<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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)
514-987-5200
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year,
if changed since last report)
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
As of October 31, 2000, there were 444,331,570 common shares without nominal or
par value issued and outstanding
<PAGE> 2
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Income and Retained Earnings -
Quarter Ended September 30, 2000 and 1999 1
Consolidated Balance Sheet -
September 30, 2000 and June 30, 2000 2
Consolidated Statement of Cash Flows -
Quarter Ended September 30, 2000 and 1999 3
Notes to Consolidated Financial Statements 4-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit Index 22
<PAGE> 3
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(United States dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Quarter
Ended September 30,
2000 1999
---- ----
<S> <C> <C>
Revenues $ 3,539 $ 3,643
Cost of revenues 2,014 2,150
Selling, general and administrative expenses 1,353 1,421
--------- ---------
Operating income 172 72
Interest, net and other expense 160 161
Gain on sale of businesses -- 98
--------- ---------
12 9
Provision for income taxes 5 110
Minority interest 6 4
Equity earnings from unconsolidated companies 20 65
--------- ---------
Income (loss) from continuing operations 21 (40)
Cumulative effect of change in accounting principle, after tax (390) (84)
--------- ---------
Net loss (369) (124)
Retained earnings at beginning of period 8,460 8,707
Dividends paid (73) (72)
--------- ---------
Retained earnings at end of period $ 8,018 $ 8,511
========= =========
Basic loss per share $ (0.84) $ (0.29)
========= =========
Diluted loss per share $ (0.83) $ (0.29)
========= =========
Dividends paid per share $ 0.165 $ 0.165
========= =========
Weighted average shares outstanding (thousands) 439,541 432,842
Dilutive potential common shares (thousands) 7,413 --
--------- ---------
Adjusted weighted average shares outstanding (thousands) 446,954 432,842
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
U.S. GAAP BASIS
1
<PAGE> 4
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(United States dollars in millions)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 651 $ 1,230
Receivables, net of allowances 2,770 2,697
Inventories 2,402 2,422
Other current assets 1,300 1,308
-------- --------
TOTAL CURRENT ASSETS 7,123 7,657
Investments 5,684 5,603
Film costs, net of amortization 1,293 1,133
Music catalogs, artists' contracts and advances 2,950 2,803
Property, plant and equipment,net 3,070 3,099
Goodwill and other intangible assets 11,644 11,814
Other assets 700 699
-------- --------
$ 32,464 $ 32,808
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings and current portion of long-term debt $ 703 $ 499
Payables and accrued liabilities 3,796 3,960
Accrued royalties and participations 1,920 2,263
-------- --------
TOTAL CURRENT LIABILITIES 6,419 6,722
Long-term debt 7,339 7,378
Accrued royalties and participations 518 575
Deferred income taxes 2,707 2,696
Other liabilities 1,241 1,326
Minority interest 2,603 1,882
-------- --------
TOTAL LIABILITIES 20,827 20,579
-------- --------
Shareholders' Equity
Shares without par value 5,140 4,762
Retained earnings 8,018 8,460
Accumulated other comprehensive income (1,521) (993)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 11,637 12,229
-------- --------
$ 32,464 $ 32,808
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
U.S. GAAP BASIS
2
<PAGE> 5
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(United States dollars in millions)
<TABLE>
<CAPTION>
Quarter
Ended September 30,
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 21 $ (40)
Adjustments to reconcile income (loss) from continuing operations to
net cash provided:
Depreciation and amortization of assets 184 182
Amortization of goodwill 85 86
Gain on sale of businesses -- (98)
Minority interest in income of subsidiaries 6 4
Equity earnings from unconsolidated companies in excess
of dividends received (14) (52)
Deferred income taxes (31) 45
Other (2) 13
Changes in assets and liabilities, net of effect of acquisitions
and dispositions:
Receivables, net of allowances (107) (224)
Inventories (75) (82)
Other current assets 78 176
Music catalogs, artists' contracts and advances (105) (87)
Payables and accrued liabilities (44) 112
Other liabilities (131) 3
------- -------
(156) 78
------- -------
Net cash (used for) provided by operating activities (135) 38
------- -------
INVESTING ACTIVITIES
Sale of Champagne operations -- 310
Sale of Universal Concerts -- 190
USA transactions -- (242)
Capital expenditures (66) (120)
Other (172) (45)
------- -------
Net cash (used for) provided by investing activities (238) 93
------- -------
FINANCING ACTIVITIES
Dividends paid (73) (72)
Issuance of shares upon exercise of stock options and conversion of LYONs 28 30
Issuance of Adjustable Conversion-rate Equity Security Units -- 75
Issuance of long-term debt 4 --
Repayment of long-term debt (51) (4)
Decrease in short-term borrowings and other financing activities (114) (273)
------- -------
Net cash used for financing activities (206) (244)
------- -------
Net decrease in cash and cash equivalents (579) (113)
------- -------
Cash and cash equivalents at beginning of period 1,230 1,533
------- -------
Cash and cash equivalents at end of period $ 651 $ 1,420
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
U.S. GAAP BASIS
3
<PAGE> 6
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in
accordance with the requirements of Form 10-Q and, therefore, do not include all
information and notes necessary for a presentation of results of operations,
financial position and cash flows in conformity with U.S. generally accepted
