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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-2275
THE SEAGRAM COMPANY LTD.
(Exact name of registrant as specified in its charter)
Canada None
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1430 Peel Street, Montreal, Quebec, Canada H3A 1S9
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (514) 849-5271
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common shares without nominal New York Stock Exchange Vancouver Stock Exchange
or par value Montreal Stock Exchange London Stock Exchange
Toronto Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of common shares held by non-affiliates of the
registrant as of August 31, 1999 (64.31% of the outstanding common shares) was
approximately $14.8 billion. At August 31, 1999, there were 433,103,343 common
shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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Annual Report to Shareholders for the fiscal year ended June 30, 1999. Parts I, II
Proxy Circular for the Annual Meeting of Shareholders to be held on
November 3, 1999. Parts I, III
</TABLE>
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PART I
Items 1 and 2. - Business and Properties
Seagram was organized under Canadian federal law on March 2, 1928,
and operates in four global business segments: music, filmed entertainment,
recreation and other, and spirits and wine. The music business is conducted
through Universal Music Group which is the largest recorded music company in the
world. Universal Music Group produces, markets and distributes recorded music
throughout the world in all major genres. Universal Music Group also
manufactures, sells and distributes video product in the United States and
internationally, and is engaged in the acquisition and licensing of music
copyrights. The filmed entertainment business produces and distributes motion
picture, television and home video products, operates and has ownership
interests in a number of international cable channels and engages in the
licensing of merchandising and film property rights. The recreation and other
business operates theme parks and retail stores and is also involved in the
development of entertainment software. Matsushita Electric Industrial Co., Ltd.
has an approximate 8% ownership interest in the entities which own Universal
Music Group, our filmed entertainment business and our recreation and other
business. The spirits and wine business, directly and through affiliates and
joint ventures, produces, markets and distributes distilled spirits, wines,
Ports and Sherries, and coolers, beers and other low-alcohol adult beverages and
mixers. In addition to marketing owned brands, the spirits and wine business
also distributes distilled spirits, wine, Champagne and beer brands owned by
others. For information as to revenues, operating income and identifiable assets
by business segment, see Note 10 of Notes to Consolidated Financial Statements
included in our Annual Report to Shareholders for the fiscal year ended June 30,
1999 (the "Annual Report"). We use the term "Seagram" to refer to The Seagram
Company Ltd. and its subsidiaries and affiliates unless otherwise specified. All
dollar amounts are stated in U.S. currency unless otherwise specified.
Our executive offices are located at 1430 Peel Street, Montreal,
Quebec, Canada H3A 1S9 and our registered office is located at 592 Colby Drive,
Waterloo, Ontario, Canada N2V 1A2.
Note that throughout this 10-K Report, we "incorporate by reference"
certain information in parts of other documents filed with the
Securities and Exchange Commission ("SEC"). The SEC allows us to
disclose important information by referring to it in that manner.
Please refer to that information.
BUSINESS SEGMENTS
MUSIC
Universal Music Group is the largest recorded music company in the
world. Universal Music Group was formed in December 1998 when we completed the
acquisition of PolyGram N.V. and combined the music businesses of Universal and
PolyGram.
Universal Music Group develops, acquires, produces, markets and
distributes recorded music through a network of subsidiaries, joint ventures and
licensees in 59 countries around the world. We also produce, sell and distribute
music videos in the United States and internationally and publish music.
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In fiscal 1999, Universal Music Group held the number one market
position in every major region of the world. We also had more than 60 albums
with sales of over one million units each. We have the largest music catalogue
in the world and hold the leading position in the classical music market,
accounting for approximately 40% of worldwide classical music sales in fiscal
1999. Our labels include:
- popular labels such as A&M, Blue Thumb, Def Jam, Geffen, Interscope,
Island, MCA, MCA Nashville, Mercury, Mercury Nashville, Motown, Polydor
and Universal;
- leading classical labels Decca/London, Deutsche Grammophon and Philips;
and
- leading jazz labels Verve, GRP and Impulse! Records.
ARTISTS. The success of a music company depends to a significant
degree on its ability to sign and retain artists who will appeal to popular
tastes over a period of time. We believe that the scope and diversity of our
popular music labels, repertoire and catalogues allow us to respond to shifts in
audience tastes. The United States and the United Kingdom continue to be the
source of approximately 60% of international popular repertoire. From time to
time certain national acts, such as Andrea Bocelli from Italy, Aqua from Denmark
and Bjork from Iceland, appeal to a wider international market. Including the
United States and the United Kingdom, however, sales of locally-signed artists
in their home territories still represent 70% of worldwide recorded music sales.
Our leading local market position in almost every major region provides a
critical competitive advantage.
Artists who are currently under contract with Universal Music
Group, directly or through third parties, for one or more important territories
include, among others:
Bryan Adams The Cranberries ERA (Eric Levi) E O Tchan
Aqua Sheryl Crow LL Cool J Shania Twain
Erykah Badu Melissa Etheridge Reba McEntire Texas
Beck Kirk Franklin Metallica McCoy Tyner
The Bee Gees Vince Gill Nine Inch Nails U2
Bjork Charlie Haden 98 Degrees Caetano Veloso
Mary J. Blige Herbie Hancock Florent Pagny Stevie Wonder
Blues Traveler Hanson Luciano Pavarotti Trisha Yearwood
Andrea Bocelli Joe Henderson Andre Rieu Rob Zombie
Bon Jovi Dru Hill The Brian Setzer Orchestra
Boyz II Men Jay-Z Wayne Shorter
Boyzone Sir Elton John Sting
The Cardigans Diana Krall George Strait
In addition to recently released recordings, we also market and
sell recordings from our catalogue of prior releases. Sales from this catalogue
account for a significant and stable part of our recorded music revenues each
year. We own the largest catalogue of recorded music in the world, with
legendary performers from the United States, the United Kingdom and around the
world, such as:
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ABBA John Coltrane Billie Holliday Diana Ross and the Supremes
Louis Armstrong Ella Fitzgerald Buddy Holly Lord Andrew Lloyd Webber
Jimmy Buffett Marvin Gaye Bob Marley and the Wailers The Who
Patsy Cline Jimi Hendrix The Rolling Stones
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ARTIST CONTRACTS, PRODUCTION, MARKETING AND DISTRIBUTION. We seek to
contract with our popular artists on an exclusive basis for the marketing of
their recordings (both audio and audio-visual) in return for a percentage
royalty on the wholesale or retail selling price of the recording. We generally
seek to obtain rights on a worldwide basis, although certain of our artists have
licensed rights for certain countries or regions to other record companies.
While exclusive classical artist contracts are common, and can extend over a
long period, many artists and orchestral contracts are short in duration and
refer only to specific recordings. Established artists command higher advances
and royalty rates and it is not unusual for a recording company to renegotiate
contract terms with a successful artist.
A contract either provides for the artist to deliver completed
recordings to us or for Universal Music Group to undertake the recording with
the artist. For artists without a recording history, we are often involved in
selecting producers, recording studios, additional musicians, and songs to be
recorded, and we may supervise the output of recording sessions. For established
artists, we are usually less involved in the recording process.
Marketing involves advertising and otherwise gaining exposure for our
recordings and artists through magazines, radio, television, internet, other
media and point-of-sale material. Public performances are also considered an
important element in the marketing process, and we provide financing for concert
tours by certain artists. Television marketing of both specially compiled
products and new albums is becoming increasingly important. Marketing is carried
out on a territory-by-territory basis, although global priorities and strategies
for certain artists are set centrally.
We employ sales representatives who obtain orders from wholesalers and
retailers. In all major territories except Japan and Brazil we have our own
distribution services for the storage and delivery of finished product to
wholesalers and retailers. In certain territories we have entered into
distribution joint ventures with other record companies.
We also sell music product directly to the consumer, principally
through two direct mail club organizations: Britannia Music in the United
Kingdom and D.I.A.L. in France.
E-COMMERCE AND ELECTRONIC DELIVERY. Universal Music Group is at the
forefront of the development of music distribution through e-commerce and
electronic delivery, which will permit consumers to sample music on the Web,
order it, have it delivered and pay for it electronically. Universal Music Group
recently announced a long-term agreement with InterTrust Technologies
Corporation to establish standards for the secure and convenient electronic
delivery of music directly to the home, and we are actively participating in the
Secure Digital Music Initiative (SDMI), a program which was created jointly by
an extensive group of content, consumer electronics, hardware, software and
internet companies to develop and define worldwide standards for the protection
of music and other digitizeable intellectual property. In April 1999, Universal
Music Group and BMG Entertainment formed GetMusic, a joint venture designed to
create online communities of music fans, promote artists and sell CDs online
through genre-based music channels. We expect GetMusic will have access to a
combined database of 50 million customers worldwide, and will offer, among other
features, exclusive artist information, exclusive interviews, and the ability to
chat on-line with artists and their fans. In May 1999, Universal Music Group
entered into a joint agreement with AT&T, BMG Entertainment and Matsushita
Electric Industrial Co. to develop and test technology for large-scale, secure
music and media distribution.
MUSIC PUBLISHING. Music publishing involves the acquisition of rights
to, and licensing of, musical compositions (as compared to recordings). Our
publishing catalogue includes more than 600,000 titles that we own or control,
making Universal Music Group one of the world's largest music publishers.
We enter into
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agreements with composers and authors of musical compositions for the purpose of
licensing the compositions for use in sound recordings, films, videos and by way
of live performances and broadcasting. In addition, we license compositions for
use in printed sheet music and song folios. We also license and acquire
catalogues of musical compositions from third parties such as other music
publishers and composers and authors who have retained or re-acquired rights.
MANUFACTURING AND OTHER FACILITIES. In connection with our music
entertainment activities, we own manufacturing facilities in the United States,
France, Germany and the United Kingdom and office buildings and warehouse
facilities in various countries. In addition to our wholly-owned facilities, we
also own a manufacturing facility in the United States through a joint venture.
Where we do not own property, we lease warehouses and office space.
COMPETITION. The music entertainment industry is highly competitive.
The profitability of a company's recorded music business depends on its ability
to attract and develop recording artists, the public acceptance of those artists
and the recordings released in a particular period. Universal Music Group
competes for creative talent both from new artists and those artists who have
already established themselves through another label. Following a pattern
established in the United States, European retailers have begun to consolidate,
with increasing quantities of product being sold through multinational retailers
and buying groups and other discount chains. This has increased competition for
shelf space among the recorded music companies. The recorded music business
continues to be adversely affected by counterfeiting, piracy and parallel
imports, primarily in Eastern Europe, Asia and Latin America, and may be
affected in the future by the ability to download quality sound reproductions
from the internet without authorization.
FILMED ENTERTAINMENT
Universal Studios' filmed entertainment business:
- produces and distributes films worldwide in the theatrical, home video
and television markets;
- produces and distributes episodic television and made-for-television
programming;
- operates and has ownership interests in a number of international
channels including:
The Sci-Fi Channel U.K.;
USA Latin America and Brazil;
13th Street, action and suspense channels in France,
Germany and Spain; and
Studio Universal, a movie channel in Italy;
- engages in the licensing of merchandising rights and film property
publishing rights; and
- engages in certain other activities through its ownership of the joint
venture and equity interests described below.
PRODUCTION, MARKETING AND DISTRIBUTION. Universal Studios produces
feature-length films intended for initial theatrical exhibition and television
programming. Major motion pictures produced over the past several years include
The Lost World: Jurassic Park and Liar, Liar, and more recently, such box office
hits as Patch Adams starring Robin Williams, The Mummy starring Brendan Fraser,
Notting Hill starring Julia Roberts and Hugh Grant, Bowfinger starring Eddie
Murphy and Steve Martin and American Pie. In addition, we produce animated and
live action children's and family programming for networks, basic cable and
local
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television stations as well as home video.
The arrangements under which we produce, distribute and own
theatrical films vary widely. Other parties may participate in varying degrees
in revenues or other contractually defined amounts. We control worldwide
distribution of our theatrical product, except where we act as a subdistributor
in specified territories or contract for specified territories or for
specifically defined distribution rights.
Generally, we distribute theatrical films in the theatrical, home
video and pay television markets. Subsequently, we make theatrical films
available for broadcast on network and basic cable distribution throughout the
world. The theatrical license agreements with theater operators are on an
individual picture basis, and fees under these agreements are generally a
percentage of the theater's receipts with, in some instances, a minimum
guaranteed amount.
The production/distribution cycle represents the period of time
from acquisition of a property through distribution. The length of the cycle
varies depending upon such factors as type of product and release pattern.
Production generally includes four steps: acquisition of story rights,
pre-production, principal photography and post-production. Production activities
for theatrical films are generally based at Universal City, California. These
production facilities are also leased to outside parties. Some motion picture
films and television products are produced, in whole or in part, at other
locations both inside and outside of the United States.
We distribute our theatrical product in the United States and
Canada to motion picture theaters. Theatrical distribution throughout the rest
of the world is primarily conducted by United International Pictures, which is
equally owned by Universal Studios, Metro-Goldwyn-Mayer Inc. and Paramount
Pictures Corporation. Television distribution of our 24,000 episode library in
the United States is handled by USANi LLC, a subsidiary of USA Networks, Inc.
("USA Networks"), and throughout the rest of the world primarily by Universal
Studios. Universal Studios distributes television product produced by USANi LLC
in international markets. Videocassettes and videodiscs are marketed in the
United States and Canada by Universal Studios and outside the United States and
Canada primarily by United Pictures International, a wholly-owned subsidiary of
Universal Studios.
The rights to use the characters, titles and other material and
rights from television and theatrical films and other sources are licensed to
manufacturers, retailers and others by Universal Studios.
USA NETWORKS, OTHER EQUITY INTERESTS AND CERTAIN JOINT VENTURES.
Universal Studios holds an effective 45% equity interest in USA Networks through
its ownership of common stock and Class B common stock of USA Networks and
shares of USANi LLC, which Universal can exchange for common stock and Class B
common stock of USA Networks. USA Networks primarily engages in electronic and
online retailing, network and first-run syndication television production,
domestic distribution of its and Universal Studios' television productions and
the operation of the USA Network and Sci-Fi Channel Cable Networks.
Universal Studios also has an approximate 26% interest in Loews
Cineplex Entertainment Corporation, which exhibits theatrical films principally
in the United States and Canada, and a 49% interest in United Cinemas
International Multiplex B.V. and Cinema International Corporation, which operate
motion picture theaters outside of the United States and Canada.
COMPETITION. Our filmed entertainment business competes with all
other forms of entertainment. We compete with other major film studios and
independent producers for creative talent and story products, which are
essential ingredients of our filmed entertainment products. The profitability of
our filmed entertainment business is dependent upon public taste which is
volatile and shifts in demand and is affected by economic
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conditions and technological developments.
RECREATION AND OTHER
We have a 50% interest in Universal City Florida Partners, a joint
venture which owns Universal Studios Florida, a theme park based on Universal
Studios' filmed entertainment business, on approximately 440 acres owned by the
joint venture in Orlando, Florida. Universal City Development Partners, a
partnership in which we have a 50% interest, recently opened an additional theme
park, Universal Studios Islands of Adventure and Universal Studios CityWalk, a
dining, retailing and entertainment complex, on approximately 385 acres of land
owned by the partnership adjacent to Universal Studios Florida. We also have a
25% interest in a joint venture which is currently developing three hotels
adjacent to the Orlando theme parks. The first hotel, The Portofino Bay Hotel,
opened in September 1999. The theme parks, Universal Studios CityWalk and hotels
together comprise the newest Orlando multi-day entertainment resort, Universal
Studios Escape. We also own Wet 'n Wild Orlando, a water park which is adjacent
to Universal Studios Escape.
Universal Studios also owns and operates Universal Studios
Hollywood, a theme park located at Universal City, California. Adjacent to
Universal Studios Hollywood is Universal Studios CityWalk, an integrated
retail/entertainment area which offers shopping, dining, cinemas and
entertainment. This Universal Studios CityWalk is currently being expanded from
300,000 to 400,000 square feet.
Since October 1998, construction has been underway for Universal
Studios Japan in Osaka. Universal Studios Japan is owned by USJ Co., in which
Universal owns a 24% interest, and will be located on 133 acres of land leased
by certain USJ Co. shareholders. Opening is scheduled for 2001. We also own a
37% interest in, and manage, Universal Studios Port Aventura, a theme park
located on the Mediterranean coast of Spain near Barcelona. In October 1998,
Universal Studios opened Universal Studios Experience Beijing, a permanent
exhibit featuring Universal Studios branded properties.
Universal Studios owns, develops and manages commercial buildings
with approximately 2.4 million rentable square feet of office space in Universal
City, including Universal Studios CityWalk and the 10 Universal City Plaza
office building, which are occupied by Universal Studios or leased to outside
tenants, and Universal Studios owns the Sheraton-Universal Hotel. Universal
Studios also owns a 100,000 square foot office building adjacent to the
Universal City property.
Universal owns approximately 27% of SEGA GameWorks L.L.C. which
designs, develops and operates location-based entertainment centers. SEGA
GameWorks currently owns and operates eleven such centers throughout the United
States.
In addition, Universal Studios Group is involved in other
businesses including the operation of retail gift stores and the development of
entertainment software. We own Spencer Gifts, Inc. which operates approximately
630 retail gift stores throughout North America through three groups of stores:
Spencer, DAPY and Glow gift shops. Spencer, DAPY and Glow sell novelties,
electronics, accessories, books and trend driven products. In connection with
the activities of Spencer Gifts, Inc., we own a building in New Jersey and lease
approximately 570 stores in various cities in the United States and a warehouse
in North Carolina.
Universal Studios New Media, Inc. develops entertainment software
including the Crash Bandicoot and Spyro game series, is responsible for the
development and maintenance of Universal's websites and manages our approximate
26% interest in Interplay Entertainment Corp., an entertainment software
developer.
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COMPETITION. Our theme parks compete with other theme parks in
their respective geographic regions and other leisure-time activities. The
profitability of the leisure-time industry is influenced by various factors
which are outside of our control such as economic conditions, amount of
available leisure time, transportation prices and weather patterns.
The Spencer, DAPY and Glow stores compete with numerous retail
firms of various sizes throughout the United States, including department and
specialty niche-oriented gift stores.
SPIRITS AND WINE
Our spirits and wine business, directly and through affiliates and
joint ventures in more than 40 countries and territories, produces, markets and
distributes more than 235 brands of distilled spirits, more than 180 brands of
wines, Ports and Sherries, and more than 40 brands of coolers, beers, mixers and
other low-alcohol adult beverages and mixers, which are sold in over 190
countries and territories. Some of these products are sold worldwide and others
only in the geographic area where they are produced. In addition to marketing
our own brands, we also distribute distilled spirits, Champagne, wine and beer
brands owned by others.
Some of our best-known brand names include:
- - Crown Royal and Seagram's V.O. Canadian Whiskies
- - Seagram's 7 Crown Blended Whiskey
- - Four Roses Bourbon
- - Chivas Regal, Royal Salute and Passport Scotch Whiskies
- - The Glenlivet and Glen Grant Single Malt Scotch Whiskies
- - Martell Cognacs
- - Seagram's Extra Dry Gin
- - Captain Morgan and Myers's Rums
- - Don Julio and Tres Magueyes Tequila
We also distribute ABSOLUT VODKA, owned by V&S Vin & Sprit Aktiebolag, in the
United States and in most major international markets.
We import fine wines into the United States, principally French
wines and Champagnes, and produce and market premium California and other wines.
Among the wines we produce or market are:
- - Sterling Vineyards California Wines
- - Tessera California Wines
- - Mumm Cuvee Napa California Sparkling Wine
- - Sandeman Ports and Sherries
- - Matheus Muller (German Sparkling Wine)
- - Mumm Sekt (German Sparkling Wine)
We also distribute Mumm and Perrier-Jouet Champagnes, owned by Financiere
Moulins de Champagne, in global markets. The Monterey Vineyard California wines
and Barton & Guestier (B&G) French wines are produced for us.
Seagram also markets low-alcohol and non-alcohol adult beverages.
Seagram's Coolers are sold in a
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variety of fruit and mixed drink flavors. Our mixer line includes ginger ale,
club soda, tonic water and seltzer.
We are the exclusive U.S. distributer of Grolsch Beer, owned by
Royal Grolsch N.V., and of Steinlager Beer, owned by Lion Nathan Limited.
We maintain distilleries and spirits bottling plants in 15
countries in North America, South America, Europe, Asia and Australia which have
aggregate daily distillation capacities of approximately 253,000 U.S. proof
gallons and aggregate daily bottling capacities of approximately 275,000
standard cases.
We maintain large inventories of aging spirits in warehousing
facilities located primarily in Canada, France, the United Kingdom and the
United States. Such inventories aggregated approximately 501 million U.S.
proof gallons at June 30, 1999.
We use grains, principally corn and barley, purchased from a large
number of suppliers to produce our spirits. Fluctuations in the prices of these
commodities have not had a material effect upon operating results. We acquire
substantially all of our American white oak barrels (used for the storage of
whisky during the aging period) from one supplier in the United States and we
purchase plastic and glass bottles and packaging materials from several
suppliers. We believe that our relationships with our various suppliers are
good.
Our wines and Cognacs are produced primarily from grapes grown by
others. Grapes are, from time to time, adversely affected by weather and other
forces which occasionally limit production. We believe that our relationships
with our growers are good.
We operate wineries and wine bottling plants in 12 countries. At
June 30, 1999, our bulk wine inventory aggregated approximately 28 million wine
gallons.
MARKETING AND DISTRIBUTION. A significant portion of our revenues
from our spirits and wine operations comes from sales outside of the United
States and Canada. In addition to economic and currency risks, Seagram's foreign
operations involve risks including governmental regulation, embargoes,
expropriation, export controls, burdensome taxes, government price restraints
and exchange controls.
Generally we sell spirits, wines, coolers, beers and other low
alcohol adult beverages to two categories of customers in the United States. In
32 states and the District of Columbia, sales are made to approximately 335
wholesale distributors who also purchase and market other brands of distilled
spirits, wines, coolers, beers and other low alcohol adult beverages. In 18
"control" states (where the state government engages in distribution), sales are
made to state and local liquor boards and commissions; in certain of these
states, sales of wines, coolers, beers and other low alcohol adult beverages are
also made to approximately 275 wholesale distributors. In Canada, sales are made
exclusively to ten provincial and three territorial government liquor boards and
commissions.
Outside the United States and Canada, our spirits and wines are
marketed either through affiliates, joint ventures or independent distributors.
Our affiliates and joint ventures are located in: Argentina, Australia, Belgium,
Brazil, Chile, the People's Republic of China, Colombia, Costa Rica, the Czech
Republic, the Dominican Republic, France, Germany, Greece, Hungary, Hong Kong,
India, Israel, Italy, Jamaica, Japan, the Republic of Korea, Mexico, The
Netherlands, New Zealand, Poland, Portugal, Singapore, Slovakia, South Africa,
Spain, Sweden, Switzerland, Taiwan, Thailand, Ukraine, the United Kingdom,
Uruguay and Venezuela.
COMPETITION. The spirits and wine industry is highly competitive.
Due to recent formation of multinational retailers and buying groups in Europe,
all marketers in the industry have confronted severe
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pricing pressure across Europe. These Euro-based multinational retailers and
buying groups have also expanded into certain markets in Asia and Latin America.
Diageo PLC, which resulted from the merger of two of the largest spirits and
wine companies, Grand Metropolitan PLC and Guinness PLC, continues to present
significant challenges for our spirits and wine business.
We continue to address these competitive challenges by investing
in our core brands and key growth markets. We use magazine, newspaper and
outdoor advertising to maintain and improve our brands' market position. We also
utilize radio and television advertising, although the use of such advertising
in connection with the sale of beverage alcohol is restricted by law or
commercial practice in certain countries, including the United States.
REGULATION AND TAXES. Our beverage alcohol business is subject to
strict governmental regulation covering virtually every aspect of operations,
including production, marketing, pricing, labeling, packaging and advertising.
In the United States, we must file or publish prices for our beverage alcohol
products in some states as much as three months before they go into effect.
In the United States, Canada and many other countries, beverage
alcohol products are subject to substantial excise taxes or custom duties and
additional taxation by governmental subdivisions.
INTEREST IN DUPONT
At June 30, 1999, we owned approximately 16.4 million shares of
common stock of E.I. du Pont de Nemours and Company which had a market value of
approximately $1.1 billion as of such date.
EMPLOYEES
As of June 30, 1999, we employed approximately 34,000 people. The
number of employees is subject to seasonal fluctuations.
We have collective bargaining agreements with a number of labor
unions which cover approximately 13,200 of our employees in the United States
and other countries and govern wages and benefits, hours, working conditions and
similar matters. These agreements expire at various times between 1999 and 2002.
In general, we believe our labor relations are good.
Item 3. Legal Proceedings
On November 17, 1995, a class action was filed in the Superior
Court for the State of California, Los Angeles County, entitled The Estate of
Jim Garrison, etc. v. Warner Bros., Inc. Paramount Pictures Corp., Twentieth
Century Fox Film Corp., Universal City Studios, Inc., United Artists
Corporation, Metro-Goldwyn-Mayer, Inc., Sony Pictures Entertainment, Inc.,
Columbia Pictures, Inc., The Walt Disney Company, Walt Disney Productions, Inc.,
Touchstone Pictures, Inc., Hollywood Pictures, Inc., Tristar Pictures, Inc., and
Motion Picture Association of America, No. 95-8328-RMT. The action was removed
to the United States District Court for the Central District of California on
December 15, 1995. The plaintiffs are representatives of the Estate of Jim
Garrison, who was the author of the book On the Trail of the Assassin, on which
the motion picture JFK was based. JFK was distributed by Warner Bros. Universal
had no involvement in the production or distribution of JFK. Plaintiffs allege
that the major motion picture studios, including Universal, have conspired, in
alleged violation of antitrust laws, to fix the terms of so-called "net profits"
provisions in contracts between the studios and actors, writers, directors,
producers and other talent. Plaintiffs brought the lawsuit on behalf of a class
of all "talent" who have entered into allegedly "standard" net profits
agreements
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with one or more of the defendants during the period January 1, 1988 to the
present. Plaintiffs seek three times their unspecified actual damages under the
antitrust laws. The District Court initially certified a class; however, on June
1, 1998, the District Court, on its own motion, decertified the class. Thus, the
matter was no longer a class action, and Universal remained a defendant only in
the antitrust claims being pursued by the individual plaintiffs. The matter was
then settled, and dismissed on March 31, 1999.
On May 30, 1995, a purported retailer class action was filed in
the United States District Court for the Central District of California,
entitled Digital Distribution Inc. d/b/a Compact Disc Warehouse v. CEMA
Distribution, Sony Music Entertainment, Inc., Warner Elektra Atlantic
Corporation, Universal Music & Video Distribution, Inc. (formerly known as UNI
Distribution Corp.), Bertelsmann Music Group, Inc. and PolyGram Group
Distribution, Inc., No. 95-3596 JSL. The plaintiffs brought the action on behalf
of direct purchasers of compact discs alleging that defendants, including
Universal Music & Video Distribution, Inc. (formerly known as UNI Distribution
Corp.), and PolyGram Group Distribution, Inc., violated the federal and/or state
antitrust laws and unfair competition laws by engaging in a conspiracy to fix
prices of compact discs, and seek an injunction and treble damages. The
defendants' motion to dismiss the amended complaint was granted and the action
was dismissed, with prejudice, on January 9, 1996. Plaintiffs filed a notice of
appeal on February 12, 1996. By an order filed July 3, 1997, the Ninth Circuit
reversed the District Court and remanded the action. Upon reinstatement of this
litigation by the Ninth Circuit, a number of related actions were filed, which
all arise out of the same claims and subject matter. These related actions are
captioned: Chandu Dani d/b/a Compact Disc Warehouse and Record Revolution, et
al., v. EMI Music Distribution (formerly known as CEMA Distribution), Sony Music
Entertainment, Inc.; Warner Elektra Atlantic Corporation, Universal Music &
Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann
Music Group, Inc., and PolyGram Group Distribution, Inc., No. CV 97-7226 (JSL),
filed on September 30, 1997 in the U.S. District Court for the Central District
of California; Third Street Jazz and Rock Holding Corporation, et al., v. EMI
Music Distribution (formerly known as CEMA Distribution), Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music &
Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann
Music Group, Inc., and PolyGram Group Distribution, Inc., No. CV 97-8864 JSL
(VAPx), filed on October 21, 1997 in the U.S. District Court for the Central
District of California; T. Obie, Inc. d/b/a/ Chestnut Hill Compact Disc v. EMI
Music Distribution (formerly known as CEMA Distribution), Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corporation, Universal Music &
Video Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann
Music Group, Inc., and PolyGram Group Distribution, Inc., No. 97 Civ. 7764 LMM,
filed on October 21, 1997 in the U.S. District Court for the Southern District
of New York; Nathan Muchnick, Inc., et al., v. Sony Music Entertainment, Inc.,
PolyGram Group Distribution, Inc., Bertelsmann Music Group, Inc., Universal
Music & Video Distribution, Inc. (formerly known as UNI Distribution Corp.),
Warner Elektra Atlantic Corporation, and EMI Music Distribution, Inc./Capitol
Records, Inc., No. 98 Civ. 0612, filed on January 28, 1998 in the U.S. District
Court for the Southern District of New York. The Digital Distribution, Chandu
Dani, and Third Street Jazz matters have been set for trial on February 15,
2000. On February 17, 1998, a purported consumer class action was filed in the
Circuit Court for Cocke County, Tennessee, Civil Action No., 24,885 II, entitled
Doris D. Ottinger, et al., v. EMI Music Distribution, Inc., Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corp., Universal Music & Video
Distribution, Inc. (formerly known as UNI Distribution Corp.), Bertelsmann Music
Group, Inc., and PolyGram Group Distribution, Inc. A motion to dismiss was filed
on May 11, 1998, and is pending.
