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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, 1998
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, 1998 (65.45% of the outstanding common shares) was
approximately $7 billion. At August 31, 1998, there were 347,450,648 common
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Shareholders for the Parts I, II
fiscal year ended June 30, 1998.
Proxy Circular for the Annual Meeting Parts I, III
of Shareholders to be held on
November 4, 1998.
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PART I
Recent Developments
On June 22, 1998, The Seagram Company Ltd. (the "Corporation")
announced that it had signed definitive agreements with Koninklijke Philips
Electronics N.V. ("Philips") and PolyGram N.V. ("PolyGram") to acquire PolyGram
in a transaction valued at approximately $10.4 billion. The agreements call for
the Corporation to pay $8.4 billion in cash and to issue approximately 47.9
million common shares (12% of the Corporation's outstanding common shares
after the transaction). The acquisition, which is subject to the receipt of
certain regulatory approvals, is expected to close during the second quarter of
the Corporation's fiscal year ending June 30, 1999.
On August 25, 1998, the Corporation completed the sale of
Tropicana Products, Inc. and the Corporation's global juice business
("Tropicana") for cash proceeds of approximately $3.3 billion. The proceeds from
the sale of Tropicana will be used by the Corporation to provide part of the
financing for the Corporation's acquisition of PolyGram.
Items 1 and 2. - Business and Properties
The Corporation, which was organized under Canadian federal law on
March 2, 1928, operates two core, global businesses: spirits and wine, and
entertainment. The Corporation's spirits and wine business is engaged
principally in the production and marketing of distilled spirits and wines, as
well as coolers, beers and mixers. The Corporation's entertainment company,
Universal Studios, Inc., produces and distributes motion picture, television and
home video products, and recorded music; and operates theme parks and retail
stores. For information as to revenues, operating income and identifiable assets
by business segment, see Note 14 of Notes to Consolidated Financial Statements
included in the Corporation's Annual Report to Shareholders for the fiscal year
ended June 30, 1998 (the "Annual Report"). Unless the context otherwise
requires, the term "Corporation", as used herein, refers collectively to The
Seagram Company Ltd. and its subsidiaries and affiliates. Unless otherwise
specified, all dollar amounts stated herein are expressed in U.S. currency.
The Corporation's executive offices are located at 1430 Peel
Street, Montreal, Quebec, Canada H3A 1S9 and its registered office is located at
592 Colby Drive, Waterloo, Ontario, Canada N2V 1A2.
SPIRITS AND WINE
The Corporation's spirits and wine business, directly and through
affiliates and joint ventures in 40 countries and territories, produces, markets
and distributes more than 226 brands of distilled spirits, more than 180 brands
of wines, Champagnes, Ports and Sherries, and more than 48 brands of coolers,
beers, mixers and other low-alcohol adult beverages, which are sold in over 197
countries and territories. Some of these products are sold worldwide and others
only in the geographic area where they are produced. In addition to marketing
company-owned brands, the Corporation also distributes spirits, wine and beer
brands owned by others.
Some of the Corporation's best-known brand names include Crown
Royal and Seagram's V.O. Canadian whiskies; Seagram's 7 Crown blended whiskey;
Four Roses bourbon; Chivas Regal, Royal Salute and Passport Scotch whiskies; The
Glenlivet and Glen Grant single malt Scotch whiskies; Martell Cognacs; Seagram's
Extra Dry Gin; Captain Morgan and Myers's rums; Mumm and Perrier-Jouet
Champagnes; and Sterling Vineyards California wines. The Corporation also
distributes Absolut Vodka, owned by V&S Vin & Sprit Aktiebolag, in the United
States and in most major international markets.
The Corporation maintains distilleries and spirits bottling plants
in 16 countries in North America, South America, Europe, Asia and Australia
which have aggregate daily distillation capacities of approximately 266,000 U.S.
proof gallons and aggregate daily bottling capacities of approximately 270,000
standard cases.
As required by the nature of its business, the Corporation
maintains large inventories of aging spirits in warehousing facilities located
primarily in Canada, France, the United Kingdom and the United States. At June
30, 1998, such inventories aggregated approximately 511,000,000 U.S. proof
gallons.
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The basic raw materials used in the production of the
Corporation's spirits are grains, principally corn and barley, which are
purchased from a large number of suppliers. Fluctuations in the prices of these
commodities have not had a material effect upon operating results. The
Corporation acquires substantially all of its American white oak barrels (used
for the storage of whisky during the aging period) from one supplier in the
United States. The Corporation purchases plastic bottles from two suppliers and
glass bottles and packaging materials from several suppliers. The Corporation
believes that its relationships with its various suppliers are good.
The Corporation imports into the United States fine wines,
principally French wines and Champagnes, and produces and markets premium
California and other wines. Among the wines produced and marketed by the
Corporation are Mumm and Perrier-Jouet Champagnes; Sterling Vineyards California
wines; Tessera California wines; Mumm Cuvee Napa California sparkling wine;
Sandeman Ports and Sherries; and Matheus Muller and Mumm German sekt. The
Monterey Vineyard California wines and Barton & Guestier (B&G) French wines are
produced for the Corporation.
The Corporation's wines, Champagnes and Cognacs are produced
primarily from grapes grown by others. Grapes are, from time to time, adversely
affected by weather and other forces which occasionally limit production. The
Corporation believes that its relationships with its growers are good.
The Corporation operates wineries and wine bottling plants in 10
countries. At June 30, 1998, the Corporation's bulk wine inventory aggregated
approximately 32,000,000 wine gallons.
The Corporation also markets low-alcohol and non-alcohol adult
beverages. Seagram's Coolers are sold in a variety of fruit and mixed drink
flavors. The Corporation's mixer line includes Ginger Ale, Club Soda, Tonic
Water and Seltzer. The Corporation is the exclusive U.S. importer of Grolsch
Beer, owned by Royal Grolsch N.V., and of Steinlager Beer, owned by Lion Nathan
Limited.
MARKETING AND DISTRIBUTION
The Corporation derives a significant portion of its revenues from
its spirits and wine operations outside of the United States and Canada. During
the fiscal year ended June 30, 1998, the Corporation's spirits and wine business
was severely impacted by the economic and currency crisis in Asia. The
Corporation's attributed revenues from the Asia-Pacific region, as a percentage
of total spirits and wine attributed revenues, declined from 21% in the fiscal
year ended June 30, 1997 to 13% in the fiscal year ended June 30, 1998.
Excluding a one-time charge of $60 million relating to the Corporation's
operations in Asia, earnings before interest, taxes, depreciation and
amortization ("EBITDA") in the Asia-Pacific region decreased from 24% of total
spirits and wine EBITDA for the fiscal year ended June 30, 1997 to 1% for the
fiscal year ended June 30, 1998. See "Management's Discussion and Analysis" on
pages 26 to 38 of the Annual Report. In addition to economic and currency risks,
the Corporation's foreign operations involve risks including governmental
regulation, embargoes, expropriation, export controls, burdensome taxes,
government price restraints and exchange controls. See Note 14 of the Notes to
Consolidated Financial Statements included in the Annual Report for information
as to sales and other income, operating income and total assets by geographic
area.
In the United States, spirits, wines, coolers and beers are sold
to two general categories of customers. In 32 states and the District of
Columbia, sales are made to approximately 350 wholesale distributors who also
purchase and market other brands of distilled spirits, wines, coolers and beers.
In 18 "control" states (where the state government engages in distribution),
sales are made to state and local liquor boards and commissions; in certain of
these states, sales of wines, coolers and beers also are made to approximately
270 wholesale distributors. In Canada, sales are made exclusively to ten
provincial and two territorial government liquor boards and commissions.
Outside the United States and Canada, the Corporation's spirits
and wines are marketed either through affiliates, joint ventures or independent
distributors. Such affiliates and joint ventures are located in Argentina,
Australia, Belgium, Brazil, Chile, the People's Republic of China, Colombia,
Costa Rica, the Czech Republic, the Dominican Republic, France, Germany, Greece,
Hungary, Hong Kong, India, Israel, Italy, Jamaica, Japan, Mexico, The
Netherlands, New Zealand, Poland, Portugal, the Republic of Korea, Singapore,
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Slovakia, South Africa, Spain, Sweden, Switzerland, Taiwan, Thailand, Ukraine,
Uruguay, the United Kingdom and Venezuela.
During the fiscal year ended June 30, 1998, no independent
customer (or group of related customers) of the Corporation's spirits and wine
operations accounted for as much as 10% of the Corporation's revenues.
COMPETITION
The spirits and wine industry is highly competitive. The trend
toward retailer concentration in the spirits and wine industry, particularly in
Europe, has resulted in powerful multinational retailers and buying groups. All
marketers of beverage alcohol brands have confronted severe pricing pressure
across Europe. During the last few years, these Euro-based multinational
retailers and buying groups have expanded into certain markets in Asia and Latin
America. In addition, Diageo PLC, which resulted from the merger of two of the
largest spirits and wine companies, Grand Metropolitan PLC and Guinness PLC,
presents significant challenges for the Corporation's spirits and wine
businesses in the future.
The Corporation continues to address these competitive challenges
by investing in its core brands and key growth markets. To maintain and improve
the market position of its brands, the Corporation makes extensive use of
magazine, newspaper and outdoor advertising. The Corporation also utilizes radio
and television advertising, although the use of such advertising in connection
with the sale of beverage alcohol is restricted in certain countries.
REGULATION AND TAXES
The beverage alcohol business is subject to strict governmental
regulation covering virtually every aspect of operations, including production,
marketing, pricing, labeling, packaging and advertising. In the United States,
the Corporation must file or publish prices for its beverage alcohol products in
some states as much as three months in advance of their implementation.
In the United States, Canada and many other countries, beverage
alcohol products are subject to substantial excise taxes or custom duties and
additional taxation by governmental subdivisions.
ENTERTAINMENT
The Corporation owns approximately an 84% interest in Universal
Studios Holding I Corp., the indirect parent of Universal Studios, Inc.
Universal Studios, Inc. has three major business units: filmed entertainment,
music entertainment and recreation and other. Its operations are headquartered
at Universal City Studios, located at the Corporation's 415 acre property in
Universal City, California. Unless the context otherwise requires, the term
"Universal" as used hereafter refers collectively to Universal Studios, Inc. and
its subsidiaries and affiliates.
FILMED ENTERTAINMENT
Universal's filmed entertainment business produces and distributes
films worldwide in the theatrical, home video and pay television markets;
produces and distributes television products in the international market;
operates and has ownership interests in a number of international channels
including The Sci-Fi Channel Europe, USA Latin America, recently launched action
and suspense channels in France and Germany and a movie channel in Italy;
engages in the licensing of merchandising rights and film property publishing
rights; and is involved in certain other activities through its ownership of the
joint venture and equity interests described below.
Universal is currently engaged in the production of feature length
films intended for initial theatrical exhibition and the production of product
for international television markets. In addition, Universal produces animated
and live action children's and family programming for networks, basic cable and
local television stations as well as home video.
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The production/distribution cycle represents the period of time
from acquisition of a property through distribution and 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 centered in the Corporation's Universal City Studios.
Production facilities are also leased to outside parties. Some motion picture
films are produced, in whole or in part, at other locations both in and outside
the United States. International television product is produced at locations
outside the United States.
The arrangements under which Universal's theatrical films are
owned, produced and distributed vary widely. Other parties may participate in
varying degrees in revenues or other contractually defined amounts. Generally,
Universal or its affiliated companies control worldwide distribution except
where they act as a subdistributor in specified territories or contract for
specifically defined distribution rights.
Generally, theatrical films are first distributed in the
theatrical, home video and pay television markets. Subsequently, theatrical
films are made available for worldwide television network exhibition and/or
television syndication. The license agreements with theater operators are on an
individual picture basis, and rentals under these agreements are generally a
percentage of the theater's receipts with, in some instances, a minimum
guaranteed amount.
Universal distributes its 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
("UIP"), which is equally owned by Universal, Metro-Goldwyn-Mayer Inc. and an
affiliate of Viacom Inc. ("Viacom"). Universal distributes product to pay
television in the United States, Canada and other major international markets.
Television distribution in the United States is handled by USANi LLC ("USA LLC")
and throughout the rest of the world primarily by Universal. Television product
produced by USA LLC is distributed by Universal in international markets.
Videocassettes and videodiscs are marketed in the United States and Canada by
Universal and outside the United States and Canada by Cinema International B.V.,
which is 49% owned by Universal and 49% owned by an affiliate of Viacom.
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.
Certain Other Joint Ventures and Equity Interests. On October 21,
1997, Universal acquired Viacom's 50% interest in USA Networks, including the
Sci-Fi Channel, for $1.7 billion in cash. The minority shareholder in Universal,
Matsushita Electric Industrial Co., Ltd. declined to contribute the additional
capital required to fund its proportionate share of this acquisition. As a
result, the Corporation's ownership of Universal increased from 80% to
approximately 84%.
On February 12, 1998, Universal sold its acquired 50% interest in
USA Networks to USA Networks, Inc. ("USAi") and contributed its original 50%
interest in USA Networks and the majority of its television assets, including
substantially all of its domestic operations and 50% of the international
operations of USA Networks, to USA LLC in a transaction in which Universal
received $1,332 million in cash, 13.5 million shares of USAi (after giving
effect to the 2 for 1 stock split of USAi stock on March 26, 1998) consisting of
7.1 million shares of USAi common stock and 6.4 million shares of USAi Class B
common stock which in aggregate represented on June 30, 1998 an 8.7% interest in
USAi, and a 45.8% interest in the USA LLC (a subsidiary of USAi) which is
exchangeable for USAi common stock and Class B stock. Universal recognized a
gain of $360 million ($222 million after tax) on the transaction.
At June 30, 1998, Universal also owned 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., which operates motion picture theatres
outside of the United States and Canada.
MUSIC ENTERTAINMENT
Universal's music entertainment business encompasses record labels
which develop artist repertoire in the United States and internationally through
operations in 26 foreign territories; United States manufacturing, sales, and
distribution of recorded music and videos; music publishing; and live event and
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concert promotion. Universal's record companies create and market recorded
music, principally on compact discs and cassettes. Universal's music appears on
such labels as MCA Records, Universal Records, MCA Nashville, Geffen Records,
DGC Records, GRP Records, Rising Tide, Curb/Universal and Interscope Records
(50% ownership). New labels marketed and/or distributed by Geffen Records
include Almo Sounds, Outpost Records and DreamWorks Records. Universal also
manufactures and distributes recorded music for all of the labels in the group,
affiliated label ventures, and others, and distributes video product for
Universal and others in the United States. Universal administers the release,
marketing and sale of recorded music in major markets outside of the United
States; however, in foreign countries other than Canada and the United Kingdom,
Universal's record product is manufactured and distributed by third parties,
principally BMG Music. Universal also releases soundtrack albums for motion
pictures and licenses music from a catalog of more than 175,000 copyrights for a
wide variety of uses including recorded music, videocassettes, videodiscs, video
games, radio, television and motion pictures. Concerts and live events are
presented at and promoted by the Corporation's Universal Amphitheatre in Los
Angeles and Coors Amphitheatre in Chula Vista, California, Fiddler's Green in
Denver, Blossom Music Center in Cleveland and the Gorge Amphitheatre in George,
Washington and through joint ventures at the Coca-Cola Starplex Amphitheatre in
Dallas, the Coca-Cola Lakewood Amphitheatre in Atlanta and the Molson
Amphitheatre in Toronto, Canada.
In connection with the Corporation's music entertainment
activities, Universal owns manufacturing facilities in New York and Illinois and
an office building in Los Angeles. Universal leases warehouses at six facilities
in the United States and Canada and leases office and/or warehouse space in New
York and 25 countries outside of the United States and Canada.
See "Recent Developments" above for a description of the
Corporation's proposed acquisition of PolyGram.
RECREATION AND OTHER
Universal owns and operates Universal Studios Hollywood, a theme
park based on the Corporation's filmed entertainment businesses and located at
Universal City, California. Universal has a 50% interest in Universal City
Florida Partners, a joint venture which owns Universal Studios Florida, a theme
park on approximately 440 acres owned by the joint venture in Orlando, Florida.
Universal City Development Partners, a partnership in which Universal has a 50%
interest, is developing an additional theme park, Universal Studios Islands of
Adventure, and related commercial real estate, on approximately 385 acres of
land owned by the partnership and adjacent to Universal Studios Florida.
Universal Studios Islands of Adventure is expected to open in the spring of
1999. In 1996, the Corporation announced plans for Universal Studios Japan in
Osaka, the Corporation's first theme park venture outside the United States. USJ
Co., in which Universal owns a 24% interest, owns Universal Studios Japan, which
will be located on 133 acres of land leased by certain USJ Co. shareholders.
Construction began in 1998 with opening expected in 2001. Universal recently
acquired an approximate 37% interest in Port Aventura, S.A., an existing 2000
acre theme park located in Spain near Barcelona.
Universal owns, develops and manages commercial buildings with
approximately 2.4 million rentable square feet of office space in Universal
City, including Universal CityWalk and the 10 Universal City Plaza office
building, which are occupied by the Corporation or leased to outside tenants;
and Universal owns the Sheraton-Universal Hotel. Universal CityWalk, which is
located on the Corporation's property in Universal City, is an integrated
retail/entertainment zone which offers shopping, dining, cinemas and
entertainment adjacent to Universal Studios Hollywood. Universal also owns a
100,000 square foot office building adjacent to the Universal City property.
At June 30, 1998, Universal owned approximately 27% of SEGA
GameWorks L.L.C. ("SEGA GameWorks") which designs, develops and operates
location-based entertainment centers. SEGA GameWorks currently owns and operates
five such centers in the United States which are located in Seattle, Washington,
Las Vegas, Nevada, Grapevine, Texas, Tempe, Arizona and Ontario, California.
In addition, Universal is involved in other businesses including
the operation of retail gift stores and the development of entertainment
software. Universal owns Spencer Gifts, Inc. which operates approximately 570
retail gift stores throughout the United States through three groups of stores:
the Spencer, DAPY and Glow gift shops. Spencer, DAPY and Glow sell novelties,
electronics, accessories, books and trend
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driven products. In connection with the activities of Spencer Gifts, Inc., the
Corporation owns a building in New Jersey and leases approximately 570 stores in
various cities in the United States and a warehouse in North Carolina.
Universal Studios New Media, Inc. develops entertainment software,
is responsible for the development and maintenance of Universal's websites and
manages the Corporation's approximate 30% interest (at June 30, 1998) in
Interplay Entertainment Corp., an entertainment software developer.
COMPETITION
Filmed Entertainment. The Corporation's filmed entertainment
business competes with all other forms of entertainment. The Corporation
competes with other major film studios and independent producers for creative
talent and story products, essential ingredients of the Corporation's filmed
entertainment business. The profitability of the Corporation's filmed
entertainment business is dependent upon public taste which is volatile, shifts
in demand, economic conditions and technological developments.
Music Entertainment. The music entertainment industry is highly
competitive. The profitability of a company's recorded music business depends on
its ability to attract and develop recording artists, the public acceptance of
such artists and the recordings released in a particular year. The Corporation's
music business competes for creative talent both from new artists and those
artists who have already established themselves through another label.
Over-expansion of retail outlets for recorded music over the past several years
resulted in the closing of many such stores which has further increased
competition among recorded music companies. The recorded music business
continues to be adversely affected by counterfeiting and piracy, in particular
through the home taping of recorded music.
Recreation and Other. The Corporation's theme parks compete with
other theme parks in their respective geographic regions and other leisure-time
activities. The profitability of the leisure-time industry is influenced by
various factors which are not controllable by the Corporation such as economic
conditions, amount of available leisure time, transportation prices and weather
patterns.
Spencer, DAPY and Glow stores compete with numerous retail firms
of various sizes throughout the United States, including department and
specialty niche-oriented gift stores.
INTERESTS IN TIME WARNER AND DUPONT
TIME WARNER
On February 5, 1998, the Corporation sold 15 million shares of
Time Warner Inc. ("Time Warner") common stock for pre-tax proceeds of $958
million. On May 27, 1998, the Corporation sold its remaining 11.8 million shares
of Time Warner common stock for pre-tax proceeds of $905 million. The aggregate
after-tax gain on the sale of the shares in 1998 was $602 million and after-tax
net proceeds were $1.5 billion.
DUPONT
At June 30, 1998, the Corporation 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 $1.2 billion as of such date.
EMPLOYEES
As of June 30, 1998, the Corporation had approximately 24,200
employees, not including Tropicana employees. The number of employees is subject
to seasonal fluctuations.
The Corporation has collective bargaining agreements with a number
of labor unions governing wages and benefits, hours, working conditions and
similar matters and covering approximately 7,700 of its employees in the United
States and certain other countries, not including employees who worked for
Tropicana. Such agreements expire at various times between 1998 and 2002. In
general, the Corporation believes its labor relations are good.
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See "Recent Developments" above for information about the
Corporation's sale of Tropicana.
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 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 lawsuit is no longer a class action. Universal remains a
defendant only in the antitrust claims being pursued by individual plaintiffs.
Universal has denied the allegations of the complaint and intends vigorously to
defend this action.
On May 30, 1995, a purported class action was filed in the United
States District Court for the Central District of California, entitled Digital
Distribution Inc. d/b/a Compact Disc Warehouse v. CEMA Distribution, Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corporation, 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.), 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; 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., Civil Action No., 24,885 II, filed on February 17, 1998 in
the Circuit Court for Cocke County, Tennessee.
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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 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,
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 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. The Statement of Objections, issued in
response to the request to renew the exemption, indicates that, although a final
decision has not been made, the Commission is of the preliminary opinion that
the exemption granted to UIP in 1989 should not be extended. UIP and its
partners, including Universal, dispute the preliminary view of the Commission as
expressed in the Statement of Objections, and filed a lengthy response which
details UIP's position on why the exemption should be renewed. The Commission
has scheduled a two-day hearing on the matter, to be held on September 24 and
25, 1998, in Brussels.
On July 25, 1996, Universal Music & Video Distribution, Inc. was
served with an antitrust civil investigation demand from the Office of the
Attorney General of the State of Florida that calls for the production of
documents in connection with an investigation to determine whether there "is,
has been or may be" a "conspiracy to fix the prices" of compact discs or conduct
consisting of "unfair methods of competition" or "unfair trade practices" in the
sale and marketing of compact discs. No allegations of unlawful conduct have
been made against Universal Musical & Video Distribution, Inc.
By letter dated April 11, 1997, the Federal Trade Commission
("FTC") advised Universal Music & Video Distribution, Inc. that it is conducting
a preliminary investigation to determine whether minimum advertised pricing
programs used by major record distributors constitute an unfair method of
competition in violation of Section 5 of the Federal Trade Commission Act.
Universal Music & Video Distribution, Inc. received a subpoena dated September
19, 1997 for the production of documents. No allegations of unlawful conduct
have been made against Universal Music & Video Distribution, Inc.
The Corporation and its subsidiaries and affiliates are defendants
or respondents in a number of other actions arising in the ordinary course of
business.
Item 4. - Submission of Matters to a Vote of Security Holders
Not applicable.
<PAGE> 10
10
PART II
Item 5. - Market for Registrant's Common Equity
and Related Shareholder Matters
Information as to the number of holders of record of the
Corporation's common shares, the markets on which such common shares are traded,
the quarterly high and low prices for such common shares on Canadian and New
York stock exchanges and the quarterly dividends declared with respect thereto
during the fiscal years ended June 30, 1998 and June 30, 1997, the five-month
transition period ended June 30, 1996 and the fiscal year ended January 31, 1996
is incorporated herein by reference to the Management's Discussion and Analysis
section captioned "Return to Shareholders" on page 38 of the Annual Report.
Payment of dividends by the Corporation to shareholders not
resident in Canada is subject under Canadian law to Canadian withholding tax.
For shareholders resident in the United States, 15% of the dividends must be
withheld pursuant to currently existing treaty arrangements between the United
States and Canada. For shareholders resident in other countries, the withholding
rate varies depending upon the existence and terms of applicable treaties
between each such other country and Canada.
Item 6. - Selected Financial Data
Selected financial data for the fiscal years ended June 30, 1998
and June 30, 1997 and for the five-month transition period ended June 30, 1996
and for each of the three fiscal years ended January 31, 1996, 1995 and 1994 are
incorporated herein by reference to the Financial Summary on page 65 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 26 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 page 37 of the Annual Report.
Item 8. - Financial Statements and Supplementary Data
The Consolidated Financial Statements, together with the report
thereon of PricewaterhouseCoopers LLP dated August 12, 1998, except as to Note
1, which is as of August 25, 1998, and the supplementary quarterly data are
incorporated herein by reference to pages 39 through 64 of the Annual Report.
Item 9. - Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
Not applicable.
<PAGE> 11
11
PART III
Item 10. - Directors and Executive Officers of the Registrant
Information as to the Corporation's directors is incorporated by
reference to pages 5 through 8 of the Proxy Circular for the Meeting of
Shareholders to be held on November 4, 1998 (the "Proxy Circular") under the
caption "Election of Directors -- Nominees for Directors".
Set forth below is certain information with respect to the
Corporation's executive officers.
<TABLE>
<CAPTION>
Title and Other Office Held
Name Age Information Since
---- --- ----------- -----
<S> <C> <C> <C>
Edgar M. Bronfman 69 Chairman of the Board and Director. Prior to 1975
June 1994, he was also Chief Executive Officer.
Charles R. Bronfman 67 Co-Chairman of the Board, Chairman of the 1986
Executive Committee and Director.
Edgar Bronfman, Jr. 43 President, Chief Executive Officer and Director. 1994
From June 1989 to June 1994, he was President,
Chief Operating Officer and Director.
Robert W. Matschullat 50 Vice Chairman, Chief Financial Officer and 1995
Director. From January 1, 1992 to July 1, 1995,
he was Managing Director and Head of Worldwide
Investment Banking for Morgan Stanley & Co., Inc.
and a director of Morgan Stanley Group Inc.
Frank J. Biondi, Jr. 53 Director, and Chairman and Chief Executive 1996
Officer of Universal Studios, Inc. From July
1987 until January 1996, he was President, Chief
Executive Officer and a director of Viacom Inc.
John D. Borgia 50 Executive Vice President, Human Resources. From 1995
March 1991 to April 1995, he was Senior Vice
President, Human Resources & Administration,
Bristol-Myers Squibb Pharmaceutical Group.
</TABLE>
<PAGE> 12
12
<TABLE>
<CAPTION>
Title and Other Office Held
Name Age Information Since
---- --- ----------- -----
<S> <C> <C> <C>
Steven J. Kalagher 55 Executive Vice President, and President and Chief 1995
Executive Officer of The Seagram Spirits And Wine
Group (a division of Joseph E. Seagram & Sons,
Inc.). From May 1995 to September 1997, he was
Executive Vice President and President, The
Seagram Spirits And Wine Group. From May 1994 to
May 1995, he was Reengineering Leader. From
February 1993 to May 1995, he was also President,
Seagram North America (a division of The Seagram
Spirits And Wine Group).
Daniel R. Paladino 55 Executive Vice President, Legal and Environmental 1996
Affairs. From March 1993 to October 1996, he was
Vice President, Legal and Environmental Affairs.
Neal B. Cravens 45 Senior Vice President, Finance. From February 1998
1996 to June 1998, he was Vice President,
Strategic Planning and Mergers & Acquisitions,
Joseph E. Seagram & Sons, Inc. From September
1995 to January 1996, he was Executive Vice
President and Chief Financial Officer, Tropicana
Products, Inc. From May 1994 to September 1995,
he was Senior Vice President, Finance, Tropicana
Products, Inc. From February 1993 to April 1994,
he was Vice President, Strategic Planning and
Business Development, Joseph E. Seagram & Sons,
Inc.
Gabor Jellinek 63 Vice President, Production. He is also Executive 1987
Vice President, Manufacturing, The Seagram
Spirits And Wine Group (a division of Joseph E.
Seagram & Sons, Inc.) since February 1991.
Arnold M. Ludwick 60 Vice President. 1982
</TABLE>
<PAGE> 13
13
<TABLE>
<CAPTION>
Title and Other Office Held
Name Age Information Since
---- --- ----------- -----
<S> <C> <C> <C>
John R. Preston 51 Vice President and Treasurer. From January 1997 1998
to June 1998, he was Vice President, Finance.
From 1994 to February 1997, he was Reengineering
Financial Management/Post Merger Integration Team
Leader. From 1993 to 1994, he was Executive Vice
President, Staff Operations of The Seagram
Spirits And Wine Group (a division of Joseph E.
Seagram & Sons, Inc.). From 1990 to 1993, he was
Treasurer of the Corporation.
Michael C.L. Hallows 57 Secretary. 1979
</TABLE>
Executive officers are chosen annually by the Board of Directors
and hold office until they resign, are removed or otherwise become disqualified
to serve.
Item 11. - Executive Compensation
The information required hereunder is incorporated herein by
reference to pages 12 through 19 of the Proxy Circular under the captions
"Summary Compensation Table" through "Performance Graph".
Item 12. - Security Ownership of Certain Beneficial
Owners and Management
The information required hereunder as to the ownership of the
Corporation's common shares by certain beneficial owners and management is
incorporated herein by reference to pages 2 through 4 of the Proxy Circular
under the caption "Share Ownership".
Item 13. - Certain Relationships and Related Transactions
The information required hereunder is incorporated herein by
reference to pages 20 through 22 of the Proxy Circular under the captions "Human
Resources Committee Interlocks and Insider Participation" and "Transactions with
Directors and Others".
<PAGE> 14
14
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(n) through 10(jj) listed in the accompanying Exhibit Index
identify management contracts or compensatory plans or
arrangements.
(b) Current Reports on Form 8-K
1. A Current Report on Form 8-K dated May 21, 1998 was filed to
report under Item 5 and file under Item 7 a press release
announcing the Corporation's agreement in principle to acquire
Polygram and the Corporation's intent to sell Tropicana through an
initial public offering.
2. A Current Report on Form 8-K dated May 29, 1998 was filed to
report under Item 5 and file under Item 7 a press release
announcing the sale by the Corporation of all its remaining shares
of common stock of Time Warner Inc.
3. A Current Report on Form 8-K dated June 22, 1998 was filed to
report under Item 5 and file under Item 7 a press release and
certain definitive agreements relating to the Corporation's
proposed acquisition of Polygram.
4. A Current Report on Form 8-K dated July 20, 1998 was filed to
report under Item 5 and file under Item 7 (a) a press release
announcing the Corporation's agreement to sell Tropicana to
PepsiCo, Inc. and the Corporation's withdrawal of its previously
filed registration statement for a proposed public sale of
Tropicana and (b) a definitive agreement relating to such
transaction.
5. A Current Report on Form 8-K dated August 4, 1998 was filed to
report under Item 5 and file under Item 7 reclassified financial
statements for the fiscal year ended June 30, 1997 to report
Tropicana as discontinued operations.
6. A Current Report on Form 8-K dated August 25, 1998 was filed to
report under Item 2 the completion of the sale of Tropicana to
PepsiCo, Inc. and to file under Item 7 proforma financial
statements that give effect to the sale of Tropicana, the
acquisition of PolyGram and certain other transactions, historical
Financial Statements of PolyGram and the press release relating to
the completion of the Tropicana transaction.
7. A Current Report on Form 8-K dated September 1, 1998 was filed to
report under Item 5 and file under Item 7 the Corporation's
consolidated financial statements for the fiscal year ended June
30, 1998.
<PAGE> 15
15
FORWARD LOOKING STATEMENTS
This Form 10-K contains statements which constitute "forward-looking
statements" within the meaning of the U.S. Private Securities Litigation Reform
Act of 1995, in that they include statements regarding the intent, belief or
current expectations of the Corporation, its directors or its officers with
respect to the future operating performance of the Corporation. Readers are
cautioned that any such forward-looking statements are not guarantees of future
performance and may involve risks and uncertainties, and that actual results may
differ from those in the forward-looking statements as a result of various
factors (including, without limitation, the actions of competitors, global
economic conditions, market conditions, foreign exchange rates and operating and
financial risks related to managing growth and integrating acquired businesses),
many of which are beyond the control of the Corporation. The occurrence of any
such factors not currently expected by the Corporation could significantly alter
the results set forth in these statements.
<PAGE> 16
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE SEAGRAM COMPANY LTD.
(Registrant)
Date: September 18, 1998 By /s/ Edgar Bronfman, Jr.
-----------------------
Edgar Bronfman, Jr.
President and Chief Executive
Officer
(Principal Executive Officer)
<PAGE> 17
17
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on September 18, 1998 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/ Neal B. Cravens Senior Vice President, Finance
- -----------------------------
Neal B. Cravens
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
Frank J. Biondi, Jr.* 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
C. Edward Medland* 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
<PAGE> 18
18
THE SEAGRAM COMPANY LTD.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
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 12, 1998, except as to
Note 1, which is as of August 25, 1998, incorporated herein by
reference to the Corporation's Annual Report to Shareholders
for the fiscal year ended June 30, 1998 (the "Fiscal Year"):
Consolidated Balance Sheet at June 30, 1998, June 30,
1997, June 30, 1996 and January 31, 1996;
For the Fiscal Year, the five month transition period
ended June 30, 1996, and the fiscal years ended
January 31, 1996 and 1995:
Consolidated Statement of Income;
Consolidated Statement of Cash Flows;
Consolidated Statement of Shareholders'
Equity;
Summary of Significant Accounting Policies;
Notes to Consolidated Financial Statements;
Independent Accountants' Report;
Quarterly Data (Unaudited).
2. Financial Statement Schedules and Report:
Report of Independent Accountants on Financial
Statement Schedule;
Schedule for The Seagram Company Ltd. and
Subsidiary Companies:
II. Valuation and Qualifying Accounts.
Schedules not included have been omitted because they are not
applicable or the required information is shown in the
Corporation's Consolidated Financial Statements or Notes
thereto.
<PAGE> 19
19
SCHEDULE II
THE SEAGRAM COMPANY LTD.
(Incorporated under the Canada Business Corporations Act)
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(U.S. dollars in millions)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Reserves Deducted
from Receivables:
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
==== ==== ==== ====
Transition Period Ended
June 30, 1996:
Reserve for Doubtful Accounts $ 75 $ 25 $ 15 $ 85
Reserve for Merchandise Returns
and Allowances 205 130 66 269
---- ---- ---- ----
$280 $155 $ 81 $354
==== ==== ==== ====
</TABLE>
<PAGE> 20
20
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
The Seagram Company Ltd.
Our audits of the consolidated financial statements referred to in our report
dated August 12, 1998, except as to Note 1, which is as of August 25, 1998,
appearing on page 63 of the Annual Report to Shareholders of The Seagram Company
Ltd. for the fiscal year ended June 30, 1998 (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in the
Index to Financial Statements appearing on page 18 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 12, 1998
<PAGE> 21
21
THE SEAGRAM COMPANY LTD.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
EXHIBIT INDEX
Exhibit Number
Per Item 601 of
Regulation S-K Description of Document and Incorporation Reference
Where Applicable
3 (a) Articles of Amalgamation dated February 1,
1995 between the Corporation and Centenary
Distillers Ltd. (incorporated by reference
to Exhibit 3(a) of the Corporation's Annual
Report on Form 10-K for the fiscal year
ended January 31, 1995), as amended by
Certificate and Articles of Amendment dated
May 31, 1995 (incorporated by reference to
Exhibit 3(a) of the Corporation's Quarterly
Report on Form 10-Q for the fiscal quarter
ended April 30, 1995).