accounting principles (GAAP). These statements should be read in conjunction
with the consolidated financial statements and related notes in the Company's
Form 10-K for the fiscal year ended June 30, 2000, as amended. In the opinion of
the Company, the unaudited interim financial statements include all adjustments,
comprising only normal recurring adjustments, necessary for a fair presentation
of operating results. Results of operations for the first quarter are not
necessarily indicative of those expected for the fiscal year.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
2. Restructuring Charge and Accrual for Exit Activities
Restructuring Charge
Management developed and committed to a formal plan that was communicated to
employees to restructure its music and filmed entertainment operations after the
acquisition of PolyGram. This plan resulted in a fiscal 1999 pre-tax
restructuring charge of $405 million. The charge related entirely to the
Company's existing global music and film production, financial, marketing and
distribution operations and included severance, elimination of duplicate
facilities and labels, termination of artists' and distribution contracts and
costs related to exiting film production arrangements and properties in
development. The utilization of the restructuring charge to date follows:
<TABLE>
<CAPTION>
Utilized
Original Restructuring -------------------- Balance at
U.S. dollars in millions Charge Credit Cash Non-cash September 30, 2000
------------------------ ------ ------ ---- -------- ------------------
<S> <C> <C> <C> <C> <C>
Severance and other employee-related costs $ 126 $ (12) $ (78) $ (3) $ 33
Facilities and labels 128 (35) (20) (56) 17
Contract termination and other costs 151 (12) (76) (28) 35
--------- -------- ------- -------- --------
$ 405 $ (59) $ (174) $ (87) $ 85
========= ======== ======= ======== ========
</TABLE>
As of September 30, 2000, all of the employees provided for under the
restructuring initiative have separated from the Company. Remaining
restructuring activities relate principally to contractual obligations and
severance payments to be made in future periods.
Accrual for Acquisition-Related Exit Activities
In connection with the integration of PolyGram and Seagram, management developed
a formal exit activity plan that was committed to by management and communicated
to employees shortly after the acquisition was consummated. The accrual for exit
activities consists principally of facility elimination costs, including
leasehold termination payments and incremental facility closure costs, contract
terminations, relocation costs and the severance of employees. The utilization
of the accrual for exit activities to date follows:
U.S. GAAP BASIS
4
<PAGE> 7
<TABLE>
<CAPTION>
Utilized
------------------ Balance at
U.S. dollars in millions Exit Activities Cash Non-cash September 30, 2000
------------------------ --------------- ---- -------- ------------------
<S> <C> <C> <C> <C>
Facility elimination costs $ 45 $ (23) $ (2) $ 20
Contract terminations 68 (45) (13) 10
Severance or relocation 397 (219) (16) 162
------ ----- ----- -----
$ 510 $(287) $ (31) $ 192
====== ===== ===== =====
</TABLE>
As of September 30, 2000, remaining exit activities relate principally to
contractual obligations and severance payments to be made in future periods.
3. Investment in DuPont and USAi
At September 30, 2000, the Company owned 16.4 million shares of the outstanding
common stock of E.I. du Pont de Nemours and Company (DuPont). The Company
accounts for the investment at market value, which was $672 million at September
30, 2000. The underlying historical book value of the DuPont shares is $187
million.
At September 30, 2000, the Company owned 18.2 million shares of the outstanding
common stock of USA Networks, Inc. (USAi). The investment, which is accounted
for at market value ($399 million at September 30, 2000), has an underlying cost
of $211 million. At September 30, 2000, the Company also owned 13.4 million
shares of USAi Class B common stock which is carried at its historical cost of
$136 million.
4. Supplementary Financial Statement Information
<TABLE>
<CAPTION>
September 30, June 30,
U.S. dollars in millions 2000 2000
------------------------ ---- ----
<S> <C> <C>
INVENTORIES
Beverages $ 1,956 $ 2,009
Materials, supplies and other 446 413
------- -------
$ 2,402 $ 2,422
======= =======
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, at cost $ 4,681 $ 4,686
Accumulated depreciation (1,611) (1,587)
------- -------
$ 3,070 $ 3,099
======= =======
</TABLE>
<TABLE>
<CAPTION>
Quarter
Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
EXCISE TAXES (included in revenues and cost of revenues) $ 185 $ 203
======= =======
</TABLE>
U.S. GAAP BASIS
5
<PAGE> 8
5. Comprehensive Income (Loss)
The components of the Company's total comprehensive income (loss) were as
follows:
<TABLE>
<CAPTION>
Quarter
Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
Net loss $ (369) $(124)
Currency translation adjustments (497) 209
Unrealized holding loss in equity security, net of tax (31) (88)
------ -----
Total comprehensive loss $ (897) $ (3)
====== =====
</TABLE>
6. Long-Term Debt and Debt Guarantees
The Company has unconditionally guaranteed the following outstanding debt
securities of its principal U.S. spirits and wine subsidiary, Joseph E. Seagram
& Sons, Inc., (JES); 5.79% Senior Notes due 2001, 6.25% Senior Notes due 2001,
6.4% Senior Notes due 2003, 6.625% Senior Notes due 2005, 8.375% Debentures due
2007, 7% Debentures due 2008, 6.8% Senior Notes due 2008, 8.875% Debentures due
2011, 9.65% Debentures due 2018, 7.5% Senior Debentures due 2018, 9% Debentures
due 2021, 7.6% Senior Debentures due 2028, 8% Quarterly Income Debt Securities
due 2038 (QUIDS) and 7.5% Adjustable Conversion-rate Equity Security Units.
