to contract with our popular artists on an exclusive basis for the marketing of their recordings (both audio and audio-visual) in return for a percentage royalty on the wholesale or retail selling price of the recording. We generally seek to obtain rights on a worldwide basis, although certain of our artists have licensed rights for certain countries or regions to other record companies. While exclusive classical artist contracts are common, and can extend over a long period, many artists and orchestral contracts are short in duration and refer only to specific recordings. Established artists command higher advances and royalty rates and it is not unusual for a recording company to renegotiate contract terms with a successful artist. A contract either provides for the artist to deliver completed recordings to us or for Universal Music Group to undertake the recording with the artist. For artists without a recording history, we are often involved in selecting producers, recording studios, additional musicians, and songs to be recorded, and we may supervise the output of recording sessions. For established artists, we are usually less involved in the recording process. Marketing involves advertising and otherwise gaining exposure for our recordings and artists through magazines, radio, television, internet, other media and point-of-sale material. Public performances are also considered an important element in the marketing process, and we provide financing for concert tours by certain artists. Television marketing of both specially compiled products and new albums is becoming increasingly important. Marketing is carried out on a territory-by-territory basis, although global priorities and strategies for certain artists are set centrally. We employ sales representatives who obtain orders from wholesalers and retailers. In all major territories except Japan and Brazil we have our own distribution services for the storage and delivery of finished product to wholesalers and retailers. In certain territories we have entered into distribution joint ventures with other record companies. We also sell music product directly to the consumer, principally through two direct mail club organizations: Britannia Music in the United Kingdom and D.I.A.L. in France. E-COMMERCE AND ELECTRONIC DELIVERY. Universal Music Group is at the forefront of the development of music distribution through e-commerce and electronic delivery, which will permit consumers to sample music on the Web, order it, have it delivered and pay for it electronically. Universal Music Group recently announced a long-term agreement with InterTrust Technologies Corporation to establish standards for the secure and convenient electronic delivery of music directly to the home, and we are actively participating in the Secure Digital Music Initiative (SDMI), a program which was created jointly by an extensive group of content, consumer electronics, hardware, software and internet companies to develop and define worldwide standards for the protection of music and other digitizeable intellectual property. In April 1999, Universal Music Group and BMG Entertainment formed GetMusic, a joint venture designed to create online communities of music fans, promote artists and sell CDs online through genre-based music channels. We expect GetMusic will have access to a combined database of 50 million customers worldwide, and will offer, among other features, exclusive artist information, exclusive interviews, and the ability to chat on-line with artists and their fans. In May 1999, Universal Music Group entered into a joint agreement with AT&T, BMG Entertainment and Matsushita Electric Industrial Co. to develop and test technology for large-scale, secure music and media distribution. MUSIC PUBLISHING. Music publishing involves the acquisition of rights to, and licensing of, musical compositions (as compared to recordings). Our publishing catalogue includes more than 600,000 titles that we own or control, making Universal Music Group one of the world's largest music publishers. We enter into 4 5 agreements with composers and authors of musical compositions for the purpose of licensing the compositions for use in sound recordings, films, videos and by way of live performances and broadcasting. In addition, we license compositions for use in printed sheet music and song folios. We also license and acquire catalogues of musical compositions from third parties such as other music publishers and composers and authors who have retained or re-acquired rights. MANUFACTURING AND OTHER FACILITIES. In connection with our music entertainment activities, we own manufacturing facilities in the United States, France, Germany and the United Kingdom and office buildings and warehouse facilities in various countries. In addition to our wholly-owned facilities, we also own a manufacturing facility in the United States through a joint venture. Where we do not own property, we lease warehouses and office space. COMPETITION. The music entertainment industry is highly competitive. The profitability of a company's recorded music business depends on its ability to attract and develop recording artists, the public acceptance of those artists and the recordings released in a particular period. Universal Music Group competes for creative talent both from new artists and those artists who have already established themselves through another label. Following a pattern established in the United States, European retailers have begun to consolidate, with increasing quantities of product being sold through multinational retailers and buying groups and other discount chains. This has increased competition for shelf space among the recorded music companies. The recorded music business continues to be adversely affected by counterfeiting, piracy and parallel imports, primarily in Eastern Europe, Asia and Latin America, and may be affected in the future by the ability to download quality sound reproductions from the internet without authorization. FILMED ENTERTAINMENT Universal Studios' filmed entertainment business: - produces and distributes films worldwide in the theatrical, home video and television markets; - produces and distributes episodic television and made-for-television programming; - operates and has ownership interests in a number of international channels including: The Sci-Fi Channel U.K.; USA Latin America and Brazil; 13th Street, action and suspense channels in France, Germany and Spain; and Studio Universal, a movie channel in Italy; - engages in the licensing of merchandising rights and film property publishing rights; and - engages in certain other activities through its ownership of the joint venture and equity interests described below. PRODUCTION, MARKETING AND DISTRIBUTION. Universal Studios produces feature-length films intended for initial theatrical exhibition and television programming. Major motion pictures produced over the past several years include The Lost World: Jurassic Park and Liar, Liar, and more recently, such box office hits as Patch Adams starring Robin Williams, The Mummy starring Brendan Fraser, Notting Hill starring Julia Roberts and Hugh Grant, Bowfinger starring Eddie Murphy and Steve Martin and American Pie. In addition, we produce animated and live action children's and family programming for networks, basic cable and local 5 6 television stations as well as home video. The arrangements under which we produce, distribute and own theatrical films vary widely. Other parties may participate in varying degrees in revenues or other contractually defined amounts. We control worldwide distribution of our theatrical product, except where we act as a subdistributor in specified territories or contract for specified territories or for specifically defined distribution rights. Generally, we distribute theatrical films in the theatrical, home video and pay television markets. Subsequently, we make theatrical films available for broadcast on network and basic cable distribution throughout the world. The theatrical license agreements with theater operators are on an individual picture basis, and fees under these agreements are generally a percentage of the theater's receipts with, in some instances, a minimum guaranteed amount. The production/distribution cycle represents the period of time from acquisition of a property through distribution. The length of the cycle varies depending upon such factors as type of product and release pattern. Production generally includes four steps: acquisition of story rights, pre-production, principal photography and post-production. Production activities for theatrical films are generally based at Universal City, California. These production facilities are also leased to outside parties. Some motion picture films and television products are produced, in whole or in part, at other locations both inside and outside of the United States. We distribute our theatrical product in the United States and Canada to motion picture theaters. Theatrical distribution throughout the rest of the world is primarily conducted by United International Pictures, which is equally owned by Universal Studios, Metro-Goldwyn-Mayer Inc. and Paramount Pictures Corporation. Television distribution of our 24,000 episode library in the United States is handled by USANi LLC, a subsidiary of USA Networks, Inc. ("USA Networks"), and throughout the rest of the world primarily by Universal Studios. Universal Studios distributes television product produced by USANi LLC in international markets. Videocassettes and videodiscs are marketed in the United States and Canada by Universal Studios and outside the United States and Canada primarily by United Pictures International, a wholly-owned subsidiary of Universal Studios. The rights to use the characters, titles and other material and rights from television and theatrical films and other sources are licensed to manufacturers, retailers and others by Universal Studios. USA NETWORKS, OTHER EQUITY INTERESTS AND CERTAIN JOINT VENTURES. Universal Studios holds an effective 45% equity interest in USA Networks through its ownership of common stock and Class B common stock of USA Networks and shares of USANi LLC, which Universal can exchange for common stock and Class B common stock of USA Networks. USA Networks primarily engages in electronic and online retailing, network and first-run syndication television production, domestic distribution of its and Universal Studios' television productions and the operation of the USA Network and Sci-Fi Channel Cable Networks. Universal Studios also has an approximate 26% interest in Loews Cineplex Entertainment Corporation, which exhibits theatrical films principally in the United States and Canada, and a 49% interest in United Cinemas International Multiplex B.V. and Cinema International Corporation, which operate motion picture theaters outside of the United States and Canada. COMPETITION. Our filmed entertainment business competes with all other forms of entertainment. We compete with other major film studios and independent producers for creative talent and story products, which are essential ingredients of our filmed entertainment products. The profitability of our filmed entertainment business is dependent upon public taste which is volatile and shifts in demand and is affected by economic 6 7 conditions and technological developments. RECREATION AND OTHER We have a 50% interest in Universal City Florida Partners, a joint venture which owns Universal Studios Florida, a theme park based on Universal Studios' filmed entertainment business, on approximately 440 acres owned by the joint venture in Orlando, Florida. Universal City Development Partners, a partnership in which we have a 50% interest, recently opened an additional theme park, Universal Studios Islands of Adventure and Universal Studios CityWalk, a dining, retailing and entertainment complex, on approximately 385 acres of land owned by the partnership adjacent to Universal Studios Florida. We also have a 25% interest in a joint venture which is currently developing three hotels adjacent to the Orlando theme parks. The first hotel, The Portofino Bay Hotel, opened in September 1999. The theme parks, Universal Studios CityWalk and hotels together comprise the newest Orlando multi-day entertainment resort, Universal Studios Escape. We also own Wet 'n Wild Orlando, a water park which is adjacent to Universal Studios Escape. Universal Studios also owns and operates Universal Studios Hollywood, a theme park located at Universal City, California. Adjacent to Universal Studios Hollywood is Universal Studios CityWalk, an integrated retail/entertainment area which offers shopping, dining, cinemas and entertainment. This Universal Studios CityWalk is currently being expanded from 300,000 to 400,000 square feet. Since October 1998, construction has been underway for Universal Studios Japan in Osaka. Universal Studios Japan is owned by USJ Co., in which Universal owns a 24% interest, and will be located on 133 acres of land leased by certain USJ Co. shareholders. Opening is scheduled for 2001. We also own a 37% interest in, and manage, Universal Studios Port Aventura, a theme park located on the Mediterranean coast of Spain near Barcelona. In October 1998, Universal Studios opened Universal Studios Experience Beijing, a permanent exhibit featuring Universal Studios branded properties. Universal Studios owns, develops and manages commercial buildings with approximately 2.4 million rentable square feet of office space in Universal City, including Universal Studios CityWalk and the 10 Universal City Plaza office building, which are occupied by Universal Studios or leased to outside tenants, and Universal Studios owns the Sheraton-Universal Hotel. Universal Studios also owns a 100,000 square foot office building adjacent to the Universal City property. Universal owns approximately 27% of SEGA GameWorks L.L.C. which designs, develops and operates location-based entertainment centers. SEGA GameWorks currently owns and operates eleven such centers throughout the United States. In addition, Universal Studios Group is involved in other businesses including the operation of retail gift stores and the development of entertainment software. We own Spencer Gifts, Inc. which operates approximately 630 retail gift stores throughout North America through three groups of stores: Spencer, DAPY and Glow gift shops. Spencer, DAPY and Glow sell novelties, electronics, accessories, books and trend driven products. In connection with the activities of Spencer Gifts, Inc., we own a building in New Jersey and lease approximately 570 stores in various cities in the United States and a warehouse in North Carolina. Universal Studios New Media, Inc. develops entertainment software including the Crash Bandicoot and Spyro game series, is responsible for the development and maintenance of Universal's websites and manages our approximate 26% interest in Interplay Entertainment Corp., an entertainment software developer. 7 8 COMPETITION. Our theme parks compete with other theme parks in their respective geographic regions and other leisure-time activities. The profitability of the leisure-time industry is influenced by various factors which are outside of our control such as economic conditions, amount of available leisure time, transportation prices and weather patterns. The Spencer, DAPY and Glow stores compete with numerous retail firms of various sizes throughout the United States, including department and specialty niche-oriented gift stores. SPIRITS AND WINE Our spirits and wine business, directly and through affiliates and joint ventures in more than 40 countries and territories, produces, markets and distributes more than 235 brands of distilled spirits, more than 180 brands of wines, Ports and Sherries, and more than 40 brands of coolers, beers, mixers and other low-alcohol adult beverages and mixers, which are sold in over 190 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 our own brands, we also distribute distilled spirits, Champagne, wine and beer brands owned by others. Some of our 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 - - Captain Morgan and Myers's Rums - - Don Julio and Tres Magueyes Tequila We also distribute ABSOLUT VODKA, owned by V&S Vin & Sprit Aktiebolag, in the United States and in most major international markets. We import fine wines into the United States, principally French wines and Champagnes, and produce and market premium California and other wines. Among the wines we produce or market are: - - Sterling Vineyards California Wines - - Tessera California Wines - - Mumm Cuvee Napa California Sparkling Wine - - Sandeman Ports and Sherries - - Matheus Muller (German Sparkling Wine) - - Mumm Sekt (German Sparkling Wine) We also distribute Mumm and Perrier-Jouet Champagnes, owned by Financiere Moulins de Champagne, in global markets. The Monterey Vineyard California wines and Barton & Guestier (B&G) French wines are produced for us. Seagram also markets low-alcohol and non-alcohol adult beverages. Seagram's Coolers are sold in a 8 9 variety of fruit and mixed drink flavors. Our mixer line includes ginger ale, club soda, tonic water and seltzer. We are the exclusive U.S. distributer of Grolsch Beer, owned by Royal Grolsch N.V., and of Steinlager Beer, owned by Lion Nathan Limited. We maintain distilleries and spirits bottling plants in 15 countries in North America, South America, Europe, Asia and Australia which have aggregate daily distillation capacities of approximately 253,000 U.S. proof gallons and aggregate daily bottling capacities of approximately 275,000 standard cases. We maintain large inventories of aging spirits in warehousing facilities located primarily in Canada, France, the United Kingdom and the United States. Such inventories aggregated approximately 501 million U.S. proof gallons at June 30, 1999. We use grains, principally corn and barley, purchased from a large number of suppliers to produce our spirits. Fluctuations in the prices of these commodities have not had a material effect upon operating results. We acquire substantially all of our American white oak barrels (used for the storage of whisky during the aging period) from one supplier in the United States and we purchase plastic and glass bottles and packaging materials from several suppliers. We believe that our relationships with our various suppliers are good. Our wines 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 limit production. We believe that our relationships with our growers are good. We operate wineries and wine bottling plants in 12 countries. At June 30, 1999, our bulk wine inventory aggregated approximately 28 million wine gallons. MARKETING AND DISTRIBUTION. A significant portion of our revenues from our spirits and wine operations comes from sales outside of the United States and Canada. In addition to economic and currency risks, Seagram's foreign operations involve risks including governmental regulation, embargoes, expropriation, export controls, burdensome taxes, government price restraints and exchange controls. Generally we sell spirits, wines, coolers, beers and other low alcohol adult beverages to two categories of customers in the United States. In 32 states and the District of Columbia, sales are made to approximately 335 wholesale distributors who also purchase and market other brands of distilled spirits, wines, coolers, beers and other low alcohol adult beverages. In 18 "control" states (where the state government engages in distribution), sales are made to state and local liquor boards and commissions; in certain of these states, sales of wines, coolers, beers and other low alcohol adult beverages are also made to approximately 275 wholesale distributors. In Canada, sales are made exclusively to ten provincial and three territorial government liquor boards and commissions. Outside the United States and Canada, our spirits and wines are marketed either through affiliates, joint ventures or independent distributors. Our affiliates and joint ventures are located in: Argentina, Australia, 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, the Republic of Korea, Mexico, The Netherlands, New Zealand, Poland, Portugal, Singapore, Slovakia, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Ukraine, the United Kingdom, Uruguay and Venezuela. COMPETITION. The spirits and wine industry is highly competitive. Due to recent formation of multinational retailers and buying groups in Europe, all marketers in the industry have confronted severe 9 10 pricing pressure across Europe. These Euro-based multinational retailers and buying groups have also expanded into certain markets in Asia and Latin America. Diageo PLC, which resulted from the merger of two of the largest spirits and wine companies, Grand Metropolitan PLC and Guinness PLC, continues to present significant challenges for our spirits and wine business. We continue to address these competitive challenges by investing in our core brands and key growth markets. We use magazine, newspaper and outdoor advertising to maintain and improve our brands' market position. We also utilize radio and television advertising, although the use of such advertising in connection with the sale of beverage alcohol is restricted by law or commercial practice in certain countries, including the United States. REGULATION AND TAXES. Our beverage alcohol business is subject to strict governmental regulation covering virtually every aspect of operations, including production, marketing, pricing, labeling, packaging and advertising. In the United States, we must file or publish prices for our beverage alcohol products in some states as much as three months before they go into effect. In the United States, Canada and many other countries, beverage alcohol products are subject to substantial excise taxes or custom duties and additional taxation by governmental subdivisions. INTEREST IN DUPONT At June 30, 1999, we owned approximately 16.4 million shares of common stock of E.I. du Pont de Nemours and Company which had a market value of approximately $1.1 billion as of such date. EMPLOYEES As of June 30, 1999, we employed approximately 34,000 people. The number of employees is subject to seasonal fluctuations. We have collective bargaining agreements with a number of labor unions which cover approximately 13,200 of our employees in the United States and other countries and govern wages and benefits, hours, working conditions and similar matters. These agreements expire at various times between 1999 and 2002. In general, we believe our labor relations are good. Item 3. Legal Proceedings 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 action was removed to the United States District Court for the Central District of California on December 15, 1995. 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 brought the lawsuit on behalf of a class of all "talent" who have entered into allegedly "standard" net profits agreements 10 11 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. The District Court initially certified a class; however, on June 1, 1998, the District Court, on its own motion, decertified the class. Thus, the matter was no longer a class action, and Universal remained a defendant only in the antitrust claims being pursued by the individual plaintiffs. The matter was then settled, and dismissed on March 31, 1999. On May 30, 1995, a purported retailer class action was filed in the United States District Court for the Central District of California, entitled Digital Distribution Inc. d/b/a Compact Disc Warehouse v. CEMA Distribution, Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc. and PolyGram Group Distribution, Inc., No. 95-3596 JSL. The plaintiffs brought the action on behalf of direct purchasers of compact discs alleging that defendants, including Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), and PolyGram Group Distribution, Inc., violated the federal and/or state antitrust laws and unfair competition laws by engaging in a conspiracy to fix prices of compact discs, and seek an injunction and treble damages. The defendants' motion to dismiss the amended complaint was granted and the action was dismissed, with prejudice, on January 9, 1996. Plaintiffs filed a notice of appeal on February 12, 1996. By an order filed July 3, 1997, the Ninth Circuit reversed the District Court and remanded the action. Upon reinstatement of this litigation by the Ninth Circuit, a number of related actions were filed, which all arise out of the same claims and subject matter. These related actions are captioned: Chandu Dani d/b/a Compact Disc Warehouse and Record Revolution, et al., v. EMI Music Distribution (formerly known as CEMA Distribution), Sony Music Entertainment, Inc.; Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group Distribution, Inc., No. CV 97-7226 (JSL), filed on September 30, 1997 in the U.S. District Court for the Central District of California; Third Street Jazz and Rock Holding Corporation, et al., v. EMI Music Distribution (formerly known as CEMA Distribution), Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group Distribution, Inc., No. CV 97-8864 JSL (VAPx), filed on October 21, 1997 in the U.S. District Court for the Central District of California; T. Obie, Inc. d/b/a/ Chestnut Hill Compact Disc v. EMI Music Distribution (formerly known as CEMA Distribution), Sony Music Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group Distribution, Inc., No. 97 Civ. 7764 LMM, filed on October 21, 1997 in the U.S. District Court for the Southern District of New York; Nathan Muchnick, Inc., et al., v. Sony Music Entertainment, Inc., PolyGram Group Distribution, Inc., Bertelsmann Music Group, Inc., Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Warner Elektra Atlantic Corporation, and EMI Music Distribution, Inc./Capitol Records, Inc., No. 98 Civ. 0612, filed on January 28, 1998 in the U.S. District Court for the Southern District of New York. The Digital Distribution, Chandu Dani, and Third Street Jazz matters have been set for trial on February 15, 2000. On February 17, 1998, a purported consumer class action was filed in the Circuit Court for Cocke County, Tennessee, Civil Action No., 24,885 II, entitled Doris D. Ottinger, et al., v. EMI Music Distribution, Inc., Sony Music Entertainment, Inc., Warner Elektra Atlantic Corp., Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music Group, Inc., and PolyGram Group Distribution, Inc. A motion to dismiss was filed on May 11, 1998, and is pending. On January 16, 1998, the Competition Directorate of the Commission of the European Community issued a Statement of Objections in response to the application of United International Pictures ("UIP") for a renewal of its exemption from Article 85(1) of the Treaty of Rome with respect to UIP's theatrical distribution activities within the European Union. UIP is a partnership that is owned equally by Universal Studios, Metro-Goldwyn-Mayer and Paramount Pictures Corporation. It was created in 1981 for the purpose of achieving cost savings in the distribution of motion pictures to theaters internationally, including Europe. In 1989, after 11 12 lengthy proceedings, the European Commission granted UIP an exemption from Article 85(1) with respect to UIP's theatrical distribution activities within the European Union. Article 85(1) of the Treaty of Rome prohibits certain agreements and concerted practices which prevent, restrict or distort trade within the European Union. In 1993, prior to the stated expiration of the 1989 exemption, UIP filed an application to extend this exemption. Following a two-day hearing on the matter on September 24 and 25, 1998, in Brussels, on September 9, 1999, the Commission issued a letter granting the renewal of the exemption to UIP, based on certain conditions. On or about July 25, 1996, Universal Music & Video Distribution, Inc. and PolyGram Group Distribution, Inc. were served with an antitrust civil investigation demand from the Office of the Attorney General of the State of Florida that calls for the production of documents in connection with an investigation to determine whether there "is, has been or may be" a "conspiracy to fix the prices" of compact discs or conduct consisting of "unfair methods of competition" or "unfair trade practices" in the sale and marketing of compact discs. No allegations of unlawful conduct have been made against Universal Musical & Video Distribution, Inc. or PolyGram Group Distribution, Inc. By letter dated April 11, 1997, the Federal Trade Commission ("FTC") advised Universal Music & Video Distribution, Inc. and PolyGram Group 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. and PolyGram Group Distribution, Inc. received a subpoena dated September 19, 1997 for the production of documents. No allegations of unlawful conduct have been made against Universal Music & Video Distribution, Inc. or PolyGram Group Distribution, Inc. On or about July 15, 1995, PolyGram was served with a civil investigation demand from the U.S. Department of Justice ("DOJ") seeking information and documentation relating to an investigation by the DOJ's Antitrust Division (the "Antitrust Division") into certain alleged "collaborative undertakings between PolyGram and other music companies related to cable, wire and satellite-delivered music and music video programmers." In April 1998, PolyGram and certain other major music companies, excluding Universal, were advised by the Antitrust Division that it was their tentative recommendation to file a complaint seeking a decree to prevent PolyGram and such major music companies from using foreign collective licensing societies to license music video broadcasters. The Antitrust Division also indicated that it was considering adding to this complaint, a claim seeking to restrict PolyGram and such major music companies from entering into music video broadcasting joint ventures absent prior notice to, and approval from, the DOJ. Thereafter, at the invitation of the Antitrust Division, PolyGram and the major music companies jointly submitted a "White Paper" setting forth their collective view that no complaint was warranted and the investigation should be closed. In July, 1998, a further meeting was held among counsel for PolyGram and the other major music companies and the Antitrust Division to discuss the Antitrust Division's tentative recommendations. PolyGram has now been advised by the DOJ that this investigation has been closed. 12 13 On August 30, 1999, the Australian Competition and Consumer Commission ("ACCC") commenced proceedings against Universal Music Australia Pty Limited (formerly PolyGram Pty Limited) and three former employees of PolyGram, alleging violations of the Australian Trade Practices Act, the statute which governs competition law in Australia. The ACCC alleges that Universal has taken certain unlawful steps to restrict parallel imports into Australia to reduce price competition in the sale of sound recordings. Separate proceedings making similar allegations have also been commenced against certain other record companies in Australia and their current or former employees, and against two industry trade associations in Australia. The ACCC seeks injunctive relief to eliminate any unlawful restrictions on parallel imports into Australia and the imposition of fines against Universal and the three individuals who were employees of PolyGram. Universal and the three individuals are vigorously defending these proceedings. On February 4, 1999, the Antitrust Division issued a civil investigative demand to Universal as well as to a number of other motion picture film distributors and exhibitors as part of a civil investigation into compliance with the consent decrees entered in U.S. v. Paramount Pictures, et al. and various other practices in the motion picture distribution and exhibition industry. The civil investigative demands require the distributors and exhibitors to provide documents and other information to the Antitrust Division. The scope of the investigation and the extent, if any, to which it may relate to Universal is not known at this time. Universal has responded to the government's demand. Seagram and its subsidiaries and affiliates are defendants or respondents in a number of other actions arising in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. 13 14 PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Information as to the number of holders of record of our common shares, the markets on which such shares are traded, the quarterly high and low prices for such common shares on the Toronto and New York Stock Exchanges, and the quarterly dividends declared on such common shares during the last three fiscal years is incorporated herein by reference to the Management's Discussion and Analysis section captioned "Return to Shareholders" on page 38 of the Annual Report. Payment of dividends to our shareholders who are not residents of Canada is subject under Canadian law to Canadian withholding tax. Dividends paid to shareholders residing in the United States is subject to 15% withholding pursuant to currently existing treaty arrangements between the United States and Canada. For shareholders who are residents of other countries, the withholding rate varies depending upon the existence and terms of applicable treaties between each such other country and Canada. Item 6. Selected Financial Data Selected historical financial information is incorporated by reference to the Financial Summary on page 67 of the 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 22 through 38 of the Annual Report. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosures about market risk are incorporated herein by reference to pages 34 through 35 of the Annual Report. Item 8. Financial Statements and Supplementary Data The Consolidated Financial Statements, together with the report thereon of Pricewaterhouse- Coopers LLP dated August 18, 1999 and the supplementary quarterly data are incorporated herein by reference to pages 39 through 67 of the Annual Report. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Not applicable. 14 15 PART III Item 10. - Directors and Executive Officers of the Registrant Information about our directors is incorporated by reference to pages 6 through 8 of the Proxy Circular for the Annual Meeting of Shareholders to be held on November 3, 1999 (the "Proxy Circular") under the caption "Election of Directors -- Nominees for Director". Set forth below is certain information with respect to our executive officers.