On January 16, 1998, the Competition Directorate of the Commission
of the European Community issued a Statement of Objections in response to the
application of United International Pictures ("UIP") for a renewal of its
exemption from Article 85(1) of the Treaty of Rome with respect to UIP's
theatrical distribution activities within the European Union. UIP is a
partnership that is owned equally by Universal Studios, Metro-Goldwyn-Mayer and
Paramount Pictures Corporation. It was created in 1981 for the purpose of
achieving cost savings in the distribution of motion pictures to theaters
internationally, including Europe. In 1989, after
11
<PAGE> 12
lengthy proceedings, the European Commission granted UIP an exemption from
Article 85(1) with respect to UIP's theatrical distribution activities within
the European Union. Article 85(1) of the Treaty of Rome prohibits certain
agreements and concerted practices which prevent, restrict or distort trade
within the European Union. In 1993, prior to the stated expiration of the 1989
exemption, UIP filed an application to extend this exemption. Following a
two-day hearing on the matter on September 24 and 25, 1998, in Brussels, on
September 9, 1999, the Commission issued a letter granting the renewal of the
exemption to UIP, based on certain conditions.
On or about July 25, 1996, Universal Music & Video Distribution,
Inc. and PolyGram Group Distribution, Inc. were served with an antitrust civil
investigation demand from the Office of the Attorney General of the State of
Florida that calls for the production of documents in connection with an
investigation to determine whether there "is, has been or may be" a "conspiracy
to fix the prices" of compact discs or conduct consisting of "unfair methods of
competition" or "unfair trade practices" in the sale and marketing of compact
discs. No allegations of unlawful conduct have been made against Universal
Musical & Video Distribution, Inc. or PolyGram Group Distribution, Inc.
By letter dated April 11, 1997, the Federal Trade Commission
("FTC") advised Universal Music & Video Distribution, Inc. and PolyGram Group
Distribution, Inc. that it is conducting a preliminary investigation to
determine whether minimum advertised pricing programs used by major record
distributors constitute an unfair method of competition in violation of Section
5 of the Federal Trade Commission Act. Universal Music & Video Distribution,
Inc. and PolyGram Group Distribution, Inc. received a subpoena dated September
19, 1997 for the production of documents. No allegations of unlawful conduct
have been made against Universal Music & Video Distribution, Inc. or PolyGram
Group Distribution, Inc.
On or about July 15, 1995, PolyGram was served with a civil
investigation demand from the U.S. Department of Justice ("DOJ") seeking
information and documentation relating to an investigation by the DOJ's
Antitrust Division (the "Antitrust Division") into certain alleged
"collaborative undertakings between PolyGram and other music companies related
to cable, wire and satellite-delivered music and music video programmers." In
April 1998, PolyGram and certain other major music companies, excluding
Universal, were advised by the Antitrust Division that it was their tentative
recommendation to file a complaint seeking a decree to prevent PolyGram and such
major music companies from using foreign collective licensing societies to
license music video broadcasters. The Antitrust Division also indicated that it
was considering adding to this complaint, a claim seeking to restrict PolyGram
and such major music companies from entering into music video broadcasting joint
ventures absent prior notice to, and approval from, the DOJ. Thereafter, at the
invitation of the Antitrust Division, PolyGram and the major music companies
jointly submitted a "White Paper" setting forth their collective view that no
complaint was warranted and the investigation should be closed. In July, 1998, a
further meeting was held among counsel for PolyGram and the other major music
companies and the Antitrust Division to discuss the Antitrust Division's
tentative recommendations. PolyGram has now been advised by the DOJ that this
investigation has been closed.
12
<PAGE> 13
On August 30, 1999, the Australian Competition and Consumer
Commission ("ACCC") commenced proceedings against Universal Music Australia Pty
Limited (formerly PolyGram Pty Limited) and three former employees of PolyGram,
alleging violations of the Australian Trade Practices Act, the statute which
governs competition law in Australia. The ACCC alleges that Universal has taken
certain unlawful steps to restrict parallel imports into Australia to reduce
price competition in the sale of sound recordings. Separate proceedings making
similar allegations have also been commenced against certain other record
companies in Australia and their current or former employees, and against two
industry trade associations in Australia. The ACCC seeks injunctive relief to
eliminate any unlawful restrictions on parallel imports into Australia and the
imposition of fines against Universal and the three individuals who were
employees of PolyGram. Universal and the three individuals are vigorously
defending these proceedings.
On February 4, 1999, the Antitrust Division issued a civil
investigative demand to Universal as well as to a number of other motion picture
film distributors and exhibitors as part of a civil investigation into
compliance with the consent decrees entered in U.S. v. Paramount Pictures, et
al. and various other practices in the motion picture distribution and
exhibition industry. The civil investigative demands require the distributors
and exhibitors to provide documents and other information to the Antitrust
Division. The scope of the investigation and the extent, if any, to which it may
relate to Universal is not known at this time. Universal has responded to the
government's demand.
Seagram and its subsidiaries and affiliates are defendants or
respondents in a number of other actions arising in the ordinary course of
business.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
13
<PAGE> 14
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
Information as to the number of holders of record of our common
shares, the markets on which such shares are traded, the quarterly high and low
prices for such common shares on the Toronto and New York Stock Exchanges, and
the quarterly dividends declared on such common shares during the last three
fiscal years is incorporated herein by reference to the Management's Discussion
and Analysis section captioned "Return to Shareholders" on page 38 of the Annual
Report.
Payment of dividends to our shareholders who are not residents of
Canada is subject under Canadian law to Canadian withholding tax. Dividends paid
to shareholders residing in the United States is subject to 15% withholding
pursuant to currently existing treaty arrangements between the United States and
Canada. For shareholders who are residents of other countries, the withholding
rate varies depending upon the existence and terms of applicable treaties
between each such other country and Canada.
Item 6. Selected Financial Data
Selected historical financial information is incorporated by
reference to the Financial Summary on page 67 of the Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis of financial condition and
results of operations is incorporated herein by reference to pages 22 through 38
of the Annual Report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and qualitative disclosures about market risk are
incorporated herein by reference to pages 34 through 35 of the Annual Report.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements, together with the report
thereon of Pricewaterhouse- Coopers LLP dated August 18, 1999 and the
supplementary quarterly data are incorporated herein by reference to pages 39
through 67 of the Annual Report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
14
<PAGE> 15
PART III
Item 10. - Directors and Executive Officers of the Registrant
Information about our directors is incorporated by reference to
pages 6 through 8 of the Proxy Circular for the Annual Meeting of Shareholders
to be held on November 3, 1999 (the "Proxy Circular") under the caption
"Election of Directors -- Nominees for Director".
Set forth below is certain information with respect to our
executive officers.
<TABLE>
<CAPTION>
Title and Other Office Held
Name Age Information Since
---- --- --------------- -----------
<S> <C> <C> <C>
Edgar M. Bronfman 70 Chairman of the Board and Director. 1975
Charles R. Bronfman 68 Co-Chairman of the Board, Chairman of the 1986
Executive Committee and Director.
Edgar Bronfman, Jr. 44 President, Chief Executive Officer and Director. 1994
Robert W. Matschullat 51 Vice Chairman, Chief Financial Officer and 1995
Director since October 1995. Previously, he was
Managing Director and Head of Worldwide
Investment Banking for Morgan Stanley & Co., Inc.
and a director of Morgan Stanley Group Inc.
John D. Borgia 51 Executive Vice President, Human Resources since 1995
May 1995. Previously, he was Senior Vice
President, Human Resources & Administration,
Bristol-Myers Squibb Pharmaceutical Group.
Daniel R. Paladino 56 Executive Vice President, Legal and Environmental 1996
Affairs since October 1996. Previously, he was
Vice President, Legal and Environmental Affairs.
Tod R. Hullin 56 Senior Vice President, Corporate Communications 1998
and Public Affairs since November 1998.
Previously, he was Senior Vice President,
Communications and Public Affairs, Time Warner,
Inc.
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
Title and Other Office Held
Name Age Information Since
---- --- --------------- -----------
<S> <C> <C> <C>
John R. Preston 52 Vice President and Treasurer since June 1998. 1998
From January 1997 to June 1998, he was Vice
President, Finance. Previously, he was
Reengineering Financial Management/Post Merger
Integration Team Leader.
Michael C.L. Hallows 58 Secretary. 1979
</TABLE>
Our Board of Directors chooses our executive officers annually.
Once chosen, these executive officers hold office until they resign, are removed
or otherwise become disqualified to serve.
Item 11. Executive Compensation
Information about executive compensation is incorporated herein by
reference to pages 13 through 21 of the Proxy Circular under the captions
"Summary Compensation Table" through "Performance Graph".
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information about the ownership of Seagram's common shares by
certain beneficial owners and management is incorporated herein by reference to
pages 2 through 5 of the Proxy Circular under the caption "Share Ownership".
Item 13. Certain Relationships and Related Transactions
As of August 31, 1999, Koninklijke Philips Electronics N.V.
("Philips") owned approximately 11.04% of Seagram's common shares, which it
acquired as part of Seagram's acquisition of PolyGram in fiscal 1999. Cornelis
Boonstra, a director of Seagram, is Chairman and President of Philips. Philips
and subsidiaries of Seagram are parties to intellectual property and
distribution arrangements containing normal business terms and conditions.
Information about certain relationships and transactions with
related parties is incorporated herein by reference to pages 21 through 24 of
the Proxy Circular under the captions "Human Resources Committee Interlocks and
Insider Participation" and "Transactions with Directors and Others".
16
<PAGE> 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1&2. Financial Statements and Financial
Statement Schedules
The financial statements and schedules filed as part of or
incorporated by reference in this Report are listed in the accompanying Index to
Financial Statements.
3. Exhibits
The exhibits filed as part of or incorporated by reference in this
Report are listed in the accompanying Exhibit Index. Exhibits 10(l) through
10(hh) listed in the accompanying Exhibit Index identify management contracts or
compensatory plans or arrangements.
(b) Current Reports on Form 8-K
1. A Current Report on Form 8-K dated April 7, 1999 was filed to
report under Item 2 and file under Item 7 a press release announcing Seagram's
agreement in principle to sell certain PolyGram Filmed Entertainment assets to
Universal Networks, Inc. and the merger of October Films, in which Seagram owned
a majority interest, with a subsidiary of USA Networks, Inc.
2. A Current Report on Form 8-K dated April 9, 1999 was filed to file
under Item 7 certain documents relating to Seagram's Registration Statement (No.
333-62921) on Form S-3.
3. A Current Report on Form 8-K dated May 13, 1999 was filed to
report under Item 5 and file under Item 7 unaudited pro forma financial
statements that give effect to the sale of Tropicana, the acquisition of
PolyGram and certain other transactions.
4. A Current Report on Form 8-K dated September 20, 1999 was filed to
report under Item 5 and file under Item 7 Seagram's consolidated financial
statements for the fiscal year ended June 30, 1999.
17
<PAGE> 18
FORWARD LOOKING STATEMENTS
This Form 10-K contains statements that are "forward-looking
statements," in that they include statements regarding the intent, belief or
current expectations of our management with resect to our future operating
performance. These forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. All
statements that express forecasts, expectations and projections with respect to
future matters, including the launching or prospective development of new
business initiatives and products, anticipated music or motion picture releases,
internet or theme park projects, and "Year 2000" remediation efforts and
anticipated cost savings or synergies are forward-looking statements within the
meaning of the Act. Such forward-looking statements are not guarantees of future
performance. Actual results may differ materially from our forward-looking
statements as a result of certain risks and uncertainties, many of which are
outside of our control, including but not limited to:
- - Changes in global and localized economic and political conditions
which may affect attendance and spending at our theme parks,
purchases of our consumer products and the performance of our
filmed entertainment operations.
- - Changes in financial and equity markets, including significant
interest rate and foreign currency rate fluctuations, which may
affect our access to, or increase the cost of financing for, our
operations and investments.
- - Increased competitive product and pricing pressures and
unanticipated actions by competitors that could impact our market
share, increase expenses or hinder our growth potential.
- - Changes in consumer preferences and tastes, which may affect all
our business segments.
- - Adverse weather conditions or natural disasters, such as
hurricanes and earthquakes, which may, among other things, impair
performance at our theme parks in California, Florida or Spain.
- - Legal and regulatory developments, including changes in accounting
standards, taxation requirements, such as the impact of excise tax
increases with respect to the spirits and wine business, and
environmental laws.
- - Technological developments that may affect the distribution of our
products or create new risks to our ability to protect our
intellectual property rights.
- - The uncertainties of litigation and other risks and uncertainties
detailed from time to time in our filings with the Securities and
Exchange Commission.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE SEAGRAM COMPANY LTD.
(Registrant)
Date: September 28, 1999 By /s/ Robert W. Matschullat
-------------------------
Robert W. Matschullat
Chief Financial Officer
19
<PAGE> 20
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed on September 28, 1999 by the following persons
on behalf of the Registrant and in the capacities indicated.
Principal Executive Officer:
/s/ Edgar Bronfman, Jr. Director, President and Chief
- ----------------------------- Executive Officer
Edgar Bronfman, Jr.
Principal Financial Officer:
/s/ Robert W. Matschullat Director, Vice Chairman and
- ----------------------------- Chief Financial Officer
Robert W. Matschullat
Principal Accounting Officer:
/s/ Robert W. Matschullat Director, Vice Chairman and
- ----------------------------- Chief Financial Officer
Robert W. Matschullat
Directors:
Edgar M. Bronfman* Director, Chairman of the Board
The Hon. Charles R. Bronfman* Director, Co-Chairman of
the Board and Chairman of the
Executive Committee
Samuel Bronfman II* Director
Matthew W. Barrett* Director
Laurent Beaudoin* Director
Cornelis Boonstra* Director
Richard H. Brown* Director
The Hon. William G. Davis* Director
Andre Desmarais* Director
Barry Diller* Director
Michele J. Hooper* Director
David L. Johnston* Director
The Hon. E. Leo Kolber* Director
Marie-Josee Kravis* Director
Samuel Minzberg* Director
John S. Weinberg* Director
* By signing his name hereto, Robert W. Matschullat signs this document on
behalf of each of the persons indicated above pursuant to powers of attorney
duly executed by such persons and filed with the Securities and Exchange
Commission.
By /s/ Robert W. Matschullat
-----------------------------
Robert W. Matschullat, Attorney-in-fact
20
<PAGE> 21
THE SEAGRAM COMPANY LTD.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
INDEX TO FINANCIAL STATEMENTS
1. Consolidated Financial Statements for The Seagram Company Ltd. and
subsidiary companies, together with the report thereon of
PricewaterhouseCoopers LLP dated August 18, 1999, incorporated
herein by reference to the Annual Report to Shareholders for the
fiscal year ended June 30, 1999:
Consolidated Balance Sheet at June 30, 1999 and June
30, 1998;
For the Fiscal Years June 30, 1999, June 30, 1998
and June 30, 1997;
Consolidated Statement of Income;
Consolidated Statement of Cash Flows;
Consolidated Statement of
Shareholders' Equity;
Notes to Consolidated Financial Statements;
Report of Independent Accountants;
Quarterly Data (Unaudited).
2. Financial Statement Schedules and Report:
Report of Independent Accountants on Financial
Statement Schedule;
Schedule for The Seagram Company Ltd. and Subsidiary
Companies:
II. Valuation and Qualifying
Accounts.
Schedules not included have been omitted because they are not
applicable or the required information is shown in our
Consolidated Financial Statements or Notes thereto.
21
<PAGE> 22
SCHEDULE II
THE SEAGRAM COMPANY LTD.
(Incorporated under the Canada Business Corporations Act)
AND SUBSIDIARY COMPANIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(U.S. dollars in millions)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Cumulative Balance
Beginning Costs and Translation at End
Description Of Period Expenses Acquisition Deductions Adjustment Of Period
----------- --------- --------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Reserves Deducted
from Receivables:
Fiscal Year Ended
June 30, 1999:
Reserve for Doubtful Accounts $ 155 $ 115 $ 126 $(104) $ (9) $ 283
Reserve for Merchandise Returns
and Allowances 171 563 214 (551) (6) 391
----- ----- ----- ----- ----- -----
$ 326 $ 678 $ 340 $(655) $ (15) $ 674
===== ===== ===== ===== ===== =====
Fiscal Year Ended
June 30, 1998:
Reserve for Doubtful Accounts $ 127 $ 68 $ -- $ (40) $ -- $ 155
Reserve for Merchandise Returns
and Allowances 183 185 -- (197) -- 171
----- ----- ----- ----- ----- -----
$ 310 $ 253 $ -- $(237) $ -- $ 326
===== ===== ===== ===== ===== =====
Fiscal Year Ended
June 30, 1997:
Reserve for Doubtful Accounts $ 85 $ 76 $ -- $ (34) $ -- $ 127
Reserve for Merchandise Returns
and Allowances 269 221 -- (307) -- 183
----- ----- ----- ----- ----- -----
$ 354 $ 297 $ -- $(341) $ -- $ 310
===== ===== ===== ===== ===== =====
</TABLE>
22
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
The Seagram Company Ltd.
Our audits of the consolidated financial statements referred to in our report
dated August 18, 1999 appearing in the Annual Report to Shareholders of The
Seagram Company Ltd. for the fiscal year ended June 30, 1999 (which report and
consolidated financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedule
listed in the Index to Financial Statements accompanying Item 14(a)of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
August 18, 1999
23
<PAGE> 24
THE SEAGRAM COMPANY LTD.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
EXHIBIT INDEX
Exhibit Number
Per Item 601 of
Regulation S-K Description of Document and Incorporation
Reference Where Applicable
3 (a) Articles of Amalgamation dated
February 1, 1995 between The
Seagram Company Ltd. and Centenary
Distillers Ltd. (incorporated by
reference to Exhibit 3(a) of
Seagram's Annual Report on Form
10-K for the fiscal year ended
January 31, 1995), as amended by
the Certificate and Articles of
Amendment dated May 31, 1995
(incorporated by reference to
Exhibit 3(a) of Seagram's Quarterly
Report on Form 10-Q for the fiscal
quarter ended April 30, 1995).
(b) General By-Laws of The Seagram
Company Ltd., as amended
(incorporated by reference to Exhibit
3(b) to Seagram's Quarterly Report on
Form 10-Q for the fiscal quarter
ended April 30, 1996).
4 Long-term debt instruments are omitted
pursuant to Item 601(b)(4)(iii) of
Regulation S-K. Seagram agrees to furnish to
the Commission on request a copy of any
instrument defining the rights of holders of
long-term debt of Seagram and of any
subsidiary for which consolidated or
unconsolidated financial statements are
required to be filed.
10 (a) Amended and Restated Stock Purchase
Agreement dated as of June 5, 1995
among The Seagram Company Ltd.,
Matsushita Electric Industrial Co.,
Inc., MEI Holding Inc. (formerly,
Home Holding Inc.) and Universal
Studios Holding I Corp. (formerly,
Home Holding II Inc.) (incorporated
by reference to the Exhibit 2(a) to
Seagram's Current Report on Form
8-K dated June 5, 1995).
(b) Stockholders' Agreement dated as of
June 5, 1995 among The Seagram
Company Ltd., MEI Holding Inc.
(formerly, Home Holding Inc.) and
Universal Studios Holding I Corp.
(formerly, Home Holding II Inc.)
(incorporated by reference to the
Exhibit 10(a) to Seagram's Current
Report on Form 8-K dated June 5,
1995).
(c) USA Networks Partnership Interest
Purchase Agreement dated as of
September 22, 1997 by and among
Universal Studios, Inc., Universal
City Studios, Inc., Viacom Inc. and
Eighth Century Corporation
(incorporated by reference to
Exhibit 10(c) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended June 30, 1997).
(d) Offer Agreement dated as of June 21,
1998 among The Seagram
24
<PAGE> 25
Company Ltd., PolyGram N.V. and
Koninklijke Philips Electronics N.V.
(incorporated by reference to
Exhibit 2.1 to Seagram's Current
Report on Form 8-K/A dated July 2,
1998).
(e) Tender Agreement dated as of June
21, 1998 between The Seagram Company
Ltd. and Koninklijke Philips
Electronics N.V. (incorporated by
reference to Exhibit 2.2 to
Seagram's Current Report on Form
8-K/A dated July 2, 1998).
(f) Voting Agreement dated June 21, 1998
between The Seagram Company Ltd. and
Koninklijke Philips Electronics N.V.
(incorporated by reference to
Exhibit 2.3 to Seagram's Current
Report on Form 8-K dated June 22,
1998).
(g) Stockholders Agreement dated June
21, 1998 between The Seagram Company
Ltd. and Koninklijke Philips
Electronics N.V. (incorporated by
reference to Exhibit 10.1 to
Seagram's Current Report on Form 8-K
dated June 22, 1998).
(h) Stock Purchase Agreement dated as of
July 20, 1998 among The Seagram
Company Ltd., Seagram Enterprises,
Inc. and PepsiCo, Inc. (incorporated
by reference to Exhibit 2 to
Seagram's Current Report on Form 8-K
dated July 20, 1998).
(i) Credit Agreement dated as of
November 23, 1994, as amended and
restated as of October 21, 1998,
among Joseph E. Seagram & Sons,
Inc., as Borrower, The Seagram
Company Ltd. and J.E. Seagram
Corp., as Guarantors, the Lenders
Party thereto, The Chase Manhattan
Bank, as Administrative Agent,
Citibank, N.A., as Syndication
Agent, and Bank of Montreal, as
Documentation Agent (incorporated by
reference to Exhibit 10.2 to
Seagram's Quarterly Report on Form
10-Q for the quarterly period ended
September 30, 1998).
(j) Credit Agreement dated as of
December 21, 1994, as amended and
restated as of October 23, 1998,
among The Seagram Company Ltd., as
Borrower, the Lenders Party thereto,
and Bank of Montreal, as
Administrative Agent (incorporated
by reference to Exhibit 10.3 to
Seagram's Quarterly Report on Form
10-Q for the quarterly period ended
September 30, 1998.)
(k) Credit Agreement dated as of October
21, 1998 among Joseph E. Seagram &
Sons, Inc., as Borrower, The Seagram
Company Ltd. and J.E. Seagram Corp.,
as Guarantors, the Lenders Party
thereto, The Chase Manhattan Bank,
as Administrative Agent, Citibank,
N.A., as Syndication Agent, and Bank
of America NT & SA and Bank of
Montreal, as Co-Documentation Agents
(incorporated by reference to
Exhibit 10.2 of the Registration
Statement on Form S-4 (Registration
No. 333-61535) of Seagram).
25
<PAGE> 26
(l) 1983 Stock Appreciation Right and
Stock Unit Plan of The Seagram
Company Ltd., as amended.
(incorporated by reference to
Exhibit 10(n) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended June 30, 1998).
(m) Written description of Management
Incentive Plan of Joseph E. Seagram
& Sons, Inc. (incorporated by
reference to Exhibit 10(g) to
Seagram's Annual Report on Form 10-K
for the fiscal year ended January
31, 1994).
(n) Senior Executive Short-Term
Incentive Plan of The Seagram
Company Ltd. (incorporated by
reference to Exhibit 10(p) to
Seagram's Annual Report on Form 10-K
for the fiscal year ended June 30,
1998).
(o) Form of Deferred Compensation
Agreement, as amended, between
Joseph E. Seagram & Sons, Inc. and
certain of its executives.
(incorporated by reference to
Exhibit 10(q) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended June 30, 1998).
(p) Stock Plan for Non-Employee
Directors of The Seagram Company
Ltd. (incorporated by reference to
Exhibit 10(r) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended June 30, 1998).
(q) 1988 Stock Option Plan of The
Seagram Company Ltd., as amended
(incorporated by reference to
Exhibit 10(f) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1992).
(r) 1992 Stock Incentive Plan of The
Seagram Company Ltd., as amended
(incorporated by reference to
Exhibit 10(g) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1993).
(s) 1996 Stock Incentive Plan of The
Seagram Company Ltd., as amended.
(incorporated by reference to
Exhibit 4.D to Seagram's
Registration Statement on Form S-8
dated August 18, 1999.)
(t) Senior Executive Basic Life
Insurance Program, as amended, of
Joseph E. Seagram & Sons, Inc.
(incorporated by reference to
Exhibit 10(i) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1993).
(u) Retirement Salary Continuation Plan,
as amended, of Joseph E. Seagram &
Sons, Inc. (incorporated by
reference to Exhibit 10(j) to
26
<PAGE> 27
Seagram's Annual Report on Form 10-K
for the fiscal year ended January
31, 1993).
(v) Benefit Equalization Plan, as
amended, of Joseph E. Seagram &
Sons, Inc. (incorporated by
reference to Exhibit 10(k) to
Seagram's Annual Report on Form 10-K
for the fiscal year ended January
31, 1993).
(w) Senior Executive Group Term Life
Insurance Arrangement, as amended,
of Joseph E. Seagram & Sons, Inc.
(incorporated by reference to
Exhibit 10(k) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1992).
(x) Personal Excess Liability Insurance
Policy for Senior Executives of
Joseph E. Seagram & Sons, Inc.
(incorporated by reference to
Exhibit 10(m) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1993).
(y) Flexible Perquisite Program for
Seagram Senior Executives
(incorporated by reference to
Exhibit 10(s) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1994).
(z) Senior Executive Disability Salary
Continuation Arrangement of Joseph
E. Seagram & Sons, Inc.
(incorporated by reference to
Exhibit 10 (w) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1995).
(aa) Post Retirement Consulting Plan, as
amended, of Joseph E. Seagram &
Sons, Limited (incorporated by
reference to Exhibit 10(r) to
Seagram's Annual Report on Form 10-K
for the fiscal year ended January
31, 1993).
(bb) Canadian Executive Pension Plan of
Joseph E. Seagram & Sons, Limited,
as amended (incorporated by
reference to Exhibit 10(s) to
Seagram's Annual Report on Form 10-K
for the fiscal year ended January
31, 1993).
(cc) Executive Long-Term Incentive
Arrangement among Seagram, Joseph E.
Seagram & Sons, Limited and Charles
R. Bronfman dated February 4, 1982
(incorporated by reference to
Exhibit 10(r) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended January 31, 1992).
(dd) Amended and Restated Employment
Agreement between Joseph E. Seagram
& Sons, Inc. and Robert W.
Matschullat dated February 4, 1998
(incorporated by reference to
Exhibit 10 (ff) to Seagram's Annual
Report on Form 10-K for the fiscal
year ended June 30, 1998.)
(ee) Employment Agreement among
Universal Studios, Inc., Seagram
and Frank J. Biondi, Jr. dated
April 23, 1996 (incorporated by
reference to
27
<PAGE> 28
Exhibit 10(bb) to
Seagram's Annual Report on Form
10-K for the fiscal year ended
January 31, 1996).
(ff) Agreement between Universal
Studios, Inc. and Frank Biondi, Jr.
dated August 22, 1997 (incorporated
by reference to Exhibit 10(aa) to
Seagram's Annual Report on Form
10-K for the fiscal year ended June
30, 1997).
(gg) Letter dated April 27, 1995 from
Joseph E. Seagram & Sons, Inc. to
John D. Borgia (incorporated by
reference to Exhibit 10 (jj) to
Seagram's Annual Report on Form 10-K
for the fiscal year ended June 30,
1998.)