(b) General By-Laws of the Corporation, as
amended (incorporated by reference to
Exhibit 3(b) to the Corporation's Quarterly
Report on Form 10-Q for the fiscal quarter
ended April 30, 1996).
4 Long-term debt instruments are omitted pursuant to
Item 601(b)(4)(iii) of Regulation S-K. The
Corporation agrees to furnish to the Commission on
request a copy of any instrument defining the rights
of holders of long-term debt of the Corporation and
of any subsidiary for which consolidated or
unconsolidated financial statements are required to
be filed.
10 (a) Amended and Restated Stock Purchase
Agreement dated as of June 5, 1995 among the
Corporation, Matsushita Electric Industrial
Co., Inc., MEI Holding Inc. (formerly, Home
Holding Inc.) and Universal Studios Holding
I Corp. (formerly, Home Holding II Inc.)
(incorporated by reference to the Exhibit
2(a) to the Corporation's Current Report on
Form 8-K dated June 5, 1995).
(b) Stockholders' Agreement dated as of June 5,
1995 among the Corporation, MEI Holding Inc.
(formerly, Home Holding Inc.) and Universal
Studios Holding I Corp. (formerly, Home
Holding II Inc.) (incorporated by reference
to the Exhibit 10(a) to the Corporation's
Current Report on Form 8-K dated June 5,
1995).
(c) USA Networks Partnership Interest Purchase
Agreement dated as of September 22, 1997 by
and among Universal Studios, Inc., Universal
City Studios, Inc., Viacom Inc. and Eighth
Century Corporation (incorporated by
reference to Exhibit 10(c) of the
Corporation'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 Corporation, PolyGram N.V. and
Koninklijke Philips Electronics N.V.
(incorporated by reference to Exhibit 2.1 of
the Current Report on Form 8-K/A of The
Seagram Company Ltd. dated July 2, 1998).
(e) Tender Agreement dated as of June 21, 1998
between the Corporation and Koninklijke
Philips Electronics N.V. (incorporated by
reference to Exhibit 2.2 of the
Corporation's Current Report on Form 8-K/A
dated July 2, 1998).
<PAGE> 22
22
(f) Voting Agreement dated June 21, 1998
between the Corporation and
Koninklijke Philips Electronics N.V.
(incorporated by reference to
Exhibit 2.3 of the Corporation's
Current Report on Form 8-K dated
June 22, 1998).
(g) Stockholders Agreement dated June
21, 1998 between the Corporation and
Koninklijke Philips Electronics N.V.
(incorporated by reference to
Exhibit 10.1 of the Corporation's
Current Report on Form 8-K dated
June 22, 1998).
(h) Stock Purchase Agreement dated as of
July 20, 1998 among the Corporation,
Seagram Enterprises, Inc. and
PepsiCo, Inc. (incorporated by
reference to Exhibit 2 of the
Corporation's Current Report on Form
8-K dated July 20, 1998).
(i) Credit Agreement (the "Credit
Agreement"), dated as of November
23, 1994, among Joseph E. Seagram &
Sons, Inc., J.E. Seagram Corp., Bank
of Montreal, Citibank N.A. and The
Chase Manhattan Bank (formerly,
Chemical Bank) and the banks named
therein (incorporated by reference
to Exhibit 10 (f) to the
Corporation's Annual Report on Form
10-K for the fiscal year ended
January 31, 1995).
(j) First Amendment, dated as of June
14, 1996, to the Credit Agreement
among Joseph E. Seagram & Sons,
Inc., J.E. Seagram Corp., Bank of
Montreal, Citibank N.A. and The
Chase Manhattan Bank (formerly,
Chemical Bank) and the banks named
therein (incorporated by reference
to Exhibit 10(d) to the
Corporation's Transition Report on
Form 10-K for the transition period
ended June 30, 1996).
(k) 5-Year Credit Agreement (the "Five
Year Credit Agreement") dated as of
December 21, 1994, among The Seagram
Company Ltd., Bank of Montreal and
the banks named therein
(incorporated by reference to
Exhibit 10 (h) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31, 1995).
(l) First Amendment, dated as of June
14, 1996, to the 5-Year Credit
Agreement among The Seagram Company
Ltd., Bank of Montreal and the banks
named therein (incorporated by
reference to Exhibit 10(f) to the
Corporation's Transition Report on
Form 10-K for the transition period
ended June 30, 1996).
(m) Credit Facilities Commitment Letter
dated September 15, 1998 from The
Chase Manhattan Bank and Chase
Securities, Inc. to Joseph E.
Seagram & Sons, Inc.
(n) 1983 Stock Appreciation Right and
Stock Unit Plan of the Corporation,
as amended.
<PAGE> 23
23
(o) Written description of Management
Incentive Plan of Joseph E. Seagram
& Sons, Inc. (incorporated by
reference to Exhibit 10(g) to the
Corporation's Annual Report on Form
10-K for the fiscal year ended
January 31, 1994).
(p) Senior Executive Short-Term
Incentive Plan of the Corporation.
(q) Form of Deferred Compensation
Agreement, as amended, between
Joseph E. Seagram & Sons, Inc. and
certain of its executives.
(r) Stock Plan for Non-Employee
Directors of the Corporation.
(s) 1988 Stock Option Plan of the
Corporation, as amended
(incorporated by reference to
Exhibit 10(f) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1992).
(t) 1992 Stock Incentive Plan of the
Corporation, as amended
(incorporated by reference to
Exhibit 10(g) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1993).
(u) 1996 Stock Incentive Plan of the
Corporation, as amended.
(v) Senior Executive Basic Life
Insurance Program, as amended, of
Joseph E. Seagram & Sons, Inc.
(incorporated by reference to
Exhibit 10(i) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1993).
(w) Retirement Salary Continuation
Plan, as amended, of Joseph E.
Seagram & Sons, Inc. (incorporated
by reference to Exhibit 10(j) to
the Corporation's Annual Report on
Form 10-K for the fiscal year ended
January 31, 1993).
(x) Benefit Equalization Plan, as
amended, of Joseph E. Seagram &
Sons, Inc. (incorporated by
reference to Exhibit 10(k) to the
Corporation's Annual Report on Form
10-K for the fiscal year ended
January 31, 1993).
(y) Senior Executive Group Term Life
Insurance Arrangement, as amended,
of Joseph E. Seagram & Sons, Inc.
(incorporated by reference to
Exhibit 10(k) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1992).
<PAGE> 24
(z) Personal Excess Liability Insurance
Policy for Senior Executives of
Joseph E. Seagram & Sons, Inc.
(incorporated by reference to
Exhibit 10(m) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1993).
(aa) Flexible Perquisite Program for
Seagram Senior Executives
(incorporated by reference to
Exhibit 10(s) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1994).
(bb) Senior Executive Disability Salary
Continuation Arrangement of Joseph
E. Seagram & Sons, Inc.
(incorporated by reference to
Exhibit 10 (w) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1995.
(cc) Post Retirement Consulting Plan, as
amended, of Joseph E. Seagram &
Sons, Limited (incorporated by
reference to Exhibit 10(r) to the
Corporation's Annual Report on Form
10-K for the fiscal year ended
January 31, 1993).
(dd) Canadian Executive Pension Plan of
Joseph E. Seagram & Sons, Limited,
as amended (incorporated by
reference to Exhibit 10(s) to the
Corporation's Annual Report on Form
10-K for the fiscal year ended
January 31, 1993).
(ee) Executive Long-Term Incentive
Arrangement among the Corporation,
Joseph E. Seagram & Sons, Limited
and Charles R. Bronfman dated
February 4, 1982 (incorporated by
reference to Exhibit 10(r) to the
Corporation's Annual Report on Form
10-K for the fiscal year ended
January 31, 1992).
(ff) Amended and Restated Employment
Agreement between Joseph E. Seagram
& Sons, Inc. and Robert W.
Matschullat dated February 4, 1998.
(gg) Employment Agreement among
Universal Studios, Inc., the
Corporation and Frank J. Biondi,
Jr. dated April 23, 1996
(incorporated by reference to
Exhibit 10(bb) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1996).
(hh) Agreement between Universal
Studios, Inc. and Frank J. Biondi,
Jr. dated August 22, 1997
(incorporated by reference to
Exhibit 10(aa) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended June 30, 1997).
<PAGE> 25
(ii) Agreement between Joseph E. Seagram
& Sons, Inc. and Steven J. Kalagher
dated December 28, 1995
(incorporated by reference to
Exhibit 10(cc) to the Corporation's
Annual Report on Form 10-K for the
fiscal year ended January 31,
1996).
(jj) Letter dated April 27, 1995 from
Joseph E. Seagram & Sons, Inc. to
John D. Borgia.
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 26-65 of the Report to Shareholders
for the fiscal year ended June 30, 1998.
21 Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP,
independent accountants, as accountants for
the Corporation.
24 Power of Attorney.
27 Financial Data Schedule.
<PAGE> 1
EXHIBIT 10 (m)
THE CHASE MANHATTAN BANK
CHASE SECURITIES INC.
270 Park Avenue September 15, 1998
New York, NY 10017
Joseph E. Seagram & Sons, Inc.
375 Park Avenue
New York, NY 10152
Attention of: John Preston
Vice President & Treasurer
Joseph E. Seagram & Sons, Inc.
Credit Facilities
Commitment Letter
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("Chase") and Chase
Securities Inc. ("CSI") that The Seagram Company Ltd. ("Seagram") and certain of
its subsidiaries intend to acquire (the "Acquisition") substantially all the
outstanding common stock of Polygram N.V. ("Polygram") from Philips Electronics
N.V. ("Philips") and other public stockholders pursuant to a tender offer and,
if more than 95% of the shares of Polygram are validly tendered and not
withdrawn, a second step merger or similar transaction, for aggregate
consideration consisting of common shares of Seagram and cash payments in an
aggregate US dollar equivalent of approximately US$8,500,000,000. In that
connection, we understand that Joseph E. Seagram & Sons, Inc. (the "Borrower")
will require (a) a 364-Day Competitive Advance and Revolving Credit Facility
(the "364-Day Facility") in an aggregate principal amount of US$5,000,000,000
and (b) a Five-Year Competitive Advance and Revolving Credit Facility (the
"Five-Year Facility", and together with the 364-Day Facility, the "Facilities")
in an aggregate principal amount of US$1,500,000,000. Borrowings under the
Facilities will be used for general corporate purposes of the Borrower and its
subsidiaries, including for the financing of the Acquisition and/or the backup
of commercial paper (including commercial paper issued to provide initial
financing for the Acquisition). It is contemplated that the terms of the
Facilities will be as set forth in the Summary of Terms and Conditions attached
hereto as Exhibit A (the "Term Sheet").
<PAGE> 2
2
In connection with the foregoing, (a) Chase is pleased to advise you
of its commitment to provide US$1,000,000,000 of the Facilities (allocated
ratably between the Facilities) and (b) CSI is pleased to advise you of its
agreement to use commercially reasonable efforts to assemble a syndicate of
financial institutions (together with Chase, the "Lenders") to provide the
balance of the commitments necessary for the Facilities, in each case upon the
terms and subject to the conditions set forth or referred to in this commitment
letter (this "Commitment Letter") and in the Term Sheet. It is a condition to
Chase's commitment hereunder that the portion of the Facilities not being
provided by Chase shall be provided by other Lenders.
It is agreed that Chase will act as the sole and exclusive
administrative agent for the Facilities and that CSI will act as the sole and
exclusive advisor and arranger for the Facilities, and each will in such
capacities, perform the duties and exercise the authority customarily exercised
by it in such roles. It is understood and agreed that we shall mutually
determine the institutions which are to be awarded the titles of Syndication
Agent, Documentation Agent, Co-Agent and Co-Arranger for the Facilities and no
other titles will be awarded in connection therewith unless you and we shall so
agree.
Chase reserves the right, prior to or after the execution of
definitive documentation for the Facility, to transfer portions of its
commitment to other Lenders who will become parties to such documentation
pursuant to a syndication to be managed by CSI. You understand that CSI will
commence syndication efforts at a time mutually agreeable to you and CSI, and
you agree actively to assist CSI in completing a syndication satisfactory to it
and to you. Such assistance will include direct contact during the syndication
between the senior management and advisors of Seagram and the Borrower and the
proposed Lenders and the hosting, with CSI, of one or more meetings of
prospective Lenders. You agree that you will endeavor to cause CSI's syndication
efforts to benefit from your and Seagram's existing lending relationships, and
that you will assist CSI in the preparation of a Confidential Information
Memorandum and other marketing materials to be used in connection with the
syndication. You agree that no Lender will receive compensation from you or your
affiliates in addition to that contemplated by the Term Sheet and the Fee Letter
referred to below in order to obtain its commitment to participate in the
Facilities.
As consideration for Chase's commitment hereunder and its agreement
herein to serve as administrative agent for the Facilities and for CSI's
agreement herein to serve as advisor for and to arrange and syndicate the
Facilities, you agree to pay to Chase the nonrefundable fees referred to in the
Term Sheet and in the Fee Letter dated the date hereof and delivered herewith
(the "Fee Letter").
<PAGE> 3
3
CSI, in consultation with you, will manage all aspects of the
syndication, including decisions as to the selection of institutions to be
approached and when they will be approached, when their commitments will be
accepted, which institutions will participate, the allocations of the
commitments among the Lenders and the amount and distribution of fees among the
Lenders. To assist CSI in its syndication efforts, you agree promptly to prepare
and provide to CSI and Chase information reasonably available to you with
respect to the Borrower, Seagram, their respective subsidiaries, the
Acquisition, and the other transactions contemplated hereby, including all
financial information and projections (the "Projections"), as we may reasonably
request in connection with the arrangement and syndication of the Facilities.
You hereby represent and covenant that (a) all information other than the
Projections (the "Information") that has been or will be prepared by you or your
representatives and made available to Chase or CSI by or on behalf of you or any
of your representatives in connection with the transactions contemplated hereby
is or will be, when furnished, complete and correct in all material respects and
does not or will not, when furnished, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which such
statements are made and (b) the Projections prepared by you or your
representatives that have been or will be made available to Chase or CSI by or
on behalf of you or any of your representatives have been or will be prepared in
good faith based upon assumptions believed by you to be reasonable at the time
such Projections were prepared. You agree that if, at any time from and
including the date hereof until the closing of the Facilities, any of the
representations in the preceding sentence would be incorrect if the Information
and the Projections were being prepared or furnished, and such representations
were being made, at such time, then you will promptly supplement the Information
and the Projections so that such representations will be correct under those
circumstances. You understand that in arranging and syndicating the Facilities
we may use and rely on the Information and the Projections without independent
verification thereof.
Chase's commitment hereunder and CSI's agreement to perform the
services described herein are subject to (a) our reasonable satisfaction in all
respects with the structure of the Acquisition, (b) there not occurring or
becoming known to us any material adverse condition or material adverse change
in or affecting the business, operations or condition (financial or otherwise)
of Seagram, the Borrower, Polygram and their respective subsidiaries, taken as a
whole, (c) our not becoming aware after the date hereof of any information or
other matter affecting Seagram, the Borrower, Polygram, their respective
subsidiaries or the transactions contemplated hereby that is inconsistent in a
material and adverse manner with any such information or other matter disclosed
to us prior to the date hereof, (d) there not having occurred and being
continuing a
<PAGE> 4
4
material disruption of or material adverse change in financial, banking or
capital market conditions that, in the reasonable judgment of Chase and CSI,
could materially impair the syndication of the Facilities and (e) CSI's
reasonable satisfaction that prior to and during the syndication of the
Facilities there shall be no concurrent or pending bank financings or sales of
debt securities (other than commercial paper and other debt securities the net
proceeds of which would be utilized to refinance the Facilities) by or on behalf
of the Borrower or its affiliates that would be reasonably likely to materially
and adversely affect the syndication of the Facilities. The terms and conditions
of Chase's commitment hereunder and of the Facilities are not limited to those
set forth herein and in the Term Sheet; those matters that are not covered by
the provisions hereof and of the Term Sheet are subject to the approval and
agreement of Chase, CSI and the Borrower.
You agree (a) to indemnify and hold harmless each of Chase, CSI and
their affiliates and their respective officers, directors, employees, advisors,
agents and controlling persons (each, an "indemnified person") from and against
any and all losses, claims, damages, liabilities and expenses to which any such
indemnified person may become subject arising out of or in connection with this
Commitment Letter, the Facilities, the use of proceeds thereof, the Acquisition
or any related transaction or any claim, litigation, investigation or proceeding
relating to any of the foregoing, regardless of whether any indemnified person
is a party thereto, and to reimburse each indemnified person upon demand for any
reasonable legal or other expenses incurred in connection with investigating or
defending any of the foregoing; provided that the foregoing indemnity will not,
as to any indemnified person, apply to losses, claims, damages, liabilities or
related expenses to the extent they are found by a final, non-appealable
judgment of a court to have resulted from the wilful misconduct or gross
negligence of such indemnified person, and (b) to promptly reimburse Chase, CSI
and their affiliates from time to time for all reasonable out-of-pocket expenses
(including, without limitation, travel and other syndication expenses and fees,
charges and disbursements of counsel for Chase and CSI) incurred in connection
with the Facilities and any related documentation (including this Commitment
Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or the administration, amendment, modification or waiver thereof.
No indemnified person shall be liable for any indirect or consequential damages
in connection with its activities related to the Facilities. No indemnified
person shall be liable for any damages arising from the use by others of
Information or other materials improperly obtained through electronic,
telecommunications or other information transmission systems which would
reasonably be expected to be secure or for any special, indirect, consequential
or punitive damages in connection with the Facilities.
<PAGE> 5
5
This Commitment Letter and Chase's commitment hereunder shall not be
assignable by you without the prior written consent of Chase and CSI, and any
attempted assignment without such consent shall be void. This Commitment Letter
may not be amended or any provision hereof waived or modified except by an
instrument in writing signed by Chase, CSI and you. This Commitment Letter may
be executed in any number of counterparts, each of which shall be an original
and all of which, when taken together, shall constitute one agreement. Delivery
of an executed signature page of this Commitment Letter by facsimile
transmission shall be effective as delivery of a manually executed counterpart
of this Commitment Letter. This Commitment Letter is intended to be solely for
the benefit of the parties hereto and is not intended to confer any benefits
upon, or create any rights in favor of, any person other than the parties
hereto. This Commitment Letter and the Fee Letter are the only agreements that
have been entered into among us with respect to the Facilities and set forth the
entire understanding of the parties with respect thereto. This Commitment Letter
shall be governed by, and construed in accordance with, the laws of the State of
New York.
You agree that you will not disclose this Commitment Letter, the Fee
Letter, the Term Sheet, the contents of any of the foregoing or the activities
of Chase or CSI pursuant hereto or thereto to any person prior to your
acceptance of this Commitment Letter and the Fee Letter without the prior
written approval of Chase and CSI, except that (a) you may disclose this
Commitment Letter, the Fee Letter, the Term Sheet and the contents hereof and
thereof (i) to your officers, employees, attorneys and advisors on a
confidential and need-to-know basis and (ii) as required by applicable law or
compulsory legal process; provided that, after your acceptance of this
Commitment Letter and the Fee Letter, you will (subject to the foregoing
exceptions) maintain the confidentiality of the Fee Letter. The provisions
contained in this paragraph shall remain in full force and effect
notwithstanding the termination of this Commitment Letter or Chase's commitment
hereunder.
You acknowledge that Chase and CSI and their affiliates may be
providing debt financing, equity capital or other services (including financial
advisory services) to other companies that have or may in the future have
interests conflicting with your own interests. Chase and CSI agree that they
will not use confidential information obtained from you in the course of the
transactions contemplated hereby in connection with the performance by Chase or
CSI of services for such other companies, and will not furnish any such
information to such other companies. You also acknowledge that Chase and CSI
have no obligation to use in connection with the transactions contemplated
hereby or to furnish to you confidential information obtained by Chase or CSI
from other companies.
<PAGE> 6
6
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof and of the Term Sheet and the Fee Letter by
returning to us executed counterparts hereof and of the Fee Letter not later
than 5:00 p.m., New York City time, on September 15, 1998, failing which Chase's
commitment and the agreements of Chase and CSI hereunder will expire at such
time. In the event that execution and delivery of definitive documentation in
respect of the Facilities does not occur on or before October 31, 1998, then
this Commitment Letter and Chase's commitment and CSI's undertakings hereunder
shall automatically terminate unless Chase and CSI shall, in their discretion,
agree to an extension. The compensation, reimbursement, indemnification and
confidentiality provisions contained herein and in the Fee Letter shall remain
in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered and notwithstanding the
termination of this Commitment Letter or Chase's commitment hereunder.
Chase and CSI are pleased to have the opportunity to assist you in
connection with this very important financing.
Very truly yours,
THE CHASE MANHATTAN BANK
by /s/ Marian Schulman
------------------------------
Name: Marian Schulman
Title: Vice President
CHASE SECURITIES INC.
by /s/ Ellen Kaplan
------------------------------
Name: Ellen Kaplan
Title: Vice President
Accepted and agreed to
as of the date first written
above:
JOSEPH E. SEAGRAM & SONS, INC.
by /s/ John Preston
------------------------------
Name: John Preston
Title: Vice President and Treasurer
<PAGE> 7
September 14, 1998 EXHIBIT A
CONFIDENTIAL
Joseph E. Seagram & Sons, Inc.
Summary of Terms and Conditions
Credit Facilities
Borrower: Joseph E. Seagram & Sons, Inc., an Indiana
corporation (the "Borrower").
Guarantors: The Seagram Company Ltd. ("Seagram"), a
Canadian corporation and, for so long as it
guarantees the Existing Borrower Facility
(as defined below), J.E. Seagram Corp., a
Delaware corporation (the "Guarantors").
Advisor and Chase Securities Inc. ("CSI").
Arranger:
Administrative The Chase Manhattan Bank ("Chase") will
Agent: serve as the sole administrative agent (the
"Agent") for a syndicate of financial
institutions acceptable to the Borrower and
Chase and arranged by CSI (the "Lenders").
Facilities: Two credit facilities will be available as
follows:
A. 364-Day Competitive Advance and Revolving
Credit Facility in an aggregate principal
amount of US$5,000,000,000 converting at
the end of the applicable commitment
periods to two-year bullet term loans
(the "364-Day Facility").
B. Five-Year Competitive Advance and
Revolving Credit Facility in an aggregate
principal amount of US$1,500,000,000 (the
"Five-Year Facility", and together with
the 364-Day Facility, the "Facilities").
Borrowing: Two options will be available under each
Facility: (a) a competitive advance option
("CAF") and (b) a revolving credit option
("Revolving
<PAGE> 8
2
Credit"). The CAF will be provided on an
uncommitted competitive advance basis
through an auction mechanism. The Revolving
Credit will be provided on a committed
basis.
In addition, Seagram and its subsidiaries
may borrow from Lenders on a non-pro-rata
basis outside of the Facilities and such
borrowings will, to the extent that Seagram
and such Lender have agreed in writing,
reduce the commitment availability of such
Lender (other than for purposes of the
Utilization Fee described below) under the
Facilities; provided that the relevant
borrower shall be obligated to repay the
borrowing from such Lender to the extent
necessary to cause such Lender to have
sufficient availability to fund its ratable
share of borrowings under the Facilities.
Purpose: Seagram intends to acquire from Philips
Electronics N.V. and other public
stockholders substantially all the issued
and outstanding capital stock of Polygram
N.V. ("Polygram"), for consideration
consisting of common shares of Seagram and
cash payments in an aggregate US dollar
equivalent of approximately US$8,500,000,000
(the "Acquisition"). The Acquisition will be
effected pursuant to a cash election tender
offer (the "Offer") to be followed, if at
least 95% of the shares of Polygram are
validly tendered and are not withdrawn, by a
merger, corporate reorganization or similar
transaction pursuant to which the equity
interests of Polygram not acquired in the
Offer will be purchased by Seagram.
The proceeds of loans under the Facilities
will be used for general corporate purposes
of the Borrower and its subsidiaries,
including for the financing of the
Acquisition and/or the back up of commercial
<PAGE> 9
3
paper (including commercial paper issued to
provide initial financing for the
Acquisition).
364-Day Commitment Subject to the "Extension Option" described
Termination: below, the commitments under the 364-Day
Facility will terminate on the date (the
"364-Day Commitment Termination Date") that
is 364 days after the date of execution of
definitive documentation for the 364-Day
Facility.
Maturity: A. The 364-Day Facility will mature on the
date that is two year after the 364-Day
Commitment Termination Date.
B. The Five-Year Facility will mature on the
date that is five years after the date of
execution of definitive documentation for
the Five-Year Facility.
Extension Option: A. The Borrower may request (which request
shall be delivered not less than 45 days
prior to the then- scheduled 364-Day
Commitment Termination Date for the 364-
Day Facility (the "Existing 364-Day
Commitment Termination Date")) that the
Existing 364- Day Commitment Termination
Date be extended for an additional 364
days. Each Lender under the 364-Day
Facility shall have the option to
participate in such extension and shall
notify the Borrower of its election not
less than 29 days prior to the Existing
364-Day Commitment Termination Date. If a
Lender under the 364-Day Facility elects
to participate in such extension, the
commitment of such Lender under the
364-Day Facility shall be extended to the
date which is 364 days following the
Existing 364-Day Commitment Termination
Date. If a Lender under the 364-Day
Facility elects not to participate in
such extension, such Lender's commitment
under the 364-Day Facility shall not be
extended and shall expire on the Existing
364-Day
<PAGE> 10
4
Commitment Termination Date and the
outstanding loans made by such Lender
shall convert to bullet term loans
maturing two year after such Existing
364-Day Commitment Termination Date.
B. The Borrower may request (which request
shall be delivered not less than 60 days
prior to each anniversary of the date of
execution of definitive credit
documentation for the Five-Year Facility)
that the then-scheduled Maturity of the
Five-Year Facility (the "Existing
Five-Year Maturity") be extended for an
additional year. Each Lender under the
Five-Year Facility shall have the option
to participate in such extension and
shall notify the Borrower of its election
not less than 30 days prior to such
anniversary date. If a Lender under the
Five-Year Facility elects to participate
in such extension, the commitment of such
Lender under the Five-Year Facility shall
be extended to the date which is one year
after the Existing Five-Year Maturity. If
a Lender under the Five-Year Facility
elects not to participate in such
extension, such Lender's commitment under
the Five-Year Facility shall not be
extended and shall expire on the Existing
Five-Year Maturity.
Fees and Interest
Rates: As per attached Annex I.
<PAGE> 11
5
Availability: Under the CAF for each Facility, up to the
full aggregate amount of the remaining
commitments under such Facility (less any
amounts outstanding under the Revolving
Credit thereunder) may be borrowed, repaid
and reborrowed during the life of such
Facility at the discretion of the Lenders
under such Facility, who may elect to bid in
accordance with the Agent's standard
procedures for competitive advance
facilities. Under the Revolving Credit for
each Facility, up to the full aggregate
amount of the remaining commitments under
each such Facility (less any amount
outstanding under the CAF thereunder) may be
borrowed, repaid and reborrowed during the
life of such Facility. Availability under
each option with respect to each Facility
will be reduced by usage under the other
option for such Facility on a
dollar-for-dollar basis. Total outstandings
under each Facility may not exceed the
commitments under such Facility at any time.
Optional Commitment Upon at least three business days prior
Reductions and irrevocable written notice to the Agent, the
Prepayments: Borrower may at any time in whole
permanently terminate, or from time to time
permanently reduce, the commitments under
any Facility; provided that any outstanding
loans under such Facility that would exceed
the reduced commitments must be prepaid
together with any related breakage costs.
Voluntary prepayments of loans under any
Facility will be permitted in whole or in
part at any time subject to a minimum
aggregate amount to be determined.
Prepayments during LIBOR interest periods
will be subject to the payment of breakage
costs. ABR loans may be prepaid at any time
without penalty.
<PAGE> 12
6
Representations and Representations and warranties will include:
Warranties: organization, powers; authorization,
enforceability; governmental approvals, no
conflicts; financial statements, no material
adverse change; properties; litigation;
compliance with laws; absence of investment
and public utility holding company status;
ERISA; disclosure; no violation of
Regulation U or X; pari passu ranking of
loans; and year 2000 matters.
Conditions Precedent Conditions precedent to effectiveness will
to Effectiveness: include: receipt of executed counterparts;
delivery of satisfactory legal opinions and
financial information (including pro forma
financial information); evidence of
authority (including board resolutions);
evidence of organization, existence and good
standing (including charter, by-laws and
good standing certificates); payment of fees
and expenses; consummation of the
Acquisition substantially as contemplated by
Seagram's Registration Statement on Form S-4
filed on August 14, 1998; amendment and
restatement of (i) Seagram's
US$1,100,000,000 existing credit facility
and (ii) the Borrower's US$2,000,000,000
existing credit facility (the "Existing
Borrower Facility", and together with
Seagram's existing credit facility referred
to in clause (i), the "Existing Credit
Facilities") in order to conform, to the
reasonable satisfaction of the Agent, the
representations, warranties, covenants,
events of default, financial terms and
certain other terms of the Existing Credit
Facilities to those of the Facilities.
Conditions Precedent Accuracy of representations and warranties
to all Borrowings: and absence of defaults.
Affirmative Affirmative covenants will include: delivery
Covenants: of audited annual and
<PAGE> 13
7
unaudited quarterly financial statements,
together with certification as to no
defaults, and filings with governmental
authorities; notice of material events;
maintenance of existence and material
licenses and franchises; payment of taxes;
maintenance of insurance; maintenance of
true and complete books and records;
inspection rights; compliance with laws; and
use of proceeds.
Negative Covenants: Negative covenants will include: limitations
on liens; limitations on sale-leaseback
transactions involving property, plant and
equipment; limitations on fundamental
changes (including (i) in the case of the
Borrower and Seagram, no merger or
consolidations unless the Borrower or
Seagram, as applicable, is the surviving
entity, (ii) no sale of substantially all
the assets of Seagram and its subsidiaries,
taken as a whole, and (iii) no liquidation
or dissolution of the Borrower or Seagram);
limitations on transactions with affiliates;
and limitations on restrictive agreements.
Selected Financial Selected financial covenants shall include:
Covenants: Maximum Total Debt/EBITDA of 5.25 to 1.00
initially (with step downs to be agreed
upon) and Minimum EBITDA/Interest Expense of
2.50 to 1.00 initially (with step ups to be
agreed upon) (in each case with definitions
to be agreed upon).
Events of Default: Events of default shall include nonpayment
of principal when due; non-payment of
interest, fees or other amounts for five
days; incorrectness of representations and
warranties in any material respect when made
or deemed made; failure to comply with any
negative or financial covenant; failure to
comply with any other covenant
<PAGE> 14
8
after expiration of a 30-day grace period
after notice; cross acceleration to
indebtedness in excess of US$50,000,000
(other than indebtedness under the Existing
Credit Facilities); cross default of each
Facility to the other Facility and to the
Existing Credit Facilities; bankruptcy;
judgments in excess of $50,000,000 which
shall remain unremedied for 30 days or legal
action to attach or levy upon assets; ERISA;
or the occurrence of a Change in Control
(defined as (i)(A) any person or affiliated
group of persons (other than the existing
controlling interests) owning more than 25%
of the issued and outstanding voting stock
of Seagram and (B) a majority of the board
of directors of Seagram shall cease to be
continuing directors or (ii) the failure of
Seagram to own and control, directly or
through wholly-owned subsidiaries, at least
100% of the voting stock of the Borrower.
Except in the case of bankruptcy events of
default, termination of commitments or
acceleration of loans under the Facilities
shall require the consent of the Required
Lenders (as defined below).
Expenses and All reasonable out-of-pocket expenses
Indemnification: (including but not limited to expenses
incurred in connection with due diligence)
of the Arranger and the Agent associated
with the syndication of the Facilities and
with the preparation, execution and
delivery, administration, waiver or
modification and enforcement of definitive
documentation for the Facilities (including
the reasonable fees, disbursements and other
charges of counsel) are to be paid by the
Borrower. In addition, all reasonable
out-of-pocket expenses of the Lenders for
enforcement costs and for documentary taxes
associated with
<PAGE> 15
9
the Facilities are to be paid by the
Borrower.
The Borrower will indemnify the Arranger,
the Agent, the Lenders and their respective
officers, directors, employees, affiliates,
agents and controlling persons and hold them
harmless from and against all reasonable
costs and expenses (including reasonable
fees, disbursements and other charges of
counsel) and all liabilities of any such
indemnified person arising out of or
relating to any claim or any litigation or
other proceedings (regardless of whether any
such indemnified person is a party thereto)
that relate to the transactions contemplated
hereby, including the financings
contemplated hereby, the acquisition or any
transactions connected therewith; provided
that no such person will be indemnified for
its gross negligence or wilful misconduct.
Voting: Amendments and waivers of the definitive
documentation governing the Facilities will
require the approval of Lenders holding more
than 50% of the aggregate amount of loans
and commitments under the Facilities (the
"Required Lenders"), except that (a) the
consent of each Lender adversely affected
thereby shall be required with respect to
(i) increases in commitments, (ii)
reductions of principal, interest or fees
and (iii) extensions of final maturity and
(b) the consent of each Lender shall be
required with respect to (i) changes in pro
rata sharing among Lenders, (ii) changes in
the definition of "Required Lenders" or in
the number or percentage of Lenders required
to amend the definitive documentation for
the Facilities or (iii) to release any
guarantee of the Facilities.
<PAGE> 16
10
Cost and Yield Usual for facilities and
Protection: transactions of this type.
Assignments and The Lenders will be permitted to assign
Participations: loans to other financial institutions with
the consent of the Borrower and the Agent,
in each case not to be unreasonably
withheld, except that such consents shall
not be required in the case of an assignment
to a Lender or an affiliate of a Lender
which is primarily engaged in the business
of originating or holding performing
commercial loans. The minimum assignment and
hold amount will be US$25,000,000.
The Lenders will be permitted to participate
loans and commitments without restriction to
other financial institutions. Voting rights
of participants shall be limited to those
matters requiring the consent of (a) each
Lender or (b) each Lender adversely affected
thereby, in each case as described under
"Voting" above.
Governing Law and New York.
Forum:
Counsel to CSI and Cravath, Swaine & Moore.
Chase:
<PAGE> 17
ANNEX I
Facility Fees: A Facility Fee will accrue and be payable to
the Lenders on the aggregate amount of the
commitments under the Facilities (whether
drawn or undrawn) (or after any Lender's
commitment has expired, on the outstanding
amount of loans of such lender) based upon
the spreads determined as set forth in the
tables appearing at the end of this Annex I.
Accrued Facility Fees shall be calculated on
the basis of a 365/6-day year and actual
days elapsed and will commence to accrue,
with respect to a Facility, on the date of
execution of definitive documentation for
such Facility and will be payable in arrears
at the end of each calendar quarter.