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.
6
U.S. GAAP BASIS
<PAGE> 9
<TABLE>
<CAPTION>
Quarter
Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
Revenues $ 590 $ 558
Cost of revenues $ 366 $ 348
Net income (loss) $ (23) $ 64
</TABLE>
<TABLE>
<CAPTION>
September 30, June 30,
U.S. dollars in millions 2000 2000
------------------------ ---- ----
<S> <C> <C>
Current assets $ 2,472 $ 2,232
Noncurrent assets 18,306 18,377
-------- --------
$ 20,778 $ 20,609
======== ========
Current liabilities $ 1,160 $ 879
Noncurrent liabilities 10,816 10,889
Shareholders' equity 8,802 8,841
-------- --------
$ 20,778 $ 20,609
======== ========
</TABLE>
7. Earnings Per Share and Common Shares
At September 30, 2000, 58,058,399 common shares were potentially issuable upon
the conversion of the LYONs, the exercise of employee stock options, conversion
of deferred share units and the early settlement of the contracts to purchase
common shares under the Adjustable Conversion-rate Equity Security Units. Basic
net income per share was based on the following weighted average number of
shares outstanding during the quarters ended September 30, 2000 -- 439,540,513
and September 30, 1999 -- 432,842,035. Diluted net income per share was based on
446,953,534 weighted average shares outstanding in the quarter ended September
30, 2000. Average shares of 7,146,720 were not included in the computation of
diluted net income per share in the quarter ended September 30, 1999 because to
do so would have been anti-dilutive.
In the quarter ended September 30, 2000, the Company issued 635,328 shares upon
the exercise of employee stock options and the conversion of LYONs.
Additionally, the Company issued approximately six million shares (approximate
value of $350 million) to acquire Rondor Music International, Inc., an
independent music publishing company.
8. Business Segment Information
The Company's four reportable segments are music, filmed entertainment,
recreation and other and spirits and wine. Each reportable segment defined by
the Company is a strategic business unit that offers different products and
services that are marketed through different channels. Segments are managed
separately because of their unique customers, technology, marketing and
distribution requirements. The Company evaluates the performance of its segments
and allocates resources to them based on several performance measures, including
modified EBITDA (EBITDA). As defined by the Company, EBITDA consists of
operating earnings (losses) before depreciation, amortization and corporate
expenses from consolidated companies. While not a standard measurement under
GAAP, the Company believes
7
U.S. GAAP BASIS
<PAGE> 10
EBITDA is an appropriate measure of operating performance, given the significant
assets and goodwill associated with the Company's acquisitions. However, EBITDA
could be defined differently by other companies and should be considered in
addition to, not as a substitute for, other measures of financial performance
including revenues and operating income. There are no intersegment revenues;
however, corporate headquarters allocates a portion of its costs to each of its
operating segments. The Company does not allocate interest income, interest
expense, income taxes or unusual items to segments.
Business Segment Data
<TABLE>
<CAPTION>
Filmed Recreation Spirits
U.S. dollars in millions Music Entertainment and Other and Wine Corporate Total
------------------------ ----- ------------- --------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
SEPTEMBER 30, 2000
Revenues $ 1,378 $ 787 $ 230 $ 1,144 $ -- $ 3,539
EBITDA $ 210 $ 23 $ 56 $ 177 $ -- $ 466
Depreciation and amortization (187) (24) (26) (30) (2) (269)
Corporate expenses -- -- -- -- (25) (25)
------- ------- ------- ------- ------- -------
Operating income (loss) $ 23 $ (1) $ 30 $ 147 $ (27) $ 172
======= ======= ======= ======= ======= =======
Capital expenditures $ 31 $ 13 $ 8 $ 14 $ -- $ 66
SEPTEMBER 30, 1999
Revenues $ 1,412 $ 873 $ 209 $ 1,149 $ -- $ 3,643
EBITDA $ 185 $ (38) $ 49 $ 156 $ -- $ 352
Depreciation and amortization (189) (21) (25) (31) (2) (268)
Corporate expenses -- -- -- -- (12) (12)
------- ------- ------- ------- ------- -------
Operating income (loss) $ (4) $ (59) $ 24 $ 125 $ (14) $ 72
======= ======= ======= ======= ======= =======
Capital expenditures $ 52 $ 19 $ 14 $ 35 $ -- $ 120
</TABLE>
Geographic Data
The following table presents revenues by geographic area for the quarters ended
September 30, 2000 and 1999. 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 exceed 10 percent of the total.
