<PAGE> 1
Exhibit 7
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 Nine Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 3,375 $ 3,215 $ 11,988 $ 8,789
Cost of revenues 2,009 1,991 6,940 5,265
Selling, general and administrative expenses 1,367 1,387 4,470 3,322
Restructuring charge (credit) -- -- (59) 405
--------- --------- --------- ---------
Operating income (loss) (1) (163) 637 (203)
Interest, net and other expense 164 184 487 301
Gain on sale of businesses -- -- 98 --
--------- --------- --------- ---------
(165) (347) 248 (504)
Provision (benefit) for income taxes 114 (93) 75 (18)
Minority interest (3) (10) 17 (27)
Equity earnings from unconsolidated companies 11 45 96 129
--------- --------- --------- ---------
Income (loss) from continuing operations (265) (199) 252 (330)
Loss from discontinued Tropicana operations, after tax -- -- -- (3)
Gain on sale of discontinued Tropicana operations, after tax -- -- -- 1,072
Cumulative effect of change in accounting principle, after tax -- -- (84) --
--------- --------- --------- ---------
Net income (loss) (265) (199) 168 739
Retained earnings at the beginning of period 8,997 9,091 8,707 8,268
Dividends paid (72) (66) (215) (181)
--------- --------- --------- ---------
Retained earnings at end of period $ 8,660 $ 8,826 $ 8,660 $ 8,826
========= ========= ========= =========
Basic earnings (loss) per share $ (0.61) $ (0.50) $ 0.39 $ 2.00
========= ========= ========= =========
Diluted earnings (loss) per share $ (0.61) $ (0.50) $ 0.38 $ 2.00
========= ========= ========= =========
Dividends paid per share $ 0.165 $ 0.165 $ 0.495 $ 0.495
========= ========= ========= =========
Weighted average shares outstanding (thousands) 435,220 399,427 433,865 368,827
Dilutive potential common shares (thousands) -- -- 6,815 --
--------- --------- --------- ---------
Adjusted weighted average shares outstanding (thousands) 435,220 399,427 440,680 368,827
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
1 U.S. GAAP BASIS
<PAGE> 2
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(United States dollars in millions)
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
--------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,523 $ 1,533
Receivables, net of allowances 2,600 2,985
Inventories 2,449 2,627
Other current assets 1,576 1,736
-------- --------
TOTAL CURRENT ASSETS 8,148 8,881
Investments 5,727 5,663
Film costs, net of amortization 1,044 1,251
Music catalogs, artists contracts and advances 2,904 3,348
Property, plant and equipment, net 3,050 3,158
Goodwill and other intangible assets 11,644 11,871
Other assets 1,123 839
-------- --------
$ 33,640 $ 35,011
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings and current portion of long-term debt $ 570 $ 1,053
Payables and accrued liabilities 4,228 4,808
Accrued royalties and participations 2,224 2,285
-------- --------
TOTAL CURRENT LIABILITIES 7,022 8,146
Long-term debt 7,561 7,468
Accrued royalties and participations 538 434
Deferred income taxes 2,619 2,698
Other liabilities 1,401 1,499
Minority interest 1,874 1,878
-------- --------
TOTAL LIABILITIES 21,015 22,123
-------- --------
Shareholders' Equity
Shares without par value 4,730 4,575
Retained earnings 8,660 8,707
Accumulated other comprehensive income (765) (394)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 12,625 12,888
-------- --------
$ 33,640 $ 35,011
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2 U.S. GAAP BASIS
<PAGE> 3
THE SEAGRAM COMPANY LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(United States dollars in millions)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations $ 252 $ (330)
Adjustments to reconcile income (loss) from continuing operations to
net cash provided:
Depreciation and amortization of assets 528 348
Amortization of goodwill 259 158
Gain on sale of businesses (98) --
Minority interest in income (loss) of subsidiaries 17 (27)
Equity earnings from unconsolidated companies in excess
of dividends received (20) (57)
Deferred income taxes (36) 35
Other 25 36
Changes in assets and liabilities, net of effect of acquisitions
and dispositions:
Receivables, net of allowances 23 979
Inventories (88) (104)
Other current assets 171 (19)
Music catalogs, artists contracts and advances 54 114
Payables and accrued liabilities (327) (337)
Other liabilities (146) (409)
------- -------
362 717
------- -------
Net cash provided by operating activities 614 387
------- -------
INVESTING ACTIVITIES
Acquisition of PolyGram -- (8,607)
Sale of Tropicana -- 3,288
Sale of Champagne Operations 310 --
Sale of Universal Concerts 190 --
Investment in USANi LLC (242) (231)
Capital Expenditures (326) (314)
Other (20) 194
------- -------
Net cash used for investing activities (88) (5,670)
------- -------
FINANCING ACTIVITIES
Dividends paid (215) (181)