Interest Rates: A. In the case of CAF loans, the rates
obtained from bids selected by the
Borrower.
B. In the case of Revolving Credit loans,
interest will be payable at the following
rates per annum, as selected by the
Borrower:
(i) LIBOR plus spreads determined as set
forth in the tables appearing at the end
of this Annex I.
(ii) ABR.
Interest on LIBOR loans will be payable on
the last day of each interest period (and at
the end of each three months, in the case of
interest periods longer than three months),
and upon prepayment. Interest on LIBOR loans
will be payable in arrears and calculated on
the basis of a 360-day year and actual
number of days elapsed. Interest on ABR
loans will be payable quarterly in arrears
and on the basis of a 365-day year for ABR
loans when based on Chase's Prime Rate and
otherwise on the basis of a 360-day year and
the actual number of days elapsed.
<PAGE> 18
2
As used herein:
"ABR" means the higher of (i) Chase's Prime
Rate, and (ii) the Federal Funds Effective
Rate plus 1/2 of 1% per annum.
"LIBOR" means the London Interbank Offered
Rate for eurodollar deposits for one, two,
three or six months (as selected by the
Borrower), or subject to availability, 9 or
12 months, as reflected on the applicable
Telerate screen.
Utilization Fee: At any time when loans (including CAF loans)
outstanding under any Facility exceed 50% of
the then aggregate commitments under such
Facility, the LIBOR spread in effect for
Revolving Credit loans will be increased by
7.5 basis points per annum on the full
amount outstanding.
Pricing Grids
FOR THE 364-DAY FACILITY:
<TABLE>
<CAPTION>
Ratings Facility Fee LIBOR Spread *
- ------- ------------ --------------
<S> <C> <C>
>=A-/A3 7.0 bps 23.0 bps
BBB+/Baa1 8.0 bps 27.0 bps
BBB/Baa2 10.0 bps 30.0 bps
BBB-/Baa3 12.0 bps 33.0 bps
BB+/Ba1 17.5 bps 45.0 bps
<BB+/Ba1 20.0 bps 55.0 bps
</TABLE>
<PAGE> 19
3
FOR THE FIVE-YEAR FACILITY:
<TABLE>
<CAPTION>
Ratings Facility Fee LIBOR Spread *
- ------- ------------ --------------
<S> <C> <C>
>=A-/A3 9.0 bps 21.0 bps
BBB+/Baa1 10.0 bps 25.0 bps
BBB/Baa2 12.5 bps 27.5 bps
BBB-/Baa3 15.0 bps 30.0 bps
BB+/Ba1 22.5 bps 40.0 bps
<BB+/Ba1 25.0 bps 50.0 bps
</TABLE>
Spreads over LIBOR and Facility Fee spreads shall be determined
based upon the ratings (the "Ratings") by S&P and Moody's applicable to
Seagram's senior, unsecured, non-credit enhanced long-term debt for borrowed
money. In the event of split Ratings, spreads shall be determined by reference
to the higher of the two Ratings; provided that if the split in Ratings is
greater than one, spreads shall be determined by reference to the Rating one
below the higher of the two Ratings. Any change in LIBOR spreads based on a
change in the Ratings shall be effective on the date such change in Ratings is
publicly announced.
- ----------
*/Not giving effect to the Utilization Fee discussed above.
<PAGE> 1
EXHIBIT 10(n)
THE SEAGRAM COMPANY LTD.
1983 STOCK APPRECIATION RIGHT AND STOCK UNIT PLAN
(AMENDED AUGUST 5, 1986)
The Seagram Company Ltd. (the "Company") hereby establishes the following
1983 Stock Appreciation Right and Stock Unit Plan, as amended (the "Plan") for
eligible employees of certain subsidiaries of the Company.
1. Amount of Stock Appreciation Rights and Stock Units
Except as otherwise provided pursuant to Paragraphs 7 and 8 hereof, (i)
the total number of Stock Appreciation Rights ("SARs") which may be granted
under the Plan shall not exceed 2,000,000 and (ii) the aggregate value of Stock
Units ("Units") granted under the Plan in any one fiscal year of the Company
shall not exceed 50% of the aggregate U.S. dollar amount of base compensation
paid in that year to all employees who receive grants of Units under the Plan
in that year. For purposes of this Paragraph, the value of a Unit shall be the
average closing price of one Common Share of the Company as reported on the
composite tape for securities traded on the New York Stock Exchange for the
calendar month preceding the date of grant.
2. Effective Date of Plan
The Plan shall become effective when adopted by the Board of Directors of
the Company; provided, however, that unless the Plan is approved by a majority
of the votes cast at a meeting of the shareholders by the holders of shares
entitled to vote thereon within one year after its adoption by the Board of
Directors of the Company, the Plan and all SARs and Units granted under the
Plan shall terminate in all respects at the time of such meeting, or if no
meeting is held, after the passage of such year.
3. Definition of SARs and Units
An SAR represents the right to receive an amount in cash equal to the
excess, if any, of the market value of one Common Share of the Company over the
exercise price ("Exercise Price"). The Exercise Price of an SAR shall be an
amount determined by the Committee but (with the exception of SARs granted
pursuant to Paragraph 7) in no event shall such amount be less than 25% of the
average closing price of one Common Share of the Company as reported on the
composite tape for securities traded on the New York Stock Exchange during the
last calendar month preceding the date on which the SAR is granted (or, in the
case of any SARs granted pursuant to the Management Incentive Award Plan of
Joseph E. Seagram & Sons, Inc., 25% of such average closing price during the
last calendar month of the fiscal year preceding the date of grant). A Unit
represents the right to receive an amount in cash equal to the market value of
one Common Share of the Company.
4. Administration
The Plan shall be administered by a committee ("the Committee") consisting
of no fewer than three directors of the Company who shall be disinterested
within the meaning of Rule 16b-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, of the United States of America
(the "Act"), and who shall be appointed by, and serve at the pleasure of, the
Board of Directors. The Committee shall be the Human Resources Committee of the
Board of Directors until the Board determines otherwise. The Committee shall
have the authority, consistent with the Plan, to interpret the Plan, to adopt,
amend and rescind regulations for its administration, to prescribe or amend the
form or forms of the instruments to be used when exercising an SAR, to delegate
its authority to administer the Plan with respect to certain employees who are
not subject to Section 16(b) of the Act and generally to conduct and administer
the Plan and to make all determinations in connection therewith which may be
necessary or advisable. All such actions of the Committee shall be binding upon
all Participants (as hereinafter defined).
<PAGE> 2
5. Determination of Grants
From time to time the Committee shall determine, from among the
directors, officers and other key employees of certain subsidiaries of the
Company designated by the Committee ("Designated Subsidiaries", which term,
unless otherwise specified by the Committee, shall be deemed to include all
subsidiaries of the subsidiary so designated), which of such employees (the
"Participants") shall be granted SARs and/or Units under the Plan. Such SARs
and/or Units may be granted (i) in addition to any other compensation or
benefits to which the Participant is entitled, or (ii) in accordance with the
terms of any incentive compensation plans from time to time in effect and
approved by the Committee for employees of Designated Subsidiaries that permit
selected recipients of incentive compensation awards thereunder to elect to
receive all or any part of such awards in SARs and/or Units. The SARs and/or
Units granted shall be credited to a memorandum account maintained for each
Participant by the Designated Subsidiary of which such Participant is an
employee.
6. Dividends Credited on Units
When dividends are paid from time to time by the Company with respect to
its Common Shares, the appropriate Designated Subsidiary shall calculate the
amount in U.S. dollars which would have been payable in cash or property on the
total number of Units (including fractions thereof) in the account of each
Participant on each dividend payment date as if each such Unit represented one
issued and outstanding Common Share of the Company held by the Participant. The
amount of such dividends expressed in terms of additional Units or fractions
thereof, based upon the market value of the Common Shares of the Company on each
such dividend payment date, shall thereupon be credited to the respective
accounts of Participants as of such dividend payment date. For purposes of this
Paragraph 6, the market value of the Common Shares of the Company as of any
dividend payment date shall be the closing price of such Shares as of that date
or, if there were no sales on that date, the closing price for the closest
preceding date on which there were sales, each as reported on the composite tape
for securities traded on the New York Stock Exchange.
7. Additional Grants of SARs
In addition to the authority to grant SARs set forth in Paragraph 5, the
Committee is authorized to grant SARs to those persons listed in Annex A hereto
in the amounts and with the Exercise Prices set forth opposite their names. Such
SARs shall be exercisable at any time commencing six months after the date of
grant and ending as provided in Paragraph 9.
8. Adjustments to SARs and Units
In the event of any capital stock adjustment to the Common Shares of the
Company, including adjustments resulting from ordinary stock dividends or stock
splits, the number and Exercise Price of SARs and the number of Units in each
Participant's account shall be correspondingly adjusted as of the date of such
capital stock adjustment.
9. Exercise of SARs
a. An SAR shall be exercisable at any time commencing at such time
as the Committee may specify at the time of grant but not less
than six months after the date of grant and ending one year from
the date the Participant retires under the pension plan of the
Designated Subsidiary of which the Participant is an employee or
ceases to be an employee of such Designated Subsidiary for any
reason, including death, provided, that if the Participant is a
director or officer subject to Section 16(b) of the Act at the
time of exercise, the Participant may exercise his SARs only
during the periods which begin on the third business day
following the Company's release of annual or quarterly financial
information to the public and end on the twelfth business day
following such date, and provided further, that the SARs of a
Participant who dies within one year from his retirement or
other termination of employment shall be exercisable by the
Participant's legal representative for a period of not less than
three months from the date of the Participant's death.
<PAGE> 3
b. A Participant or his legal representative may exercise an SAR by
executing and delivering to the appropriate Designated Subsidiary a
written notice substantially in the form attached hereto as Annex B-1 or
B-2, as the case may require. The date of exercise for the purposes of
subparagraph c of this Paragraph shall be the date such notice is
postmarked, if delivery is made by mail, or the date of receipt, if
delivery is made by hand.
c. As promptly as practicable after exercise of an SAR, the Designated
Subsidiary of which the Participant is or was an employee shall
distribute to the Participant or to his legal representative an amount in
cash equal to the amount by which the average of the closing prices for
the Common Shares of the Company as reported on the composite tape for
securities traded on the New York Stock Exchange for the calendar month
preceding the month of exercise shall exceed the Exercise Price of such
SAR.
10. Distribution with Respect to Units
a. Except as provided in subparagraph b hereof, Participants shall receive
distributions with respect to Units in accordance with irrevocable
elections made by them in conjunction with each grant of Units. Each
Participant may elect to receive distributions with respect to such
Participant's Units (i) upon such Participant's death, retirement or
other termination of employment or (ii) on the earlier of (A) a date
certain in the future (but not sooner than 12 months after such Units are
granted) or (B) such Participant's death, retirement or other termination
of employment. Each Participant may also elect to receive any such
distribution in a lump sum or in installments, together with dividends
accrued thereon. Distributions will be made by the appropriate Designated
Subsidiary to the Participant, if living, or to his designated
beneficiaries, if deceased, in accordance with such elections. The
Designated Subsidiary shall calculate the amount of distribution by
multiplying the number of Units with respect to which the distribution is
being made by the average closing price for the Common Shares of the
Company as reported on the composite tape for securities traded on the
New York Stock Exchange for the calendar month preceding the month in
which such distribution is being made. Such valuations shall be made
annually for the appropriate anniversary month in the event a
Participant's distribution is made in annual installments. The Designated
Subsidiary shall continue to credit the Participant's account from time
to time with dividends in accordance with Paragraph 6 with respect to the
undistributed Units.
b. At any time, prior to the time elected by the Participant at which
distribution is to be made with respect to Units, the Committee may, in
its sole discretion, authorize the Designated Subsidiary to pay to the
Participant an amount in settlement of such number of Units credited to
the Participant's account that the Committee determines necessary to meet
a financial hardship arising from an emergency. The payment shall be made
only in instances of hardship arising from causes beyond the
Participant's control such as accident or illness. The Participant shall
apply in writing to the Committee for any hardship payment under this
subparagraph and shall furnish to the Committee such information as the
Committee deems necessary and appropriate to make its determination. The
amount of any payment approved by the Committee pursuant to this
subparagraph shall be calculated by multiplying the number of Units being
settled by the average closing price for the Common Shares of the Company
as reported on the composite tape for securities traded on the New York
Stock Exchange for the calendar month preceding the month in which the
Committee approves payment.
c. A lump sum distribution from a Participant's account, the initial annual
installment from a Participant's account or a payment pursuant to
subparagraph b hereof, as the case may be, shall be made at such time as
the Committee shall determine, but in no event later than 90 days
following the end of the calendar year in which the Participant's
retirement, death or other termination of employment or the approval of a
payment by the Committee occurs.
<PAGE> 4
d. Designation of beneficiaries pursuant to subparagraph a of this
Paragraph shall be made in writing filed with the Designated
Subsidiary of which a Participant is an employee in such form and in
such manner as such Designated Subsidiary may from time to time
prescribe. Beneficiaries may be changed in the same manner at any time
prior to the death of a Participant or former Participant. If a
Participant or former Participant dies without having designated any
surviving beneficiaries, his interest under the Plan shall be
distributed to the legal representative of his estate.
11. Rights of Participants
a. No person shall have any rights or claims under the Plan except in
accordance with the provisions of the Plan and any incentive
compensation plans pursuant to which SARs and/or Units may be granted.
b. Nothing contained in the Plan shall be deemed to give any employees
the right to be retained in the service of the Company or any
Designated Subsidiary.
c. No Participant or beneficiary under the Plan shall have any right to
or interest in any specific asset of the Company or any Designated
Subsidiary. All amounts credited to Participants' accounts under the
Plan will continue to be part of the appropriate Designated
Subsidiary's general funds until distributed under the Plan.
d. The appropriate Designated Subsidiary shall have the right to deduct
distributions made pursuant to the Plan any taxes or other amounts
required by law to be withheld.
e. Except as otherwise expressly provided in subparagraphs (a) and (d) of
Paragraph 10, no person shall have the right to assign, transfer,
alienate, pledge, encumber or subject to lien the benefits to which he
is entitled under the Plan, otherwise than by will or the laws of
descent and distribution; benefits under the Plan shall be subject to
adverse legal process of any kind; and all SARs shall be exercisable
during a Participant's lifetime only by such Participant or by his
guardian or legal representative. Any attempted assignment, transfer,
alienation, pledge or encumbrance of benefits to lien or adverse legal
process of any kind will not be recognized by the Committee and the
Committee in such case may terminate the right of such person to such
benefits and direct that they be held or applied for the benefit of
such person, his spouse, children or other dependents in such manner
and in such proportion as the Committee deems advisable. If a person
to whom benefits shall be due under the Plan shall be or become
incompetent, either physically or mentally, in the judgment of the
Committee, the Committee shall have the right to determine to whom
such benefits shall be paid for the benefit of such person.
12. Amendment or Termination
The Plan may be amended or terminated at any time by action of the Board
of Directors of the Company; provided, however, that no amendment or
termination shall have the effect of depriving any person of any part of the
SARs and/or Units credited to any Participant's account. In the event that the
Plan is terminated under this Paragraph, all Participants' accounts will be
distributed in accordance with and upon the conditions of the provisions of the
Plan in effect immediately prior to such termination.
<PAGE> 1
EXHIBIT 10(p)
THE SEAGRAM COMPANY LTD.
SENIOR EXECUTIVE SHORT-TERM INCENTIVE PLAN
1. PURPOSE. The purpose of the Senior Executive Short-Term Incentive Plan
(the "Plan") is to advance the interests of The Seagram Company Ltd. (the
"Company") and its shareholders by providing incentives in the form of periodic
bonus awards ("Awards") to certain senior executive employees of the Company and
its subsidiaries, thereby motivating such executives to attain corporate
performance goals articulated under the Plan.
2. ADMINISTRATION. (a) The Plan shall be administered by the Human
Resources Committee of the Company's Board of Directors, or such other persons
designated by the Company's Board of Directors (the "Committee"). The Committee
may delegate any of its duties and powers in whole or in part to any
subcommittee thereof consisting solely of at least two "outside directors," as
defined under Section 162(m) of the United States Internal Revenue Code of 1986,
as amended (the "Code").
(b) The Committee shall have the exclusive authority to select the senior
executives to be granted Awards under the Plan, to determine the size and terms
of the Awards (subject to the limitations imposed on Awards in Section 4 below),
to modify the terms of any Award that has been granted (except for any
modification that would increase the amount of the Award payable to an
executive), to determine the time when Awards will be made and the performance
period to which they relate, to establish performance objectives in respect of
such performance periods, and to certify that such performance objectives were
attained; provided, however, that any such action shall be consistent with the
applicable provisions of Section 162(m) of the Code. The Committee is authorized
to interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make any other determinations that it deems
necessary or desirable for the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems necessary or desirable.
Any decision of the Committee in the interpretation and administration of the
Plan, as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned.
3. PARTICIPATION. Awards may be granted to senior executives of the
Company and its subsidiaries who are "covered employees", as defined in Section
162(m) of the Code, or who the Committee anticipates may become covered
employees. An Executive to whom an Award is granted shall be a "Participant".
4. AWARDS UNDER THE PLAN. (a) A Participant's Award shall be determined
based on the attainment of written performance goals approved by the Committee
for a performance period which is established by the Committee (i) while the
outcome for that performance period is substantially uncertain and (ii) no more
than 90 days after the commencement of that performance period or, if less, the
number of days which is equal to 25 percent of that performance period. The
performance goals, which must be objective, shall be based upon one or more of
the following criteria: (i) earnings before income taxes (including earnings
before interest, income taxes, depreciation and amortization) ("EBITDA"); (ii)
EBITDA or operating earnings, reduced by the cost of capital or investment
("SVA"); (iii) earnings per share; and (iv) return on investment or
shareholders' equity. The foregoing criteria may relate to the Company, one or
more of its subsidiaries or one or more of its divisions or units, or any
combination of the foregoing, and may be applied on an absolute basis and/or be
relative to one or more peer group companies or other indices, or any
combination thereof, all as the Committee shall determine. In addition, to the
degree consistent with Section 162(m) of the Code, the performance goals may be
calculated without regard to extraordinary items. The maximum amount of an Award
to any Participant with respect to a fiscal year of the Company shall be $9
million.
(b) The Committee shall determine whether the performance goals have been
met with respect to any affected Participant and, if they have, so certify and
ascertain the amount of the applicable Award. No Awards will be paid for that
performance period until such certification is made by the Committee. The amount
of the Award actually paid to any affected Participant may be less than the
amount determined by the applicable performance goal formula, at the discretion
of the Committee. The amount of the Award determined by the Committee for a
performance period shall be paid to the Participant within 75 days after the end
of that performance period or as otherwise determined by the Committee;
provided, however that a Participant may, if and to the extent permitted by the
Committee, elect to defer payment of an Award.
<PAGE> 2
(c) The provisions of this Section 4 shall be administered and interpreted
in accordance with Section 162(m) of the Code to ensure the deductibility by the
Company or its subsidiaries of the payment of Awards.
5. AMENDMENT AND TERMINATION OF THE PLAN. (a) The Company's Board of
Directors may at any time, or from time to time, suspend or terminate the Plan
in whole or in part or amend it in such respects as the Board may deem
appropriate.
(b) No amendment, suspension or termination of the Plan shall, without the
Participant's consent, impair any of the rights or obligations under any Award
theretofore granted to a Participant under the Plan.
(c) The Committee may amend the Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of future amendments, rules or regulations, if any, to
or under the Code or other applicable laws.
6. MISCELLANEOUS PROVISIONS. (a) Determinations made by the Committee under
the Plan need not be uniform and may be made selectively among eligible
individuals under the Plan, whether or not such eligible individuals are
similarly situated. Neither the Plan nor any action taken hereunder shall be
construed as giving any employee or other person any right to continue to be
employed by or perform services for the Company or any subsidiary, and the right
to terminate the employment of or performance of services by any Participant at
any time and for any reason is specifically reserved to the Company and its
subsidiaries.
(b) Except as may be approved by the Committee, a Participant's rights and
interest under the Plan may not be assigned or transferred, hypothecated or
encumbered in whole or in part either directly or by operation of law or
otherwise (except in the event of a Participant's death) including, but not by
way of limitation, execution, levy, garnishment, attachment, pledge, bankruptcy
or in any other manner; provided, however, that, subject to applicable law, any
amounts payable to any Participant hereunder are subject to reduction to satisfy
any liabilities owed to the Company or any of its subsidiaries by the
Participant.
(c) The Company and its affiliates shall have the right to deduct from any
payment made under the Plan any federal, state, local or foreign income or other
taxes required by law to be withheld with respect to such payment.
(d) The Company is the sponsor and legal obligor under the Plan, and shall
make all payments hereunder, other than any payments to be made by any of the
subsidiaries, which shall be made by such subsidiary, as appropriate. Nothing
herein is intended to restrict the Company from charging a subsidiary that
employs a Participant for all or a portion of the payments made by the Company
hereunder. The Company shall not be required to establish any special or
separate fund or to make any other segregation of assets to assure the payment
of any amounts under the Plan, and rights to the payment hereunder shall be no
greater than the rights of the Company's (or subsidiary's) unsecured creditors.
All expenses involved in administering the Plan shall be borne by the Company.
(e) In addition to such other rights of indemnification as they may have as
members of the Board of Directors of the Company or the Committee, the members
of the Board, the Committee or any subcommittee shall be indemnified by the
Company against all costs and expenses reasonably incurred by them in connection
with any action taken or failure to act under or in connection with the Plan or
any Award granted thereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except a judgment based upon a finding of bad
faith; provided that upon the institution of any such action, suit or
proceeding, a Committee, Board or subcommittee member shall, in writing, give
the Company notice thereof and an opportunity, at its own expense, to handle and
defend the same before such Committee or Board member undertakes to handle and
defend it on such member's own behalf.
(f) The validity, construction, interpretation, administration and effect
of the Plan and rights relating to the Plan and to Awards granted under the
Plan, shall be governed by the substantive laws, but not the choice of laws
rules, of the State of New York.
(g) The Plan shall be effective as of July 1, 1996. However, if the Plan is
not approved by the affirmative vote of holders of a majority of the shares of
the Company present, or represented by proxy, and entitled to vote at the Annual
Meeting of Shareholders of the Company to be held on October 30, 1996, or at any
adjournment thereof, the Plan and all Awards thereunder shall terminate.
<PAGE> 1
Exhibit 10(q)
DEFERRED COMPENSATION AGREEMENT
-------------------------------
Agreement made this ____ day of ____________, 19____, by and between Joseph E.
Seagram & Sons, Inc., an Indiana Corporation ("Company"), and _________________,
("Executive");
Whereas, the Executive and the Company desire to enter into an arrangement
permitting the Executive to defer, if so contemplated by a Company incentive
plan, receipt of all or part of the cash portion of any award(s) which may be
earned (the "Award") by the Executive pursuant to such incentive plan upon the
terms and conditions set forth herein;
Now, therefore, in consideration of the mutual covenants and benefits set
forth herein, the Company and the Executive hereby agree as follows:
1. Subject to the terms and conditions of this agreement, the Company and
the Executive hereby agree that the Company shall defer payment of the cash
portion of an Award as specified (the "Deferred Award"), which would otherwise
be payable under the terms of the incentive plan specified and for the
performance period indicated on any Incentive Award payment deferral election
form, substantially in the form appended hereto, now or hereafter from time to
time duly furnished to the Company by the Executive (a "Deferral Election").
2. Any Prime Rate Deferred Award, plus interest equivalents thereon
computed under Section 3 hereof, or in the case of Seagram Deferred Shares,
Seagram common shares plus dividend equivalents computed thereon pursuant to
The Seagram Company Ltd. 1996 Stock Incentive Plan, will be paid to the
Executive (or, in the event of the Executive's death, the beneficiary or
estate determined under section 5 hereof) on the date(s) in the manner selected
by the Executive on the applicable Deferral Election. The Company reserves the
right to pay Seagram Deferred Shares in cash rather than Seagram common shares.
3. Interest equivalents will accrue on a Prime Rate Deferred Award from
the first date on which such Prime Rate Deferred Award otherwise was payable
pursuant to the plan until the date such Prime Rate Deferred Award is paid. If a
Prime Rate Deferred Award is paid in installments, interest equivalents will
continue to accrue on any unpaid installments. Interest equivalents will accrue
during each calendar quarter at a rate equal to the "prime rate" offered by a
primary lender to Joseph E. Seagram & Sons, Inc. on the first business day of
each such calendar quarter. Interest will be computed and compounded quarterly.
4. Payment of any Deferred Award plus interest equivalents or dividend
equivalents as applicable ("earnings") may occur prior to the date(s) indicated
in the applicable Deferral Election under the following circumstances:
(A) the Company may distribute to the Executive such Deferred Award
(plus earnings), at such a date(s) as the Company shall determine if the Company
concludes, in its sole discretion, that events such as changes in the federal
tax laws or applicable accounting principles or practices have rendered
continued Deferral of the Deferred Award undesirable either for the Company or
the Executive.
(B) at any time prior to complete payment of such Deferred Award, the
Company may pay to the Executive, the beneficiary or the estate (as the case may
be) that portion of such Deferred Award (plus earnings) that the Company, in its
sole discretion, determines is necessary to meet a financial hardship arising
from an emergency. The payment shall be made only in instances of hardship
arising from causes beyond the Executive's control, such as accident or illness.
The Executive, the beneficiary or estate (as the case may be) shall apply in
writing to the Company for any hardship payment under this paragraph and shall
furnish to the Company such information as the Company deems necessary and
appropriate to make such determination.
<PAGE> 2
5. An Executive may designate a beneficiary or beneficiaries with respect
to the Deferred Award specified in a Deferral Election who, in the event of the
Executive's death prior to full payment of such Deferred Award (plus earnings),
shall receive payment thereof. Such designation shall be made by the Executive
on a form prescribed by the Company. The Executive may, at any time, change or
revoke such beneficiary designation, effective upon receipt of written notice to
that effect by the Company. If the Executive does not designate a beneficiary or
the beneficiary has predeceased the Executive, unpaid portions of Deferred
Awards (plus earnings), shall be paid to the Executive's estate. If the
beneficiary survives the Executive but dies prior to receiving full payment of a
Deferred Award (plus earnings), any amounts remaining to be paid shall be paid
to the beneficiary's estate.
6. All Deferred Award payments made under this agreement shall be made
from the general assets of the Company and no funds shall be set aside therefor.
The Deferred Award Payments (plus earnings), shall be subject to the claims of
the Company's general creditors.
7. The Executive's rights under this agreement to receive any Deferred
Awards (plus earnings) may not be assigned or transferred, except as provided in
section 5, and any attempted assignment or transfer shall be null and void and
shall extinguish the Company's obligation under this agreement to pay any such
Deferred Awards (plus earnings).
8. The Executive and the Company acknowledge and agree that this
agreement is not an employment contract between the Executive and the Company,
and that the Company and the Executive each has the right, unless otherwise
agreed, to terminate, at will, the Executive's employment at any time.
9. This agreement shall be binding upon any successor to the Company by
merger, consolidation, purchase or otherwise.
10. The Company shall have the right to deduct from any Deferred Award
(plus earnings) paid to the Executive hereunder any taxes or other amounts
required by law to be withheld.
11. This agreement, the Executive's beneficiary designation(s), and
Deferral Election(s) and the terms of the Seagram Company Ltd. 1996 Stock
Incentive Plan constitute the entire agreement between the Company and the
Executive regarding Deferred Awards (plus earnings). This agreement may be
modified at any time by the Company, except that any modification which would
adversely affect the Executive shall not be effective without the Executive's
written approval.
12. This agreement shall be governed in accordance with the laws of the
State of New York.
In witness whereof, the parties hereto have executed and delivered this
agreement as of the day and year first above written.
------------------------------
Signature
By Joseph E. Seagram & Sons, Inc.
<PAGE> 1
EXHIBIT 10(r)
THE SEAGRAM COMPANY LTD.
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE. The Seagram Company Ltd. Stock Plan for Non-Employee
Directors (the "Plan") is intended to enhance the Company's ability to attract
and retain talented individuals to serve as members of the Board and to promote
a greater alignment of interests between non-employee members of the Board and
the shareholders of the Company.
2. DEFINITIONS. As used in the Plan, the following terms have the
respective meanings:
(a) "Act" means the United States Securities Exchange Act of 1934, as
amended.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Human Resources Committee of the Company's
Board of Directors, or such other persons designated by the Company's Board
of Directors.
(d) "Common Share" means a common share without nominal or par value
of The Seagram Company Ltd.
(e) "Common Share Award" means an award of Common Shares under the
Plan.
(f) "Company" means The Seagram Company Ltd.
(g) "Deferred Share Unit" means a bookkeeping entry, equivalent in
value to a Common Share, credited in accordance with an election made by an
Eligible Director pursuant to Section 5 or Section 6.
(h) "Election Date" means the date on which an Eligible Director
files an election with the Secretary of the Company pursuant to Section
5(a).
(i) "Eligible Director" means any director who is neither an employee
nor an officer of the Company or any subsidiary of the Company on the
applicable Election Date.
(j) "Fair Market Value" means the mean between high and low prices of
the Common Shares as reported on the composite tape for securities traded
on the New York Stock Exchange (or, if such exchange is not open on such
date, the immediately preceding date on which such exchange is open),
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or, if the Common Shares are not so listed or traded, the mean between the
high and low prices of the Common Shares as reported on the principal
Canadian securities exchange on which such shares are listed or admitted to
trading (or, if such exchange is not open on such date, the immediately
preceding date on which such exchange is open) or, if the Common Shares are
not so listed or traded, the mean between the high and low prices of the
Common Shares as reported on the principal United States national
securities exchange on which such shares are listed or admitted to trading
(or, if such exchange is not open on such date, the immediately preceding
date on which such exchange is open), or, if the Common Shares are not so
listed or traded, the mean between the closing bid price and the closing
asked price as quoted on the National Association of Securities Dealers
Automated Quotation System, or such other market in which such prices are
regularly quoted, or, if there have been no published bid or asked
quotations with respect to the Common Shares, the Fair Market Value shall
be the value established by the Committee in good faith.
(k) "Plan" means The Seagram Company Ltd. Stock Plan for
Non-Employee Directors.
(l) "Purchase Date" means the date on which Common Shares are
purchased pursuant to Section 5(b) in order to pay Common Share Awards (or,
if the Eligible Director has elected to receive Deferred Share Units, the
date on which Common Shares would have been provided had the Eligible
Director chosen to receive Common Share Awards), which shall be, unless
otherwise determined by the Committee, the later of the third business day
following the release of the Company's second quarter results for the
Company fiscal year in which the Eligible Director's annual term commenced
or the third business day following the first release of the Company's
quarterly results that occurs after the Eligible Director's annual term
commenced.
3. EFFECTIVE DATE. The Plan shall be effective as of November 1, 1996.
4. ADMINISTRATION. The Plan shall be administered by the Committee,
which may delegate its duties and powers in whole or in part to any
subcommittee thereof consisting solely of at least two "non-employee directors"
within the meaning of Rule 16b-3 under the Act. The Committee is authorized to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make any other determinations that it deems
necessary or desirable for the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems necessary or
desirable. Any decision of the Committee in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned.
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5. PAYMENT AND DEFERRAL OF ANNUAL RETAINER. Each Eligible Director shall
receive at least 50% of his or her annual retainer in the form of either Common
Share Awards or Deferred Share Units but may elect, subject to such approvals
and conditions as the Committee may impose, to receive 100% of the annual
retainer in such form.
a. Method of Electing. In order to elect either such form of
payment, the Eligible Director must complete and deliver to the Secretary
of the Company a written election, not later than 30 days after the date on
which his or her annual term as a director commenced, designating the
portion of his or her annual retainer for that year of service as a
director that is to be paid in Common Shares and the portion that is to be
deferred into Deferred Share Units. If no election is made, and no prior
election remains effective, the Eligible Director shall be deemed to have
elected to be paid the annual retainer 50% in Common Share Awards and 50%
in cash.
b. Common Share Awards. If an Eligible Director elects to receive
all or a portion of his or her annual retainer in the form of Common Share
Awards, the Company shall transfer in cash, net of any applicable
withholdings, the amount which the Eligible Director has elected be paid in
Common Shares to a trust or custodial account, the trustee or custodian of
which (the "Trustee") shall, on the Purchase Date, use such cash to
purchase Common Shares on a securities exchange on which the Common Shares
are listed or traded. Each Eligible Director shall be allocated a number of
Common Shares equal to the cash amount that he or she has elected to
receive in the form of Common Shares, divided by the average cost per share
of the Common Shares purchased by the Trustee pursuant to this paragraph
(the "Average Cost"). Following the Trustee's purchase of the Common Shares
the Trustee shall distribute the Common Shares to the Eligible Directors
within ten days after such purchase or on such other date as is selected by
the Eligible Director. Any fractional shares shall be paid in cash.
c. Deferred Share Units. If an Eligible Director elects to receive
all or a portion of his or her annual retainer in the form of Deferred
Share Units, such Eligible Director will have Deferred Share Units credited
to an account maintained for the Eligible Director on the books of the
Company, as of the Purchase Date. The number of Deferred Share Units
(including fractional Deferred Share Units) to be credited shall be
determined by dividing the amount of annual retainer to be deferred into
Deferred Share Units by the Average Cost, or if Average Cost has not been
established, by the Fair Market Value.
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Deferred Share Units shall be credited with dividend equivalents when
dividends are paid on Common Shares and such dividend equivalents shall be
converted into additional Deferred Share Units based on the Fair Market Value
of Common Shares on the date credited.
6. PAYMENT AND DEFERRAL OF MEETING AND CHAIRMANSHIP FEES. The Committee
may at its discretion make available to an Eligible Director the ability to
elect to receive his or her fees otherwise payable for (a) attending Board (or
committee) meetings; and/or (b) serving as Chair of a Board committee, in the
form of Deferred Share Units. Any such election shall be subject to such
approvals and conditions as the Committee may impose, including appropriate
adjustments to the Purchase Date to reflect the fact that such fees are payable
periodically during a year (as opposed to once annually for the annual
retainer).
7. ADJUSTMENTS AND REORGANIZATIONS. In the event of any stock dividend,
stock split, combination or exchange of shares, merger, consolidation, spin-off
or other distribution (other than normal cash dividends) of Company assets to
shareholders, or any other change affecting shares, such proportionate
adjustments, if any, as the Committee in its discretion may deem appropriate to
reflect such change, shall be made with respect to the number of Deferred Share
Units outstanding under the Plan. In the event the Company is not the surviving
company of a merger, consolidation or amalgamation with another company or in
the event of a liquidation, reorganization and in the absence of any surviving
corporation's assumption of outstanding awards made under the Plan, the
Committee may provide for appropriate settlements of Deferred Share Units.