<TABLE>
<CAPTION>
Quarter
Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
United States $ 1,852 $ 1,780
United Kingdom 319 379
Canada 92 113
Other countries 1,276 1,371
-------- --------
$ 3,539 $ 3,643
======== ========
</TABLE>
8
U.S. GAAP BASIS
<PAGE> 11
9. New Accounting Guidance
On July 1, 2000, the Company adopted the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants (AcSEC)
Statement of Position (SOP) 00-2, Accounting by Producers or Distributors of
Films. The SOP requires that advertising costs for theatrical and television
product be expensed as incurred and that certain abandoned project costs, which
were previously capitalized as film costs, be expensed on an accelerated basis.
The adoption of SOP 00-2 resulted in a $390 million non-cash after-tax charge in
the quarter ended September 30, 2000. The charge reduced the carrying value of
film inventory and was recorded as a cumulative effect of a change in accounting
principle.
10. Recent Events
On June 20, 2000, the Company, Vivendi S.A. (Vivendi) and Canal Plus S.A.
(Canal+) announced that they had entered into a merger agreement and related
agreements providing for a strategic business combination among the three
companies. The combined entity will be named Vivendi Universal. The merger is
expected to close by the end of the calendar year and is subject to customary
closing conditions, including shareholder approval. There is no assurance that
such conditions will be satisfied.
As part of Vivendi Universal's overall strategy after completion of the proposed
merger transactions, Seagram has commenced a process intended to lead to the
sale of the spirits and wine business.
In connection with the proposed strategic business combination, Seagram and JES
have commenced cash tender offers and consent solicitations for certain of their
outstanding debt securities and intend to commence cash tender offers for
certain of their other outstanding debt securities. These debt securities would
otherwise mature between April 2001 and December 2028. The tender offers that
have already commenced have an aggregate principal amount of approximately $5.6
billion. They are conditioned upon, among other things, the completion of the
combination.
We understand that Vivendi is arranging certain bridge financing facilities
with various financial institutions to provide funding to Seagram and JES
for the tender offers and consent solicitations. We understand that Vivendi
intends to repay amounts drawn under these bridge financing facilities from
the proceeds of the sale of the spirits and wine business.
9
U.S. GAAP BASIS
<PAGE> 12
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
COMPARABILITY
The discussion presented below includes an analysis of total Seagram and
business segment results prepared in accordance with U.S. generally accepted
accounting principles (GAAP), which conforms in all material respects to
Canadian GAAP. The supplemental financial data includes modified EBITDA
(EBITDA). As defined by Seagram, EBITDA consists of operating earnings (losses)
before depreciation, amortization and corporate expenses from consolidated
companies. Because of the significant assets and goodwill associated with our
acquisitions, we believe EBITDA is an appropriate measure of operating
performance. However, you should note that EBITDA is not a substitute for
operating income, net income, cash flows and other measures of financial
performance as defined by GAAP and may be defined differently by other
companies. Investments in companies that are not consolidated with the results
of Seagram are reported as "equity earnings from unconsolidated companies". This
discussion includes, as supplemental financial data, information about our share
of the results of revenues and EBITDA related to these investments.
Management's discussion and analysis of our results of operations and liquidity
should be read in conjunction with the accompanying financial statements, as
well as the consolidated financial statements and related notes in the Company's
Form 10-K for the fiscal year ended June 30, 2000, as amended.
10
<PAGE> 13
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
Quarter Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
REVENUES $ 3,539 $ 3,643
======= =======
OPERATING INCOME 172 72
Interest, net and other expense 160 161
Gain on sale of businesses -- 98
Provision for income taxes 5 110
Minority interest 6 4
Equity earnings from unconsolidated companies 20 65
------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS 21 (40)
Cumulative effect of change in accounting principle, after tax (390) (84)
------- -------
NET LOSS $ (369) $ (124)
======= =======
LOSS PER SHARE - BASIC
Income (loss) from continuing operations $ 0.05 $ (0.09)
Cumulative effect of accounting change (0.89) (0.20)
------- -------
NET LOSS $ (0.84) $ (0.29)
======= =======
LOSS PER SHARE - DILUTED
Income (loss) from continuing operations $ 0.05 $ (0.09)
Cumulative effect of accounting change (0.88) (0.20)
------- -------
NET LOSS $ (0.83) $ (0.29)
======= =======
Net cash (used for) provided by operating activities $ (135) $ 38
Net cash (used for) provided by investing activities $ (238) $ 93
Net cash used for financing activities $ (206) $ (244)
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 3,539 $ 3,643
Unconsolidated companies 682 639
------- -------
$ 4,221 $ 4,282
======= =======
EBITDA
Consolidated companies $ 466 $ 352
Unconsolidated companies 144 142
------- -------
610 494
Adjustment for unconsolidated companies (144) (142)
Depreciation and amortization (269) (268)
Corporate (25) (12)
------- -------
OPERATING INCOME $ 172 $ 72
======= =======
</TABLE>
11
<PAGE> 14
Revenues decreased three percent in the quarter due the impact of unfavorable
foreign currency exchange and divested operations in our music and spirits and
wine business segments. On a constant U.S. dollar basis and excluding divested
operations, revenues would have increased two percent. Operating income more
than doubled to $172 million and EBITDA from consolidated companies increased 32
percent (37 percent on a constant U.S. dollar basis) to $466 million. These
increases reflect the positive performance of all our business segments.