Issuance of shares upon exercise of stock options and conversion
of LYONS 152 243
Issuance of Adjustable Conversion-rate Equity Security Units 75 --
Issuance of long-term debt 13 4,845
Repayment of long-term debt (90) (226)
(Decrease) increase in short-term borrowings and current
portion of long-term debt (471) 401
------- -------
Net cash (used for) provided by financing activities (536) 5,082
------- -------
Net cash used for continuing operations (10) (201)
------- -------
Net cash used for discontinued operations -- (3)
------- -------
Net decrease in cash and cash equivalents (10) (204)
Cash and cash equivalents at beginning of period 1,533 1,174
------- -------
Cash and cash equivalents at end of period $ 1,523 $ 970
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3 U.S. GAAP BASIS
<PAGE> 4
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
Annual Report on Form 10-K for the fiscal year ended June 30, 1999 (the Form
10-K). 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
three and nine months are not necessarily indicative of those expected for the
fiscal year.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
2. Pro Forma Financial Information
The unaudited condensed pro forma income statement data presented below assume
the PolyGram acquisition and the sale of Tropicana occurred prior to the 1999
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 prior to the 1999 fiscal year, nor is it necessarily
indicative of future operating results of the Company.
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
2000 1999
------- -------
U. S. dollars in millions, except per share amounts Actual Pro forma
<S> <C> <C>
Revenues $11,988 $11,821
Net income (loss) $ 168 $ (155)
Earnings (loss) per share:
Basic $ 0.39 $ (0.39)
Diluted $ 0.38 $ (0.39)
</TABLE>
4 U.S. GAAP BASIS
<PAGE> 5
3. Significant Transactions
Acquisition of PolyGram
During the second quarter, the Company completed its purchase price study
related to the purchase 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 follows:
<TABLE>
<S> <C>
U. S. dollars in millions
Identifiable intangible assets $ 2,774
Goodwill 9,616
Accrual for exit activities (510)
All other, net (1,080)
--------
$ 10,800
========
</TABLE>
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 consisted principally of facility elimination costs, contract
terminations and the severance or relocation of approximately 1,700 employees.
As at March 31, 2000, approximately $230 million of the accrual had been
utilized and approximately 1,665 employees had separated from the Company.
Disposition of Champagne Operations
On July 2, 1999, the Company completed the sale of its Mumm and Perrier-Jouet
Champagne operations for approximately $310 million in cash. The sale price
approximated book value and therefore no gain or loss was recognized. Through
agreements with the purchaser, Seagram has retained global distribution rights
for Mumm and Perrier-Jouet Champagnes for a ten-year period following the sale.
Disposition of Concert Operations
On September 10, 1999, the Company completed the sale of Universal Concerts,
Inc. for proceeds of approximately $190 million. This transaction resulted in a
pre-tax gain of $98 million ($55 million after tax).
4. 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 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 were:
<TABLE>
<CAPTION>
Filmed
U. S. dollars in 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>
5 U.S. GAAP BASIS
<PAGE> 6
The severance and other employee-related costs provided 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 provided 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 were comprised primarily
of artists' contracts, distribution contracts, story property commitments and
filmed entertainment term deals. Many restructuring activities are complete or
near completion. Due to favorable settlement of certain contractual and employee
severance obligations, $59 million of the original restructuring accrual was
credited to income in the second quarter. The utilization of the restructuring
charge through March 31, 2000 is as follows:
<TABLE>
<CAPTION>
Original Restructuring Utilized Balance at
U. S. dollars in millions Accrual Credit Cash Non-cash March 31, 2000
-------- ------------- ------- -------- --------------
<S> <C> <C> <C> <C> <C>
Severance and other employee-related costs $ 126 $ (12) $ (71) $ (3) $ 40
Facilities and labels 128 (35) (9) (17) 67
Contract termination and other costs 151 (12) (74) (12) 53
------- ------- ------- ------- ------
$ 405 $ (59) $ (154) $ (32) $ 160
======= ======= ======= ======= ======
</TABLE>
As of March 31, 2000, essentially 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. The Company anticipates that
all restructuring activities will be substantially completed by June 30, 2000.