Title and Other Office Held Name Age Information Since ---- --- --------------- ----------- Edgar M. Bronfman 70 Chairman of the Board and Director. 1975 Charles R. Bronfman 68 Co-Chairman of the Board, Chairman of the 1986 Executive Committee and Director. Edgar Bronfman, Jr. 44 President, Chief Executive Officer and Director. 1994 Robert W. Matschullat 51 Vice Chairman, Chief Financial Officer and 1995 Director since October 1995. Previously, he was Managing Director and Head of Worldwide Investment Banking for Morgan Stanley & Co., Inc. and a director of Morgan Stanley Group Inc. John D. Borgia 51 Executive Vice President, Human Resources since 1995 May 1995. Previously, he was Senior Vice President, Human Resources & Administration, Bristol-Myers Squibb Pharmaceutical Group. Daniel R. Paladino 56 Executive Vice President, Legal and Environmental 1996 Affairs since October 1996. Previously, he was Vice President, Legal and Environmental Affairs. Tod R. Hullin 56 Senior Vice President, Corporate Communications 1998 and Public Affairs since November 1998. Previously, he was Senior Vice President, Communications and Public Affairs, Time Warner, Inc.
15 16
Title and Other Office Held Name Age Information Since ---- --- --------------- ----------- John R. Preston 52 Vice President and Treasurer since June 1998. 1998 From January 1997 to June 1998, he was Vice President, Finance. Previously, he was Reengineering Financial Management/Post Merger Integration Team Leader. Michael C.L. Hallows 58 Secretary. 1979
Our Board of Directors chooses our executive officers annually. Once chosen, these executive officers hold office until they resign, are removed or otherwise become disqualified to serve. Item 11. Executive Compensation Information about executive compensation is incorporated herein by reference to pages 13 through 21 of the Proxy Circular under the captions "Summary Compensation Table" through "Performance Graph". Item 12. Security Ownership of Certain Beneficial Owners and Management Information about the ownership of Seagram's common shares by certain beneficial owners and management is incorporated herein by reference to pages 2 through 5 of the Proxy Circular under the caption "Share Ownership". Item 13. Certain Relationships and Related Transactions As of August 31, 1999, Koninklijke Philips Electronics N.V. ("Philips") owned approximately 11.04% of Seagram's common shares, which it acquired as part of Seagram's acquisition of PolyGram in fiscal 1999. Cornelis Boonstra, a director of Seagram, is Chairman and President of Philips. Philips and subsidiaries of Seagram are parties to intellectual property and distribution arrangements containing normal business terms and conditions. Information about certain relationships and transactions with related parties is incorporated herein by reference to pages 21 through 24 of the Proxy Circular under the captions "Human Resources Committee Interlocks and Insider Participation" and "Transactions with Directors and Others". 16 17 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(l) through 10(hh) 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 April 7, 1999 was filed to report under Item 2 and file under Item 7 a press release announcing Seagram's agreement in principle to sell certain PolyGram Filmed Entertainment assets to Universal Networks, Inc. and the merger of October Films, in which Seagram owned a majority interest, with a subsidiary of USA Networks, Inc. 2. A Current Report on Form 8-K dated April 9, 1999 was filed to file under Item 7 certain documents relating to Seagram's Registration Statement (No. 333-62921) on Form S-3. 3. A Current Report on Form 8-K dated May 13, 1999 was filed to report under Item 5 and file under Item 7 unaudited pro forma financial statements that give effect to the sale of Tropicana, the acquisition of PolyGram and certain other transactions. 4. A Current Report on Form 8-K dated September 20, 1999 was filed to report under Item 5 and file under Item 7 Seagram's consolidated financial statements for the fiscal year ended June 30, 1999. 17 18 FORWARD LOOKING STATEMENTS This Form 10-K contains statements that are "forward-looking statements," in that they include statements regarding the intent, belief or current expectations of our management with resect to our future operating performance. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements that express forecasts, expectations and projections with respect to future matters, including the launching or prospective development of new business initiatives and products, anticipated music or motion picture releases, internet or theme park projects, and "Year 2000" remediation efforts and anticipated cost savings or synergies are forward-looking statements within the meaning of the Act. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from our forward-looking statements as a result of certain risks and uncertainties, many of which are outside of our control, including but not limited to: - - Changes in global and localized economic and political conditions which may affect attendance and spending at our theme parks, purchases of our consumer products and the performance of our filmed entertainment operations. - - Changes in financial and equity markets, including significant interest rate and foreign currency rate fluctuations, which may affect our access to, or increase the cost of financing for, our operations and investments. - - Increased competitive product and pricing pressures and unanticipated actions by competitors that could impact our market share, increase expenses or hinder our growth potential. - - Changes in consumer preferences and tastes, which may affect all our business segments. - - Adverse weather conditions or natural disasters, such as hurricanes and earthquakes, which may, among other things, impair performance at our theme parks in California, Florida or Spain. - - Legal and regulatory developments, including changes in accounting standards, taxation requirements, such as the impact of excise tax increases with respect to the spirits and wine business, and environmental laws. - - Technological developments that may affect the distribution of our products or create new risks to our ability to protect our intellectual property rights. - - The uncertainties of litigation and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission. 18 19 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 28, 1999 By /s/ Robert W. Matschullat ------------------------- Robert W. Matschullat Chief Financial Officer 19 20 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on September 28, 1999 by the following persons on behalf of the Registrant and in the capacities indicated. Principal Executive Officer: /s/ Edgar Bronfman, Jr. Director, President and Chief - ----------------------------- Executive Officer Edgar Bronfman, Jr. Principal Financial Officer: /s/ Robert W. Matschullat Director, Vice Chairman and - ----------------------------- Chief Financial Officer Robert W. Matschullat Principal Accounting Officer: /s/ Robert W. Matschullat Director, Vice Chairman and - ----------------------------- Chief Financial Officer Robert W. Matschullat Directors: Edgar M. Bronfman* Director, Chairman of the Board The Hon. Charles R. Bronfman* Director, Co-Chairman of the Board and Chairman of the Executive Committee Samuel Bronfman II* Director Matthew W. Barrett* Director Laurent Beaudoin* Director Cornelis Boonstra* Director Richard H. Brown* Director The Hon. William G. Davis* Director Andre Desmarais* Director Barry Diller* Director Michele J. Hooper* Director David L. Johnston* Director The Hon. E. Leo Kolber* Director Marie-Josee Kravis* Director Samuel Minzberg* 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/ Robert W. Matschullat ----------------------------- Robert W. Matschullat, Attorney-in-fact 20 21 THE SEAGRAM COMPANY LTD. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1999 INDEX TO FINANCIAL STATEMENTS 1. Consolidated Financial Statements for The Seagram Company Ltd. and subsidiary companies, together with the report thereon of PricewaterhouseCoopers LLP dated August 18, 1999, incorporated herein by reference to the Annual Report to Shareholders for the fiscal year ended June 30, 1999: Consolidated Balance Sheet at June 30, 1999 and June 30, 1998; For the Fiscal Years June 30, 1999, June 30, 1998 and June 30, 1997; Consolidated Statement of Income; Consolidated Statement of Cash Flows; Consolidated Statement of Shareholders' Equity; Notes to Consolidated Financial Statements; Report of Independent Accountants; Quarterly Data (Unaudited). 2. Financial Statement Schedules and Report: Report of Independent Accountants on Financial Statement Schedule; Schedule for The Seagram Company Ltd. and Subsidiary Companies: II. Valuation and Qualifying Accounts. Schedules not included have been omitted because they are not applicable or the required information is shown in our Consolidated Financial Statements or Notes thereto. 21 22 SCHEDULE II THE SEAGRAM COMPANY LTD. (Incorporated under the Canada Business Corporations Act) AND SUBSIDIARY COMPANIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (U.S. dollars in millions)
Additions Balance at Charged to Cumulative Balance Beginning Costs and Translation at End Description Of Period Expenses Acquisition Deductions Adjustment Of Period ----------- --------- --------- ----------- ---------- ----------- --------- Reserves Deducted from Receivables: Fiscal Year Ended June 30, 1999: Reserve for Doubtful Accounts $ 155 $ 115 $ 126 $(104) $ (9) $ 283 Reserve for Merchandise Returns and Allowances 171 563 214 (551) (6) 391 ----- ----- ----- ----- ----- ----- $ 326 $ 678 $ 340 $(655) $ (15) $ 674 ===== ===== ===== ===== ===== ===== Fiscal Year Ended June 30, 1998: Reserve for Doubtful Accounts $ 127 $ 68 $ -- $ (40) $ -- $ 155 Reserve for Merchandise Returns and Allowances 183 185 -- (197) -- 171 ----- ----- ----- ----- ----- ----- $ 310 $ 253 $ -- $(237) $ -- $ 326 ===== ===== ===== ===== ===== ===== Fiscal Year Ended June 30, 1997: Reserve for Doubtful Accounts $ 85 $ 76 $ -- $ (34) $ -- $ 127 Reserve for Merchandise Returns and Allowances 269 221 -- (307) -- 183 ----- ----- ----- ----- ----- ----- $ 354 $ 297 $ -- $(341) $ -- $ 310 ===== ===== ===== ===== ===== =====
22 23 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 18, 1999 appearing in the Annual Report to Shareholders of The Seagram Company Ltd. for the fiscal year ended June 30, 1999 (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 accompanying Item 14(a)of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP New York, New York August 18, 1999 23 24 THE SEAGRAM COMPANY LTD. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1999 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 Seagram Company Ltd. and Centenary Distillers Ltd. (incorporated by reference to Exhibit 3(a) of Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1995), as amended by the Certificate and Articles of Amendment dated May 31, 1995 (incorporated by reference to Exhibit 3(a) of Seagram's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1995). (b) General By-Laws of The Seagram Company Ltd., as amended (incorporated by reference to Exhibit 3(b) to Seagram's Quarterly Report on Form 10-Q for the fiscal quarter ended April 30, 1996). 4 Long-term debt instruments are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Seagram agrees to furnish to the Commission on request a copy of any instrument defining the rights of holders of long-term debt of Seagram and of any subsidiary for which consolidated or unconsolidated financial statements are required to be filed. 10 (a) Amended and Restated Stock Purchase Agreement dated as of June 5, 1995 among The Seagram Company Ltd., Matsushita Electric Industrial Co., Inc., MEI Holding Inc. (formerly, Home Holding Inc.) and Universal Studios Holding I Corp. (formerly, Home Holding II Inc.) (incorporated by reference to the Exhibit 2(a) to Seagram's Current Report on Form 8-K dated June 5, 1995). (b) Stockholders' Agreement dated as of June 5, 1995 among The Seagram Company Ltd., 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 Seagram'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 (incorporated by reference to Exhibit 10(c) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). (d) Offer Agreement dated as of June 21, 1998 among The Seagram 24 25 Company Ltd., PolyGram N.V. and Koninklijke Philips Electronics N.V. (incorporated by reference to Exhibit 2.1 to Seagram's Current Report on Form 8-K/A dated July 2, 1998). (e) Tender Agreement dated as of June 21, 1998 between The Seagram Company Ltd. and Koninklijke Philips Electronics N.V. (incorporated by reference to Exhibit 2.2 to Seagram's Current Report on Form 8-K/A dated July 2, 1998). (f) Voting Agreement dated June 21, 1998 between The Seagram Company Ltd. and Koninklijke Philips Electronics N.V. (incorporated by reference to Exhibit 2.3 to Seagram's Current Report on Form 8-K dated June 22, 1998). (g) Stockholders Agreement dated June 21, 1998 between The Seagram Company Ltd. and Koninklijke Philips Electronics N.V. (incorporated by reference to Exhibit 10.1 to Seagram's Current Report on Form 8-K dated June 22, 1998). (h) Stock Purchase Agreement dated as of July 20, 1998 among The Seagram Company Ltd., Seagram Enterprises, Inc. and PepsiCo, Inc. (incorporated by reference to Exhibit 2 to Seagram's Current Report on Form 8-K dated July 20, 1998). (i) Credit Agreement dated as of November 23, 1994, as amended and restated as of October 21, 1998, among Joseph E. Seagram & Sons, Inc., as Borrower, The Seagram Company Ltd. and J.E. Seagram Corp., as Guarantors, the Lenders Party thereto, The Chase Manhattan Bank, as Administrative Agent, Citibank, N.A., as Syndication Agent, and Bank of Montreal, as Documentation Agent (incorporated by reference to Exhibit 10.2 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998). (j) Credit Agreement dated as of December 21, 1994, as amended and restated as of October 23, 1998, among The Seagram Company Ltd., as Borrower, the Lenders Party thereto, and Bank of Montreal, as Administrative Agent (incorporated by reference to Exhibit 10.3 to Seagram's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998.) (k) Credit Agreement dated as of October 21, 1998 among Joseph E. Seagram & Sons, Inc., as Borrower, The Seagram Company Ltd. and J.E. Seagram Corp., as Guarantors, the Lenders Party thereto, The Chase Manhattan Bank, as Administrative Agent, Citibank, N.A., as Syndication Agent, and Bank of America NT & SA and Bank of Montreal, as Co-Documentation Agents (incorporated by reference to Exhibit 10.2 of the Registration Statement on Form S-4 (Registration No. 333-61535) of Seagram). 25 26 (l) 1983 Stock Appreciation Right and Stock Unit Plan of The Seagram Company Ltd., as amended. (incorporated by reference to Exhibit 10(n) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). (m) Written description of Management Incentive Plan of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(g) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1994). (n) Senior Executive Short-Term Incentive Plan of The Seagram Company Ltd. (incorporated by reference to Exhibit 10(p) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). (o) Form of Deferred Compensation Agreement, as amended, between Joseph E. Seagram & Sons, Inc. and certain of its executives. (incorporated by reference to Exhibit 10(q) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). (p) Stock Plan for Non-Employee Directors of The Seagram Company Ltd. (incorporated by reference to Exhibit 10(r) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998). (q) 1988 Stock Option Plan of The Seagram Company Ltd., as amended (incorporated by reference to Exhibit 10(f) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1992). (r) 1992 Stock Incentive Plan of The Seagram Company Ltd., as amended (incorporated by reference to Exhibit 10(g) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (s) 1996 Stock Incentive Plan of The Seagram Company Ltd., as amended. (incorporated by reference to Exhibit 4.D to Seagram's Registration Statement on Form S-8 dated August 18, 1999.) (t) Senior Executive Basic Life Insurance Program, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(i) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (u) Retirement Salary Continuation Plan, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(j) to 26 27 Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (v) Benefit Equalization Plan, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(k) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (w) Senior Executive Group Term Life Insurance Arrangement, as amended, of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(k) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1992). (x) Personal Excess Liability Insurance Policy for Senior Executives of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10(m) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (y) Flexible Perquisite Program for Seagram Senior Executives (incorporated by reference to Exhibit 10(s) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1994). (z) Senior Executive Disability Salary Continuation Arrangement of Joseph E. Seagram & Sons, Inc. (incorporated by reference to Exhibit 10 (w) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1995). (aa) Post Retirement Consulting Plan, as amended, of Joseph E. Seagram & Sons, Limited (incorporated by reference to Exhibit 10(r) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (bb) Canadian Executive Pension Plan of Joseph E. Seagram & Sons, Limited, as amended (incorporated by reference to Exhibit 10(s) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1993). (cc) Executive Long-Term Incentive Arrangement among Seagram, Joseph E. Seagram & Sons, Limited and Charles R. Bronfman dated February 4, 1982 (incorporated by reference to Exhibit 10(r) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1992). (dd) Amended and Restated Employment Agreement between Joseph E. Seagram & Sons, Inc. and Robert W. Matschullat dated February 4, 1998 (incorporated by reference to Exhibit 10 (ff) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998.) (ee) Employment Agreement among Universal Studios, Inc., Seagram and Frank J. Biondi, Jr. dated April 23, 1996 (incorporated by reference to 27 28 Exhibit 10(bb) to Seagram's Annual Report on Form 10-K for the fiscal year ended January 31, 1996). (ff) Agreement between Universal Studios, Inc. and Frank Biondi, Jr. dated August 22, 1997 (incorporated by reference to Exhibit 10(aa) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1997). (gg) Letter dated April 27, 1995 from Joseph E. Seagram & Sons, Inc. to John D. Borgia (incorporated by reference to Exhibit 10 (jj) to Seagram's Annual Report on Form 10-K for the fiscal year ended June 30, 1998.) (hh) Letter dated September 9, 1998 from Joseph E. Seagram & Sons, Inc. to Tod R. Hullin. 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 22-67 of the Annual Report to Shareholders for the fiscal year ended June 30, 1999. 21 Subsidiaries. 23 Consent of PricewaterhouseCoopers LLP, independent accountants, as accountants for Seagram. 24 Power of Attorney. 27 Financial Data Schedule. 28 EX-10.HH 2 LETTER DATED SEPTEMBER 9, 1998 1 Exhibit 10(hh) September 9, 1998 VIA FEDEX Mr. Tod R. Hullin 8200 The Woods Court Park City, UT 84060 Dear Tod, This letter will confirm our offer to you to join Seagram as Senior Vice President Corporate Communications and Public Affairs of Joseph E. Seagram & Sons, Inc., and to outline the terms of employment discussed. As agreed, you will commence employment on October 1, 1998. 1. CASH COMPENSATION. Your initial annualized base salary will be $425,000 and your target annual management incentive award will be 65% of base salary (i.e. $276,250), both appropriately prorated for partial years of service. For the fiscal year ending June 30, 1999, we will guarantee you a minimum prorated award of $207,200. 2. EQUITY-BASED AWARDS. (a) We will recommend for approval to the Human Resources Committee a one-time grant of 100,000 options pursuant to the 1996 Stock Incentive Plan at an exercise price equal to the fair market value of an SCL common share on the date of grant. These options will vest, become exercisable, and will terminate as set forth below. (b) You will also be eligible to participate in the 1996 Stock Incentive Plan on an annual basis and your initial target number of options will be 27,500. Options are generally granted in February of each year at an exercise price equal to fair market value on the date of grant. One-third of the options vest and become exercisable in equal installments over three years on the anniversary date of the option grant, and expire on the day before the tenth anniversary of the option grant. Options are cancelled at the end of a three month period following cessation of employment for any reason other than retirement, disability, death or termination for cause. 2 Page 2 September 9, 1998 3. BENEFITS. You will be eligible to participate in our Senior Executive Benefits program, which includes, among other items, pension, life insurance, executive disability salary continuation, flexible perquisite allowance of $12,000 annually, and double matching contributions. 4. RELOCATION. We will pay benefits pursuant to the relocation policy for new hires, including the costs associated with transporting your household goods and purchasing a residence in the New York City area. In addition to benefits under the relocation policy, we will pay reasonable temporary living expenses for a period of up to three months, while you look for a permanent residence. On behalf of the Company and myself, I am delighted to outline Seagram's offer to you. I am confident that you will make significant contributions to the success of Seagram while at the same time having the opportunity to accomplish your personal and professional goals. As you are aware, this offer is subject to your satisfactorily completing out standard pre-employment physical. Should you have any questions, please do not hesitate to contact me. Sincerely, /s/ John Borgia ------------------------- JDB:lds Accepted and agreed to: /s/ Tod Hullin - ------------------------------- c: Mr. R. Matschullat Ms. Y. Shaw EX-12.A 3 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12(a) The Seagram Company Ltd. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges (millions)
Five-Month Fiscal Years Ended June 30, Transition Fiscal Years Ended January 31, ------------------------------------ Period Ended ---------------------------- Description 1999 1998 1997 June 30, 1996 1996 1995 - --------------------- ---- ---- ---- ------------- ---- ---- Income (loss) from continuing operations, before tax $ (579) $ 1,611 $ 726 $ (6) $ 240 $ 297 Add (deduct): Dividends from equity companies 92 56 107 46 65 4 Fixed charges 656 406 376 173 414 432 Interest capitalized, net of -- (2) (2) (4) (2) (1) amortization ------- ------- ------- ------- ------- ------- Earnings available for fixed charges $ 169 $ 2,071 $ 1,207 $ 209 $ 717 $ 732 ======= ======= ======= ======= ======= ======= Fixed charges: Interest expense $ 592 $ 357 $ 326 $ 151 $ 378 $ 408 Portion of rent expense deemed to represent interest factor 64 49 50 22 36 24 ------- ------- ------- ------- ------- ------- Fixed charges $ 656 $ 406 $ 376 $ 173 $ 414 $ 432 ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges (a) 5.10 3.21 1.21 1.73 1.69 ======= ======= ======= ======= ======= =======
(a) Fixed charges exceeded earnings by $487 million for the year ended June 30, 1999. 29 EX-12.B 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 Exhibit 12(b) Joseph E. Seagram & Sons, Inc. and Subsidiary Companies Computation of Ratio of Earnings to Fixed Charges (millions)
Five-Month Fiscal Years Ended June 30, Transition Fiscal Years Ended January 31, ------------------------------------ Period Ended ---------------------------- Description 1999 1998 1997 June 30, 1996 1996 1995 - --------------------- ---- ---- ---- ------------- ---- ---- Income (loss) from continuing operations, before tax $ (17) $ 17 $ 122 $ (37) $ 82 $ 172 Add (deduct): Dividends from equity companies 1 2 1 -- 3 1 Fixed charges 349 182 172 70 165 183 Interest capitalized, net of -- -- (1) -- -- (1) amortization ----- ----- ----- ----- ----- ----- Earnings available for fixed charges $ 333 $ 201 $ 294 $ 33 $ 250 $ 355 ===== ===== ===== ===== ===== ===== Fixed charges: Interest expense $ 339 $ 170 $ 159 $ 65 $ 145 $ 163 Portion of rent expense deemed to represent interest factor 10 12 13 5 20 20 ----- ----- ----- ----- ----- ----- Fixed charges $ 349 $ 182 $ 172 $ 70 $ 165 $ 183 ===== ===== ===== ===== ===== ===== Ratio of earnings to fixed charges (a) 1.10 1.71 (b) 1.52 1.94 ===== ===== ===== ===== ===== =====
(a) Fixed charges exceeded earnings by $16 million for the year ended June 30, 1999. (b) Fixed charges exceeded earnings by $37 million for the Transition Period ended June 30, 1996. 30 EX-13 5 PAGES 22-67 OF ANNUAL REPORT TO SHAREHOLDERS 1 MANAGEMENT'S DISCUSSION AND ANALYSIS Our Company operates in four global business segments: music, filmed entertainment, recreation and other, and spirits and wine. The music business is conducted through Universal Music Group, which is the largest recorded music company in the world. Universal Music Group produces and distributes recorded music throughout the world in all major genres. Universal Music Group also manufactures, sells and distributes video products in the United States and internationally, and licenses music copyrights. The filmed entertainment and recreation and other businesses are conducted through Universal Studios Group. Our filmed entertainment business produces and distributes motion picture, television and home video products world-wide, operates and has ownership interests in a number of international cable channels and engages in the licensing of merchandising and film property rights. The recreation and other businesses operate theme parks, retail stores and are also involved in the development of entertainment software. The spirits and wine business, directly and through affiliates and joint ventures, produces, markets and distributes distilled spirits, wines, ports and sherries, coolers, beers, mixers and other low-alcohol beverages. In addition to marketing owned brands, the spirits and wine business also distributes distilled spirits, wine and beer brands owned by others. Management's discussion and analysis of our results of operations and liquidity should be read in conjunction with the accompanying financial statements. SIGNIFICANT TRANSACTIONS During the last three years, we entered into several significant transactions which have realigned our businesses and have impacted the comparability of our financial statements. ACQUISITION OF POLYGRAM On December 10, 1998, we acquired 99.5 percent of the outstanding shares of PolyGram N.V. (PolyGram), a global music and entertainment company, for $8,607 million in cash and approximately 47.9 million common shares of Seagram. Substantially all of the common shares were issued to Koninklijke Philips Electronics N.V., which had owned 75 percent of the PolyGram shares. The results of the operations of PolyGram are included in the results of our music and filmed entertainment segments from the date of acquisition. DISPOSITION OF TROPICANA On August 25, 1998, we completed the sale of Tropicana, consisting of Tropicana Products, Inc. and our global juice business (Tropicana) for $3,288 million in cash, which resulted in a pre-tax gain of $1,445 million ($1,072 million after tax). As a result of this disposal, we reported the results of Tropicana as discontinued operations for all periods presented. USA TRANSACTIONS On October 21, 1997, Universal acquired the remaining 50 percent interest in the USA Networks partnership from Viacom Inc. for $1.7 billion in cash. On February 12, 1998, Universal sold its acquired 50 percent interest in USA Networks to USA Networks, Inc. (USAi) and contributed its original 50 percent interest in USA Networks, the majority of its television assets and 50 percent of the international operations of USA Networks to USANi LLC. As a result of this transaction, Universal received $1,332 million in cash, a 10.7 percent interest in USAi and a 45.8 percent exchangeable interest in USANi LLC. Universal recognized a gross gain of $583 million, before taking into consideration the effect of the transactions, which impaired certain remaining television assets and transformed various related contractual obligations into adverse purchase commitments. The impairment losses and adverse purchase commitments arising from the transactions aggregated $223 million and were reflected in the net gain of $360 million ($222 million after tax). TIME WARNER SHARES On May 28, 1997, we sold 30 million shares of Time Warner common stock for $1.39 billion. The gain recognized in 1997 on the sale of the shares was $154 million ($100 million after tax). On February 5, 1998, we sold 15 million shares of Time Warner common stock for $958 million. On May 27, 1998, we sold our remaining 11.8 million shares of Time Warner common stock for $905 million. The aggregate gain on the sale of the shares in the fiscal year ended June 30, 1998 was $926 million ($602 million after tax). PUBLISHING GROUP On December 16, 1996, we sold our book-publishing unit, The Putnam Berkley Group, Inc. Proceeds from the sale were $330 million, resulting in a $64 million pre-tax 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. 22 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 2 DUPONT EQUITY WARRANTS On July 24, 1996, we sold 156 million equity warrants of E.I. du Pont de Nemours and Company to DuPont for $500 million in cash. The after-tax net proceeds were $479 million, the gain on the sale of the warrants was $60 million ($39 million after tax) and is included in interest, net and other in the fiscal year ended June 30, 1997. COMPARABILITY The discussion presented below includes an analysis of total Seagram and business segment results prepared in accordance with U.S. generally accepted accounting principals (GAAP). The supplemental financial data includes earnings before interest, taxes, depreciation and amortization, referred to as EBITDA. Because of the significant goodwill associated with our acquisitions, we believe EBITDA is an appropriate measure of operating performance. However, you should note that EBITDA is not a substitute for operating income, net income, cash flows and other measures of financial performance as defined by GAAP and may be defined differently by other companies. Investments in companies that are not consolidated with the results of Seagram are reported as "equity earnings from unconsolidated companies." This discussion includes, as supplemental financial data, information about our share of the results of revenues and EBITDA related to these investments. To enhance comparability, financial information for 1999 and 1998 is also presented on a pro forma basis which illustrates the effect of the acquisition of PolyGram, the disposition of Tropicana and the USA transactions, as if the transactions had occurred at the beginning of the 1998 fiscal year. We believe that pro forma results represent meaningful comparative information for assessing earnings trends because the pro forma results include comparable operations in each year presented. The discussion of the recreation and other and spirits and wine business segments does not include pro forma comparisons, since the pro forma adjustments did not impact those segments. The pro forma results are not necessarily indicative of the combined results that would have occurred had the events actually occurred at the beginning of our 1998 fiscal year. We believe this information will help you to better understand our business results. REVENUES CONSOLIDATED AND UNCONSOLIDATED [GRAPH] EBITDA CONSOLIDATED AND UNCONSOLIDATED [GRAPH] THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 23 3 RESULTS OF OPERATIONS EARNINGS SUMMARY