8. TERMINATION OF BOARD SERVICE. No sooner than the first business day
of the calendar year following termination of Board service by an Eligible
Director to whom Deferred Share Units have been granted under the Plan, the
Eligible Director will receive a lump sum payment, net of any applicable
withholdings, (a) in cash equal to the number of Deferred Share Units credited
to his or her account as of such date multiplied by the Fair Market Value of a
Common Share on that day; or (b) in Common Shares equal in number to the
Deferred Share Units credited to the Eligible Director's account. If the
payment is to be made in Common Shares, the Company shall contribute to the
Trustee an amount of cash sufficient to purchase the number of Common Shares to
which the Eligible Director is entitled and the Trustee shall, as soon as
practicable thereafter, purchase those Common Shares on a securities exchange
on which the Common Shares are listed or traded. Any fractional shares shall be
paid in cash based on the Fair Market Value of a Common Share.
9. TRANSFERABILITY OF AWARDS. Deferred Share Units shall not be
transferable or assignable other than by will or the laws of descent and
distribution.
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10. NO RIGHT TO SERVICE. Neither participation in the Plan nor any action
under the Plan shall be construed to give any Eligible Director a right to be
retained in the service of the Company.
11. UNFUNDED PLAN. Unless otherwise determined by the Committee, the Plan
shall be unfunded. To the extent any individual holds any rights by virtue of a
grant awarded under the Plan, such rights (unless otherwise determined by the
Committee) shall be no greater than the rights of an unsecured general creditor
of the Company.
12. SUCCESSORS AND ASSIGNS. The Plan shall be binding on all successors
and assigns of the Company and an Eligible Director, including without
limitation, the estate of such Eligible Director and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Eligible Director's creditors.
13. PLAN AMENDMENT. The Board may amend the Plan as it deems necessary or
appropriate.
14. PLAN TERMINATION. The Board may terminate the Plan at any time.
However, if so terminated, prior awards shall, at the discretion of the Board,
either (a) become immediately payable, or (b) remain outstanding and in effect
in accordance with their applicable terms and conditions.
15. GOVERNING LAW. The validity, construction and effect of the Plan and
any actions taken or relating to the Plan shall be governed by the substantive
laws, but not the choice of law rules, of the State of New York.
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EXHIBIT 10(u)
THE SEAGRAM COMPANY LTD.
1996 STOCK INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of The Seagram Company Ltd. 1996 Stock Incentive Plan is to
provide selected key employees of The Seagram Company Ltd. and its subsidiaries
an opportunity to benefit from the appreciation in the value of the common
shares of The Seagram Company Ltd., thus providing an increased incentive for
such employees to contribute to the future success and prosperity of The Seagram
Company Ltd., enhancing the value of the common shares for the benefit of the
shareholders and increasing the ability of The Seagram Company Ltd. and its
subsidiaries to attract and retain individuals of exceptional skill.
ARTICLE II
DEFINITIONS
The following capitalized terms used in the Plan have the respective
meanings set forth in this Article:
2.1 Act: The United States Securities Exchange Act of 1934, as amended.
2.2 Affiliate: A person or entity controlling, controlled by, or under
common control with, The Seagram Company Ltd.
2.3 Approval Date: The later of the date of approval of the Plan (a) by
the shareholders of The Seagram Company Ltd. and (b) by the applicable
regulatory authorities and stock exchanges, each as contemplated by
Article XVIII of the Plan.
2.4 Award: An Option, Stock Appreciation Right or other award granted
under the Plan.
2.5 Board: The Board of Directors of The Seagram Company Ltd.
2.6 Code: The United States Internal Revenue Code of 1986, as amended.
2.7 Committee: The Seagram Company Ltd. Human Resources Committee or
such other persons designated by the Board.
2.8 Common Shares: The common shares without nominal or par value of
The Seagram Company Ltd.
2.9 Company: The Seagram Company Ltd., any of its Subsidiaries or any
other Affiliate designated by the Board.
2.10 Disability: Inability to engage in any substantial gainful activity
by reason of a medically determinable physical or mental impairment
which constitutes a permanent and total disability, as defined in
Section 22(e)(3) of the Code. The determination whether a Participant
has suffered a Disability shall be made by the Committee based upon
such evidence as it deems necessary and appropriate.
2.11 Disinterested Persons: Members of the Board who are not full time
employees of the Company and who are eligible to serve as Plan
administrators or to approve Awards under the provisions of Rule 16b-3
promulgated under the Act. The preceding sentence shall have no effect
if any specification of such persons is eliminated from the rules
promulgated under Section 16 of the Act. This Section 2.11 shall apply
only to the Plan and not to any other employee benefit plan of the
Company.
2.12 Employer: The Company that employs the employee or Participant.
2.13 Fair Market Value: The mean between high and low prices of the
Common Shares as reported on the composite tape for securities traded
on the New York Stock Exchange (or, if such exchange is not open on
such date, the immediately preceding date on which such exchange is
open), or, if the Common Shares are not so listed or traded, the mean
between high and low prices of the Common Shares as reported on the
principal United States national securities exchange on which such
shares are listed or admitted to trading (or, if such exchange is not
open on such date, the immediately preceding date on which such
exchange is open), or, if the Common Shares are not so listed or
traded, the mean
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between the closing bid price and the closing asked price as quoted on
the National Association of Securities Dealers Automated Quotation
System, or such other market in which such prices are regularly quoted,
or, if there have been no published bid or asked quotations with
respect to the Common Shares, the Fair Market Value shall be the value
established by the Committee in good faith and, in the case of an ISO,
in accordance with Section 422 of the Code.
2.14 ISO: An incentive stock option within the meaning of Section 422 of
the Code.
2.15 Non-ISO: A stock option that is not an ISO.
2.16 Option: A stock option (whether ISO or Non-ISO) granted under the
Plan.
2.17 Option Price: The purchase price of one Common Share under an
Option.
2.18 Participant: A key employee of the Company who has been selected by
the Committee to receive an Award under the Plan.
2.19 Parent Corporation: A parent corporation, as defined in Section
424(e) of the Code.
2.20 Plan: The Seagram Company Ltd. 1996 Stock Incentive Plan, as from
time to time amended.
2.21 Retirement: Separation from service with the Company on or after
attainment of age 65 or, with the prior written consent of the Company,
retirement at an earlier age.
2.22 Stock Appreciation Right: A stock appreciation right granted under
the Plan.
2.23 Subsidiary: A subsidiary corporation, as defined in Section 424(f)
of the Code.
2.24 Termination Date: With respect to each Award, a date fixed by the
Committee; provided that with respect to an Option, such date shall not
be later than the day preceding the tenth anniversary of its date of
grant.
2.25 Termination For Cause: A Participant's termination of employment
with the Company due to insubordination, willful misconduct, willful
failure to implement corrective actions, misappropriation of any funds
or property of the Company, unreasonable neglect or refusal to perform
duties assigned during employment or the conviction of a felony.
ARTICLE III
ADMINISTRATION
3.1 Except as otherwise provided in the Plan, the Committee (or any
subcommittee thereof) shall administer the Plan and shall have full power to
grant Awards, construe and interpret the Plan, establish and amend rules and
regulations for its administration, and perform all other acts relating to the
Plan, including the delegation of administrative responsibilities, that it
believes reasonable and proper.
3.2 The Committee shall consist of not less than three persons, (a) all of
whom shall be (i) Disinterested Persons or (ii) if applicable, "non-employee
directors" as defined in the rules promulgated under Section 16 of the Act and
(b) at least two of whom shall be "outside directors" as defined in Section
162(m) of the Code and the regulations promulgated thereunder.
3.3 Subject to the provisions of the Plan, the Committee (or any
Subcommittee thereof) or the Board shall, in its discretion, determine which
employees shall be granted Awards and the terms and conditions of Awards.
3.4 Any decision made, or action taken, by the Committee, any Subcommittee
thereof or the Board arising out of or in connection with the interpretation and
administration of the Plan shall be final and conclusive.
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ARTICLE IV
LIMITATIONS ON THE AMOUNT OF AWARD GRANTS
4.1 Common Shares Subject to the Plan: The total number of Common Shares
upon which Awards may be based shall be 45,000,000, subject to adjustment in
accordance with Article XIV of the Plan. These Common Shares shall be authorized
but unissued Common Shares. For purposes of this Section, a Stock Appreciation
Right granted pursuant to clause (b) of Section 7.1 shall not be deemed to be an
Award separate from the Option, or portion thereof, to which it relates. For
purposes of this Section, an Option, or portion thereof, exercised through the
exercise of such a Stock Appreciation Right shall be treated, to the extent
settled in Common Shares, as though the Option, or portion thereof, had been
exercised through the purchase of Common Shares, with the result that the Common
Shares subject to the Option, or portion thereof, that was so exercised shall
not be available for future grants of Awards.
4.2 Common Shares to be Granted to a Participant: During the period from
the Approval Date through the sixth anniversary of the Approval Date, the total
number of Common Shares available for grants to any one Participant of (a)
Awards under the Plan and (b) awards under any other plan of the Company which
provides for the grant of Common Shares shall not exceed 5% of the then
outstanding Common Shares on the date when the Plan is adopted by the Board.
4.3 Cash-Only Awards: With respect to any fiscal year of the Company, the
aggregate value (as determined by the Committee) of Awards granted which are
exercisable solely for cash, or which upon maturity are payable solely in cash,
shall not exceed the aggregate salaries paid or accrued with respect to such
fiscal year to all Participants who receive grants of any Awards with respect to
such fiscal year; provided, however, that any such Award which may be redeemed
or exercised only upon a fixed date or dates at least six months after grant, or
incident to death, Retirement, Disability or cessation of employment shall not
be included in the foregoing calculation of the aggregate value of Awards
granted with respect to any fiscal year. This Section 4.3 (or any part thereof)
shall be effective only to the extent that it is required under the rules
promulgated under Section 16 of the Act or any other law, rule or regulation
applicable to the Company.
ARTICLE V
ELIGIBILITY
5.1 Awards may be granted to selected key employees of the Company.
ARTICLE VI
TERMS OF OPTIONS
6.1 Option Price: Except as provided in Section 6.3 of the Plan, the
Option Price shall be no less than the Fair Market Value of a Common Share on
the date the Option is granted, but in no event shall the Option Price be less
than that permitted by applicable laws, rules, by-laws or policies of regulatory
authorities or stock exchanges.
6.2 Period of Exercise: The Committee shall determine the dates after
which Options may be exercised in whole or in part; provided, however, that an
Option shall not be exercised prior to the Approval Date nor later than its
Termination Date. The Committee may amend an Option to accelerate the date after
which such Option may be exercised in whole or in part, provided that the
Company has obtained all applicable approvals, if any, of regulatory authorities
and stock exchanges. An Option which has not been exercised on or prior to its
Termination Date shall be cancelled.
6.3 Special Rules Regarding ISOs Granted to Certain
Employees: Notwithstanding any contrary provisions of Sections 6.1 and 6.2 of
the Plan, no ISO shall be granted to any employee who, at the time the Option is
granted, owns (directly or within the meaning of Section 424(d) of the Code)
more than ten percent of the total combined voting power of all classes of stock
of the Employer or of any Subsidiary or Parent Corporation thereof, unless (a)
the Option Price under such Option is at least 110% of the Fair Market Value of
a Common Share on the date the Option is granted and (b) the Termination Date of
such Option is a date not later than the day preceding the fifth anniversary of
the date on which the Option is granted.
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6.4 Manner of Exercise and Payment: Subject to Section 6.2 of the Plan, an
Option, or portion thereof, shall be exercised by delivery of a written notice
of exercise to the Company and payment of the full price of the Common Shares
being purchased pursuant to the Option. A Participant or his or her legal
representative may exercise an Option with respect to less than the full number
of Common Shares for which the Option may then be exercised, but a Participant
must exercise the Option in full Common Shares. The price of Common Shares
purchased pursuant to an Option, or portion thereof, may be paid:
a) in United States dollars in cash or by check, bank draft or money
order payable to the order of the Company;
b) through the delivery of Common Shares with an aggregate Fair Market
Value on the date of exercise equal to the Option Price;
c) with the consent of the Committee, through the withholding of Common
Shares issuable upon exercise with an aggregate Fair Market Value on the
date of exercise equal to the Option Price;
d) through the delivery of irrevocable instructions to a broker to
deliver promptly to the Company an amount equal to the Option Price; or
e) by any combination of the above methods of payment;
provided, however, that the Company shall not be obligated to purchase or accept
the surrender in payment of any such Common Shares if any such action would be
prohibited by the applicable laws governing the Company or the Committee shall
determine that such action is not in the best interests of the Company. The
Committee shall determine acceptable methods for providing notice of exercise,
for tendering Common Shares or for delivering irrevocable instructions to a
broker and may impose such limitations and prohibitions on the use of Common
Shares or irrevocable instructions to a broker to exercise an Option as it deems
appropriate.
6.5 Notification of Sales of Common Shares: Any Participant who disposes
of Common Shares acquired upon the exercise of an ISO either (a) within two
years after the date of the grant of the ISO under which the Common Shares were
acquired or (b) within one year after the transfer of such Common Shares to the
Participant, shall notify the Company of such disposition and of the amount
realized upon such disposition.
ARTICLE VII
TERMS OF STOCK APPRECIATION RIGHTS
7.1 Grants of Stock Appreciation Rights: A Stock Appreciation Right may be
granted (a) independent of an Option or (b) in conjunction with an Option, or
portion thereof. A Stock Appreciation Right granted pursuant to clause (b) of
the preceding sentence may be granted at the time the related Option is granted
or at any time prior to the exercise or cancellation of the related Option.
7.2 Exercise Price: The exercise price per Common Share of a Stock
Appreciation Right shall be an amount determined by the Committee but in no
event shall such amount be less than the greater of (a) the Fair Market Value of
a Common Share on the date the Stock Appreciation Right is granted or, in the
case of a Stock Appreciation Right granted in conjunction with an Option, or
portion thereof, the Option Price of the related Option and (b) an amount
permitted by applicable laws, rules, by-laws or policies of regulatory
authorities or stock exchanges.
7.3 Period of Exercise: The Committee shall determine the dates after
which Stock Appreciation Rights may be exercised in whole or in part; provided,
however, that a Stock Appreciation Right shall not be exercised prior to the
Approval Date nor later than its Termination Date. The Committee may amend a
Stock Appreciation Right to accelerate the date after which it may be exercised
in whole or in part, provided that the Company has obtained all applicable
approvals, if any, of regulatory authorities and stock exchanges. A Stock
Appreciation Right which has not been exercised on or prior to its Termination
Date shall be cancelled. A Stock Appreciation Right granted in conjunction with
an Option, or portion thereof, shall not be exercised unless such Option, or
portion thereof, is otherwise exercisable, and such a Stock Appreciation Right
shall be cancelled to the extent the Option to which it relates has been
exercised, or has expired, been terminated or been cancelled for any reason.
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7.4 Exercise of Stock Appreciation Rights: A Stock Appreciation Right,
or portion thereof, shall be exercised in accordance with such procedures as may
be established by the Committee. Upon the exercise of a Stock Appreciation
Right, the Participant or his or her legal representative shall be entitled to
receive from the Company with respect to each Common Share to which such Stock
Appreciation Right relates an amount equal to the excess of (a) the Fair Market
Value of a Common Share on the date of exercise over (b) the exercise price of
the Stock Appreciation Right. Such amount shall be paid in cash and/or Common
Shares at the discretion of the Committee. The number of Common Shares, if any,
issued as a result of the exercise of a Stock Appreciation Right shall be based
on the Fair Market Value of such Common Shares on the date of exercise. Upon the
exercise of a Stock Appreciation Right, or portion thereof, granted in
conjunction with an Option, or portion thereof, the Option, or portion thereof,
to which such Stock Appreciation Right relates shall be deemed in the case of a
cash payment to have been cancelled and in the case of a payment in Common
Shares to have been exercised.
ARTICLE VIII
OTHER SHARE-BASED AWARDS
8.1 Other Awards of Common Shares and Awards that are valued in whole or
in part by reference to, or are otherwise based on the Fair Market Value of,
Common Shares may be granted under the Plan in the discretion of the Committee.
Such Awards shall be in such form, and dependent on such conditions, as the
Committee shall determine, including, without limitation, the right to receive
one or more Common Shares, or the equivalent cash value of such Common Shares,
upon the completion of a specified period of service, the occurrence of an event
and/or the attainment of performance objectives. Such Awards may be granted
alone or in addition to any other Awards granted under the Plan. Subject to the
provisions of the Plan, the Committee shall determine to whom and when such
Awards will be made, the number of Common Shares to be awarded under (or
otherwise related to) such Awards, whether such Awards shall be settled in cash,
Common Shares or a combination of cash and Common Shares, and all other terms
and conditions of such Awards. Notwithstanding the foregoing, certain Awards
granted under this Section 8.1 of the Plan may be granted in a manner which is
deductible by the Company under Section 162(m) of the Code. Such Awards (the
"Performance-Based Awards") shall be based upon stock price, market share,
sales, earnings per share, return on equity or costs.
ARTICLE IX
DIVIDEND EQUIVALENTS
9.1 At or after the grant of an Award, the Committee, in its discretion,
may provide the Participant with dividend equivalents with respect to such
Award.
ARTICLE X
AWARD AGREEMENTS
10.1 All Awards shall be evidenced by written agreements executed by the
Company and the Participant. Such agreements shall be subject to the applicable
provisions of the Plan, and shall contain such provisions as are required by the
Plan and any other provisions the Committee may prescribe; provided that with
respect to Options, those Options that are intended to be ISOs shall be so
designated and all other Options shall be designated Non-ISOs. Notwithstanding
Section 2.13, an Award agreement may provide that Fair Market Value shall be
determined based on the monetary currency of a Participant's country of
residence. Notwithstanding Section 6.4, an Award agreement may require that
payment of the Option Price shall be made in such currency and may otherwise
restrict the manner of exercise and payment of an Option.
ARTICLE XI
NONTRANSFERABILITY OF AWARDS
11.1 Each Award shall, during the Participant's lifetime, be exercisable
only by the Participant, and neither it nor any right hereunder shall be
transferable otherwise than by will, the laws of descent and distribution or be
subject to attachment, execution or other similar process; provided, however,
that to the extent permitted by applicable law, with respect to any Award, a
Participant may designate a beneficiary pursuant to procedures which may be
established by the Committee. In the event of any attempt by the Participant to
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alienate, assign, pledge, hypothecate or otherwise dispose of an Award or of any
right hereunder, except as provided for herein, or in the event of any levy or
any attachment, execution or similar process upon the rights or interest hereby
conferred, the Company may terminate the Award by notice to the Participant and
the Award shall thereupon be cancelled. This Section 11.1 (or any part thereof)
may be altered by the Committee to the extent that it is no longer required
under the rules promulgated under Section 16 of the Act or any other law, rule
or regulation applicable to the Company.
ARTICLE XII
CESSATION OF EMPLOYMENT OF PARTICIPANT
12.1 Cessation of Employment other than by Reason of Retirement,
Disability, Death or Termination For Cause: If a Participant shall cease to be
employed by the Company other than by reason of Retirement, Disability, death or
Termination For Cause, each Award other than, to the extent provided by the
Committee, an Award granted under Article VIII of the Plan, held by the
Participant shall be cancelled to the extent not previously exercised and all
rights hereunder shall terminate at the end of the three-month period commencing
on the last day of the month in which the cessation of employment occurred.
12.2 Cessation of Employment by Reason of Termination For Cause: If a
Participant shall cease to be employed by the Company by reason of Termination
For Cause, each Award, other than, to the extent provided by the Committee, an
Award granted under Article VIII of the Plan, held by the Participant shall be
cancelled to the extent not previously exercised and all rights hereunder shall
terminate on the date of cessation of employment.
12.3 Cessation of Employment by Reason of Retirement or Disability: If a
Participant shall cease to be employed by the Company by reason of Retirement or
Disability, each Award, other than, to the extent provided by the Committee, an
Award granted under Article VIII of the Plan, held by the Participant shall be
exercisable until the Termination Date set forth in the Award. Notwithstanding
the foregoing, an Award, other than, to the extent provided by the Committee, an
Award granted under Article VIII of the Plan, shall be cancelled if after
Retirement, in the sole determination of the Committee, the Participant (i)
engages in activity which is competitive with that of the Company or its
Affiliates or (ii) at any time, divulges to any person or entity (other than the
Company or any of its Affiliates) any of the trade secrets, methods, processes
or other proprietary or confidential information of the Company or any of its
Affiliates.
12.4 Cessation of Employment by Reason of Death: If a Participant shall
die while employed by the Company, or at any time after cessation of employment
by reason of Retirement or Disability, an Award may be exercised at any time or
from time to time prior to the Termination Date set forth in the Award, by the
person or persons to whom the Participant's rights under each Award shall pass
by will or by the applicable laws of descent and distribution. Any person or
persons to whom a Participant's rights under an Award have passed by will or by
the applicable laws of descent and distribution shall be subject to all terms
and conditions of the Plan and the Award applicable to the Participant.
ARTICLE XIII
WITHHOLDING TAXES
13.1 The Company may, in its discretion, require a Participant to pay to
the Company the amount, or make other arrangements (including, without
limitation, the withholding of Common Shares which would otherwise be delivered
as part of or upon exercise of an Award), at the time of exercise or thereafter,
that the Company deems necessary to satisfy its obligation to withhold federal,
provincial, state or local income or other taxes.
ARTICLE XIV
ADJUSTMENTS
14.1 If (a) the Company shall at any time be involved in a transaction to
which Section 424(a) of the Code is applicable, (b) the Company shall declare a
dividend payable in, or shall subdivide or combine, its Common Shares or (c) any
other event shall occur which in the judgment of the Committee necessitates
action by way of adjusting the terms of the outstanding Awards, the Committee
may take any such action as in its judgment shall be necessary to preserve the
Participant's rights substantially proportionate to the rights existing prior to
such event and, to the extent that such action shall include an increase or
A-6
<PAGE> 7
decrease in the number of Awards and/or Common Shares subject to outstanding
Awards, the number of Awards and/or Common Shares available under Article IV
above may be increased or decreased, as the case may be, proportionately. The
judgment of the Committee with respect to any matters referred to in this
Article shall be conclusive and binding upon each Participant. The exercise by
the Committee of its authority under this Article is subject to the approval of
the Board as and when required by applicable laws, rules, by-laws or policies of
regulatory authorities or stock exchanges.
ARTICLE XV
AMENDMENT AND TERMINATION OF THE PLAN
15.1 The Board may at any time, or from time to time, suspend or terminate
the Plan in whole or in part or amend it in such respects as the Board may deem
appropriate; provided, however, that no such amendment shall be made without
approval of the shareholders if such approval is required by Rule 16b-3 under
the Act or by any regulatory authorities or stock exchanges.
15.2 No amendment, suspension or termination of the Plan shall, without
the Participant's consent, impair any of the rights or obligations under any
Award theretofore granted to a Participant under the Plan.
15.3 The Committee may amend the Plan, subject to the limitations cited
above, in such manner as it deems necessary to permit the granting of Awards
meeting the requirements of future amendments or issued regulations, if any, to
the Code, the Act or other applicable laws, rules, by-laws or policies of
regulatory authorities or stock exchanges.
15.4 No amendment shall be effective until all applicable approvals, if
any, of regulatory authorities and stock exchanges have been obtained.
ARTICLE XVI
GOVERNMENT AND OTHER REGULATIONS
16.1 The obligation of the Company to issue, or transfer and deliver,
Common Shares for Awards exercised under the Plan shall be subject to all
applicable laws, regulations, rules, orders and approvals which shall then be in
effect and required by regulatory authorities and any stock exchanges on which
Common Shares are traded.
16.2 Notwithstanding any other provision of the Plan, (a) during any
period in which a Participant is subject to Section 16 of the Act, if the
Participant shall exercise any Award or engage in any other transaction
involving an Award or Common Shares received upon the exercise of an Award, the
Participant shall comply with the rules promulgated under Section 16 of the Act
(and any comparable rules of any other U.S. and non-U.S. regulatory authority),
including, without limitation, rules which restrict the exercise of Awards,
which limit the resale of Common Shares obtained upon exercise of Awards and
which require the reporting of transactions and (b) the Committee may impose any
conditions on an Award necessary to render any transaction involving such Award
exempt under the rules promulgated under Section 16 of the Act.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 The Plan Does Not Confer Employment or Shareholder Rights: The right
of the Company to terminate at will (whether by dismissal, discharge or
otherwise) the Participant's employment with it at any time is specifically
reserved. Neither the Participant nor any person entitled to exercise the
Participant's rights in the event of the Participant's death shall have any
rights of a shareholder with respect to the Common Shares subject to each Award,
except to the extent that, and until, such Common Shares shall have been issued
upon the exercise or maturity of each Award.
17.2 The Plan Does Not Confer Rights to Assets: Neither the Participant
nor any person entitled to exercise the Participant's rights in the event of the
Participant's death shall have any rights to or interest in any specific asset
of the Company.
17.3 Plan Expenses: Any expenses of administering the Plan shall be borne
by the Company.
17.4 Use of Exercise Proceeds: Cash payments received from Participants
upon the exercise of Options shall be used for the general corporate purposes of
the Company.
A-7
<PAGE> 8
17.5 Indemnification: In addition to such other rights of indemnification
as they may have as members of the Board, or the Committee, the members of the
Board and the Committee shall be indemnified by the Company against all costs
and expenses reasonably incurred by them in connection with any action, suit or
proceeding to which they or any of them may be party by reason of any action
taken or failure to act under or in connection with the Plan or any Award
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding, except a judgment based upon a finding of bad faith;
provided that upon the institution of any such action, suit or proceeding, a
Committee or Board member shall, in writing, give the Company notice thereof and
an opportunity, at its own expense, to handle and defend the same before such
Committee or Board member undertakes to handle and defend it on such member's
own behalf.
17.6 Governing Law: The Plan shall be construed, interpreted and the
rights of the Company and Participants (and all other parties) determined in
accordance with the internal laws of the State of New York, without regard to
the conflict of law principles thereof.
ARTICLE XVIII
SHAREHOLDER APPROVAL AND EFFECTIVE DATES
18.1 The Plan shall become effective when it is adopted by the Board.
However, if (a) the Plan is not approved by the affirmative vote of the holders
of a majority of the Common Shares present, or represented by proxy, and
entitled to vote at the Annual Meeting of Shareholders of The Seagram Company
Ltd. to be held on May 29, 1996, or at any adjournment thereof or (b) the
necessary regulatory and stock exchange approvals are not obtained within one
year after the date the Plan is adopted by the Board, the Plan and all Awards
shall terminate. Awards may not be granted under the Plan after the sixth
anniversary of the Approval Date.
A-8
<PAGE> 1
EXHIBIT 10(ff)
JOSEPH E. SEAGRAM & SONS, INC.
EXECUTIVE OFFICES
375 PARK AVENUE, NEW YORK, NEW YORK 10152
February 4, 1998
Robert W. Matschullat
46 Vineyard Lane
Greenwich, Connecticut 06830
Dear Bob:
This letter amends and restates our original letter agreement with you
dated July 31, 1995, under which you currently serve as Vice Chairman and Chief
Financial Officer of The Seagram Company Ltd. ("SCL") and of Joseph E. Seagram
& Sons, Inc. (the "Company").
1. Position and Duties. As Vice Chairman and Chief Financial Officer,
you will continue to have the duties, authority and responsibilities normally
associated with and appropriate for such positions, and will report directly
to the Chief Executive Officer and the Boards of SCL and the Company. In
addition, while you are employed hereunder, we will make our best efforts to
insure your election to, and retention as a member of, the Board of Directors
of SCL and the Board of Directors of the Company, and you agree to serve as an
officer and director of such additional subsidiaries or affiliated companies of
SCL or the Company as the Company may designate. Your principal office will be
located at the Company's headquarters in New York City. Except for reasonable
travel requirements associated with your position, you will be performing your
services hereunder in the New York City metropolitan area.
2. Base Salary. Your base salary ("Base Salary") will be payable at a
rate of $1,000,0000 per year, effective as of January 1, 1998. Your Base Salary
will be paid in equal periodic installments in accordance with the Company's
payroll policies applicable to its senior executives.
3. Bonus Plans. You will be eligible to receive an annual bonus award
for each fiscal year of the Company during the term of your employment
hereunder (the "Annual Bonus"). Your Annual Bonus will be payable pursuant to
either the Company Management Incentive Plan (the "MIP") or SCL's Senior
Executive Incentive Plan (the "STIP") and any successor plan thereto.
<PAGE> 2
2
(a) Your target Annual Bonus for the fiscal year ending June 30, 1998
shall be $2.25 million, and such target shall be adjusted for future fiscal
years, through June 30, 2002, as set forth below. The Annual Bonus earned by
you with respect to any fiscal year, if any, will be payable in the manner and
to the extent provided in the MIP or STIP, as applicable; provided that the
Annual Bonus will be based upon performance over a single fiscal year and will
be paid to you in cash when bonuses are normally paid to the Company's senior
executives, but, unless you otherwise elect, in no event later than 90 days
following the end of the applicable fiscal year.
(b) For the fiscal year commencing on July 1, 1998, your target Annual
Bonus shall equal $2.25 million plus the product of $3.25 million and the
percentage increase, if any, in the Consumer Price Index for all Urban
Consumers for the New York Metropolitan Area (or any successor Consumer Price
Index) (the "CPI") for the period January 1, 1998 through June 30, 1998.
(c) For each fiscal year commencing on or after July 1, 1999, but ending
on or before June 30, 2002, your target Annual Bonus shall equal your target
Annual Bonus for the prior fiscal year plus the product of (i) the sum of such
prior year's target Annual Bonus and $1 million and (ii) the increase in the
CPI for such prior fiscal year. For fiscal years ending after June 30, 2002,
your target Annual Bonus may not be reduced without your consent.
4. Option Grant. (a) In lieu of any other option grant during the period
commencing with the date hereof and ending June 30, 2002, you will be granted,
on February 9, 1998, (the "Grant Date") options to purchase 1.5 million common
shares, without nominal or par value, of SCL (the "Options"). The Options shall
be exercisable at a per share exercise price equal to "Fair Market Value" (as
defined in the SCL 1996 Stock Incentive Plan (the "Plan")) on the Grant Date
with respect to 1,000,000 shares, and 140% of Fair Market Value on the Grant
Date with respect to 500,000 shares. The Options shall vest at the rate of 20%
per year, commencing January 1, 1998 (so that the first 20% will become vested
on December 31, 1998) and shall be granted pursuant to the terms of the Plan.
(b) Unless earlier terminated pursuant to the terms of such Plan, the
Options shall expire ten years following the Grant Date. Notwithstanding the
foregoing, (i) if your employment hereunder is terminated at any time by the
Company without Cause (as defined in this Agreement), or by you for Good Reason
(as defined in this Agreement) the Options (as well as any stock options
previously awarded to you by the Company or SCL (the "Prior Options")) shall
vest and become immediately exercisable in full, and if such termination
qualifies as a Retirement (as defined below) you may continue to hold the
Options and the Prior Options as a retiree, subject to the terms of the Plan
and the 1992 Stock Incentive Plan (the "1992 Plan"), respectively,
<PAGE> 3
3
relating to cessation of employment by reason of retirement, and (ii) if your
employment hereunder terminates due to your death, Permanent Disability (as
defined in this Agreement) or Retirement (other than due to a termination of
employment described in (i) above) the Options (as well as the Prior Options)
shall vest and shall become exercisable in accordance with their original
vesting schedule. If your employment hereunder is terminated, on or after July
1, 2001, other than by reason of your death, a termination by the Company for
Cause or a termination by you without Good Reason prior to December 31, 2002,
your termination of employment shall be treated as a "Retirement", within the
meaning of the Plan and the 1992 Plan, for purposes of the Options and the
Prior Options.
(c) Except as expressly otherwise provided herein, the post-termination
exercise period of the Options shall be governed by the terms of the Plan (it
being agreed that a termination of your employment without Cause (as defined in
this Agreement) will be treated as a termination without "Cause" for purposes of
the Plan). In addition, in the event of your Retirement you will be deemed to
engage in competitive activity, for purposes of the Options and the Prior
Options (to the extent applicable), only if you engage directly or indirectly,
either personally or as an employee, agent, partner, shareholder, officer or
director of, or consultant to, any entity or person engaged in any business in
which the Company or any of its Affiliates (as defined in the Plan) is engaged
or is planning to be engaged at the time of your Retirement or if you divulge
trade secrets, methods, processes or other proprietary or confidential
information of the Company or any of its Affiliates. You may, with no less than
30 days advance written notice, request that SCL or the Company inform you in
advance whether a proposed activity will be deemed to be competitive activity,
and the Company will respond within 30 days. If it is not practicable to deliver
such advance notice, or if, as a result of changed circumstances beyond your
control, you may be deemed to be engaged in competitive activity, you may,
within 10 days after the commencement of a state of facts that may constitute
competitive activity, request, in writing, clarification from SCL or the Company
as to whether you are deemed to be engaged in competitive activity (and provide
sufficient detail to enable SCL or the Company to evaluate such activity), to
which SCL or the Company will respond within 30 days, and if you are found by
SCL or the Company to be engaged in competitive activity, you shall have an
additional 15 days after the response to exercise the Options and Prior Options
or cease such activity before any of the then outstanding Options or Prior
Options (to the extent applicable) are forfeited. It is further understood and
agreed that you shall not be deemed to have engaged in such competitive activity
solely as a result of (i) your ownership of less than 5 percent of the
outstanding capital stock of any company, or (ii) your position as a partner,
member, employee, consultant or shareholder of a leveraged buyout or merchant or
investment banking firm that purchases shares or other equity or debt securities
of a company, so long as you have
<PAGE> 4
4
no role in the decision to purchase or the subsequent operation of, such
company.
5. Benefit Plans and Arrangements. (a) While you are employed hereunder,
you will be entitled to participate, in a manner appropriate to your position
with the Company, in all benefit and compensation plans, programs and
arrangements generally applicable to the Company's senior executives (other than
any annual bonus plan, except as otherwise described in paragraph 3 hereof,
and, prior to June 30, 2002, any option plan, except as described in paragraph
4 hereof) and the Company will provide to you at the Company's expense a car
and driver and such other fringe benefits and perquisites (including vacation
entitlement) as are generally available to the Company's senior executives. You
will be afforded the same indemnity provisions regarding directors and officers
liability that the Company and SCL provide to their senior executive officers
and directors. In addition, you will be covered by any directors and officers
liability policy generally in force for SCL's and the Company's senior
executive officers and directors.
(b) Upon your retirement from the Company and SCL, you will be entitled
to receive a pension in accordance with the terms of the Company's pension,
retirement and similar plans, programs and arrangements then generally
applicable to senior executives of the Company, provided that for purposes of
all welfare benefit, medical, non-qualified employee benefit, incentive plans
and stock option plans of SCL and the Company in which you participate, if you
remain continuously employed by SCL and the Company through December 31, 2002,
you will be considered a retiree (to the extent not otherwise so treated under
such plans) with 15 years of service, and your pension will be reduced, if
applicable, for commencement of benefits prior to age 65 in accordance with and
to the extent provided under, the terms of any applicable pension plan; and
provided further that your annual pension payable hereunder (which you will be
eligible to receive regardless of your years of service with the Company or the
date of termination of your employment) will not be less than (A) $50,000
multiplied by (B) the number of years (or portions thereof) of your actual
(i.e. determined without regard to any additional service referred to in the
preceding proviso) service with the Company and its affiliates, minus (C) all
other pension payments you may receive under the SCL or Company defined benefit
of this paragraph 5(b)). The payments due to you under the last preceding
proviso to this paragraph 5(b) (pertaining to the $50,000 per year minimum
pension) will commence on your retirement at or after age 55 or, if you are
not then eligible for retirement, your attainment of age 60 and will not be
reduced, actuarially or otherwise.