(hh) Letter dated September 9, 1998 from
Joseph E. Seagram & Sons, Inc. to
Tod R. Hullin.
12 (a) Computation of ratio of earnings to
fixed charges - The Seagram Company
Ltd.
(b) Computation of ratio of earnings to
fixed charges - Joseph E. Seagram &
Sons, Inc.
13 Pages 22-67 of the Annual Report to
Shareholders for the fiscal year ended June
30, 1999.
21 Subsidiaries.
23 Consent of PricewaterhouseCoopers LLP,
independent accountants, as accountants for
Seagram.
24 Power of Attorney.
27 Financial Data Schedule.
28
<PAGE> 1
Exhibit 10(hh)
September 9, 1998
VIA FEDEX
Mr. Tod R. Hullin
8200 The Woods Court
Park City, UT 84060
Dear Tod,
This letter will confirm our offer to you to join Seagram as Senior Vice
President Corporate Communications and Public Affairs of Joseph E. Seagram &
Sons, Inc., and to outline the terms of employment discussed. As agreed, you
will commence employment on October 1, 1998.
1. CASH COMPENSATION. Your initial annualized base salary will be $425,000
and your target annual management incentive award will be 65% of base
salary (i.e. $276,250), both appropriately prorated for partial years of
service. For the fiscal year ending June 30, 1999, we will guarantee you a
minimum prorated award of $207,200.
2. EQUITY-BASED AWARDS. (a) We will recommend for approval to the Human
Resources Committee a one-time grant of 100,000 options pursuant to the
1996 Stock Incentive Plan at an exercise price equal to the fair market
value of an SCL common share on the date of grant. These options will
vest, become exercisable, and will terminate as set forth below.
(b) You will also be eligible to participate in the 1996 Stock
Incentive Plan on an annual basis and your initial target number of
options will be 27,500. Options are generally granted in February of each
year at an exercise price equal to fair market value on the date of grant.
One-third of the options vest and become exercisable in equal installments
over three years on the anniversary date of the option grant, and expire
on the day before the tenth anniversary of the option grant. Options are
cancelled at the end of a three month period following cessation of
employment for any reason other than retirement, disability, death or
termination for cause.
<PAGE> 2
Page 2
September 9, 1998
3. BENEFITS. You will be eligible to participate in our Senior Executive
Benefits program, which includes, among other items, pension, life
insurance, executive disability salary continuation, flexible perquisite
allowance of $12,000 annually, and double matching contributions.
4. RELOCATION. We will pay benefits pursuant to the relocation policy for new
hires, including the costs associated with transporting your household
goods and purchasing a residence in the New York City area. In addition to
benefits under the relocation policy, we will pay reasonable temporary
living expenses for a period of up to three months, while you look for a
permanent residence.
On behalf of the Company and myself, I am delighted to outline Seagram's offer
to you. I am confident that you will make significant contributions to the
success of Seagram while at the same time having the opportunity to accomplish
your personal and professional goals. As you are aware, this offer is subject to
your satisfactorily completing out standard pre-employment physical.
Should you have any questions, please do not hesitate to contact me.
Sincerely,
/s/ John Borgia
-------------------------
JDB:lds
Accepted and agreed to:
/s/ Tod Hullin
- -------------------------------
c: Mr. R. Matschullat
Ms. Y. Shaw
<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 Years Ended June 30, Transition Fiscal Years Ended January 31,
------------------------------------ Period Ended ----------------------------
Description 1999 1998 1997 June 30, 1996 1996 1995
- --------------------- ---- ---- ---- ------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations, before tax $ (579) $ 1,611 $ 726 $ (6) $ 240 $ 297
Add (deduct):
Dividends from equity companies 92 56 107 46 65 4
Fixed charges 656 406 376 173 414 432
Interest capitalized, net of -- (2) (2) (4) (2) (1)
amortization
------- ------- ------- ------- ------- -------
Earnings available for fixed charges $ 169 $ 2,071 $ 1,207 $ 209 $ 717 $ 732
======= ======= ======= ======= ======= =======
Fixed charges:
Interest expense $ 592 $ 357 $ 326 $ 151 $ 378 $ 408
Portion of rent expense deemed to
represent interest factor 64 49 50 22 36 24
------- ------- ------- ------- ------- -------
Fixed charges $ 656 $ 406 $ 376 $ 173 $ 414 $ 432
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges (a) 5.10 3.21 1.21 1.73 1.69
======= ======= ======= ======= ======= =======
</TABLE>
(a) Fixed charges exceeded earnings by $487 million for the year ended June 30,
1999.
29
<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
Fiscal Years Ended June 30, Transition Fiscal Years Ended January 31,
------------------------------------ Period Ended ----------------------------
Description 1999 1998 1997 June 30, 1996 1996 1995
- --------------------- ---- ---- ---- ------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations, before tax $ (17) $ 17 $ 122 $ (37) $ 82 $ 172
Add (deduct):
Dividends from equity companies 1 2 1 -- 3 1
Fixed charges 349 182 172 70 165 183
Interest capitalized, net of -- -- (1) -- -- (1)
amortization
----- ----- ----- ----- ----- -----
Earnings available for fixed charges $ 333 $ 201 $ 294 $ 33 $ 250 $ 355
===== ===== ===== ===== ===== =====
Fixed charges:
Interest expense $ 339 $ 170 $ 159 $ 65 $ 145 $ 163
Portion of rent expense deemed to
represent interest factor 10 12 13 5 20 20
----- ----- ----- ----- ----- -----
Fixed charges $ 349 $ 182 $ 172 $ 70 $ 165 $ 183
===== ===== ===== ===== ===== =====
Ratio of earnings to fixed charges (a) 1.10 1.71 (b) 1.52 1.94
===== ===== ===== ===== ===== =====
</TABLE>
(a) Fixed charges exceeded earnings by $16 million for the year ended June
30, 1999.
(b) Fixed charges exceeded earnings by $37 million for the Transition
Period ended June 30, 1996.
30
<PAGE> 1
MANAGEMENT'S DISCUSSION
AND ANALYSIS
Our Company operates in four global business segments: music, filmed
entertainment, recreation and other, and spirits and wine. The music business is
conducted through Universal Music Group, which is the largest recorded music
company in the world. Universal Music Group produces and distributes recorded
music throughout the world in all major genres. Universal Music Group also
manufactures, sells and distributes video products in the United States and
internationally, and licenses music copyrights. The filmed entertainment and
recreation and other businesses are conducted through Universal Studios Group.
Our filmed entertainment business produces and distributes motion picture,
television and home video products world-wide, operates and has ownership
interests in a number of international cable channels and engages in the
licensing of merchandising and film property rights. The recreation and other
businesses operate theme parks, retail stores and are also involved in the
development of entertainment software. The spirits and wine business, directly
and through affiliates and joint ventures, produces, markets and distributes
distilled spirits, wines, ports and sherries, coolers, beers, mixers and other
low-alcohol beverages. In addition to marketing owned brands, the spirits and
wine business also distributes distilled spirits, wine and beer brands owned by
others.
Management's discussion and analysis of our results of operations and
liquidity should be read in conjunction with the accompanying financial
statements.
SIGNIFICANT TRANSACTIONS
During the last three years, we entered into several significant transactions
which have realigned our businesses and have impacted the comparability of our
financial statements.
ACQUISITION OF POLYGRAM On December 10, 1998, we acquired 99.5 percent of the
outstanding shares of PolyGram N.V. (PolyGram), a global music and entertainment
company, for $8,607 million in cash and approximately 47.9 million common shares
of Seagram. Substantially all of the common shares were issued to Koninklijke
Philips Electronics N.V., which had owned 75 percent of the PolyGram shares. The
results of the operations of PolyGram are included in the results of our music
and filmed entertainment segments from the date of acquisition.
DISPOSITION OF TROPICANA On August 25, 1998, we completed the sale of Tropicana,
consisting of Tropicana Products, Inc. and our global juice business (Tropicana)
for $3,288 million in cash, which resulted in a pre-tax gain of $1,445 million
($1,072 million after tax). As a result of this disposal, we reported the
results of Tropicana as discontinued operations for all periods presented.
USA TRANSACTIONS On October 21, 1997, Universal acquired the remaining 50
percent interest in the USA Networks partnership from Viacom Inc. for $1.7
billion in cash. On February 12, 1998, Universal sold its acquired 50 percent
interest in USA Networks to USA Networks, Inc. (USAi) and contributed its
original 50 percent interest in USA Networks, the majority of its television
assets and 50 percent of the international operations of USA Networks to USANi
LLC. As a result of this transaction, Universal received $1,332 million in
cash, a 10.7 percent interest in USAi and a 45.8 percent exchangeable interest
in USANi LLC. Universal recognized a gross gain of $583 million, before taking
into consideration the effect of the transactions, which impaired certain
remaining television assets and transformed various related contractual
obligations into adverse purchase commitments. The impairment losses and
adverse purchase commitments arising from the transactions aggregated $223
million and were reflected in the net gain of $360 million ($222 million after
tax).
TIME WARNER SHARES On May 28, 1997, we sold 30 million shares of Time Warner
common stock for $1.39 billion. The gain recognized in 1997 on the sale of the
shares was $154 million ($100 million after tax). On February 5, 1998, we sold
15 million shares of Time Warner common stock for $958 million. On May 27,
1998, we sold our remaining 11.8 million shares of Time Warner common stock for
$905 million. The aggregate gain on the sale of the shares in the fiscal year
ended June 30, 1998 was $926 million ($602 million after tax).
PUBLISHING GROUP On December 16, 1996, we sold our book-publishing unit, The
Putnam Berkley Group, Inc. Proceeds from the sale were $330 million, resulting
in a $64 million pre-tax gain on the disposition. There was no after-tax gain or
loss due to the write-off of non-tax-deductible goodwill associated with Putnam.
The operating results of Putnam through December 16, 1996 are included in
operating income.
22 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 2
DUPONT EQUITY WARRANTS On July 24, 1996, we sold 156 million equity warrants of
E.I. du Pont de Nemours and Company to DuPont for $500 million in cash. The
after-tax net proceeds were $479 million, the gain on the sale of the warrants
was $60 million ($39 million after tax) and is included in interest, net and
other in the fiscal year ended June 30, 1997.
COMPARABILITY
The discussion presented below includes an analysis of total Seagram and
business segment results prepared in accordance with U.S. generally accepted
accounting principals (GAAP). The supplemental financial data includes earnings
before interest, taxes, depreciation and amortization, referred to as EBITDA.
Because of the significant goodwill associated with our acquisitions, we believe
EBITDA is an appropriate measure of operating performance. However, you should
note that EBITDA is not a substitute for operating income, net income, cash
flows and other measures of financial performance as defined by GAAP and may be
defined differently by other companies. Investments in companies that are not
consolidated with the results of Seagram are reported as "equity earnings from
unconsolidated companies." This discussion includes, as supplemental financial
data, information about our share of the results of revenues and EBITDA related
to these investments.
To enhance comparability, financial information for 1999 and 1998 is also
presented on a pro forma basis which illustrates the effect of the acquisition
of PolyGram, the disposition of Tropicana and the USA transactions, as if the
transactions had occurred at the beginning of the 1998 fiscal year. We believe
that pro forma results represent meaningful comparative information for
assessing earnings trends because the pro forma results include comparable
operations in each year presented. The discussion of the recreation and other
and spirits and wine business segments does not include pro forma comparisons,
since the pro forma adjustments did not impact those segments. The pro forma
results are not necessarily indicative of the combined results that would have
occurred had the events actually occurred at the beginning of our 1998 fiscal
year. We believe this information will help you to better understand our
business results.
REVENUES CONSOLIDATED AND UNCONSOLIDATED
[GRAPH]
EBITDA CONSOLIDATED AND UNCONSOLIDATED
[GRAPH]
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 23
<PAGE> 3
RESULTS OF OPERATIONS
EARNINGS SUMMARY
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
TWELVE MONTHS TWELVE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997 1999 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
REVENUES $ 12,312 $ 9,474 $ 10,354 $ 15,344 $ 14,587
======== ======== ======== ======== ========
OPERATING INCOME (LOSS)
Music $ (126) $ (44) $ (58) $ 75 $ (124)
Filmed Entertainment (206) 229 157 (281) 30
Recreation and Other 45 24 31 45 24
Spirits and Wine 552 464 663 552 464
Corporate (110) (120) (138) (110) (120)
Restructuring charge - Music and Filmed Entertainment (405) -- -- -- --
Gain on sale of Putnam -- -- 64 -- --
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) (250) 553 719 281 274
Interest, net and other 457 228 147 682 598
Gain on sale of Time Warner shares -- 926 154 -- 926
Gain on USA transactions 128 360 -- 128 360
Provision (benefit) for income taxes (33) 638 331 61 493
Minority interest (26) 48 12 4 16
Equity earnings (losses) from unconsolidated companies 137 (45) 62 130 (6)
-------- -------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (383) 880 445 (208) 447
Income (loss) from discontinued Tropicana
operations, after tax (3) 66 57 -- --
Gain on sale of discontinued Tropicana operations,
after tax 1,072 -- -- -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 686 $ 946 $ 502 $ (208) $ 447
======== ======== ======== ======== ========
EARNINGS PER SHARE - BASIC
Income (loss) from continuing operations $ (1.01) $ 2.51 $ 1.20 $ (.52) $ 1.12
Income (loss) from discontinued operations (.01) .19 .16 -- --
Gain on sale of discontinued operations 2.83 -- -- -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 1.81 $ 2.70 $ 1.36 $ (.52) $ 1.12
======== ======== ======== ======== ========
EARNINGS PER SHARE - DILUTED
Income (loss) from continuing operations $ (1.01) $ 2.49 $ 1.20 $ (.52) $ 1.11
Income (loss) from discontinued operations (.01) .19 .15 -- --
Gain on sale of discontinued operations 2.83 -- -- -- --
-------- -------- -------- -------- --------
NET INCOME (LOSS) $ 1.81 $ 2.68 $ 1.35 $ (.52) $ 1.11
======== ======== ======== ======== ========
Net cash provided by (used for) operating activities $ 935 $ (241) $ 664
Net cash (used for) provided by investing activities $ (6,136) $ 699 $ 1,708
Net cash provided by (used for) financing activities $ 5,563 $ 159 $ (2,175)
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 12,312 $ 9,474 $ 10,354 $ 15,344 $ 14,587
Unconsolidated companies 2,202 1,722 1,473 2,202 2,081
-------- -------- -------- -------- --------
$ 14,514 $ 11,196 $ 11,827 $ 17,546 $ 16,668
======== ======== ======== ======== ========
EBITDA
Consolidated companies $ 1,028 $ 1,142 $ 1,182 $ 1,478 $ 1,555
Charge for Asia -- (60) -- -- (60)
-------- -------- -------- -------- --------
1,028 1,082 1,182 1,478 1,495
Unconsolidated companies 449 220 231 449 326
-------- -------- -------- -------- --------
1,477 1,302 1,413 1,927 1,821
Adjustment for unconsolidated companies (449) (220) (231) (449) (326)
Depreciation and amortization (773) (416) (393) (1,097) (1,108)
Corporate (100) (113) (134) (100) (113)
Restructuring charge - Music and Filmed Entertainment (405) -- -- -- --
Gain on sale of Putnam -- -- 64 -- --
-------- -------- -------- -------- --------
OPERATING INCOME (LOSS) $ (250) $ 553 $ 719 $ 281 $ 274
======== ======== ======== ======== ========
</TABLE>
24 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 4
1999 VERSUS 1998
ACTUAL
Revenues increased 30 percent in the twelve months ended June 1999 compared to
1998. This was primarily due to the PolyGram acquisition and improved sales in
all business segments. Operating income declined from $553 million in 1998 to a
loss of $250 million in the current year. The reduction was largely driven by a
$405 million pre-tax restructuring charge (discussed in Note 3 to the
consolidated financial statements), higher amortization and depreciation expense
and disappointing motion picture results. The impact of foreign currency
exchange on 1999 was not significant. In 1999, EBITDA from consolidated
companies decreased five percent to $1,028 million on total revenues of $12.3
billion.
In the 1999 fiscal year, interest, net and other included net interest
expense of $480 million which was offset by $23 million of dividend income from
DuPont. The increase of $229 million from 1998 primarily reflects the funding of
the PolyGram acquisition. During 1999, an additional gain from the USA
transactions was recognized reflecting the reversal of $128 million of accrued
costs due to the favorable settlement of certain contractual obligations and
adverse purchase commitments. The minority interest income in 1999 included $21
million associated with the restructuring charge.
The effective tax rate was six percent in fiscal 1999, compared with 40
percent in the prior year. The provision for 1999 included $45 million of taxes
on the USA transactions and a $140 million benefit for the restructuring charge.
The tax rate for ongoing operations (excluding the impact of the USA
transactions, the restructuring charge, sale of Time Warner shares and spirits
and wine charge) was 21 percent compared with 48 percent in 1998, largely due to
the increased goodwill expense for which there is no associated tax benefit and
taxes on earnings from unconsolidated equity investments.
The equity in earnings of unconsolidated companies increased to $137 million
in fiscal 1999 from a loss of $45 million in fiscal 1998. The increase in equity
earnings primarily reflects the improved operating results at USANi LLC and the
impact of the USA transactions. Earnings from Seagram's investments in USANi LLC
are included in equity earnings from unconsolidated companies for all of 1999.
In 1998, Seagram had a 100 percent interest in USA Networks from October 1997
until February 1998, during which time the results were consolidated.
A net loss from continuing operations of $383 million or $1.01 per share
(basic and diluted) was incurred in 1999, compared with net income from
continuing operations of $880 million or $2.51 per basic share and $2.49 per
share on a diluted basis for 1998. The net loss from continuing operations,
excluding the restructuring charge, the gains on the sales of Time Warner shares
and the USA transactions and a charge for spirits and wine operations in Asia,
was $215 million or $0.57 per share (basic and diluted) in 1999 compared with
income of $141 million or $0.40 per share (basic and diluted) in 1998.
For the period to August 25, 1998, the loss from discontinued Tropicana
operations, after tax, was $3 million or $0.01 per share (basic and diluted).
During 1999, we recorded a pre-tax gain of $1,445 million ($1,072 million after
tax or $2.83 per share, basic and diluted) on the sale of Tropicana. Net income
including discontinued operations was $686 million or $1.81 per basic and
diluted share in the fiscal year ended June 30, 1999, compared with $946 million
or $2.70 per basic share and $2.68 per diluted share in the prior fiscal year.
REVENUES BY BUSINESS SEGMENT
GRAPH
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 25
<PAGE> 5
PRO FORMA
Revenues increased five percent in fiscal 1999 to $15.3 billion with growth in
all business segments. Operating income was $281 million compared with $274
million in 1998. EBITDA from consolidated companies decreased one percent
year-on-year. Increases in EBITDA outside the filmed entertainment segment were
more than offset by disappointing performance of our film business. The
effective income tax rate for the year ended June 30, 1999 was 22 percent
compared with 51 percent in the prior year. The minority interest charge for
1999 was $4 million compared with $16 million in the prior year primarily due
to current year losses in our film business. Equity in earnings of
unconsolidated companies shows a similar improvement as the actual results,
increasing to $130 million in 1999 from a loss of $6 million in 1998.
A net loss of $208 million or $0.52 per share (basic and diluted) was
incurred in fiscal 1999, compared with net income of $447 million or $1.12 per
basic share and $1.11 per share on a diluted basis in 1998. Excluding the gains
on the sales of Time Warner shares and the USA transactions and the prior year
charge for spirits and wine operations in Asia, the pro forma net loss was $284
million or $0.71 per share (basic and diluted) in the current year, a slight
improvement over the prior year when a net loss of $292 million or $0.73 per
share (basic and diluted) was incurred.
1998 versus 1997
Our fiscal 1998 results were severely impacted by the economic and currency
crises in Asia, which hampered business performance and resulted in a $60
million charge to spirits and wine operations in the second quarter of the
fiscal year. Revenues of $9.5 billion declined from $10.4 billion in fiscal
1997. Excluding the unfavorable impact of foreign exchange and the contribution
of Putnam from 1997, revenues declined five percent year-on-year. Operating
income was $553 million and, after the charge for Asia, substantially below the
prior year which included a $64 million pre-tax gain on the sale of Putnam.
After excluding the 1998 charge for Asia and the 1997 contribution from Putnam,
operating income declined three percent reflecting the decline in spirits and
wine operations and increased depreciation and amortization expense. The
incremental depreciation and amortization principally results from increased
goodwill expense, from October to February, associated with the acquisition of
the remaining 50 percent of USA Networks. EBITDA from consolidated operations
was $1.1 billion compared with $1.2 billion in 1997. After excluding the charge
for Asia and the contribution of Putnam, EBITDA decreased two percent.
Interest, net and other, in fiscal 1998 included net interest expense of
$255 million which was partially offset by $27 million of dividend income from
Time Warner and DuPont. In 1997, net interest expense of $247 million was offset
by $60 million in pre-tax gain on the sale of the DuPont warrants and $40
million of dividend income from Time Warner and DuPont. The net interest expense
increase largely reflects a higher average debt balance, which is due to the
funding of our purchase of the incremental 50 percent interest in USA Networks
in October 1997 and share repurchases pursuant to our ongoing share repurchase
program, partially offset by the repayment of debt with the proceeds from the
USA transactions and the sales of Time Warner shares, discussed below.
During fiscal 1998, we recognized a pre-tax gain on the sale of the
remaining Time Warner shares of $926 million and a pre-tax gain on the USA
transactions of $360 million. During 1997, we had a pre-tax gain of $154 million
on the sale of Time Warner shares.
The effective income tax rate was 40 percent in fiscal 1998 compared with
46 percent in the prior year. The underlying effective income tax rate for
continuing operations (excluding the impact of the USA transactions, sale of
Time Warner shares, sale of DuPont warrants, and spirits and wine charge) was 48
percent in 1998 compared with 43 percent in the prior fiscal year. The increase
in the effective tax rate results from reduced earnings in relatively low tax
jurisdictions in Asia.
The minority interest charge in fiscal 1998 includes $35 million associated
with the gain on the USA transactions. The equity in earnings of unconsolidated
companies declined from earnings of $62 million in 1997 to a loss of $45 million
in 1998 primarily due to the impact of the USA transactions, lower contributions
from Cineplex Odeon Corporation and our spirits and wine joint ventures and
higher amortization related to certain equity investments.
Income from continuing operations was $880 million or $2.51 per basic share
and $2.49 per diluted share for fiscal 1998, compared with $445 million or $1.20
per share (basic and diluted) in the prior year. Excluding the gain on the USA
transactions (after taxes and minority interest), the after-tax gain on the
sales of Time Warner shares, and the after-tax charge for spirits and wine
operations in Asia, income from continuing operations in fiscal year 1998 was
$141 million or $0.40 per share (basic and diluted). In 1997, excluding the
after-tax gains on the sales of the DuPont warrants and Time Warner shares,
income from continuing operations was $306 million or $0.82 per share (basic and
diluted).
26 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 6
Income from discontinued Tropicana operations, after tax, was $66 million
or $0.19 per share (basic and diluted) for fiscal year 1998, compared with $57
million or $0.16 per basic share and $0.15 per share on a diluted basis in the
prior fiscal year. Revenues from discontinued operations were $2.0 billion in
fiscal 1998 and $1.9 billion in the prior year. Operating income was $169
million in 1998 and $152 million in the prior year. Results of discontinued
operations include allocations of consolidated interest expense totaling $39
million and $41 million for 1998 and 1997, respectively. The allocations were
based on the ratio of net assets of discontinued operations to consolidated net
assets.
BUSINESS SEGMENT RESULTS
MUSIC
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
TWELVE MONTHS TWELVE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
U.S. DOLLARS IN MILLIONS 1999 1998 1997 1999 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
REVENUES $ 3,751 $ 1,461 $ 1,427 $ 6,336 $ 6,108
======= ======= ======= ======= =======
Operating income (loss) before restructuring charge $ (126) $ (44) $ (58) $ 75 $ (124)
Restructuring charge (313) -- -- -- --
------- ------- ------- ------- -------
OPERATING INCOME (LOSS) $ (439) $ (44) $ (58) $ 75 $ (124)
======= ======= ======= ======= =======
Equity earnings (losses) from unconsolidated companies $ 4 $ 4 $ (2) $ (3) $ (7)
======= ======= ======= ======= =======
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 3,751 $ 1,461 $ 1,427 $ 6,336 $ 6,108
Unconsolidated companies 61 68 73 61 68
------- ------- ------- ------- -------
$ 3,812 $ 1,529 $ 1,500 $ 6,397 $ 6,176
======= ======= ======= ======= =======
EBITDA
Consolidated companies $ 347 $ 84 $ 76 $ 861 $ 708
Unconsolidated companies 5 6 (4) 5 6
------- ------- ------- ------- -------
352 90 72 866 714
Adjustment for unconsolidated companies (5) (6) 4 (5) (6)
Depreciation and amortization (473) (128) (134) (786) (832)
Restructuring charge (313) -- -- -- --
------- ------- ------- ------- -------
OPERATING INCOME (LOSS) $ (439) $ (44) $ (58) $ 75 $ (124)
======= ======= ======= ======= =======
</TABLE>
MUSIC REVENUES BY GEOGRAPHIC REGION
[GRAPH]
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 27
<PAGE> 7
1999 versus 1998
CONSOLIDATED OPERATIONS
ACTUAL Revenues more than doubled in the fiscal year ended June 30, 1999,
reflecting the acquisition of PolyGram and the success of our domestic and
international repertoire. An operating loss of $126 million (excluding a
pre-tax restructuring charge of $313 million) was incurred in the current year,
compared to a loss of $44 million in the prior year. EBITDA, at $347 million,
more than quadrupled in 1999. The significant increase in EBITDA reflects the
PolyGram acquisition. The decline in operating income is principally driven by
higher goodwill amortization.
The acquisition of PolyGram, with its strong presence in local repertoire,
when combined with our strength in the U.S. market, makes our music business the
clear market leader in recorded music. In fiscal 1999, revenues generated in
North America accounted for 45 percent of the total music revenues of $3,751
million. The European market accounted for 40 percent, Asia Pacific and Japan
contributed 11 percent and Latin America accounted for the remaining four
percent. The integration of PolyGram has been completed in many markets and
continues on schedule in those remaining.
PRO FORMA Revenues increased four percent to $6.3 billion in the twelve months
ended June 30, 1999. In 1999, revenues were driven by solid performances from
U2, Shania Twain, Jay-Z, Andrea Bocelli, Bee Gees and Sheryl Crow, among
others, along with increases in higher-priced units. In total, 69 albums
reached worldwide sales in excess of one million units compared with 52 in
1998. Operating income was $75 million for 1999, compared to a loss of $124
million in 1998. EBITDA increased 22 percent in 1999 compared to 1998. These
improvements are due to a strong release schedule worldwide and the elimination
of duplicate costs as we progress with the integration of PolyGram. By 2001, we
expect to achieve our projected cost savings of at least $300 million annually.
UNCONSOLIDATED OPERATIONS
The equity in earnings from unconsolidated companies, consisting primarily of
concert operations, was $4 million for the twelve months ended June 30, 1999,
and was unchanged compared to the same period in 1998. In April 1999, the
Universal Music Group announced an Internet alliance with BMG Entertainment,
consisting of online music channels and an e-commerce site, getmusic.com. We
believe this joint venture will position Universal as a leader in shaping the
music industry on the Internet.
1998 versus 1997
CONSOLIDATED OPERATIONS
In fiscal 1998, revenues increased two percent. Major albums in release during
1998 included those by Chumbawamba, K-Ci & JoJo, Trisha Yearwood and
Smashmouth. In addition, the Company benefited from its significant investment
internationally with the success of Aqua, a group from Denmark whose album
Aquarium sold 8.9 million units in the 1998 fiscal year. The operating loss for
music declined from $58 million in 1997 to $44 million for 1998 as margins
improved primarily driven by a better mix. EBITDA increased 11 percent to $84
million largely due to progress at Universal Records, International and Music
Publishing.
UNCONSOLIDATED OPERATIONS
The equity in earnings of unconsolidated companies increased to $4 million in
fiscal 1998 from a loss of $2 million in fiscal 1997.