ACTUAL PRO FORMA TWELVE MONTHS TWELVE MONTHS ENDED JUNE 30, ENDED JUNE 30, U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997 1999 1998 -------- -------- -------- -------- -------- REVENUES $ 12,312 $ 9,474 $ 10,354 $ 15,344 $ 14,587 ======== ======== ======== ======== ======== OPERATING INCOME (LOSS) Music $ (126) $ (44) $ (58) $ 75 $ (124) Filmed Entertainment (206) 229 157 (281) 30 Recreation and Other 45 24 31 45 24 Spirits and Wine 552 464 663 552 464 Corporate (110) (120) (138) (110) (120) Restructuring charge - Music and Filmed Entertainment (405) -- -- -- -- Gain on sale of Putnam -- -- 64 -- -- -------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (250) 553 719 281 274 Interest, net and other 457 228 147 682 598 Gain on sale of Time Warner shares -- 926 154 -- 926 Gain on USA transactions 128 360 -- 128 360 Provision (benefit) for income taxes (33) 638 331 61 493 Minority interest (26) 48 12 4 16 Equity earnings (losses) from unconsolidated companies 137 (45) 62 130 (6) -------- -------- -------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS (383) 880 445 (208) 447 Income (loss) from discontinued Tropicana operations, after tax (3) 66 57 -- -- Gain on sale of discontinued Tropicana operations, after tax 1,072 -- -- -- -- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 686 $ 946 $ 502 $ (208) $ 447 ======== ======== ======== ======== ======== EARNINGS PER SHARE - BASIC Income (loss) from continuing operations $ (1.01) $ 2.51 $ 1.20 $ (.52) $ 1.12 Income (loss) from discontinued operations (.01) .19 .16 -- -- Gain on sale of discontinued operations 2.83 -- -- -- -- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 1.81 $ 2.70 $ 1.36 $ (.52) $ 1.12 ======== ======== ======== ======== ======== EARNINGS PER SHARE - DILUTED Income (loss) from continuing operations $ (1.01) $ 2.49 $ 1.20 $ (.52) $ 1.11 Income (loss) from discontinued operations (.01) .19 .15 -- -- Gain on sale of discontinued operations 2.83 -- -- -- -- -------- -------- -------- -------- -------- NET INCOME (LOSS) $ 1.81 $ 2.68 $ 1.35 $ (.52) $ 1.11 ======== ======== ======== ======== ======== Net cash provided by (used for) operating activities $ 935 $ (241) $ 664 Net cash (used for) provided by investing activities $ (6,136) $ 699 $ 1,708 Net cash provided by (used for) financing activities $ 5,563 $ 159 $ (2,175) SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies $ 12,312 $ 9,474 $ 10,354 $ 15,344 $ 14,587 Unconsolidated companies 2,202 1,722 1,473 2,202 2,081 -------- -------- -------- -------- -------- $ 14,514 $ 11,196 $ 11,827 $ 17,546 $ 16,668 ======== ======== ======== ======== ======== EBITDA Consolidated companies $ 1,028 $ 1,142 $ 1,182 $ 1,478 $ 1,555 Charge for Asia -- (60) -- -- (60) -------- -------- -------- -------- -------- 1,028 1,082 1,182 1,478 1,495 Unconsolidated companies 449 220 231 449 326 -------- -------- -------- -------- -------- 1,477 1,302 1,413 1,927 1,821 Adjustment for unconsolidated companies (449) (220) (231) (449) (326) Depreciation and amortization (773) (416) (393) (1,097) (1,108) Corporate (100) (113) (134) (100) (113) Restructuring charge - Music and Filmed Entertainment (405) -- -- -- -- Gain on sale of Putnam -- -- 64 -- -- -------- -------- -------- -------- -------- OPERATING INCOME (LOSS) $ (250) $ 553 $ 719 $ 281 $ 274 ======== ======== ======== ======== ========
24 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 4 1999 VERSUS 1998 ACTUAL Revenues increased 30 percent in the twelve months ended June 1999 compared to 1998. This was primarily due to the PolyGram acquisition and improved sales in all business segments. Operating income declined from $553 million in 1998 to a loss of $250 million in the current year. The reduction was largely driven by a $405 million pre-tax restructuring charge (discussed in Note 3 to the consolidated financial statements), higher amortization and depreciation expense and disappointing motion picture results. The impact of foreign currency exchange on 1999 was not significant. In 1999, EBITDA from consolidated companies decreased five percent to $1,028 million on total revenues of $12.3 billion. In the 1999 fiscal year, interest, net and other included net interest expense of $480 million which was offset by $23 million of dividend income from DuPont. The increase of $229 million from 1998 primarily reflects the funding of the PolyGram acquisition. During 1999, an additional gain from the USA transactions was recognized reflecting the reversal of $128 million of accrued costs due to the favorable settlement of certain contractual obligations and adverse purchase commitments. The minority interest income in 1999 included $21 million associated with the restructuring charge. The effective tax rate was six percent in fiscal 1999, compared with 40 percent in the prior year. The provision for 1999 included $45 million of taxes on the USA transactions and a $140 million benefit for the restructuring charge. The tax rate for ongoing operations (excluding the impact of the USA transactions, the restructuring charge, sale of Time Warner shares and spirits and wine charge) was 21 percent compared with 48 percent in 1998, largely due to the increased goodwill expense for which there is no associated tax benefit and taxes on earnings from unconsolidated equity investments. The equity in earnings of unconsolidated companies increased to $137 million in fiscal 1999 from a loss of $45 million in fiscal 1998. The increase in equity earnings primarily reflects the improved operating results at USANi LLC and the impact of the USA transactions. Earnings from Seagram's investments in USANi LLC are included in equity earnings from unconsolidated companies for all of 1999. In 1998, Seagram had a 100 percent interest in USA Networks from October 1997 until February 1998, during which time the results were consolidated. A net loss from continuing operations of $383 million or $1.01 per share (basic and diluted) was incurred in 1999, compared with net income from continuing operations of $880 million or $2.51 per basic share and $2.49 per share on a diluted basis for 1998. The net loss from continuing operations, excluding the restructuring charge, the gains on the sales of Time Warner shares and the USA transactions and a charge for spirits and wine operations in Asia, was $215 million or $0.57 per share (basic and diluted) in 1999 compared with income of $141 million or $0.40 per share (basic and diluted) in 1998. For the period to August 25, 1998, the loss from discontinued Tropicana operations, after tax, was $3 million or $0.01 per share (basic and diluted). During 1999, we recorded a pre-tax gain of $1,445 million ($1,072 million after tax or $2.83 per share, basic and diluted) on the sale of Tropicana. Net income including discontinued operations was $686 million or $1.81 per basic and diluted share in the fiscal year ended June 30, 1999, compared with $946 million or $2.70 per basic share and $2.68 per diluted share in the prior fiscal year. REVENUES BY BUSINESS SEGMENT GRAPH THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 25 5 PRO FORMA Revenues increased five percent in fiscal 1999 to $15.3 billion with growth in all business segments. Operating income was $281 million compared with $274 million in 1998. EBITDA from consolidated companies decreased one percent year-on-year. Increases in EBITDA outside the filmed entertainment segment were more than offset by disappointing performance of our film business. The effective income tax rate for the year ended June 30, 1999 was 22 percent compared with 51 percent in the prior year. The minority interest charge for 1999 was $4 million compared with $16 million in the prior year primarily due to current year losses in our film business. Equity in earnings of unconsolidated companies shows a similar improvement as the actual results, increasing to $130 million in 1999 from a loss of $6 million in 1998. A net loss of $208 million or $0.52 per share (basic and diluted) was incurred in fiscal 1999, compared with net income of $447 million or $1.12 per basic share and $1.11 per share on a diluted basis in 1998. Excluding the gains on the sales of Time Warner shares and the USA transactions and the prior year charge for spirits and wine operations in Asia, the pro forma net loss was $284 million or $0.71 per share (basic and diluted) in the current year, a slight improvement over the prior year when a net loss of $292 million or $0.73 per share (basic and diluted) was incurred. 1998 versus 1997 Our fiscal 1998 results were severely impacted by the economic and currency crises in Asia, which hampered business performance and resulted in a $60 million charge to spirits and wine operations in the second quarter of the fiscal year. Revenues of $9.5 billion declined from $10.4 billion in fiscal 1997. Excluding the unfavorable impact of foreign exchange and the contribution of Putnam from 1997, revenues declined five percent year-on-year. Operating income was $553 million and, after the charge for Asia, substantially below the prior year which included a $64 million pre-tax gain on the sale of Putnam. After excluding the 1998 charge for Asia and the 1997 contribution from Putnam, operating income declined three percent reflecting the decline in spirits and wine operations and increased depreciation and amortization expense. The incremental depreciation and amortization principally results from increased goodwill expense, from October to February, associated with the acquisition of the remaining 50 percent of USA Networks. EBITDA from consolidated operations was $1.1 billion compared with $1.2 billion in 1997. After excluding the charge for Asia and the contribution of Putnam, EBITDA decreased two percent. Interest, net and other, in fiscal 1998 included net interest expense of $255 million which was partially offset by $27 million of dividend income from Time Warner and DuPont. In 1997, net interest expense of $247 million was offset by $60 million in pre-tax gain on the sale of the DuPont warrants and $40 million of dividend income from Time Warner and DuPont. The net interest expense increase largely reflects a higher average debt balance, which is due to the funding of our purchase of the incremental 50 percent interest in USA Networks in October 1997 and share repurchases pursuant to our ongoing share repurchase program, partially offset by the repayment of debt with the proceeds from the USA transactions and the sales of Time Warner shares, discussed below. During fiscal 1998, we recognized a pre-tax gain on the sale of the remaining Time Warner shares of $926 million and a pre-tax gain on the USA transactions of $360 million. During 1997, we had a pre-tax gain of $154 million on the sale of Time Warner shares. The effective income tax rate was 40 percent in fiscal 1998 compared with 46 percent in the prior year. The underlying effective income tax rate for continuing operations (excluding the impact of the USA transactions, sale of Time Warner shares, sale of DuPont warrants, and spirits and wine charge) was 48 percent in 1998 compared with 43 percent in the prior fiscal year. The increase in the effective tax rate results from reduced earnings in relatively low tax jurisdictions in Asia. The minority interest charge in fiscal 1998 includes $35 million associated with the gain on the USA transactions. The equity in earnings of unconsolidated companies declined from earnings of $62 million in 1997 to a loss of $45 million in 1998 primarily due to the impact of the USA transactions, lower contributions from Cineplex Odeon Corporation and our spirits and wine joint ventures and higher amortization related to certain equity investments. Income from continuing operations was $880 million or $2.51 per basic share and $2.49 per diluted share for fiscal 1998, compared with $445 million or $1.20 per share (basic and diluted) in the prior year. Excluding the gain on the USA transactions (after taxes and minority interest), the after-tax gain on the sales of Time Warner shares, and the after-tax charge for spirits and wine operations in Asia, income from continuing operations in fiscal year 1998 was $141 million or $0.40 per share (basic and diluted). In 1997, excluding the after-tax gains on the sales of the DuPont warrants and Time Warner shares, income from continuing operations was $306 million or $0.82 per share (basic and diluted). 26 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 6 Income from discontinued Tropicana operations, after tax, was $66 million or $0.19 per share (basic and diluted) for fiscal year 1998, compared with $57 million or $0.16 per basic share and $0.15 per share on a diluted basis in the prior fiscal year. Revenues from discontinued operations were $2.0 billion in fiscal 1998 and $1.9 billion in the prior year. Operating income was $169 million in 1998 and $152 million in the prior year. Results of discontinued operations include allocations of consolidated interest expense totaling $39 million and $41 million for 1998 and 1997, respectively. The allocations were based on the ratio of net assets of discontinued operations to consolidated net assets. BUSINESS SEGMENT RESULTS MUSIC
ACTUAL PRO FORMA TWELVE MONTHS TWELVE MONTHS ENDED JUNE 30, ENDED JUNE 30, U.S. DOLLARS IN MILLIONS 1999 1998 1997 1999 1998 ------- ------- ------- ------- ------- REVENUES $ 3,751 $ 1,461 $ 1,427 $ 6,336 $ 6,108 ======= ======= ======= ======= ======= Operating income (loss) before restructuring charge $ (126) $ (44) $ (58) $ 75 $ (124) Restructuring charge (313) -- -- -- -- ------- ------- ------- ------- ------- OPERATING INCOME (LOSS) $ (439) $ (44) $ (58) $ 75 $ (124) ======= ======= ======= ======= ======= Equity earnings (losses) from unconsolidated companies $ 4 $ 4 $ (2) $ (3) $ (7) ======= ======= ======= ======= ======= SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies $ 3,751 $ 1,461 $ 1,427 $ 6,336 $ 6,108 Unconsolidated companies 61 68 73 61 68 ------- ------- ------- ------- ------- $ 3,812 $ 1,529 $ 1,500 $ 6,397 $ 6,176 ======= ======= ======= ======= ======= EBITDA Consolidated companies $ 347 $ 84 $ 76 $ 861 $ 708 Unconsolidated companies 5 6 (4) 5 6 ------- ------- ------- ------- ------- 352 90 72 866 714 Adjustment for unconsolidated companies (5) (6) 4 (5) (6) Depreciation and amortization (473) (128) (134) (786) (832) Restructuring charge (313) -- -- -- -- ------- ------- ------- ------- ------- OPERATING INCOME (LOSS) $ (439) $ (44) $ (58) $ 75 $ (124) ======= ======= ======= ======= =======
MUSIC REVENUES BY GEOGRAPHIC REGION [GRAPH] THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 27 7 1999 versus 1998 CONSOLIDATED OPERATIONS ACTUAL Revenues more than doubled in the fiscal year ended June 30, 1999, reflecting the acquisition of PolyGram and the success of our domestic and international repertoire. An operating loss of $126 million (excluding a pre-tax restructuring charge of $313 million) was incurred in the current year, compared to a loss of $44 million in the prior year. EBITDA, at $347 million, more than quadrupled in 1999. The significant increase in EBITDA reflects the PolyGram acquisition. The decline in operating income is principally driven by higher goodwill amortization. The acquisition of PolyGram, with its strong presence in local repertoire, when combined with our strength in the U.S. market, makes our music business the clear market leader in recorded music. In fiscal 1999, revenues generated in North America accounted for 45 percent of the total music revenues of $3,751 million. The European market accounted for 40 percent, Asia Pacific and Japan contributed 11 percent and Latin America accounted for the remaining four percent. The integration of PolyGram has been completed in many markets and continues on schedule in those remaining. PRO FORMA Revenues increased four percent to $6.3 billion in the twelve months ended June 30, 1999. In 1999, revenues were driven by solid performances from U2, Shania Twain, Jay-Z, Andrea Bocelli, Bee Gees and Sheryl Crow, among others, along with increases in higher-priced units. In total, 69 albums reached worldwide sales in excess of one million units compared with 52 in 1998. Operating income was $75 million for 1999, compared to a loss of $124 million in 1998. EBITDA increased 22 percent in 1999 compared to 1998. These improvements are due to a strong release schedule worldwide and the elimination of duplicate costs as we progress with the integration of PolyGram. By 2001, we expect to achieve our projected cost savings of at least $300 million annually. UNCONSOLIDATED OPERATIONS The equity in earnings from unconsolidated companies, consisting primarily of concert operations, was $4 million for the twelve months ended June 30, 1999, and was unchanged compared to the same period in 1998. In April 1999, the Universal Music Group announced an Internet alliance with BMG Entertainment, consisting of online music channels and an e-commerce site, getmusic.com. We believe this joint venture will position Universal as a leader in shaping the music industry on the Internet. 1998 versus 1997 CONSOLIDATED OPERATIONS In fiscal 1998, revenues increased two percent. Major albums in release during 1998 included those by Chumbawamba, K-Ci & JoJo, Trisha Yearwood and Smashmouth. In addition, the Company benefited from its significant investment internationally with the success of Aqua, a group from Denmark whose album Aquarium sold 8.9 million units in the 1998 fiscal year. The operating loss for music declined from $58 million in 1997 to $44 million for 1998 as margins improved primarily driven by a better mix. EBITDA increased 11 percent to $84 million largely due to progress at Universal Records, International and Music Publishing. UNCONSOLIDATED OPERATIONS The equity in earnings of unconsolidated companies increased to $4 million in fiscal 1998 from a loss of $2 million in fiscal 1997. 28 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 8 FILMED ENTERTAINMENT
ACTUAL PRO FORMA TWELVE MONTHS TWELVE MONTHS ENDED JUNE 30, ENDED JUNE 30, U.S. DOLLARS IN MILLIONS 1999 1998 1997 1999 1998 ------------ ------------ ------------ ------------ ------------ REVENUES $ 2,931 $ 2,793 $ 3,168 $ 3,378 $ 3,259 ============ ============ ============ ============ ============ Operating income (loss) before restructuring charge $ (206) $ 229 $ 157 $ (281) $ 30 Restructuring charge (92) -- -- -- -- ------------ ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) $ (298) $ 229 $ 157 $ (281) $ 30 ============ ============ ============ ============ ============ Equity earnings (losses) from unconsolidated companies $ 148 $ (28) $ 50 $ 148 $ 22 ============ ============ ============ ============ ============ SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies $ 2,931 $ 2,793 $ 3,168 $ 3,378 $ 3,259 Unconsolidated companies 1,689 1,133 749 1,689 1,492 ------------ ------------ ------------ ------------ ------------ $ 4,620 $ 3,926 $ 3,917 $ 5,067 $ 4,751 ============ ============ ============ ============ ============ EBITDA Consolidated companies $ (136) $ 316 $ 218 $ (200) $ 105 Unconsolidated companies 343 147 155 343 253 ------------ ------------ ------------ ------------ ------------ 207 463 373 143 358 Adjustment for unconsolidated companies (343) (147) (155) (343) (253) Depreciation and amortization (70) (87) (61) (81) (75) Restructuring charge (92) -- -- -- -- ------------ ------------ ------------ ------------ ------------ OPERATING INCOME (LOSS) $ (298) $ 229 $ 157 $ (281) $ 30 ============ ============ ============ ============ ============
1999 versus 1998 CONSOLIDATED OPERATIONS ACTUAL Filmed Entertainment revenues increased five percent in fiscal 1999. Operating income decreased from income of $229 million in the prior year to a loss of $206 million in the current year, excluding the $92 million pre-tax restructuring charge. The prior year results included operating income of $76 million for USA Networks from October 21, 1997 until February 12, 1998. In the current year the contribution of USANi LLC is included in equity from unconsolidated companies rather than consolidated operations. While recent releases of The Mummy and Notting Hill are encouraging, the Motion Picture Group results declined because of the disappointing box office performance of current year releases such as Babe: Pig in the City, Meet Joe Black, Virus and edTV. Also, comparisons with last year's results are difficult since those results benefited from the positive carryover of the successful releases of The Lost World: Jurassic Park and Liar, Liar. International Television and Library results declined year-on-year due to the loss of profit on products transferred in the USA transactions and lower profitability on television library sales. In connection with the assets acquired as part of the purchase of PolyGram, we are evaluating our future strategic opportunities within the domestic television production business. EBITDA declined from $316 million in the prior year to a loss of $136 million in the current year. The prior year results included $97 million of EBITDA related to USA Networks, which was consolidated from October 21, 1997 until February 12, 1998. There is no contribution from USA Networks in consolidated EBITDA in the current year. With the recent success of American Pie and Bowfinger early in fiscal 2000, the Motion Picture Group expects to improve its box office performance in fiscal year 2000, although we expect it will be several quarters before our film business returns to profitability. PRO FORMA Filmed Entertainment includes the results of PolyGram Filmed Entertainment in the Motion Picture Group and the prior year results reflect the USA transactions as though they had both occurred at July 1, 1997. On a pro forma basis, revenues increased four percent in the fiscal year ended June 30, 1999 to $3.4 billion. EBITDA was a loss of $200 million in 1999 compared to income of $105 million in 1998. Operating income decreased from income of $30 million in the prior year to a loss of $281 million in the current year. The results declined due to the weak performance of current year releases discussed above. THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 29 9 UNCONSOLIDATED OPERATIONS The equity in earnings from unconsolidated companies increased from a loss of $28 million for the twelve-month period in the prior year to income of $148 million in the current year. Revenues from unconsolidated companies increased 49 percent over the prior year; EBITDA more than doubled in the same period. The significant improvement is due primarily to improved operating results at USANi LLC and the impact of the USA transactions. In the current fiscal year, subsequent to the USA transactions, we have approximately a 49 percent interest in USANi LLC and the results are included in equity earnings from unconsolidated companies for the entire year. In the 1998 fiscal year, we had a 100 percent interest in USA Networks from October 1997 until February 1998, during which time the results were included in consolidated operations. We also benefited from improved operating results at Loews Cineplex in 1999 compared to Cineplex Odeon Corporation (owned in the prior year). In addition to USANi LLC and Loews Cineplex, the unconsolidated companies principally include United Cinemas International and Cinema International Corporation. 1998 versus 1997 CONSOLIDATED OPERATIONS In fiscal year 1998, revenues decreased 12 percent. Motion picture revenues, which accounted for approximately two-thirds of the $2.8 billion of revenues, declined substantially due to the disappointing box office performance of releases in 1998, including A Simple Wish, Primary Colors and Mercury Rising. The 1997 year benefited from the successful releases of The Lost World: Jurassic Park and Liar, Liar in the fourth quarter of that year. Operating income increased 46 percent to $229 million, and EBITDA increased 45 percent to $316 million; however, the 1998 results include operating income of $76 million and EBITDA of $97 million for USA Networks for the period when Universal owned 100 percent of USA Networks. UNCONSOLIDATED OPERATIONS The equity in earnings from unconsolidated companies declined from $50 million in fiscal 1997 to a loss of $28 million in fiscal 1998. Revenues from unconsolidated companies increased 51 percent, while EBITDA decreased five percent. The year-on-year variances were due primarily to the impact of the USA transactions. RECREATION AND OTHER
ACTUAL TWELVE MONTHS ENDED JUNE 30, U.S. DOLLARS IN MILLIONS 1999 1998 1997 ---------- ---------- ---------- REVENUES $ 818 $ 695 $ 825 Gain on sale of Putnam -- -- 64 ---------- ---------- ---------- $ 818 $ 695 $ 889 ========== ========== ========== OPERATING INCOME $ 45 $ 24 $ 31 ========== ========== ========== Equity losses from unconsolidated companies $ (17) $ (22) $ -- ========== ========== ========== SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies $ 818 $ 695 $ 889 Unconsolidated companies 290 289 272 ---------- ---------- ---------- $ 1,108 $ 984 $ 1,161 ========== ========== ========== EBITDA Consolidated companies (1) $ 133 $ 99 $ 102 Unconsolidated companies 92 60 56 ---------- ---------- ---------- 225 159 158 Adjustment for unconsolidated companies (92) (60) (56) Depreciation and amortization (88) (75) (71) ---------- ---------- ---------- OPERATING INCOME $ 45 $ 24 $ 31 ========== ========== ==========