6. Termination. (a) In the event your employment with the Company is
terminated by you without Good Reason or by the Company for Cause, you will
receive, as soon as practicable
<PAGE> 5
5
thereafter, a lump sum payment equal to the sum of (i) all Base Salary accrued
but unpaid through your date of termination and (ii) the unpaid portion, if
any, of any Annual Bonus or any other compensation otherwise payable hereunder
with respect to any completed Fiscal Year preceding your date of termination.
(b) In the event your employment with the Company is terminated by
you with Good Reason or by the Company without Cause, you will receive:
(i) a lump sum payment equal to the sum of all amounts specified in
paragraph 6(a);
(ii) a lump sum payment equal to two times your Base Salary, at the
annual rate in effect on your date of termination;
(iii) a lump sum payment equal to two times your target Annual Bonus
for the Fiscal Year in which your termination occurs;
(iv) continued coverage under the medical, dental and life insurance
aspects of our Senior Executive Benefit Program until the earlier
of (A) two years following your date of termination or (B) the
date on which you become eligible for medical, dental and life
insurance coverage with a subsequent employer; and
(v) full vesting of the Options held by you on your date of
termination.
(c) In the event your employment with the Company is terminated due
to your death or Permanent Disability, you will receive a lump sum payment equal
to the sum of (i) all amounts specified in paragraph 6(a), (ii) one year of Base
Salary, as in effect on the date of your termination and (iii) a prorated Annual
Bonus, based on the target Annual Bonus in effect on your date of termination,
and determined by multiplying such target Annual Bonus by a fraction the
numerator of which is the number of days elapsed, at the time of your death or
Permanent Disability, in the performance period on which the bonus is based and
the denominator of which is the total number of days in such performance period;
provided, however, that any Base Salary provided above shall be reduced by any
Base Salary continuation provided under any disability program maintained by SCL
or the Company to avoid duplication of benefits.
(d) For purposes of this Agreement, the following definitions will
apply:
"Cause" will mean (i) your conviction of a felony; (ii) any willful
misconduct by you which is materially injurious to SCL, the Company or
their affiliates or (iii) your willful
<PAGE> 6
6
and continuing refusal or failure to perform your duties and obligations
under this Agreement which is not corrected within 30 days following
written notice from the Company or SCL to you specifying such refusal or
failure. In no event shall your incompetence in the performance of your
duties hereunder or a bona fide disagreement over corporate policy be
deemed grounds for termination for Cause. In the case of (i) and (ii)
above, Cause shall include a conviction or misconduct which occurs prior to
your employment hereunder. In the event of termination for willful
misconduct described in (ii) above, you will receive five days advance
notice of termination of employment.
"Good Reason" will mean any material breach by SCL or the Company of its
obligations to you under this Agreement (including, without limitation, (i)
the refusal or failure of SCL or the Company to pay you the compensation
and/or benefits due under the Agreement, (ii) any diminution (without your
consent), other than an insignificant or incidental diminution, in your
duties, authority, responsibilities or reporting requirements (whether or
not accompanied by a change in title), (iii) the failure to elect you to
and continue your membership on the Board of Directors of SCL or the
Company) or (iv) relocation of your principal office outside of the New
York City metropolitan area) which is not corrected within 30 days
following written notice from you to the Company specifying such breach.
"Permanent Disability" will mean disability as defined in the Company's
Senior Executive Disability Salary Continuation Arrangement.
7. No Mitigation. You will not be required to mitigate any payments
due to you under this Agreement by seeking alternative employment, nor will any
payments from SCL or the Company be reduced by any amounts received in
connection with such alternative employment.
8. Legal Fees. The Company will reimburse you for (i) all
reasonable legal fees and disbursements incurred by you in connection with the
negotiation and preparation of this Agreement and (ii) all reasonable fees and
disbursements incurred by you in connection with any dispute over the
enforcement of your rights under this Agreement, but only if you prevail in
such dispute.
9. Confidentiality. You will not, without the prior consent of the
Company, divulge confidential information concerning the operations of the
Company or SCL during your employment hereunder or at any time thereafter.
<PAGE> 7
7
10. Withholding. The Company and SCL will be entitled to withhold from any
payment hereunder the amount of withholding required by law.
11. Governing Law. This Agreement will be construed, interpreted, and
governed in accordance with the laws of the State of New York, without
reference to rules relating to conflicts of law.
12. Counterparts. This Agreement may be signed in counterparts.
The Seagram Company Ltd. and
Joseph E. Seagram & Sons, Inc.
By: /s/ Edgar Bronfman, Jr.
__________________________
Edgar Bronfman, Jr.
Accepted and Agreed on this
5th day of February, 1998
/s/ Robert W. Matschullat
___________________________
Robert W. Matschullat
<PAGE> 1
EXHIBIT 10(jj)
[JOSEPH E. SEAGRAM & SONS, INC. LETTERHEAD]
PERSONAL AND CONFIDENTIAL April 27, 1995
Mr. John D. Borgia
41 Bayberry Lane
Westport, CT 06880
Dear John:
This letter will confirm our offer to you to join Seagram as Executive
Vice President--Human Resources of The Seagram Company Ltd. ("SCL") and of
Joseph E. Seagram & Sons, Inc., and to outline the proposed terms of employment
discussed. As agreed, you will commence employment on May 1, 1995.
1. Cash Compensation. Your initial annualized base salary will be $375,000
and your target annual management incentive award will be 65% of base salary
(i.e. $243,750), both appropriately prorated for partial years of service. In
addition, you will be eligible for participation in our Senior Executive
Long-Term Incentive Plan with a target award of $175,000. Awards from this Plan
are normally based on performance periods of three fiscal years, but we will
prorate your award for the performance periods ending January 31, 1996 and
1997. This award is based on a combination of factors including Company
performance and therefore is not guaranteed. Finally, in connection with your
joining Seagram, you will receive a one-time cash payment of $35,000 within 30
days after commencement of your employment.
2. Equity-based Awards. (a) We will recommend for approval to our Human
Resources Committee a one-time grant of 100,000 options pursuant to 1992 Stock
Incentive Plan at an exercise price equal to the fair market value of an SCL
common share on the date of grant. One-half these options will vest and become
exercisable immediately; the other half will become exercisable upon the
earlier of the first anniversary of the date of grant, your death, or your
disability, so long as you remain in Seagram's employ, and will terminate as
set forth below.
(b) You will also be eligible to participate in the 1992 Stock Incentive
Plan on an annual basis and your initial target number of options will be
27,500. Options are generally granted in March of each year at an exercise
price equal to fair market value on the date of grant, become exercisable after
one year, are cancelled at the end of
<PAGE> 2
Mr. John D. Borgia -2- April 27, 1995
a three-month period following cessation of employment for any reason other than
retirement, disability, death or termination for cause, and expire on the day
before the tenth anniversary of the date of grant. We will recommend for
approval to our Human Resources Committee a grant of 27,500 options as soon as
practicable after the date hereof.
(c) You will also receive a grant of restricted SCL stock units which will
replace restricted stock of your current employer that you will forfeit by
joining Seagram. This grant will occur as of May 1, 1995 and will equal the
number of SCL stock units obtained by dividing the product of 10,000 times the
fair market value of Bristol-Myers Squibb Company common stock by the fair
market value of SCL common stock on that date. The grant shall be subject to
substantially the same restrictions that apply to the restricted stock units
granted to you by Bristol-Myers.
3. Pension. You shall participate in Seagram's pension, retirement and
similar plans applicable to senior executives generally, provided that, upon
your retirement, the total yearly pension payable to you shall not be less than
the sum of $25,000 multiplied by the number of years (or portion thereof) of
your continuous service with Seagram up to the maximum benefit that would be
payable to you under the terms of Seagram's Qualified and Benefit Equalization
Plans or replacement plans at age 60.
4. Severance. In the event your employment is terminated by Seagram other
than for death, retirement or for cause (as defined below), but including your
request for termination during the first two years of your employment, if
Seagram shall consent, Seagram will, for a period of two years following your
termination of employment (a) pay you your Seagram annual base salary and (b)
continue the medical, dental and life insurance aspects of our Senior Executive
Benefits Program. In the event of termination under circumstances where the
Company is obligated to continue payments to you hereunder, you shall not be
required to seek other employment. For purposes of this paragraph, "cause"
shall mean willful malfeasance or gross negligence of a serious nature, willful
misappropriation of any funds or property of Seagram or conviction of a felony.
5. Other Benefits. You also will be eligible to participate in our Senior
Executive Compensation and Benefits Program of which the management incentive
award, long-term incentive plan and stock options summarized above are a part.
The terms of the plans in that Program govern those awards. The Program also
includes medical benefits; accident, life insurance and disability salary
continuation; flexible perquisites; matching contributions and related
benefits.
<PAGE> 3
Mr. John D. Borgia -3- April 27, 1995
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 our standard pre-employment
physical.
Should you have any questions, please do not hesitate to contact me.
Best regards,
Sincerely,
/s/ Daniel R. Paladino
------------------------
Daniel R. Paladino
Accepted and agreed to:
/s/ John D. Borgia
- -----------------------
John D. Borgia
4/28/95
<PAGE> 1
Exhibit 12(a)
The Seagram Company Ltd.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
(millions)
<TABLE>
<CAPTION>
Five-Month
Fiscal Fiscal Transition
Year Ended Year Ended Period Ended Fiscal Years Ended January 31,
Description June 30, 1998 June 30, 1997 June 30,1996 1996 1995 1994
----------- ------------- ------------- ------------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes and
minority interest(restated for
discontinued operations) $ 1,566 $ 788 $ 29 $ 287 $ 311 $ 365
Add (deduct):
Equity in net earnings of less than 50%
owned affiliates 3 (28) (4) (20) -- --
Dividends from less than 50% owned
affiliates 10 12 9 4 -- --
Fixed charges 385 351 166 380 387 330
Interest capitalized, net of amortization (2) (2) (4) (2) (1) --
------- ------- ------- ------- ------- --------
Earnings available for fixed charges $ 1,962 $ 1,121 $ 196 $ 649 $ 697 $ 695
======= ======= ======= ======= ======= ========
Fixed charges:
Interest expense $ 318 $ 285 $ 136 $ 338 $ 363 $ 307
Proportionate share of 50% owned
companies fixed charges 18 16 8 6 -- --
Portion of rent expense deemed to
represent interest factor 49 50 22 36 24 23
------- ------- ------- ------- ------- --------
Fixed charges $ 385 $ 351 $ 166 $ 380 $ 387 $ 330
======= ======= ======= ======= ======= ========
Ratio of earnings to fixed charges 5.10 3.19 1.18 1.71 1.80 2.11
======= ======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
Exhibit 12(b)
Joseph E. Seagram & Sons, Inc.
and Subsidiary Companies
Computation of Ratio of Earnings to Fixed Charges
(millions)
<TABLE>
<CAPTION>
Five-Month
Transition
Fiscal Fiscal Period Fiscal Years Ended January 31,
Year Ended Year Ended Ended ------------------------------
Description June 30, 1998 June 30, 1997 June 30, 1996 1996 1995 1994
----------- ------------- ------------- ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Earnings before income taxes and
minority interest (restated
for discontinued operations) $ 25 $ 134 ($ 33) $ 93 $ 182 $ 183
Add (deduct):
Fixed charges 174 164 66 156 173 160
Interest capitalized, net of amortization -- (1) -- -- (1) --
----- ----- ----- ----- ----- -----
Earnings available for fixed charges $ 199 $ 297 $ 33 $ 249 $ 354 $ 343
===== ===== ===== ===== ===== =====
Fixed charges:
Interest expense $ 162 $ 151 $ 61 $ 136 $ 153 $ 141
Portion of rent expense deemed to
represent interest factor 12 13 5 20 20 19
----- ----- ----- ----- ------- -----
Fixed charges $ 174 $ 164 $ 66 $ 156 $ 173 $ 160
===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges 1.14 1.81 - (a) 1.60 2.05 2.14
===== ===== ===== ===== ===== =====
</TABLE>
(a) Fixed charges exceeded earnings by $33 million for the Transition Period
ended June 30, 1996.
<PAGE> 1
26
Management's Discussion and Analysis
The Company has entered into several significant transactions during the last
two years, which have realigned the Company's assets and have impacted or will
impact the comparability of its financial statements.
SALE OF TROPICANA: On August 25, 1998, the Company completed the sale of
Tropicana Products, Inc. and the Company's global juice business ("Tropicana")
for cash proceeds of approximately $3.3 billion. As a result of this
transaction, the Company's Consolidated Financial Statements and Management's
Discussion and Analysis report the results of Tropicana as discontinued
operations for all periods presented.
ACQUISITION OF POLYGRAM: On June 22, 1998, the Company announced that it had
signed definitive agreements with Koninklijke Philips Electronics N.V.
("Philips") and PolyGram N.V. ("PolyGram") to acquire PolyGram in a transaction
valued at approximately $10.4 billion. The agreements call for the Company to
pay $8.4 billion in cash and to issue a maximum of approximately 47.9 million
common shares (12 percent of outstanding common shares after the transaction).
The acquisition, which is subject to the receipt of certain regulatory
approvals, is expected to close during the second quarter of the Company's
fiscal year ending June 30, 1999.
PURCHASE OF USA NETWORKS AND COMBINATION WITH USA NETWORKS, INC.: On October 21,
1997, Universal Studios, Inc. ("Universal") acquired Viacom Inc.'s 50 percent
interest in USA Networks, including the Sci-Fi Channel, 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"), formerly HSN, Inc., and contributed
its original 50 percent interest in USA Networks and the majority of its
television assets, including substantially all of its domestic operations and 50
percent of the international operations of USA Networks, to USAi for $1.3
billion in cash and a 45.8 percent equivalent equity interest in USAi. The
Company had a $222 million after-tax gain on the transaction.
SALE OF TIME WARNER SHARES: On February 5, 1998, the Company sold 15 million
shares of Time Warner Inc. ("Time Warner") for pretax proceeds of $958 million.
On May 27, 1998, the Company sold its remaining 11.8 million shares of Time
Warner common stock for pretax proceeds of $905 million. The aggregate after-tax
gain on the sale of the shares in 1998 was $602 million and after-tax net
proceeds were $1.5 billion. On May 28, 1997, the Company sold 30 million shares
of Time Warner common stock for pretax proceeds of $1.39 billion. The Company
had an after-tax gain of $100 million and after-tax net proceeds of $1.33
billion on the 1997 transaction.
SALE OF PUTNAM BERKLEY: On December 16, 1996, the Company completed the sale of
The Putnam Berkley Group, Inc. ("Putnam"), the book publishing division of
Universal, for $330 million in cash. The Company had a $64 million pretax gain
on the sale but no after-tax gain due to the write-off of goodwill allocated to
Putnam, which has no associated tax benefit.
SALE OF THE 156 MILLION DUPONT EQUITY WARRANTS: On July 24, 1996, the Company
sold its 156 million equity warrants of E.I. du Pont de Nemours and Company
("DuPont") to DuPont for $500 million in cash. The Company had an after-tax gain
of $39 million and after-tax net proceeds of $479 million.
Effective June 30, 1996, the Company changed its fiscal year-end from January 31
to June 30. The financial results for the twelve months ended June 30, 1997
represent the first full fiscal year on the new basis. The financial results for
the period from February 1, 1996 to June 30, 1996 (the "Transition Period") are
also included in this Report. Results for the Transition Period are not
necessarily indicative of operations for a full year.
For each fiscal period presented, the following analysis includes an overview of
revenues and operating income for the Company's two business segments, spirits
and wine and entertainment, and a more detailed discussion of the three lines of
business within entertainment -- filmed entertainment, music, and recreation and
other. This discussion will address attributed revenues and attributed earnings
before interest, taxes, depreciation and amortization ("EBITDA"). These amounts
include the Company's proportionate share of the revenues and EBITDA,
respectively, of its equity companies. The adjustment for equity companies
eliminates the proportionate share of the revenues or EBITDA of equity
companies, and reflects the equity income as reported under U.S. generally
accepted accounting principles.
The Company believes cash flow, as defined by EBITDA, is an appropriate measure
of the Company's operating performance, given the goodwill associated with the
Company's acquisitions. In addition, financial analysts generally consider
EBITDA to be an important measure of comparative operating performance. However,
EBITDA should be considered in addition to, not as a substitute for, operating
income, net income, cash flows and other measures of financial performance in
accordance with generally accepted accounting principles.
<PAGE> 2
27
The following detailed analysis of operations should be read in conjunction with
the Consolidated Financial Statements of the Company found on pages 39 to 62.
Earnings Summary
<TABLE>
<CAPTION>
Five Months
U.S. Dollars in Millions Twelve Months Ended June 30, Ended June 30,
Except Per Share Amounts 1998 1997 1996 1996 1995
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ATTRIBUTED REVENUES $ 11,196 $ 11,763 $ 11,294 $ 4,779 $ 2,270
REPORTED REVENUES 9,714 10,644 10,215 4,251 2,093
EBITDA 1,302 1,413 1,022 440 331
OPERATING INCOME
Spirits and Wine 465 677 338 182 207
Entertainment 163 242 174 1 32
Corporate (120) (138) (125) (55) (19)
-------- -------- -------- ------- -------
OPERATING INCOME 508 781 387 128 220
Interest, net and other (1,058) (7) 238 99 56
Provision (benefit) for income taxes 638 331 35 (33) 54
Minority interest charge (credit) 48 12 14 (5) 3
-------- -------- -------- ------- -------
Income from Continuing Operations $ 880 $ 445 $ 100 $ 67 $ 107
Income from discontinued Tropicana
operations, after tax 66 57 42 18 10
Discontinued DuPont activities -- -- -- -- 3,232
-------- -------- -------- ------- -------
NET INCOME $ 946 $ 502 $ 142 $ 85 $ 3,349
======== ======== ======== ======= =======
EARNINGS PER SHARE - BASIC
Income from continuing operations $ 2.51 $ 1.20 $ .26 $ .18 $ .29
Discontinued Tropicana operations, after tax .19 .16 .11 .05 .03
Discontinued DuPont activities, after tax -- -- -- -- 8.67
-------- -------- -------- ------- -------
NET INCOME $ 2.70 $ 1.36 $ .37 $ .23 $ 8.99
-------- -------- -------- ------- -------
EARNINGS PER SHARE - DILUTED
Income from continuing operations $ 2.49 $ 1.20 $ .26 $ .18 $ .29
Discontinued Tropicana operations, after tax .19 .15 .11 .05 .03
Discontinued DuPont activities, after tax -- -- -- -- 8.60
-------- -------- -------- ------- -------
NET INCOME $ 2.68 $ 1.35 $ .37 $ .23 $ 8.92
======== ======== ======== ======= =======
</TABLE>
Note: The Company's reported financial results for the five-month periods ended
June 30, 1996 and 1995 include six months of Universal (from January 1,1996 to
June 30, 1996) and one month of Universal (from the acquisition date of June 5,
1995 to June 30, 1995), respectively.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 1998 VS. FISCAL YEAR ENDED JUNE 30, 1997 The
Company's results in 1998 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. Reported revenues and attributed revenues of $9.7 billion and $11.2
billion, respectively, declined from $10.6 billion and $11.8 billion,
respectively, last year. Excluding the unfavorable impact of foreign exchange
and the contribution of Putnam from last year, reported revenues and attributed
revenues declined five percent and two percent year-on-year, respectively.
EBITDA was $1.3 billion compared with $1.4 billion last year. Excluding the
charge for Asia this year and the contribution of Putnam last year, EBITDA
decreased two percent. Spirits and wine EBITDA declined 20 percent, before the
charge for Asia. Entertainment EBITDA was 24 percent above last year, excluding
the contribution of Putnam.
Operating income was $508 million, after the charge for Asia, substantially
below the prior year which included a $64 million pretax gain on the sale of
Putnam. Excluding the charge for Asia this year and the contribution from Putnam
last year, operating income declined 18 percent year-on-year primarily
reflecting the decline in spirits and wine operations and higher depreciation
and amortization expense. The incremental depreciation and amortization
principally results from higher goodwill amortization from October to February
related to the acquisition of the remaining 50 percent of USA Networks.
Corporate expenses decreased from $138 million to $120 million largely due to
reduced expenses associated with the Company's ongoing reengineering programs.
<PAGE> 3
28
Interest, net and other in the fiscal year ended June 30, 1998 includes the
pretax gains on the USAi transaction ($360 million) and the sale of the
remaining Time Warner shares ($926 million). Net interest expense of $255
million is also partially offset by $27 million of dividend income from Time
Warner and DuPont. In the fiscal year ended June 30, 1997, net interest expense
of $247 million was offset by the pretax gains on the sales of the DuPont
warrants ($60 million) and Time Warner shares ($154 million), 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
the Company's purchase of the incremental 50 percent interest in USAi Networks
on October 21, 1997 and share repurchases pursuant to the Company's ongoing
share repurchase program, partially offset by the repayment of debt with the
proceeds from the USAi transaction and the sales of the Time Warner shares.
The underlying effective income tax rate for continuing operations (excluding
one-time items) for the fiscal year ended June 30, 1998 was 55 percent compared
with 38 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
income tax provision in fiscal 1998 also includes $138 million of taxes on the
gain on the USAi transaction, $324 million of taxes on the gain on the sale of
the remaining Time Warner shares and a $10 million benefit on the charge for
spirits and wine operations in Asia. The income tax provision in fiscal 1997
also included $21 million of taxes on the gain on the sale of the DuPont
warrants, $64 million of taxes on the gain on the sale of Putnam and $54 million
of taxes on the gain on the sale of Time Warner shares. The effective income tax
rate, including the one-time items, was 41 percent in fiscal 1998 compared with
42 percent in the prior year.
The minority interest charge in fiscal year 1998 includes $35 million associated
with the gain on the USAi transaction.
Income from continuing operations was $880 million or $2.51 per basic share and
$2.49 per share on a diluted basis in the fiscal year ended June 30, 1998,
compared with $445 million or $1.20 per share (basic and diluted) in the prior
fiscal year. Excluding the gain on the USAi transaction (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 the fiscal year ended June 30, 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).
Income from discontinued Tropicana operations, after tax, was $66 million or
$0.19 per share (basic and diluted) in the fiscal year ended June 30, 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. Reported revenues from discontinued
operations were $2.0 billion in the fiscal year ended June 30, 1998 and $1.9
billion in the prior fiscal year. Operating income was $169 million in the
fiscal year ended June 30, 1998 and $152 million in the prior fiscal year.
Results of discontinued operations include allocations of consolidated interest
expense totaling $39 million and $41 million in the fiscal years ended June 30,
1998 and 1997, respectively. The allocations were based on the ratio of net
assets of discontinued operations to consolidated net assets.
[REPORTED REVENUES BY BUSINESS SEGMENT CHART]
[EBITDA BY BUSINESS SEGMENT CHART]
<PAGE> 4
29
Net income including discontinued operations was $946 million or $2.70 per basic
share and $2.68 per diluted share in the fiscal year ended June 30, 1998,
compared with $502 million or $1.36 per basic share and $1.35 per diluted share
in the prior fiscal year.
Spirits and Wine
<TABLE>
<CAPTION>
Five Months
Twelve Months Ended June 30, Ended June 30,
U.S. Dollars in Millions 1998 1997 1996 1996 1995
- ------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Attributed Revenues $ 4,757 $ 5,249 $ 5,343 $ 2,007 $ 1,904
Adjustment for equity companies (87) (198) (240) (116) (112)
------- ------- ------- ------- -------
Reported Revenue* $ 4,670 $ 5,051 $ 5,103 $ 1,891 $ 1,792
======= ======= ======= ======= =======
EBITDA before charges 650 810 746 244 265
Charge for Asia (60) -- -- -- --
Reengineering charge -- -- (274) -- --
------- ------- ------- ------- -------
EBITDA 590 810 472 244 265
Adjustment for equity companies (6) (10) (10) (5) (3)
Depreciation and amortization (119) (123) (124) (57) (55)
------- ------- ------- ------- -------
Operating Income $ 465 $ 677 $ 338 $ 182 $ 207
======= ======= ======= ======= =======
</TABLE>
*Reported revenues include excise taxes of $754 million, $793 million, and $766
million in the twelve months ended June 30, 1998, 1997 and 1996, respectively
and $288 million and $311 million in the five month periods ended June 30, 1996
and 1995, respectively.
SPIRITS AND WINE
As a result of the sale of Tropicana, the results of The Seagram Beverage
Company, which were formerly included in the results of the Tropicana Beverage
Group, are now reported in the spirits and wine segment for all periods
presented. The Seagram Beverage Company produces and markets coolers, beers and
mixers in the United States. The results of The Seagram Beverage Company are not
material to the total spirits and wine segment.
Spirits and wine revenues were adversely affected by difficult market conditions
in Asia Pacific and the impact of unfavorable foreign exchange. Attributed
revenues declined nine percent to $4.8 billion, while reported revenues were
eight percent weaker than last year at $4.7 billion. Excluding the impact of
unfavorable foreign exchange, attributed and reported revenues would have
declined five percent and four percent, respectively, versus last year. EBITDA
decreased 20 percent, before the charge for Asia, to $650 million. Excluding the
impact of unfavorable foreign exchange, EBITDA would have decreased 10 percent.
EBITDA, before the charge, as a percent of attributed revenues declined from
15.4 percent to 13.7 percent reflecting the shortfall in the Asian market, where
predominantly higher margin products are sold.
Spirits and wine case volumes decreased one percent in fiscal year 1998 as the
performance of the Company's global brands was mixed. Volumes in North America
were strong, in particular for Crown Royal Canadian Whisky, for which shipments
grew
[SPIRITS AND WINE ATTRIBUTED REVENUES BY GEOGRAPHIC REGION PIE CHART]
[SPIRITS AND WINE BRAND SUPPORT PIE CHART]
<PAGE> 5
30
seven percent, and Captain Morgan Rum, for which volumes increased 22
percent. ABSOLUT VODKA, which the Company distributes in major international
markets, had a four percent increase in shipments. Shipments of several global
brands declined due to the market conditions in Asia, including Chivas Regal
Scotch Whisky, Martell Cognac and Royal Salute Scotch Whisky.
The $160 million EBITDA decrease, before the charge, is due to lower revenues
and margins in Asia and the impact of unfavorable foreign exchange. 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. EBITDA for the Americas
increased nine percent, driven by North America which had higher revenues and
margin increases due to improved mix and sustained price increases. EBITDA in
Latin America was essentially even with last year. EBITDA for Europe & Africa
declined one percent, but would have increased seven percent excluding the
impact of unfavorable foreign exchange. Key growth markets in Europe included
the U.K. and Spain.
In the fiscal year ended June 30, 1998, attributed revenues and EBITDA generated
in North America accounted for 42 percent and 60 percent of total attributed
revenues and EBITDA, respectively. Europe & Africa accounts for 34 percent of
spirits and wine attributed revenues and 28 percent of EBITDA. Reflecting the
difficult market conditions this year, Asia Pacific's contribution declined to
13 percent of the total attributed revenues and only one percent of EBITDA.
Latin America accounts for the remaining 11 percent of both attributed revenues
and EBITDA. (This geographic breakdown, which is used by management to measure
the performance of marketing affiliates, assigns sales to the region in which
the purchaser is located, includes the Company's proportionate share of the
revenues and EBITDA of equity company affiliates and is before one-time charges.
The geographic data contained in Note 14 of the Notes to the Consolidated
Financial Statements for the fiscal year ended June 30, 1998 include the
Company's other operations, and are based upon the location of the legal entity
which invoices the sale.)
Despite the revenue and EBITDA decline, the Company continued to invest for
future growth by supporting its brands in key markets. While total brand
spending declined 12 percent, or approximately three percent at constant
exchange rates, due to the volume shortfall, brand equity spending rose four
percent. The brand equity growth reflects an increased emphasis on the consumer
and is focused behind core strategic brands in North America, particularly Crown
Royal Canadian Whisky and ABSOLUT VODKA, and in Europe.
In the second quarter of the fiscal year ended June 30, 1998, the Company
recorded a $60 million charge related to its operations in Asia. 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. After giving effect to this charge, EBITDA was $590 million
compared with $810 million in the prior fiscal year.
Depreciation and amortization of assets was $96 million in fiscal year 1998 and
$101 million in fiscal year 1997. Amortization of goodwill was $23 million and
$22 million in the fiscal years 1998 and 1997, respectively. Spirits and wine
capital
[SPIRITS AND WINE EBITDA BY GEOGRAPHIC REGION - PIE CHARTS]
<PAGE> 6
31
expenditures were $170 million and $187 million in fiscal years 1998 and 1997,
respectively. Total assets were $5,015 million at June 30, 1998.
Entertainment
<TABLE>
<CAPTION>
Six Months
Five Months Ended
Twelve Months Ended June 30, Ended June 30, June 30,
U.S. Dollars in Millions 1998 1997 1996 1996 1995 1995
- ------------------------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Attributed Revenues
Filmed Entertainment $ 3,926 $ 3,917 $ 3,671 $ 1,740 $ 193 $ 1,556
Music 1,529 1,500 1,205 537 85 589
Recreation and Other 984 1,097 1,075 495 88 448
------- ------- ------- ------- ----- -------
Attributed Revenues $ 6,439 $ 6,514 $ 5,951 $ 2,772 $ 366 $ 2,593
Gain on sale of Putnam -- 64 -- -- -- --
Adjustment for equity companies (1,395) (985) (839) (412) (65) (372)
------- ------- ------- ------- ----- -------
REPORTED REVENUES $ 5,044 $ 5,593 $ 5,112 $ 2,360 $ 301 $ 2,221
======= ======= ======= ======= ===== =======
EBITDA
Filmed Entertainment $ 463 $ 373 $ 379 $ 176 $ 37 $ 89
Music 90 72 24 (24) 11 75
Recreation and Other 159 158 147 44 18 75
------- ------- ------- ------- ----- -------
EBITDA 712 603 550 196 66 $ 239
=======
Gain on sale of Putnam -- 64 -- -- --
Adjustment for equity companies (178) (97) (92) (47) (11)
Depreciation and amortization (371) (328) (284) (148) (23)
------- ------- ------- ------- -----
OPERATING INCOME $ 163 $ 242 $ 174 $ 1 $ 32
======= ======= ======= ======= =====
</TABLE>
Note: The Company's reported financial results for the five-month periods ended
June 30, 1996 and 1995 include six months of Universal (from January 1, 1996 to
June 30, 1996) and one month of Universal (from the acquisition date of June 5,
1995 to June 30, 1995), respectively. Universal's results for the six months
ended June 30, 1995 are provided for comparative purposes.
ENTERTAINMENT
In the fiscal year ended June 30, 1998, Universal contributed $5.0 billion to
reported revenues, 10 percent less than the $5.6 billion contributed in the
prior fiscal year. Operating income declined to $163 million compared with $242
million in fiscal year 1997, which included the $64 million gain on the sale of
Putnam. Excluding the operating contribution of Putnam and the gain on the sale
in the prior fiscal year, reported revenues decreased six percent, while
operating income increased four percent.
Filmed Entertainment In fiscal year 1998, attributed revenues were essentially
even with the prior year, while reported revenues decreased twelve percent. As a
result of the USA Networks and USAi transactions, fiscal year 1998 attributed
revenues and EBITDA include 50 percent of USA Networks from July 1, 1997 to
October 21, 1997, 100 percent of USA Networks from October 22, 1997 to February
11, 1998 and the Company's 45.8 percent equivalent share of the earnings of USAi
thereafter. Reported revenues declined, in spite of even attributed revenues,
because of a higher equity company adjustment related to the Company's
investment in USAi this year versus USA Networks last year. The motion picture
group revenues, which accounted for approximately half of the $3.9 billion of
attributed revenues, declined substantially due to the disappointing box office
performance of releases in fiscal year 1998, including A Simple Wish, Primary
Colors and Mercury Rising.
EBITDA increased 24 percent to $463 million. EBITDA as a percent of attributed
revenues increased from 9.5 percent to 11.8 percent. EBITDA benefited from the
USA Networks and USAi transactions as well as the strong performance of the USA
cable networks, which had higher advertising and affiliate revenues. Motion
picture group EBITDA declined due to the box office performance of current
releases, which more than offset higher library sales and profitability.
<PAGE> 7
32
ENTERTAINMENT CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
Five Months
Ended
Twelve Months Ended June 30, June 30,
U.S. Dollars in Millions 1998 1997 1996 1996
- ------------------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Filmed Entertainment $ 94 $ 44 $ 52 $ 33
Music 31 47 37 24
Recreation and Other 115 115 180 79
---- ---- ---- ----
$240 $206 $269 $136
==== ==== ==== ====
</TABLE>
Note: Capital expenditures for the five-month period ended June 30, 1996 include
six months of Universal (from January 1, 1996 to June 30, 1996).
Music In fiscal year 1998, both attributed and reported revenues increased
two percent. Major albums in release in 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 Company has also developed local artists including Rosana in Spain,
Claudinho and Buchecha in Brazil and Molotov in Mexico.
Music EBITDA increased 25 percent to $90 million. EBITDA as a percent of
attributed revenues rose from 4.8 percent to 5.9 percent reflecting a better mix
of releases on wholly-owned labels.
Recreation and Other Attributed revenues for recreation and other declined 10
percent while reported revenues declined 15 percent. EBITDA was essentially even
at $159 million. The comparison is impacted by the sale of Putnam during fiscal
year 1997. Excluding the contribution of Putnam from the prior fiscal year,
attributed revenues rose four percent, reported revenues increased three percent
and EBITDA was 21 percent higher.
The EBITDA growth is primarily due to stronger results at Universal Studios
Florida and improved contribution from new media ventures reflecting the success
of the Crash Bandicoot 2 video game. At Universal Studios Florida, a 50
percent-owned joint venture, per capita spending rose three percent, largely due
to an increase in the price of admission. Paid attendance declined two percent.
However, total turnstile attendance rose nine percent, driven by a promotion for
second-day-free admission. The promotion resulted in higher revenues and margins
at the theme park. 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 which benefited from
the opening of Jurassic Park - The Ride in June 1996.
Spencer Gifts continued its strong performance during the fiscal year due to new
store openings and a slight increase in comparable store sales. The Universal
Studios New Media Group had strong video game sales, principally Crash Bandicoot
2, and reduced losses from the Company's equity investment in Interplay
Productions.
[UNIVERSAL ATTRIBUTED REVENUES BY BUSINESS SEGMENT PIE CHARTS]
<PAGE> 8
33
FISCAL YEAR ENDED JUNE 30, 1997 VS. COMPARABLE PERIOD ENDED JUNE 30, 1996
Reported revenues and attributed revenues of $10.6 billion and $11.8 billion,
respectively, increased from $10.2 billion and $11.3 billion, respectively, in
the prior period. Excluding the contribution of Putnam which was sold in
December 1996, reported revenues and attributed revenues both increased five
percent year-on-year. EBITDA was $1.4 billion compared with $1.0 billion in the
prior period. Excluding the contribution of Putnam and a $274 million pretax
reengineering charge for spirits and wine operations in the prior period, EBITDA
increased 10 percent. Spirits and wine EBITDA, excluding the reengineering
charge in the prior period, was nine percent higher. Entertainment EBITDA was 13
percent above the prior period, excluding the contribution of Putnam.