28 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 8
FILMED ENTERTAINMENT
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
TWELVE MONTHS TWELVE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
U.S. DOLLARS IN MILLIONS 1999 1998 1997 1999 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES $ 2,931 $ 2,793 $ 3,168 $ 3,378 $ 3,259
============ ============ ============ ============ ============
Operating income (loss) before restructuring charge $ (206) $ 229 $ 157 $ (281) $ 30
Restructuring charge (92) -- -- -- --
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) $ (298) $ 229 $ 157 $ (281) $ 30
============ ============ ============ ============ ============
Equity earnings (losses) from unconsolidated
companies $ 148 $ (28) $ 50 $ 148 $ 22
============ ============ ============ ============ ============
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 2,931 $ 2,793 $ 3,168 $ 3,378 $ 3,259
Unconsolidated companies 1,689 1,133 749 1,689 1,492
------------ ------------ ------------ ------------ ------------
$ 4,620 $ 3,926 $ 3,917 $ 5,067 $ 4,751
============ ============ ============ ============ ============
EBITDA
Consolidated companies $ (136) $ 316 $ 218 $ (200) $ 105
Unconsolidated companies 343 147 155 343 253
------------ ------------ ------------ ------------ ------------
207 463 373 143 358
Adjustment for unconsolidated companies (343) (147) (155) (343) (253)
Depreciation and amortization (70) (87) (61) (81) (75)
Restructuring charge (92) -- -- -- --
------------ ------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) $ (298) $ 229 $ 157 $ (281) $ 30
============ ============ ============ ============ ============
</TABLE>
1999 versus 1998
CONSOLIDATED OPERATIONS
ACTUAL Filmed Entertainment revenues increased five percent in fiscal 1999.
Operating income decreased from income of $229 million in the prior year to a
loss of $206 million in the current year, excluding the $92 million pre-tax
restructuring charge. The prior year results included operating income of $76
million for USA Networks from October 21, 1997 until February 12, 1998. In the
current year the contribution of USANi LLC is included in equity from
unconsolidated companies rather than consolidated operations. While recent
releases of The Mummy and Notting Hill are encouraging, the Motion Picture Group
results declined because of the disappointing box office performance of current
year releases such as Babe: Pig in the City, Meet Joe Black, Virus and edTV.
Also, comparisons with last year's results are difficult since those results
benefited from the positive carryover of the successful releases of The Lost
World: Jurassic Park and Liar, Liar. International Television and Library
results declined year-on-year due to the loss of profit on products transferred
in the USA transactions and lower profitability on television library sales. In
connection with the assets acquired as part of the purchase of PolyGram, we are
evaluating our future strategic opportunities within the domestic television
production business. EBITDA declined from $316 million in the prior year to a
loss of $136 million in the current year. The prior year results included $97
million of EBITDA related to USA Networks, which was consolidated from October
21, 1997 until February 12, 1998. There is no contribution from USA Networks in
consolidated EBITDA in the current year.
With the recent success of American Pie and Bowfinger early in fiscal
2000, the Motion Picture Group expects to improve its box office performance in
fiscal year 2000, although we expect it will be several quarters before our film
business returns to profitability.
PRO FORMA Filmed Entertainment includes the results of PolyGram Filmed
Entertainment in the Motion Picture Group and the prior year results reflect the
USA transactions as though they had both occurred at July 1, 1997. On a pro
forma basis, revenues increased four percent in the fiscal year ended June 30,
1999 to $3.4 billion. EBITDA was a loss of $200 million in 1999 compared to
income of $105 million in 1998. Operating income decreased from income of $30
million in the prior year to a loss of $281 million in the current year. The
results declined due to the weak performance of current year releases discussed
above.
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 29
<PAGE> 9
UNCONSOLIDATED OPERATIONS
The equity in earnings from unconsolidated companies increased from a loss of
$28 million for the twelve-month period in the prior year to income of $148
million in the current year. Revenues from unconsolidated companies increased 49
percent over the prior year; EBITDA more than doubled in the same period. The
significant improvement is due primarily to improved operating results at USANi
LLC and the impact of the USA transactions. In the current fiscal year,
subsequent to the USA transactions, we have approximately a 49 percent interest
in USANi LLC and the results are included in equity earnings from unconsolidated
companies for the entire year. In the 1998 fiscal year, we had a 100 percent
interest in USA Networks from October 1997 until February 1998, during which
time the results were included in consolidated operations. We also benefited
from improved operating results at Loews Cineplex in 1999 compared to Cineplex
Odeon Corporation (owned in the prior year). In addition to USANi LLC and Loews
Cineplex, the unconsolidated companies principally include United Cinemas
International and Cinema International Corporation.
1998 versus 1997
CONSOLIDATED OPERATIONS
In fiscal year 1998, revenues decreased 12 percent. Motion picture revenues,
which accounted for approximately two-thirds of the $2.8 billion of revenues,
declined substantially due to the disappointing box office performance of
releases in 1998, including A Simple Wish, Primary Colors and Mercury Rising.
The 1997 year benefited from the successful releases of The Lost World: Jurassic
Park and Liar, Liar in the fourth quarter of that year. Operating income
increased 46 percent to $229 million, and EBITDA increased 45 percent to $316
million; however, the 1998 results include operating income of $76 million and
EBITDA of $97 million for USA Networks for the period when Universal owned 100
percent of USA Networks.
UNCONSOLIDATED OPERATIONS
The equity in earnings from unconsolidated companies declined from $50 million
in fiscal 1997 to a loss of $28 million in fiscal 1998. Revenues from
unconsolidated companies increased 51 percent, while EBITDA decreased five
percent. The year-on-year variances were due primarily to the impact of the USA
transactions.
RECREATION AND OTHER
<TABLE>
<CAPTION>
ACTUAL
TWELVE MONTHS ENDED JUNE 30,
U.S. DOLLARS IN MILLIONS 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $ 818 $ 695 $ 825
Gain on sale of Putnam -- -- 64
---------- ---------- ----------
$ 818 $ 695 $ 889
========== ========== ==========
OPERATING INCOME $ 45 $ 24 $ 31
========== ========== ==========
Equity losses from unconsolidated companies $ (17) $ (22) $ --
========== ========== ==========
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 818 $ 695 $ 889
Unconsolidated companies 290 289 272
---------- ---------- ----------
$ 1,108 $ 984 $ 1,161
========== ========== ==========
EBITDA
Consolidated companies (1) $ 133 $ 99 $ 102
Unconsolidated companies 92 60 56
---------- ---------- ----------
225 159 158
Adjustment for unconsolidated companies (92) (60) (56)
Depreciation and amortization (88) (75) (71)
---------- ---------- ----------
OPERATING INCOME $ 45 $ 24 $ 31
========== ========== ==========
</TABLE>
(1) Excludes $64 million gain on sale of Putnam in 1997.
30 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 10
1999 versus 1998
CONSOLIDATED OPERATIONS
Revenues for recreation and other increased 18 percent in the year and operating
income almost doubled to $45 million. EBITDA increased 34 percent. These
increases reflect the success of the Crash Bandicoot and Spyro video games,
improved sales by Spencer Gifts and additional management fees from the
expansion of Universal Studios Escape and the recently acquired Universal
Studios Port Aventura. These increases were partially offset by a five percent
decline in paid attendance at Universal Studios Hollywood, largely due to
reduced Asian tourism. Increased operating expenses at the park were partially
offset by a one percent increase in total per capita spending.
UNCONSOLIDATED OPERATIONS
The equity in earnings from unconsolidated companies improved from a loss of $22
million in the prior year to a loss of $17 million in the current year.
Revenues from unconsolidated companies were flat year-on-year while EBITDA
increased 53 percent. The improvement in the results is due to expansion at
Universal Studios Escape, Universal Studios Port Aventura and a gain recognized
by Sega GameWorks L.L.C. on the sale of its game sales operation to Sega in the
first quarter. At Universal Studios Escape, the opening of Universal Studios
Islands of Adventure, Hard Rock Live and CityWalk contributed to a 12 percent
increase in paid attendance and a two percent increase in total per capita
spending.
1998 versus 1997
CONSOLIDATED OPERATIONS
Revenues declined 16 percent and operating income declined to $24 million
principally due to the impact of the sale of Putnam during fiscal year 1997.
Excluding the contribution of Putnam from the prior fiscal year, revenues
increased three percent and operating income increased from $9 million to $24
million. The operating income increase is attributable to improved performance
at Spencer Gifts, which benefited from new store openings and a slight increase
in comparable store sales, and strong video game sales, principally Crash
Bandicoot 2. EBITDA decreased three percent to $99 million. EBITDA at Universal
Studios Hollywood was lower as a 13 percent decline in paid attendance more than
offset a three percent increase in per capita spending. The attendance
shortfall was caused by the impact of El Nino, as well as difficult comparisons
with the prior year that benefited from the opening of Jurassic Park -- The Ride
in June 1996.
UNCONSOLIDATED OPERATIONS
The equity in earnings from unconsolidated companies declined from breakeven in
fiscal 1997 to a loss of $22 million in fiscal 1998 largely due to higher
amortization associated with certain equity investments. Revenues from
unconsolidated companies increased six percent, and EBITDA increased seven
percent year-on-year. The improvement in revenues and EBITDA was largely due to
stronger results at Universal Studios Florida. In Florida, paid attendance
declined two percent from 1997, however, EBITDA was higher because of an
increase in the admission price as well as a nine percent increase in total
RECREATION AND OTHER REVENUES
[GRAPH]
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 31
<PAGE> 11
turnstile attendance due to a promotion for second-day free admission. The
promotion resulted in higher revenues and margins at the theme park.
SPIRITS AND WINE
<TABLE>
<CAPTION>
ACTUAL
TWELVE MONTHS ENDED JUNE 30,
U.S. DOLLARS IN MILLIONS 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $ 4,812 $ 4,525 $ 4,870
========== ========== ==========
Operating income before charge for Asia $ 552 $ 524 $ 663
Charge for Asia -- (60) --
---------- ---------- ----------
OPERATING INCOME $ 552 $ 464 $ 663
========== ========== ==========
Equity earnings from unconsolidated companies $ 2 $ 1 $ 14
========== ========== ==========
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 4,812 $ 4,525 $ 4,870
Unconsolidated companies 162 232 379
---------- ---------- ----------
$ 4,974 $ 4,757 $ 5,249
========== ========== ==========
EBITDA
Consolidated companies $ 684 $ 643 $ 786
Charge for Asia -- (60) --
---------- ---------- ----------
684 583 786
Unconsolidated companies 9 7 24
---------- ---------- ----------
693 590 810
Adjustment for unconsolidated companies (9) (7) (24)
Depreciation and amortization (132) (119) (123)
---------- ---------- ----------
OPERATING INCOME $ 552 $ 464 $ 663
========== ========== ==========
</TABLE>
1999 versus 1998
CONSOLIDATED OPERATIONS
Revenues increased six percent and operating income increased 19 percent in
fiscal 1999. Operating income in the prior year included a $60 million charge
related to operations in Asia. Excluding the impact of this charge, operating
income increased five percent. Operating income (excluding the charge for Asia)
as a percentage of revenues for total spirits and wine is essentially flat
year-on-year at 12 percent. Asia Pacific's revenues increased 79 percent. The
increase is principally due to the June 1998 acquisition of the remaining
shares of our Korean affiliate, Doosan Seagram Co., Ltd., and the inclusion of
their results in consolidated operations for 1999. Additionally, an improvement
in the difficult economic conditions experienced in the region in 1998 also
contributed to the increase. Revenues in North America increased four percent,
reflecting higher volumes and pricing. Europe's revenues increased four percent
year-on-year. In Latin America, revenues declined six percent due to the
difficult economic conditions in the region, particularly in Brazil. In the
twelve months ended June 30, 1999, cost of goods sold as a percentage of
revenues increased to 53.3 percent from 52.7 percent the prior year. Selling,
general and administrative expenses as a percentage of revenues decreased to
34.7 percent from 35.9 percent due to slight reductions in both brand spending
and overhead expenses coupled with improved revenues. Total brand spending
declined two percent at constant exchange rates in 1999. Brand equity spending
increased one percent at constant exchange rates as we continued to invest for
future growth by supporting our brands in key markets. The brand equity growth
reflected an increased emphasis on the consumer and was focused behind core
strategic brands, particularly Crown Royal Canadian Whisky and ABSOLUT VODKA in
North America and Chivas Regal Scotch Whisky and Martell Cognac globally.
Spirits and wine case volumes, including unconsolidated companies,
increased one percent in 1999 as the performance of our global brands was
mixed. Volumes in North America were strong, in particular for Crown Royal
Canadian Whisky and
32 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 12
Captain Morgan Rum. Globally, volumes for Crown Royal Canadian Whisky and
Captain Morgan Rum increased five and 14 percent, respectively. ABSOLUT VODKA,
which is owned by V&S Vin & Spirit AB and distributed by the Company in major
international markets, had a nine percent increase in volume. Case volumes of
several global brands declined including Martell and Chivas which were down
three and nine percent, respectively.
EBITDA increased 17 percent. Excluding the impact of the $60 million charge
for Asia Pacific from the prior year results, EBITDA would have increased six
percent.
UNCONSOLIDATED OPERATIONS
The equity in earnings of unconsolidated companies was $2 million in 1999
compared to $1 million in the prior year. Revenues from unconsolidated companies
declined by 30 percent and EBITDA increased 29 percent. The year-on-year
variances are primarily due to changes in the entities that are included in
unconsolidated companies. In 1999, the results include Kirin-Seagram Limited in
Japan for the entire twelve months and Seagram (Thailand) Limited for nine
months to March 1999 at which time we increased our investment in Thailand and
began to consolidate that affiliate. In 1998 the unconsolidated companies also
included Doosan Seagram Co., Ltd. in Korea. As a result of an additional
investment in Doosan Seagram Co., Ltd., at the end of June 1998, that
affiliate's results are now consolidated.
1998 versus 1997
CONSOLIDATED OPERATIONS
As a result of the economic and currency crises in Asia, Seagram recorded a $60
million charge related to its operations in Asia in the second quarter of the
fiscal year ended June 30, 1998. The charge was comprised of approximately $30
million for increased bad debt reserves, $15 million for severance and related
costs, and the remainder for other asset write-downs.
Spirits and wine revenues were adversely affected by difficult market
conditions in Asia Pacific and the impact of unfavorable foreign exchange.
Revenues declined seven percent to $4.5 billion. Operating income declined 30
percent to $464 million after the $60 million charge for Asia. Excluding the
impact of unfavorable foreign exchange and the charge for Asia, operating income
would have decreased 10 percent. Operating income, before the charge, as a
percent of revenues declined from 13.6 percent to 11.6 percent reflecting the
shortfall in the Asian market where predominantly higher margin products are
sold. The decline in revenues in Asia is due to lower shipments in order to
deliberately reduce distributor inventories, particularly in Greater China, and
diminished consumer demand. Margins in Asia deteriorated as demand has shifted
away from imported products to less expensive locally produced spirits. Revenues
in North America increased five percent due to improved mix and sustained price
increases. Revenues in Latin America increased four percent. Revenues for Europe
and Africa declined four percent but would have increased three percent
excluding the impact of unfavorable foreign exchange. Key growth markets in
Europe included the U.K., Spain and Italy.
In fiscal 1998 cost of goods sold, before the charge, as a percent of
revenues was unchanged at 52.7 percent. Selling, general and administrative
expenses, before the charge, as a percent of revenues increased to 35.9 percent
from 33.7 percent as reductions in overhead and brand spending did not fully
compensate for the rapid revenue decline in Asia. Total brand spending declined
12 percent, or approximately three percent at constant exchange rates, primarily
due to the volume shortfall.
SPIRITS AND WINE REVENUES BY GEOGRAPHIC REGION
[GRAPH]
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 33
<PAGE> 13
Spirits and wine case volumes, including unconsolidated companies, decreased
one percent in fiscal year 1998 as the performance of our global brands was
mixed.
UNCONSOLIDATED OPERATIONS
The equity in earnings of unconsolidated companies was $1 million in 1998
compared to $14 million in 1997. The year-on-year declines are primarily due to
the difficult market conditions in Asia Pacific where all the unconsolidated
companies are located. In 1998 and 1997, the results include Kirin-Seagram
Limited in Japan, Seagram (Thailand) Limited and Doosan Seagram Co., Ltd., in
Korea.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK
FINANCIAL POSITION Current assets of $8.9 billion at June 30, 1999 were $1.9
billion higher than at June 30, 1998. Current liabilities increased $3.4
billion to $8.1 billion at June 30, 1999. The increases in current assets and
current liabilities are primarily due to the acquisition of PolyGram.
Shareholders' equity was $12.9 billion at June 30, 1999, compared with $9.3
billion at June 30, 1998. In December 1998, $2 billion in common shares were
issued in connection with the acquisition of PolyGram. In June 1999, we
completed a $1.4 billion common share issuance. Our total long- and short-term
debt, net of cash and short-term investments, increased to $7.0 billion at June
30, 1999 from $2.7 billion at June 30, 1998, reflecting an increase in
borrowings used primarily to finance the acquisition of PolyGram. Our ratio of
net debt to total capitalization (including minority interest) increased from
19 percent to 32 percent, reflecting the larger debt outstanding.
CASH FLOWS FROM OPERATING ACTIVITIES Net cash provided by operating activities
totaled $935 million in the 1999 fiscal year, an increase of $1.2 billion from
1998. Contributing to this favorable development were lower working capital
requirements, partially offset by a reduction in income from continuing
operations. In 1998, operating activities used cash of $241 million, following
net cash provided of $664 million in 1997. The increased cash requirements in
the 1998 fiscal year reflect reduced income from continuing operations
(excluding the gains on the USA transactions and the Time Warner share sales)
and higher working capital requirements.
CASH FLOWS FROM INVESTING ACTIVITIES Net cash used for investing activities was
$6.1 billion in fiscal year 1999. The $3.3 billion pre-tax proceeds from the
Tropicana disposition were more than offset by the use of $8.6 billion of cash
for the PolyGram acquisition, an additional investment in USANi LLC and USA
Networks, Inc. of $243 million and capital expenditures of $531 million. The
capital expenditures by business segment were Music -- $135 million, Filmed
Entertainment -- $134 million, Recreation and Other -- $134 million and
Spirits and Wine -- $128 million. In 1998, net cash provided by investing
activities was $699 million. The net cash provided included $1.3 billion gross
proceeds from the USA transactions and $1.9 billion proceeds from the sales of
26.8 million Time Warner shares. Partially offsetting these proceeds were the
$1.7 billion acquisition of the incremental 50 percent interest in USA Networks
and capital expenditures of $410 million, broken down by business segment as
follows: Music -- $31 million, Filmed Entertainment -- $94 million, Recreation
and Other -- $115 million and Spirits and Wine -- $170 million. In addition,
$386 million of cash was used for sundry investments, including investments in
Doosan Seagram Co., Ltd., Seagram's spirits and wine affiliate in Korea,
Universal Studios Port Aventura, a theme park located in Spain, and Loews
Cineplex Entertainment Corporation. Net cash provided by investing activities
in 1997 was $1.7 billion and included $1.39 billion gross proceeds from the
sale of 30 million Time Warner shares, $500 million proceeds on the sale of
the DuPont warrants and $330 million proceeds on the sale of Putnam. These cash
proceeds were partially offset by capital expenditures of $393 million: Music
- -- $47 million, Filmed Entertainment -- $44 million, Recreation and Other --
$115 million and Spirits and Wine -- $187 million.
CASH FLOWS FROM FINANCING ACTIVITIES Financing activities in fiscal 1999
provided $5.6 billion, an increase of $5.4 billion over the prior year,
primarily used to finance the PolyGram acquisition. Contributing to the
significant increase were a $1.4 billion common share issuance, a $900 million
issuance of Adjustable Conversion-rate Equity Security Units and long-term debt
issuances and other borrowings totaling $5.1 billion. On July 15, 1999, we
issued additional Adjustable Conversion-rate Equity Security Units for
approximately $74 million. In 1999, we made dividend payments of $247 million.
In the fiscal year ended June 30, 1998, financing activities provided $159
million as compared to 1997 when $2.2 billion was used. In 1998, an increase in
short-term borrowings of $1.1 billion was used to finance the acquisition of
the incremental 50 percent interest in
34 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 14
USA Networks. This increase was offset by dividend payments of $231 million and
$753 million used to repurchase common shares. In 1997, we made dividend
payments of $239 million, used $416 million to repurchase common shares and
decreased short-term borrowings by $1.6 billion.
Cash used by the discontinued Tropicana operations to the disposition
date of August 25, 1998 was $3 million as compared to the cash provided by
discontinued Tropicana operations of $67 million in fiscal 1998 and $16 million
in fiscal 1997.
WORKING CAPITAL Our working capital position is reinforced by available credit
facilities of $7.6 billion. These facilities are used to support our commercial
paper borrowings and are available for general corporate purposes. We believe
our access to external capital resources, together with internally generated
liquidity, will be sufficient to satisfy existing commitments and plans, and to
provide adequate financial flexibility.
Capital needs of film studios are significant. In order to effectively
manage our capital needs and costs in the film business, we utilize a variety
of arrangements, including co-production, insurance, contingent profit
participation and the sale of certain distribution rights. We have entered
into an agreement to sell substantially all films produced or acquired during
the term of the agreement for amounts which approximate costs. We serve as sole
distributor and earn a distribution fee, which is variable and contingent upon
the films' performance. We also have the option to repurchase the films at
certain future dates. At the expiration of this agreement in 2000, the funding
of film production activities will be met through internally generated funds or
from other external sources.
Evolving technology allows consumers to experience music in new
electronic mediums and formats. Through a variety of strategic alliances and
independent initiatives, we continue to invest resources in the technology and
electronic commerce areas. During 1999, technology spending approximated $30
million.
INTERNATIONAL EXCHANGE We are exposed to changes in financial market conditions
in the normal course of business because we conduct business in many foreign
currencies and engage in ongoing investing and funding activities in many
countries. Market risk is the uncertainty to which future earnings or
asset/liability values are exposed due to operating cash flows denominated in
foreign currencies and various financial instruments used in the normal course
of operations. We have established policies, procedures and internal processes
governing management of market risks and the use of financial instruments to
manage our exposure to such risks.
We are also exposed to changes in interest rates primarily as a result
of our borrowing and investing activities that include short-term investments
and borrowings and long-term debt used to maintain liquidity and fund business
operations. We continue to utilize U.S. dollar-denominated commercial paper
and bank borrowings to fund seasonal working capital requirements in the U.S.
and Canada and also borrow in different currencies from other sources to meet
the borrowing needs of our affiliates. The nature and amount of our long-term
and short-term debt can be expected to vary as a result of future business
requirements, market conditions and other factors.
Operating cash flows denominated in foreign currencies as a result of
our international business activities and certain borrowings are exposed to
changes in foreign exchange rates. We continually evaluate our foreign currency
exposure (primarily British pound and euro), based on current market conditions
and the business environment. In order to mitigate the effect of foreign
currency risk, we engage in hedging activities. The magnitude and nature of
such hedging activities are explained in Note 6 to the consolidated financial
statements.
Our company employs a variance/covariance approach in our calculation
of Value at Risk (VaR), which measures the potential losses in fair value or
earnings that could arise from changes in market conditions, using a 95 percent
confidence level and assuming a one-day holding period. The VaR, which is the
potential loss in fair value, attributable to our interest rate sensitive
exposures at June 30, 1999 was $49 million. This exposure is primarily related
to long-term debt with fixed interest rates. The VaR, which is the potential
loss in earnings associated with our exposure to foreign exchange rates,
primarily to hedge cash flow exposures denominated in foreign currencies, was
$12 million at June 30, 1999. These exposures include intercompany trade
accounts, service fees, intercompany loans and third-party debt. We are subject
to other foreign exchange market risk exposure as a result of non-financial
instrument anticipated foreign currency cash flows which are difficult to
reasonably predict, and have therefore not been included in the Company's VaR
calculation.
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 35
<PAGE> 15
YEAR 2000 ISSUE
We have dedicated substantial resources to minimize potential business
disruption associated with the Year 2000 (Y2K) issue. Modification or
replacement of time or date sensitive information technology (IT) is necessary
so that the affected systems will properly recognize dates beyond December 31,
1999. If not corrected, certain systems may fail or miscalculate data. Failures
or miscalculations may not only result from IT systems, but also from non-IT
systems, such as equipment that relies on embedded technology. Risks associated
with the Y2K issue also include the potential impact of third parties on our
business, including vendors and government services. The Y2K issue could
impact all areas of our business, including the production and distribution of
music, film and beverage products, operation of theme parks and retail stores.
We have developed a comprehensive program to address Y2K issues. We
have project management offices at each major business group (Universal Music
Group, Universal Studios Group and The Seagram Spirits and Wine Group). Each
office is responsible for identifying and addressing the systems in that
business group which are likely to be impacted by the Y2K date change and
contacting key vendors, customers and others with whom the respective group
does business to determine their state of readiness. In addition to the
project management offices, we have an established Executive Steering Committee
which coordinates Y2K issues across the business groups. Our program is
structured so that strategies are implemented by each business group to
address IT and non-IT issues. The program, as well as our anticipated timeframe
for completion, follows:
ASSESSMENT This step includes identifying computer hardware, software and
network components and equipment potentially impacted by Y2K problems for both
IT and non-IT systems, and distinguishing those that are critical from those
that are not. Critical systems are those systems that would result in a
significant impairment of our ability to conduct our basic business operations
should they fail, such as production and distribution, billing and collections,
payments to employees and vendors, and financial reporting. Our assessment
phase is complete.
REMEDIATION This step includes converting noncompliant system code or equipment
to a state where Y2K issues are resolved. In some cases, replacing or
abandoning certain systems is the most cost-effective remediation approach. Of
the approximate 4,100 critical systems identified during the assessment phase
of our program, remediation of 84 percent of the systems is now considered
complete and 16 percent are currently in the remediation stage, with completion
of all critical systems expected by October 31, 1999.
TESTING AND VALIDATION Testing and validation includes ensuring that systems
which have been through the remediation process will operate properly beginning
in January 2000. We anticipate that all critical systems will have been tested
and validated by October 31, 1999.
THIRD-PARTY VENDORS AND CUSTOMERS We assess and validate third-party vendors
and customers as part of our program. Our assessment of third-party Y2K
readiness occurs through a variety of methods including interviews, on-site
assessment and testing. Third-party assessment will be completed by September
30, 1999.
CONTINGENCY PLANNING In addition to assessment, remediation and testing of
systems, we are in an ongoing process of developing contingency plans for
systems which may not be Y2K ready by December 31, 1999. Contingency planning
is also under way to address the potential impacts of Y2K failure by third
parties, which could have an adverse impact on our operations. Our contingency
objective is to ensure that alternative processes are identified which will
enable us to maintain a minimum acceptable operational capacity should failures
occur. We anticipate that all contingency plans will be in place by December
31, 1999.
We expect to incur approximately $75 million in costs related to assessment and
remediation of IT and non-IT systems. Through June 30, 1999, 50 percent of the
estimated costs have been incurred. Our estimated costs do not include the
costs of redeployed internal resources or the costs of internally developed
software or hardware which is being replaced or developed in the normal course
of business. The total cost estimate is also subject to change as the program
progresses. We expect that certain remediation efforts related to non-critical
systems and contingency planning efforts will extend well into 2000. All costs
associated with our plan will be funded through operations.
36 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 16
The costs of the Company's Y2K remediation efforts are based upon
management's best estimates, which require assumptions about future events,
availability of resources and personnel, third-party remediation actions and
other factors. There are no assurances that these estimates will be accurate,
and actual amounts may differ materially based on a number of factors, including
the availability and cost of resources to undertake remediation activities and
the scope and nature of the work required to complete remediation.
We expect that the Y2K issue will not pose significant operational
problems. However, the Company has not completed all phases of its program and
is dependent on third parties whose progress is not within its control. As with
many multinational companies, we could experience disruptions in services from
third-party providers, such as certain services provided by governments or
other service providers, and in certain areas where attention to the Y2K issue
has not been significant. While our Y2K plan is expected to significantly reduce
the likelihood of business disruptions, delays in the implementation of new
systems, a failure to fully identify all embedded technology potentially
affected by the Y2K issues and impacts on suppliers, customers, financial
institutions and government agencies, or a failure of third parties to
adequately address their respective Y2K issues could have a material adverse
effect on our operations.
Statements concerning Y2K issues that contain more than historical
information may be considered forward-looking statements, which are subject to
risks and uncertainties. Actual results may differ materially from those
expressed in the forward-looking statements, and our Y2K discussion should be
read in conjunction with our statement on forward-looking statements which
appears below.