(1) Excludes $64 million gain on sale of Putnam in 1997. 30 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 10 1999 versus 1998 CONSOLIDATED OPERATIONS Revenues for recreation and other increased 18 percent in the year and operating income almost doubled to $45 million. EBITDA increased 34 percent. These increases reflect the success of the Crash Bandicoot and Spyro video games, improved sales by Spencer Gifts and additional management fees from the expansion of Universal Studios Escape and the recently acquired Universal Studios Port Aventura. These increases were partially offset by a five percent decline in paid attendance at Universal Studios Hollywood, largely due to reduced Asian tourism. Increased operating expenses at the park were partially offset by a one percent increase in total per capita spending. UNCONSOLIDATED OPERATIONS The equity in earnings from unconsolidated companies improved from a loss of $22 million in the prior year to a loss of $17 million in the current year. Revenues from unconsolidated companies were flat year-on-year while EBITDA increased 53 percent. The improvement in the results is due to expansion at Universal Studios Escape, Universal Studios Port Aventura and a gain recognized by Sega GameWorks L.L.C. on the sale of its game sales operation to Sega in the first quarter. At Universal Studios Escape, the opening of Universal Studios Islands of Adventure, Hard Rock Live and CityWalk contributed to a 12 percent increase in paid attendance and a two percent increase in total per capita spending. 1998 versus 1997 CONSOLIDATED OPERATIONS Revenues declined 16 percent and operating income declined to $24 million principally due to the impact of the sale of Putnam during fiscal year 1997. Excluding the contribution of Putnam from the prior fiscal year, revenues increased three percent and operating income increased from $9 million to $24 million. The operating income increase is attributable to improved performance at Spencer Gifts, which benefited from new store openings and a slight increase in comparable store sales, and strong video game sales, principally Crash Bandicoot 2. EBITDA decreased three percent to $99 million. EBITDA at Universal Studios Hollywood was lower as a 13 percent decline in paid attendance more than offset a three percent increase in per capita spending. The attendance shortfall was caused by the impact of El Nino, as well as difficult comparisons with the prior year that benefited from the opening of Jurassic Park -- The Ride in June 1996. UNCONSOLIDATED OPERATIONS The equity in earnings from unconsolidated companies declined from breakeven in fiscal 1997 to a loss of $22 million in fiscal 1998 largely due to higher amortization associated with certain equity investments. Revenues from unconsolidated companies increased six percent, and EBITDA increased seven percent year-on-year. The improvement in revenues and EBITDA was largely due to stronger results at Universal Studios Florida. In Florida, paid attendance declined two percent from 1997, however, EBITDA was higher because of an increase in the admission price as well as a nine percent increase in total RECREATION AND OTHER REVENUES [GRAPH] THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 31 11 turnstile attendance due to a promotion for second-day free admission. The promotion resulted in higher revenues and margins at the theme park. SPIRITS AND WINE
ACTUAL TWELVE MONTHS ENDED JUNE 30, U.S. DOLLARS IN MILLIONS 1999 1998 1997 ---------- ---------- ---------- REVENUES $ 4,812 $ 4,525 $ 4,870 ========== ========== ========== Operating income before charge for Asia $ 552 $ 524 $ 663 Charge for Asia -- (60) -- ---------- ---------- ---------- OPERATING INCOME $ 552 $ 464 $ 663 ========== ========== ========== Equity earnings from unconsolidated companies $ 2 $ 1 $ 14 ========== ========== ========== SUPPLEMENTAL FINANCIAL DATA: REVENUES Consolidated companies $ 4,812 $ 4,525 $ 4,870 Unconsolidated companies 162 232 379 ---------- ---------- ---------- $ 4,974 $ 4,757 $ 5,249 ========== ========== ========== EBITDA Consolidated companies $ 684 $ 643 $ 786 Charge for Asia -- (60) -- ---------- ---------- ---------- 684 583 786 Unconsolidated companies 9 7 24 ---------- ---------- ---------- 693 590 810 Adjustment for unconsolidated companies (9) (7) (24) Depreciation and amortization (132) (119) (123) ---------- ---------- ---------- OPERATING INCOME $ 552 $ 464 $ 663 ========== ========== ==========
1999 versus 1998 CONSOLIDATED OPERATIONS Revenues increased six percent and operating income increased 19 percent in fiscal 1999. Operating income in the prior year included a $60 million charge related to operations in Asia. Excluding the impact of this charge, operating income increased five percent. Operating income (excluding the charge for Asia) as a percentage of revenues for total spirits and wine is essentially flat year-on-year at 12 percent. Asia Pacific's revenues increased 79 percent. The increase is principally due to the June 1998 acquisition of the remaining shares of our Korean affiliate, Doosan Seagram Co., Ltd., and the inclusion of their results in consolidated operations for 1999. Additionally, an improvement in the difficult economic conditions experienced in the region in 1998 also contributed to the increase. Revenues in North America increased four percent, reflecting higher volumes and pricing. Europe's revenues increased four percent year-on-year. In Latin America, revenues declined six percent due to the difficult economic conditions in the region, particularly in Brazil. In the twelve months ended June 30, 1999, cost of goods sold as a percentage of revenues increased to 53.3 percent from 52.7 percent the prior year. Selling, general and administrative expenses as a percentage of revenues decreased to 34.7 percent from 35.9 percent due to slight reductions in both brand spending and overhead expenses coupled with improved revenues. Total brand spending declined two percent at constant exchange rates in 1999. Brand equity spending increased one percent at constant exchange rates as we continued to invest for future growth by supporting our brands in key markets. The brand equity growth reflected an increased emphasis on the consumer and was focused behind core strategic brands, particularly Crown Royal Canadian Whisky and ABSOLUT VODKA in North America and Chivas Regal Scotch Whisky and Martell Cognac globally. Spirits and wine case volumes, including unconsolidated companies, increased one percent in 1999 as the performance of our global brands was mixed. Volumes in North America were strong, in particular for Crown Royal Canadian Whisky and 32 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 12 Captain Morgan Rum. Globally, volumes for Crown Royal Canadian Whisky and Captain Morgan Rum increased five and 14 percent, respectively. ABSOLUT VODKA, which is owned by V&S Vin & Spirit AB and distributed by the Company in major international markets, had a nine percent increase in volume. Case volumes of several global brands declined including Martell and Chivas which were down three and nine percent, respectively. EBITDA increased 17 percent. Excluding the impact of the $60 million charge for Asia Pacific from the prior year results, EBITDA would have increased six percent. UNCONSOLIDATED OPERATIONS The equity in earnings of unconsolidated companies was $2 million in 1999 compared to $1 million in the prior year. Revenues from unconsolidated companies declined by 30 percent and EBITDA increased 29 percent. The year-on-year variances are primarily due to changes in the entities that are included in unconsolidated companies. In 1999, the results include Kirin-Seagram Limited in Japan for the entire twelve months and Seagram (Thailand) Limited for nine months to March 1999 at which time we increased our investment in Thailand and began to consolidate that affiliate. In 1998 the unconsolidated companies also included Doosan Seagram Co., Ltd. in Korea. As a result of an additional investment in Doosan Seagram Co., Ltd., at the end of June 1998, that affiliate's results are now consolidated. 1998 versus 1997 CONSOLIDATED OPERATIONS As a result of the economic and currency crises in Asia, Seagram recorded a $60 million charge related to its operations in Asia in the second quarter of the fiscal year ended June 30, 1998. The charge was comprised of approximately $30 million for increased bad debt reserves, $15 million for severance and related costs, and the remainder for other asset write-downs. Spirits and wine revenues were adversely affected by difficult market conditions in Asia Pacific and the impact of unfavorable foreign exchange. Revenues declined seven percent to $4.5 billion. Operating income declined 30 percent to $464 million after the $60 million charge for Asia. Excluding the impact of unfavorable foreign exchange and the charge for Asia, operating income would have decreased 10 percent. Operating income, before the charge, as a percent of revenues declined from 13.6 percent to 11.6 percent reflecting the shortfall in the Asian market where predominantly higher margin products are sold. The decline in revenues in Asia is due to lower shipments in order to deliberately reduce distributor inventories, particularly in Greater China, and diminished consumer demand. Margins in Asia deteriorated as demand has shifted away from imported products to less expensive locally produced spirits. Revenues in North America increased five percent due to improved mix and sustained price increases. Revenues in Latin America increased four percent. Revenues for Europe and Africa declined four percent but would have increased three percent excluding the impact of unfavorable foreign exchange. Key growth markets in Europe included the U.K., Spain and Italy. In fiscal 1998 cost of goods sold, before the charge, as a percent of revenues was unchanged at 52.7 percent. Selling, general and administrative expenses, before the charge, as a percent of revenues increased to 35.9 percent from 33.7 percent as reductions in overhead and brand spending did not fully compensate for the rapid revenue decline in Asia. Total brand spending declined 12 percent, or approximately three percent at constant exchange rates, primarily due to the volume shortfall. SPIRITS AND WINE REVENUES BY GEOGRAPHIC REGION [GRAPH] THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 33 13 Spirits and wine case volumes, including unconsolidated companies, decreased one percent in fiscal year 1998 as the performance of our global brands was mixed. UNCONSOLIDATED OPERATIONS The equity in earnings of unconsolidated companies was $1 million in 1998 compared to $14 million in 1997. The year-on-year declines are primarily due to the difficult market conditions in Asia Pacific where all the unconsolidated companies are located. In 1998 and 1997, the results include Kirin-Seagram Limited in Japan, Seagram (Thailand) Limited and Doosan Seagram Co., Ltd., in Korea. LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK FINANCIAL POSITION Current assets of $8.9 billion at June 30, 1999 were $1.9 billion higher than at June 30, 1998. Current liabilities increased $3.4 billion to $8.1 billion at June 30, 1999. The increases in current assets and current liabilities are primarily due to the acquisition of PolyGram. Shareholders' equity was $12.9 billion at June 30, 1999, compared with $9.3 billion at June 30, 1998. In December 1998, $2 billion in common shares were issued in connection with the acquisition of PolyGram. In June 1999, we completed a $1.4 billion common share issuance. Our total long- and short-term debt, net of cash and short-term investments, increased to $7.0 billion at June 30, 1999 from $2.7 billion at June 30, 1998, reflecting an increase in borrowings used primarily to finance the acquisition of PolyGram. Our ratio of net debt to total capitalization (including minority interest) increased from 19 percent to 32 percent, reflecting the larger debt outstanding. CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities totaled $935 million in the 1999 fiscal year, an increase of $1.2 billion from 1998. Contributing to this favorable development were lower working capital requirements, partially offset by a reduction in income from continuing operations. In 1998, operating activities used cash of $241 million, following net cash provided of $664 million in 1997. The increased cash requirements in the 1998 fiscal year reflect reduced income from continuing operations (excluding the gains on the USA transactions and the Time Warner share sales) and higher working capital requirements. CASH FLOWS FROM INVESTING ACTIVITIES Net cash used for investing activities was $6.1 billion in fiscal year 1999. The $3.3 billion pre-tax proceeds from the Tropicana disposition were more than offset by the use of $8.6 billion of cash for the PolyGram acquisition, an additional investment in USANi LLC and USA Networks, Inc. of $243 million and capital expenditures of $531 million. The capital expenditures by business segment were Music -- $135 million, Filmed Entertainment -- $134 million, Recreation and Other -- $134 million and Spirits and Wine -- $128 million. In 1998, net cash provided by investing activities was $699 million. The net cash provided included $1.3 billion gross proceeds from the USA transactions and $1.9 billion proceeds from the sales of 26.8 million Time Warner shares. Partially offsetting these proceeds were the $1.7 billion acquisition of the incremental 50 percent interest in USA Networks and capital expenditures of $410 million, broken down by business segment as follows: Music -- $31 million, Filmed Entertainment -- $94 million, Recreation and Other -- $115 million and Spirits and Wine -- $170 million. In addition, $386 million of cash was used for sundry investments, including investments in Doosan Seagram Co., Ltd., Seagram's spirits and wine affiliate in Korea, Universal Studios Port Aventura, a theme park located in Spain, and Loews Cineplex Entertainment Corporation. Net cash provided by investing activities in 1997 was $1.7 billion and included $1.39 billion gross proceeds from the sale of 30 million Time Warner shares, $500 million proceeds on the sale of the DuPont warrants and $330 million proceeds on the sale of Putnam. These cash proceeds were partially offset by capital expenditures of $393 million: Music - -- $47 million, Filmed Entertainment -- $44 million, Recreation and Other -- $115 million and Spirits and Wine -- $187 million. CASH FLOWS FROM FINANCING ACTIVITIES Financing activities in fiscal 1999 provided $5.6 billion, an increase of $5.4 billion over the prior year, primarily used to finance the PolyGram acquisition. Contributing to the significant increase were a $1.4 billion common share issuance, a $900 million issuance of Adjustable Conversion-rate Equity Security Units and long-term debt issuances and other borrowings totaling $5.1 billion. On July 15, 1999, we issued additional Adjustable Conversion-rate Equity Security Units for approximately $74 million. In 1999, we made dividend payments of $247 million. In the fiscal year ended June 30, 1998, financing activities provided $159 million as compared to 1997 when $2.2 billion was used. In 1998, an increase in short-term borrowings of $1.1 billion was used to finance the acquisition of the incremental 50 percent interest in 34 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 14 USA Networks. This increase was offset by dividend payments of $231 million and $753 million used to repurchase common shares. In 1997, we made dividend payments of $239 million, used $416 million to repurchase common shares and decreased short-term borrowings by $1.6 billion. Cash used by the discontinued Tropicana operations to the disposition date of August 25, 1998 was $3 million as compared to the cash provided by discontinued Tropicana operations of $67 million in fiscal 1998 and $16 million in fiscal 1997. WORKING CAPITAL Our working capital position is reinforced by available credit facilities of $7.6 billion. These facilities are used to support our commercial paper borrowings and are available for general corporate purposes. We believe our access to external capital resources, together with internally generated liquidity, will be sufficient to satisfy existing commitments and plans, and to provide adequate financial flexibility. Capital needs of film studios are significant. In order to effectively manage our capital needs and costs in the film business, we utilize a variety of arrangements, including co-production, insurance, contingent profit participation and the sale of certain distribution rights. We have entered into an agreement to sell substantially all films produced or acquired during the term of the agreement for amounts which approximate costs. We serve as sole distributor and earn a distribution fee, which is variable and contingent upon the films' performance. We also have the option to repurchase the films at certain future dates. At the expiration of this agreement in 2000, the funding of film production activities will be met through internally generated funds or from other external sources. Evolving technology allows consumers to experience music in new electronic mediums and formats. Through a variety of strategic alliances and independent initiatives, we continue to invest resources in the technology and electronic commerce areas. During 1999, technology spending approximated $30 million. INTERNATIONAL EXCHANGE We are exposed to changes in financial market conditions in the normal course of business because we conduct business in many foreign currencies and engage in ongoing investing and funding activities in many countries. Market risk is the uncertainty to which future earnings or asset/liability values are exposed due to operating cash flows denominated in foreign currencies and various financial instruments used in the normal course of operations. We have established policies, procedures and internal processes governing management of market risks and the use of financial instruments to manage our exposure to such risks. We are also exposed to changes in interest rates primarily as a result of our borrowing and investing activities that include short-term investments and borrowings and long-term debt used to maintain liquidity and fund business operations. We continue to utilize U.S. dollar-denominated commercial paper and bank borrowings to fund seasonal working capital requirements in the U.S. and Canada and also borrow in different currencies from other sources to meet the borrowing needs of our affiliates. The nature and amount of our long-term and short-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. Operating cash flows denominated in foreign currencies as a result of our international business activities and certain borrowings are exposed to changes in foreign exchange rates. We continually evaluate our foreign currency exposure (primarily British pound and euro), based on current market conditions and the business environment. In order to mitigate the effect of foreign currency risk, we engage in hedging activities. The magnitude and nature of such hedging activities are explained in Note 6 to the consolidated financial statements. Our company employs a variance/covariance approach in our calculation of Value at Risk (VaR), which measures the potential losses in fair value or earnings that could arise from changes in market conditions, using a 95 percent confidence level and assuming a one-day holding period. The VaR, which is the potential loss in fair value, attributable to our interest rate sensitive exposures at June 30, 1999 was $49 million. This exposure is primarily related to long-term debt with fixed interest rates. The VaR, which is the potential loss in earnings associated with our exposure to foreign exchange rates, primarily to hedge cash flow exposures denominated in foreign currencies, was $12 million at June 30, 1999. These exposures include intercompany trade accounts, service fees, intercompany loans and third-party debt. We are subject to other foreign exchange market risk exposure as a result of non-financial instrument anticipated foreign currency cash flows which are difficult to reasonably predict, and have therefore not been included in the Company's VaR calculation. THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 35 15 YEAR 2000 ISSUE We have dedicated substantial resources to minimize potential business disruption associated with the Year 2000 (Y2K) issue. Modification or replacement of time or date sensitive information technology (IT) is necessary so that the affected systems will properly recognize dates beyond December 31, 1999. If not corrected, certain systems may fail or miscalculate data. Failures or miscalculations may not only result from IT systems, but also from non-IT systems, such as equipment that relies on embedded technology. Risks associated with the Y2K issue also include the potential impact of third parties on our business, including vendors and government services. The Y2K issue could impact all areas of our business, including the production and distribution of music, film and beverage products, operation of theme parks and retail stores. We have developed a comprehensive program to address Y2K issues. We have project management offices at each major business group (Universal Music Group, Universal Studios Group and The Seagram Spirits and Wine Group). Each office is responsible for identifying and addressing the systems in that business group which are likely to be impacted by the Y2K date change and contacting key vendors, customers and others with whom the respective group does business to determine their state of readiness. In addition to the project management offices, we have an established Executive Steering Committee which coordinates Y2K issues across the business groups. Our program is structured so that strategies are implemented by each business group to address IT and non-IT issues. The program, as well as our anticipated timeframe for completion, follows: ASSESSMENT This step includes identifying computer hardware, software and network components and equipment potentially impacted by Y2K problems for both IT and non-IT systems, and distinguishing those that are critical from those that are not. Critical systems are those systems that would result in a significant impairment of our ability to conduct our basic business operations should they fail, such as production and distribution, billing and collections, payments to employees and vendors, and financial reporting. Our assessment phase is complete. REMEDIATION This step includes converting noncompliant system code or equipment to a state where Y2K issues are resolved. In some cases, replacing or abandoning certain systems is the most cost-effective remediation approach. Of the approximate 4,100 critical systems identified during the assessment phase of our program, remediation of 84 percent of the systems is now considered complete and 16 percent are currently in the remediation stage, with completion of all critical systems expected by October 31, 1999. TESTING AND VALIDATION Testing and validation includes ensuring that systems which have been through the remediation process will operate properly beginning in January 2000. We anticipate that all critical systems will have been tested and validated by October 31, 1999. THIRD-PARTY VENDORS AND CUSTOMERS We assess and validate third-party vendors and customers as part of our program. Our assessment of third-party Y2K readiness occurs through a variety of methods including interviews, on-site assessment and testing. Third-party assessment will be completed by September 30, 1999. CONTINGENCY PLANNING In addition to assessment, remediation and testing of systems, we are in an ongoing process of developing contingency plans for systems which may not be Y2K ready by December 31, 1999. Contingency planning is also under way to address the potential impacts of Y2K failure by third parties, which could have an adverse impact on our operations. Our contingency objective is to ensure that alternative processes are identified which will enable us to maintain a minimum acceptable operational capacity should failures occur. We anticipate that all contingency plans will be in place by December 31, 1999. We expect to incur approximately $75 million in costs related to assessment and remediation of IT and non-IT systems. Through June 30, 1999, 50 percent of the estimated costs have been incurred. Our estimated costs do not include the costs of redeployed internal resources or the costs of internally developed software or hardware which is being replaced or developed in the normal course of business. The total cost estimate is also subject to change as the program progresses. We expect that certain remediation efforts related to non-critical systems and contingency planning efforts will extend well into 2000. All costs associated with our plan will be funded through operations. 36 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 16 The costs of the Company's Y2K remediation efforts are based upon management's best estimates, which require assumptions about future events, availability of resources and personnel, third-party remediation actions and other factors. There are no assurances that these estimates will be accurate, and actual amounts may differ materially based on a number of factors, including the availability and cost of resources to undertake remediation activities and the scope and nature of the work required to complete remediation. We expect that the Y2K issue will not pose significant operational problems. However, the Company has not completed all phases of its program and is dependent on third parties whose progress is not within its control. As with many multinational companies, we could experience disruptions in services from third-party providers, such as certain services provided by governments or other service providers, and in certain areas where attention to the Y2K issue has not been significant. While our Y2K plan is expected to significantly reduce the likelihood of business disruptions, delays in the implementation of new systems, a failure to fully identify all embedded technology potentially affected by the Y2K issues and impacts on suppliers, customers, financial institutions and government agencies, or a failure of third parties to adequately address their respective Y2K issues could have a material adverse effect on our operations. Statements concerning Y2K issues that contain more than historical information may be considered forward-looking statements, which are subject to risks and uncertainties. Actual results may differ materially from those expressed in the forward-looking statements, and our Y2K discussion should be read in conjunction with our statement on forward-looking statements which appears below. EURO CONVERSION In January 1999, certain member countries of the European Union began operating with a new common currency, the euro, which was established by fixing conversion rates between their existing currencies and the euro. The euro may be used in business transactions along with existing currencies until June 2002, at which time the existing currencies will be removed from circulation. We conduct business in member countries and, accordingly, continue to evaluate the effects of the euro conversion on our European operations, principally in the music and spirits and wine businesses. We have established processes to address the issues raised by this currency conversion, including the impact on information technology and other systems, currency risk, financial instruments, taxation and competitive implications. Based upon progress to date, we believe that the introduction of the euro and phasing out of existing currencies will not have a material impact on our financial position or results of operations. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This report contains statements that are "forward-looking statements," in that it includes statements regarding the intent, belief or current expectations of our management with respect to our future operating performance. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements that express forecasts, expectations and projections with respect to future matters, including the launching or prospective development of new business initiatives and products, anticipated music or motion picture releases, Internet or theme park projects, Y2K remediation efforts and anticipated cost savings or synergies are forward-looking statements within the meaning of the Act. Such forward-looking statements are not guarantees of future performance. Actual results may differ materially from our forward-looking statements as a result of certain risks and uncertainties, many of which are outside our control, including but not limited to: o Changes in global and localized economic and political conditions that may affect attendance and spending at our theme parks, purchases of our consumer products and the performance of our filmed entertainment operations. o Changes in financial and equity markets, including significant interest rate and foreign currency rate fluctuations, which may affect our access to, or increase the cost of financing for our operations and investments. o Increased competitive product and pricing pressures and unanticipated actions by competitors that could impact our market share, increase expenses and hinder our growth potential. o Changes in consumer preferences and tastes, which may affect all our business segments. THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 37 17 o Adverse weather conditions or natural disasters, such as hurricanes and earthquakes, which may, among other things, impair performance at our theme parks in California, Florida and Spain. o Legal and regulatory developments, including changes in accounting standards, taxation requirements, such as the impact of excise tax increases with respect to the spirits and wine business, and environmental laws. o Technological developments that may affect the distribution of our products or create new risks to our ability to protect our intellectual property rights. o The uncertainties of litigation and other risks and uncertainties detailed from time to time in our filings with the Securities and Exchange Commission. QUARTERLY HIGH AND LOW SHARE PRICES