Operating income, including a $64 million pretax gain on the sale of Putnam, was
$781 million, up substantially from the prior year which included the $274
million pretax reengineering charge for spirits and wine operations. Excluding
the contribution of Putnam from both years and the reengineering charge last
year, operating income rose nine percent year-on-year reflecting the growth in
operations which was partially offset by higher depreciation and amortization
and higher corporate expenses. The incremental depreciation and amortization
principally resulted from higher goodwill amortization related to the
Brillstein-Grey Entertainment, Interscope Records and Multimedia Entertainment
acquisitions. The increase in corporate expenses to $138 million is largely due
to the increase in the market value of the Company's shares during the fiscal
year ended June 30, 1997 which resulted in the recognition of additional
expenses associated with stock-based compensation.
Interest, net and other in the fiscal year ended June 30, 1997 was net of the
pretax gains on the sales of the DuPont warrants ($60 million) and Time Warner
shares ($154 million). Net interest expense of $247 million was also partially
offset by $40 million of dividend income from Time Warner and DuPont. In the
twelve months ended June 30, 1996, net interest expense of $277 million was
partially offset by $39 million of dividend income.
The underlying effective income tax rate for continuing operations (excluding
one-time items) for the fiscal year ended June 30, 1997 was 38 percent compared
with 41 percent in the comparable prior period. The income tax provision in
fiscal 1997 also included $21 million of taxes on the gain on the sale of the
DuPont warrants, $64 million of taxes on the gain on the sale of Putnam and $54
million of taxes on the gain on the sale of Time Warner shares. In the
comparable prior period, the income tax provision included a $73 million benefit
on the reengineering charge and a $67 million benefit related to a settlement
with the U.S. government regarding the recognition of a capital loss on the
Company's 1981 exchange of shares of Conoco Inc. for common stock of DuPont.
Income from continuing operations was $445 million or $1.20 per share (basic and
diluted) in the fiscal year ended June 30, 1997, compared with $100 million or
$0.26 per share (basic and diluted) in the comparable prior period. Excluding
the after-tax gains on the sales of the DuPont warrants and Time Warner shares,
income from continuing operations in fiscal year 1997 was $306 million or $0.82
per share (basic and diluted). In the comparable prior period, excluding the
reengineering charge and the benefit associated with the tax settlement, income
from continuing operations was $234 million or $0.63 per basic share and $0.61
on a diluted basis.
[PIE CHART]
<PAGE> 9
34
Income from discontinued Tropicana operations, after tax, was $57 million or
$0.16 per basic share and $0.15 per diluted share in the fiscal year ended June
30, 1997, compared with $42 million or $0.11 per share (basic and diluted) in
the comparable prior period. Reported revenues from discontinued operations were
$1.9 billion in the fiscal year ended June 30, 1997 and $1.8 billion in the
comparable prior period. Operating income was $152 million in the fiscal year
ended June 30, 1997 and $120 million in the comparable prior period. Results of
discontinued operations include allocations of consolidated interest expense
totaling $41 million and $38 million in the twelve months ended June 30, 1997
and 1996, respectively. The allocations were based on the ratio of net assets of
discontinued operations to consolidated net assets.
Net income including discontinued operations was $502 million or $1.36 per basic
share and $1.35 per diluted share in the fiscal year ended June 30, 1997,
compared with $142 million or $0.37 per share (basic and diluted) in the
comparable prior period.
SPIRITS AND WINE
Attributed revenues declined two percent to $5.2 billion, while reported
revenues were one percent weaker than the comparable prior period at $5.05
billion. Excluding the impact of unfavorable foreign exchange, revenues would
have been essentially even with the comparable prior period. Spirits and wine
case volumes decreased two percent in fiscal year 1997 as the performance of the
Company's global brands was mixed. EBITDA increased nine percent to $810 million
from $746 million before the reengineering charge, driven largely by strong
North American performance. The foreign exchange impact on EBITDA was
negligible.
The $64 million EBITDA increase, before the reengineering charge in the prior
period, reflected significant growth in the Americas and was driven by strong
volumes in North America and improvement in key Latin American markets. EBITDA
for Europe & Africa declined seven percent primarily due to the difficult
conditions in the German and Italian markets. In Asia Pacific, EBITDA declined
five percent.
ENTERTAINMENT
In the fiscal year ended June 30, 1997, Universal contributed $5.6 billion to
reported revenues, up nine percent from the $5.1 billion contributed in the
comparable prior period. Operating income, including the $64 million gain on the
sale of Putnam, rose 39 percent to $242 million in fiscal year 1997. Excluding
the operating contribution of Putnam and the gain on the sale, reported revenues
and operating income increased 12 percent and four percent, respectively.
Filmed Entertainment In fiscal year 1997, attributed revenues increased seven
percent and reported revenues increased six percent. EBITDA declined slightly to
$373 million. The motion picture group's EBITDA was down, despite the successful
theatrical release of The Nutty Professor, Liar Liar and The Lost World:
Jurassic Park, due to several disappointing releases and a one-time charge
associated with the termination of The Bubble Factory production deal. The
EBITDA of USA Networks (50 percent-owned at June 30, 1997) and the television
group were essentially even with the prior comparable period.
Music Attributed revenues and reported revenues increased 24 percent and 22
percent, respectively. The results reflect a considerably improved chart
position. Major albums in release in 1997 included those by No Doubt, Bush,
BLACKstreet, The Wallflowers, Counting Crows and Nirvana. Music EBITDA tripled
to $72 million.
Recreation and Other Attributed revenues for recreation and other increased two
percent while reported revenues decreased three percent. EBITDA increased seven
percent to $158 million. Excluding the contribution of Putnam from both periods,
attributed revenues rose over 20 percent, reported revenues increased 18 percent
and EBITDA climbed 22 percent. The recreation group's strong growth was driven
by the successful opening of two new attractions: Jurassic Park - The Ride at
Universal Studios Hollywood in June 1996, and Terminator 2: 3-D at Universal
Studios Florida, its 50 percent-owned joint venture, in May 1996. Attendance and
per capita spending rose at both theme parks.
TRANSITION PERIOD VS. COMPARABLE PERIOD ENDED JUNE 30, 1995 Revenues were
significantly higher than the comparable prior period reflecting the timing of
the closing of the Universal acquisition in June 1995. EBITDA increased 33
percent to $440 million in the Transition Period. Entertainment EBITDA was $196
million compared with $66 million in the prior period, which represented one
month of Universal results. Operating income declined to $128 million in the
Transition Period reflecting a substantial increase in the depreciation and
amortization expense associated with the Universal acquisition.
<PAGE> 10
35
Interest, net and other in the Transition Period was $99 million, $43 million
higher than in the five months ended June 30, 1995. The prior period was net of
$76 million of interest income largely earned from the temporary investment of
the full proceeds from the DuPont redemption from April 1995 until the funding
of the Universal acquisition in June 1995.
The income tax provision in the Transition Period included the $67 million
benefit related to a settlement with the U.S. government regarding the 1981
exchange of shares of Conoco Inc. for common stock of DuPont. Excluding this tax
benefit, the effective income tax rate of 117 percent was significantly higher
than the prior period rate of 33 percent because of the non-deductibility of the
goodwill amortization associated with the Universal acquisition and lower
taxable earnings.
Income from continuing operations was $67 million or $0.18 per share (basic and
diluted) in the Transition Period. Excluding the $67 million benefit associated
with the tax settlement, income from continuing operations was breakeven. In the
five months ended June 30, 1995, income from continuing operations was $107
million or $0.29 per share (basic and diluted).
Income from discontinued Tropicana operations, after tax, was $18 million or
$0.05 per share (basic and diluted) in the Transition Period, compared with $10
million or $0.03 per share (basic and diluted) in the five months ended June 30,
1995. Reported revenues from discontinued operations were $762 million in the
Transition Period and $622 million in the five months ended June 30, 1995
comparable prior period. Operating income was $51 million in the Transition
Period and $36 million in the five months ended June 30, 1995. Results of
discontinued operations include allocations of consolidated interest expense
totaling $15 million and $17 million in the five months ended June 30, 1996 and
1995, respectively. The allocations were based on the ratio of net assets of
discontinued operations to consolidated net assets.
Due to the redemption of most of the Company's DuPont shares on April 6, 1995,
the Company discontinued accounting for its investment in DuPont under the
equity method effective February 1, 1995. Earnings related to the DuPont
investment are presented as discontinued activities in the prior period and
include a $3.2 billion after-tax gain on the redemption of the 156 million
shares and $68 million of after-tax dividend income earned on such shares prior
to the redemption transaction.
Net income including discontinued operations was $85 million or $0.23 per share
(basic and diluted) in the Transition Period compared with $3.3 billion or $8.99
per basic share and $8.92 per diluted share for the five-month period ended June
30, 1995.
SPIRITS AND WINE
In the Transition Period, spirits and wine attributed revenues grew five percent
to $2.0 billion and reported revenues increased six percent to $1.9 billion
largely driven by improvement in Europe. In the Transition Period, EBITDA
decreased eight percent to $244 million primarily reflecting a decline in North
America, which more than offset improvement in Europe & Africa and a substantial
recovery in several Latin American affiliates. Asia Pacific's results were
essentially unchanged. Spirits and wine case volumes rose almost four percent in
the Transition Period, as most of the Company's key premium brands grew.
ENTERTAINMENT
In the Transition Period, which includes Universal results from January 1, 1996
to June 30, 1996, Universal contributed $2.4 billion to reported revenues and $1
million to operating income, after significant amortization and depreciation
expense. In the period ended June 30, 1995, the Company's results included one
month of Universal from the acquisition date of June 5, 1995 until June 30,
1995. During that time, Universal had reported revenues of $301 million and
operating income of $32 million. In order to provide a basis of comparison, the
discussion that follows is based upon Universal results for the six months ended
June 30, 1996 compared with the results for the six months ended June 30, 1995.
Filmed Entertainment In the six-month period ended June 30, 1996, attributed
revenues and reported revenues each rose 12 percent and EBITDA almost doubled to
$176 million versus the prior period. The motion picture group was driven by
higher worldwide profits from prior year releases, particularly Babe and Casper.
The television group had improved results mainly because of the cancellation of
several series which were in a deficit position. EBITDA of USA Networks (50
percent-owned at June 30, 1996) was essentially even with the prior period.
Music In the six-month period ended June 30, 1996, attributed and reported
revenues each declined nine percent, while EBITDA was a loss of $24 million
compared to income of $75 million in the comparable prior period. Lower revenues
and EBITDA reflect difficult comparisons with the prior period as the six months
ended June 30, 1995 included significant carryover business from the very strong
fourth quarter of 1994. EBITDA was affected by a substantial investment program
in 1996, which
<PAGE> 11
36
included increased spending for international expansion and investment in new
artists and label ventures including Universal Records and Rising
Tide/Nashville, and the acquisition of a 50 percent interest in Interscope
Records.
Recreation and Other Attributed revenues increased 10 percent and reported
revenues increased eight percent during the six-month period ended June 30, 1996
but EBITDA declined from $75 million to $44 million. Attendance and per capita
spending at both theme parks were higher in the period ended June 30, 1996 than
the prior period. This is due in part to the successful openings of Terminator
2: 3-D at Universal Studios Florida, the Company's 50 percent-owned joint
venture, in May 1996 and Jurassic Park - The Ride at Universal Studios Hollywood
in June 1996. Recreation EBITDA was down substantially due largely to higher
marketing spending and the timing of that spending in advance of the new
attractions which opened comparatively late in the period.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK
The Company's financial position strengthened during the fiscal year ended June
30, 1998. Total current assets increased to $7.0 billion at June 30, 1998 from
$6.1 billion at June 30, 1997. The increase is primarily due to additional cash
and short-term investments of $684 million resulting from the proceeds received
from the USAi transaction and the sale of the remaining Time Warner shares,
offset in part by the use of funds for share repurchases. Current liabilities of
$4.7 billion at June 30, 1998 were $1.6 billion higher than at June 30, 1997
largely due to an increase in short-term borrowings to fund the $1.7 billion
acquisition of the incremental 50 percent share of USA Networks. Shareholders'
equity was $9.3 billion at June 30, 1998 compared to $9.4 billion at June 30,
1997. The Company's total long- and short-term debt, net of cash and short-term
investments, increased to $2.7 billion at June 30, 1998 from $2.2 billion at
June 30, 1997. The Company's ratio of net debt to total capitalization
(including minority interest) increased from 16 percent to 19 percent,
reflecting the higher debt outstanding.
In the fiscal year ended June 30, 1998, operating activities used cash of $241
million, following net cash provided of $664 million in the fiscal year ended
June 30, 1997. The increased cash requirements in the 1998 fiscal year reflect
reduced income from continuing operations (excluding the gains on the USAi
transaction and the Time Warner share sales) and higher working capital
requirements. The net cash used for operating activities is partially offset by
significant non-cash charges such as depreciation and amortization of assets and
amortization of excess of cost over fair value of assets.
Net cash provided by investing activities was $699 million in fiscal year 1998.
The net cash provided includes gross proceeds from the USAi transaction ($1.3
billion) and the sales of 26.8 million Time Warner shares ($1.9 billion). These
cash proceeds were partially offset by the acquisition of the incremental 50
percent interest in USA Networks ($1.7 billion) and capital expenditures of $410
million: spirits and wine - $170 million and entertainment - $240 million. In
addition, $386 million of cash was used for sundry investments including
investments in Doosan Seagram Co., Ltd., the Company's spirits and wine
affiliate in Korea, Port Aventura, a theme park located in Spain, and Loews
Cineplex Entertainment Corporation. In fiscal year 1997, net cash provided by
investing activities was $1.7 billion and included gross proceeds from the sale
of 30 million Time Warner shares ($1.39 billion), the sale of the DuPont
warrants ($500 million) and the sale of Putnam ($330 million). These cash
proceeds were partially offset by capital expenditures of $393 million: spirits
and wine - $187 million and entertainment - $206 million.
In the fiscal year ended June 30, 1998, the Company made dividend payments of
$231 million and used $753 million to repurchase its common shares. Financing
activities reflect an increase in short-term borrowings of $1.1 billion used to
finance the acquisition of the incremental 50 percent interest in USA Networks.
The net result of the cash used for operating activities and the cash provided
by investing activities and financing activities, was net cash provided by
continuing operations of $617 million. In the fiscal year ended June 30, 1998,
the discontinued Tropicana operations provided cash of $67 million resulting in
an aggregate increase of $684 million in cash and short-term investments. In the
fiscal year ended June 30, 1997, continuing operations provided net cash of $197
million and discontinued Tropicana operations provided net cash of $16 million,
reflected as a $213 million increase in cash and short-term investments.
The Company has entered into an arrangement to sell to a third party
substantially all films produced or acquired during the term of the agreement
for amounts which approximate cost. The Company will serve as sole distributor
and earn a distribution fee, which is variable and contingent upon the films'
performance. In addition, the Company has the option to purchase the films at
certain future dates.
The Company's working capital position is reinforced by available credit
facilities of $3.0 billion. These facilities are used to support the Company's
commercial paper borrowings and are available for general corporate purposes.
The acquisition of PolyGram will be partially financed through the sale of
Tropicana, the after-tax proceeds of which
<PAGE> 12
37
are expected to be approximately $3 billion. The Company expects to obtain the
remaining funds for the acquisition from commercial bank borrowings, the
issuance of commercial paper and/or the sale of debt securities, the terms of
which have yet to be determined. The Company believes its 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.
The Company is exposed to changes in financial market conditions in the normal
course of its business operations due to its operations in different foreign
currencies and its ongoing investing and funding activities. Market risk is the
uncertainty to which future earnings or asset/liability values are exposed due
to operating cash flows denominated in foreign currencies and various financial
instruments used in the normal course of operations. The Company has established
policies, procedures and internal processes governing its management of market
risks and the use of financial instruments to manage its exposure to such risks.
The Company is exposed to changes in interest rates primarily as a result of its
borrowing and investing activities which include short-term investments and
borrowings and long-term debt used to maintain liquidity and fund its business
operations. The Company continues to utilize U.S. dollar-denominated commercial
paper to fund seasonal working capital requirements in the U.S. and Canada. The
Company also borrows in different currencies from other sources to meet the
borrowing needs of its affiliates. The nature and amount of the Company's
long-term and short-term debt can be expected to vary as a result of future
business requirements, market conditions and other factors.
The Company's operating cash flows denominated in foreign currency as a result
of its international business activities and certain of its borrowings are
exposed to changes in foreign exchange rates. The Company continually evaluates
its foreign currency exposure (primarily British pound, French franc, German
mark and Swiss franc), based on current market conditions and the business
environment. In order to mitigate the effect of foreign currency risk, the
Company engages in hedging activities. The magnitude and nature of such hedging
activities are explained further in Note 10 to the financial statements.
The Company employs a variance/covariance approach in its calculation of Value
at Risk (VaR), which measures the potential losses in fair value or earnings
that could arise from changes in market conditions, using a 95 percent
confidence level and assuming a one-day holding period. The VaR, which is the
potential loss in fair value, attributable to those interest rate sensitive
exposures associated with the Company's exposure to interest rates at June 30,
1998 and the average VaR for the year then ended was $11 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 the Company's exposure to
foreign exchange rates, primarily to hedge cash flow exposures denominated in
foreign currencies, was $12 million at June 30, 1998 and the average VaR for the
year then ended was $5 million. These exposures include intercompany trade
accounts, service fees, intercompany loans, third party debt and firm
commitments related to the acquisition of PolyGram. The Company is subject to
other foreign exchange market risk exposure as a result of non-financial
instrument anticipated foreign currency cash flows which are difficult to
reasonably predict, and have therefore not been included in the Company's VaR
calculation.
[GRAPH]
<PAGE> 13
38
YEAR 2000 ISSUE
The Company has a comprehensive program to address Year 2000 readiness in its
internal systems and with its customers and suppliers. The Company's program
addresses its most critical internal systems first and targets to have them Year
2000 compliant by July 1, 1999, the first day of the Company's fiscal year 2000.
These activities are intended to encompass all major categories of information
technology and non-information technology systems in use by the Company,
including manufacturing, sales, finance and human resources. The costs incurred
to date related to these programs have not been material. The Company currently
estimates that the total cost of its Year 2000 readiness programs, excluding
redeployed resources, will not exceed $50 million. The total cost estimate does
not include potential costs related to any customer or other claims or the costs
of internal software or hardware replaced in the normal course of business. The
total cost estimate is based on the current assessment of the Company's Year
2000 readiness needs and is subject to change as the program progresses.
The Company is communicating with its major customers, suppliers and financial
institutions to determine the extent to which the Company is vulnerable to those
third parties failure to remedy their own Year 2000 issues. While some of the
Company's major suppliers and customers contacted have confirmed that they
anticipate being Year 2000 compliant on or before December 31, 1999, most of the
customers, suppliers and financial institutions contacted have only indicated
that they have Year 2000 readiness programs.
The Company currently expects that the Year 2000 issue will not pose significant
operational problems. However, delays in the implementation of new systems, a
failure to fully identify all Year 2000 dependencies in the Company's systems
and in the systems of its suppliers, customers and financial institutions, or a
failure of such third parties to adequately address their respective Year 2000
issues could have a material adverse effect on the Company's business, financial
condition and results of operations. Therefore, the Company's Year 2000 Program
includes the development of contingency plans for continuing operations in the
event such problems arise. However, there can be no assurance that such
contingency plans will be sufficient to handle all problems which may arise.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
The statements in this Annual Report relating to matters that are not historical
facts are forward-looking statements that are not guarantees of future
performance and involve risks and uncertainties, including but not limited to
future global economic conditions, foreign exchange rates, the actions of
competitors and other factors beyond the control of the Company including, in
the case of the Year 2000 issue, the actions of customers, suppliers and
financial institutions.
QUARTERLY HIGH AND LOW SHARE PRICES
<TABLE>
<CAPTION>
Five Month Period Fiscal Year Ended
Fiscal Years Ended June 30, Ended June 30, January 31,
1998 1997 1996 1996
High Low High Low High Low High Low
---------------------------- ---------------------- --------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York Stock Exchange
First Quarter US$ 41 1/8 US$33 15/16 US$ 38 3/8 US$ 30 7/8 US$ 38 3/8 US$31 3/4 US$ 32 3/8 US$ 25 5/8
Second Quarter 37 5/8 30 1/4 41 7/8 35 1/4 36 3/8 32 1/2 36 3/4 26 3/4
Third Quarter 39 3/4 31 7/16 42 3/4 38 38 1/8 34 1/4
Fourth Quarter 46 11/16 36 13/16 41 7/8 35 3/4 39 1/2 34 1/4
Canadian Stock Exchange
First Quarter C$ 56.70 C$46.45 C$ 52 1/4 C$ 42 1/4 C$ 52 1/2 C$43 1/8 C$ 45 1/4 C$ 35 1/2
Second Quarter 52.30 43.25 57 2/5 47 1/2 49 3/4 44 2/5 50 36 1/4
Third Quarter 56.50 44.70 57 3/10 51 9/10 52 46 1/4
Fourth Quarter 67.50 52.65 58 1/10 50 53 1/4 46 7/8
</TABLE>
RETURN TO SHAREHOLDERS
The Company had 7,167 registered shareholders at August 15, 1998. The Company's
common shares are listed on the New York, Toronto, Montreal, Vancouver and
London Stock Exchanges. Closing prices at June 30, 1998, on the New York and
Toronto Stock Exchanges were $40.94 and C$59.95, respectively.
In the fiscal year ended June 30, 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. In the Transition Period and the year ended January
31, 1996, dividends paid were $0.15 per share per quarter. Dividends paid to
shareholders totaled $231 million and $239 million in fiscal years 1998 and
1997, respectively, $112 million in the Transition Period and $224 million in
the year ended January 31, 1996.
<PAGE> 14
39
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Transition Period Fiscal Year
Fiscal Years Ended Ended Ended
June 30, June 30, January 31,
U.S. Dollars in Millions, Except Per Share Amounts 1998 1997 1996 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 9,714 $ 10,644 $ 4,251 $ 8,052
Cost of revenues 5,630 6,369 2,671 4,865
Selling, general and administrative expenses 3,576 3,494 1,452 2,705
-------- -------- -------- --------
Operating income 508 781 128 482
Interest, net and other (1,058) (7) 99 195
-------- -------- -------- --------
1,566 788 29 287
Provision (benefit) for income taxes 638 331 (33) 121
Minority interest charge (credit) 48 12 (5) 22
-------- -------- -------- --------
Income from continuing operations 880 445 67 144
-------- -------- -------- --------
Income from discontinued Tropicana operations, after tax 66 57 18 30
-------- -------- -------- --------
Discontinued DuPont activities:
Dividends, after tax -- -- -- 68
Gain on redemption of 156 million shares, after tax -- -- -- 3,164
-------- -------- -------- --------
-- -- -- 3,232
-------- -------- -------- --------
Net Income $ 946 $ 502 $ 85 $ 3,406
======== ======== ======== ========
Earnings per share - basic
Income from continuing operations $ 2.51 $ 1.20 $ .18 $ .38
Discontinued Tropicana operations, after tax .19 .16 .05 .08
Discontinued DuPont activities, after tax -- -- -- 8.67
-------- -------- -------- --------
Net Income $ 2.70 $ 1.36 $ .23 $ 9.13
======== ======== ======== ========
Earnings per share - diluted
Income from continuing operations $ 2.49 $ 1.20 $ .18 $ .38
Discontinued Tropicana operations, after tax .19 .15 .05 .08
Discontinued DuPont activities, after tax -- -- -- 8.54
-------- -------- -------- --------
Net Income $ 2.68 $ 1.35 $ .23 $ 9.00
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 15
40
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, June 30,
U.S. Dollars in Millions 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and short-term investments at cost $ 1,174 $ 490
Receivables, net 2,155 1,781
Inventories 2,555 2,584
Film costs, net of amortization 175 387
Deferred income taxes 282 512
Prepaid expenses and other current assets 630 377
-------- --------
TOTAL CURRENT ASSETS 6,971 6,131
-------- --------
Common stock of DuPont 1,228 1,034
Common stock of USAi 306 -
Common stock of Time Warner - 1,291
Film costs, net of amortization 1,272 991
Artists' contracts, advances and other entertainment assets 761 645
Property, plant and equipment, net 2,733 2,559
Investments in unconsolidated companies 3,437 2,097
Excess of cost over fair value of assets acquired 3,076 3,355
Deferred charges and other assets 661 610
Net assets of discontinued Tropicana operations 1,734 1,734
-------- --------
$ 22,179 $ 20,447
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings and indebtedness payable within one year $ 1,653 $ 239
Accrued royalties and participations 702 726
Payables and accrued liabilities 2,068 1,818
Income and other taxes 286 304
-------- --------
TOTAL CURRENT LIABILITIES 4,709 3,087
-------- --------
Long-term indebtedness 2,225 2,478
Accrued royalties and participations 421 339
Deferred income taxes 2,598 2,426
Other credits 995 844
Minority interest 1,915 1,851
Shareholders' Equity
Shares without par value 848 809
Cumulative currency translation adjustments (499) (427)
Cumulative gain on equity securities, after tax 699 781
Retained earnings 8,268 8,259
-------- --------
TOTAL SHAREHOLDERS' EQUITY 9,316 9,422
-------- --------
$ 22,179 $ 20,447
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Approved by the Board
/s/ Edgar M. Bronfman /s/ C.E. Medland
Edgar M. Bronfman C.E. Medland
Director Director
<PAGE> 16
41
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Transition Fiscal Year
Fiscal Years Ended Period Ended Ended
June 30, June 30, January 31,
U.S. Dollars in Millions 1998 1997 1996 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations $ 880 $ 445 $ 67 $ 144
Adjustments to reconcile income from continuing operations
to net cash provided:
Depreciation and amortization of assets 289 290 134 201
Amortization of excess of cost over fair value of assets acquired 208 165 73 86
Gain on sale of Time Warner shares, DuPont warrants and Putnam,
before tax (926) (278) -- --
Gain on USAi transaction, before tax (360) -- -- --
Minority interest charged (credited) to income 48 12 (5) 22
Sundry (49) 128 -- 11
Changes in assets and liabilities:
Receivables, net (324) (238) 540 (145)
Inventories 14 6 (65) (130)
Film costs, net of amortization (246) (306) (102) (42)
Prepaid expenses and other current assets (278) (59) (60) (30)
Artists' contracts, advances and other entertainment assets (88) (2) 1 66
Payables and accrued liabilities (53) 357 (248) 115
Income and other taxes payable 46 156 56 (106)
Deferred income taxes 447 (53) (4) 26
Other credits 151 41 (72) 4
------- ------- ------- -------
(1,121) 219 248 78
------- ------- ------- -------
Net cash (used for) provided by operating activities (241) 664 315 222
------- ------- ------- -------
INVESTING ACTIVITIES
Capital expenditures (410) (393) (245) (349)
Proceeds from sale of Time Warner shares, DuPont warrants and Putnam 1,863 2,217 -- --
Acquisition of 50% interest in USA Networks (1,700) -- -- --
Proceeds from USAi transaction 1,332 -- -- --
Investment in Interscope Records -- -- (200) --
Investment in Brillstein-Grey Entertainment -- -- (81) --
Discontinued DuPont activities:
Dividends, net of taxes paid -- -- -- 68
Proceeds from redemption of shares, net of taxes paid -- -- -- 7,729
Purchase of 80 percent interest in Universal -- -- -- (5,523)
Sundry (386) (116) (65) (14)
------- ------- ------- -------
Net cash provided by (used for) investing activities 699 1,708 (591) 1,911
------- ------- ------- -------
FINANCING ACTIVITIES
Dividends paid (231) (239) (112) (224)
Issuance of shares upon exercise of stock options and
conversion of LYONs 86 107 20 72
Shares purchased and retired (753) (416) (68) (18)
Increase in long-term indebtedness 41 3 36 214
Decrease in long-term indebtedness (37) (29) (341) (251)
Increase (decrease) in short-term borrowings and
indebtedness payable within one year 1,053 (1,601) 914 (1,595)
------- ------- ------- -------
Net cash provided by (used for) financing activities 159 (2,175) 449 (1,802)
------- ------- ------- -------
Net cash provided by continuing operations 617 197 173 331
------- ------- ------- -------
Net cash provided by (used for) discontinued Tropicana operations 67 16 (126) (249)
------- ------- ------- -------
NET INCREASE IN CASH AND SHORT-TERM INVESTMENTS $ 684 $ 213 $ 47 $ 82
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 17
42
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Shares Without Cumulative Cumulative
Par Value Currency Gain (Loss)
Number Translation on Equity Retained
U.S. Dollars in Millions, Except Per Share Amounts (Thousands) Amount Adjustments Securities Earnings
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JANUARY 31, 1995 372,537 $ 638 $(359) $ (85) $ 5,315
Fiscal year ended January 31, 1996
Net income 3,406
Dividends paid ($.60 per share) (224)
Change in currency translation adjustments 91
Change in market value of equity
securities, net of $265 tax 492
Shares issued - exercise of stock options 2,056 57
- conversion of LYONs 550 15
Shares purchased and retired (681) (1) (17)
------- ----- ----- ----- -------
JANUARY 31, 1996 374,462 709 (268) 407 8,480
Transition Period ended June 30, 1996
Net income 85
Dividends paid ($.30 per share) (112)
Change in currency translation adjustments 22
Change in market value of equity
securities, net of $38 tax benefit (70)
Shares issued - exercise of stock options 612 18
- conversion of LYONs 57 2
Shares purchased and retired (2,072) (4) (64)
------- ----- ----- ----- -------
JUNE 30, 1996 373,059 725 (246) 337 8,389
Fiscal year ended June 30, 1997
Net income 502
Dividends paid ($.645 per share) (239)
Change in currency translation adjustments (181)
Change in market value of equity
securities, net of $239 tax 444
Shares issued - exercise of stock options 3,243 98
- conversion of LYONs 296 9
Shares purchased and retired (11,317) (23) (393)
------- ----- ----- ----- -------
JUNE 30, 1997 365,281 809 (427) 781 8,259
Fiscal year ended June 30, 1998
Net income 946
Dividends paid ($.66 per share) (231)
Change in currency translation adjustments (72)
Change in market value of equity securities,
net of $44 tax benefit (82)
Shares issued - exercise of stock options 2,751 84
- conversion of LYONs 48 2
Shares purchased and retired (20,948) (47) (706)
------- ----- ----- ----- -------
JUNE 30, 1998 347,132 $ 848 $(499) $ 699 $ 8,268
======= ===== ===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 18
43
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE SEAGRAM COMPANY LTD. operates in two global business segments: spirits and
wine and entertainment. The spirits and wine businesses are engaged principally
in the production and marketing of distilled spirits, wines, coolers, beers and
mixers. The entertainment company, Universal Studios, Inc. ("Universal"),
produces and distributes motion picture, television and home video products and
recorded music; and operates theme parks and retail stores.
More than 50 percent of the Company's shares are held by U.S. residents and,
therefore, the Company has prepared its consolidated financial statements in
accordance with U.S. generally accepted accounting principles (GAAP) which, in
their application to the Company, conform in all material respects to Canadian
GAAP. Differences between U.S. and Canadian GAAP and the magnitude thereof are
discussed in Note 19. Should a material difference arise in the future,
financial statements will be provided under both U.S. and Canadian GAAP.
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the
accounts of The Seagram Company Ltd. and its subsidiaries. The equity method is
used to account for unconsolidated affiliates owned 20 percent or more. In
conformity with GAAP, management has made estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses. Actual
results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION Except for operations in highly inflationary
economies, affiliates outside the U.S. operating in the spirits and wine segment
use the local currency as the functional currency. For affiliates in countries
considered to have a highly inflationary economy, inventories and property,
plant and equipment are translated at historical exchange rates and translation
effects are included in net income. Affiliates outside the U.S. operating in the
entertainment segment principally use the U.S. dollar as the functional
currency.
INVENTORIES Inventories are stated at cost, which is not in excess of market,
and consist principally of spirits and wines. The cost of spirits and wines
inventories is determined by either the last-in, first-out (LIFO) method or the
identified cost method. The cost of music, retail and home video inventories is
determined by the first-in, first-out (FIFO) method.
In accordance with industry practice, current assets include spirits and wines
which, in the Company's normal business cycle, are aged for varying periods of
years.
REVENUES AND COSTS
Film Generally, theatrical films are first distributed in the worldwide
theatrical and home video markets. Subsequently, theatrical films are made
available for worldwide pay television, network exhibition, television
syndication and basic cable television. Generally, television films from the
Company's library are licensed for domestic and foreign syndication, cable or
pay television and home video.
Revenues from the theatrical distribution of films are recognized as the films
are exhibited. Revenues from television and pay television licensing agreements
are recognized when the films are available for telecast. Revenues from the sale
of home video product, net of provision for estimated returns and allowances,
are recognized upon availability of product for retail sale.
Generally, the estimated ultimate costs of completed theatrical and television
film productions (including applicable capitalized overhead) are amortized and
participation expenses are accrued for each production in the proportion of
revenue recognized by the Company during the year to the total estimated future
revenue to be received from all sources, under the individual film forecast
method. Estimated ultimate revenues and costs are reviewed quarterly and
revisions to amortization rates or write-downs to net realizable value may
occur.
Film costs, net of amortization, classified as current assets include the
portion of unamortized costs of completed theatrical films allocated to
theatrical, home video and pay television distribution markets. The allocated
portion of released film costs expected to be realized from secondary markets or
other exploitation is reported as a noncurrent asset. Other costs relating to
film production, including the purchase price of literary properties and related
film development costs, and the film library are classified as noncurrent
assets. Generally, abandoned story and development costs are charged to film
production overhead. Film costs are stated at the lower of unamortized cost or
estimated net realizable value as periodically determined on a film-by-film
basis. Approximately $300 million of the cost of the Universal acquisition was
allocated to the film library and is being amortized on a straight-line basis
principally over a 20-year life.
<PAGE> 19
44
Recorded Music Revenues from the sale of recorded music, net of provision for
estimated returns and allowances, are recognized upon shipment. 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 recouped from
royalties to be earned. Approximately $400 million of the cost of the Universal
acquisition was allocated to artists' contracts, music catalogs and copyrights
and is being amortized, on an accelerated basis, over a 14- to 20-year life.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost.
Depreciation is determined for financial reporting purposes using the
straight-line method over estimated useful asset lives, generally at annual
rates of 2-10 percent for buildings, 4-33 percent for machinery and equipment
and 2-20 percent for other assets.
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED AND OTHER INTANGIBLE ASSETS
The unallocated excess of cost of purchased businesses over the fair value of
assets acquired, the excess of investments in unconsolidated companies over the
underlying equity in tangible net assets acquired and other intangible assets
are being amortized on a straight-line basis over various periods from six to 40
years from the date of acquisition. The Company reviews the carrying value of
goodwill for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. Measurement of any impairment
would include a comparison of discounted estimated future operating cash flows
anticipated to be generated during the remaining amortization period of the
goodwill to the net carrying value of goodwill.