Net income from continuing operations of $21 million or $0.05 per share (basic
and diluted) was earned in the quarter, compared to a net loss from continuing
operations of $40 million or $0.09 per share (basic and diluted) in the prior
year, which included a $55 million after-tax gain on the sale of our concert
operations.
A net loss of $369 million or $0.84 per basic share and $0.83 per diluted share
was incurred in the quarter, which included a $390 million non-cash after-tax
charge as a result of a cumulative effect of a change in accounting principle
related to film accounting. The prior year net loss of $124 million or $0.29 per
share (basic and diluted) included an $84 million non-cash after-tax charge as a
result of a cumulative effect of a change in accounting principle related to
start-up activities.
BUSINESS SEGMENT RESULTS
MUSIC
<TABLE>
<CAPTION>
Quarter Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
REVENUES $ 1,378 $ 1,412
OPERATING INCOME (LOSS) $ 23 $ (4)
Equity earnings (losses) from unconsolidated companies $ (3) $ 3
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 1,378 $ 1,412
Unconsolidated companies 5 27
------- -------
$ 1,383 $ 1,439
======= =======
EBITDA
Consolidated companies $ 210 $ 185
Unconsolidated companies (2) 3
------- -------
208 188
Adjustment for unconsolidated companies 2 (3)
Depreciation and amortization (187) (189)
------- -------
OPERATING INCOME (LOSS) $ 23 $ (4)
======= =======
</TABLE>
12
<PAGE> 15
CONSOLIDATED OPERATIONS
Revenues declined two percent in the quarter primarily due to the sale of our
concert operations in the first quarter of last year and the impact of
unfavorable foreign exchange. Excluding the impact of these items, revenues
would have increased six percent. Of the $1,378 million total revenues, 49
percent were generated in North America, the European and African markets
accounted for 34 percent, Asia Pacific contributed 13 percent and Latin America
generated the remaining four percent. Operating income of $23 million was earned
in the quarter compared with an operating loss of $4 million in the prior year
and EBITDA increased 14 percent (21 percent on a constant U.S. dollar basis).
The improvements in operating income and EBITDA reflect higher volumes in North
America, strong performances in the United Kingdom and Japan and worldwide cost
savings achieved from the integration of PolyGram, partially offset by
investments in our e-business initiatives. We continue to hold strong chart
positions in all music genres and major markets, including the United States,
United Kingdom, France, Germany and Brazil. Internationally, we continue to
maintain a strong local repertoire presence. Major album sales in the quarter
included those by Eminem, Nelly, 98 Degrees, Bon Jovi and the compilation Now
That's What I Call Music, among others.
UNCONSOLIDATED OPERATIONS
In the current quarter, unconsolidated companies principally include our
e-business initiatives. In the prior year quarter, the unconsolidated companies
also included certain concert operations that were sold in September 1999.
FILMED ENTERTAINMENT
<TABLE>
<CAPTION>
Quarter Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
REVENUES $ 787 $ 873
OPERATING LOSS $ (1) $ (59)
Equity earnings from unconsolidated companies $ 29 $ 63
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 787 $ 873
Unconsolidated companies 497 441
------- -------
$ 1,284 $ 1,314
======= =======
EBITDA
Consolidated companies $ 23 $ (38)
Unconsolidated companies 99 97
------- -------
122 59
Adjustment for unconsolidated companies (99) (97)
Depreciation and amortization (24) (21)
------- -------
OPERATING LOSS $ (1) $ (59)
======= =======
</TABLE>
13
<PAGE> 16
CONSOLIDATED OPERATIONS
Revenues decreased 10 percent in the quarter primarily due to lower motion
picture revenues compared to the prior year, which included significant revenues
from the worldwide theatrical release of Notting Hill and the international
theatrical and domestic DVD/video release of The Mummy. EBITDA improved $61
million and the operating loss of $1 million was a $58 million improvement over
the prior year. These results are primarily due to the solid performance of the
motion picture business, which returned a positive contribution this quarter.