FISCAL YEARS ENDED JUNE 30, 1999 1998 1997 HIGH LOW HIGH LOW HIGH LOW ---- --- ---- --- ---- --- New York Stock Exchange First Quarter US$ 41.94 US$ 28.69 US$ 41.13 US$ 33.94 US$ 38.38 US$ 30.88 Second Quarter 38.38 25.13 37.63 30.25 41.88 35.25 Third Quarter 51.25 37.81 39.75 31.44 42.75 38.00 Fourth Quarter 65.00 48.81 46.69 36.81 41.88 35.75 Toronto Stock Exchange First Quarter C$ 62.25 C$ 43.80 C$ 56.70 C$ 46.45 C$ 52.25 C$ 42.25 Second Quarter 59.50 38.65 52.30 43.25 57.40 47.50 Third Quarter 77.35 58.00 56.50 44.70 57.30 51.90 Fourth Quarter 98.00 72.00 67.50 52.65 58.10 50.00 ===== ===== ===== ===== ===== =====
RETURN TO SHAREHOLDERS The Company had 6,623 registered shareholders at September 1, 1999. The Company's common shares are listed on the New York, Toronto, Montreal, Vancouver and London Stock Exchanges. Closing prices at June 30, 1999 on the New York and Toronto Stock Exchanges were $50.38 and C$73.35, respectively. In the fiscal years ended June 30, 1999 and 1998, the Company paid dividends of $0.165 per share per quarter. 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. 38 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 18 Exhibit 99 CONSOLIDATED STATEMENT OF INCOME
FISCAL YEARS ENDED JUNE 30, U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ Revenues $12,312 $9,474 $10,354 Cost of revenues 7,337 5,525 6,262 Selling, general and administrative expenses 4,820 3,396 3,373 Restructuring charge 405 -- -- ------------------------------------ Operating income (loss) (250) 553 719 Interest, net and other 457 228 147 Gain on sale of Time Warner shares -- 926 154 Gain on USA transactions 128 360 -- ------------------------------------ (579) 1,611 726 Provision (benefit) for income taxes (33) 638 331 Minority interest (26) 48 12 Equity earnings (losses) from unconsolidated companies 137 (45) 62 ------------------------------------ Income (loss) from continuing operations (383) 880 445 Income (loss) from discontinued Tropicana operations, after tax (3) 66 57 Gain on sale of discontinued Tropicana operations, after tax 1,072 -- -- ------------------------------------ Net income $ 686 $ 946 $ 502 ==================================== EARNINGS PER SHARE - BASIC Income (loss) from continuing operations $ (1.01) $ 2.51 $ 1.20 Discontinued Tropicana operations, after tax 2.82 .19 .16 ------------------------------------ Net income $ 1.81 $ 2.70 $ 1.36 ==================================== EARNINGS PER SHARE - DILUTED Income (loss) from continuing operations $ (1.01) $ 2.49 $ 1.20 Discontinued Tropicana operations, after tax 2.82 .19 .15 ------------------------------------ Net income $ 1.81 $ 2.68 $ 1.35 - ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 39 19 CONSOLIDATED BALANCE SHEET
JUNE 30, JUNE 30, U.S. DOLLARS IN MILLIONS 1999 1998 - ------------------------------------------------------------------------------------------ ASSETS Cash and cash equivalents $ 1,533 $ 1,174 Receivables, net of allowances 2,985 2,155 Inventories 2,627 2,555 Other current assets 1,736 1,087 --------------------- TOTAL CURRENT ASSETS 8,881 6,971 Investments 5,663 4,971 Film costs, net of amortization 1,251 1,272 Music catalogs, artists' contracts and advances 3,348 761 Property, plant and equipment, net 3,158 2,733 Goodwill and other intangible assets 11,871 3,076 Other assets 839 661 Net assets of discontinued Tropicana operations -- 1,734 --------------------- $ 35,011 $ 22,179 ===================== LIABILITIES AND SHAREHOLDERS' EQUITY Short-term borrowings and current portion of long-term debt $ 1,053 $ 1,653 Payables and accrued liabilities 4,808 2,354 Accrued royalties and participations 2,285 702 --------------------- TOTAL CURRENT LIABILITIES 8,146 4,709 Long-term debt 7,468 2,225 Accrued royalties and participations 434 421 Deferred income taxes 2,698 2,598 Other liabilities 1,499 995 Minority interest 1,878 1,915 --------------------- TOTAL LIABILITIES 22,123 12,863 --------------------- Shareholders' Equity Shares without par value 4,575 848 Retained earnings 8,707 8,268 Accumulated other comprehensive income (394) 200 --------------------- TOTAL SHAREHOLDERS' EQUITY 12,888 9,316 --------------------- $ 35,011 $ 22,179 ==========================================================================================
The accompanying notes are an integral part of these financial statements. Approved by the Board /s/ Edgar M. Bronfman /s/ Matthew W. Barrett Edgar M. Bronfman Matthew W. Barrett Director Director 40 20 CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, U.S. DOLLARS IN MILLIONS 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Income (loss) from continuing operations $ (383) $ 880 $ 445 Adjustments to reconcile income from continuing operations to net cash provided: Depreciation and amortization of assets 527 289 290 Amortization of goodwill 246 127 103 Gain on sale of Time Warner shares, DuPont warrants and Putnam -- (926) (278) Gain on USA transactions (128) (360) -- Minority interest in income (loss) of subsidiaries (26) 48 12 Equity earnings from unconsolidated companies (greater) less than dividends received (45) 101 45 Deferred income taxes 92 447 (53) Other 120 (69) 145 Changes in assets and liabilities, net of effect of acquisitions and dispositions: Receivables, net of allowances 952 (324) (238) Inventories (85) 14 6 Other current assets 6 (524) (365) Music catalogs, artists' contracts and advances (2) (88) (2) Payables and accrued liabilities (69) (7) 513 Other liabilities (270) 151 41 ------- ------- ------- 1,318 (1,121) 219 ------- ------- ------- Net cash provided by (used for) operating activities 935 (241) 664 ------- ------- ------- INVESTING ACTIVITIES Acquisition of PolyGram (8,607) -- -- Sale of Tropicana 3,288 -- -- Investments in USANi LLC and USA Networks (243) (1,700) -- USA transactions -- 1,332 -- Sale of Time Warner shares, DuPont warrants and Putnam -- 1,863 2,217 Capital expenditures (531) (410) (393) Other (43) (386) (116) ------- ------- ------- Net cash (used for) provided by investing activities (6,136) 699 1,708 ------- ------- ------- FINANCING ACTIVITIES Dividends paid (247) (231) (239) Issuance of shares 1,417 -- -- Issuance of shares upon exercise of stock options and conversion of LYONs 314 86 107 Issuance of Adjustable Conversion-rate Equity Security Units 900 -- -- Issuance of long-term debt 5,086 41 3 Repayment of long-term debt (1,066) (37) (29) Shares purchased and retired -- (753) (416) (Decrease) increase in short-term borrowings and current portion of long-term debt (841) 1,053 (1,601) ------- ------- ------- Net cash provided by (used for) financing activities 5,563 159 (2,175) ------- ------- ------- Net cash provided by continuing operations 362 617 197 ------- ------- ------- Net cash (used for) provided by discontinued operations (3) 67 16 ------- ------- ------- NET INCREASE IN CASH AND CASH EQUIVALENTS 359 684 213 ------- ------- ------- CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,174 490 277 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,533 $ 1,174 $ 490 ====================================================================================================================================
The accompanying notes are an integral part of these financial statements. 41 21 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COMMON SHARES WITHOUT ACCUMULATED PAR VALUE OTHER TOTAL NUMBER RETAINED COMPREHENSIVE SHAREHOLDERS' U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS (THOUSANDS) AMOUNT EARNINGS INCOME EQUITY - ---------------------------------------------------------------------------------------------------------------------------- BALANCE AT JUNE 30,1996 373,059 $ 725 $8,389 $ 91 $9,205 Components of comprehensive income: Net income 502 502 Currency translation adjustments (181) (181) Unrealized holding gain in equity securities, net of $239 tax 444 444 ------ Total comprehensive income 765 ------ Dividends paid ($.645 per share) (239) (239) Shares issued - exercise of stock options 3,243 98 98 - conversion of LYONs 296 9 9 Shares purchased and retired (11,317) (23) (393) (416) ----------------------------------------------------------------- BALANCE AT JUNE 30, 1997 365,281 809 8,259 354 9,422 Components of comprehensive income: Net income 946 946 Currency translation adjustments (72) (72) Unrealized holding loss in equity securities, net of $44 tax benefit (82) (82) ---- Total comprehensive income 792 ---- Dividends paid ($.66 per share) (231) (231) Shares issued - exercise of stock options 2,751 84 84 - conversion of LYONs 48 2 2 Shares purchased and retired (20,948) (47) (706) (753) ----------------------------------------------------------------- BALANCE AT JUNE 30, 1998 347,132 848 8,268 200 9,316 Components of comprehensive income: Net income 686 686 Currency translation adjustments (599) (599) Unrealized holding gain in equity securities, net of $8 tax 5 5 ---- Total comprehensive income 92 ---- Dividends paid ($.66 per share) (247) (247) Shares issued - exercise of stock options and other compensation 8,493 312 312 - conversion of LYONs 26 2 2 - issuance of common shares 76,904 3,413 3,413 ---------------------------------------------------------------- BALANCE AT JUNE 30, 1999 432,555 $4,575 $8,707 $ (394) $12,888 ============================================================================================================================
The accompanying notes are an integral part of these financial statements. 42 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The Seagram Company Ltd. operates in four global business segments: music, filmed entertainment, recreation and other, and spirits and wine. The music business is conducted through Universal Music Group, which produces and distributes recorded music throughout the world in all major genres. Universal Music Group also manufactures, sells and distributes video products in the United States and internationally, and licenses music copyrights. The filmed entertainment business produces and distributes motion picture, television and home video products worldwide, operates and has ownership interests in a number of international cable channels and engages in the licensing of merchandising and film property rights. The recreation and other businesses operate theme parks, retail stores and are also involved in the development of entertainment software. The spirits and wine business, directly and through affiliates and joint ventures, produces, markets and distributes distilled spirits, wines, ports and sherries, coolers, beers, mixers and other low-alcohol beverages. In addition to marketing owned brands, the spirits and wine business also distributes distilled spirits, wine and beer brands owned by others. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Seagram Company Ltd. is headquartered in Canada, and more than 50 percent of the Company's shares are held by U.S. residents. As a result, the Company has prepared its consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP). U.S. GAAP applicable to the Company conforms, in all material respects, to Canadian GAAP Differences between U.S. and Canadian GAAP affecting these financial statements are discussed in Note 13. Should a material difference between the two accounting principles arise in the future, financial statements would be provided under both U.S. and Canadian GAAP PRINCIPLES OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENTS The consolidated financial statements include the accounts of The Seagram Company Ltd. and its subsidiaries. All intercompany accounts, transactions and profits have been eliminated. Investments in certain other companies in which Seagram has significant influence, but less than a controlling interest, are accounted for using the equity method. Investments in companies in which Seagram does not have significant influence are accounted for at market value if the investments are publicly traded, or at cost if not publicly traded. USE OF ESTIMATES The preparation of the financial statements requires management to make informed estimates, assumptions and judgments, with consideration given to materiality, that affect the reported amounts of assets, liabilities, revenues and expenses. For example, estimates are used in management's forecast of anticipated revenues in the music and filmed entertainment businesses and in determining valuation allowances for uncollectible trade receivables and deferred income taxes. Actual results could differ from those estimates. REVENUES AND COSTS MUSIC Revenues from the sale of recorded music, net of a provision for estimated returns and allowances, are recognized upon shipment to third parties. Advances to established recording artists and direct costs associated with the creation of record masters are capitalized and are charged to expense as the related royalties are earned, or when the amounts are determined to be unrecoverable. The advances are expensed when past performance or current popularity does not provide a sound basis for estimating that the advance will be recovered from future royalties. FILMED ENTERTAINMENT Generally, theatrical films are first distributed in the worldwide theatrical and home video markets. Subsequently, theatrical films are made available for worldwide pay television, network exhibition, television syndication and basic cable television. Television films from the Company's library may be licensed for domestic and foreign syndication, cable or pay television and home video. Theatrical revenues from the distribution of films are recognized as the films are exhibited. Revenues from television and pay television licensing agreements are recognized when the films are available for telecast. Home video product revenues, less a provision for estimated returns and allowances, are recognized upon availability of product for retail sale. Film costs are stated at the lower of cost, less accumulated amortization, or net realizable value. Generally, 43 23 abandoned story and development costs are charged to film production overhead. The estimated total film production and participation costs are expensed based on the ratio of the current period's gross revenues to estimated total gross revenues from all sources on an individual production basis. Estimates of total gross revenues and costs can change significantly due to a variety of factors, including the level of market acceptance of film and television products. Accordingly, revenue and cost estimates are reviewed quarterly and revisions to amortization rates or write-downs to net realizable value may occur. Film costs, net of amortization, for completed theatrical films intended for distribution in the worldwide theatrical, home video and pay television distribution markets are classified as other current assets. The portion of released film costs expected to be realized from secondary markets such as network exhibition, television syndication and basic cable television are reported as noncurrent assets. Other costs relating to film production, including the purchase price of literary properties and related film development costs, and the film library are classified as noncurrent assets. The Company has an agreement with an independent party to sell substantially all completed feature films produced over the period 1997-2000 at amounts which approximate cost. The Company distributes these films and maintains an option to re-acquire the films, based on a formula considering the remaining estimated total gross revenues, net of costs, at the time of re-acquisition. No films have been re-acquired as of June 30,1999. As a distributor, the Company has recorded, in its statement of income, the revenues received from and operating expenses related to the films in all markets, and, in interest, net and other, certain other costs relating to the agreement. RECREATION AND OTHER Revenues at theme parks are recognized at the time of visitor attendance. Revenues for retail operations are recognized at point-of-sale. SPIRITS AND WINE Revenues from the sale of spirits and wines are generally recognized when products are shipped. The Company establishes liabilities for estimated returns and allowances at the time of shipment. Accruals for customer discounts and rebates are recorded when revenues are recognized. FOREIGN CURRENCY TRANSLATION For operations in highly inflationary economies, the U.S. dollar is utilized as the functional currency. Affiliates outside the U.S. generally use the local currency as the functional currency. For affiliates in countries considered to have a highly inflationary economy, inventories and property, plant and equipment are translated at historical exchange rates and translation effects are included in net income. The cumulative currency translation adjustment balance was $(1,098) million, $(499) million and $(427) million at June 30, 1999, 1998 and 1997, respectively. CASH AND CASH EQUIVALENTS Cash equivalents include time deposits and highly liquid investments with original maturities of three months or less. INVENTORIES Inventories consist principally of spirits and wines and are stated at cost, which is not in excess of market. The cost of spirits and wines inventories is determined by either the last-in, first-out (LIFO) method or the identified cost method. In accordance with industry practice, current assets include spirits and wines inventories, which are aged for varying periods of years. The cost of music, retail and home video inventories is determined by the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost. Depreciation is determined using the straight-line method based on the estimated useful lives of the assets, generally at annual rates of 2-10 percent for buildings, 4-33 percent for machinery and equipment and 2-20 percent for other assets. GOODWILL AND INTANGIBLE ASSETS The Company has significant acquired intangible assets, including goodwill, music catalogs, artists' contracts, music publishing assets, film libraries, copyrights and trademarks. Music catalogs and artists' contracts are amortized on an accelerated basis over 14 and 20 years, respectively. From the date of acquisition, the acceleration results in 80 percent of artists' contracts being amortized within the first eight years and 50 percent of music catalogs being amortized within the first five years. Music publishing assets, film libraries and copyrights are amortized on a straight-line basis over 20 years. Goodwill is amortized on a straight-line basis over periods up to 40 years. The Company reviews the carrying value of goodwill and intangible assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Measurement of any impairment would include a comparison of discounted 24 estimated future operating cash flows anticipated to be generated during the remaining amortization period to the net carrying value. Music catalogs, artists' contracts, music publishing assets and copyrights includes $400 million of the cost of the 1995 Universal acquisition and approximately $2.8 billion of the cost of the December 1998 PolyGram acquisition. A film library acquired in connection with the Universal acquisition was valued at $300 million. STOCK-BASED COMPENSATION Compensation cost attributable to stock option and similar plans is recognized based on the difference, if any, between the quoted market price of the Company's common shares on the date of grant over the exercise price of the option. The Company does not issue options at prices below market value at date of grant. DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign currency and interest rate derivative contracts for the purpose of minimizing risk. The Company uses currency forwards and options to hedge firm commitments and a portion of its foreign indebtedness. In addition, the Company hedges foreign currency risk on intercompany payments and receipts through currency forwards, options and swaps which offset the exposure being hedged. Gains and losses on forward contracts are deferred and offset against foreign exchange gains and losses on the underlying hedged transaction. Gains and losses on forward contracts used to hedge foreign debt and intercompany payments are recorded in the income statement in selling, general and administrative expenses. The Company uses interest rate swap and swaptions to manage net exposure to interest rate movements related to its borrowings and to lower its overall borrowing costs. Net payments or receipts are recorded as adjustments to interest expense. Interest rate instruments generally have the same life as the underlying interest rate exposure. Gains or losses on the early termination of interest rate instruments are recognized over the remaining life, if any, of the underlying exposure as an adjustment to interest expense. COMPREHENSIVE INCOME The Company adopted Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, at July 1, 1998. As it relates to the Company, comprehensive income is defined as net income plus the sum of currency translation adjustments and unrealized holding gains/losses in equity securities, collectively other comprehensive income, and is presented in the consolidated statement of shareholders' equity. NEW ACCOUNTING GUIDANCE START-UP COSTS The Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AcSEC) issued Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities, which is effective for the Company's fiscal year beginning July 1, 1999. SOP 98-5 requires that costs of start-up activities and organization costs be expensed as incurred. The adoption of SOP 98-5 will result in a pre-tax charge of approximately $140 million, which will be accounted for as a cumulative effect of a change in accounting principle. FINANCIAL INSTRUMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which will require the Company to record all derivatives on the balance sheet at fair value. Changes in derivative fair values will either be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or for forecasted transactions, deferred and recorded as a component of accumulated other comprehensive income until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative's change in fair value will be immediately recognized in earnings. The impact of SFAS No. 133 on the Company's financial statements will depend on a variety of factors, including the future level of forecasted and actual foreign currency transactions, the extent of the Company's hedging activities, the types of hedging instruments used and the effectiveness of such instruments. In June 1999, the FASB delayed the effective date of the standard which will now be effective for the Company's fiscal year beginning July 1, 2000. The Company is currently evaluating the impact of adopting SFAS No. 133 on its financial statements. PROPOSED CHANGES TO FILM ACCOUNTING STANDARDS In October 1998, the AcSEC issued an exposure draft of a proposed SOP, Accounting by Producers and Distributors of Films. The proposed SOP would supersede current film accounting standards related to the recognition of revenues, costs and expenses and film cost valuation. The SOP is intended to clarify the accounting for items that currently vary in practice. The SOP is expected to result in earlier recognition of certain expenses and revised 45 25 financial statement presentation and disclosure. Once effective, adoption of the proposed accounting standard would be reflected as a cumulative effect of a change in accounting principle. Since the provisions of the SOP are still being deliberated by AcSEC, and could change significantly prior to the issuance of a final standard, the Company has not determined its impact at this time. RECLASSIFICATIONS Certain prior period amounts in the financial statements and notes have been reclassified to conform with the current year presentation. NOTE 2 SIGNIFICANT TRANSACTIONS ACQUISITION OF POLYGRAM On December 10, 1998, the Company acquired 99.5 percent of the outstanding shares of PolyGram N.V. (PolyGram), a global music and entertainment company, for $8,607 million in cash and approximately 47.9 million common shares of the Company. Substantially all of the common shares were issued to Koninklijke Philips Electronics N.V., which had owned 75 percent of the PolyGram shares. The acquisition has been accounted for under the purchase method of accounting, and accordingly the results of the operations of PolyGram are included in the results of the Company's music and filmed entertainment segments from the date of acquisition. The acquisition was financed through both short-term and long-term borrowings. Following the acquisition of PolyGram, Matsushita Electric Industrial Co., Ltd., has an approximate 8 percent ownership interest in the entities which own Universal's music, filmed entertainment and recreation and other assets. ALLOCATION OF PURCHASE PRICE The Company has performed a purchase price study related to its acquisition of PolyGram in order to assess and allocate the purchase price among tangible and intangible assets acquired and liabilities assumed, based on fair values at the acquisition date. The final allocation of purchase price is not expected to differ significantly from the following:
MILLIONS - -------------------------------------------------------------------------------- Identifiable intangible assets $ 2,774 Goodwill 9,476 Accrual for exit activities (490) All other, net (960) --------- $ 10,800 ================================================================================
INTANGIBLE ASSETS Identifiable intangible assets consist of music catalogs, artists' contracts, music publishing assets, distribution networks and customer relationships. Acquired music catalogs, artists' contracts, and music publishing assets are amortized over periods ranging from 14 to 20 years, on an accelerated basis, and other intangibles are amortized over a 40-year period, on a straight-line basis. Goodwill is the excess of purchase price over the fair value of assets acquired and liabilities assumed, and is amortized on a straight-line basis over a 40-year period. ACCRUAL FOR EXIT ACTIVITIES In connection with the integration of PolyGram and Seagram, management developed a formal exit activity plan which was committed to by management and communicated to employees shortly after the acquisition was consummated. Accrued exit activities related to the acquired PolyGram business consist principally of facility elimination costs, contract terminations and the severance or relocation of approximately 1,700 employees, of which approximately 1,000 had been terminated at June 30, 1999. DISPOSITION OF TROPICANA On August 25, 1998, the Company completed the sale of Tropicana Products, Inc. and the Company's global fruit juice business (Tropicana) for approximately $3,288 million in cash, which resulted in a pre-tax gain of $1,445 million ($1,072 million 46 26 after tax). Tropicana produced and marketed Tropicana, Dole and other branded fruit juices and beverages. Summarized financial information related to the discontinued Tropicana business follows:
PERIOD ENDED FISCAL YEARS ENDED AUGUST 25, JUNE 30, MILLIONS 1998 1998 1997 - -------------------------------------------------------------------------------------------- Revenues $337 $1,986 $1,916 Cost of revenues 266 1,394 1,314 Selling, general and administrative expenses 68 423 450 ------------------------------------------ Operating income 3 169 152 Interest expense 3 39 41 Provision for income taxes 3 64 54 ------------------------------------------ Income (loss) from discontinued operations $ (3) $ 66 $ 57 =============================================================================================
Interest expense above represents allocations based on the ratio of net assets of discontinued operations to consolidated net assets.