EURO CONVERSION
In January 1999, certain member countries of the European Union began operating
with a new common currency, the euro, which was established by fixing conversion
rates between their existing currencies and the euro. The euro may be used in
business transactions along with existing currencies until June 2002, at which
time the existing currencies will be removed from circulation. We conduct
business in member countries and, accordingly, continue to evaluate the effects
of the euro conversion on our European operations, principally in the music and
spirits and wine businesses. We have established processes to address the issues
raised by this currency conversion, including the impact on information
technology and other systems, currency risk, financial instruments, taxation and
competitive implications. Based upon progress to date, we believe that the
introduction of the euro and phasing out of existing currencies will not have a
material impact on our financial position or results of operations.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains statements that are "forward-looking statements," in that
it includes statements regarding the intent, belief or current expectations of
our management with respect to our future operating performance. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. All statements that
express forecasts, expectations and projections with respect to future matters,
including the launching or prospective development of new business initiatives
and products, anticipated music or motion picture releases, Internet or theme
park projects, Y2K remediation efforts and anticipated cost savings or synergies
are forward-looking statements within the meaning of the Act. Such
forward-looking statements are not guarantees of future performance. Actual
results may differ materially from our forward-looking statements as a result of
certain risks and uncertainties, many of which are outside our control,
including but not limited to:
o Changes in global and localized economic and political conditions that may
affect attendance and spending at our theme parks, purchases of our
consumer products and the performance of our filmed entertainment
operations.
o Changes in financial and equity markets, including significant interest
rate and foreign currency rate fluctuations, which may affect our access
to, or increase the cost of financing for our operations and investments.
o Increased competitive product and pricing pressures and unanticipated
actions by competitors that could impact our market share, increase
expenses and hinder our growth potential.
o Changes in consumer preferences and tastes, which may affect all our
business segments.
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 37
<PAGE> 17
o Adverse weather conditions or natural disasters, such as hurricanes and
earthquakes, which may, among other things, impair performance at our
theme parks in California, Florida and Spain.
o Legal and regulatory developments, including changes in accounting
standards, taxation requirements, such as the impact of excise tax
increases with respect to the spirits and wine business, and environmental
laws.
o Technological developments that may affect the distribution of our
products or create new risks to our ability to protect our intellectual
property rights.
o The uncertainties of litigation and other risks and uncertainties detailed
from time to time in our filings with the Securities and Exchange
Commission.
QUARTERLY HIGH AND LOW SHARE PRICES
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
1999 1998 1997
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
New York Stock Exchange
First Quarter US$ 41.94 US$ 28.69 US$ 41.13 US$ 33.94 US$ 38.38 US$ 30.88
Second Quarter 38.38 25.13 37.63 30.25 41.88 35.25
Third Quarter 51.25 37.81 39.75 31.44 42.75 38.00
Fourth Quarter 65.00 48.81 46.69 36.81 41.88 35.75
Toronto Stock Exchange
First Quarter C$ 62.25 C$ 43.80 C$ 56.70 C$ 46.45 C$ 52.25 C$ 42.25
Second Quarter 59.50 38.65 52.30 43.25 57.40 47.50
Third Quarter 77.35 58.00 56.50 44.70 57.30 51.90
Fourth Quarter 98.00 72.00 67.50 52.65 58.10 50.00
===== ===== ===== ===== ===== =====
</TABLE>
RETURN TO SHAREHOLDERS
The Company had 6,623 registered shareholders at September 1, 1999. The
Company's common shares are listed on the New York, Toronto, Montreal,
Vancouver and London Stock Exchanges. Closing prices at June 30, 1999 on the
New York and Toronto Stock Exchanges were $50.38 and C$73.35, respectively.
In the fiscal years ended June 30, 1999 and 1998, the Company paid
dividends of $0.165 per share per quarter. In the fiscal year ended June 30,
1997, the Company paid dividends of $0.15 per share in the first quarter and
$0.165 per share in each of the final three quarters.
38 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 18
Exhibit 99
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $12,312 $9,474 $10,354
Cost of revenues 7,337 5,525 6,262
Selling, general and administrative expenses 4,820 3,396 3,373
Restructuring charge 405 -- --
------------------------------------
Operating income (loss) (250) 553 719
Interest, net and other 457 228 147
Gain on sale of Time Warner shares -- 926 154
Gain on USA transactions 128 360 --
------------------------------------
(579) 1,611 726
Provision (benefit) for income taxes (33) 638 331
Minority interest (26) 48 12
Equity earnings (losses) from unconsolidated companies 137 (45) 62
------------------------------------
Income (loss) from continuing operations (383) 880 445
Income (loss) from discontinued Tropicana operations, after tax (3) 66 57
Gain on sale of discontinued Tropicana operations, after tax 1,072 -- --
------------------------------------
Net income $ 686 $ 946 $ 502
====================================
EARNINGS PER SHARE - BASIC
Income (loss) from continuing operations $ (1.01) $ 2.51 $ 1.20
Discontinued Tropicana operations, after tax 2.82 .19 .16
------------------------------------
Net income $ 1.81 $ 2.70 $ 1.36
====================================
EARNINGS PER SHARE - DILUTED
Income (loss) from continuing operations $ (1.01) $ 2.49 $ 1.20
Discontinued Tropicana operations, after tax 2.82 .19 .15
------------------------------------
Net income $ 1.81 $ 2.68 $ 1.35
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE> 19
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
U.S. DOLLARS IN MILLIONS 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,533 $ 1,174
Receivables, net of allowances 2,985 2,155
Inventories 2,627 2,555
Other current assets 1,736 1,087
---------------------
TOTAL CURRENT ASSETS 8,881 6,971
Investments 5,663 4,971
Film costs, net of amortization 1,251 1,272
Music catalogs, artists' contracts and advances 3,348 761
Property, plant and equipment, net 3,158 2,733
Goodwill and other intangible assets 11,871 3,076
Other assets 839 661
Net assets of discontinued Tropicana operations -- 1,734
---------------------
$ 35,011 $ 22,179
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings and current portion of long-term debt $ 1,053 $ 1,653
Payables and accrued liabilities 4,808 2,354
Accrued royalties and participations 2,285 702
---------------------
TOTAL CURRENT LIABILITIES 8,146 4,709
Long-term debt 7,468 2,225
Accrued royalties and participations 434 421
Deferred income taxes 2,698 2,598
Other liabilities 1,499 995
Minority interest 1,878 1,915
---------------------
TOTAL LIABILITIES 22,123 12,863
---------------------
Shareholders' Equity
Shares without par value 4,575 848
Retained earnings 8,707 8,268
Accumulated other comprehensive income (394) 200
---------------------
TOTAL SHAREHOLDERS' EQUITY 12,888 9,316
---------------------
$ 35,011 $ 22,179
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Approved by the Board
/s/ Edgar M. Bronfman /s/ Matthew W. Barrett
Edgar M. Bronfman Matthew W. Barrett
Director Director
40
<PAGE> 20
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
U.S. DOLLARS IN MILLIONS 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations $ (383) $ 880 $ 445
Adjustments to reconcile income from continuing operations to net cash provided:
Depreciation and amortization of assets 527 289 290
Amortization of goodwill 246 127 103
Gain on sale of Time Warner shares, DuPont warrants and Putnam -- (926) (278)
Gain on USA transactions (128) (360) --
Minority interest in income (loss) of subsidiaries (26) 48 12
Equity earnings from unconsolidated companies (greater)
less than dividends received (45) 101 45
Deferred income taxes 92 447 (53)
Other 120 (69) 145
Changes in assets and liabilities, net of effect of acquisitions
and dispositions:
Receivables, net of allowances 952 (324) (238)
Inventories (85) 14 6
Other current assets 6 (524) (365)
Music catalogs, artists' contracts and advances (2) (88) (2)
Payables and accrued liabilities (69) (7) 513
Other liabilities (270) 151 41
------- ------- -------
1,318 (1,121) 219
------- ------- -------
Net cash provided by (used for) operating activities 935 (241) 664
------- ------- -------
INVESTING ACTIVITIES
Acquisition of PolyGram (8,607) -- --
Sale of Tropicana 3,288 -- --
Investments in USANi LLC and USA Networks (243) (1,700) --
USA transactions -- 1,332 --
Sale of Time Warner shares, DuPont warrants and Putnam -- 1,863 2,217
Capital expenditures (531) (410) (393)
Other (43) (386) (116)
------- ------- -------
Net cash (used for) provided by investing activities (6,136) 699 1,708
------- ------- -------
FINANCING ACTIVITIES
Dividends paid (247) (231) (239)
Issuance of shares 1,417 -- --
Issuance of shares upon exercise of stock options and conversion of LYONs 314 86 107
Issuance of Adjustable Conversion-rate Equity Security Units 900 -- --
Issuance of long-term debt 5,086 41 3
Repayment of long-term debt (1,066) (37) (29)
Shares purchased and retired -- (753) (416)
(Decrease) increase in short-term borrowings and current portion of long-term debt (841) 1,053 (1,601)
------- ------- -------
Net cash provided by (used for) financing activities 5,563 159 (2,175)
------- ------- -------
Net cash provided by continuing operations 362 617 197
------- ------- -------
Net cash (used for) provided by discontinued operations (3) 67 16
------- ------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 359 684 213
------- ------- -------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,174 490 277
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,533 $ 1,174 $ 490
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
41
<PAGE> 21
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARES WITHOUT ACCUMULATED
PAR VALUE OTHER TOTAL
NUMBER RETAINED COMPREHENSIVE SHAREHOLDERS'
U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS (THOUSANDS) AMOUNT EARNINGS INCOME EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30,1996 373,059 $ 725 $8,389 $ 91 $9,205
Components of comprehensive income:
Net income 502 502
Currency translation adjustments (181) (181)
Unrealized holding gain in equity securities,
net of $239 tax 444 444
------
Total comprehensive income 765
------
Dividends paid ($.645 per share) (239) (239)
Shares issued - exercise of stock options 3,243 98 98
- conversion of LYONs 296 9 9
Shares purchased and retired (11,317) (23) (393) (416)
-----------------------------------------------------------------
BALANCE AT JUNE 30, 1997 365,281 809 8,259 354 9,422
Components of comprehensive income:
Net income 946 946
Currency translation adjustments (72) (72)
Unrealized holding loss in equity securities,
net of $44 tax benefit (82) (82)
----
Total comprehensive income 792
----
Dividends paid ($.66 per share) (231) (231)
Shares issued - exercise of stock options 2,751 84 84
- conversion of LYONs 48 2 2
Shares purchased and retired (20,948) (47) (706) (753)
-----------------------------------------------------------------
BALANCE AT JUNE 30, 1998 347,132 848 8,268 200 9,316
Components of comprehensive income:
Net income 686 686
Currency translation adjustments (599) (599)
Unrealized holding gain in equity securities,
net of $8 tax 5 5
----
Total comprehensive income 92
----
Dividends paid ($.66 per share) (247) (247)
Shares issued - exercise of stock options
and other compensation 8,493 312 312
- conversion of LYONs 26 2 2
- issuance of common shares 76,904 3,413 3,413
----------------------------------------------------------------
BALANCE AT JUNE 30, 1999 432,555 $4,575 $8,707 $ (394) $12,888
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
42
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Seagram Company Ltd. operates in four global business segments: music,
filmed entertainment, recreation and other, and spirits and wine. The music
business is conducted through Universal Music Group, which produces and
distributes recorded music throughout the world in all major genres. Universal
Music Group also manufactures, sells and distributes video products in the
United States and internationally, and licenses music copyrights. The filmed
entertainment business produces and distributes motion picture, television and
home video products worldwide, operates and has ownership interests in a number
of international cable channels and engages in the licensing of merchandising
and film property rights. The recreation and other businesses operate theme
parks, retail stores and are also involved in the development of entertainment
software. The spirits and wine business, directly and through affiliates and
joint ventures, produces, markets and distributes distilled spirits, wines,
ports and sherries, coolers, beers, mixers and other low-alcohol beverages. In
addition to marketing owned brands, the spirits and wine business also
distributes distilled spirits, wine and beer brands owned by others.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The Seagram Company Ltd. is headquartered in Canada, and
more than 50 percent of the Company's shares are held by U.S. residents. As a
result, the Company has prepared its consolidated financial statements in
accordance with U.S. generally accepted accounting principles (GAAP). U.S. GAAP
applicable to the Company conforms, in all material respects, to Canadian GAAP
Differences between U.S. and Canadian GAAP affecting these financial statements
are discussed in Note 13. Should a material difference between the two
accounting principles arise in the future, financial statements would be
provided under both U.S. and Canadian GAAP
PRINCIPLES OF CONSOLIDATION AND ACCOUNTING FOR INVESTMENTS The consolidated
financial statements include the accounts of The Seagram Company Ltd. and its
subsidiaries. All intercompany accounts, transactions and profits have been
eliminated. Investments in certain other companies in which Seagram has
significant influence, but less than a controlling interest, are accounted for
using the equity method. Investments in companies in which Seagram does not have
significant influence are accounted for at market value if the investments are
publicly traded, or at cost if not publicly traded.
USE OF ESTIMATES The preparation of the financial statements requires management
to make informed estimates, assumptions and judgments, with consideration given
to materiality, that affect the reported amounts of assets, liabilities,
revenues and expenses. For example, estimates are used in management's forecast
of anticipated revenues in the music and filmed entertainment businesses and in
determining valuation allowances for uncollectible trade receivables and
deferred income taxes. Actual results could differ from those estimates.
REVENUES AND COSTS
MUSIC Revenues from the sale of recorded music, net of a provision for estimated
returns and allowances, are recognized upon shipment to third parties. Advances
to established recording artists and direct costs associated with the creation
of record masters are capitalized and are charged to expense as the related
royalties are earned, or when the amounts are determined to be unrecoverable.
The advances are expensed when past performance or current popularity does not
provide a sound basis for estimating that the advance will be recovered from
future royalties.
FILMED ENTERTAINMENT Generally, theatrical films are first distributed in the
worldwide theatrical and home video markets. Subsequently, theatrical films are
made available for worldwide pay television, network exhibition, television
syndication and basic cable television. Television films from the Company's
library may be licensed for domestic and foreign syndication, cable or pay
television and home video. Theatrical revenues from the distribution of films
are recognized as the films are exhibited. Revenues from television and pay
television licensing agreements are recognized when the films are available for
telecast. Home video product revenues, less a provision for estimated returns
and allowances, are recognized upon availability of product for retail sale.
Film costs are stated at the lower of cost, less accumulated amortization, or
net realizable value. Generally,
43
<PAGE> 23
abandoned story and development costs are charged to film production overhead.
The estimated total film production and participation costs are expensed based
on the ratio of the current period's gross revenues to estimated total gross
revenues from all sources on an individual production basis. Estimates of total
gross revenues and costs can change significantly due to a variety of factors,
including the level of market acceptance of film and television products.
Accordingly, revenue and cost estimates are reviewed quarterly and revisions to
amortization rates or write-downs to net realizable value may occur.
Film costs, net of amortization, for completed theatrical films intended
for distribution in the worldwide theatrical, home video and pay television
distribution markets are classified as other current assets. The portion of
released film costs expected to be realized from secondary markets such as
network exhibition, television syndication and basic cable television are
reported as noncurrent assets. Other costs relating to film production,
including the purchase price of literary properties and related film development
costs, and the film library are classified as noncurrent assets.
The Company has an agreement with an independent party to sell
substantially all completed feature films produced over the period 1997-2000 at
amounts which approximate cost. The Company distributes these films and
maintains an option to re-acquire the films, based on a formula considering the
remaining estimated total gross revenues, net of costs, at the time of
re-acquisition. No films have been re-acquired as of June 30,1999. As a
distributor, the Company has recorded, in its statement of income, the revenues
received from and operating expenses related to the films in all markets, and,
in interest, net and other, certain other costs relating to the agreement.
RECREATION AND OTHER Revenues at theme parks are recognized at the time of
visitor attendance. Revenues for retail operations are recognized at
point-of-sale.
SPIRITS AND WINE Revenues from the sale of spirits and wines are generally
recognized when products are shipped. The Company establishes liabilities for
estimated returns and allowances at the time of shipment. Accruals for customer
discounts and rebates are recorded when revenues are recognized.
FOREIGN CURRENCY TRANSLATION For operations in highly inflationary economies,
the U.S. dollar is utilized as the functional currency. Affiliates outside the
U.S. generally use the local currency as the functional currency. For
affiliates in countries considered to have a highly inflationary economy,
inventories and property, plant and equipment are translated at historical
exchange rates and translation effects are included in net income. The
cumulative currency translation adjustment balance was $(1,098) million, $(499)
million and $(427) million at June 30, 1999, 1998 and 1997, respectively.
CASH AND CASH EQUIVALENTS Cash equivalents include time deposits and highly
liquid investments with original maturities of three months or less.
INVENTORIES Inventories consist principally of spirits and wines and are stated
at cost, which is not in excess of market. The cost of spirits and wines
inventories is determined by either the last-in, first-out (LIFO) method or the
identified cost method. In accordance with industry practice, current assets
include spirits and wines inventories, which are aged for varying periods of
years. The cost of music, retail and home video inventories is determined by
the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is carried at cost.
Depreciation is determined using the straight-line method based on the
estimated useful lives of the assets, generally at annual rates of 2-10 percent
for buildings, 4-33 percent for machinery and equipment and 2-20 percent for
other assets.
GOODWILL AND INTANGIBLE ASSETS The Company has significant acquired intangible
assets, including goodwill, music catalogs, artists' contracts, music
publishing assets, film libraries, copyrights and trademarks. Music catalogs
and artists' contracts are amortized on an accelerated basis over 14 and 20
years, respectively. From the date of acquisition, the acceleration results in
80 percent of artists' contracts being amortized within the first eight years
and 50 percent of music catalogs being amortized within the first five years.
Music publishing assets, film libraries and copyrights are amortized on a
straight-line basis over 20 years. Goodwill is amortized on a straight-line
basis over periods up to 40 years. The Company reviews the carrying value of
goodwill and intangible assets for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. Measurement of any impairment would include a comparison of
discounted
<PAGE> 24
estimated future operating cash flows anticipated to be generated during the
remaining amortization period to the net carrying value. Music catalogs,
artists' contracts, music publishing assets and copyrights includes $400 million
of the cost of the 1995 Universal acquisition and approximately $2.8 billion of
the cost of the December 1998 PolyGram acquisition. A film library acquired in
connection with the Universal acquisition was valued at $300 million.
STOCK-BASED COMPENSATION Compensation cost attributable to stock option and
similar plans is recognized based on the difference, if any, between the quoted
market price of the Company's common shares on the date of grant over the
exercise price of the option. The Company does not issue options at prices below
market value at date of grant.
DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into foreign currency and
interest rate derivative contracts for the purpose of minimizing risk. The
Company uses currency forwards and options to hedge firm commitments and a
portion of its foreign indebtedness. In addition, the Company hedges foreign
currency risk on intercompany payments and receipts through currency forwards,
options and swaps which offset the exposure being hedged. Gains and losses on
forward contracts are deferred and offset against foreign exchange gains and
losses on the underlying hedged transaction. Gains and losses on forward
contracts used to hedge foreign debt and intercompany payments are recorded in
the income statement in selling, general and administrative expenses. The
Company uses interest rate swap and swaptions to manage net exposure to interest
rate movements related to its borrowings and to lower its overall borrowing
costs. Net payments or receipts are recorded as adjustments to interest expense.
Interest rate instruments generally have the same life as the underlying
interest rate exposure. Gains or losses on the early termination of interest
rate instruments are recognized over the remaining life, if any, of the
underlying exposure as an adjustment to interest expense.
COMPREHENSIVE INCOME The Company adopted Financial Accounting Standards (SFAS)
No. 130, Reporting Comprehensive Income, at July 1, 1998. As it relates to the
Company, comprehensive income is defined as net income plus the sum of currency
translation adjustments and unrealized holding gains/losses in equity
securities, collectively other comprehensive income, and is presented in the
consolidated statement of shareholders' equity.
NEW ACCOUNTING GUIDANCE
START-UP COSTS The Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AcSEC) issued Statement of Position
(SOP) 98-5, Reporting on the Costs of Start-Up Activities, which is effective
for the Company's fiscal year beginning July 1, 1999. SOP 98-5 requires that
costs of start-up activities and organization costs be expensed as incurred. The
adoption of SOP 98-5 will result in a pre-tax charge of approximately $140
million, which will be accounted for as a cumulative effect of a change in
accounting principle.
FINANCIAL INSTRUMENTS In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which will require the Company to record all derivatives on the
balance sheet at fair value. Changes in derivative fair values will either be
recognized in earnings as offsets to the changes in fair value of related hedged
assets, liabilities and firm commitments or for forecasted transactions,
deferred and recorded as a component of accumulated other comprehensive income
until the hedged transactions occur and are recognized in earnings. The
ineffective portion of a hedging derivative's change in fair value will be
immediately recognized in earnings. The impact of SFAS No. 133 on the Company's
financial statements will depend on a variety of factors, including the future
level of forecasted and actual foreign currency transactions, the extent of the
Company's hedging activities, the types of hedging instruments used and the
effectiveness of such instruments. In June 1999, the FASB delayed the effective
date of the standard which will now be effective for the Company's fiscal year
beginning July 1, 2000. The Company is currently evaluating the impact of
adopting SFAS No. 133 on its financial statements.
PROPOSED CHANGES TO FILM ACCOUNTING STANDARDS In October 1998, the AcSEC issued
an exposure draft of a proposed SOP, Accounting by Producers and Distributors of
Films. The proposed SOP would supersede current film accounting standards
related to the recognition of revenues, costs and expenses and film cost
valuation. The SOP is intended to clarify the accounting for items that
currently vary in practice. The SOP is expected to result in earlier recognition
of certain expenses and revised
45
<PAGE> 25
financial statement presentation and disclosure. Once effective, adoption of the
proposed accounting standard would be reflected as a cumulative effect of a
change in accounting principle. Since the provisions of the SOP are still being
deliberated by AcSEC, and could change significantly prior to the issuance of a
final standard, the Company has not determined its impact at this time.
RECLASSIFICATIONS Certain prior period amounts in the financial statements and
notes have been reclassified to conform with the current year presentation.
NOTE 2 SIGNIFICANT TRANSACTIONS
ACQUISITION OF POLYGRAM
On December 10, 1998, the Company acquired 99.5 percent of the outstanding
shares of PolyGram N.V. (PolyGram), a global music and entertainment company,
for $8,607 million in cash and approximately 47.9 million common shares of the
Company. Substantially all of the common shares were issued to Koninklijke
Philips Electronics N.V., which had owned 75 percent of the PolyGram shares.
The acquisition has been accounted for under the purchase method of accounting,
and accordingly the results of the operations of PolyGram are included in the
results of the Company's music and filmed entertainment segments from the date
of acquisition. The acquisition was financed through both short-term and
long-term borrowings. Following the acquisition of PolyGram, Matsushita Electric
Industrial Co., Ltd., has an approximate 8 percent ownership interest in the
entities which own Universal's music, filmed entertainment and recreation and
other assets.
ALLOCATION OF PURCHASE PRICE The Company has performed a purchase price study
related to its acquisition of PolyGram in order to assess and allocate the
purchase price among tangible and intangible assets acquired and liabilities
assumed, based on fair values at the acquisition date. The final allocation of
purchase price is not expected to differ significantly from the following:
<TABLE>
<CAPTION>
MILLIONS
- --------------------------------------------------------------------------------
<S> <C>
Identifiable intangible assets $ 2,774
Goodwill 9,476
Accrual for exit activities (490)
All other, net (960)
---------
$ 10,800
================================================================================
</TABLE>
INTANGIBLE ASSETS Identifiable intangible assets consist of music catalogs,
artists' contracts, music publishing assets, distribution networks and customer
relationships. Acquired music catalogs, artists' contracts, and music publishing
assets are amortized over periods ranging from 14 to 20 years, on an accelerated
basis, and other intangibles are amortized over a 40-year period, on a
straight-line basis. Goodwill is the excess of purchase price over the fair
value of assets acquired and liabilities assumed, and is amortized on a
straight-line basis over a 40-year period.
ACCRUAL FOR EXIT ACTIVITIES In connection with the integration of PolyGram and
Seagram, management developed a formal exit activity plan which was committed to
by management and communicated to employees shortly after the acquisition was
consummated. Accrued exit activities related to the acquired PolyGram business
consist principally of facility elimination costs, contract terminations and the
severance or relocation of approximately 1,700 employees, of which approximately
1,000 had been terminated at June 30, 1999.
DISPOSITION OF TROPICANA
On August 25, 1998, the Company completed the sale of Tropicana Products, Inc.
and the Company's global fruit juice business (Tropicana) for approximately
$3,288 million in cash, which resulted in a pre-tax gain of $1,445 million
($1,072 million
46
<PAGE> 26
after tax). Tropicana produced and marketed Tropicana, Dole and other branded
fruit juices and beverages. Summarized financial information related to the
discontinued Tropicana business follows:
<TABLE>
<CAPTION>
PERIOD ENDED FISCAL YEARS ENDED
AUGUST 25, JUNE 30,
MILLIONS 1998 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $337 $1,986 $1,916
Cost of revenues 266 1,394 1,314
Selling, general and administrative expenses 68 423 450
------------------------------------------
Operating income 3 169 152
Interest expense 3 39 41
Provision for income taxes 3 64 54
------------------------------------------
Income (loss) from discontinued operations $ (3) $ 66 $ 57
=============================================================================================
</TABLE>
Interest expense above represents allocations based on the ratio of net assets
of discontinued operations to consolidated net assets.
<TABLE>
<CAPTION>
MILLIONS JUNE 30, 1998
- -----------------------------------------------------------------------
<S> <C>
Current assets $ 546
Noncurrent assets 1,622
------
$2,168
======
Current liabilities $ 322
Noncurrent liabilities 112
Shareholders' equity 1,734
------
$2,168
=======================================================================
</TABLE>
USA TRANSACTIONS
On October 21, 1997 Universal acquired from Viacom Inc. the remaining 50 percent
interest in the USA Networks partnership for $1.7 billion in cash. This purchase
was in addition to Universal's original 50 percent interest in USA Networks. The
acquisition was accounted for under the purchase method of accounting. The cost
of the acquisition was allocated on the basis of the estimated fair market value
of the assets acquired and liabilities assumed. This transaction resulted in
$1.6 billion of goodwill which was being amortized over 40 years.
On February 12,1998, Universal sold its acquired 50 percent interest in USA
Networks to USA Networks, Inc. (USAi) and contributed its original 50 percent
interest in USA Networks, the majority of its television assets and 50 percent
of the international operations of USA Networks to USANi LLC. In this
transaction, Universal received $1,332 million in cash, a 10.7 percent interest
in USAi and a 45.8 percent exchangeable interest in USANi LLC. Universal
recognized a gross gain of $583 million, before taking into consideration the
effect of the transaction, which impaired certain remaining television assets
and transformed various related contractual obligations into adverse purchase
commitments. The fair value of these items was determined based on expected
future cash flows. The impairment losses and adverse purchase commitments
arising from the transaction aggregated $223 million and were reflected in the
net gain of $360 million ($222 million after tax). During 1999, $128 million of
accrued costs were reversed as a result of the favorable settlement of certain
contractual obligations and adverse purchase commitments. The transactions
resulted in $82 million of goodwill, which is being amortized over 40 years. The
investment in the 9.1 million shares of USAi common stock held by Universal at
June 30,1999 is accounted for at market value ($365 million at June 30, 1999)
and has an underlying historical cost of $211 million. The investment in 6.7
million shares of Class B common stock of USAi is carried at its historical cost
of $136 million. The investment in the LLC is accounted for under the equity
method.
47
<PAGE> 27
PRO FORMA FINANCIAL INFORMATION
The unaudited condensed pro forma income statement data presented below assume
the PolyGram acquisition, the sale of Tropicana and the USA transactions
occurred at the beginning of the 1998 fiscal year. The pro forma information is
not necessarily indicative of the combined results of operations of the Company
that would have occurred if the transactions had occurred on the date previously
indicated, nor is it necessarily indicative of future operating results of the
Company.
PRO FORMA INCOME STATEMENT
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $15,344 $14,587
Net income (loss) $ (208) $ 447
EARNINGS (LOSS) PER SHARE
Basic $ (.52) $ 1.12
Diluted $ (.52) $ 1.11
================================================================================
</TABLE>
OTHER TRANSACTIONS
TIME WARNER SHARES On February 5,1998, the Company sold 15 million shares of
Time Warner common stock for pre-tax proceeds of $958 million. On May 27,1998,
the Company sold its remaining 11.8 million shares of Time Warner common stock
for pre-tax proceeds of $905 million. The aggregate gain on the sale of the
shares was $926 million ($602 million after tax). On May 28,1997, the Company
sold 30 million shares of Time Warner common stock for pre-tax proceeds of $1.39
billion. The gain on the sale of the shares in the fiscal year ended June 30,
1997, was $154 million ($100 million after tax) in accordance with the specific
identification method.