The strong domestic box office performance of Nutty Professor II: the Klumps
and Bring it On, combined with the successful foreign theatrical release of
Gladiator and strong DVD and video sales of The Hurricane, Erin Brockovich and
Jaws Anniversary Collector's Edition, resulted in improved earnings. In the
prior year, positive contribution from Notting Hill and The Mummy was more than
offset by the performance of Mystery Men, For Love of The Game and Dudley Do
Right. Additionally, programs designed to manage production, marketing,
participation and overhead and development costs have led to improved filmed
entertainment results. Included in EBITDA and operating income are the costs of
our continued investment in the international network business, where the
creation of new digital delivery technologies in many markets have created
significant growth opportunities. International television networks not only
provide a dual revenue stream from advertising and subscription but also provide
a captive outlet for our extensive film and television libraries and new
content.
UNCONSOLIDATED OPERATIONS
Unconsolidated companies principally include USANi LLC, Loews Cineplex
Entertainment Corporation, United Cinemas International Multiplex B.V. and
Cinema International Corporation. Revenues from unconsolidated companies
increased 13 percent in the quarter and EBITDA increased two percent, primarily
reflecting improved operating results at USANi LLC offset by disappointing
results at Loews Cineplex. Equity earnings from unconsolidated companies
declined over 50 percent due to a current quarter charge by Loews Cineplex
related to the planned closure of under-performing theatres and a non-recurring
gain reported by USANi on the sale of securities in the prior year.
Loews is currently working with participants of their capital structure to
identify and implement a financial plan addressing negative liquidity issues
they are facing as a result of motion picture exhibition industry-wide
pressures. If a consensual solution cannot be achieved, Loews faces the prospect
of a restructuring under one of several options, which could, under certain
circumstances, impact our valuation of this investment.
14
<PAGE> 17
RECREATION AND OTHER
<TABLE>
<CAPTION>
Quarter Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
REVENUES $ 230 $ 209
OPERATING INCOME $ 30 $ 24
Equity losses from unconsolidated companies $ (5) $ (1)
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 230 $ 209
Unconsolidated companies 146 139
----- -----
$ 376 $ 348
===== =====
EBITDA
Consolidated companies $ 56 $ 49
Unconsolidated companies 46 40
----- -----
102 89
Adjustment for unconsolidated companies (46) (40)
Depreciation and amortization (26) (25)
----- -----
OPERATING INCOME $ 30 $ 24
===== =====
</TABLE>
CONSOLIDATED OPERATIONS
Revenues increased 10 percent, EBITDA increased 14 percent and operating income
increased 25 percent in the quarter. These improvements primarily reflect growth
at Universal City Hollywood resulting from the expansion of CityWalk and a six
percent increase in paid attendance, combined with fee income associated with
milestones in the construction of Universal Japan, partially offset by higher
marketing and operating expenses and lower corporate sponsorship revenues.
UNCONSOLIDATED OPERATIONS
Unconsolidated companies principally include Universal Orlando, Universal
Studios Japan, Universal Studios Port Aventura and SEGA GameWorks. Revenues from
unconsolidated companies increased five percent and EBITDA increased 15 percent
primarily reflecting growth at Universal Orlando. At Universal Orlando, EBITDA
increased 13 percent driven by a four percent increase in paid attendance, lower
marketing costs and a full quarter of results of the Portofino Bay Hotel (a
Loews hotel), which opened in September 1999. Equity earnings from
unconsolidated companies declined from a loss of $1 million in the first quarter
of last year to a loss of $5 million this year.
15
<PAGE> 18
SPIRITS AND WINE
<TABLE>
<CAPTION>
Quarter Ended September 30,
U.S. dollars in millions 2000 1999
------------------------ ---- ----
<S> <C> <C>
REVENUES $ 1,144 $ 1,149
OPERATING INCOME $ 147 $ 125
Equity losses from unconsolidated companies $ (1) $ --
SUPPLEMENTAL FINANCIAL DATA:
REVENUES
Consolidated companies $ 1,144 $ 1,149
Unconsolidated companies 34 32
------- -------
$ 1,178 $ 1,181
======= =======
EBITDA
Consolidated companies $ 177 $ 156
Unconsolidated companies 1 2
------- -------
178 158
Adjustment for unconsolidated companies (1) (2)
Depreciation and amortization (30) (31)
------- -------
OPERATING INCOME $ 147 $ 125
======= =======
</TABLE>
CONSOLIDATED OPERATIONS
Revenues declined less than one percent in the quarter primarily due to the
impact of unfavorable foreign exchange and divested operations. On a constant
U.S. dollar basis and excluding divested operations, revenues would have
increased five percent. EBITDA increased 13 percent (15 percent on a constant
U.S. dollar basis) and operating income increased 18 percent (26 percent on a
constant U.S. dollar basis). The improved results were driven by continued
momentum in the global spirits and wine business with growth across all regions,
improved product mix and reduced overheads. In North America the continued
strong performance of key brands, including Captain Morgan and ABSOLUT VODKA
(owned by V&S Vin & Sprit AB), contributed to the growth. Europe benefited from
growth of Cacique and 100 Pipers in Spain and Chivas Regal and Martell territory
wide. The continued economic recovery in Asia, specifically Korea and Greater
China, facilitated improvement in that region. In Latin America, growth was
driven by volume/margin improvements in Central America coupled with a strong
start for Don Julio, partially offset by weakness in Argentina and Mexico. Of
the $1,144 million total spirits and wine revenues, 51 percent were generated in
North America, the European and African markets accounted for 25 percent, Asia
Pacific contributed 16 percent and Latin America generated the remaining eight
percent. Total spirits and wine case volumes, including unconsolidated
companies, decreased three percent in the quarter largely due to lower bulk
whiskey sales and the impact of divested operations. However, volumes of several
key brands increased year-on-year. Globally, volumes for Captain Morgan, Chivas
Regal, Martell and ABSOLUT VODKA increased 20, 17, 16 and seven percent,
respectively. Case volumes of Crown Royal declined nine percent primarily due to
a pre-price increase buy-in last year.