MILLIONS JUNE 30, 1998 - ----------------------------------------------------------------------- Current assets $ 546 Noncurrent assets 1,622 ------ $2,168 ====== Current liabilities $ 322 Noncurrent liabilities 112 Shareholders' equity 1,734 ------ $2,168 =======================================================================
USA TRANSACTIONS On October 21, 1997 Universal acquired from Viacom Inc. the remaining 50 percent interest in the USA Networks partnership for $1.7 billion in cash. This purchase was in addition to Universal's original 50 percent interest in USA Networks. The acquisition was accounted for under the purchase method of accounting. The cost of the acquisition was allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. This transaction resulted in $1.6 billion of goodwill which was being amortized over 40 years. On February 12,1998, Universal sold its acquired 50 percent interest in USA Networks to USA Networks, Inc. (USAi) and contributed its original 50 percent interest in USA Networks, the majority of its television assets and 50 percent of the international operations of USA Networks to USANi LLC. In this transaction, Universal received $1,332 million in cash, a 10.7 percent interest in USAi and a 45.8 percent exchangeable interest in USANi LLC. Universal recognized a gross gain of $583 million, before taking into consideration the effect of the transaction, which impaired certain remaining television assets and transformed various related contractual obligations into adverse purchase commitments. The fair value of these items was determined based on expected future cash flows. The impairment losses and adverse purchase commitments arising from the transaction aggregated $223 million and were reflected in the net gain of $360 million ($222 million after tax). During 1999, $128 million of accrued costs were reversed as a result of the favorable settlement of certain contractual obligations and adverse purchase commitments. The transactions resulted in $82 million of goodwill, which is being amortized over 40 years. The investment in the 9.1 million shares of USAi common stock held by Universal at June 30,1999 is accounted for at market value ($365 million at June 30, 1999) and has an underlying historical cost of $211 million. The investment in 6.7 million shares of Class B common stock of USAi is carried at its historical cost of $136 million. The investment in the LLC is accounted for under the equity method. 47 27 PRO FORMA FINANCIAL INFORMATION The unaudited condensed pro forma income statement data presented below assume the PolyGram acquisition, the sale of Tropicana and the USA transactions occurred at the beginning of the 1998 fiscal year. The pro forma information is not necessarily indicative of the combined results of operations of the Company that would have occurred if the transactions had occurred on the date previously indicated, nor is it necessarily indicative of future operating results of the Company. PRO FORMA INCOME STATEMENT
FISCAL YEARS ENDED JUNE 30, MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 - -------------------------------------------------------------------------------- Revenues $15,344 $14,587 Net income (loss) $ (208) $ 447 EARNINGS (LOSS) PER SHARE Basic $ (.52) $ 1.12 Diluted $ (.52) $ 1.11 ================================================================================
OTHER TRANSACTIONS TIME WARNER SHARES On February 5,1998, the Company sold 15 million shares of Time Warner common stock for pre-tax proceeds of $958 million. On May 27,1998, the Company sold its remaining 11.8 million shares of Time Warner common stock for pre-tax proceeds of $905 million. The aggregate gain on the sale of the shares was $926 million ($602 million after tax). On May 28,1997, the Company sold 30 million shares of Time Warner common stock for pre-tax proceeds of $1.39 billion. The gain on the sale of the shares in the fiscal year ended June 30, 1997, was $154 million ($100 million after tax) in accordance with the specific identification method. PUBLISHING GROUP On December 16, 1996, the Company sold its book publishing unit, The Putnam Berkley Group, Inc. (Putnam). Proceeds from the sale were $330 million, resulting in a $64 million pre-tax 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. DUPONT EQUITY WARRANTS On July 24, 1996, the Company sold 156 million equity warrants of E.I. du Pont de Nemours and Company (DuPont) to DuPont for $500 million in cash. The after-tax net proceeds were $479 million and the gain on the sale of the warrants was $60 million ($39 million after tax) and is included in interest, net and other in the fiscal year ended June 30,1997. NOTE 3 RESTRUCTURING CHARGE Management developed and committed to a formal plan that was communicated to employees to restructure its music and filmed entertainment operations after the acquisition of PolyGram. This plan resulted in a 1999 pre-tax restructuring charge of $405 million. The charge related entirely to the Company's existing global music and film production, financial, marketing and distribution operations and includes severance, elimination of duplicate facilities and labels, termination of artists' and distribution contracts and costs related to exiting film production arrangements and properties in development. The major components of the charge are:
FILMED MILLIONS MUSIC ENTERTAINMENT TOTAL - -------------------------------------------------------------------------------- Severance and other employee-related costs $111 $15 $126 Facilities and labels 124 4 128 Contract termination and other costs 78 73 151 ------------------------------- $313 $92 $405 ================================================================================
48 28 The severance and other employee-related costs provide for a reduction of approximately 1,200 employees worldwide related to facility closures, duplicate position eliminations and streamlining of operations related to cost reduction initiatives. The facilities and labels elimination costs provide for domestic and international lease and label terminations and the write-off of the net book value of furniture, fixtures and equipment and leasehold improvements for vacated properties. The costs of contract terminations are comprised primarily of artists' contracts, distribution contracts, story property commitments and filmed entertainment term deals. The cash and non-cash elements of the restructuring charge approximate $318 million and $87 million, respectively. The utilization of the restructuring charge to date follows:
ORIGINAL UTILIZED BALANCE AT MILLIONS ACCRUAL CASH NON-CASH JUNE 30, 1999 - ------------------------------------------------------------------------------------------- Severance and other employee-related costs $126 $ 42 $ 3 $ 81 Facilities and labels 128 4 13 111 Contract termination and other costs 151 30 9 112 -------------------------------------------- $405 $ 76 $ 25 $ 304 ===========================================================================================
As part of the restructuring initiative, approximately 600 employees have separated from the Company as of June 30,1999. The Company anticipates that all restructuring activities will be substantially completed by June 30, 2000. NOTE 4 INVESTMENTS The Company's investments consist of:
MILLIONS JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- Equity method investments: USANi LLC $2,329 $1,960 Other 1,710 1,477 ------ ------ 4,039 3,437 ------ ------ Cost and fair-value investments: DuPont 1,123 1,228 USAi common stock 365 178 USAi Class B common stock 136 128 ------ ------ 1,624 1,534 ------ ------ Total investments $5,663 $4,971 ================================================================================
EQUITY METHOD INVESTMENTS The Company has a number of investments in unconsolidated companies which are 50 percent or less owned or controlled, which are accounted for using the equity method. The most significant of these is USANi LLC, which is part of our filmed entertainment business and is engaged in network and first run syndication television production, domestic distribution of its and Universal's television production and operation of the USA Network and SCI FI Channel cable networks (49 percent equity interest). Other filmed entertainment equity investments include Loews Cineplex Entertainment Corporation, primarily engaged in theatrical exhibition of motion pictures in the U.S. and Canada (26 percent owned); Cinema International Corporation and United Cinemas International, both engaged in theatrical exhibition of motion pictures in territories outside the U.S. and Canada (49 percent owned). Significant investments in the recreation and other business include 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 owns Universal Studios Islands of Adventure, an additional themed tourist attraction developed on land adjacent to Universal Studios Florida and Universal Studios CityWalk Orlando, a dining, retailing and entertainment complex (50 percent owned); USJ Co., Ltd., 49 29 which has begun development of a motion picture themed tourist attraction, Universal Studios Japan, and owns commercial real estate in Osaka, Japan (24 percent owned); Universal Studios Port Aventura, a theme park located in Spain (37 percent owned); SEGA GameWorks LLC, which designs, develops and operates location-based entertainment centers (27 percent owned); and Interplay Entertainment Corp., an entertainment software developer (26 percent owned). In the music business, significant equity investments include GetMusic, an online music alliance designed to create Internet sites that promote and sell music; Universal Concerts Canada and Universal/PACE Amphitheaters Group, L.P. The spirits and wine business has an investment in Kirin-Seagram Limited, engaged in the manufacture, sale and distribution of distilled beverage alcohol and wines in Japan (49 percent owned). Summarized financial information for the Company's investments in unconsolidated companies, derived from unaudited historical financial results, follows: SUMMARIZED BALANCE SHEET INFORMATION
MILLIONS JUNE 30, 1999 JUNE 30, 1998 - -------------------------------------------------------------------------------- Current assets $ 1,897 $ 1,651 Noncurrent assets 11,928 10,415 ------- ------- Total assets $13,825 $12,066 ------- ------- Current liabilities $ 1,991 $ 1,718 Noncurrent liabilities 3,883 3,738 Equity 7,951 6,610 ------- ------- Total liabilities and equity $13,825 $12,066 ------- ------- Proportionate share of net assets of unconsolidated companies $ 3,691 $ 2,884 ================================================================================
Approximately $700 million of the cost of the 1995 Universal acquisition was allocated to goodwill related to investments in unconsolidated companies and is being amortized on a straight-line basis over 40 years. SUMMARIZED STATEMENT OF OPERATIONS
FISCAL YEARS ENDED JUNE 30, MILLIONS 1999 1998 1997 - -------------------------------------------------------------------------------- Revenues $5,294 $4,561 $4,782 Earnings before interest and taxes $ 351 $ 366 $ 351 Net income $ 314 $ 173 $ 229 ================================================================================
The equity earnings (losses) of unconsolidated companies in the consolidated statement of income includes goodwill amortization related to unconsolidated companies of $35 million, $81 million and $62 million for the fiscal years ended June 30, 1999, 1998 and 1997, respectively, principally in the filmed entertainment and recreation and other segments. Additionally, operating income for the fiscal year ended June 30, 1998 includes $76 million of income from USA Networks for the period from October 21, 1997 to February 12, 1998 when the Company owned 100 percent of USA Networks as described in Note 2. COST AND FAIR-VALUE INVESTMENTS DUPONT At June 30, 1999, the Company owned 16.4 million shares of the outstanding common stock of DuPont. The Company accounts for the investment at market value which was $1,123 million at June 30, 1999. The underlying historical book value of the DuPont shares is $187 million, which represents the historical cost of the shares plus unremitted earnings related to those shares. 50 30 USAi At June 30, 1999, the Company owned 9.1 million shares of the outstanding common stock of USAi. The investment, which is accounted for at market value ($365 million at June 30, 1999), has an underlying cost of $211 million. At June 30, 1999, the Company also owned 6.7 million shares of USAi Class B common stock which is carried at its historical cost of $136 million. NOTE 5 LONG-TERM DEBT AND CREDIT ARRANGEMENTS LONG-TERM DEBT
MILLIONS JUNE 30, 1999 JUNE 30, 1998 - --------------------------------------------------------------------------------------------------- 9% Debentures due 1998 (C$200 million) (1) $ -- $ 156 Unsecured term bank loans, due 1998 to 1999, with a weighted average interest rate of 4.81% -- 155 6.5% Debentures due 2003 200 200 8.35% Debentures due 2006 200 200 8.35% Debentures due 2022 200 199 6.875% Debentures due 2023 200 200 6% Swiss Franc Bonds due 2085 (SF 250 million) 162 164 7.5% Adjustable Conversion-rate Equity Security Units (2) 927 -- Other 208 158 ------ ------ 2,097 1,432 ------ ------ Joseph E. Seagram & Sons, Inc., guaranteed by Company: 5.79% Senior Notes due 2001 250 -- 6.25% Senior Notes due 2001 600 -- 6.4% Senior Notes due 2003 400 -- 6.625% Senior Notes due 2005 475 -- 8.375% Debentures due 2007 200 200 7% Debentures due 2008 200 200 6.8% Senior Notes due 2008 450 -- 8.875% Debentures due 2011 223 223 9.65% Debentures due 2018 249 249 7.5% Senior Debentures due 2018 875 -- 9% Debentures due 2021 198 198 7.6% Senior Debentures due 2028 700 -- 8% Senior Quarterly Income Debt Securities due 2038 (QUIDS) 550 -- Liquid Yield Option Notes (LYONs) (3) 9 9 ------ ------ 5,379 1,079 ------ ------ 7,476 2,511 Current portion of long-term debt (8) (286) ------ ------ $7,468 $2,225 - --------------------------------------------------------------------------------------------
(1) 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%. (2) In June 1999, the Company issued 18,500,000 units of the 7.5% Adjustable Conversion-rate Equity Security Units at a stated price of $50.125 for an aggregate initial offering price of $927 million. Each unit consists of a contract to purchase common shares of the Company and a subordinated deferrable note of its subsidiary, Joseph E. Seagram & Sons, Inc., that is guaranteed by the Company. Under the purchase contracts, on June 21, 2002, the unit holders will purchase for $50.125 not more than one and not less than 0.8333 of one share of the Company's common shares per unit, depending on the average trading price of the common shares during a specified trading period in June 2002. The junior subordinated deferrable notes have a principal amount equal to the stated amount of the units and an interest rate of 7.62%. The interest rate on the note is subject to adjustment at March 21, 2002 and the note matures on June 21, 2004. The holders of the units are required to pay contract fees to the Company at an annual rate of .12%. These payments will be funded out of payments made in respect of the notes so that the net distributions on the notes will be 7.5%. (3) LYONs are zero coupon notes with no interest payments due until maturity on March 5, 2006. Each $1,000 face amount LYON may be converted, at the option of the holder, into 18.44 of the Company's common shares (276,474 shares at June 30, 1999). The Company has guaranteed the LYONs on a subordinated basis. 51 31 The Company's unused lines of credit totaled $7.6 billion and have varying terms of up to three years. At June 30, 1999, short-term borrowings comprised $1,045 million of bank borrowings bearing interest at market rates. Interest expense on long-term debt was $380 million, $226 million and $218 million in the fiscal years ended June 30, 1999, 1998 and 1997, respectively. Annual repayments and redemptions of long-term debt for the five fiscal years subsequent to June 30, 1999 are: 2000 - $8 million; 2001 - $257 million; 2002 - -$666 million; 2003 - $200 million; and 2004 - $1,327 million. Summarized financial information for JES and its subsidiaries is presented below. Separate financial statements and other disclosures related to JES are not provided because management has determined that such information does not provide additional meaningful information to holders of JES debt securities.
FISCAL YEARS ENDED JUNE 30, MILLIONS 1999 1998 1997 - -------------------------------------------------------------------------------- Revenues $2,242 $2,144 $2,114 Cost of revenues $1,390 $1,356 $1,320 Income (loss) from continuing operations $ (8) $ (8) $ 76 Discontinued Tropicana operations -- (17) 11 ------ ------ ------ Net Income (loss) $ (8) $ (25) $ 87 - --------------------------------------------------------------------------------
June 30, June 30 1999 1998 - -------------------------------------------------------------------------------- Current assets $ 1,674 $ 1,821 Noncurrent assets 18,602 12,201 ------- ------- $20,276 $14,022 ------- ------- Current liabilities $ 1,099 $ 843 Noncurrent liabilities 10,014 3,922 Shareholders' equity 9,163 9,257 ------- ------- $20,276 $14,022 - --------------------------------------------------------------------------------
NOTE 6 FINANCIAL INSTRUMENTS The carrying value of cash, cash equivalents, receivables, short-term borrowings, current portion of long-term debt and payables approximate fair value because maturities are less than one year in duration. The Company's remaining financial instruments consisted of the following:
ASSET (LIABILITY) JUNE 30, 1999 JUNE 30, 1998 CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE - ---------------------------------------------------------------------------------------------------------------------- NONDERIVATIVES Investments (Note 4) $ 398 $ 1,488 $ 329 $ 1,406 Long-term debt $(7,468) $(7,600) $(2,225) $(2,477) DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING Foreign exchange forwards $ -- $ 50 $ -- $ 1 Foreign exchange options -- -- 169 49 Interest rate swaps -- 13 -- -- ------- ------- ------- ------- $ -- $ 63 $ 169 $ 50 ----------------------------------------------------------------------------------------------------------------------
52 32 Fair value of investments was determined based on quoted market value of these securities as traded on stock exchanges. Fair value of long-term debt was estimated using quoted market prices for similar issues. The fair value for foreign exchange and interest rate instruments was based on market prices as quoted from financial institutions. The Company, as the result of its global operating and financing activities, is exposed to changes in interest rates and foreign currency exchange rates that may adversely affect its results of operations and financial position. In seeking to minimize the risks and costs associated with such activities, the Company manages the impact of interest rate changes and foreign currency changes on earnings and cash flows by entering into derivative contracts. The Company does not use derivative financial instruments for trading or speculative purposes. At June 30, 1999, the Company held interest rate swap contracts that had notional amounts of $500 million (none at June 30, 1998). These swap agreements expire in one to two years. At June 30, 1999, the Company held foreign currency forward contracts and options to purchase and sell foreign currencies, including cross-currency contracts and options to sell one foreign currency for another currency, with notional amounts totaling $4,539 million ($7,309 million at June 30, 1998). The forward contracts and options are used to hedge the exchange rate exposure to foreign currency intercompany payments and receipts. The payments and receipts are principally related to intercompany sales, royalties, licenses and service fees. These derivatives have varying maturities not exceeding two years. The principal currencies hedged are the euro, British pound, Canadian dollar, Australian dollar and Japanese yen. The Company minimizes its credit exposure to counter-parties by entering into contracts only with highly-rated commercial banks or financial institutions and by distributing the transactions among the selected institutions. Although the Company's credit risk is the replacement cost at the then-estimated fair value of the instrument, management believes that the risk of incurring losses is remote and that such losses, if any, would not be material. The market risk related to the foreign exchange agreements should be offset by changes in the valuation of the underlying items being hedged. NOTE 7 Common Shares, Earnings Per Share and Stock Options The Company is authorized to issue an unlimited number of common and preferred shares without nominal or par value. At June 30, 1999, 37,857,938 common shares were potentially issuable upon the conversion of the LYONs, the exercise of employee stock options and the conversion of deferred share units. Basic net income per share was based on the following weighted average number of shares outstanding during the fiscal years ended June 30,1999 -- 378,193,043; June 30, 1998 -- 349,874,259; and June 30,1997 -- 369,682,224. Diluted net income per share was based on the following weighted average number of shares outstanding during the fiscal years ended June 30, 1998 -- 353,604,553; and June 30, 1997 -- 374,268,746. Average shares of 4,933,249 were not included in the computation of 1999 diluted net income per share because to do so would have been anti-dilutive. STOCK OPTION PLANS Under the Company's employee stock option plans, options may be granted to purchase the Company's common shares at not less than the fair market value of the shares on the date of the grant. Currently outstanding options become exercisable one to five years from the grant date and expire ten years after the grant date. The Company has adopted 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 53 33 date for awards under these plans utilizing the 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 YEARS ENDED JUNE 30, MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997 - ----------------------------------------------------------------------------------- Net income: As reported $ 686 $ 946 $ 502 FAS 123 pro forma 622 892 469 Basic earnings per common share: As reported $ 1.81 $ 2.70 $ 1.36 FAS 123 pro forma 1.64 2.55 1.27 Diluted earnings per common share: As reported $ 1.81 $ 2.68 $ 1.35 FAS 123 pro forma 1.64 2.52 1.26 ===================================================================================
These pro forma amounts may not be representative of future disclosures. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for the fiscal years ended June 30, 1999, June 30, 1998 and June 30, 1997, respectively: dividend yields of 1.5, 1.8 and 1.6 percent; expected volatility of 30, 25 and 24 percent; risk-free interest rates of 5.1, 5.6 and 6.7 percent; and expected life of six years for all periods. The weighted average fair value of options granted during the fiscal years ended June 30,1999, June 30,1998 and June 30, 1997 for which the exercise price equals the market price on the grant date was $15.25, $10.92 and $12.18, respectively. The weighted average fair value of options granted during the fiscal year ended June 30, 1998 for which the exercise price exceeded the market price on the grant date was $7.44. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Transactions involving stock options are summarized as follows:
WEIGHTED AVERAGE EXERCISE PRICE STOCK OPTIONS OF OPTIONS OUTSTANDING OUTSTANDING - -------------------------------------------------------------------------------- BALANCE, JUNE 30,1996 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 Granted 8,160,909 38.32 Exercised (2,751,832) 26.14 Cancelled (752,284) 38.53 -------------------------------------------- BALANCE, JUNE 30,1998 37,617,919 33.49 Granted 11,674,558 45.40 Exercised (8,489,374) 31.50 Cancelled (3,234,811) 34.79 -------------------------------------------- BALANCE, JUNE 30, 1999 37,568,292 37.53 ================================================================================
54 34 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 - -------------------------------------------------------------------------------------------------- under $20 621,347 0.7 $ 19.44 621,347 $ 19.44 $20 - $30 6,746,946 3.6 27.12 6,616,946 27.10 $30 - $40 22,002,489 7.5 35.66 12,827,685 34.66 $40 - $50 5,534,185 9.5 47.77 205,235 46.79 $50 - $60 2,663,325 9.6 57.54 100,000 52.28 ---------- ---------- 37,568,292 20,371,213 ==================================================================================================
NOTE 8 Income Taxes The following tables summarize the sources of pre-tax income and the resulting income tax expense: GEOGRAPHIC COMPONENTS OF PRE-TAX INCOME
FISCAL YEARS ENDED JUNE 30, MILLIONS 1999 1998 1997 - --------------------------------------------------------------------------------------------- U.S. $ (545) $ 1,192 $ 136 Canada 39 51 77 Other jurisdictions (73) 368 513 ------------------------------ Income (loss) from continuing operations, before tax (579) 1,611 726 Discontinued Tropicana operations 1,445 130 111 ------------------------------ Income before tax $ 866 $ 1,741 $ 837 =============================================================================================
55 35 COMPONENTS OF INCOME TAX EXPENSE
FISCAL YEARS ENDED JUNE 30, 1999 1998 1997 ---- ---- ---- MILLIONS Income tax expense (benefit) applicable to: Continuing operations $ (33) $638 $331 Discontinued Tropicana operations 376 64 54 ----- ---- ---- Total income tax expense $ 343 $702 $385 ==== ==== ==== Current Continuing operations Federal $(256) $134 $184 State and local 3 (20) 35 Other jurisdictions 128 77 165 ----- ---- ---- (125) 191 384 Discontinued Tropicana operations 376 58 53 ----- ---- ---- 251 249 437 ----- ---- ---- Deferred Continuing operations Federal 130 351 (25) State and local 2 34 (19) Other jurisdictions (40) 62 (9) ----- ---- ---- 92 447 (53) Discontinued Tropicana operations -- 6 1 ----- ---- ---- 92 453 (52) ----- ---- ---- Total income tax expense $ 343 $702 $385 ===== ==== ====
COMPONENTS OF NET DEFERRED TAX LIABILITY
JUNE 30, 1999 JUNE 30, 1998 MILLIONS Basis and amortization differences $ 1,016 $ 572 DuPont share redemption 1,540 1,540 DuPont and USAi investments 613 516 Unremitted foreign earnings 89 94 Advances 49 -- Other, net 144 80 ------- ------ Deferred tax liabilities 3,451 2,802 ------- ------ Deferred revenue (37) (60) Employee benefits (114) (28) Tax credit and net operating loss carryovers (256) (60) Valuation, doubtful accounts and return reserves (259) (234) Other, net (660) (136) ------- ------ Deferred tax assets (1,326) (518) Valuation allowance 82 32 ------- ------ (1,244) (486) ------- ------ Net deferred tax liability $ 2,207 $2,316 ======= ======
56 36 The Company has U.S. tax credit carryovers of $32 million, $13 million of which have no expiration date and $19 million of which have expiration dates through 2009. In addition, the Company has approximately $721 million of net operating loss carryovers, $209 million of which have no expiration date and $512 million of which have expiration dates through 2018. A portion of the valuation allowance arises from uncertainty as to the realization of certain of these tax credit and net operating loss carryovers. If realized, these benefits would be applied to reduce the unallocated purchase price. Deferred tax assets and liabilities are recognized based on differences between the financial statement and tax bases of assets and liabilities using presently enacted tax rates. Provision is made for income taxes, which may be payable on foreign subsidiary earnings to the extent that the Company anticipates that they will be remitted. Unremitted earnings of foreign subsidiaries which have been, or are intended to be, permanently reinvested and for which no income tax has been provided, approximated $6,400 million at June 30,1999. It is not practicable to estimate the additional tax that would be incurred, if any, if these amounts were repatriated. EFFECTIVE INCOME TAX RATE -- CONTINUING OPERATIONS
FISCAL YEARS ENDED JUNE 30, 1999 1998 1997 ---- ---- ---- U.S. statutory rate (35)% 35% 35% Goodwill amortization 11 1 8 Equity income 10 -- 6 Foreign tax at other than U.S. statutory rate 5 4 (4) State and local -- 1 2 Other 3 (1) (1) ---- ---- ---- Effective income tax rate -- continuing operations (6)% 40% 46% ==== ==== ====
Various taxation authorities have proposed or levied assessments for additional income taxes of prior years. Management believes that settlements will not have a material effect on the results of operations, financial position or liquidity of the company. NOTE 9 Benefit Plans The FASB issued SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits, in February 1998. The new standard does not change the measurement or recognition of costs for pensions or other postretirement plans. It standardizes disclosures and eliminates those that are no longer useful. The information provided below has been presented under the requirements of the new standard. Retirement pensions are provided for substantially all of the Company's employees through defined benefit or defined contribution plans sponsored by the Company or unions representing employees. For Company-sponsored defined benefit plans, pension expense and plan contributions are determined by independent consulting actuaries. The funding policy for tax-qualified pension plans is consistent with statutory funding requirements and regulations. Contributions to defined contribution plans are funded and expensed currently. Postretirement health care and life insurance are provided to a majority of nonunion employees in the U.S. Eligibility for benefits is based upon retirement, age and completion of a specified number of years of service. Postemployment programs, principally severance, are provided for the majority of nonunion employees. The cost of these programs is accrued based on actuarial studies. There is no advance funding for postretirement or postemployment benefits. 57 37 The following tables pertain to the Company's defined benefit pension or postretirement plans principally in the U.S., the U.K., Canada, France, Germany and Japan, and provide reconciliations of the changes in benefit obligations, fair value of plan assets and funded status for the two-year period ending June 30, 1999:
PENSION BENEFITS POSTRETIREMENT BENEFITS MILLIONS 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 1,070 $ 946 $ 172 $ 157 Service cost 48 25 2 2 Interest cost 81 70 12 11 Plan amendments and acquisitions 220 2 5 -- Actuarial loss, net 21 92 1 12 Benefits paid (81) (67) (10) (10) Translation (20) 2 -- -- ------------------------------------------------------------- Benefit obligation at end of year $ 1,339 $ 1,070 $ 182 $ 172 ============================================================= FAIR VALUE OF PLAN ASSETS Fair value of plan assets at beginning of year $ 1,271 $ 1,091 $ -- $ -- Actual return on plan assets 127 226 -- -- Acquisition 45 -- -- -- Contributions 15 18 10 10 Benefits paid (80) (65) (10) (10) Translation (13) 1 -- -- ------------------------------------------------------------- Fair value of plan assets at end of year $ 1,365 $ 1,271 $ -- $ -- ============================================================= FUNDED STATUS Funded status at end of year $ 26 $ 201 $ (182) $ (172) Unrecognized actuarial gain (203) (202) (3) (3) Unrecognized prior service cost 15 16 (16) (19) Unrecognized net transition obligation 4 1 -- -- ------------------------------------------------------------- Accrued pension asset (liability) $ (158) $ 16 $ (201) $ (194) ============================================================= ________________________________________________________________________________________________________________________
Amounts recognized in the Company's consolidated balance sheet at June 30 consist of:
PENSION BENEFITS POSTRETIREMENT BENEFITS MILLIONS 1999 1998 1999 1998 - ----------------------------------------------------------------------------------------------------------------------- Prepaid benefit cost $ 181 $ 147 $ -- $ -- Accrued benefit liability (339) (131) (201) (194) -------------------------------------------------------------- Net asset (liability) recognized $ (158) $ 16 $ (201) $ (194) ------------------------------------------------------------- ________________________________________________________________________________________________________________________
38 Net periodic pension and other postretirement benefit costs for the fiscal years ended June 30 include the following components:
PENSION BENEFITS POSTRETIREMENT BENEFITS MILLIONS 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- Service cost $ 48 $ 25 $ 21 $ 2 $ 2 $ 2 Interest cost 81 70 69 12 11 11 Expected return on plan assets (116) (107) (91) -- -- -- Amortization of prior service costs 3 3 3 (3) (3) (3) Amortization of actuarial gains (6) (6) (1) -- (1) -- --------------------------------------------------------------------------------- Net benefit cost (credit) $ 10 $ (15) $ 1 $ 11 $ 9 $ 10 ===============================================================================================================================
The weighted average rates and assumptions utilized in accounting for these plans for the fiscal years ended June 30 were:
PENSION BENEFITS POSTRETIREMENT BENEFITS 1999 1998 1997 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------- Discount rate 7.3% 7.0% 7.8% 7.3% 7.0% 7.8% Expected return on plan assets 10.0% 10.8% 10.8% -- -- -- Rate of compensation increase 4.5% 4.3% 5.0% 4.5% 4.3% 5.0% ===============================================================================================================================
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $218 million, $196 million and $15 million, respectively as of June 30, 1999, and $50 million, $44 million and $4 million, respectively as of June 30,1998. For postretirement benefit measurement purposes, the Company assumed growth in the per capita cost of covered health care benefits (the health care cost trend rate) would gradually decline from 8.75 percent and 7.75 percent, in the pre-age 65 and post-age 65 categories, respectively in 1997 to 6 percent and 5 percent, pre-age 65 and post-age 65, respectively in 2002. In fiscal 1999, a one-percentage-point increase in this annual trend rate would have increased the postretirement benefit obligation by $8 million and the pre-tax expense by $1 million; conversely, a one-percentage-point decrease in the annual trend rate would have decreased the postretirement benefit obligation by $7 million and the pre-tax expense by $1 million. During 1999, the Company amended the pension plan for certain U.S. employees from a final pay plan to a cash balance pension plan. Under the new plan, participants accrue benefits based on a percentage of pay plus interest. The new cash balance plan allows lump sum benefit payments in addition to annuities. This change did not have a significant impact on the Company's net periodic pension costs for the fiscal year ended June 30, 1999. NOTE 10 Business Segment and Geographic Data BUSINESS SEGMENT DATA In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. FAS 131 supersedes FAS 14, Financial Reporting for Segments of a Business Enterprise, replacing the industry segment approach with the management approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. FAS 131 also requires disclosures about products and services, geographic areas and major customers. The prior year's segment information has been restated to present the Company's four reportable segments: music, filmed entertainment, recreation and other, and spirits and wine. Each of these reportable segments is a strategic business unit that offers different products and services that are marketed through different channels. They are managed separately because of their unique customers, technology, marketing and distribution requirements. The adoption of FAS 131 had no impact on the results of operations or financial position. 59 39 The Company evaluates the performance of its segments and allocates resources to them based on several performance measures, including earnings before interest, taxes, depreciation and amortization from consolidated companies (EBITDA). While not a standard measurement under GAAP, the Company believes EBITDA is an appropriate measure of operating performance, given the goodwill associated with the Company's acquisitions. However, EBITDA could be defined differently by other companies and should be considered in addition to, not as a substitute for, other measures of financial performance including revenues and operating income. There are no intersegment revenues; however, corporate headquarters allocates a portion of its costs to each of its operating segments. The Company does not allocate interest income, interest expense, income taxes or unusual items to segments.