5. Investment in DuPont and USAi
At March 31, 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 $871 million at March 31,
2000. The underlying historical book value of the DuPont shares is $187 million.
At March 31, 2000, subsequent to a USA Networks, Inc. (USAi) two-for-one stock
split on February 24, 2000, the Company owned 18.2 million shares of the
outstanding common stock of USAi. The investment, which is accounted for at
market value ($410 million at March 31, 2000), has an underlying cost of $211
million. At March 31, 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.
6 U.S. GAAP BASIS
<PAGE> 7
6. Supplementary Financial Statement Information
<TABLE>
<CAPTION>
March 31, June 30,
U. S. dollars in millions 2000 1999
--------- --------
<S> <C> <C>
Inventories
Beverages $ 2,046 $ 2,233
Materials, supplies and other 403 394
------- -------
$ 2,449 $ 2,627
======= =======
Property, plant and equipment, net
Property, plant and equipment, at cost $ 4,546 $ 4,485
Accumulated depreciation (1,496) (1,327)
------- -------
$ 3,050 $ 3,158
======= =======
</TABLE>
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U. S. dollars in millions 2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Excise taxes (included in revenues and cost of revenues) $ 161 $ 183 $ 684 $ 648
----------- ----------- ----------- -----------
</TABLE>
7. Comprehensive Income (Loss)
The components of the Company's total comprehensive income (loss) were as
follows:
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U. S. dollars in millions 2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income (loss) $(265) $(199) $ 168 $ 739
Currency translation adjustments (221) (49) (240) 69
Unrealized holding gain (loss) in equity securities, net of tax (211) 67 (131) (128)
----- ----- ----- -----
Total comprehensive income (loss) $(697) $(181) $(203) $ 680
===== ===== ===== =====
</TABLE>
7 U.S. GAAP BASIS
<PAGE> 8
8. Long-Term Debt and Debt Guarantees
Joseph E. Seagram & Sons, Inc. (JES), the Company's principal U.S. spirits and
wine subsidiary, has outstanding debt securities guaranteed by the Company. JES
has issued Liquid Yield Option Notes (LYONs), which are zero coupon notes with
no interest payments due until maturity on March 5, 2006. Each $1,000 face
amount LYON may be converted, at the option of the holder, into 18.44 of the
Company's common shares (196,869 shares at March 31, 2000). The Company has
guaranteed the LYONs on a subordinated basis.
In addition, the Company has unconditionally guaranteed JES's 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.
<TABLE>
<CAPTION>
Quarter Nine Months
Ended March 31, Ended March 31,
U. S. dollars in millions 2000 1999 2000 1999
---- ----- ------ ------
<S> <C> <C> <C> <C>
Revenues $545 $496 $1,836 $1,679
Cost of revenues $335 $304 $1,140 $1,047
Net income (loss) $ 5 $(45) $ 37 $ 13
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
------- -------
<S> <C> <C>
Current assets $ 2,043 $ 1,674
Noncurrent assets 18,212 18,602
------- -------
$20,255 $20,276
======= =======
Current liabilities $ 712 $ 1,099
Noncurrent liabilities 10,514 10,014
Shareholders' equity 9,029 9,163
------- -------
$20,255 $20,276
======= =======
</TABLE>
9. Earnings Per Share and Common Shares
At March 31, 2000, 58,345,127 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 March 31, 2000 -- 435,220,427 and
March 31, 1999 -- 399,427,460. In the quarters ended March 31, 2000 and 1999,
average shares of 8,477,179 and 6,534,893, respectively, were not included in
the computation of diluted net income per share because to do so would have been
anti-dilutive.
8 U.S. GAAP BASIS
<PAGE> 9
In the quarter ended March 31, 2000, the Company issued 2,758,213 shares upon
the exercise of employee stock options, deferred compensation and the conversion
of LYONs.
10. Business Segment Information
The Company's four reportable segments are music, filmed entertainment,
recreation 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
Company evaluates 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.