In the quarter, cost of goods sold as a percentage of revenues decreased to 52.6
percent from 54.7 percent in the prior year quarter primarily due to improved
mix (consistent with our premium brand strategy). Selling, general and
16
<PAGE> 19
administrative expenses as a percentage of revenues increased to 34.6 percent
from 33.3 percent partially due to the significant increase in brand expense. On
a constant U.S. dollar basis, both global marketing expense and brand equity
build increased in excess of 30 percent in the quarter as we continued to invest
for future growth by supporting our brands in key markets.
UNCONSOLIDATED OPERATIONS
There is only one spirits and wine unconsolidated company, Kirin-Seagram Limited
in Japan. The results of Kirin-Seagram are comparable year-on-year.
OTHER INCOME, EXPENSES AND TAXES
Corporate expenses were $25 million for the quarter, double that of the prior
year, primarily due to the change in the market value of the Company's shares
which impacts certain stock-based compensation. Interest, net and other expense
remained essentially unchanged at $160 million. Our quarterly tax provision is
calculated based on an annual effective tax rate, excluding the impact of
certain transactions that occurred during the period. Our effective annual rate
is expected to approximate 35 percent, excluding the impact of non-deductible
amortization associated with our acquisitions.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
During the quarter we recorded an $390 million non-cash after-tax charge related
to the cumulative effect of a change in accounting principle. The change relates
to film accounting whereby advertising costs for theatrical and television
product be expensed as incurred and certain abandoned project costs, which were
previously capitalized as film costs, be expensed on an accelerated basis. The
charge reduced the carrying value of film inventory.
LIQUIDITY, CAPITAL RESOURCES AND MARKET RISK
Financial Position -- Current assets of $7.1 billion at September 30, 2000 were
$534 million lower than at June 30, 2000, primarily due to a reduction in cash
and cash equivalents. Current liabilities decreased $303 million to $6.4 billion
at September 30, 2000, primarily due to payments of participation rights.
Shareholders' equity was $11.6 billion at September 30, 2000, $592 million below
June 30, 2000. Our total long- and short-term debt, net of cash and short-term
investments, increased to $7.3 billion at September 30, 2000 from $6.6 billion
at June 30, 2000. Our ratio of net debt to total capitalization (including
minority interest) increased to 34 percent from 32 percent at June 30, 2000.
Cash Flows from Operating Activities -- Net cash used for operating activities
totaled $135 million in the quarter, an increase of $173 million from the first
quarter of fiscal 2000. Contributing to this unfavorable variance were higher
working capital requirements partially offset by an increase in income from
continuing operations.
Cash Flows from Investing Activities -- Net cash used for investing activities
was $238 million in the quarter comprised of capital expenditures of $66 million
and other investments of $172 million. The capital expenditures by business
segment were music $31 million, filmed entertainment $13 million, recreation and
other $8 million and spirits and wine $14 million. In the first quarter of
fiscal 2000, the net cash provided by investing activities was $93 million
comprised of $310 million proceeds from the sale of our Champagne operations,
$190 million proceeds from the sale of Universal Concerts Inc., partially offset
by an additional $242 million investment in USANi LLC, capital expenditures of
$120 million and other investments of $45 million. The capital expenditures by
business segment were music $52 million, filmed entertainment $19 million,
recreation and other $14 million, and spirits and wine $35 million.
17
<PAGE> 20
Cash Flows from Financing Activities -- Financing activities in the quarter used
$206 million. A $51 million repayment of long-term debt, dividend payments of
$73 million and a $114 million decrease in other financing activities were
partially offset by a $4 million issuance of long-term debt and a $28 million
issuance of shares upon exercise of stock options and conversion of LYONs. In
the first quarter of fiscal 2000, financing activities used $244 million
primarily due to a $273 million decrease in short-term borrowings, a $4 million
repayment of long-term debt and dividend payments of $72 million, partially
offset by a $75 million supplemental issuance of Adjustable Conversion-rate
Equity Security Units and a $30 million issuance of shares upon exercise of
stock options and conversion of LYONs.
Working Capital -- Our working capital position is reinforced by available
credit facilities of approximately $5.5 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.