FILMED RECREATION SPIRITS MILLIONS MUSIC ENTERTAINMENT AND OTHER AND WINE CORPORATE TOTAL - --------------------------------------------------------------------------------------------------------- JUNE 30,1999 Revenues $ 3,751 $2,931 $ 818 $4,812 $ -- $12,312 EBITDA $ 347 $ (136) $ 133 $ 684 $ -- $ 1,028 Depreciation and amortization (473) (70) (88) (132) (10) (773) Corporate expenses -- -- -- -- (100) (100) Restructuring charge (313) (92) -- -- -- (405) ------------------------------------------------------------------------- Operating income (loss) $ (439) $ (298) $ 45 $ 552 $ (110) $ (250) ------------------------------------------------------------------------- Segment assets $16,392 $7,735 $3,029 $5,165 $2,690(1) $35,011 Equity method investments $ 26 $2,810 $1,151 $ 52 $ -- $ 4,039 Capital expenditures $ 135 $ 134 $ 134 $ 128 $ -- $ 531 ========================================================================== JUNE 30,1998 Revenues $ 1,461 $2,793 $ 695 $4,525 $ -- $ 9,474 EBITDA $ 84 $ 316 $ 99 $ 583 $ -- $ 1,082 Depreciation and amortization (128) (87) (75) (119) (7) (416) Corporate expenses -- -- -- -- (113) (113) ------------------------------------------------------------------------- Operating income (loss) $ (44) $ 229 $ 24 $ 464 $ (120) $ 553 ------------------------------------------------------------------------- Segment assets $ 2,902 $6,638 $3,044 $5,594 $4,001(2) $22,179 Equity method investments $ 24 $2,431 $ 961 $ 21 $ -- $ 3,437 Capital expenditures $ 31 $ 94 $ 115 $ 170 $ -- $ 410 ========================================================================= JUNE 30,1997 Revenues $ 1,427 $3,168 $ 889 $4,870 $ -- $10,354 EBITDA $ 76 $ 218 $ 102 $ 786 $ -- $ 1,182 Depreciation and amortization (134) (61) (71) (123) (4) (393) Corporate expenses -- -- -- -- (134) (134) Gain on sale of Putnam -- -- 64 -- -- 64 ------------------------------------------------------------------------- Operating income (loss) $ (58) $ 157 $ 95 $ 663 $ (138) $ 719 ------------------------------------------------------------------------- Segment assets $ 2,679 $4,825 $3,082 $5,290 $4,571(3) $20,447 Equity method investments $ 13 $1,213 $ 811 $ 60 $ -- $ 2,097 Capital expenditures $ 47 $ 44 $ 115 $ 187 $ -- $ 393 ==========================================================================================================
(1) Comprised of corporate assets not identifiable with reported segments ($1,567) and DuPont holdings ($1,123). (2) Comprised of corporate assets not identifiable with reported segments ($1,039), DuPont holdings ($1,228) and net assets of discontinued Tropicana operations ($1,734). (3) Comprised of corporate assets not identifiable with reported segments ($512), DuPont holdings ($1,034), Time Warner holdings ($1,291) and net assets of discontinued Tropicana operations ($1,734). 60 40 GEOGRAPHIC DATA The following table presents revenues and long-lived assets by geographic area for the 1999, 1998 and 1997 fiscal years. Revenues are classified based upon the location of the customer. In addition to Canada, the Company's country of domicile, individual countries are specified if revenues or long-lived assets exceed 10 percent of the total.
LONG-LIVED MILLIONS REVENUES ASSETS - ----------------------------------------------------------------------------- JUNE 30, 1999 United States $ 5,917 $15,093 United Kingdom 1,277 1,905 Canada 325 456 Other countries 4,793 8,676 ------- ------- $12,312 $26,130 JUNE 30, 1998 ------- ------- United States $ 4,977 $13,340 United Kingdom 769 611 Canada 285 58 Other countries 3,443 1,199 ------- ------- $ 9,474 $15,208 ------- ------- JUNE 30, 1997 United States $ 5,308 $12,557 United Kingdom 772 575 Canada 287 55 Other countries 3,987 1,129 ------- ------- $10,354 $14,316 ================================================================================
NOTE 11 Additional Financial Information INCOME STATEMENT AND CASH FLOW DATA
FISCAL YEARS ENDED JUNE 30, MILLIONS 1999 1998 1997 - -------------------------------------------------------------------------------- INTEREST, NET AND OTHER Interest expense $ 592 $318 $285 Interest income (109) (59) (34) Dividend income (23) (27) (40) Capitalized interest (3) (4) (4) Gain on sale of DuPont warrants -- -- (60) ----- ----- ----- $ 457 $228 $147 ----- ----- ----- EXCISE TAXES (included in revenues and cost of revenues) $865 $726 $748 CASH FLOW DATA Interest paid, net $643 $265 $252 Income taxes paid $471 $144 $ 85 ================================================================================
61 41 BALANCE SHEET DATA
MILLIONS JUNE 30, 1999 JUNE 30, 1998 - ---------------------------------------------------------------------------------------------- RECEIVABLES Trade $ 3,227 $ 1,994 Other 432 487 --------------------------------- 3,659 2,481 Allowance for doubtful accounts and other valuation accounts (674) (326) --------------------------------- $ 2,985 $ 2,155 ================================= INVENTORIES Beverages $ 2,233 $ 2,239 Materials, supplies and other 394 316 --------------------------------- $ 2,627 $ 2,555 ================================= LIFO INVENTORIES Estimated replacement cost $ 395 $ 356 Excess of replacement cost over LIFO carrying value (187) (173) --------------------------------- $ 208 $ 183 ================================= OTHER CURRENT ASSETS Film costs, net of amortization $ 356 $ 175 Music catalogs, artists' contracts and advances 164 76 Deferred income taxes 491 282 Prepaid expenses and other current assets 725 554 --------------------------------- $ 1,736 $ 1,087 ================================= FILM COSTS, NET OF AMORTIZATION THEATRICAL FILM COSTS Released $ 320 $ 353 In process and unreleased 1,058 839 --------------------------------- 1,378 1,192 --------------------------------- TELEVISION FILM COSTS Released 176 223 In process and unreleased 53 32 --------------------------------- 229 255 --------------------------------- 1,607 1,447 Less: current portion 356 175 --------------------------------- $ 1,251 $ 1,272 ==============================================================================================
Unamortized costs related to released theatrical and television films aggregated $496 million at June 30, 1999. 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 87 percent of the unamortized released film costs will be amortized under the individual film forecast method during the three years ending June 30, 2002. 62 42 MILLIONS JUNE 30, 1999 JUNE 30, 1998 - ------------------------------------------------------------------------------ PROPERTY, PLANT AND EQUIPMENT Land $ 645 $ 553 Buildings and improvements 1,646 1,467 Machinery and equipment 1,432 1,221 Furniture and fixtures 476 369 Construction in progress 286 301 --------------------------- 4,485 3,911 Accumulated depreciation (1,327) (1,178) --------------------------- $ 3,158 $ 2,733 =========================== PAYABLES AND ACCRUED LIABILITIES Trade $ 843 $ 449 Income and other taxes 378 286 Other 3,587 1,619 --------------------------- $ 4,808 $ 2,354 ============================================================================== NOTE 12 COMMITMENTS AND CONTINGENCIES The Company has various commitments for the purchase or construction of property, plant and equipment, materials, supplies and items of investment related to the ordinary conduct of business. The Company is involved in various lawsuits, claims and inquiries. Management believes that the resolution of these matters will not have a material adverse effect on the results of operations, financial position or liquidity of the Company. NOTE 13 DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES Differences between U.S. and Canadian GAAP for these financial statements are: (i) The common stock of DuPont and USAi would be carried at cost under Canadian GAAP, thereby reducing shareholders' equity by $704 million or approximately five percent at June 30, 1999. There is no effect on net income. (ii) Proportionate consolidation of joint ventures under Canadian GAAP would increase assets and liabilities by approximately $801 million and decrease working capital by approximately $44 million at June 30, 1999. There is no effect on net income. (iii) Under Canadian GAAP, the assets and liabilities of the discontinued Tropicana operations would be presented separately on the consolidated balance sheet which would result in an increase of $434 million in both total assets and total liabilities at June 30, 1999. There is no effect on net income. (iv) Canadian GAAP requires that the Company disclose it may experience the effects of the Year 2000 Issue before, on, or after January 1, 2000, and that the effects on operations and financial reporting, if not addressed, may range from minor errors to significant systems failure, which could affect the Company's ability to conduct normal business operations. While the Company has a Year 2000 program to address critical systems, it is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or third parties, will be fully resolved. (v) There are no other significant differences between U.S. and Canadian GAAP. NOTE 14 SUBSEQUENT EVENTS On July 2, 1999, the Company completed the sale of its Mumm and Perrier-Jouet Champagne operations for approximately $310 million. Through agreement with the purchaser, Seagram has retained global distribution rights of Mumm and Perrier-Jouet Champagnes for a ten-year period. 63 43 MANAGEMENT'S REPORT The Company's management is responsible for the preparation of the accompanying financial statements in accordance with generally accepted accounting principles, including the estimates and judgments required for such preparation. The Company has a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and financial records underlying the financial statements properly reflect all transactions. The system contains self-monitoring mechanisms, including a program of internal audits, which allow management to be reasonably confident that such controls, as well as the Company's administrative procedures and internal reporting requirements, operate effectively. Management believes that its long-standing emphasis on the highest standards of conduct and business ethics, as set forth in written policy statements, serves to reinforce the system of internal accounting controls. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error or the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. The Company's independent accountants, PricewaterhouseCoopers LLP, review the system of internal accounting controls to the extent they consider necessary to evaluate the system as required by generally accepted auditing standards. Their report covering their audits of the financial statements is presented below. The Audit Committee of the Board of Directors, solely comprising Directors who are not officers or employees of the Company, meets with the independent accountants, the internal auditors and management to ensure that each is discharging its respective responsibilities relating to the financial statements. The independent accountants and the internal auditors have direct access to the Audit Committee to discuss, without management present, the results of their audit work and any matters they believe should be brought to the Committee's attention. /s/ Edgar Bronfman Jr. /s/ Robert W. Matschullat -------------------------- ------------------------- EDGAR BRONFMAN, JR. ROBERT W. MATSCHULLAT President and Chief Executive Vice Chairman and Chief Financial Officer Officer August 18,1999 64 44 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, 1999 and 1998 and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal years ended June 30, 1999, 1998 and 1997. 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, 1999 and 1998 and the results of their operations and their cash flows for the fiscal years ended June 30, 1999, 1998 and 1997, 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. /s/ PricewaterhouseCoopers LLP - ------------------------------- PricewaterhouseCoopers LLP New York, New York August 18,1999 65 45 QUARTERLY DATA FISCAL 1999
FISCAL YEAR U.S. DOLLARS IN MILLIONS FIRST SECOND THIRD FOURTH ENDED EXCEPT FOR SHARE AMOUNTS (UNAUDITED) QUARTER QUARTER QUARTER QUARTER 6/30/99(3) Revenues $2,247 $3,327 $3,215 $3,523 $12,312 Operating income (loss) $ 179 $ (219) $ (163) $ (47) $ (250) Income (loss) from continuing operations, after tax $ 95 $ (226)(1) $ (199) $ (53)(2) $ (383) Loss from discontinued Tropicana operations, after tax (3) -- -- -- (3) Gain on sale of discontinued Tropicana operations, after tax 1,072 -- -- -- 1,072 ------------------------------------------------------------------ Net income (loss) $1,164 $ (226) $ (199) $ (53) $ 686 ================================================================== PER SHARE DATA EARNINGS (LOSS) PER SHARE - BASIC Continuing operations $ .27 $ (.63) $ (.50) $ (.13) $ (1.01) Discontinued Tropicana operations, after tax (.01) -- -- -- (.01) Gain on sale of discontinued Tropicana operations, after tax 3.09 -- -- -- 2.83 ------------------------------------------------------------------ Net income (loss) $ 3.35 $ (.63) $ (.50) $ (.13) $ 1.81 ================================================================== EARNINGS (LOSS) PER SHARE - DILUTED Continuing operations $ .27 $ (.63) $ (.50) $ (.13) $ (1.01) Discontinued Tropicana operations, after tax (.01) -- -- -- (.01) Gain on sale of discontinued Tropicana operations, after tax 3.07 -- -- -- 2.83 ------------------------------------------------------------------ Net income (loss) $ 3.33 $ (.63) $ (.50) $ (.13) $ 1.81 ==================================================================
FISCAL 1998
FISCAL YEAR U.S. DOLLARS IN MILLIONS FIRST SECOND THIRD FOURTH ENDED EXCEPT FOR SHARE AMOUNTS (UNAUDITED) QUARTER QUARTER QUARTER QUARTER 6/30/98(3) Revenues $2,372 $3,009 $1,991 $2,102 $9,474 Operating income $ 260 $ 231 $ 47 $ 15 $ 553 Income from continuing operations, after tax $ 116 $ 8 $ 447(4) $ 309(5) $ 880 Income from discontinued Tropicana operations, after tax 17 20 14 15 66 --------------------------------------------------------------- Net income $ 133 $ 28 $ 461 $ 324 $ 946 =============================================================== PER SHARE DATA EARNINGS PER SHARE - BASIC Continuing operations $ .32 $ .02 $ 1.30 $ .89 $ 2.51 Discontinued Tropicana operations, after tax .05 .06 .04 .04 .19 --------------------------------------------------------------- Net income $ .37 $ .08 $ 1.34 $ .93 $ 2.70 =============================================================== EARNINGS PER SHARE - DILUTED Continuing operations $ .32 $ .02 $ 1.28 $ .88 $ 2.49 Discontinued Tropicana operations, after tax .05 .06 .04 .04 .19 --------------------------------------------------------------- Net income $ .37 $ .08 $ 1.32 $ .92 $ 2.68 ===============================================================
(1) Includes a $244 million restructuring charge, after tax and minority interest. (2) Includes a $76 million gain on the USA transactions, after tax and minority interest. (3) For earnings per share data, each quarter is calculated as a discrete period and the sum of the four quarters does not equal the full year amount. (4) Includes a $281 million after-tax gain on the sale of Time Warner shares and a $187 million gain on the USA transactions, after tax and minority interest. (5) Includes a $321 million after-tax gain on the sale of Time Warner shares. 66 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 46 FINANCIAL SUMMARY
TRANSITION FISCAL YEARS ENDED PERIOD ENDED FISCAL YEARS ENDED JUNE 30, JUNE 30, JANUARY 31, U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997 1996 1996 1995 --------- --------- --------- --------- --------- --------- INCOME STATEMENT Revenues $ 12,312 $ 9,474 $ 10,354 $ 4,112 $ 7,787 $ 4,994 Operating income (loss) $ (250) $ 553 $ 719 $ 93 $ 435 $ 614 Interest, net and other $ 457 $ 228 $ 147 $ 99 $ 195 $ 317 Gain on sale of Time Warner shares $ -- $ 926 $ 154 $ -- $ -- $ -- Gain on USA transactions $ 128 $ 360 $ -- $ -- $ -- $ -- Income (loss) from continuing operations before cumulative effect of accounting change $ (383) $ 880 $ 445 $ 67 $ 144 $ 170 Income (loss) from discontinued Tropicana operations, after tax (3) 66 57 18 30 24 Gain on discontinued Tropicana operations, after tax 1,072 -- -- -- -- -- Discontinued DuPont activities, after tax -- -- -- -- 3,232 617 --------- --------- --------- --------- --------- --------- Income before cumulative effect of accounting change 686 946 502 85 3,406 811 Cumulative effect of accounting change, after tax -- -- -- -- -- (75) --------- --------- --------- --------- --------- --------- Net income $ 686 $ 946 $ 502 $ 85 $ 3,406 $ 736 ========= ========= ========= ========= ========= ========= FINANCIAL POSITION Current assets $ 8,881 $ 6,971 $ 6,131 $ 6,307 $ 6,194 $ 3,938 Common stock of DuPont 1,123 1,228 1,034 651 631 3,670 Common stock of USAi 501 306 -- -- -- -- Common stock of Time Warner -- -- 1,291 2,228 2,356 2,043 Other noncurrent assets 24,506 11,940 10,257 10,328 10,230 1,773 Net assets of discontinued Tropicana operations -- 1,734 1,734 1,693 1,549 1,270 --------- --------- --------- --------- --------- --------- Total assets $ 35,011 $ 22,179 $ 20,447 $ 21,207 $ 20,960 $ 12,694 ========= ========= ========= ========= ========= ========= Current liabilities $ 8,146 $ 4,709 $ 3,087 $ 4,383 $ 3,557 $ 3,865 Long-term debt $ 7,468 $ 2,225 $ 2,478 $ 2,562 $ 2,889 $ 2,838 Total liabilities before minority interest $ 20,245 $ 10,948 $ 9,174 $ 10,163 $ 9,788 $ 7,174 Minority interest 1,878 1,915 1,851 1,839 1,844 11 Shareholders' equity 12,888 9,316 9,422 9,205 9,328 5,509 --------- --------- --------- --------- --------- --------- Total liabilities & shareholders' equity $ 35,011 $ 22,179 $ 20,447 $ 21,207 $ 20,960 $ 12,694 ========= ========= ========= ========= ========= ========= CASH FLOW DATA Cash flow provided by (used for) operating activities $ 935 $ (241) $ 664 $ 315 $ 222 $ 370 Capital expenditures $ (531) $ (410) $ (393) $ (245) $ (349) $ (124) Other investing activities, net $ (5,605) $ 1,109 $ 2,101 $ (346) $ 2,260 $ (341) Dividends paid $ (247) $ (231) $ (239) $ (112) $ (224) $ (216) PER SHARE DATA EARNINGS (LOSS) PER SHARE - BASIC Continuing operations $ (1.01) $ 2.51 $ 1.20 $ .18 $ .38 $ .46 Discontinued Tropicana operations, after tax (.01) .19 .16 .05 .08 .06 Gain on sale of discontinued Tropicana operations, after tax 2.83 -- -- -- -- -- Discontinued DuPont activities, after tax -- -- -- -- 8.67 1.66 --------- --------- --------- --------- --------- --------- Income before cumulative effect of accounting change 1.81 2.70 1.36 .23 9.13 2.18 Cumulative effect of accounting change, after tax -- -- -- -- -- (.20) --------- --------- --------- --------- --------- --------- Net income $ 1.81 $ 2.70 $ 1.36 $ .23 $ 9.13 $ 1.98 ========= ========= ========= ========= ========= ========= EARNINGS (LOSS) PER SHARE - DILUTED Continuing operations $ (1.01) $ 2.49 $ 1.20 $ .18 $ .38 $ .46 Discontinued Tropicana operations, after tax (.01) .19 .15 .05 .08 .06 Gain on sale of discontinued Tropicana operations, after tax 2.83 -- -- -- -- -- Discontinued DuPont activities, after tax -- -- -- -- 8.54 1.64 --------- --------- --------- --------- --------- --------- Income before cumulative effect of accounting change 1.81 2.68 1.35 .23 9.00 2.16 Cumulative effect of accounting change, after tax -- -- -- -- -- (.20) --------- --------- --------- --------- --------- --------- Net income $ 1.81 $ 2.68 $ 1.35 $ .23 $ 9.00 $ 1.96 ========= ========= ========= ========= ========= ========= Dividends paid $ .66 $ .66 $ .645 $ .30 $ .60 $ .58 Shareholders' equity $ 29.80 $ 26.84 $ 25.79 $ 24.67 $ 24.91 $ 14.79 End of year share price New York Stock Exchange (U.S.$) $ 50.38 $ 40.94 $ 40.25 $ 33.63 $ 36.38 $ 28.75 Toronto Stock Exchange (C$) $ 73.35 $ 59.95 $ 55.50 $ 45.75 $ 49.75 $ 40.50 Average shares outstanding (thousands) 378,193 349,874 369,682 373,858 373,117 372,499 Shares outstanding at year end (thousands) 432,555 347,132 365,281 373,059 374,462 372,537 ========= ========= ========= ========= ========= =========
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 67 EX-21 6 SUBSIDIARIES 1 Exhibit Number 21 THE SEAGRAM COMPANY LTD. ANNUAL REPORT ON FORM 10-K SUBSIDIARIES LIST AS OF AUGUST 31, 1999 The following is a list of subsidiaries of the Corporation and certain other entities in which the Corporation has an interest as of August 31, 1999.
Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ----- THE SEAGRAM COMPANY LTD. Canada -- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** 210 South Street Property Company Limited United Kingdom 100% 3BG Holdings L.L.C. Delaware 50% A & M Records Limited United Kingdom 100% A & M Records, Inc. Delaware 100% Adrawing Limited United Kingdom 50% Africa Fete Limited United Kingdom 100% Ahlins Musikforlags AB Sweden 100% Alto Music Limited United Kingdom 50% Amadeo Oesterreichische Schallplatten Gesellschaft m.b.H. Austria 100% Amused Productions Limited United Kingdom 100% Apollo-Verlag Paul Lincke GmbH Germany 75% Argo Record Company Ltd. United Kingdom 100% Arigram Record Service AB Sweden 50% Ariston s.r.l. Italy 100% Arrietty Films Limited United Kingdom 100% Associated Liquor Distributors (S) Pte. Ltd. Singapore 100% Audio Club of New Zealand Ltd. New Zealand 100% B & M Spol s.r.o. Czech Republic 70% B.V. Lenox Films Europe Netherlands 100% Barclay Record S.A. Switzerland 100% Barton & Guestier S.A. France 100% Bodegas y Vinedos Crillon S.A.I.C. Argentina 100% British Phonograph Records Limited United Kingdom 100% Burgeff & Co. Sektkellereien GmbH Germany 100% C.A. Circulo de Conocedores Seagram Venezuela 100% C.A. Seagram de Venezuela Venezuela 100%
2 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** Canadian Distillers Ltd. Canada 100% Capella B.V. Netherlands 100% Capricorn Records, LLC Georgia 51% Carre' D'As S.r.l. Italy 100% Cedarwood Music Ltd. United Kingdom 50% Centenary Australia Pty Limited Australia 100% Centenary France S.A. France 100% Centenary Holding France S.A. France 100% Centenary Holding N.V. Netherlands 92% Centenary Holdings Ltd. Bermuda 100% Centenary Investments Inc. Canada 100% Centenary Italia S.r.l. Italy 100% Centenary S.A.R.L. Luxembourg 100% Centenary Sweden AB Sweden 100% Centenary UK Limited United Kingdom 100% Chapulin Edizioni Musicali S.r.l. Italy 100% Chivas Brothers Limited United Kingdom 100% Cinea S.A. France 50% Cinepoly Music Publishing Company Ltd. Hong Kong 100% Cinepoly Records Company Ltd. Hong Kong 100% Compact Disc Services Far East Limited Hong Kong 100% Cosima Music OHG PolyGramSongs Musiverlag GmbH & Co. Germany 100% CR Films, LLC Delaware 50% D G Records Limited United Kingdom 100% D. J. M. Records Limited United Kingdom 100% D.I.A.L. - Diffusion Internationale d'Arts et Loisirs S.A France 100% Decca Artists Ltd. Switzerland 100% Decca Records Taiwan Ltd. Taiwan (China) 60% DEF American Limited United Kingdom 50% Def Jam Records, Inc. Delaware 100% Deutsche Grammophon GmbH Germany 100% Dick James Musikverlag GmbH Germany 100% Distillers Products Sales Corporation Massachusetts 100% Dominic Music Limited United Kingdom 100% Don Julio S.A. de C.V. Mexico 95% Doomwatch Ltd. United Kingdom 100% Doosan Seagram Co., Ltd. Korea 100% Dutchco "Before She Met Me" B.V. Netherlands 100% E.U.R. Music S.r.l. Italy 100% Edison Bell Records (England) Limited United Kingdom 100% Edsel Films Ltd. United Kingdom 100% Elizabeth Films Ltd. United Kingdom 100% Entertainment Today Limited United Kingdom 100% Epithete Production France 100% Equipe Edizioni Musicali e Produzioni Discografiche S.r.l. Italy 100% Eyeteecee Music, Inc. California 100% FA Productions France 100% Fater Media Ltd. Taiwan (China) 80% Fonobras-Distribuidora Fonografica Brasileira Ltda. Brazil 50% Fontana B.V. Netherlands 100% Forbrooke Enterprises, Inc. California 100% Fun House & C. Musical Company Italy 100%
2 3 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** Gasoline Alley California 55% * Geffen Records, Inc. California 100% Geffen/Outpost Record Ventures, Inc. California 100% Ghost Productions Limited United Kingdom 50% Gimell Records Ltd. United Kingdom 51% Go East Entertainment Company Ltd. Hong Kong 80% Go! Discs Limited United Kingdom 100% Go! Holdings Limited United Kingdom 100% Go! Records Limited United Kingdom 100% Goldhawke Productions Limited United Kingdom 100% Goldisk AG Switzerland 100% Gralto Music Limited United Kingdom 100% Grammofoonplaten-Maatschappij Barclay Nederland B.V. Netherlands 100% Greatest Hits Entertainment Partnership, HB Sweden 60% * GRP Records, Inc. New York 100% GTS Records New York 51% * Gulfstream Insurance (Barbados) Limited Barbados 100% Gulfstream Insurance (Ireland) Limited Ireland 100% Gulfstream Reinsurance (Ireland) Limited Ireland 100% Gypsy Films Limited United Kingdom 100% Hammersmith Records Limited United Kingdom 100% Heliolodge Limited United Kingdom 100% Hi Lo Films Ltd. United Kingdom 100% High Noon Music GmbH Germany 100% Hilltop Services, Inc. California 100% Hollandsche Decca Distributie B.V. Netherlands 100% HRC/UC Joint Venture California 50% * Imagine Films Entertainment, Inc. Delaware 100% Interscope Records California 50% * IPS Records Ltd. Hong Kong 50% Island Entertainment Group Limited United Kingdom 100% Island Entertainment Group S.A. France 100% Island Entertainment Group, Inc. New York 100% Island Limited United Kingdom 100% Island Records France S.A. France 100% Island Visual Arts Limited United Kingdom 100% Island Visual Arts, Inc. New York 100% J.D.C., S.A. de C.V. Mexico 75% J.E. Seagram Corp. Delaware 100% JES Developments Finance, Inc. Delaware 100% JES Developments, Inc. Delaware 100% Jewel Box Music GmbH Germany 50% Joseph E. Seagram & Sons, Inc. Indiana 100% K.K. Kitty Enterprises Japan 100% Karussell AB Sweden 100% Kejvings Musikforlag AB Sweden 100% Know Existence Ltd. United Kingdom 100% La Bussola Edizioni Musicali S.r.l. Italy 100% Lavande Limited Hong Kong 100% Leisure Marine Corp. Nevada 100% Licorerias Unidas, S.A. Venezuela 100% Lupak S.A. Greece 100%
3 4 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** Lusa de Colombia S.A. Colombia 100% MacLeane Films Ltd. United Kingdom 100% Madera Holding B.V. Netherlands 100% Magic Records Sp.z.o.o. Poland 100% Makeback Limited United Kingdom 100% Management Corporation of America California 100% Mars MUzik Yapim Organizasyon Video Sanayi ve Ticaret S.A. Turkey 51% Martell & Co. France 99% Martell Far East Trading Limited Hong Kong 100% Martell S.A. France 99% Matheus Muller Sektkellereien GmbH Germany 100% MCA Music France SARL France 100% MCA Music G.m.b.H. Germany 100% MCA Music Italy S.r.l. Italy 100% MCA Music K.K. Japan 100% MCA Records, Inc. California 100% MCA/G-A Record Ventures, Inc. California 100% MCA/Interscope Partner, Inc. California 100% MCA/R Record Ventures, Inc. California 100% Mercury Producoes e Edicoes Musicais Ltda. Brazil 100% Mercury Records B.V. Netherlands 100% Mercury Records GmbH Germany 100% Mercury Records Limited United Kingdom 100% Meteor Film Productions B.V. Netherlands 100% MN Productions SARL France 100% Mother Records Ltd. United Kingdom 50% Motion Pictures Prinsengracht B.V. Netherlands 100% Motown (UK) Limited United Kingdom 100% Motown Cafe Orlando, L.P., LLLP Delaware 90% Motown Entertainment (Deutschland) GmbH Germany 100% Motown Entertainment Nederland B.V. Netherlands 100% Motown Foreign Sales, L.P. California 100% Motown Record Company, L.P. California 100% Movie Film Productions Inc. Delaware 100% Movie Tune Publishers B.V. Netherlands 100% Murphy's Productions, Inc. California 100% Music International Entertainment N.V. Netherlands Antilles 100% Music Plus V.o.f. Netherlands 50% Musical Rendezvous Limited United Kingdom 100% Musician Hong Kong Ltd. Hong Kong 99% MusiClub Brazil 50% Myers Rum Company Limited Bahamas 100% Nappa Neumzehnete Germany 100% NED Video B.V. Netherlands 100% Nese MUzik Yapim Sanayi ve Ticaret A.S. Turkey 51% New G.S. Records Ltd. United Kingdom 100% Norse Music Productions Limited United Kingdom 100% Nu-Taurus Inc Japan 100% Oakwood Films Inc. Delaware 100% Oddbins Limited United Kingdom 100% OH AB Music Produktion A.B. Sweden 100% P.P.S. S.A.S. France 100%
4 5 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** P.T. PolyGram Indonesia Indonesia 80% Pageant Music Limited United Kingdom 100% Pan Europeenne Production S.A. France 70% Par Four TK Japan 100% Par Three T.K. Japan 100% Paragon Publicity & Public Relations Limited United Kingdom 50% Peekaboo S.a.r.l. France 100% Perth Music, Inc. California 100% Petalcraft Demonstrations Ltd. United Kingdom 100% Phonad, Inc. New York 100% Phoninvest Participacoes Ltda. Brazil 100% Phonodisc Sales Limited United Kingdom 100% Phonogram Limited United Kingdom 100% Phonogram Music Limited United Kingdom 100% PMC Merchandising, Inc. Delaware 100% Polar Music AB Sweden 100% Polar Music International AB Sweden 100% Polydor B.V. Netherlands 100% Polydor KK Japan 100% Polyfin S.r.l. Italy 100% PolyGram (Switzerland) AG Switzerland 100% PolyGram A/O Russian Federation 90% PolyGram A/S Norway 100% PolyGram AB Sweden 100% PolyGram Big Pipe, Inc. Delaware 100% PolyGram Broadway Ventures, Inc. Delaware 100% PolyGram Cable Channel Co. Delaware 100% PolyGram de Centro America S.A. Costa Rica 50% PolyGram Discos Uruguay S.A. Uruguay 100% PolyGram Diversified Ventures, Inc. Delaware 100% PolyGram do Brasil Ltda. Brazil 100% PolyGram Ecuador S.A. Ecuador 100% PolyGram Editions SARL France 100% PolyGram Filmed Entertainment N.V. Belgium 100% PolyGram Filmed Entertainment Productions, Inc. Delaware 100% PolyGram Group Canada Inc. Canada 100% PolyGram Group Distribution, Inc. Delaware 100% PolyGram Holding (Luxembourg) S.A. Luxembourg 100% PolyGram Holding AG Switzerland 100% PolyGram Holding and Finance s.r.l. Luxembourg 100% PolyGram Holding GmbH Germany 100% PolyGram Holding, Inc. Delaware 100% PolyGram India Limited India 100% PolyGram International Finance (Ireland) Ltd. Ireland 100% PolyGram International Music Publishing B.V. Netherlands 100% PolyGram Luxembourg Finance S.A. Luxembourg 100% PolyGram Manufacturing & Distribution Centres GmbH Germany 100% PolyGram Manufacturing & Distribution Centres S.A. France 100% PolyGram Manufacturing and Distribution Centers, Inc. Delaware 100% PolyGram Music Asia, L.L.C. Delaware 100% PolyGram Music Programming Corporation Delaware 100% PolyGram Music Publishing (South Africa) Ltd. South Africa 100%
5 6 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** PolyGram Music Publishing AG Switzerland 100% PolyGram Music Publishing B.V. Netherlands 100% PolyGram Music Publishing Italia S.r.l. Italy 100% PolyGram Music Publishing LLC Hungary 100% PolyGram Music Publishing Ltd. Taiwan (China) 100% PolyGram Music Publishing Pte Ltd. Singapore 100% PolyGram Music Publishing S.A. [Belgium] Belgium 100% PolyGram Music Publishing S.A. [Venezuela] Venezuela 100% PolyGram Music Publishing Sdn. Bhd. Malaysia 100% PolyGram Musique S.A. France 100% PolyGram N.V. Netherlands 100% PolyGram Portugal - Som e Imagem, S.A. Portugal 100% PolyGram Publishing Ventures, Inc. Delaware 100% PolyGram Publishing, Inc. Delaware 100% PolyGram Record Services Pty Ltd. Australia 100% PolyGram Records Corporation Philippines 51% PolyGram Records Ltd. [Taiwan] Taiwan (China) 100% PolyGram Records Ltd. [New Zealand] New Zealand 100% PolyGram Records, Inc. Delaware 100% PolyGram S.A. [France] France 100% PolyGram S.A. [Luxembourg] Luxembourg 100% PolyGram S.r.o. Czech Republic 100% PolyGram Slovensko S.r.o. Slovakia 100% PolyGram Songs Musikverlag GmbH Germany 100% PolyGram Sound, Inc. Delaware 100% PolyGram South Africa South Africa 67% * PolyGram Television, L.L.C. Delaware 100% PolyGram Video Clip Holding, Inc. Delaware 100% Polyscope B.V. Netherlands 100% Polytel International Overseas Limited United Kingdom 100% Producer Services Holdings Limited United Kingdom 50% Producer Services Limited United Kingdom 50% Qualiton Records (1968) Limited United Kingdom 100% Quicksilver Recording Company Limited United Kingdom 100% R.S.O. Records B.V. Netherlands 100% Radioactive Records California 60% * Record Supervision Limited United Kingdom 100% Reuter & Reuter Forlags AB Sweden 100% RM Productions (Film & Television) Limited United Kingdom 100% S MUzik Yapim Organizasyon ve Ticaret A.S. Turkey 51% Sandeman - Coprimar S.A. Spain 100% Sandeman & Ca. S.A. Portugal 100% SCI Lorada France 100% Sci-Fi Channel Europe, L.L.C. Delaware 50% Seagold Leasing Inc. Delaware 100% Seagram (China) Ltd. Canada 100% Seagram (New Zealand) Limited New Zealand 100% Seagram Apka S.A. Greece 100% Seagram Australia Holdings Pty. Limited Australia 100% Seagram Australia Pty. Limited Australia 100% Seagram Belgium N.V. Belgium 100% Seagram C.I. (Taiwan) Co., Ltd. Hong Kong 90%
6 7 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** Seagram Capital Investments, Inc. Delaware 100% Seagram de Argentina, S.A.I.C. Argentina 100% Seagram de Chile Commercial Ltda. Chile 100% Seagram de Mexico S.A. de C.V. Mexico 100% Seagram Deutschland GmbH Germany 100% Seagram Developments, Inc. Delaware 100% Seagram Distillers PLC United Kingdom 100% Seagram do Brasil Industria e Comercio Ltda. Brazil 100% Seagram Enterprises, Inc. Delaware 100% Seagram Europa B.V. Netherlands 100% Seagram European Customer Service Center Limited United Kingdom 100% Seagram Finance B.V. Netherlands 100% Seagram France Distribution France 100% Seagram Holdings Limited United Kingdom 100% Seagram Holding-und Handelsgesellschaft mbh Germany 100% Seagram Inc. Delaware 100% Seagram India Private Limited India 100% Seagram International B.V. Netherlands 100% Seagram International Holdings Limited United Kingdom 100% Seagram Italia S.p.A. Italy 100% Seagram Manufacturing Private Limited India 100% Seagram Netherlands Antilles N.V. Netherlands Antilles 100% Seagram Netherlands B.V. Netherlands 100% Seagram Nordic AB Sweden 100% Seagram South Africa (Pty) Ltd. South Africa 100% Seagram United Kingdom Limited United Kingdom 100% Seagram Wine Estates Pty. Limited Australia 100% Shanghai Seagram Limited PRC 60% Societe Flechoise de Participations France 100% Sogepaq Distribucion S.A. Spain 50% Sonet Music AB Sweden 100% Songs of Universal, Inc. California 100% Spectrum S.A. France 100% Spencer Davis Music Limited United Kingdom 50% Spencer Gifts (Canada) Inc. Canada 100% Spencer Gifts (UK) Limited United Kingdom 100% Spencer Gifts, Inc. Delaware 100% Springtime Film B.V. Netherlands 100% Stockholm Label Group AB Sweden 100% Stockholm Musikproduktion AB Sweden 100% Stockholm Records AB Sweden 100% Stockholm Songs AB Sweden 100% Sundance Channel L.L.C. New York 10% Sweden Music Forlags AB Sweden 100% Systemtatic Limited United Kingdom 50% Teal Record Company (Proprietary) Ltd. South Africa 50% Television/Cinema (Canada) Distribution Inc. Canada 100% Terra Properties, Inc. California 100% The Character Cafe Limited United Kingdom 100% The Crayon Box LLC New York 50% The Decca Record Company Ltd. United Kingdom 100% The Glenlivet Distillers Limited United Kingdom 100%
7 8 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** The House of Seagram Ltd. United Kingdom 100% The Leonard Bernstein Music Publishing Company LLC New York 50% The Music Store Limited United Kingdom 100% The Seagram Finance Company Limited United Kingdom 100% The Video Label United Kingdom 51% * The Wild Card Label Limited United Kingdom 100% This Record Co. Limited United Kingdom 100% Tianjin Seagram Limited PRC 70% Tiger Music Ltd. United Kingdom 50% Timbaland Records, LLC New York 51% Tolly Music Limited United Kingdom 100% Total Distribucion S.A. Spain 50% Toutankhamon France 100% Trutone Music South Africa 50% * TV Hamburg Fernseh-und Filmvertrieb GmbH Germany 100% U/MRV Co. Delaware 70% * UEX Beijing Holding Co. Limited Hong Kong 56% UEX Holding Company California 100% Union Songs Music Forkags AB Sweden 100% Universal - Champion Music Corporation New York 100% Universal - PolyGram International Publishing, Inc. Delaware 100% Universal - PolyGram International Tunes, Inc. Delaware 100% Universal - Songs of PolyGram International, Inc. Delaware 100% Universal Broadcast Communications PLC United Kingdom 100% Universal Cartoon Studios, Inc. California 100% Universal City Development Partners Florida 50% * Universal City Florida Partners Florida 50% * Universal City Property Management Company Delaware 100% Universal City Property Management Company II Delaware 100% Universal City Property Management Company III Delaware 100% Universal City Property Management Company IV Delaware 100% Universal City Studios Productions, Inc. Delaware 100% Universal City Studios, Inc. Delaware 100% Universal Family Entertainment, Inc. California 100% Universal Film Distribution, Inc. California 100% Universal Film Exchanges, Inc. Delaware 100% Universal Finance B.V. Netherlands 100% Universal Grill Joint Venture California 50% * Universal Holding GmbH Germany 100% Universal Home Entertainment Distribution PLC United Kingdom 100% Universal Home Entertainment Holdings Limited United Kingdom 100% Universal Home Entertainment Licensing PLC United Kingdom 100% Universal Home Video, Inc. California 100% Universal Interactive Studios, Inc. California 100% Universal International Films, Inc. Delaware 100% Universal International Finance B.V. Netherlands 100% Universal International Holding B.V. Netherlands 100% Universal International Music B.V. Netherlands 100% Universal Manufacturing & Logistics Limited United Kingdom 100% Universal Music & Video Distribution, Inc. New York 100% Universal Music (Hong Kong) Limited Hong Kong 100% Universal Music (Thailand) Ltd. Thailand 75%
8 9 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** Universal Music (UK) Holdings Limited United Kingdom 100% Universal Music A/S Denmark 100% Universal Music Argentina S.A. Argentina 100% Universal Music Asia Pacific Limited Hong Kong 100% Universal Music Australia (No. 2) Limited Australia 100% Universal Music Australia Pty. Limited Australia 100% Universal Music B.V. Netherlands 100% Universal Music Colombia S.A. Colombia 100% Universal Music GMBH Austria 100% Universal Music GmbH Germany 100% Universal Music International (No. 2) Limited United Kingdom 100% Universal Music International Limited United Kingdom 100% Universal Music Ireland Limited Ireland 100% Universal Music Italia S.r.l. Italy 100% Universal Music K.K. Japan 100% Universal Music Leisure Limited United Kingdom 100% Universal Music Limited [Hong Kong] Hong Kong 100% Universal Music Ltd. [Korea] Korea (South) 80% Universal Music Mexico, S.A. de C.V. Mexico 100% Universal Music NV/SA Belgium 100% Universal Music Operations Limited United Kingdom 100% Universal Music Oy Finland 100% Universal Music Peru S.A. Peru 100% Universal Music Polska Sp. z o.o. Poland 100% Universal Music Private Ltd. Singapore 100% Universal Music Publishing Australia Pty Limited Australia 100% Universal Music Publishing Gesellschaft m.b.H. Austria 100% Universal Music Publishing International Limited United Kingdom 100% Universal Music Publishing K.K. Japan 100% Universal Music Publishing L.L.C. Greece 100% Universal Music Publishing Limited [Hong Kong] Hong Kong 100% Universal Music Publishing Limited [United Kingdom] United Kingdom 100% Universal Music Publishing Polska Sp. z o.o. Poland 100% Universal Music Publishing S.A. [Argentina] Argentina 100% Universal Music Publishing s.r.o. Czech Republic 100% Universal Music Publishing, S.A. [Spain] Spain 100% Universal Music Records Ltd. Hungary 51% Universal Music S.A. [Greece] Greece 100% Universal Music SA France 100% Universal Music Sdn. Bhd. Malaysia 100% Universal Music Spain, S.L. Spain 100% Universal Music UK Limited United Kingdom 100% Universal Music Venezuela S.A. Venezuela 100% Universal Music, S.A. de C.V. Mexico 100% Universal Musica, Inc. Florida 100% Universal Networks Services Italia S.r.l. Italy 100% Universal Pictures (Australasia) Pty. Ltd. Australia 100% Universal Pictures (France) S.A. France 100% Universal Pictures (Italy) S.r.l. Italy 100% Universal Pictures (Spain), S.L. Spain 100% Universal Pictures (Switzerland) AG Switzerland 100% Universal Pictures (UK) Limited United Kingdom 100%
9 10 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** Universal Pictures Benelux B.V. Netherlands 100% Universal Pictures Corporation of China Delaware 100% Universal Pictures Corporation of Puerto Rico Delaware 100% Universal Pictures Germany GmbH Germany 100% Universal Pictures International B.V. Netherlands 100% Universal Pictures International Limited United Kingdom 100% Universal Pictures International No. 2 B.V. Netherlands 100% Universal Pictures Licensing Benelux B.V. Netherlands 100% Universal Pictures Licensing Limited United Kingdom 100% Universal Pictures Limited United Kingdom 100% Universal Pictures Productions B.V. Netherlands 100% Universal Pictures Productions G.m.b.H. Germany 100% Universal Pictures Productions Limited United Kingdom 100% Universal Pictures Pty. Limited Australia 100% Universal Pictures Video (France) S.A. France 100% Universal Pictures Visual Programming Limited United Kingdom 100% Universal Plaza MUzik Yapim Organizasyon Sanayi ve Ticaret A.S. Turkey 100% Universal Rank Hotel Partners Florida 50% * Universal Records B.V. Netherlands 100% Universal Records, Inc. California 100% Universal Station, Inc. California 100% Universal Studios Arcade, Inc. Delaware 100% Universal Studios Canada Ltd. Canada 100% Universal Studios Channels France EURL France 100% Universal Studios Channels France S.A.S. France 100% Universal Studios Consumer Products, Inc. California 100% Universal Studios Development Venture One California 100% Universal Studios Development Venture Three California 100% Universal Studios Development Venture Two California 100% Universal Studios Digital Arts, Inc. California 100% Universal Studios Enterprises Japan, Ltd. Japan 100% Universal Studios Entertainment Japan Investment Company California 100% Universal Studios Finance B.V. Netherlands 100% Universal Studios Finance, Inc. Delaware 100% Universal Studios Holding I Corp. Delaware 92% Universal Studios Holding II Corp. Delaware 100% Universal Studios Holding III Corp. Delaware 100% Universal Studios Holdings (UK) Limited United Kingdom 100% Universal Studios Home Video, Inc. California 100% Universal Studios Hotel, Inc. Delaware 100% Universal Studios International B.V. Netherlands 100% Universal Studios International G.m.b.H. Germany 100% Universal Studios Investments, Inc. Delaware 100% Universal Studios Licensing, Inc. California 100% Universal Studios Network Programming California 50% Universal Studios Networks Deutschland G.m.b.H. Germany 100% Universal Studios Networks, Limited United Kingdom 100% Universal Studios New Media, Inc. California 100% Universal Studios Online Productions, Inc. California 100% Universal Studios Online, Inc. California 100% Universal Studios Pacific Partners, Inc. California 100% Universal Studios Pay Television Australia, Inc. California 100%
10 11 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** Universal Studios Pay Television B.V. Netherlands 100% Universal Studios Pay Television, Inc. California 100% Universal Studios Pay TV Latin America, Inc. California 100% Universal Studios Pay-Per-View, Inc. California 100% Universal Studios Recreation Japan Planning Services, Inc. California 100% Universal Studios Recreation Japan Supervision, Inc. California 100% Universal Studios Restaurant, Inc. Delaware 100% Universal Studios TV Channel Poland B.V. Netherlands 100% Universal Studios TV Channel Poland, Inc. Delaware 100% Universal Studios TV1 Australia, Inc. California 100% Universal Studios, Inc. Delaware 100% Universal Television & Networks Group, Inc. California 100% Universal Television Enterprises, Inc. Delaware 100% Universal Television Entertainment, Inc. California 100% Universal Television, Incorporated California 100% Universal TV Filmes Do Brasil Ltda. Brazil 100% Universal Worldwide Television, Inc. Delaware 100% Universal/Dick James Music Limited United Kingdom 100% Universal/Empire Music Limited United Kingdom 100% Universal/Island Music Limited United Kingdom 100% Universal/MCA Music Limited United Kingdom 100% Universal/MCA Music Publishing Pty. Limited Australia 100% Universal-Island Records Limited United Kingdom 100% USA Networks New York 50% USA Networks Partner, Inc. Delaware 100% USANI Holding I, Inc. Delaware 100% USANI Holding II, Inc. Delaware 100% USANI Holding III, Inc. Delaware 100% USANI Holding IV, Inc. Delaware 100% USANI Holding V, Inc. Delaware 100% USANI Holding VI, Inc. Delaware 100% USANI Holding VII, Inc. Delaware 100% USANI Holding VIII, Inc. Delaware 100% USANI Holding IX, Inc. Delaware 100% USANI Holding X, Inc. Delaware 100% USANI Holding XII, Inc. Delaware 100% USANI Holding XIII, Inc. Delaware 100% USANI Holding XIV, Inc. Delaware 100% USANI Holding XV, Inc. Delaware 100% USANI Holding XVI, Inc. Delaware 100% USANI Holding XVII, Inc. Delaware 100% USANI Holding XVIII, Inc. Delaware 100% USANI Holding XIX, Inc. Delaware 100% USANI Holding XX, Inc. Delaware 100% U-Talk Enterprises, Inc. Delaware 100% Valentine Music Italia s.r.l. Italy 100% Venkow Records a.s. Czech Republic 60% Vintners Imports Pty. Limited Australia 50% Vision Video (1984) Limited United Kingdom 100% Vision Video (1989) Limited United Kingdom 100% Vision Video (Electric Dreams) Limited United Kingdom 100% Vision Video (Loose Connections) Limited United Kingdom 100%
11 12 Approximate Percentage Organized Directly or Under Indirectly Laws of Owned ------- ---------- SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED VERTICALLY: 1) SPIRITS & WINE OPERATIONS 2) MUSIC OPERATIONS ** 3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS** Vision Video (Secret Places) Limited United Kingdom 100% Vision Video Limited United Kingdom 100% Vision Videolabel Limited United Kingdom 50% Viva Far East Limited Hong Kong 100% Wet 'n Wild, Inc. Florida 100% What's Music International Inc. Taiwan (China) 60% Working Title (Bean) Limited United Kingdom 100% Working Title Films Limited United Kingdom 100% Working Title Group, Inc. Delaware 100% Working Title TV Limited United Kingdom 100% WT Adventures Ltd. United Kingdom 100%
Notes: ** These companies are direct or indirect subsidiaries of either Centenary Holding N.V. or Universal Studios Holding I Corp., each of which is 92% owned by Seagram. A. All subsidiaries are listed alphabetically, with three business segments indicated vertically, however, note that there are some subsidiaries which handle business for more than one operation. Such subsidiaries are not identified and listed in only one of the three operations. B. Joint ventures and partnerships are indicated with an asterisk on the far right column. C. Where more than one subsidiary has exactly the same legal name, the jurisdiction of incorporation for each subsidiary is indicated in brackets after the name. Such jurisdiction noted in brackets is not part of the legal name of the subsidiary. 12 EX-23 7 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Numbers 2-99681, 33-67772, 333-62921 and 333-86385) and the Registration Statements on Form S-8 (Numbers 33-27194, 33-2043, 33-49096, 33-60606, 33-99122, 333-19059 and 333-85485) of The Seagram Company Ltd. of our report dated August 18, 1999, relating to the consolidated financial statements, which appears in the Annual Report to Shareholders of The Seagram Company Ltd. for the fiscal year ended June 30, 1999, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report, dated August 18, 1999 relating to the financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP - ------------------------------ PricewaterhouseCoopers LLP New York, N.Y. September 28, 1999 31 EX-24 8 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, 1999, (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 18, 1999 - ---------------------------------------- THE SEAGRAM COMPANY LTD. by Mr. Edgar M. Bronfman Chairman of the Board /s/ Edgar M. Bronfman August 18, 1999 - ---------------------------------------- Edgar M. Bronfman /s/ Charles R. Bronfman August 18, 1999 - ---------------------------------------- Charles R. Bronfman /s/ Edgar Bronfman, Jr. August 18, 1999 - ---------------------------------------- Edgar Bronfman, Jr. /s/ Samuel Bronfman II August 18, 1999 - ---------------------------------------- Samuel Bronfman II /s/ Matthew W. Barrett August 18, 1999 - ---------------------------------------- Matthew W. Barrett 32 2 Signature Date - --------- ---- /s/ Laurent Beaudoin August 18, 1999 - ---------------------------------------- Laurent Beaudoin /s/ Cornelis Boonstra August 18, 1999 - ---------------------------------------- Cornelis Boonstra /s/ Richard H. Brown August 18, 1999 - ---------------------------------------- Richard H. Brown /s/ William G. Davis August 18, 1999 - ---------------------------------------- William G. Davis /s/ Andre Desmarais August 18, 1999 - ---------------------------------------- Andre Desmarais /s/ Barry Diller August 18, 1999 - ---------------------------------------- Barry Diller /s/ Michele J. Hooper August 18, 1999 - ---------------------------------------- Michele J. Hooper /s/ David L. Johnston August 18, 1999 - ---------------------------------------- David L. Johnston /s/ E. Leo Kolber August 18, 1999 - ---------------------------------------- E. Leo Kolber /s/ Marie-Josee Kravis August 18, 1999 - ---------------------------------------- Marie-Josee Kravis /s/ Robert W. Matschullat August 18, 1999 - ---------------------------------------- Robert W. Matschullat /s/ Samuel Minzberg August 18, 1999 - ---------------------------------------- Samuel Minzberg /s/ John S. Weinberg August 18, 1999 - ---------------------------------------- John S. Weinberg 33 EX-27 9 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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 U.S. DOLLARS 12-MOS JUN-30-1999 JUL-01-1998 JUN-30-1999 1 1,533 0 2,985 0 2,627 8,881 4,485 (1,327) 35,011 8,146 7,468 0 0 4,575 8,313 35,011 0 12,312 7,337 7,337 5,225 0 457 (579) (33) (383) 1,069 0 0 686 1.81 1.81
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