INCOME TAXES Deferred tax assets and liabilities are recognized based on
differences between the financial statement and tax bases of assets and
liabilities using presently enacted tax rates. Deferred taxes are not provided
for that portion of undistributed earnings of foreign subsidiaries which is
considered to be permanently reinvested.
BENEFIT PLANS Retirement pensions are provided for substantially all of the
Company's employees through either defined benefit or defined contribution plans
sponsored by the Company or unions representing employees. For Company-sponsored
defined benefit plans, pension expense and plan contributions are determined by
independent consulting actuaries; pension benefits under defined benefit plans
generally are based on years of service and compensation levels near the end of
employee service. The funding policy for tax-qualified pension plans is
consistent with statutory funding requirements and regulations. Contributions to
defined contribution plans are funded and expensed currently. Postretirement
health care and life insurance are provided to a majority of nonunion employees
in the U.S. Postemployment programs, principally severance, are provided for the
majority of nonunion employees. The cost of these programs is accrued based on
actuarial studies. There is no advance funding for postretirement or
postemployment benefits.
STOCK-BASED COMPENSATION Compensation cost attributable to stock option and
similar plans is recognized based on the difference, if any, between the quoted
market price of the 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.
FINANCIAL INSTRUMENTS The Company occasionally 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
through currency forwards and options which offset the exposure being hedged.
Gains and losses on forward contracts are deferred and offset against foreign
exchange gains and losses on the underlying hedged transaction. Gains and losses
on forward contracts used to hedge foreign debt and intercompany payments are
recorded in the income statement in selling, general and administrative
expenses.
COMPREHENSIVE INCOME The Company will adopt FAS 130, Reporting Comprehensive
Income, in its fiscal year beginning July 1, 1998. The consolidated statement of
shareholders' equity will be expanded to include all components of comprehensive
income required to be disclosed in accordance with FAS 130.
START-UP COSTS The Accounting Standards Executive Committee recently issued 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. Initial
adoption of this SOP should be reported as a cumulative effect of a change in
accounting principle. The Company is still evaluating the impact of adopting
this pronouncement.
RECLASSIFICATIONS Certain prior period amounts in the financial statements and
notes have been reclassified to conform with the current year presentation.
<PAGE> 20
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DISCONTINUED TROPICANA OPERATIONS
Discontinued Tropicana operations is composed of the business of Tropicana
Products, Inc. and the Company's global fruit juice business ("Tropicana").
Tropicana produces, markets and distributes Tropicana, Dole* and other branded
fruit juices and juice beverages. On August 25, 1998, the Company completed the
sale of Tropicana for approximately $3.3 billion in cash. Proceeds from the sale
will be used to partially fund the acquisition of PolyGram N.V. ("PolyGram")
described in Note 2, currently scheduled to close during the second quarter of
the Company's fiscal year ending June 30, 1999.
Commencing in June 1998, the Company, together with its subsidiaries and
affiliates, began transferring to Tropicana Products, Inc. all shares of
subsidiaries and other assets and liabilities of the Company's juice business
that had not previously been owned by Tropicana Products, Inc. Certain assets
relating to the business of Tropicana which, in the aggregate, are not material
to Tropicana's business continue to be held by the Company or its affiliates
after the closing date, pending receipt of consents or approvals or satisfaction
of other applicable requirements necessary for the transfer of such assets.
Summarized below is the Tropicana financial information:
<TABLE>
<CAPTION>
Transition Fiscal Year
Fiscal Years Ended Period Ended Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $1,986 $1,916 $ 762 $1,695
Cost of revenues 1,394 1,314 515 1,257
Selling, general and administrative expenses 423 450 196 336
---------------------------------------------------
Operating income 169 152 51 102
Interest expense 39 41 15 40
Provision for income taxes 64 54 18 32
---------------------------------------------------
Income from discontinued operations $ 66 $ 57 $ 18 $ 30
======================================================================================================
</TABLE>
Interest expense above represents allocations based on the ratio of net assets
of discontinued operations to consolidated net assets.
<TABLE>
<CAPTION>
June 30,
Millions 1998 1997
- ------------------------------------------------------------
<S> <C> <C>
Current assets $ 546 $ 588
Noncurrent assets 1,622 1,551
-------------------
$2,168 $2,139
===================
Current liabilities $ 322 $ 285
Noncurrent liabilities 112 120
Shareholders' equity 1,734 1,734
-------------------
$2,168 $2,139
============================================================
</TABLE>
On May 19, 1995, Tropicana acquired the worldwide juice and juice beverage
business of Dole Food Company, Inc. ("Dole") for $276 million. The transaction
excluded Dole's canned pineapple juice business. The reported operating results
for the fiscal year ended January 31, 1996 reflect the results of operations of
the acquired business from the acquisition date. The acquisition has been
accounted for under the purchase method of accounting and is included in
discontinued Tropicana operations presented in the consolidated results of the
Company. The cost of the acquisition has been allocated on the basis of the
estimated fair market value of the assets acquired and liabilities assumed. This
valuation resulted in $134 million of unallocated excess cost over fair value of
assets acquired which is being amortized over 40 years.
*The Dole brand name is licensed from Dole.
<PAGE> 21
46
NOTE 2 ACQUISITION OF POLYGRAM
On June 22, 1998, the Company announced that it had signed definitive agreements
with Koninklijke Philips Electronics N.V. ("Philips") and PolyGram to acquire
PolyGram in a transaction valued at approximately $10.4 billion. The Company has
agreed to make a tender offer for all issued shares, including Philips' 75
percent interest in PolyGram and publicly-held shares, for NLG115, or
approximately U.S. $57 per share in cash or, at the shareholders' election, for
a mixture of cash and the Company's common shares, based on an exchange ratio of
1.3772 Company shares for each PolyGram share. The agreements relating to this
proposed transaction call for the Company to issue a maximum of approximately
47.9 million common shares (12 percent of the common shares outstanding after
the transaction), or $2 billion in value. Philips has agreed to tender all its
PolyGram shares into the Company's tender offer, acquire as many of the
Company's shares as may be available to it in the tender offer (taking into
account the election by the public shareholders), and hold its shares of the
Company for no less than two years.
The PolyGram transaction, which is subject to the receipt of certain regulatory
approvals, is expected to close during the second quarter of the Company's
fiscal year ending June 30, 1999.
NOTE 3 PURCHASE OF USA NETWORKS AND COMBINATION WITH USA NETWORKS, INC.
("USAI"), FORMERLY HSN, INC.
On September 22, 1997, the Company and Viacom Inc. ("Viacom") announced their
agreement to resolve all litigation regarding jointly-owned USA Networks. Under
the terms of the agreement, Universal, on October 21, 1997, acquired Viacom's
50% interest in USA Networks, including the Sci-Fi Channel, for $1.7 billion in
cash. 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 valuation
resulted in $1.6 billion of unallocated excess of cost over fair value of assets
acquired which was being amortized over 40 years.
The minority shareholder in Universal Studios Holding I Corp. ("Universal
Holding"), Matsushita Electric Industrial Co., Ltd. ("Matsushita"), declined to
contribute the additional capital required to fund its proportionate share of
this acquisition. As a result, the Company's ownership of Universal Holding has
increased from 80 percent to approximately 84 percent.
On February 12, 1998, Universal sold its acquired 50% interest in USA Networks
to USAi and contributed its original 50% interest in USA Networks and the
majority of its television assets, including substantially all of its domestic
operations and 50% of the international operations of USA Networks, to USANi LLC
(the "LLC") in a transaction ("USAi transaction") in which Universal received
$1,332 million in cash, 13.5 million shares of USAi (after giving effect to the
2 for 1 split of USAi stock on March 26, 1998) consisting of 7.1 million shares
of USAi common stock and 6.4 million shares of USAi Class B common stock which
in aggregate represented a 10.7% interest in USAi at the transaction date, and a
45.8% interest (118,633,171 shares at June 30, 1998) in the LLC (a subsidiary of
USAi) which is exchangeable for USAi common stock and Class B common stock.
Universal recognized a gain of $360 million ($222 million after tax) on the
transaction, included in Interest, net and other on the consolidated statement
of income and retained earnings. The transaction resulted in $82 million of
unallocated excess cost over fair value of assets acquired which is being
amortized over 40 years.
The investment in the 7.1 million shares of USAi common stock held by Universal
at June 30, 1998 is accounted for at market value ($178 million at June 30,
1998) and has an underlying historical cost of $142 million. The investment in
the 6.4 million shares of Class B common stock of USAi is carried at its
historical cost of $128 million.
The investment in the LLC is included in Investments in unconsolidated companies
on the consolidated balance sheet and is accounted for under the equity method.
The unaudited condensed pro forma results of operations data presented below
assume that both the purchase of the acquired 50% interest in USA Networks and
the USAi transaction occurred at the beginning of each period presented. These
pro forma results of operations were prepared based upon the historical
consolidated statements of operations of the Company and the pro forma results
of operations of USAi for the fiscal years ended June 30, 1998 and 1997,
adjusted to reflect purchase accounting. The unaudited pro forma information is
not necessarily indicative of the results of operations of the Company that
would have occurred if the transactions had been in effect since the assumed
dates, nor is it necessarily indicative of future operating results of the
Company.
<PAGE> 22
47
PRO FORMA INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Years Ended
June 30,
(Millions, Except Per Share Amounts) 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 9,351 $10,330
-------------------------
Income from continuing operations $ 874 $ 427
Income from discontinued Tropicana operations 66 57
-------------------------
Net income $ 940 $ 484
=========================
Earnings per share - basic:
Income from continuing operations $ 2.50 $ 1.16
Income from discontinued Tropicana operations 0.19 0.15
-------------------------
Net income $ 2.69 $ 1.31
=========================
Earnings per share - diluted:
Income from continuing operations $ 2.47 $ 1.14
Income from discontinued Tropicana operations 0.19 0.15
-------------------------
Net income $ 2.66 $ 1.29
=============================================================================
</TABLE>
NOTE 4 TIME WARNER INC. ("TIME WARNER") INVESTMENT
On February 5, 1998, the Company sold 15 million shares of Time Warner common
stock for pretax proceeds of $958 million. On May 27, 1998, the Company sold its
remaining 11.8 million shares of Time Warner common stock for pretax proceeds of
$905 million. The aggregate gain on the sale of the shares, included in
interest, net and other on the consolidated statement of income, was $926
million ($602 million after tax).
On May 28, 1997, the Company sold 30 million shares of Time Warner common stock
for pretax proceeds of $1.39 billion. The gain on the sale of the shares,
included in interest, net and other in the fiscal year ended June 30, 1997, was
$154 million ($100 million after tax) in accordance with the specific
identification method.
NOTE 5 DUPONT SHARE REDEMPTION AND REMAINING DUPONT INVESTMENT
On April 6, 1995, E.I. du Pont de Nemours and Company ("DuPont") redeemed 156
million shares of its common stock owned by the Company for $8.336 billion plus
share purchase warrants which the Company valued as of the date of the
transaction at $440 million. The Company received after-tax proceeds of
approximately $7.7 billion from the transaction. The $3.2 billion gain on the
transaction was net of a $2 billion tax provision of which $1.5 billion was
deferred. The Company has retained 16.4 million shares of DuPont common stock,
post-split (on June 12, 1997, DuPont common stock was split two-for-one), which
were carried at their market value of $1.23 billion at June 30, 1998. The
underlying historical value of the remaining DuPont shares is $187 million which
represents the historical cost of the retained shares plus unremitted earnings
related to those shares.
The warrants were sold to DuPont for $500 million on July 24, 1996. The gain on
the sale of the warrants was $60 million ($39 million after tax) and is
reflected in interest, net and other in the fiscal year ended June 30, 1997.
NOTE 6 ACQUISITION OF INTEREST IN UNIVERSAL HOLDING
On June 5, 1995, the Company completed its purchase of an 80 percent interest in
Universal Holding, the indirect parent of Universal, from Matsushita for $5.7
billion. Matsushita retained a 20 percent interest in Universal Holding.
During the fiscal year ended June 30, 1998, Matsushita's ownership of Universal
Holding was diluted to approximately 16 percent as described in Note 3.
The acquisition has been accounted for under the purchase method of accounting.
The cost of the acquisition has been allocated on the basis of the estimated
fair market value of the assets acquired and liabilities assumed. This valuation
resulted in $2.6 billion of unallocated excess of cost over fair value of assets
acquired which is being amortized over 40 years.
<PAGE> 23
48
The unaudited condensed pro forma income statement data which follows assumes
the Universal Holding acquisition and the redemption of 156 million shares of
DuPont common stock occurred at the beginning of the period presented. The
unaudited condensed pro forma income statement data were prepared based upon the
historical consolidated income statement of the Company for the fiscal year
ended January 31, 1996, and of Universal Holding for the five months ended May
31, 1995, adjusted to reflect purchase accounting. Financial results for
Universal Holding for the seven-month period June 1995 through December 1995
were included in the Company's results for the fiscal year ended January 31,
1996. The unaudited pro forma information is not necessarily indicative of the
combined results of operations of the Company and Universal Holding that would
have resulted if the transactions had occurred on the dates previously
indicated, nor is it necessarily indicative of future operating results of the
Company.
PRO FORMA INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Fiscal Year Ended
January 31,
Millions, Except Per Share Amounts (Unaudited) 1996
- ----------------------------------------------------------------
<S> <C>
Revenues $ 9,972
---------
Income from continuing operations $ 124
Discontinued Tropicana operations 30
---------
Net income $ 154
=========
BASIC EARNINGS PER SHARE
Income from continuing operations $ .33
Discontinued Tropicana operations .08
---------
Net income $ .41
=========
DILUTED EARNINGS PER SHARE
Income from continuing operations $ .33
Discontinued Tropicana operations .08
---------
Net income $ .41
================================================================
</TABLE>
The above pro forma presentation excludes the $3.2 billion after-tax gain on the
redemption of the DuPont shares.
NOTE 7 SALE OF PUBLISHING GROUP
On December 16, 1996, the Company completed the sale of its book publishing
unit, The Putnam Berkley Group, Inc. ("Putnam"). Proceeds from the sale were
$330 million, resulting in a $64 million pretax gain on the disposition. There
was no after-tax gain or loss due to the write-off of non-tax-deductible
goodwill associated with Putnam. The operating results of Putnam through
December 16, 1996 are included in operating income.
NOTE 8 INVESTMENTS IN UNCONSOLIDATED COMPANIES
The Company has a number of investments in unconsolidated companies which are 50
percent or less owned or controlled and are carried in the consolidated balance
sheet on the equity method.
Entertainment Segment Significant investments at June 30, 1998 include USANi
LLC, primarily engaged in electronic retailing, 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 (45.8% equity interest); Loews Cineplex Entertainment Corporation,
primarily engaged in theatrical exhibition of motion pictures in the U.S. and
Canada (26 percent owned); United International Pictures, a distributor of
theatrical product outside the U.S. and Canada (33 percent owned); Cinema
International BV, primarily engaged in marketing of home video product outside
the U.S. and Canada (49 percent owned);
<PAGE> 24
49
Cinema International Corporation and United Cinemas International, both engaged
in theatrical exhibition of motion pictures in territories outside the U.S. and
Canada (49 percent owned); Brillstein-Grey Entertainment (49.5 percent owned)
which owns 50 percent of Brillstein-Grey Communications, a producer of network
television series; Universal City Florida Partners, which owns Universal Studios
Florida, a motion picture and television theme tourist attraction and production
facility in Orlando, Florida (50 percent owned); Universal City Development
Partners, which has begun development on land adjacent to Universal Studios
Florida of an additional themed tourist attraction, Universal Studios Islands of
Adventure, and commercial real estate (50 percent owned); USJ Co., Ltd., which
has begun development of a motion picture themed tourist attraction, Universal
Studios Japan, and commercial real estate in Osaka, Japan (24 percent owned);
Port Aventura, a theme park located in Spain (37 percent owned); SEGA GameWorks,
which designs, develops and operates location-based entertainment centers (27
percent owned); and Interplay Productions, an entertainment software developer
(30 percent owned).
SPIRITS AND WINE SEGMENT Significant investments at June 30, 1998 include
Seagram (Thailand) Limited, an importer and distributor of spirits and wines (49
percent owned) and Kirin-Seagram Limited, engaged in the manufacture, sale and
distribution of distilled beverage alcohol and wines in Japan (50 percent
owned).
Summarized financial information, derived from unaudited historical financial
information, is presented below for the Company's investments in unconsolidated
companies.
SUMMARIZED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
June 30, June 30,
Millions 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 1,651 $ 1,402
Noncurrent assets 10,415 2,569
--------------------
Total assets $ 12,066 $ 3,971
====================
Current liabilities $ 1,718 $ 1,186
Noncurrent liabilities 3,738 1,427
Equity 6,610 1,358
--------------------
Total liabilities and equity $ 12,066 $ 3,971
====================
Proportionate share of net assets
of unconsolidated companies $ 2,884 $ 627
===================================================================================================================
</TABLE>
Approximately $700 million (1997 - $1.5 billion) of the cost of the Universal
Holding acquisition was allocated to the investment in unconsolidated companies
and is being amortized on a straight-line basis over 40 years.
SUMMARIZED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Transition Fiscal Year
Fiscal Years Ended Period Ended Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $4,561 $4,782 $2,134 $2,730
Earnings before interest and taxes 366 351 191 208
Net income 173 229 130 132
============================================================================================
</TABLE>
The Company's operating income includes $130 million, $124 million, $58 million
and $69 million in equity in the earnings of unconsolidated companies for the
fiscal years ended June 30, 1998 and 1997, the Transition Period ended June 30,
1996, and the fiscal year ended January 31, 1996, respectively, principally in
the entertainment segment.
<PAGE> 25
50
NOTE 9 LONG-TERM INDEBTEDNESS AND CREDIT ARRANGEMENTS
LONG-TERM INDEBTEDNESS
<TABLE>
<CAPTION>
June 30, June 30,
Millions 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9% Debentures due December 15, 1998 (C$200 million)* $ 156 $ 156
Unsecured term bank loans, due 1998 to 1999, with a
weighted average interest rate of 4.81% 155 190
6.5% Debentures due April 1, 2003 200 200
8.35% Debentures due November 15, 2006 200 200
8-3/8% Guaranteed Debentures due February 15, 2007 200 200
7% Guaranteed Debentures due April 15, 2008 200 200
8-7/8% Guaranteed Debentures due September 15, 2011 223 223
9.65% Guaranteed Debentures due August 15, 2018 249 249
9% Guaranteed Debentures due August 15, 2021 198 198
8.35% Debentures due January 15, 2022 199 199
6.875% Debentures due September 1, 2023 200 200
6% Swiss Franc Bonds due September 30, 2085 (SF 250 million) 164 171
Sundry 167 131
-------------------
2,511 2,517
Indebtedness payable within one year (286) (39)
-------------------
$ 2,225 $ 2,478
===================================================================================================================
</TABLE>
*All principal and interest payments for these 9% Debentures were converted at
issuance through a series of currency exchange contracts from Canadian dollars
to U.S. dollars with an effective interest rate of 7.7%.
The Company's unused lines of credit totaled $3.0 billion and have varying terms
of up to five years. At June 30, 1998, short-term borrowings comprised $1,367
million of bank borrowings bearing interest at market rates.
Interest expense on long-term indebtedness was $226 million and $218 million in
the fiscal years ended June 30, 1998 and 1997, respectively, $96 million in the
Transition Period ended June 30, 1996, and $236 million in the fiscal year ended
January 31, 1996. Annual repayments and redemptions of long-term indebtedness
for the five fiscal years subsequent to June 30, 1998 are: 1999 - $286 million;
2000 - $28 million; 2001 - $1 million; 2002 - $0; and 2003 - $200 million.
Joseph E. Seagram & Sons, Inc. ("JES"), the Company's U.S. spirits and wine
subsidiary, has outstanding $9 million of Liquid Yield Option Notes (LYONs),
which are zero coupon notes with no interest payments due until maturity on
March 5, 2006. Each $1,000 face amount LYON may be converted, at the holder's
option, into 18.44 of the Company's common shares (303,930 shares at June 30,
1998). The Company has guaranteed the LYONs on a subordinated basis.
In addition, the Company has unconditionally guaranteed JES's 8-3/8 percent
Guaranteed Debentures due February 15, 2007, 7 percent Guaranteed Debentures due
April 15, 2008, 8-7/8 percent Guaranteed Debentures due September 15, 2011, 9.65
percent Guaranteed Debentures due August 15, 2018 and 9 percent Guaranteed
Debentures due August 15, 2021.
<PAGE> 26
51
Summarized below is the JES financial information:
<TABLE>
<CAPTION>
Transition Fiscal Year
Fiscal Years Ended Period Ended Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 2,295 $ 2,291 $ 790 $ 2,710
Cost of revenues 1,445 1,423 528 1,742
Income (loss) from continuing operations (8) 76 55 48
Discontinued Tropicana operations (17) 11 2 (5)
Discontinued DuPont activities, after tax -- -- -- 3,232
---------------------- ---------------------
Net Income (loss) $ (25) $ 87 $ 57 $ 3,275
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 1,821 $ 821
Noncurrent assets 12,201 12,662
--------------------
$ 14,022 $ 13,483
--------------------
Current liabilities $ 843 $ 542
Noncurrent liabilities 3,922 3,798
Shareholders' equity 9,257 9,143
--------------------
$ 14,022 $ 13,483
===================================================================================================================
</TABLE>
NOTE 10 FINANCIAL INSTRUMENTS AND EQUITY SECURITIES
The Company selectively uses foreign currency forward and option contracts to
offset the effects of exchange rate changes on cash flow exposures denominated
in foreign currencies. These exposures include intercompany trade accounts,
service fees, intercompany loans, third-party debt and firm commitments related
to the acquisition of PolyGram. The Company does not use derivative financial
instruments for trading or speculative purposes.
The notional amount of forward exchange contracts and options is the amount of
foreign currency bought or sold at maturity and is not a measure of the
Company's exposure through its use of derivatives.
At June 30, 1998, the Company held foreign currency forward contracts and
options to purchase and sell foreign currencies, including cross-currency
contracts and options to sell one foreign currency for another currency, with
notional amounts totalling $7,309 million ($781 million at June 30, 1997). The
notional amounts of these contracts, which mature at various dates through
February 2001, are summarized below:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
Millions Buy Sell Buy Sell
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian dollar $ 168 $ - $ 164 $ -
British pound 47 59 - 126
U.S. dollar - - - 244
French franc 34 5 - 131
Belgian franc - 62 - -
Japanese yen - 18 - 38
Italian lira - 18 - 22
German mark 6,800 11 - 9
Spanish peseta - 19 - -
Other currencies 31 37 25 22
------------------------------------------
$ 7,080 $ 229 $ 189 $ 592
===================================================================================================================
</TABLE>
The Company minimizes its credit exposure to counterparties by entering into
contracts only with highly-rated commercial banks or financial institutions and
by distributing the transactions among the selected institutions. Although the
Company's credit risk is the replacement cost at the then-estimated fair value
of the instrument, management believes that the risk of incurring losses is
remote and that such losses, if any, would not be material. The market risk
related to the foreign exchange agreements should be offset by changes in the
valuation of the underlying items being hedged.
<PAGE> 27
52
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments.
CASH AND SHORT-TERM INVESTMENTS The carrying amount of cash and short-term
investments, which is comprised primarily of time deposits, approximates fair
value.
FOREIGN CURRENCY EXCHANGE CONTRACTS The fair value of forward exchange contracts
is based on quoted market prices from banks.
SHORT- AND LONG-TERM DEBT The carrying amounts of commercial paper and
short-term bank loans approximate their fair value. The fair value of the
Company's long-term debt is estimated based on the quoted market prices for
similar issues.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
Carrying Fair Carrying Fair
Millions Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and short-term investments $ 1,174 $1,174 $ 490 $ 490
Foreign currency exchange contracts 169 50 (10) (13)
Short-term debt 1,653 1,653 239 239
Long-term debt 2,225 2,477 2,478 2,680
===================================================================================================================
</TABLE>
EQUITY SECURITIES
The following is a summary of available-for-sale securities comprised of the
common stock of DuPont and USAi at June 30, 1998 and of DuPont and Time Warner
at June 30, 1997:
<TABLE>
<CAPTION>
June 30, June 30,
Millions 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost $ 457 $ 1,124
Gross unrealized gain 1,077 1,201
Fair value 1,534 2,325
===================================================================================================================
</TABLE>
The Financial Accounting Standards Board recently issued FAS 133, Accounting for
Derivative Instruments and Hedging Activities, which is effective for the
Company's fiscal year beginning July 1, 1999. FAS 133 requires an entity to
recognize all derivatives as either assets or liabilities on the balance sheet
and to measure those instruments at fair value. The Company is still evaluating
the impact of adopting this pronouncement.
NOTE 11 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, 1998, 37,921,849 common shares
were potentially issuable upon the conversion of the LYONs and the exercise of
employee stock options. Basic net income per share was based on the following
weighted average number of shares outstanding during the fiscal period ended
June 30, 1998 - 349,874,259; June 30, 1997 - 369,682,224; June 30, 1996 -
373,857,915; and January 31, 1996 - 373,116,794. Diluted net income per share
was based on the following weighted average number of shares outstanding during
the fiscal period ended June 30, 1998 - 353,604,553; June 30, 1997 -
374,268,746; June 30, 1996 - 377,562,104; and January 31, 1996 - 378,683,450.
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 date for awards under these plans consistent with the fair value
methodology prescribed by FAS 123, the Company's net income and earnings per
share would be reduced to the pro forma amounts indicated on the following page:
<PAGE> 28
53
<TABLE>
<CAPTION>
Transition Fiscal
Fiscal Years Ended Period Ended Year Ended
June 30, June 30, January 31,
Millions, Except Per Share Amounts 1998 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income:
As reported $ 946 $ 502 $ 85 $ 3,406
Pro forma 892 469 73 3,383
Basic earnings per common share:
As reported $ 2.70 $1.36 $.23 $ 9.13
Pro forma 2.55 1.27 .19 9.07
Diluted earnings per common share:
As reported $ 2.68 $1.35 $.23 $ 9.00
Pro forma 2.52 1.26 .19 8.94
=======================================================================================================================
</TABLE>
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, 1998 and June 30, 1997, the
Transition Period ended June 30, 1996 and the fiscal year ended January 31,
1996, respectively: dividend yields of 1.8, 1.6, 1.8 and 1.9 percent; expected
volatility of 25, 24, 22 and 20 percent; risk-free interest rates of 5.6, 6.7,
6.0 and 6.6 percent; and expected life of six years for all periods. The
weighted average fair value of options granted during the fiscal years ended
June 30, 1998 and June 30, 1997, the Transition Period ended June 30, 1996 and
the fiscal year ended January 31, 1996 for which the exercise price equals the
market price on the grant date was $10.92, $12.18, $9.70 and $9.23,
respectively. The weighted average fair value of options granted during the
fiscal year ended June 30, 1998 and Transition Period ended June 30, 1996 for
which the exercise price exceeded the market price on the grant date was $7.44
and $6.91, respectively.
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:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Price
Stock Options of Options
Description Outstanding Outstanding
- ------------------------------------------------------------------
<S> <C> <C>
BALANCE, JANUARY 31, 1995 18,904,802 $ 25.59
Granted 6,293,023 31.94
Exercised (2,055,830) 24.37
Cancelled (140,840) 29.96
------------------------------
BALANCE, JANUARY 31, 1996 23,001,155 27.45
Granted 6,757,978 35.41
Exercised (611,855) 25.97
Cancelled (61,040) 31.56
------------------------------
BALANCE, JUNE 30, 1996 29,086,238 29.33
Granted 7,366,978 38.97
Exercised (3,242,766) 25.93
Cancelled (249,324) 33.02
------------------------------
BALANCE, JUNE 30, 1997 32,961,126 31.79
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
==================================================================
</TABLE>
<PAGE> 29
54
The following table summarizes information concerning currently outstanding and
exercisable stock options:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10 - $20 1,514,947 1.4 $18.82 1,514,947 $ 18.82
$20 - $30 8,611,070 4.2 27.09 8,251,070 27.07
$30 - $40 26,177,602 8.3 35.65 11,742,442 33.60
$40 - $50 814,300 7.9 47.20 311,668 47.43
$50 - $60 500,000 9.6 52.28 - -
---------- ----------
37,617,919 21,820,127
======================================================================================================================
</TABLE>
NOTE 12 INCOME TAXES
The following tables summarize the sources of pretax income and the resulting
income tax expense.
GEOGRAPHIC COMPONENTS OF PRETAX INCOME
<TABLE>
<CAPTION>
Transition Fiscal
Fiscal Years Ended Period Ended Year Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. $ 1,157 $ 159 $(164) $ 22
Canada 26 68 (24) 12
Other jurisdictions 383 561 217 253
----------------------------------------------
Income before minority interest, discontinued Tropicana
operations and discontinued DuPont activities 1,566 788 29 287
Discontinued Tropicana operations 130 111 36 62
Discontinued DuPont activities - - - 5,283
----------------------------------------------
Income before minority interest $ 1,696 $ 899 $ 65 $ 5,632
=======================================================================================================================
</TABLE>
COMPONENTS OF INCOME TAX EXPENSE
<TABLE>
<CAPTION>
Transition Fiscal
Fiscal Years Ended Period Ended Year Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax expense (benefit) applicable to:
Continuing Operations $ 638 $ 331 $ 34 $ 121
1981 transaction* - - (67) -
Discontinued Tropicana operations 64 54 18 32
Discontinued DuPont activities - - - 2,051
- ----------------------------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $ 702 $ 385 $ (15) $ 2,204
======================================================================================================================
</TABLE>
*The 1981 transaction relates to a loss disallowed by the U.S. Tax Court on the
exchange of common stock of Conoco Inc. for DuPont. In June 1996, the Company
and the IRS reached a settlement whereby a portion of the original loss was
allowed.
<PAGE> 30
55
COMPONENTS OF INCOME TAX EXPENSE Continued
<TABLE>
<CAPTION>
Transition Fiscal
Fiscal Years Ended Period Ended Year Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current
Continuing operations
Federal $ 134 $ 184 $ (9) $ (7)
State and local (20) 35 3 15
1981 transaction* -- -- (105) --
Other jurisdictions 77 165 81 87
---------------------------------------------
191 384 (30) 95
Discontinued Tropicana operations 58 53 -- 44
Discontinued DuPont activities -- -- -- 612
---------------------------------------------
249 437 (30) 751
---------------------------------------------
Deferred
Continuing operations
Federal 351 (25) (26) 43
State and local 34 (19) (2) (2)
1981 transaction* -- -- 38 --
Other jurisdictions 62 (9) (13) (15)
---------------------------------------------
447 (53) (3) 26
Discontinued Tropicana operations 6 1 18 (12)
Discontinued DuPont activities -- -- -- 1,439
---------------------------------------------
453 (52) 15 1,453
---------------------------------------------
Total income tax expense (benefit) $ 702 $ 385 $ (15) $ 2,204
========================================================================================================================
</TABLE>
*The 1981 transaction relates to a loss disallowed by the U.S. Tax Court on the
exchange of common stock of Conoco Inc. for DuPont. In June 1996, the Company
and the IRS reached a settlement whereby a portion of the original loss was
allowed.
COMPONENTS OF NET DEFERRED TAX LIABILITY
<TABLE>
<CAPTION>
June 30, June 30,
Millions 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basis and amortization differences $ 572 $ 498
DuPont share redemption 1,540 1,540
DuPont and USAi investments (1997 - DuPont and Time Warner) 516 420
Unremitted foreign earnings 94 59
Other, net 80 27
-------------------
Deferred tax liabilities 2,802 2,544
-------------------
Deferred revenue (60) (132)
Employee benefits (28) (103)
Tax credit and net operating loss carryovers (60) (49)
Valuation, doubtful accounts and return reserves (234) (260)
Other, net (136) (128)
-------------------
Deferred tax assets (518) (672)
Valuation allowance 32 42
-------------------
(486) (630)
-------------------
Net deferred tax liability $ 2,316 $ 1,914
===================================================================================================================
</TABLE>
<PAGE> 31
56
The Company has U.S. tax credit carryovers of $32 million; $13 million of which
has no expiration date and $19 million of which have expiration dates through
2009. The valuation allowance arises from uncertainty as to the realization of
certain U.S. tax credit carryovers. If realized, these benefits would be applied
to reduce the Universal unallocated excess purchase price. In addition, the
Company has approximately $78 million of net operating loss carryovers; $16
million of which has no expiration date and $62 million of which have expiration
dates through 2011.
EFFECTIVE INCOME TAX RATE - CONTINUING OPERATIONS
<TABLE>
<CAPTION>
Transition Fiscal
Fiscal Years Ended Period Ended Year Ended
June 30, June 30, January 31,
1998 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. statutory rate 35% 35% 35% 35%
1981 transaction - - (231) -
State and local 1 1 4 3
Dividends received deduction - (1) (17) (3)
Goodwill amortization 3 7 85 10
Other 2 - 10 (3)
-------------------------------------------
Effective income tax rate - continuing operations 41% 42% (114%) 42%
=========================================================================================================================
</TABLE>
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 13 BENEFIT PLANS
PENSION
Pension costs were $29 million and $46 million for the fiscal years ended June
30, 1998 and June 30, 1997, respectively, $25 million for the Transition Period
ended June 30, 1996 and $41 million for the fiscal year ended January 31, 1996.
The Company has defined benefit pension plans which cover certain U.S.
employees. The net cost of the Company's U.S. pension plans was based on an
expected long-term return on plan assets of 10.75 percent for the fiscal years
ended June 30, 1998 and 1997, 10 percent for the Transition Period ended June
30, 1996 and 10.75 percent for the fiscal year ended January 31, 1996. Discount
rates of 7.0 and 7.75 percent were used in determining the actuarial present
value of the projected benefit obligation at June 30, 1998 and 1997,
respectively. The assumed rates of increase in future compensation levels were
4.25 to 5.25 percent for the fiscal year ended June 30, 1998, 5.0 to 6.0 percent
for the fiscal year ended June 30, 1997 and the Transition Period ended June 30,
1996 and 4.5 to 5.5 percent for the fiscal year ended January 31, 1996. Plans
outside the U.S. used assumptions in determining the actuarial present value of
projected benefit obligations that reflect the economic environments within the
various countries, and therefore are consistent with (but not identical to)
those of the U.S. plans.
The majority of the pension arrangements for the Company's employees of
affiliates outside the U.S., the U.K. and Canada are either insured or
government sponsored. In those affiliates outside of the U.S. where defined
benefit plans exist (U.K., Canada and France), the net periodic pension cost was
$8 million and $6 million for the fiscal years ended June 30, 1998 and 1997,
respectively, $3 million for the Transition Period ended June 30, 1996 and $6
million for the fiscal year ended January 31, 1996. At June 30, 1998, the
present value of these plans' projected benefit obligation was $360 million,
$307 million of which was for vested benefits; the fair value of plan assets was
$415 million.