International Exchange -- We employ a variance/covariance approach in our
calculation of Value at Risk (VaR), which measures the potential losses in fair
value or earnings that could arise from changes in market conditions, using a 95
percent confidence level and assuming a one-day holding period. The VaR, which
is the potential loss in fair value, attributable to those interest rate
sensitive exposures associated with our exposure to interest rates at September
30, 2000 was $24 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 $6 million at September
30, 2000. These exposures include intercompany trade accounts, service fees,
intercompany loans and third party debt. We are subject to other foreign
exchange market risk exposure as a result of non-financial instrument
anticipated foreign currency cash flows which are difficult to reasonably
predict, and have therefore not been included in the Company's VaR calculation.
In connection with the proposed strategic business combination among Seagram,
Vivendi and Canal+, Seagram and JES intend to tender for all of their
outstanding public debt securities which would otherwise mature between April
2001 and December 2028. The debt securities, including the subordinated
deferrable notes which are part of the Adjustable Conversion-rate Equity
Security Units (ACES) issued by JES and Seagram, have an aggregate principal
amount of approximately U.S.$7.175 billion. Seagram and JES commenced tender
offers on October 31, 2000 for all of the debt securities, except for the
tender offers for JES's Senior Quarterly Income Debt Securities and the
subordinated deferrable notes which are part of the ACES units, which are
expected to be commenced at a later date. Seagram and JES anticipate that the
tender offers already commenced, which relate to approximately U.S.$5.6 billion
principal amount of debt securities, will close several business days after
completion of the merger transactions. Consummation of these tender offers is
conditioned upon, among other things, completion of the merger transactions and
receipt of consents required to adopt proposed amendments to the debt
securities and the indentures pursuant to which they were issued. We understand
that Vivendi is arranging certain bridge financing facilities with various
financial institutions to provide funding to Seagram and JES for the tender
offers and consent solicitations. We understand that Vivendi intends to repay
amounts drawn under these bridge financing facilities from the proceeds of the
sale of the spirits and wine business.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This report contains statements that are "forward-looking statements," in that
they include statements regarding the intent, belief or current expectations of
our management with respect to our future operating performance. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. All statements that
express forecasts, expectations and projections with respect to future matters,
including the launching or prospective development of new business initiatives
and products, anticipated music or motion picture releases, internet or theme
park projects, 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
18
<PAGE> 21
performance. Actual results may differ materially from our forward-looking
statements as a result of certain risks and uncertainties, many of which are
outside of our control, including but not limited to:
- Changes in global and localized economic and political conditions, which
may affect attendance and spending at our theme parks, purchases of our
consumer products and the performance of our filmed entertainment
operations.
- Changes in financial and equity markets, including significant interest
rate and foreign currency rate fluctuations, which may affect our access
to, or increase the cost of financing for our operations and investments.
- Increased competitive product and pricing pressures and unanticipated
actions by competitors that could impact our market share, increase
expenses and hinder our growth potential.
- Changes in consumer preferences and tastes, which may affect all our
business segments.
- Adverse weather conditions or natural disasters, such as hurricanes and
earthquakes, which may, among other things, impair performance at our theme
parks in California, Florida and Spain.
- Legal and regulatory developments, including changes in accounting
standards, taxation requirements, such as the impact of excise tax
increases with respect to the spirits and wine business, and environmental
laws.
- Technological developments that may affect the distribution of our products
or create new risks to our ability to protect our intellectual property
rights.
- The uncertainties of litigation and other risks and uncertainties detailed
from time to time in our filings with the Securities and Exchange
Commission.
19
<PAGE> 22
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibit Index filed with this Form 10-Q is on page 22.
(b) Current Reports on Form 8-K
1. A Current Report on Form 8-K dated August 17, 2000 was filed to report
under Item 5 and file under Item 7 Seagram's consolidated financial
statements for the fiscal year ended June 30, 2000 together with
management's discussion and analysis of financial condition and results
of operations.
2. A Current Report on Form 8-K dated October 31, 2000 was filed to
report under Item 5 and file under Item 7 a press release announcing
the commencement of cash tender offers and consent solicitations by
Seagram and Joseph E. Seagram & Sons, Inc. for certain of their
outstanding debt securities.
3. A Current Report on Form 8-K dated November 1, 2000 was filed to
report under Item 5 and file under Item 7 a press release announcing
Seagram's earnings for the first quarter of fiscal 2001.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE SEAGRAM COMPANY LTD.
------------------------
(Registrant)
By: /s/ Frank Mergenthaler
-------------------------------
Frank Mergenthaler
Senior Vice President of Finance
and Chief Accounting Officer
(Principal Accounting Officer)
Dated: November 13, 2000
21
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
12 (a) Computation of Ratio of Earnings to Fixed Charges
- The Seagram Company Ltd.
12 (b) Computation of Ratio of Earnings to Fixed Charges
- Joseph E. Seagram & Sons, Inc.
27 Financial Data Schedule
</TABLE>
22