PUBLISHING GROUP On December 16, 1996, the Company sold its book publishing
unit, The Putnam Berkley Group, Inc. (Putnam). Proceeds from the sale were $330
million, resulting in a $64 million pre-tax gain on the disposition. There was
no after-tax gain or loss due to the write-off of non-tax-deductible goodwill
associated with Putnam. The operating results of Putnam through December 16,1996
are included in operating income.
DUPONT EQUITY WARRANTS On July 24, 1996, the Company sold 156 million equity
warrants of E.I. du Pont de Nemours and Company (DuPont) to DuPont for $500
million in cash. The after-tax net proceeds were $479 million and the gain on
the sale of the warrants was $60 million ($39 million after tax) and is included
in interest, net and other in the fiscal year ended June 30,1997.
NOTE 3 RESTRUCTURING CHARGE
Management developed and committed to a formal plan that was communicated to
employees to restructure its music and filmed entertainment operations after the
acquisition of PolyGram. This plan resulted in a 1999 pre-tax restructuring
charge of $405 million. The charge related entirely to the Company's existing
global music and film production, financial, marketing and distribution
operations and includes severance, elimination of duplicate facilities and
labels, termination of artists' and distribution contracts and costs related to
exiting film production arrangements and properties in development. The major
components of the charge are:
<TABLE>
<CAPTION>
FILMED
MILLIONS MUSIC ENTERTAINMENT TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Severance and other employee-related costs $111 $15 $126
Facilities and labels 124 4 128
Contract termination and other costs 78 73 151
-------------------------------
$313 $92 $405
================================================================================
</TABLE>
48
<PAGE> 28
The severance and other employee-related costs provide for a reduction of
approximately 1,200 employees worldwide related to facility closures, duplicate
position eliminations and streamlining of operations related to cost reduction
initiatives. The facilities and labels elimination costs provide for domestic
and international lease and label terminations and the write-off of the net book
value of furniture, fixtures and equipment and leasehold improvements for
vacated properties. The costs of contract terminations are comprised primarily
of artists' contracts, distribution contracts, story property commitments and
filmed entertainment term deals. The cash and non-cash elements of the
restructuring charge approximate $318 million and $87 million, respectively. The
utilization of the restructuring charge to date follows:
<TABLE>
<CAPTION>
ORIGINAL UTILIZED BALANCE AT
MILLIONS ACCRUAL CASH NON-CASH JUNE 30, 1999
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance and other employee-related costs $126 $ 42 $ 3 $ 81
Facilities and labels 128 4 13 111
Contract termination and other costs 151 30 9 112
--------------------------------------------
$405 $ 76 $ 25 $ 304
===========================================================================================
</TABLE>
As part of the restructuring initiative, approximately 600 employees have
separated from the Company as of June 30,1999. The Company anticipates that all
restructuring activities will be substantially completed by June 30, 2000.
NOTE 4 INVESTMENTS
The Company's investments consist of:
<TABLE>
<CAPTION>
MILLIONS JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Equity method investments:
USANi LLC $2,329 $1,960
Other 1,710 1,477
------ ------
4,039 3,437
------ ------
Cost and fair-value investments:
DuPont 1,123 1,228
USAi common stock 365 178
USAi Class B common stock 136 128
------ ------
1,624 1,534
------ ------
Total investments $5,663 $4,971
================================================================================
</TABLE>
EQUITY METHOD INVESTMENTS The Company has a number of investments in
unconsolidated companies which are 50 percent or less owned or controlled, which
are accounted for using the equity method. The most significant of these is
USANi LLC, which is part of our filmed entertainment business and is engaged in
network and first run syndication television production, domestic distribution
of its and Universal's television production and operation of the USA Network
and SCI FI Channel cable networks (49 percent equity interest). Other filmed
entertainment equity investments include Loews Cineplex Entertainment
Corporation, primarily engaged in theatrical exhibition of motion pictures in
the U.S. and Canada (26 percent owned); Cinema International Corporation and
United Cinemas International, both engaged in theatrical exhibition of motion
pictures in territories outside the U.S. and Canada (49 percent owned).
Significant investments in the recreation and other business include Universal
City Florida Partners, which owns Universal Studios Florida, a motion picture
and television themed tourist attraction and production facility in Orlando,
Florida (50 percent owned); Universal City Development Partners, which owns
Universal Studios Islands of Adventure, an additional themed tourist attraction
developed on land adjacent to Universal Studios Florida and Universal Studios
CityWalk Orlando, a dining, retailing and entertainment complex (50 percent
owned); USJ Co., Ltd.,
49
<PAGE> 29
which has begun development of a motion picture themed tourist attraction,
Universal Studios Japan, and owns commercial real estate in Osaka, Japan (24
percent owned); Universal Studios Port Aventura, a theme park located in Spain
(37 percent owned); SEGA GameWorks LLC, which designs, develops and operates
location-based entertainment centers (27 percent owned); and Interplay
Entertainment Corp., an entertainment software developer (26 percent owned). In
the music business, significant equity investments include GetMusic, an online
music alliance designed to create Internet sites that promote and sell music;
Universal Concerts Canada and Universal/PACE Amphitheaters Group, L.P. The
spirits and wine business has an investment in Kirin-Seagram Limited, engaged in
the manufacture, sale and distribution of distilled beverage alcohol and wines
in Japan (49 percent owned).
Summarized financial information for the Company's investments in
unconsolidated companies, derived from unaudited historical financial results,
follows:
SUMMARIZED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MILLIONS JUNE 30, 1999 JUNE 30, 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 1,897 $ 1,651
Noncurrent assets 11,928 10,415
------- -------
Total assets $13,825 $12,066
------- -------
Current liabilities $ 1,991 $ 1,718
Noncurrent liabilities 3,883 3,738
Equity 7,951 6,610
------- -------
Total liabilities and equity $13,825 $12,066
------- -------
Proportionate share of net assets
of unconsolidated companies $ 3,691 $ 2,884
================================================================================
</TABLE>
Approximately $700 million of the cost of the 1995 Universal acquisition was
allocated to goodwill related to investments in unconsolidated companies and is
being amortized on a straight-line basis over 40 years.
SUMMARIZED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
MILLIONS 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $5,294 $4,561 $4,782
Earnings before interest and taxes $ 351 $ 366 $ 351
Net income $ 314 $ 173 $ 229
================================================================================
</TABLE>
The equity earnings (losses) of unconsolidated companies in the consolidated
statement of income includes goodwill amortization related to unconsolidated
companies of $35 million, $81 million and $62 million for the fiscal years ended
June 30, 1999, 1998 and 1997, respectively, principally in the filmed
entertainment and recreation and other segments. Additionally, operating income
for the fiscal year ended June 30, 1998 includes $76 million of income from USA
Networks for the period from October 21, 1997 to February 12, 1998 when the
Company owned 100 percent of USA Networks as described in Note 2.
COST AND FAIR-VALUE INVESTMENTS
DUPONT At June 30, 1999, the Company owned 16.4 million shares of the
outstanding common stock of DuPont. The Company accounts for the investment at
market value which was $1,123 million at June 30, 1999. The underlying
historical book value of the DuPont shares is $187 million, which represents the
historical cost of the shares plus unremitted earnings related to those shares.
50
<PAGE> 30
USAi At June 30, 1999, the Company owned 9.1 million shares of the outstanding
common stock of USAi. The investment, which is accounted for at market value
($365 million at June 30, 1999), has an underlying cost of $211 million. At June
30, 1999, the Company also owned 6.7 million shares of USAi Class B common stock
which is carried at its historical cost of $136 million.
NOTE 5 LONG-TERM DEBT AND CREDIT ARRANGEMENTS
LONG-TERM DEBT
<TABLE>
<CAPTION>
MILLIONS JUNE 30, 1999 JUNE 30, 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
9% Debentures due 1998 (C$200 million) (1) $ -- $ 156
Unsecured term bank loans, due 1998 to 1999,
with a weighted average interest rate of 4.81% -- 155
6.5% Debentures due 2003 200 200
8.35% Debentures due 2006 200 200
8.35% Debentures due 2022 200 199
6.875% Debentures due 2023 200 200
6% Swiss Franc Bonds due 2085 (SF 250 million) 162 164
7.5% Adjustable Conversion-rate Equity Security Units (2) 927 --
Other 208 158
------ ------
2,097 1,432
------ ------
Joseph E. Seagram & Sons, Inc., guaranteed by Company:
5.79% Senior Notes due 2001 250 --
6.25% Senior Notes due 2001 600 --
6.4% Senior Notes due 2003 400 --
6.625% Senior Notes due 2005 475 --
8.375% Debentures due 2007 200 200
7% Debentures due 2008 200 200
6.8% Senior Notes due 2008 450 --
8.875% Debentures due 2011 223 223
9.65% Debentures due 2018 249 249
7.5% Senior Debentures due 2018 875 --
9% Debentures due 2021 198 198
7.6% Senior Debentures due 2028 700 --
8% Senior Quarterly Income Debt Securities due 2038 (QUIDS) 550 --
Liquid Yield Option Notes (LYONs) (3) 9 9
------ ------
5,379 1,079
------ ------
7,476 2,511
Current portion of long-term debt (8) (286)
------ ------
$7,468 $2,225
- --------------------------------------------------------------------------------------------
</TABLE>
(1) All principal and interest payments for these 9% Debentures were converted
at issuance through a series of currency exchange contracts from Canadian
dollars to U.S. dollars with an effective interest rate of 7.7%.
(2) In June 1999, the Company issued 18,500,000 units of the 7.5% Adjustable
Conversion-rate Equity Security Units at a stated price of $50.125 for an
aggregate initial offering price of $927 million. Each unit consists of a
contract to purchase common shares of the Company and a subordinated
deferrable note of its subsidiary, Joseph E. Seagram & Sons, Inc., that is
guaranteed by the Company. Under the purchase contracts, on June 21, 2002,
the unit holders will purchase for $50.125 not more than one and not less
than 0.8333 of one share of the Company's common shares per unit, depending
on the average trading price of the common shares during a specified
trading period in June 2002. The junior subordinated deferrable notes have
a principal amount equal to the stated amount of the units and an interest
rate of 7.62%. The interest rate on the note is subject to adjustment at
March 21, 2002 and the note matures on June 21, 2004. The holders of the
units are required to pay contract fees to the Company at an annual rate of
.12%. These payments will be funded out of payments made in respect of the
notes so that the net distributions on the notes will be 7.5%.
(3) LYONs are zero coupon notes with no interest payments due until maturity on
March 5, 2006. Each $1,000 face amount LYON may be converted, at the option
of the holder, into 18.44 of the Company's common shares (276,474 shares at
June 30, 1999). The Company has guaranteed the LYONs on a subordinated
basis.
51
<PAGE> 31
The Company's unused lines of credit totaled $7.6 billion and have varying terms
of up to three years. At June 30, 1999, short-term borrowings comprised $1,045
million of bank borrowings bearing interest at market rates.
Interest expense on long-term debt was $380 million, $226 million and $218
million in the fiscal years ended June 30, 1999, 1998 and 1997, respectively.
Annual repayments and redemptions of long-term debt for the five fiscal years
subsequent to June 30, 1999 are: 2000 - $8 million; 2001 - $257 million; 2002
- -$666 million; 2003 - $200 million; and 2004 - $1,327 million.
Summarized financial information for JES and its subsidiaries is presented
below. Separate financial statements and other disclosures related to JES are
not provided because management has determined that such information does not
provide additional meaningful information to holders of JES debt securities.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
MILLIONS 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $2,242 $2,144 $2,114
Cost of revenues $1,390 $1,356 $1,320
Income (loss) from continuing operations $ (8) $ (8) $ 76
Discontinued Tropicana operations -- (17) 11
------ ------ ------
Net Income (loss) $ (8) $ (25) $ 87
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
June 30, June 30
1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 1,674 $ 1,821
Noncurrent assets 18,602 12,201
------- -------
$20,276 $14,022
------- -------
Current liabilities $ 1,099 $ 843
Noncurrent liabilities 10,014 3,922
Shareholders' equity 9,163 9,257
------- -------
$20,276 $14,022
- --------------------------------------------------------------------------------
</TABLE>
NOTE 6 FINANCIAL INSTRUMENTS
The carrying value of cash, cash equivalents, receivables, short-term
borrowings, current portion of long-term debt and payables approximate fair
value because maturities are less than one year in duration. The Company's
remaining financial instruments consisted of the following:
<TABLE>
<CAPTION>
ASSET (LIABILITY)
JUNE 30, 1999 JUNE 30, 1998
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONDERIVATIVES
Investments (Note 4) $ 398 $ 1,488 $ 329 $ 1,406
Long-term debt $(7,468) $(7,600) $(2,225) $(2,477)
DERIVATIVES HELD FOR PURPOSES OTHER THAN TRADING
Foreign exchange forwards $ -- $ 50 $ -- $ 1
Foreign exchange options -- -- 169 49
Interest rate swaps -- 13 -- --
------- ------- ------- -------
$ -- $ 63 $ 169 $ 50
----------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE> 32
Fair value of investments was determined based on quoted market value of these
securities as traded on stock exchanges. Fair value of long-term debt was
estimated using quoted market prices for similar issues. The fair value for
foreign exchange and interest rate instruments was based on market prices as
quoted from financial institutions.
The Company, as the result of its global operating and financing activities, is
exposed to changes in interest rates and foreign currency exchange rates that
may adversely affect its results of operations and financial position. In
seeking to minimize the risks and costs associated with such activities, the
Company manages the impact of interest rate changes and foreign currency changes
on earnings and cash flows by entering into derivative contracts. The Company
does not use derivative financial instruments for trading or speculative
purposes.
At June 30, 1999, the Company held interest rate swap contracts that had
notional amounts of $500 million (none at June 30, 1998). These swap agreements
expire in one to two years.
At June 30, 1999, the Company held foreign currency forward contracts and
options to purchase and sell foreign currencies, including cross-currency
contracts and options to sell one foreign currency for another currency, with
notional amounts totaling $4,539 million ($7,309 million at June 30, 1998). The
forward contracts and options are used to hedge the exchange rate exposure to
foreign currency intercompany payments and receipts. The payments and receipts
are principally related to intercompany sales, royalties, licenses and service
fees. These derivatives have varying maturities not exceeding two years. The
principal currencies hedged are the euro, British pound, Canadian dollar,
Australian dollar and Japanese yen.
The Company minimizes its credit exposure to counter-parties by entering into
contracts only with highly-rated commercial banks or financial institutions and
by distributing the transactions among the selected institutions. Although the
Company's credit risk is the replacement cost at the then-estimated fair value
of the instrument, management believes that the risk of incurring losses is
remote and that such losses, if any, would not be material. The market risk
related to the foreign exchange agreements should be offset by changes in the
valuation of the underlying items being hedged.
NOTE 7 Common Shares, Earnings Per Share and Stock Options
The Company is authorized to issue an unlimited number of common and preferred
shares without nominal or par value. At June 30, 1999, 37,857,938 common shares
were potentially issuable upon the conversion of the LYONs, the exercise of
employee stock options and the conversion of deferred share units. Basic net
income per share was based on the following weighted average number of shares
outstanding during the fiscal years ended June 30,1999 -- 378,193,043; June 30,
1998 -- 349,874,259; and June 30,1997 -- 369,682,224. Diluted net income per
share was based on the following weighted average number of shares outstanding
during the fiscal years ended June 30, 1998 -- 353,604,553; and June 30, 1997 --
374,268,746. Average shares of 4,933,249 were not included in the computation of
1999 diluted net income per share because to do so would have been
anti-dilutive.
STOCK OPTION PLANS
Under the Company's employee stock option plans, options may be granted to
purchase the Company's common shares at not less than the fair market value of
the shares on the date of the grant. Currently outstanding options become
exercisable one to five years from the grant date and expire ten years after the
grant date.
The Company has adopted FAS 123, Accounting for Stock-Based Compensation. In
accordance with the provisions of FAS 123, the Company applies APB Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans and does not recognize compensation expense for its
stock-based compensation plans other than for restricted stock. If the Company
had elected to recognize compensation expense based upon the fair value at the
grant
53
<PAGE> 33
date for awards under these plans utilizing the methodology prescribed by FAS
123, the Company's net income and earnings per share would be reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 686 $ 946 $ 502
FAS 123 pro forma 622 892 469
Basic earnings per common share:
As reported $ 1.81 $ 2.70 $ 1.36
FAS 123 pro forma 1.64 2.55 1.27
Diluted earnings per common share:
As reported $ 1.81 $ 2.68 $ 1.35
FAS 123 pro forma 1.64 2.52 1.26
===================================================================================
</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, 1999, June 30, 1998 and June 30,
1997, respectively: dividend yields of 1.5, 1.8 and 1.6 percent; expected
volatility of 30, 25 and 24 percent; risk-free interest rates of 5.1, 5.6 and
6.7 percent; and expected life of six years for all periods. The weighted
average fair value of options granted during the fiscal years ended June
30,1999, June 30,1998 and June 30, 1997 for which the exercise price equals the
market price on the grant date was $15.25, $10.92 and $12.18, respectively. The
weighted average fair value of options granted during the fiscal year ended June
30, 1998 for which the exercise price exceeded the market price on the grant
date was $7.44.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Transactions involving stock options are summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE PRICE
STOCK OPTIONS OF OPTIONS
OUTSTANDING OUTSTANDING
- --------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, JUNE 30,1996 29,086,238 $ 29.33
Granted 7,366,978 38.97
Exercised (3,242,766) 25.93
Cancelled (249,324) 33.02
--------------------------------------------
BALANCE, JUNE 30,1997 32,961,126 31.79
Granted 8,160,909 38.32
Exercised (2,751,832) 26.14
Cancelled (752,284) 38.53
--------------------------------------------
BALANCE, JUNE 30,1998 37,617,919 33.49
Granted 11,674,558 45.40
Exercised (8,489,374) 31.50
Cancelled (3,234,811) 34.79
--------------------------------------------
BALANCE, JUNE 30, 1999 37,568,292 37.53
================================================================================
</TABLE>
54
<PAGE> 34
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>
under $20 621,347 0.7 $ 19.44 621,347 $ 19.44
$20 - $30 6,746,946 3.6 27.12 6,616,946 27.10
$30 - $40 22,002,489 7.5 35.66 12,827,685 34.66
$40 - $50 5,534,185 9.5 47.77 205,235 46.79
$50 - $60 2,663,325 9.6 57.54 100,000 52.28
---------- ----------
37,568,292 20,371,213
==================================================================================================
</TABLE>
NOTE 8 Income Taxes
The following tables summarize the sources of pre-tax income and the resulting
income tax expense:
GEOGRAPHIC COMPONENTS OF PRE-TAX INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
MILLIONS 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. $ (545) $ 1,192 $ 136
Canada 39 51 77
Other jurisdictions (73) 368 513
------------------------------
Income (loss) from continuing operations, before tax (579) 1,611 726
Discontinued Tropicana operations 1,445 130 111
------------------------------
Income before tax $ 866 $ 1,741 $ 837
=============================================================================================
</TABLE>
55
<PAGE> 35
COMPONENTS OF INCOME TAX EXPENSE
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
MILLIONS
Income tax expense (benefit) applicable to:
Continuing operations $ (33) $638 $331
Discontinued Tropicana operations 376 64 54
----- ---- ----
Total income tax expense $ 343 $702 $385
==== ==== ====
Current
Continuing operations
Federal $(256) $134 $184
State and local 3 (20) 35
Other jurisdictions 128 77 165
----- ---- ----
(125) 191 384
Discontinued Tropicana operations 376 58 53
----- ---- ----
251 249 437
----- ---- ----
Deferred
Continuing operations
Federal 130 351 (25)
State and local 2 34 (19)
Other jurisdictions (40) 62 (9)
----- ---- ----
92 447 (53)
Discontinued Tropicana operations -- 6 1
----- ---- ----
92 453 (52)
----- ---- ----
Total income tax expense $ 343 $702 $385
===== ==== ====
</TABLE>
COMPONENTS OF NET DEFERRED TAX LIABILITY
<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 1998
<S> <C> <C>
MILLIONS
Basis and amortization differences $ 1,016 $ 572
DuPont share redemption 1,540 1,540
DuPont and USAi investments 613 516
Unremitted foreign earnings 89 94
Advances 49 --
Other, net 144 80
------- ------
Deferred tax liabilities 3,451 2,802
------- ------
Deferred revenue (37) (60)
Employee benefits (114) (28)
Tax credit and net operating loss carryovers (256) (60)
Valuation, doubtful accounts and return reserves (259) (234)
Other, net (660) (136)
------- ------
Deferred tax assets (1,326) (518)
Valuation allowance 82 32
------- ------
(1,244) (486)
------- ------
Net deferred tax liability $ 2,207 $2,316
======= ======
</TABLE>
56
<PAGE> 36
The Company has U.S. tax credit carryovers of $32 million, $13 million of which
have no expiration date and $19 million of which have expiration dates through
2009. In addition, the Company has approximately $721 million of net operating
loss carryovers, $209 million of which have no expiration date and $512 million
of which have expiration dates through 2018. A portion of the valuation
allowance arises from uncertainty as to the realization of certain of these tax
credit and net operating loss carryovers. If realized, these benefits would be
applied to reduce the unallocated purchase price.
Deferred tax assets and liabilities are recognized based on differences
between the financial statement and tax bases of assets and liabilities using
presently enacted tax rates. Provision is made for income taxes, which may be
payable on foreign subsidiary earnings to the extent that the Company
anticipates that they will be remitted. Unremitted earnings of foreign
subsidiaries which have been, or are intended to be, permanently reinvested and
for which no income tax has been provided, approximated $6,400 million at June
30,1999. It is not practicable to estimate the additional tax that would be
incurred, if any, if these amounts were repatriated.
EFFECTIVE INCOME TAX RATE -- CONTINUING OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. statutory rate (35)% 35% 35%
Goodwill amortization 11 1 8
Equity income 10 -- 6
Foreign tax at other than U.S. statutory rate 5 4 (4)
State and local -- 1 2
Other 3 (1) (1)
---- ---- ----
Effective income tax rate -- continuing operations (6)% 40% 46%
==== ==== ====
</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 9 Benefit Plans
The FASB issued SFAS No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits, in February 1998. The new standard does not change the
measurement or recognition of costs for pensions or other postretirement plans.
It standardizes disclosures and eliminates those that are no longer useful. The
information provided below has been presented under the requirements of the new
standard.
Retirement pensions are provided for substantially all of the Company's
employees through defined benefit or defined contribution plans sponsored by the
Company or unions representing employees. For Company-sponsored defined benefit
plans, pension expense and plan contributions are determined by independent
consulting actuaries. The funding policy for tax-qualified pension plans is
consistent with statutory funding requirements and regulations. Contributions to
defined contribution plans are funded and expensed currently. Postretirement
health care and life insurance are provided to a majority of nonunion employees
in the U.S. Eligibility for benefits is based upon retirement, age and
completion of a specified number of years of service. Postemployment programs,
principally severance, are provided for the majority of nonunion employees. The
cost of these programs is accrued based on actuarial studies. There is no
advance funding for postretirement or postemployment benefits.
57
<PAGE> 37
The following tables pertain to the Company's defined benefit pension or
postretirement plans principally in the U.S., the U.K., Canada, France, Germany
and Japan, and provide reconciliations of the changes in benefit obligations,
fair value of plan assets and funded status for the two-year period ending June
30, 1999:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
MILLIONS 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 1,070 $ 946 $ 172 $ 157
Service cost 48 25 2 2
Interest cost 81 70 12 11
Plan amendments and acquisitions 220 2 5 --
Actuarial loss, net 21 92 1 12
Benefits paid (81) (67) (10) (10)
Translation (20) 2 -- --
-------------------------------------------------------------
Benefit obligation at end of year $ 1,339 $ 1,070 $ 182 $ 172
=============================================================
FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year $ 1,271 $ 1,091 $ -- $ --
Actual return on plan assets 127 226 -- --
Acquisition 45 -- -- --
Contributions 15 18 10 10
Benefits paid (80) (65) (10) (10)
Translation (13) 1 -- --
-------------------------------------------------------------
Fair value of plan assets at end of year $ 1,365 $ 1,271 $ -- $ --
=============================================================
FUNDED STATUS
Funded status at end of year $ 26 $ 201 $ (182) $ (172)
Unrecognized actuarial gain (203) (202) (3) (3)
Unrecognized prior service cost 15 16 (16) (19)
Unrecognized net transition obligation 4 1 -- --
-------------------------------------------------------------
Accrued pension asset (liability) $ (158) $ 16 $ (201) $ (194)
=============================================================
________________________________________________________________________________________________________________________
</TABLE>
Amounts recognized in the Company's consolidated balance sheet at June 30
consist of:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
MILLIONS 1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 181 $ 147 $ -- $ --
Accrued benefit liability (339) (131) (201) (194)
--------------------------------------------------------------
Net asset (liability) recognized $ (158) $ 16 $ (201) $ (194)
-------------------------------------------------------------
________________________________________________________________________________________________________________________
</TABLE>
<PAGE> 38
Net periodic pension and other postretirement benefit costs for the fiscal years
ended June 30 include the following components:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
MILLIONS 1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 48 $ 25 $ 21 $ 2 $ 2 $ 2
Interest cost 81 70 69 12 11 11
Expected return on plan assets (116) (107) (91) -- -- --
Amortization of prior service costs 3 3 3 (3) (3) (3)
Amortization of actuarial gains (6) (6) (1) -- (1) --
---------------------------------------------------------------------------------
Net benefit cost (credit) $ 10 $ (15) $ 1 $ 11 $ 9 $ 10
===============================================================================================================================
</TABLE>
The weighted average rates and assumptions utilized in accounting for these
plans for the fiscal years ended June 30 were:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.3% 7.0% 7.8% 7.3% 7.0% 7.8%
Expected return on plan assets 10.0% 10.8% 10.8% -- -- --
Rate of compensation increase 4.5% 4.3% 5.0% 4.5% 4.3% 5.0%
===============================================================================================================================
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets were $218 million, $196 million and $15 million,
respectively as of June 30, 1999, and $50 million, $44 million and $4 million,
respectively as of June 30,1998.
For postretirement benefit measurement purposes, the Company assumed growth
in the per capita cost of covered health care benefits (the health care cost
trend rate) would gradually decline from 8.75 percent and 7.75 percent, in the
pre-age 65 and post-age 65 categories, respectively in 1997 to 6 percent and 5
percent, pre-age 65 and post-age 65, respectively in 2002. In fiscal 1999, a
one-percentage-point increase in this annual trend rate would have increased the
postretirement benefit obligation by $8 million and the pre-tax expense by $1
million; conversely, a one-percentage-point decrease in the annual trend rate
would have decreased the postretirement benefit obligation by $7 million and the
pre-tax expense by $1 million.
During 1999, the Company amended the pension plan for certain U.S.
employees from a final pay plan to a cash balance pension plan. Under the new
plan, participants accrue benefits based on a percentage of pay plus interest.
The new cash balance plan allows lump sum benefit payments in addition to
annuities. This change did not have a significant impact on the Company's net
periodic pension costs for the fiscal year ended June 30, 1999.
NOTE 10 Business Segment and Geographic Data
BUSINESS SEGMENT DATA
In 1999, the Company adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. FAS 131 supersedes FAS 14, Financial
Reporting for Segments of a Business Enterprise, replacing the industry segment
approach with the management approach. The management approach designates the
internal organization that is used by management for making operating decisions
and assessing performance as the source of the Company's reportable segments.
FAS 131 also requires disclosures about products and services, geographic areas
and major customers. The prior year's segment information has been restated to
present the Company's four reportable segments: music, filmed entertainment,
recreation and other, and spirits and wine. Each of these reportable segments is
a strategic business unit that offers different products and services that are
marketed through different channels. They are managed separately because of
their unique customers, technology, marketing and distribution requirements. The
adoption of FAS 131 had no impact on the results of operations or financial
position.
59
<PAGE> 39
The Company evaluates the performance of its segments and allocates
resources to them based on several performance measures, including earnings
before interest, taxes, depreciation and amortization from consolidated
companies (EBITDA). While not a standard measurement under GAAP, the Company
believes EBITDA is an appropriate measure of operating performance, given the
goodwill associated with the Company's acquisitions. However, EBITDA could be
defined differently by other companies and should be considered in addition to,
not as a substitute for, other measures of financial performance including
revenues and operating income. There are no intersegment revenues; however,
corporate headquarters allocates a portion of its costs to each of its operating
segments. The Company does not allocate interest income, interest expense,
income taxes or unusual items to segments.