Business Segment Data
<TABLE>
<CAPTION>
Filmed Spirits
U. S. dollars in millions Music Entertainment Recreation and Wine Corporate Total
-------- ------------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31, 2000
Revenues $ 1,358 $ 877 $ 166 $ 974 $ -- $ 3,375
EBITDA $ 151 $ (8) $ 34 $ 108 $ -- $ 285
Depreciation and amortization (174) (24) (25) (31) (2) (256)
Corporate expenses -- -- -- -- (30) (30)
-------- --------- --------- -------- -------- --------
Operating income (loss) $ (23) $ (32) $ 9 $ 77 $ (32) $ (1)
======== ========= ========= ======== ======== ========
Capital expenditures $ 55 $ 25 $ 24 $ 20 $ 4 $ 128
======== ========= ========= ======== ======== ========
Quarter Ended
March 31, 1999
Revenues $ 1,262 $ 786 $ 188 $ 979 $ -- $ 3,215
EBITDA $ 106 $ (97) $ 22 $ 104 $ -- $ 135
Depreciation and amortization (193) (18) (20) (35) (2) (268)
Corporate expenses -- -- -- -- (30) (30)
-------- --------- --------- -------- -------- --------
Operating income (loss) $ (87) $ (115) $ 2 $ 69 $ (32) $ (163)
======== ========= ========= ======== ======== ========
Capital expenditures $ 15 $ 28 $ 28 $ 27 $ -- $ 98
======== ========= ========= ======== ======== ========
</TABLE>
9 U.S. GAAP BASIS
<PAGE> 10
<TABLE>
<CAPTION>
Filmed Spirits
U. S. dollars in millions Music Entertainment Recreation and Wine Corporate Total
-------- ------------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Nine Months Ended
March 31, 2000
Revenues $ 4,806 $ 2,653 $ 648 $ 3,881 $ -- $ 11,988
EBITDA $ 801 $ (66) $ 128 $ 568 $ -- $ 1,431
Depreciation and amortization (536) (74) (75) (95) (7) (787)
Corporate expenses -- -- -- -- (66) (66)
Restructuring credit 40 19 -- -- -- 59
-------- --------- --------- --------- --------- --------
Operating income (loss) $ 305 $ (121) $ 53 $ 473 $ (73) $ 637
======== ========= ========= ========= ========= ========
Capital expenditures $ 144 $ 55 $ 54 $ 69 $ 4 $ 326
======== ========= ========= ========= ========= ========
Nine Months Ended
March 31, 1999
Revenues $ 2,409 $ 2,141 $ 618 $ 3,621 $ -- $ 8,789
EBITDA $ 208 $ (67) $ 92 $ 536 $ -- $ 769
Depreciation and amortization (288) (52) (61) (98) (7) (506)
Corporate expenses -- -- -- -- (61) (61)
Restructuring charge (313) (92) -- -- -- (405)
-------- --------- --------- --------- --------- --------
Operating income (loss) $ (393) $ (211) $ 31 $ 438 $ (68) $ (203)
======== ========= ========= ========= ========= ========
Capital expenditures $ 49 $ 79 $ 92 $ 94 $ -- $ 314
======== ========= ========= ========= ========= ========
</TABLE>
Geographic Data
The following table presents revenues by geographic area for the quarter and
nine months ended March 31, 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 Nine Months
Ended March 31, Ended March 31,
U. S. dollars in millions 2000 1999 2000 1999
------ ------- ------- ------
<S> <C> <C> <C> <C>
Revenues
United States $1,617 $1,504 $5,539 $4,297
United Kingdom 356 297 1,336 900
Canada 88 77 330 238
Other countries 1,314 1,337 4,783 3,354
------ ------ ------- ------
$3,375 $3,215 $11,988 $8,789
====== ====== ======= ======
</TABLE>
10 U.S. GAAP BASIS
<PAGE> 11
11. New Accounting Guidance
On July 1, 1999 the Company adopted the Accounting Standards Executive Committee
of the American Institute of Certified Public Accountants (AcSEC) Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities, which
required that costs of start-up activities be expensed as incurred. The adoption
of SOP 98-5 resulted in an $84 million after-tax charge in the nine months ended
March 31, 2000, which was recorded as a cumulative effect of a change in
accounting principle. The cumulative effect is principally related to costs
associated with the expansion of our recreation operations.
11 U.S. GAAP BASIS