<PAGE> 32
57
Net Cost of U.S. Defined Benefit Pension Plans
<TABLE>
<CAPTION>
Transition Fiscal
Fiscal Years Ended Period Ended Year Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost - benefits earned during the period $ 13 $ 14 $ 5 $ 12
Interest cost on Projected Benefit Obligation 45 45 18 44
Return on plan assets
Actual gain (127) (145) (46) (171)
Deferred actuarial gain 50 78 22 124
Net amortization and deferral (4) 2 2 3
----------------------------------------------
Net pension (income) cost $ (23) $ (6) $ 1 $ 12
========================================================================================================================
</TABLE>
Status of U.S. Defined Benefit Pension Plans
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Millions Benefits Exceed Assets Benefits Exceed Assets
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested Benefit Obligation $ (527) $(103) $(422) $ (81)
-------------------------------------------------------------
Accumulated Benefit Obligation $ (540) $(106) $(442) $ (84)
-------------------------------------------------------------
Projected Benefit Obligation $ (558) $(123) $(498) $ (107)
Plan assets at fair value, principally
equity securities 832 - 741 -
-------------------------------------------------------------
Plan assets in excess of (less than)
Projected Benefit Obligation 274 (123) 243 (107)
Deferred net actuarial (gain) loss (177) 49 (175) 34
Unamortized prior service cost 13 (1) 4 4
Unamortized transition obligation - 1 - 2
Recognition of minimum liability - (32) - (17)
-------------------------------------------------------------
Prepaid (accrued) pension cost $ 110 $(106) $ 72 $ (84)
================================================================================================================================
</TABLE>
The Company has defined contribution plans covering certain U.S. employees.
Contributions made to these plans are included in consolidated pension costs.
POSTRETIREMENT
The Company provides retiree health care and life insurance benefits covering
certain retirees. Certain U.S. salaried and certain hourly employees are
eligible for benefits upon retirement and completion of a specified number of
years of service.
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
<CAPTION>
Transition Fiscal
Fiscal Years Ended Period Ended Year Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service cost - benefits earned during the period $ 2 $ 2 $ 1 $ 2
Interest cost on accumulated postretirement benefit obligation 11 11 5 12
Amortization of prior service cost (4) (3) (2) (3)
----------------------------------------------
Net postretirement benefit cost $ 9 $ 10 $ 4 $ 11
========================================================================================================================
</TABLE>
<PAGE> 33
58
The accumulated postretirement benefit obligation, included in other credits in
the accompanying balance sheet, comprises the following:
<TABLE>
<CAPTION>
June 30, June 30,
Millions 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Retirees $ 112 $ 100
Fully eligible active plan participants 26 23
Other active plan participants 30 29
Unrecognized:
Actuarial gain 4 16
Prior service cost 19 22
-------------------
Accrued postretirement benefit obligation $ 191 $ 190
===================================================================================================================
</TABLE>
Future benefit costs were estimated assuming medical costs would increase at an
8.25 percent annual rate, decreasing to a 5.5 percent annual growth rate ratably
over the next five years, and then remaining at a 5.5 percent growth rate
thereafter. A one-percentage-point increase in this annual trend rate would have
increased the postretirement benefit obligation at June 30, 1998 by $6 million
($4 million after tax), with an increase in pretax expense of $1 million for the
fiscal year ended June 30, 1998. The weighted average discount rates used to
estimate the accumulated postretirement benefit obligation were 7.0 and 7.75
percent at June 30, 1998 and 1997, respectively.
NOTE 14 BUSINESS SEGMENT AND GEOGRAPHIC DATA
Business Segment Data
<TABLE>
<CAPTION>
Spirits
Millions and Wine(1) Entertainment Corporate(2) Total(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 1998
Revenues $ 4,670 $ 5,044 $ - $ 9,714
Depreciation and amortization of assets 96 186 7 289
Amortization of goodwill 23 185 - 208
Operating income (expense) 465 163 (120) 508
Identifiable assets 5,015 13,163 2,267 20,445
Capital expenditures 170 240 - 410
JUNE 30, 1997
Revenues $ 5,051 $ 5,593 $ - $10,644
Depreciation and amortization of assets 101 185 4 290
Amortization of goodwill 22 143 - 165
Operating income (expense) 677 242 (138) 781
Identifiable assets 5,290 10,586 2,837 18,713
Capital expenditures 187 206 - 393
JUNE 30, 1996 (TRANSITION PERIOD)
Revenues $ 1,891 $ 2,360 $ - $ 4,251
Depreciation and amortization of assets 46 86 2 134
Amortization of goodwill 11 62 - 73
Operating income (expense) 182 1 (55) 128
Identifiable assets 5,551 10,269 3,694 19,514
Capital expenditures 108 136 1 245
JANUARY 31, 1996
Revenues $ 4,999 $ 3,053 $ - $ 8,052
Depreciation and amortization of assets 100 97 4 201
Amortization of goodwill 24 62 - 86
Operating income (expense) 361(3) 205 (84) 482
Identifiable assets 5,659 9,997 3,755 19,411
Capital expenditures 173 175 1 349
===============================================================================================================
</TABLE>
(1) Excludes discontinued Tropicana operations.
(2) Includes (i) corporate expenses and assets not identifiable with either
business segment, and (ii) DuPont and Time Warner holdings, which
represented 54%, 82%, 90% and 91% of corporate assets at June 30, 1998,
1997 and 1996 and January 31, 1996, respectively.
(3) Includes a $274 million charge related to reengineering activities.
<PAGE> 34
59
The Company will adopt FAS 131, Disclosures about Segments of an Enterprise and
Related Information, in its fiscal year beginning July 1, 1998. To comply with
the disclosure requirements in FAS 131, in addition to the segments above, the
Company will also disclose the components of the Entertainment segment, namely
Filmed Entertainment, Music and Recreation and Other.
GEOGRAPHIC DATA
<TABLE>
<CAPTION>
Revenues(1,2)
Unrelated Inter- Operating Total
Millions Parties company Income(2) Assets(2,3)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JUNE 30, 1998
U.S. $ 5,287 $ 325 $ (61) $ 13,289
Europe 3,043 360 497 4,698
Asia Pacific 578 - (104) 501
Latin America 518 26 32 342
Canada 288 228 144 387
- ---------------------------------------------------------------------------------------------------------------------
$ 9,714 $ 939 $ 508 $ 19,217
- ---------------------------------------------------------------------------------------------------------------------
JUNE 30, 1997
U.S. $ 5,499 $ 54 $ (15) $ 11,208
Europe 3,434 390 540 3,947
Asia Pacific 943 - 48 514
Latin America 480 27 37 355
Canada 288 235 171 364
- ---------------------------------------------------------------------------------------------------------------------
$ 10,644 $ 706 $ 781 $ 16,388
- ---------------------------------------------------------------------------------------------------------------------
JUNE 30, 1996 (TRANSITION PERIOD)
U.S. $ 2,122 $ 31 $(151) $ 10,923
Europe 1,480 176 231 4,161
Asia Pacific 390 - (5) 419
Latin America 144 13 22 288
Canada 115 61 31 404
- ---------------------------------------------------------------------------------------------------------------------
$ 4,251 $ 281 $ 128 $ 16,195
- ---------------------------------------------------------------------------------------------------------------------
JANUARY 31, 1996
U.S. $ 3,785 $ 56 $ 35 $ 10,468
Europe 2,806 456 272 4,357
Asia Pacific 853 - 28 453
Latin America 406 29 16 324
Canada 202 212 131 382
- ---------------------------------------------------------------------------------------------------------------------
$ 8,052 $ 753 $ 482 $ 15,984
=====================================================================================================================
</TABLE>
(1) Revenues are classified based upon the location of the legal entity
which invoices the customer rather than the location of the customer.
Revenues among geographic areas include intercompany transactions on a
current market price basis.
(2) Excludes discontinued Tropicana operations.
(3) Excludes DuPont and Time Warner holdings.
<PAGE> 35
60
NOTE 15 FISCAL YEAR CHANGE
Effective June 30, 1996, the Company changed its fiscal year-end from January 31
to June 30. Accordingly, the consolidated financial statements include the
results of operations for the Transition Period, which are not necessarily
indicative of operations for a full year.
Results for the comparable prior year period are summarized below.
<TABLE>
<CAPTION>
Five Months Ended
Millions, Except Per Share Amounts (Unaudited) June 30, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 2,093
-------
Operating income 220
Provision for income taxes 54
-------
Income from continuing operations 107
Discontinued Tropicana operations, after tax 10
Discontinued DuPont activities, after tax 3,232
-------
Net income $ 3,349
=======
EARNINGS PER SHARE Basic Diluted
------- -------
Income from continuing operations $ .29 $ .29
Discontinued Tropicana operations, after tax .03 .03
Discontinued DuPont activities, after tax 8.67 8.60
------- -------
Net income $ 8.99 $ 8.92
===================================================================================================================
</TABLE>
NOTE 16 REENGINEERING ACTIVITIES
In connection with a program to better position its spirits and wine operations
to achieve its strategic growth objectives, the Company recorded a pretax charge
of $274 million in the fiscal year ended January 31, 1996. The charge related to
the Company's global spirits and wine manufacturing, financial, marketing and
distribution systems and includes rationalization of facilities in the U.S. and
Europe and other costs related to the redesign of processes associated with the
fulfillment of customer orders and the organizational structure under which the
spirits and wine business operates. The components of the $274 million charge
reflected approximately a $100 million provision for severance costs, $104
million for asset write-downs/impairments and $70 million for facility
rationalization, including lease terminations, and other reengineering programs.
NOTE 17 ADDITIONAL FINANCIAL INFORMATION
Income Statement and Cash Flow Data
<TABLE>
<CAPTION>
Transition Fiscal
Fiscal Years Ended Period Ended Year Ended
June 30, June 30, January 31,
Millions 1998 1997 1996 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST, NET AND OTHER
Interest expense $ 318 $ 285 $ 136 $ 338
Interest income (59) (34) (13) (102)
Dividend income (27) (40) (19) (38)
Capitalized interest (4) (4) (5) (3)
Gain on sale of Time Warner shares (926) (154) - -
Gain on USAi transaction (360) - - -
Gain on sale of DuPont warrants - (60) - -
-----------------------------------------------
$ (1,058) $ (7) $ 99 $ 195
===============================================
EXCISE TAXES
(included in revenues and cost of revenues) $ 754 $ 793 $ 288 $ 804
CASH FLOW DATA
Interest paid, net $ 265 $ 252 $ 98 $ 222
Income taxes paid (refunded) $ 144 $ 85 $ (37) $ 1,039
=======================================================================================================================
</TABLE>
<PAGE> 36
61
Balance Sheet Data
<TABLE>
<CAPTION>
June 30, June 30,
Millions 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
RECEIVABLES
Trade $ 1,994 $ 1,762
Other 487 328
-------------------
2,481 2,090
Allowance for doubtful accounts
and other valuation accounts (326) (309)
-------------------
$ 2,155 $ 1,781
===================
INVENTORIES
Beverages $ 2,239 $ 2,359
Materials, supplies and other 316 225
-------------------
$ 2,555 $ 2,584
===================
LIFO INVENTORIES
Estimated replacement cost $ 356 $ 342
Excess of replacement cost over
LIFO carrying value (173) (181)
-------------------
$ 183 $ 161
===================
FILM COSTS, NET OF AMORTIZATION
THEATRICAL FILM COSTS
Released $ 353 $ 468
In process and unreleased 839 501
-------------------
$ 1,192 $ 969
===================
TELEVISION FILM COSTS
Released 223 368
In process and unreleased 32 41
-------------------
255 409
-------------------
$ 1,447 $ 1,378
===================================================================================================================
</TABLE>
Unamortized costs related to released theatrical and television films aggregated
$576 million at June 30, 1998. 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 88 percent of the unamortized
released film costs will be amortized under the individual film forecast method
during the three years ending June 30, 2001.
<TABLE>
<CAPTION>
June 30, June 30,
Millions 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Land $ 553 $ 493
Buildings and improvements 1,467 1,425
Machinery and equipment 1,221 1,104
Furniture and fixtures 369 298
Construction in progress 301 262
-------------------
3,911 3,582
Accumulated depreciation (1,178) (1,023)
-------------------
$ 2,733 $ 2,559
===================
PAYABLES AND ACCRUED LIABILITIES
Trade $ 449 $ 381
Other 1,619 1,437
-------------------
$ 2,068 $ 1,818
===================================================================================================================
</TABLE>
<PAGE> 37
62
NOTE 18 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 has entered into an arrangement to sell to a third party
substantially all films produced or acquired during the term of the agreement
for amounts which approximate cost. The Company will serve as sole distributor
and earns a distribution fee, which is variable and contingent upon the films'
performance. In addition, the Company has the option to purchase the films at
certain future dates.
The Company is involved in various lawsuits, claims and inquiries. Management
believes that the resolution of these matters will not have a material adverse
effect on the results of operations, financial position or liquidity of the
Company.
NOTE 19 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 $699 million or
approximately eight percent at June 30, 1998. There is no effect on net
income.
(ii) Proportionate consolidation of joint ventures under Canadian GAAP would
increase assets and liabilities by approximately $1.1 billion and decrease
working capital by approximately $31 million at June 30, 1998. 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, 1998. There is no effect on
net income.
(iv) Other differences between U.S. and Canadian GAAP are immaterial.
<PAGE> 38
63
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 Officer Vice Chairman and Chief Financial Officer
August 12, 1998
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, 1998 and 1997 and the related consolidated statements of income,
shareholders' equity and cash flows for the fiscal years ended June 30, 1998 and
1997, the Transition Period ended June 30, 1996 and the fiscal year ended
January 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the U.S. and Canada. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of the Company and its
subsidiaries as of June 30, 1998 and 1997 and the results of their operations
and their cash flows for the fiscal years ended June 30, 1998 and 1997, the
Transition Period ended June 30, 1996 and the fiscal year ended January 31,
1996, in accordance with generally accepted accounting principles in the U.S.
which, in their application to the Company, conform in all material respects
with generally accepted accounting principles in Canada.
/s/ PricewaterhouseCoopers LLP
- ----------------------------------
PricewaterhouseCoopers LLP
New York, New York
August 12, 1998, except as to Note 1, which is as of August 25, 1998
<PAGE> 39
64
QUARTERLY DATA
Fiscal 1998
<TABLE>
<CAPTION>
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)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,445 $ 3,065 $ 2,036 $ 2,168 $ 9,714
Operating income 262 204 32 10 508
Income from continuing operations, after tax 116 8 447(1) 309(2) 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 $ 0.32 $ 0.02 $ 1.30 $ 0.89 $ 2.51
Discontinued Tropicana operations, after tax .05 0.06 0.04 0.04 .19
------------------------------------------------------------------
Net income $ 0.37 $ 0.08 $ 1.34 $ 0.93 $ 2.70
==================================================================
EARNINGS PER SHARE - DILUTED
Continuing operations $ 0.32 $ 0.02 $ 1.28 $ 0.88 $ 2.49
Discontinued Tropicana operations, after tax 0.05 0.06 0.04 0.04 .19
------------------------------------------------------------------
Net income $ 0.37 $ 0.08 $ 1.32 $ 0.92 $ 2.68
===================================================================================================================================
</TABLE>
Fiscal 1997
<TABLE>
<CAPTION>
Fiscal Year
U.S. Dollars in Millions First Second Third Fourth Ended
Except for Share Amounts (Unaudited) Quarter Quarter Quarter Quarter 6/30/97(3)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,449 $ 3,292 $ 2,357 $ 2,546 $ 10,644
Operating income 239 353 98 91 781
Income from continuing operations, after tax 148 142 20 135 445
Income from discontinued Tropicana operations, after tax 18 19 7 13 57
------------------------------------------------------------------
Net income $ 166(4) $ 161 $ 27 $ 148(5) $ 502
==================================================================
PER SHARE DATA
EARNINGS PER SHARE - BASIC
Continuing operations $ 0.40 $ 0.38 $ 0.05 $ 0.36 $ 1.20
Discontinued Tropicana operations, after tax 0.05 0.05 0.02 0.04 0.16
------------------------------------------------------------------
Net income $ 0.45 $ 0.43 $ 0.07 $ 0.40 $ 1.36
==================================================================
EARNINGS PER SHARE - DILUTED
Continuing operations $ 0.40 $ 0.38 $ 0.05 $ 0.36 $ 1.20
Discontinued Tropicana operations, after tax 0.05 0.05 0.02 0.04 0.15
------------------------------------------------------------------
Net income $ 0.45 $ 0.43 $ 0.07 $ 0.40 $ 1.35
=================================================================================================================================
</TABLE>
(1) Includes a $281 million after-tax gain on the sale of Time Warner shares and
a $187 million gain on the USAi transaction, after tax and minority
interest.
(2) Includes a $320 million after-tax gain on the sale of Time Warner shares.
(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 $39 million after-tax gain on the sale of DuPont warrants.
(5) Includes a $100 million after-tax gain on the sale of Time Warner shares.
<PAGE> 40
65
FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Fiscal Years Transition
Ended Period Ended
June 30, June 30, Fiscal Years Ended January 31,
(U.S.$ in Millions, Except Per Share Amounts) 1998 1997 1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Revenues $ 9,714 $ 10,644 $ 4,251 $ 8,052 $ 5,008 $ 4,742
Operating income 508 781 128 482 628 640
Interest, net and other (1,058) (7) 99 195 317 275
Income from continuing operations before
cumulative effect of accounting change 880 445 67 144 170 249
Income from discontinued Tropicana
operations, after tax 66 57 18 30 24 34
Discontinued DuPont activities, after tax -- -- -- 3,232 617 96
------------------------------------------------------------------------
Income before cum. effect of accounting change 946 502 85 3,406 811 379
Cumulative effect of accounting change, after tax -- -- -- -- (75) --
------------------------------------------------------------------------
Net income $ 946 $ 502 $ 85 $ 3,406 $ 736 $ 379
========================================================================
FINANCIAL POSITION
Current assets $ 6,971 $ 6,131 $ 6,307 $ 6,194 $ 3,938 $ 3,532
Common stock of DuPont 1,228 1,034 651 631 3,670 3,154
Common stock of Time Warner -- 1,291 2,228 2,356 2,043 1,769
Other noncurrent assets 12,246 10,257 10,328 10,230 1,773 1,754
Net assets of discontinued Tropicana operations 1,734 1,734 1,693 1,549 1,270 1,220
------------------------------------------------------------------------
Total assets $ 22,179 $ 20,447 $ 21,207 $ 20,960 $ 12,694 $ 11,429
========================================================================
Current liabilities $ 4,709 $ 3,087 $ 4,383 $ 3,557 $ 3,865 $ 2,776
Long-term indebtedness 2,225 2,478 2,562 2,889 2,838 3,051
Total liabilities 10,948 9,174 10,163 9,788 7,174 6,428
Minority interest 1,915 1,851 1,839 1,844 11 --
Shareholders' equity 9,316 9,422 9,205 9,328 5,509 5,001
------------------------------------------------------------------------
Total liabilities & shareholders' equity $ 22,179 $ 20,447 $ 21,207 $ 20,960 $ 12,694 $ 11,429
========================================================================
CASH FLOW DATA
Cash flow (used for) provided by operating activities $ (241) $ 664 $ 315 $ 222 $ 370 $ 370
Capital expenditures (410) (393) (245) (349) (124) (118)
Other investing activities, net 1,109 2,101 (346) 2,260 (341) (1,556)
Dividends paid (231) (239) (112) (224) (216) (209)
PER SHARE DATA
EARNINGS PER SHARE - BASIC
Continuing operations $ 2.51 $ 1.20 $ 0.18 $ 0.38 $ 0.46 $ 0.67
Discontinued Tropicana operations, after tax 0.19 0.16 0.05 0.08 0.06 0.09
Discontinued DuPont activities, after tax -- -- -- 8.67 1.66 0.26
------------------------------------------------------------------------
Income before cum. effect of accounting change 2.70 1.36 0.23 9.13 2.18 1.02
Cumulative effect of accounting change, after tax -- -- -- -- (0.20) --
------------------------------------------------------------------------
Net income $ 2.70 $ 1.36 $ 0.23 $ 9.13 $ 1.98 $ 1.02
========================================================================
EARNINGS PER SHARE - DILUTED
Continuing operations $ 2.49 $ 1.20 $ 0.18 $ 0.38 $ 0.46 $ 0.66
Discontinued Tropicana operations, after tax 0.19 0.15 0.05 0.08 0.06 0.09
Discontinued DuPont activities, after tax -- -- -- 8.54 1.64 0.25
------------------------------------------------------------------------
Income before cum. effect of accounting change 2.68 1.35 0.23 9.00 2.16 1.00
Cumulative effect of accounting change, after tax -- -- -- -- (0.20) --
------------------------------------------------------------------------
Net income $ 2.68 $ 1.35 $ 0.23 $ 9.00 $ 1.96 $ 1.00
========================================================================
Dividends paid $ 0.66 $ 0.645 $ 0.30 $ 0.60 $ 0.58 $ 0.56
Shareholders' equity 26.84 25.79 24.67 24.91 14.79 13.43
End of year share price
New York Stock Exchange (U.S.$) $ 40.94 $ 40.25 $ 33.63 $ 36.38 $ 28.75 $ 30.75
Canadian Stock Exchange (Cdn$) 59.95 55.50 45.75 49.75 40.50 40.63
Average shares outstanding (thousands) 349,874 369,682 373,858 373,117 372,499 373,051
Shares outstanding at year end (thousands) 347,132 365,281 373,059 374,462 372,537 372,489
===============================================================================================================================
</TABLE>
<PAGE> 1
Exhibit Number 21
THE SEAGRAM COMPANY LTD.
ANNUAL REPORT ON FORM 10-K
SUBSIDIARIES LIST AS OF AUGUST 31, 1998
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, 1998.
<TABLE>
<CAPTION>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- -----
<S> <C> <C>
THE SEAGRAM COMPANY LTD. Canada --
J.E. Seagram Corp. Delaware 100%
Seagram Enterprises, Inc. Delaware 100%
Seagram Inc. Delaware 100%
Joseph E. Seagram & Sons, Inc. Indiana 100%
Distillers Products Sales Corporation Massachusetts 100%
Seagold Leasing Inc. Delaware 100%
Seagram Capital Investments, Inc. Delaware 100%
JES Developments, Inc. Delaware 100%
JES Developments Finance, Inc. Delaware 100%
Barton & Guestier S.A. France 100%
Seagram do Brasil Industria e Comercio Ltda. Brazil 100%
Seagram Developments, Inc. Delaware 100%
Universal Studios Holding I Corp. Delaware 84%
Universal Studios Holding II Corp. Delaware 100%
Universal Studios Holding III Corp. Delaware 100%
Universal Studios, Inc. Delaware 100%
MCA - Champion Music Corporation New York 100%
Cinema International Corporation N.V. Netherlands 49%
MCA - Duchess Music Corporation California 100%
Geffen Records, Inc. California 100%
Geffen/Outpost Record Ventures, Inc. California 100%
GRP Records, Inc. New York 100%
Universal Studios Holdings (UK) Limited United Kingdom 100%
</TABLE>
<PAGE> 2
THE SEAGRAM COMPANY LTD.
SUBSIDIARIES LIST (continued)
<TABLE>
<CAPTION>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- -----
<S> <C> <C>
Universal Music International Limited United Kingdom 100%
MCA Music Limited United Kingdom 100%
Universal Studios Canada Ltd. Canada 100%
MCA Music France SARL France 100%
Universal Concerts, Inc. California 100%
Universal Concerts II, Inc. California 100%
Universal/PACE Amphitheatres
Group, L.P. (partnership) Delaware 67.5%
Universal Studios Development Venture One California 100%
Universal Studios Filmed Entertainment
Canada Inc. Canada 100%
Universal Studios Foreign Sales
Corporation B.V. Netherlands 100%
Universal Home Video, Inc. California 100%
Universal Studios Home Video, Inc. California 100%
Universal Studios International B.V. Netherlands 100%
Cinema International B.V. (partnership) Netherlands 49%
Universal Studios Finance B.V. Netherlands 100%
Universal Studios Pay Television
B.V. Netherlands 10%
Universal Studios TV Netherlands 100%
Channel Poland B.V.
United Cinemas International
Multiplex B.V. (partnership) Netherlands 49%
United International Pictures B.V.
(partnership) Netherlands 33.3%
Universal Studios Enterprises
Japan, Ltd. Japan 100%
MCA Music Australia Pty. Limited Australia 100%
MCA Music G.m.b.H. Germany 100%
Universal Music G.m.b.H. Germany 100%
MCA Music Italy S.r.l. Italy 100%
MCA Music KK Japan 100%
MCA Records, Inc. California 100%
Universal Music Asia Pacific Limited Hong Kong 100%
Universal Music Limited Hong Kong 100%
Universal Music Australia Limited Australia 100%
Universal Music S.A. Argentina 100%
Universal Music, S.A. de C.V. Mexico 100%
MCA Record Ventures, Inc. Delaware 100%
510 Records (joint venture) California 50%
</TABLE>
2
<PAGE> 3
THE SEAGRAM COMPANY LTD.
SUBSIDIARIES LIST (continued)
<TABLE>
<CAPTION>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- -----
<S> <C> <C>
MCA/Interscope Partner, Inc. California 100%
Interscope Records (partnership) California 50%
Universal Television Entertainment, Inc. California 100%
Universal Television Enterprises, Inc. Delaware 100%
USANI Holding I, Inc. Delaware 100%
MCA/G-A Record Ventures, Inc. California 100%
Gasoline Alley (joint venture) California 55%
MCA/R Record Ventures, Inc. California 100%
Radioactive Records (joint venture) California 60%
Universal Studios Hotel, Inc. Delaware 100%
Universal Rank Hotel Partners Florida 50%
(partnership)
Universal Studios Consumer Products, Inc. California 100%
Universal Studios Licensing, Inc. California 100%
Music Corporation of America, Inc. California 100%
Sci-Fi Channel Europe, L.L.C. Delaware 50%
Spencer Gifts, Inc. Delaware 100%
Terra Properties, Inc. California 100%
U-Talk Enterprises, Inc. Delaware 100%
Universal Music & Video Distribution, Inc. New York 100%
Universal Cartoon Studios, Inc. California 100%
Universal City Property Management
Company Delaware 100%
Universal City Florida Partners
(general partnership) Florida 50%
Universal City Property Management
Company II Delaware 100%
Universal City Development Partners
(general partnership) Florida 50%
Universal City Studios Productions, Inc. Delaware 100%
Universal City Studios, Inc. Delaware 100%
Forbrooke Enterprises, Inc. California 100%
Imagine Films Entertainment, Inc. Delaware 100%
OFI Holdings, Inc. Delaware 51%
October Films, Inc. New York 100%
Universal Film Distribution, Inc. California 100%
Universal Film Exchanges, Inc. Delaware 100%
Universal Studios Pay Television, Inc. California 100%
</TABLE>
3
<PAGE> 4
THE SEAGRAM COMPANY LTD.
SUBSIDIARIES LIST (continued)
<TABLE>
<CAPTION>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- -----
<S> <C> <C>
Universal Studios Pay Television
Australia, Inc. California 100%
Universal Studios TV1 Australia, Inc. California 100%
Universal Television, Incorporated California 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%
USANI Holding XI, Inc. Delaware 100%
Universal Studios Entertainment Japan
Investment Company California 100%
USJ Co., Ltd. Japan 24%
Universal Family Entertainment, Inc. California 100%
Universal Studios New Media, Inc. California 100%
Universal Interactive Studios, Inc. California 100%
Universal Studios Pay-Per-View, Inc. California 100%
Universal Records, Inc. California 100%
3BG Holdings L.L.C. Delaware 50%
Brillstein-Grey Entertainment
(partnership) California 99%
Brillstein-Grey Communications
(partnership) California 50%
Seagram Holdings Limited United Kingdom 100%
Seagram Distillers PLC United Kingdom 100%
Chivas Brothers Limited United Kingdom 100%
The Glenlivet Distillers Limited United Kingdom 100%
Seagram United Kingdom Limited United Kingdom 100%
The House of Seagram Ltd. United KingdoM 100%
Sandeman & Ca. S.A. Portugal 100%
Sandeman - Coprimar S.A. Spain 100%
Seagram de Mexico S.A. de C.V. Mexico 100%
</TABLE>
4
<PAGE> 5
THE SEAGRAM COMPANY LTD.
SUBSIDIARIES LIST (continued)
<TABLE>
<CAPTION>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- -----
<S> <C> <C>
Gulfstream Insurance (Ireland) Limited Ireland 100%
Gulfstream Reinsurance (Ireland) Limited Ireland 100%
Gulfstream Insurance (Barbados) Limited Barbados 100%
Seagram Finance B.V. Netherlands 100%
Centenary Investments Inc. Canada 100%
Centenary Holdings Ltd. Bermuda 100%
Seagram C.I. (Taiwan) Co., Ltd. Hong Kong 90%
Centenary S.a.r.L. Luxembourg 100%
Seagram International B.V. Netherlands 100%
Seagram Netherlands B.V. Netherlands 100%
Seagram Europa B.V. Netherlands 100%
Bodegas y Vinedos Crillon S.A.I.C. Argentina 100%
Seagram de Argentina, S.A.I.C. Argentina 100%
Seagram Belgium N.V. Belgium 100%
Seagram Nordic AB Sweden 100%
Seagram International Holdings Limited United Kingdom 100%
Seagram European Customer Service Center
Limited United Kingdom 100%
The Seagram Finance Company Limited United Kingdom 100%
G.H. Mumm & Cie France 99%
Seagram France Distribution France 100%
Champagne Perrier-Jouet S.A. France 99%
Martell S.A. France 99%
Martell & Co. France 99%
Seagram South Africa (Pty) Ltd. South Africa 100%
Seagram Holding-und Handelsgesellschaft mbh Germany 100%
Seagram Deutschland GmbH Germany 100%
Burgeff & Co. Sektkellereien GmbH Germany 100%
Matheus Muller Sektkellereien GmbH Germany 100%
Lupak S.A. Greece 100%
Seagram Apka S.A. Greece 100%
Seagram India Private Limited India 100%
Seagram Manufacturing Private Limited India 100%
Seagram Italia S.p.A. Italy 100%
Seagram Netherlands Antilles N.V. Netherlands 100%
Martell Far East Trading Limited Hong Kong 100%
Tianjin Seagram Limited PRC 70%
Myers Rum Company Limited Bahamas 100%
Associated Liquor Distributors (S) Pte. Ltd. Singapore 100%
</TABLE>
5
<PAGE> 6
THE SEAGRAM COMPANY LTD.
SUBSIDIARIES LIST (continued)
<TABLE>
<CAPTION>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- -----
<S> <C> <C>
Seagram Australia Holdings Pty. Limited Australia 100%
Seagram Australia Pty. Limited Australia 100%
Seagram Wine Estates Pty. Limited Australia 100%
Vintners Imports Pty. Limited Australia 50%
C.A. Seagram de Venezuela Venezuela 100%
Licorerias Unidas, S.A. Venezuela 100%
C.A. Circulo de Conocedores Seagram Venezuela 100%
Seagram (China) Ltd. Canada 100%
Shanghai Seagram Limited PRC 60%
J.D.C., S.A. de C.V. Mexico 75%
Seagram (New Zealand) Limited New Zealand 100%
Canadian Distillers Ltd. Canada 100%
Doosan-Seagram Co., Ltd.. Korea 77.8%
</TABLE>
6
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of The Seagram Company Ltd. Registration Statement on Form S-4
(Number 333-61535), Registration Statements on Form S-3 (Numbers 2-99681,
33-42959, 33-42877, 33-67772, 333-4134, 333-4136 and 333-62921) and the
Registration Statements on Form S-8 (Numbers 33-27194, 33-2043, 33-49096,
33-60606, 33-99122 and 333-19059) of our report dated August 12, 1998, except as
to Note 1, which is as of August 25, 1998, appearing on Page 63 of the Annual
Report to the Shareholders of The Seagram Company Ltd. for the fiscal year ended
June 30, 1998, which is incorporated by reference in this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on Page 20 of this Form 10-K.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, N.Y.
September 18, 1998
<PAGE> 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, 1998, (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 12, 1998
- -------------------------
THE SEAGRAM COMPANY LTD.
by Mr. Edgar M. Bronfman
Chairman of the Board
/s/ Edgar M. Bronfman August 12, 1998
- ---------------------
Edgar M. Bronfman
/s/ Charles R. Bronfman August 12, 1998
- -----------------------
Charles R. Bronfman
/s/ Edgar Bronfman, Jr. August 12, 1998
- -----------------------
Edgar Bronfman, Jr.
/s/ Samuel Bronfman II August 12, 1998
- ----------------------
Samuel Bronfman II
/s/ Matthew W. Barrett August 12, 1998
- ----------------------
Matthew W. Barrett
/s/ Laurent Beaudoin August 12, 1998
- -----------------------
Laurent Beaudoin
/s/ Frank J. Biondi, Jr. August 12, 1998
- -----------------------
Frank J. Biondi, Jr.
<PAGE> 2
Signature Date
- --------- ----
/s/ Richard H. Brown August 12, 1998
- --------------------
Richard H. Brown
/s/ William G. Davis August 12, 1998
- --------------------
William G. Davis
/s/ Andre Desmarais August 12, 1998
- --------------------
Andre Desmarais
/s/ Barry Diller August 12, 1998
- ----------------
Barry Diller
/s/ Michele J. Hooper August 12, 1998
- ---------------------
Michele J. Hooper
/s/ David L. Johnston August 12, 1998
- ---------------------
David L. Johnston
/s/ E. Leo Kolber August 12, 1998
- -----------------
E. Leo Kolber
/s/ Marie-Josee Kravis August 12, 1998
- ----------------------
Marie-Josee Kravis
/s/ Robert W. Matschullat August 12, 1998
- -------------------------
Robert W. Matschullat
/s/ C. Edward Medland August 12,1998
- ---------------------
C. Edward Medland
/s/ Samuel Minzberg August 12, 1998
- -------------------
Samuel Minzberg
/s/ John S. Weinberg August 12, 1998
- --------------------
John S. Weinberg
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE SEAGRAM COMPANY LTD. FOR THE FISCAL YEAR ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,174
<SECURITIES> 0
<RECEIVABLES> 2,155
<ALLOWANCES> 0
<INVENTORY> 2,555
<CURRENT-ASSETS> 6,971
<PP&E> 3,911
<DEPRECIATION> (1,178)
<TOTAL-ASSETS> 22,179
<CURRENT-LIABILITIES> 4,709
<BONDS> 2,225
0
0
<COMMON> 848
<OTHER-SE> 8,468
<TOTAL-LIABILITY-AND-EQUITY> 22,179
<SALES> 0
<TOTAL-REVENUES> 9,714
<CGS> 5,630
<TOTAL-COSTS> 5,630
<OTHER-EXPENSES> 3,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,058)
<INCOME-PRETAX> 1,566
<INCOME-TAX> 638
<INCOME-CONTINUING> 880
<DISCONTINUED> 66
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 946
<EPS-PRIMARY> 2.70<F1>
<EPS-DILUTED> 2.68
<FN>
<F1>Basic not primary
</FN>
</TABLE>