<TABLE>
<CAPTION>
FILMED RECREATION SPIRITS
MILLIONS MUSIC ENTERTAINMENT AND OTHER AND WINE CORPORATE TOTAL
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30,1999
Revenues $ 3,751 $2,931 $ 818 $4,812 $ -- $12,312
EBITDA $ 347 $ (136) $ 133 $ 684 $ -- $ 1,028
Depreciation and amortization (473) (70) (88) (132) (10) (773)
Corporate expenses -- -- -- -- (100) (100)
Restructuring charge (313) (92) -- -- -- (405)
-------------------------------------------------------------------------
Operating income (loss) $ (439) $ (298) $ 45 $ 552 $ (110) $ (250)
-------------------------------------------------------------------------
Segment assets $16,392 $7,735 $3,029 $5,165 $2,690(1) $35,011
Equity method investments $ 26 $2,810 $1,151 $ 52 $ -- $ 4,039
Capital expenditures $ 135 $ 134 $ 134 $ 128 $ -- $ 531
==========================================================================
JUNE 30,1998
Revenues $ 1,461 $2,793 $ 695 $4,525 $ -- $ 9,474
EBITDA $ 84 $ 316 $ 99 $ 583 $ -- $ 1,082
Depreciation and amortization (128) (87) (75) (119) (7) (416)
Corporate expenses -- -- -- -- (113) (113)
-------------------------------------------------------------------------
Operating income (loss) $ (44) $ 229 $ 24 $ 464 $ (120) $ 553
-------------------------------------------------------------------------
Segment assets $ 2,902 $6,638 $3,044 $5,594 $4,001(2) $22,179
Equity method investments $ 24 $2,431 $ 961 $ 21 $ -- $ 3,437
Capital expenditures $ 31 $ 94 $ 115 $ 170 $ -- $ 410
=========================================================================
JUNE 30,1997
Revenues $ 1,427 $3,168 $ 889 $4,870 $ -- $10,354
EBITDA $ 76 $ 218 $ 102 $ 786 $ -- $ 1,182
Depreciation and amortization (134) (61) (71) (123) (4) (393)
Corporate expenses -- -- -- -- (134) (134)
Gain on sale of Putnam -- -- 64 -- -- 64
-------------------------------------------------------------------------
Operating income (loss) $ (58) $ 157 $ 95 $ 663 $ (138) $ 719
-------------------------------------------------------------------------
Segment assets $ 2,679 $4,825 $3,082 $5,290 $4,571(3) $20,447
Equity method investments $ 13 $1,213 $ 811 $ 60 $ -- $ 2,097
Capital expenditures $ 47 $ 44 $ 115 $ 187 $ -- $ 393
==========================================================================================================
</TABLE>
(1) Comprised of corporate assets not identifiable with reported segments
($1,567) and DuPont holdings ($1,123).
(2) Comprised of corporate assets not identifiable with reported segments
($1,039), DuPont holdings ($1,228) and net assets of discontinued Tropicana
operations ($1,734).
(3) Comprised of corporate assets not identifiable with reported segments
($512), DuPont holdings ($1,034), Time Warner holdings ($1,291) and net
assets of discontinued Tropicana operations ($1,734).
60
<PAGE> 40
GEOGRAPHIC DATA
The following table presents revenues and long-lived assets by geographic area
for the 1999, 1998 and 1997 fiscal years. Revenues are classified based upon the
location of the customer. In addition to Canada, the Company's country of
domicile, individual countries are specified if revenues or long-lived assets
exceed 10 percent of the total.
<TABLE>
<CAPTION>
LONG-LIVED
MILLIONS REVENUES ASSETS
- -----------------------------------------------------------------------------
<S> <C> <C>
JUNE 30, 1999
United States $ 5,917 $15,093
United Kingdom 1,277 1,905
Canada 325 456
Other countries 4,793 8,676
------- -------
$12,312 $26,130
JUNE 30, 1998 ------- -------
United States $ 4,977 $13,340
United Kingdom 769 611
Canada 285 58
Other countries 3,443 1,199
------- -------
$ 9,474 $15,208
------- -------
JUNE 30, 1997
United States $ 5,308 $12,557
United Kingdom 772 575
Canada 287 55
Other countries 3,987 1,129
------- -------
$10,354 $14,316
================================================================================
</TABLE>
NOTE 11 Additional Financial Information
INCOME STATEMENT AND CASH FLOW DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
MILLIONS 1999 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST, NET AND OTHER
Interest expense $ 592 $318 $285
Interest income (109) (59) (34)
Dividend income (23) (27) (40)
Capitalized interest (3) (4) (4)
Gain on sale of DuPont warrants -- -- (60)
----- ----- -----
$ 457 $228 $147
----- ----- -----
EXCISE TAXES
(included in revenues and cost of revenues) $865 $726 $748
CASH FLOW DATA
Interest paid, net $643 $265 $252
Income taxes paid $471 $144 $ 85
================================================================================
</TABLE>
61
<PAGE> 41
BALANCE SHEET DATA
<TABLE>
<CAPTION>
MILLIONS JUNE 30, 1999 JUNE 30, 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
RECEIVABLES
Trade $ 3,227 $ 1,994
Other 432 487
---------------------------------
3,659 2,481
Allowance for doubtful accounts
and other valuation accounts (674) (326)
---------------------------------
$ 2,985 $ 2,155
=================================
INVENTORIES
Beverages $ 2,233 $ 2,239
Materials, supplies and other 394 316
---------------------------------
$ 2,627 $ 2,555
=================================
LIFO INVENTORIES
Estimated replacement cost $ 395 $ 356
Excess of replacement cost over
LIFO carrying value (187) (173)
---------------------------------
$ 208 $ 183
=================================
OTHER CURRENT ASSETS
Film costs, net of amortization $ 356 $ 175
Music catalogs, artists' contracts and advances 164 76
Deferred income taxes 491 282
Prepaid expenses and other current assets 725 554
---------------------------------
$ 1,736 $ 1,087
=================================
FILM COSTS, NET OF AMORTIZATION
THEATRICAL FILM COSTS
Released $ 320 $ 353
In process and unreleased 1,058 839
---------------------------------
1,378 1,192
---------------------------------
TELEVISION FILM COSTS
Released 176 223
In process and unreleased 53 32
---------------------------------
229 255
---------------------------------
1,607 1,447
Less: current portion 356 175
---------------------------------
$ 1,251 $ 1,272
==============================================================================================
</TABLE>
Unamortized costs related to released theatrical and television films aggregated
$496 million at June 30, 1999. Excluding the portion of the purchase price
allocated to the film library which is being amortized over a 20-year life, the
Company currently anticipates that approximately 87 percent of the unamortized
released film costs will be amortized under the individual film forecast method
during the three years ending June 30, 2002.
62
<PAGE> 42
MILLIONS JUNE 30, 1999 JUNE 30, 1998
- ------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land $ 645 $ 553
Buildings and improvements 1,646 1,467
Machinery and equipment 1,432 1,221
Furniture and fixtures 476 369
Construction in progress 286 301
---------------------------
4,485 3,911
Accumulated depreciation (1,327) (1,178)
---------------------------
$ 3,158 $ 2,733
===========================
PAYABLES AND ACCRUED LIABILITIES
Trade $ 843 $ 449
Income and other taxes 378 286
Other 3,587 1,619
---------------------------
$ 4,808 $ 2,354
==============================================================================
NOTE 12 COMMITMENTS AND CONTINGENCIES
The Company has various commitments for the purchase or construction of
property, plant and equipment, materials, supplies and items of investment
related to the ordinary conduct of business. The Company is involved in various
lawsuits, claims and inquiries. Management believes that the resolution of these
matters will not have a material adverse effect on the results of operations,
financial position or liquidity of the Company.
NOTE 13 DIFFERENCES BETWEEN U.S. AND CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Differences between U.S. and Canadian GAAP for these financial statements are:
(i) The common stock of DuPont and USAi would be carried at cost under
Canadian GAAP, thereby reducing shareholders' equity by $704 million or
approximately five percent at June 30, 1999. There is no effect on net
income.
(ii) Proportionate consolidation of joint ventures under Canadian GAAP would
increase assets and liabilities by approximately $801 million and
decrease working capital by approximately $44 million at June 30, 1999.
There is no effect on net income.
(iii) Under Canadian GAAP, the assets and liabilities of the discontinued
Tropicana operations would be presented separately on the consolidated
balance sheet which would result in an increase of $434 million in both
total assets and total liabilities at June 30, 1999. There is no effect
on net income.
(iv) Canadian GAAP requires that the Company disclose it may experience the
effects of the Year 2000 Issue before, on, or after January 1, 2000,
and that the effects on operations and financial reporting, if not
addressed, may range from minor errors to significant systems failure,
which could affect the Company's ability to conduct normal business
operations. While the Company has a Year 2000 program to address
critical systems, it is not possible to be certain that all aspects of
the Year 2000 Issue affecting the Company, including those related to
the efforts of customers, suppliers, or third parties, will be fully
resolved.
(v) There are no other significant differences between U.S. and Canadian
GAAP.
NOTE 14 SUBSEQUENT EVENTS
On July 2, 1999, the Company completed the sale of its Mumm and Perrier-Jouet
Champagne operations for approximately $310 million. Through agreement with the
purchaser, Seagram has retained global distribution rights of Mumm and
Perrier-Jouet Champagnes for a ten-year period.
63
<PAGE> 43
MANAGEMENT'S REPORT
The Company's management is responsible for the preparation of the accompanying
financial statements in accordance with generally accepted accounting
principles, including the estimates and judgments required for such preparation.
The Company has a system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded and financial records
underlying the financial statements properly reflect all transactions. The
system contains self-monitoring mechanisms, including a program of internal
audits, which allow management to be reasonably confident that such controls, as
well as the Company's administrative procedures and internal reporting
requirements, operate effectively. Management believes that its long-standing
emphasis on the highest standards of conduct and business ethics, as set forth
in written policy statements, serves to reinforce the system of internal
accounting controls. There are inherent limitations in the effectiveness of any
system of internal control, including the possibility of human error or the
circumvention or overriding of controls. Accordingly, even an effective internal
control system can provide only reasonable assurance with respect to financial
statement preparation.
The Company's independent accountants, PricewaterhouseCoopers LLP,
review the system of internal accounting controls to the extent they consider
necessary to evaluate the system as required by generally accepted auditing
standards. Their report covering their audits of the financial statements is
presented below.
The Audit Committee of the Board of Directors, solely comprising
Directors who are not officers or employees of the Company, meets with the
independent accountants, the internal auditors and management to ensure that
each is discharging its respective responsibilities relating to the financial
statements. The independent accountants and the internal auditors have direct
access to the Audit Committee to discuss, without management present, the
results of their audit work and any matters they believe should be brought to
the Committee's attention.
/s/ Edgar Bronfman Jr. /s/ Robert W. Matschullat
-------------------------- -------------------------
EDGAR BRONFMAN, JR. ROBERT W. MATSCHULLAT
President and Chief Executive Vice Chairman and Chief Financial
Officer Officer
August 18,1999
64
<PAGE> 44
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS OF THE SEAGRAM COMPANY LTD. We have audited the accompanying
consolidated balance sheet of The Seagram Company Ltd. and its subsidiaries as
of June 30, 1999 and 1998 and the related consolidated statements of income,
shareholders' equity and cash flows for the fiscal years ended June 30, 1999,
1998 and 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the U.S. and Canada. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the financial position of the Company
and its subsidiaries as of June 30, 1999 and 1998 and the results of their
operations and their cash flows for the fiscal years ended June 30, 1999, 1998
and 1997, in accordance with generally accepted accounting principles in the
U.S. which, in their application to the Company, conform in all material
respects with generally accepted accounting principles in Canada.
/s/ PricewaterhouseCoopers LLP
- -------------------------------
PricewaterhouseCoopers LLP
New York, New York
August 18,1999
65
<PAGE> 45
QUARTERLY
DATA
FISCAL 1999
<TABLE>
<CAPTION>
FISCAL YEAR
U.S. DOLLARS IN MILLIONS FIRST SECOND THIRD FOURTH ENDED
EXCEPT FOR SHARE AMOUNTS (UNAUDITED) QUARTER QUARTER QUARTER QUARTER 6/30/99(3)
<S> <C> <C> <C> <C> <C>
Revenues $2,247 $3,327 $3,215 $3,523 $12,312
Operating income (loss) $ 179 $ (219) $ (163) $ (47) $ (250)
Income (loss) from continuing operations, after tax $ 95 $ (226)(1) $ (199) $ (53)(2) $ (383)
Loss from discontinued Tropicana operations,
after tax (3) -- -- -- (3)
Gain on sale of discontinued Tropicana operations,
after tax 1,072 -- -- -- 1,072
------------------------------------------------------------------
Net income (loss) $1,164 $ (226) $ (199) $ (53) $ 686
==================================================================
PER SHARE DATA
EARNINGS (LOSS) PER SHARE - BASIC
Continuing operations $ .27 $ (.63) $ (.50) $ (.13) $ (1.01)
Discontinued Tropicana operations, after tax (.01) -- -- -- (.01)
Gain on sale of discontinued Tropicana operations,
after tax 3.09 -- -- -- 2.83
------------------------------------------------------------------
Net income (loss) $ 3.35 $ (.63) $ (.50) $ (.13) $ 1.81
==================================================================
EARNINGS (LOSS) PER SHARE - DILUTED
Continuing operations $ .27 $ (.63) $ (.50) $ (.13) $ (1.01)
Discontinued Tropicana operations, after tax (.01) -- -- -- (.01)
Gain on sale of discontinued Tropicana operations,
after tax 3.07 -- -- -- 2.83
------------------------------------------------------------------
Net income (loss) $ 3.33 $ (.63) $ (.50) $ (.13) $ 1.81
==================================================================
</TABLE>
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 $2,372 $3,009 $1,991 $2,102 $9,474
Operating income $ 260 $ 231 $ 47 $ 15 $ 553
Income from continuing operations, after tax $ 116 $ 8 $ 447(4) $ 309(5) $ 880
Income from discontinued Tropicana operations,
after tax 17 20 14 15 66
---------------------------------------------------------------
Net income $ 133 $ 28 $ 461 $ 324 $ 946
===============================================================
PER SHARE DATA
EARNINGS PER SHARE - BASIC
Continuing operations $ .32 $ .02 $ 1.30 $ .89 $ 2.51
Discontinued Tropicana operations, after tax .05 .06 .04 .04 .19
---------------------------------------------------------------
Net income $ .37 $ .08 $ 1.34 $ .93 $ 2.70
===============================================================
EARNINGS PER SHARE - DILUTED
Continuing operations $ .32 $ .02 $ 1.28 $ .88 $ 2.49
Discontinued Tropicana operations, after tax .05 .06 .04 .04 .19
---------------------------------------------------------------
Net income $ .37 $ .08 $ 1.32 $ .92 $ 2.68
===============================================================
</TABLE>
(1) Includes a $244 million restructuring charge, after tax and minority
interest.
(2) Includes a $76 million gain on the USA transactions, after tax and minority
interest.
(3) For earnings per share data, each quarter is calculated as a discrete period
and the sum of the four quarters does not equal the full year amount.
(4) Includes a $281 million after-tax gain on the sale of Time Warner shares and
a $187 million gain on the USA transactions, after tax and minority
interest.
(5) Includes a $321 million after-tax gain on the sale of Time Warner shares.
66 THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT
<PAGE> 46
FINANCIAL
SUMMARY
<TABLE>
<CAPTION>
TRANSITION
FISCAL YEARS ENDED PERIOD ENDED FISCAL YEARS ENDED
JUNE 30, JUNE 30, JANUARY 31,
U.S. DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS 1999 1998 1997 1996 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Revenues $ 12,312 $ 9,474 $ 10,354 $ 4,112 $ 7,787 $ 4,994
Operating income (loss) $ (250) $ 553 $ 719 $ 93 $ 435 $ 614
Interest, net and other $ 457 $ 228 $ 147 $ 99 $ 195 $ 317
Gain on sale of Time Warner shares $ -- $ 926 $ 154 $ -- $ -- $ --
Gain on USA transactions $ 128 $ 360 $ -- $ -- $ -- $ --
Income (loss) from continuing operations before
cumulative effect of accounting change $ (383) $ 880 $ 445 $ 67 $ 144 $ 170
Income (loss) from discontinued Tropicana
operations, after tax (3) 66 57 18 30 24
Gain on discontinued Tropicana operations, after tax 1,072 -- -- -- -- --
Discontinued DuPont activities, after tax -- -- -- -- 3,232 617
--------- --------- --------- --------- --------- ---------
Income before cumulative effect of accounting change 686 946 502 85 3,406 811
Cumulative effect of accounting change, after tax -- -- -- -- -- (75)
--------- --------- --------- --------- --------- ---------
Net income $ 686 $ 946 $ 502 $ 85 $ 3,406 $ 736
========= ========= ========= ========= ========= =========
FINANCIAL POSITION
Current assets $ 8,881 $ 6,971 $ 6,131 $ 6,307 $ 6,194 $ 3,938
Common stock of DuPont 1,123 1,228 1,034 651 631 3,670
Common stock of USAi 501 306 -- -- -- --
Common stock of Time Warner -- -- 1,291 2,228 2,356 2,043
Other noncurrent assets 24,506 11,940 10,257 10,328 10,230 1,773
Net assets of discontinued Tropicana operations -- 1,734 1,734 1,693 1,549 1,270
--------- --------- --------- --------- --------- ---------
Total assets $ 35,011 $ 22,179 $ 20,447 $ 21,207 $ 20,960 $ 12,694
========= ========= ========= ========= ========= =========
Current liabilities $ 8,146 $ 4,709 $ 3,087 $ 4,383 $ 3,557 $ 3,865
Long-term debt $ 7,468 $ 2,225 $ 2,478 $ 2,562 $ 2,889 $ 2,838
Total liabilities before minority interest $ 20,245 $ 10,948 $ 9,174 $ 10,163 $ 9,788 $ 7,174
Minority interest 1,878 1,915 1,851 1,839 1,844 11
Shareholders' equity 12,888 9,316 9,422 9,205 9,328 5,509
--------- --------- --------- --------- --------- ---------
Total liabilities & shareholders' equity $ 35,011 $ 22,179 $ 20,447 $ 21,207 $ 20,960 $ 12,694
========= ========= ========= ========= ========= =========
CASH FLOW DATA
Cash flow provided by (used for) operating activities $ 935 $ (241) $ 664 $ 315 $ 222 $ 370
Capital expenditures $ (531) $ (410) $ (393) $ (245) $ (349) $ (124)
Other investing activities, net $ (5,605) $ 1,109 $ 2,101 $ (346) $ 2,260 $ (341)
Dividends paid $ (247) $ (231) $ (239) $ (112) $ (224) $ (216)
PER SHARE DATA
EARNINGS (LOSS) PER SHARE - BASIC
Continuing operations $ (1.01) $ 2.51 $ 1.20 $ .18 $ .38 $ .46
Discontinued Tropicana operations, after tax (.01) .19 .16 .05 .08 .06
Gain on sale of discontinued Tropicana
operations, after tax 2.83 -- -- -- -- --
Discontinued DuPont activities, after tax -- -- -- -- 8.67 1.66
--------- --------- --------- --------- --------- ---------
Income before cumulative effect of accounting change 1.81 2.70 1.36 .23 9.13 2.18
Cumulative effect of accounting change, after tax -- -- -- -- -- (.20)
--------- --------- --------- --------- --------- ---------
Net income $ 1.81 $ 2.70 $ 1.36 $ .23 $ 9.13 $ 1.98
========= ========= ========= ========= ========= =========
EARNINGS (LOSS) PER SHARE - DILUTED
Continuing operations $ (1.01) $ 2.49 $ 1.20 $ .18 $ .38 $ .46
Discontinued Tropicana operations, after tax (.01) .19 .15 .05 .08 .06
Gain on sale of discontinued Tropicana
operations, after tax 2.83 -- -- -- -- --
Discontinued DuPont activities, after tax -- -- -- -- 8.54 1.64
--------- --------- --------- --------- --------- ---------
Income before cumulative effect of accounting change 1.81 2.68 1.35 .23 9.00 2.16
Cumulative effect of accounting change, after tax -- -- -- -- -- (.20)
--------- --------- --------- --------- --------- ---------
Net income $ 1.81 $ 2.68 $ 1.35 $ .23 $ 9.00 $ 1.96
========= ========= ========= ========= ========= =========
Dividends paid $ .66 $ .66 $ .645 $ .30 $ .60 $ .58
Shareholders' equity $ 29.80 $ 26.84 $ 25.79 $ 24.67 $ 24.91 $ 14.79
End of year share price
New York Stock Exchange (U.S.$) $ 50.38 $ 40.94 $ 40.25 $ 33.63 $ 36.38 $ 28.75
Toronto Stock Exchange (C$) $ 73.35 $ 59.95 $ 55.50 $ 45.75 $ 49.75 $ 40.50
Average shares outstanding (thousands) 378,193 349,874 369,682 373,858 373,117 372,499
Shares outstanding at year end (thousands) 432,555 347,132 365,281 373,059 374,462 372,537
========= ========= ========= ========= ========= =========
</TABLE>
THE SEAGRAM COMPANY LTD. 1999 ANNUAL REPORT 67
<PAGE> 1
Exhibit Number 21
THE SEAGRAM COMPANY LTD.
ANNUAL REPORT ON FORM 10-K
SUBSIDIARIES LIST AS OF AUGUST 31, 1999
The following is a list of subsidiaries of the Corporation and
certain other entities in which the Corporation
has an interest as of August 31, 1999.
<TABLE>
<CAPTION>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- -----
<S> <C> <C>
THE SEAGRAM COMPANY LTD. Canada
--
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
210 South Street Property Company Limited United Kingdom 100%
3BG Holdings L.L.C. Delaware 50%
A & M Records Limited United Kingdom 100%
A & M Records, Inc. Delaware 100%
Adrawing Limited United Kingdom 50%
Africa Fete Limited United Kingdom 100%
Ahlins Musikforlags AB Sweden 100%
Alto Music Limited United Kingdom 50%
Amadeo Oesterreichische Schallplatten Gesellschaft m.b.H. Austria 100%
Amused Productions Limited United Kingdom 100%
Apollo-Verlag Paul Lincke GmbH Germany 75%
Argo Record Company Ltd. United Kingdom 100%
Arigram Record Service AB Sweden 50%
Ariston s.r.l. Italy 100%
Arrietty Films Limited United Kingdom 100%
Associated Liquor Distributors (S) Pte. Ltd. Singapore 100%
Audio Club of New Zealand Ltd. New Zealand 100%
B & M Spol s.r.o. Czech Republic 70%
B.V. Lenox Films Europe Netherlands 100%
Barclay Record S.A. Switzerland 100%
Barton & Guestier S.A. France 100%
Bodegas y Vinedos Crillon S.A.I.C. Argentina 100%
British Phonograph Records Limited United Kingdom 100%
Burgeff & Co. Sektkellereien GmbH Germany 100%
C.A. Circulo de Conocedores Seagram Venezuela 100%
C.A. Seagram de Venezuela Venezuela 100%
</TABLE>
<PAGE> 2
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
Canadian Distillers Ltd. Canada 100%
Capella B.V. Netherlands 100%
Capricorn Records, LLC Georgia 51%
Carre' D'As S.r.l. Italy 100%
Cedarwood Music Ltd. United Kingdom 50%
Centenary Australia Pty Limited Australia 100%
Centenary France S.A. France 100%
Centenary Holding France S.A. France 100%
Centenary Holding N.V. Netherlands 92%
Centenary Holdings Ltd. Bermuda 100%
Centenary Investments Inc. Canada 100%
Centenary Italia S.r.l. Italy 100%
Centenary S.A.R.L. Luxembourg 100%
Centenary Sweden AB Sweden 100%
Centenary UK Limited United Kingdom 100%
Chapulin Edizioni Musicali S.r.l. Italy 100%
Chivas Brothers Limited United Kingdom 100%
Cinea S.A. France 50%
Cinepoly Music Publishing Company Ltd. Hong Kong 100%
Cinepoly Records Company Ltd. Hong Kong 100%
Compact Disc Services Far East Limited Hong Kong 100%
Cosima Music OHG PolyGramSongs Musiverlag GmbH & Co. Germany 100%
CR Films, LLC Delaware 50%
D G Records Limited United Kingdom 100%
D. J. M. Records Limited United Kingdom 100%
D.I.A.L. - Diffusion Internationale d'Arts et Loisirs S.A France 100%
Decca Artists Ltd. Switzerland 100%
Decca Records Taiwan Ltd. Taiwan (China) 60%
DEF American Limited United Kingdom 50%
Def Jam Records, Inc. Delaware 100%
Deutsche Grammophon GmbH Germany 100%
Dick James Musikverlag GmbH Germany 100%
Distillers Products Sales Corporation Massachusetts 100%
Dominic Music Limited United Kingdom 100%
Don Julio S.A. de C.V. Mexico 95%
Doomwatch Ltd. United Kingdom 100%
Doosan Seagram Co., Ltd. Korea 100%
Dutchco "Before She Met Me" B.V. Netherlands 100%
E.U.R. Music S.r.l. Italy 100%
Edison Bell Records (England) Limited United Kingdom 100%
Edsel Films Ltd. United Kingdom 100%
Elizabeth Films Ltd. United Kingdom 100%
Entertainment Today Limited United Kingdom 100%
Epithete Production France 100%
Equipe Edizioni Musicali e Produzioni Discografiche S.r.l. Italy 100%
Eyeteecee Music, Inc. California 100%
FA Productions France 100%
Fater Media Ltd. Taiwan (China) 80%
Fonobras-Distribuidora Fonografica Brasileira Ltda. Brazil 50%
Fontana B.V. Netherlands 100%
Forbrooke Enterprises, Inc. California 100%
Fun House & C. Musical Company Italy 100%
</TABLE>
2
<PAGE> 3
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
Gasoline Alley California 55% *
Geffen Records, Inc. California 100%
Geffen/Outpost Record Ventures, Inc. California 100%
Ghost Productions Limited United Kingdom 50%
Gimell Records Ltd. United Kingdom 51%
Go East Entertainment Company Ltd. Hong Kong 80%
Go! Discs Limited United Kingdom 100%
Go! Holdings Limited United Kingdom 100%
Go! Records Limited United Kingdom 100%
Goldhawke Productions Limited United Kingdom 100%
Goldisk AG Switzerland 100%
Gralto Music Limited United Kingdom 100%
Grammofoonplaten-Maatschappij Barclay Nederland B.V. Netherlands 100%
Greatest Hits Entertainment Partnership, HB Sweden 60% *
GRP Records, Inc. New York 100%
GTS Records New York 51% *
Gulfstream Insurance (Barbados) Limited Barbados 100%
Gulfstream Insurance (Ireland) Limited Ireland 100%
Gulfstream Reinsurance (Ireland) Limited Ireland 100%
Gypsy Films Limited United Kingdom 100%
Hammersmith Records Limited United Kingdom 100%
Heliolodge Limited United Kingdom 100%
Hi Lo Films Ltd. United Kingdom 100%
High Noon Music GmbH Germany 100%
Hilltop Services, Inc. California 100%
Hollandsche Decca Distributie B.V. Netherlands 100%
HRC/UC Joint Venture California 50% *
Imagine Films Entertainment, Inc. Delaware 100%
Interscope Records California 50% *
IPS Records Ltd. Hong Kong 50%
Island Entertainment Group Limited United Kingdom 100%
Island Entertainment Group S.A. France 100%
Island Entertainment Group, Inc. New York 100%
Island Limited United Kingdom 100%
Island Records France S.A. France 100%
Island Visual Arts Limited United Kingdom 100%
Island Visual Arts, Inc. New York 100%
J.D.C., S.A. de C.V. Mexico 75%
J.E. Seagram Corp. Delaware 100%
JES Developments Finance, Inc. Delaware 100%
JES Developments, Inc. Delaware 100%
Jewel Box Music GmbH Germany 50%
Joseph E. Seagram & Sons, Inc. Indiana 100%
K.K. Kitty Enterprises Japan 100%
Karussell AB Sweden 100%
Kejvings Musikforlag AB Sweden 100%
Know Existence Ltd. United Kingdom 100%
La Bussola Edizioni Musicali S.r.l. Italy 100%
Lavande Limited Hong Kong 100%
Leisure Marine Corp. Nevada 100%
Licorerias Unidas, S.A. Venezuela 100%
Lupak S.A. Greece 100%
</TABLE>
3
<PAGE> 4
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
Lusa de Colombia S.A. Colombia 100%
MacLeane Films Ltd. United Kingdom 100%
Madera Holding B.V. Netherlands 100%
Magic Records Sp.z.o.o. Poland 100%
Makeback Limited United Kingdom 100%
Management Corporation of America California 100%
Mars MUzik Yapim Organizasyon Video Sanayi ve Ticaret S.A. Turkey 51%
Martell & Co. France 99%
Martell Far East Trading Limited Hong Kong 100%
Martell S.A. France 99%
Matheus Muller Sektkellereien GmbH Germany 100%
MCA Music France SARL France 100%
MCA Music G.m.b.H. Germany 100%
MCA Music Italy S.r.l. Italy 100%
MCA Music K.K. Japan 100%
MCA Records, Inc. California 100%
MCA/G-A Record Ventures, Inc. California 100%
MCA/Interscope Partner, Inc. California 100%
MCA/R Record Ventures, Inc. California 100%
Mercury Producoes e Edicoes Musicais Ltda. Brazil 100%
Mercury Records B.V. Netherlands 100%
Mercury Records GmbH Germany 100%
Mercury Records Limited United Kingdom 100%
Meteor Film Productions B.V. Netherlands 100%
MN Productions SARL France 100%
Mother Records Ltd. United Kingdom 50%
Motion Pictures Prinsengracht B.V. Netherlands 100%
Motown (UK) Limited United Kingdom 100%
Motown Cafe Orlando, L.P., LLLP Delaware 90%
Motown Entertainment (Deutschland) GmbH Germany 100%
Motown Entertainment Nederland B.V. Netherlands 100%
Motown Foreign Sales, L.P. California 100%
Motown Record Company, L.P. California 100%
Movie Film Productions Inc. Delaware 100%
Movie Tune Publishers B.V. Netherlands 100%
Murphy's Productions, Inc. California 100%
Music International Entertainment N.V. Netherlands Antilles 100%
Music Plus V.o.f. Netherlands 50%
Musical Rendezvous Limited United Kingdom 100%
Musician Hong Kong Ltd. Hong Kong 99%
MusiClub Brazil 50%
Myers Rum Company Limited Bahamas 100%
Nappa Neumzehnete Germany 100%
NED Video B.V. Netherlands 100%
Nese MUzik Yapim Sanayi ve Ticaret A.S. Turkey 51%
New G.S. Records Ltd. United Kingdom 100%
Norse Music Productions Limited United Kingdom 100%
Nu-Taurus Inc Japan 100%
Oakwood Films Inc. Delaware 100%
Oddbins Limited United Kingdom 100%
OH AB Music Produktion A.B. Sweden 100%
P.P.S. S.A.S. France 100%
</TABLE>
4
<PAGE> 5
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
P.T. PolyGram Indonesia Indonesia 80%
Pageant Music Limited United Kingdom 100%
Pan Europeenne Production S.A. France 70%
Par Four TK Japan 100%
Par Three T.K. Japan 100%
Paragon Publicity & Public Relations Limited United Kingdom 50%
Peekaboo S.a.r.l. France 100%
Perth Music, Inc. California 100%
Petalcraft Demonstrations Ltd. United Kingdom 100%
Phonad, Inc. New York 100%
Phoninvest Participacoes Ltda. Brazil 100%
Phonodisc Sales Limited United Kingdom 100%
Phonogram Limited United Kingdom 100%
Phonogram Music Limited United Kingdom 100%
PMC Merchandising, Inc. Delaware 100%
Polar Music AB Sweden 100%
Polar Music International AB Sweden 100%
Polydor B.V. Netherlands 100%
Polydor KK Japan 100%
Polyfin S.r.l. Italy 100%
PolyGram (Switzerland) AG Switzerland 100%
PolyGram A/O Russian Federation 90%
PolyGram A/S Norway 100%
PolyGram AB Sweden 100%
PolyGram Big Pipe, Inc. Delaware 100%
PolyGram Broadway Ventures, Inc. Delaware 100%
PolyGram Cable Channel Co. Delaware 100%
PolyGram de Centro America S.A. Costa Rica 50%
PolyGram Discos Uruguay S.A. Uruguay 100%
PolyGram Diversified Ventures, Inc. Delaware 100%
PolyGram do Brasil Ltda. Brazil 100%
PolyGram Ecuador S.A. Ecuador 100%
PolyGram Editions SARL France 100%
PolyGram Filmed Entertainment N.V. Belgium 100%
PolyGram Filmed Entertainment Productions, Inc. Delaware 100%
PolyGram Group Canada Inc. Canada 100%
PolyGram Group Distribution, Inc. Delaware 100%
PolyGram Holding (Luxembourg) S.A. Luxembourg 100%
PolyGram Holding AG Switzerland 100%
PolyGram Holding and Finance s.r.l. Luxembourg 100%
PolyGram Holding GmbH Germany 100%
PolyGram Holding, Inc. Delaware 100%
PolyGram India Limited India 100%
PolyGram International Finance (Ireland) Ltd. Ireland 100%
PolyGram International Music Publishing B.V. Netherlands 100%
PolyGram Luxembourg Finance S.A. Luxembourg 100%
PolyGram Manufacturing & Distribution Centres GmbH Germany 100%
PolyGram Manufacturing & Distribution Centres S.A. France 100%
PolyGram Manufacturing and Distribution Centers, Inc. Delaware 100%
PolyGram Music Asia, L.L.C. Delaware 100%
PolyGram Music Programming Corporation Delaware 100%
PolyGram Music Publishing (South Africa) Ltd. South Africa 100%
</TABLE>
5
<PAGE> 6
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
PolyGram Music Publishing AG Switzerland 100%
PolyGram Music Publishing B.V. Netherlands 100%
PolyGram Music Publishing Italia S.r.l. Italy 100%
PolyGram Music Publishing LLC Hungary 100%
PolyGram Music Publishing Ltd. Taiwan (China) 100%
PolyGram Music Publishing Pte Ltd. Singapore 100%
PolyGram Music Publishing S.A. [Belgium] Belgium 100%
PolyGram Music Publishing S.A. [Venezuela] Venezuela 100%
PolyGram Music Publishing Sdn. Bhd. Malaysia 100%
PolyGram Musique S.A. France 100%
PolyGram N.V. Netherlands 100%
PolyGram Portugal - Som e Imagem, S.A. Portugal 100%
PolyGram Publishing Ventures, Inc. Delaware 100%
PolyGram Publishing, Inc. Delaware 100%
PolyGram Record Services Pty Ltd. Australia 100%
PolyGram Records Corporation Philippines 51%
PolyGram Records Ltd. [Taiwan] Taiwan (China) 100%
PolyGram Records Ltd. [New Zealand] New Zealand 100%
PolyGram Records, Inc. Delaware 100%
PolyGram S.A. [France] France 100%
PolyGram S.A. [Luxembourg] Luxembourg 100%
PolyGram S.r.o. Czech Republic 100%
PolyGram Slovensko S.r.o. Slovakia 100%
PolyGram Songs Musikverlag GmbH Germany 100%
PolyGram Sound, Inc. Delaware 100%
PolyGram South Africa South Africa 67% *
PolyGram Television, L.L.C. Delaware 100%
PolyGram Video Clip Holding, Inc. Delaware 100%
Polyscope B.V. Netherlands 100%
Polytel International Overseas Limited United Kingdom 100%
Producer Services Holdings Limited United Kingdom 50%
Producer Services Limited United Kingdom 50%
Qualiton Records (1968) Limited United Kingdom 100%
Quicksilver Recording Company Limited United Kingdom 100%
R.S.O. Records B.V. Netherlands 100%
Radioactive Records California 60% *
Record Supervision Limited United Kingdom 100%
Reuter & Reuter Forlags AB Sweden 100%
RM Productions (Film & Television) Limited United Kingdom 100%
S MUzik Yapim Organizasyon ve Ticaret A.S. Turkey 51%
Sandeman - Coprimar S.A. Spain 100%
Sandeman & Ca. S.A. Portugal 100%
SCI Lorada France 100%
Sci-Fi Channel Europe, L.L.C. Delaware 50%
Seagold Leasing Inc. Delaware 100%
Seagram (China) Ltd. Canada 100%
Seagram (New Zealand) Limited New Zealand 100%
Seagram Apka S.A. Greece 100%
Seagram Australia Holdings Pty. Limited Australia 100%
Seagram Australia Pty. Limited Australia 100%
Seagram Belgium N.V. Belgium 100%
Seagram C.I. (Taiwan) Co., Ltd. Hong Kong 90%
</TABLE>
6
<PAGE> 7
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
Seagram Capital Investments, Inc. Delaware 100%
Seagram de Argentina, S.A.I.C. Argentina 100%
Seagram de Chile Commercial Ltda. Chile 100%
Seagram de Mexico S.A. de C.V. Mexico 100%
Seagram Deutschland GmbH Germany 100%
Seagram Developments, Inc. Delaware 100%
Seagram Distillers PLC United Kingdom 100%
Seagram do Brasil Industria e Comercio Ltda. Brazil 100%
Seagram Enterprises, Inc. Delaware 100%
Seagram Europa B.V. Netherlands 100%
Seagram European Customer Service Center Limited United Kingdom 100%
Seagram Finance B.V. Netherlands 100%
Seagram France Distribution France 100%
Seagram Holdings Limited United Kingdom 100%
Seagram Holding-und Handelsgesellschaft mbh Germany 100%
Seagram Inc. Delaware 100%
Seagram India Private Limited India 100%
Seagram International B.V. Netherlands 100%
Seagram International Holdings Limited United Kingdom 100%
Seagram Italia S.p.A. Italy 100%
Seagram Manufacturing Private Limited India 100%
Seagram Netherlands Antilles N.V. Netherlands Antilles 100%
Seagram Netherlands B.V. Netherlands 100%
Seagram Nordic AB Sweden 100%
Seagram South Africa (Pty) Ltd. South Africa 100%
Seagram United Kingdom Limited United Kingdom 100%
Seagram Wine Estates Pty. Limited Australia 100%
Shanghai Seagram Limited PRC 60%
Societe Flechoise de Participations France 100%
Sogepaq Distribucion S.A. Spain 50%
Sonet Music AB Sweden 100%
Songs of Universal, Inc. California 100%
Spectrum S.A. France 100%
Spencer Davis Music Limited United Kingdom 50%
Spencer Gifts (Canada) Inc. Canada 100%
Spencer Gifts (UK) Limited United Kingdom 100%
Spencer Gifts, Inc. Delaware 100%
Springtime Film B.V. Netherlands 100%
Stockholm Label Group AB Sweden 100%
Stockholm Musikproduktion AB Sweden 100%
Stockholm Records AB Sweden 100%
Stockholm Songs AB Sweden 100%
Sundance Channel L.L.C. New York 10%
Sweden Music Forlags AB Sweden 100%
Systemtatic Limited United Kingdom 50%
Teal Record Company (Proprietary) Ltd. South Africa 50%
Television/Cinema (Canada) Distribution Inc. Canada 100%
Terra Properties, Inc. California 100%
The Character Cafe Limited United Kingdom 100%
The Crayon Box LLC New York 50%
The Decca Record Company Ltd. United Kingdom 100%
The Glenlivet Distillers Limited United Kingdom 100%
</TABLE>
7
<PAGE> 8
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
The House of Seagram Ltd. United Kingdom 100%
The Leonard Bernstein Music Publishing Company LLC New York 50%
The Music Store Limited United Kingdom 100%
The Seagram Finance Company Limited United Kingdom 100%
The Video Label United Kingdom 51% *
The Wild Card Label Limited United Kingdom 100%
This Record Co. Limited United Kingdom 100%
Tianjin Seagram Limited PRC 70%
Tiger Music Ltd. United Kingdom 50%
Timbaland Records, LLC New York 51%
Tolly Music Limited United Kingdom 100%
Total Distribucion S.A. Spain 50%
Toutankhamon France 100%
Trutone Music South Africa 50% *
TV Hamburg Fernseh-und Filmvertrieb GmbH Germany 100%
U/MRV Co. Delaware 70% *
UEX Beijing Holding Co. Limited Hong Kong 56%
UEX Holding Company California 100%
Union Songs Music Forkags AB Sweden 100%
Universal - Champion Music Corporation New York 100%
Universal - PolyGram International Publishing, Inc. Delaware 100%
Universal - PolyGram International Tunes, Inc. Delaware 100%
Universal - Songs of PolyGram International, Inc. Delaware 100%
Universal Broadcast Communications PLC United Kingdom 100%
Universal Cartoon Studios, Inc. California 100%
Universal City Development Partners Florida 50% *
Universal City Florida Partners Florida 50% *
Universal City Property Management Company Delaware 100%
Universal City Property Management Company II Delaware 100%
Universal City Property Management Company III Delaware 100%
Universal City Property Management Company IV Delaware 100%
Universal City Studios Productions, Inc. Delaware 100%
Universal City Studios, Inc. Delaware 100%
Universal Family Entertainment, Inc. California 100%
Universal Film Distribution, Inc. California 100%
Universal Film Exchanges, Inc. Delaware 100%
Universal Finance B.V. Netherlands 100%
Universal Grill Joint Venture California 50% *
Universal Holding GmbH Germany 100%
Universal Home Entertainment Distribution PLC United Kingdom 100%
Universal Home Entertainment Holdings Limited United Kingdom 100%
Universal Home Entertainment Licensing PLC United Kingdom 100%
Universal Home Video, Inc. California 100%
Universal Interactive Studios, Inc. California 100%
Universal International Films, Inc. Delaware 100%
Universal International Finance B.V. Netherlands 100%
Universal International Holding B.V. Netherlands 100%
Universal International Music B.V. Netherlands 100%
Universal Manufacturing & Logistics Limited United Kingdom 100%
Universal Music & Video Distribution, Inc. New York 100%
Universal Music (Hong Kong) Limited Hong Kong 100%
Universal Music (Thailand) Ltd. Thailand 75%
</TABLE>
8
<PAGE> 9
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
Universal Music (UK) Holdings Limited United Kingdom 100%
Universal Music A/S Denmark 100%
Universal Music Argentina S.A. Argentina 100%
Universal Music Asia Pacific Limited Hong Kong 100%
Universal Music Australia (No. 2) Limited Australia 100%
Universal Music Australia Pty. Limited Australia 100%
Universal Music B.V. Netherlands 100%
Universal Music Colombia S.A. Colombia 100%
Universal Music GMBH Austria 100%
Universal Music GmbH Germany 100%
Universal Music International (No. 2) Limited United Kingdom 100%
Universal Music International Limited United Kingdom 100%
Universal Music Ireland Limited Ireland 100%
Universal Music Italia S.r.l. Italy 100%
Universal Music K.K. Japan 100%
Universal Music Leisure Limited United Kingdom 100%
Universal Music Limited [Hong Kong] Hong Kong 100%
Universal Music Ltd. [Korea] Korea (South) 80%
Universal Music Mexico, S.A. de C.V. Mexico 100%
Universal Music NV/SA Belgium 100%
Universal Music Operations Limited United Kingdom 100%
Universal Music Oy Finland 100%
Universal Music Peru S.A. Peru 100%
Universal Music Polska Sp. z o.o. Poland 100%
Universal Music Private Ltd. Singapore 100%
Universal Music Publishing Australia Pty Limited Australia 100%
Universal Music Publishing Gesellschaft m.b.H. Austria 100%
Universal Music Publishing International Limited United Kingdom 100%
Universal Music Publishing K.K. Japan 100%
Universal Music Publishing L.L.C. Greece 100%
Universal Music Publishing Limited [Hong Kong] Hong Kong 100%
Universal Music Publishing Limited [United Kingdom] United Kingdom 100%
Universal Music Publishing Polska Sp. z o.o. Poland 100%
Universal Music Publishing S.A. [Argentina] Argentina 100%
Universal Music Publishing s.r.o. Czech Republic 100%
Universal Music Publishing, S.A. [Spain] Spain 100%
Universal Music Records Ltd. Hungary 51%
Universal Music S.A. [Greece] Greece 100%
Universal Music SA France 100%
Universal Music Sdn. Bhd. Malaysia 100%
Universal Music Spain, S.L. Spain 100%
Universal Music UK Limited United Kingdom 100%
Universal Music Venezuela S.A. Venezuela 100%
Universal Music, S.A. de C.V. Mexico 100%
Universal Musica, Inc. Florida 100%
Universal Networks Services Italia S.r.l. Italy 100%
Universal Pictures (Australasia) Pty. Ltd. Australia 100%
Universal Pictures (France) S.A. France 100%
Universal Pictures (Italy) S.r.l. Italy 100%
Universal Pictures (Spain), S.L. Spain 100%
Universal Pictures (Switzerland) AG Switzerland 100%
Universal Pictures (UK) Limited United Kingdom 100%
</TABLE>
9
<PAGE> 10
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
Universal Pictures Benelux B.V. Netherlands 100%
Universal Pictures Corporation of China Delaware 100%
Universal Pictures Corporation of Puerto Rico Delaware 100%
Universal Pictures Germany GmbH Germany 100%
Universal Pictures International B.V. Netherlands 100%
Universal Pictures International Limited United Kingdom 100%
Universal Pictures International No. 2 B.V. Netherlands 100%
Universal Pictures Licensing Benelux B.V. Netherlands 100%
Universal Pictures Licensing Limited United Kingdom 100%
Universal Pictures Limited United Kingdom 100%
Universal Pictures Productions B.V. Netherlands 100%
Universal Pictures Productions G.m.b.H. Germany 100%
Universal Pictures Productions Limited United Kingdom 100%
Universal Pictures Pty. Limited Australia 100%
Universal Pictures Video (France) S.A. France 100%
Universal Pictures Visual Programming Limited United Kingdom 100%
Universal Plaza MUzik Yapim Organizasyon Sanayi ve Ticaret A.S. Turkey 100%
Universal Rank Hotel Partners Florida 50% *
Universal Records B.V. Netherlands 100%
Universal Records, Inc. California 100%
Universal Station, Inc. California 100%
Universal Studios Arcade, Inc. Delaware 100%
Universal Studios Canada Ltd. Canada 100%
Universal Studios Channels France EURL France 100%
Universal Studios Channels France S.A.S. France 100%
Universal Studios Consumer Products, Inc. California 100%
Universal Studios Development Venture One California 100%
Universal Studios Development Venture Three California 100%
Universal Studios Development Venture Two California 100%
Universal Studios Digital Arts, Inc. California 100%
Universal Studios Enterprises Japan, Ltd. Japan 100%
Universal Studios Entertainment Japan Investment Company California 100%
Universal Studios Finance B.V. Netherlands 100%
Universal Studios Finance, Inc. Delaware 100%
Universal Studios Holding I Corp. Delaware 92%
Universal Studios Holding II Corp. Delaware 100%
Universal Studios Holding III Corp. Delaware 100%
Universal Studios Holdings (UK) Limited United Kingdom 100%
Universal Studios Home Video, Inc. California 100%
Universal Studios Hotel, Inc. Delaware 100%
Universal Studios International B.V. Netherlands 100%
Universal Studios International G.m.b.H. Germany 100%
Universal Studios Investments, Inc. Delaware 100%
Universal Studios Licensing, Inc. California 100%
Universal Studios Network Programming California 50%
Universal Studios Networks Deutschland G.m.b.H. Germany 100%
Universal Studios Networks, Limited United Kingdom 100%
Universal Studios New Media, Inc. California 100%
Universal Studios Online Productions, Inc. California 100%
Universal Studios Online, Inc. California 100%
Universal Studios Pacific Partners, Inc. California 100%
Universal Studios Pay Television Australia, Inc. California 100%
</TABLE>
10
<PAGE> 11
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
Universal Studios Pay Television B.V. Netherlands 100%
Universal Studios Pay Television, Inc. California 100%
Universal Studios Pay TV Latin America, Inc. California 100%
Universal Studios Pay-Per-View, Inc. California 100%
Universal Studios Recreation Japan Planning Services, Inc. California 100%
Universal Studios Recreation Japan Supervision, Inc. California 100%
Universal Studios Restaurant, Inc. Delaware 100%
Universal Studios TV Channel Poland B.V. Netherlands 100%
Universal Studios TV Channel Poland, Inc. Delaware 100%
Universal Studios TV1 Australia, Inc. California 100%
Universal Studios, Inc. Delaware 100%
Universal Television & Networks Group, Inc. California 100%
Universal Television Enterprises, Inc. Delaware 100%
Universal Television Entertainment, Inc. California 100%
Universal Television, Incorporated California 100%
Universal TV Filmes Do Brasil Ltda. Brazil 100%
Universal Worldwide Television, Inc. Delaware 100%
Universal/Dick James Music Limited United Kingdom 100%
Universal/Empire Music Limited United Kingdom 100%
Universal/Island Music Limited United Kingdom 100%
Universal/MCA Music Limited United Kingdom 100%
Universal/MCA Music Publishing Pty. Limited Australia 100%
Universal-Island Records Limited United Kingdom 100%
USA Networks New York 50%
USA Networks Partner, Inc. Delaware 100%
USANI Holding I, Inc. Delaware 100%
USANI Holding II, Inc. Delaware 100%
USANI Holding III, Inc. Delaware 100%
USANI Holding IV, Inc. Delaware 100%
USANI Holding V, Inc. Delaware 100%
USANI Holding VI, Inc. Delaware 100%
USANI Holding VII, Inc. Delaware 100%
USANI Holding VIII, Inc. Delaware 100%
USANI Holding IX, Inc. Delaware 100%
USANI Holding X, Inc. Delaware 100%
USANI Holding XII, Inc. Delaware 100%
USANI Holding XIII, Inc. Delaware 100%
USANI Holding XIV, Inc. Delaware 100%
USANI Holding XV, Inc. Delaware 100%
USANI Holding XVI, Inc. Delaware 100%
USANI Holding XVII, Inc. Delaware 100%
USANI Holding XVIII, Inc. Delaware 100%
USANI Holding XIX, Inc. Delaware 100%
USANI Holding XX, Inc. Delaware 100%
U-Talk Enterprises, Inc. Delaware 100%
Valentine Music Italia s.r.l. Italy 100%
Venkow Records a.s. Czech Republic 60%
Vintners Imports Pty. Limited Australia 50%
Vision Video (1984) Limited United Kingdom 100%
Vision Video (1989) Limited United Kingdom 100%
Vision Video (Electric Dreams) Limited United Kingdom 100%
Vision Video (Loose Connections) Limited United Kingdom 100%
</TABLE>
11
<PAGE> 12
<TABLE>
Approximate
Percentage
Organized Directly or
Under Indirectly
Laws of Owned
------- ----------
<S> <C> <C>
SUBSIDIARIES ARE LISTED ALPHABETICALLY, WITH 3 BUSINESS SEGMENTS INDICATED
VERTICALLY:
1) SPIRITS & WINE OPERATIONS
2) MUSIC OPERATIONS **
3) FILMED ENTERTAINMENT, RECREATION AND OTHER OPERATIONS**
Vision Video (Secret Places) Limited United Kingdom 100%
Vision Video Limited United Kingdom 100%
Vision Videolabel Limited United Kingdom 50%
Viva Far East Limited Hong Kong 100%
Wet 'n Wild, Inc. Florida 100%
What's Music International Inc. Taiwan (China) 60%
Working Title (Bean) Limited United Kingdom 100%
Working Title Films Limited United Kingdom 100%
Working Title Group, Inc. Delaware 100%
Working Title TV Limited United Kingdom 100%
WT Adventures Ltd. United Kingdom 100%
</TABLE>
Notes:
** These companies are direct or indirect subsidiaries of either Centenary
Holding N.V. or Universal Studios Holding I Corp., each of which is 92%
owned by Seagram.
A. All subsidiaries are listed alphabetically, with three business
segments indicated vertically, however, note that there are some
subsidiaries which handle business for more than one operation. Such
subsidiaries are not identified and listed in only one of the three
operations.
B. Joint ventures and partnerships are indicated with an asterisk on the
far right column.
C. Where more than one subsidiary has exactly the same legal name, the
jurisdiction of incorporation for each subsidiary is indicated in
brackets after the name. Such jurisdiction noted in brackets is not
part of the legal name of the subsidiary.
12
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (Numbers 2-99681, 33-67772, 333-62921 and 333-86385) and
the Registration Statements on Form S-8 (Numbers 33-27194, 33-2043, 33-49096,
33-60606, 33-99122, 333-19059 and 333-85485) of The Seagram Company Ltd. of our
report dated August 18, 1999, relating to the consolidated financial statements,
which appears in the Annual Report to Shareholders of The Seagram Company
Ltd. for the fiscal year ended June 30, 1999, which is incorporated in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report, dated August 18, 1999 relating to the financial statement schedule,
which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, N.Y.
September 28, 1999
31
<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, 1999, (the "Annual Report") including
specifically, but without limiting the generality of the foregoing, power and
authority to sign the name of the Corporation and the name of the undersigned,
individually and in his capacity as a director or officer of the Corporation, to
the Annual Report as filed with the U.S. Securities and Exchange Commission, to
any and all amendments thereto, and to any and all instruments or documents
filed as part thereof or in connection therewith; and each of the undersigned
hereby ratifies and confirms all that said attorneys and agents and each of them
shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF each of the undersigned has subscribed these presents on the
date set opposite his name.
Signature Date
/s/ Edgar M. Bronfman August 18, 1999
- ----------------------------------------
THE SEAGRAM COMPANY LTD.
by Mr. Edgar M. Bronfman
Chairman of the Board
/s/ Edgar M. Bronfman August 18, 1999
- ----------------------------------------
Edgar M. Bronfman
/s/ Charles R. Bronfman August 18, 1999
- ----------------------------------------
Charles R. Bronfman
/s/ Edgar Bronfman, Jr. August 18, 1999
- ----------------------------------------
Edgar Bronfman, Jr.
/s/ Samuel Bronfman II August 18, 1999
- ----------------------------------------
Samuel Bronfman II
/s/ Matthew W. Barrett August 18, 1999
- ----------------------------------------
Matthew W. Barrett
32
<PAGE> 2
Signature Date
- --------- ----
/s/ Laurent Beaudoin August 18, 1999
- ----------------------------------------
Laurent Beaudoin
/s/ Cornelis Boonstra August 18, 1999
- ----------------------------------------
Cornelis Boonstra
/s/ Richard H. Brown August 18, 1999
- ----------------------------------------
Richard H. Brown
/s/ William G. Davis August 18, 1999
- ----------------------------------------
William G. Davis
/s/ Andre Desmarais August 18, 1999
- ----------------------------------------
Andre Desmarais
/s/ Barry Diller August 18, 1999
- ----------------------------------------
Barry Diller
/s/ Michele J. Hooper August 18, 1999
- ----------------------------------------
Michele J. Hooper
/s/ David L. Johnston August 18, 1999
- ----------------------------------------
David L. Johnston
/s/ E. Leo Kolber August 18, 1999
- ----------------------------------------
E. Leo Kolber
/s/ Marie-Josee Kravis August 18, 1999
- ----------------------------------------
Marie-Josee Kravis
/s/ Robert W. Matschullat August 18, 1999
- ----------------------------------------
Robert W. Matschullat
/s/ Samuel Minzberg August 18, 1999
- ----------------------------------------
Samuel Minzberg
/s/ John S. Weinberg August 18, 1999
- ----------------------------------------
John S. Weinberg
33
<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, 1999 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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,533
<SECURITIES> 0
<RECEIVABLES> 2,985
<ALLOWANCES> 0
<INVENTORY> 2,627
<CURRENT-ASSETS> 8,881
<PP&E> 4,485
<DEPRECIATION> (1,327)
<TOTAL-ASSETS> 35,011
<CURRENT-LIABILITIES> 8,146
<BONDS> 7,468
0
0
<COMMON> 4,575
<OTHER-SE> 8,313
<TOTAL-LIABILITY-AND-EQUITY> 35,011
<SALES> 0
<TOTAL-REVENUES> 12,312
<CGS> 7,337
<TOTAL-COSTS> 7,337
<OTHER-EXPENSES> 5,225
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 457
<INCOME-PRETAX> (579)
<INCOME-TAX> (33)
<INCOME-CONTINUING> (383)
<DISCONTINUED> 1,069
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 686
<EPS-BASIC> 1.81
<EPS-DILUTED> 1.81
</TABLE>
